SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
September 30, 1998 2-96976-D
- - ----------------------- ------------------
DCI TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 84-1155041
--------------- -----------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
611 Access Road, Stratford, Connecticut 06615
-------------------------------------------------------------
(Address and zip code of principal executive offices)
(203) 380-0910
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Regulation SB of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
YES __X__ NO_____
Indicate the number of shares outstanding of each of the issuer/s classes
of common stock, as of the last practicable date:
Number of Shares Outstanding Class Date
- - ---------------------------- ------- ----------
21,657,435 Common Stock, November 16, 1998
$.0001 par value
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet September 30, 1998 3
Statements of Operations
Six Months Ended September 30, 1998 and 1997
Three Months Ended September 30, 1998 and 1997 4
Statements of Cash Flow
Six Months Ended September 30, 1998 and 1997 5
Notes to Unaudited Financial Statements
September 30, 1998 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II
Other Information 15
Signatures 17
2
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
September 30
ASSETS 1998
Current Assets:
Cash $2,696,536
Restricted cash 34,475
Investments 43,675
Accounts receivable 4,699,374
Receivable from SmarTalk 650,000
Prepaid expenses 140,700
Inventory 1,178,059
---------
Total Current Assets 9,442,819
Fixed Assets 2,057,780
Less: Accumulated depreciation 317,377
---------
Net Fixed Assets 1,740,403
---------
Accounts receivable 919,171
Deferred costs 713,623
Deposits 94,661
Other investments 61,256
Other Assets
- costs in excess of
net assets acquired:
CardCall International 3,870,249
Muller Media 1,712,403
CyberFax 1,033,975
Travel Source 86,379
----------
6,703,006
Less: Accumulated amortization 401,500
----------
Net other assets 6,301,506
----------
Total Assets $19,273,439
===========
3
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $5,234,607
Preferred stock dividend 635,225
Deferred Revenue 757,304
Due to shareholders 137,939
Income Taxes Payable 152,100
----------
Total Current Liabilities 6,917,175
Long term accounts payable 666,000
Long Term Debt 136,495
Deferred Income Taxes 367,810
Due to joint venture partner 677,076
---------
Total Liabilities 8,764,556
----------
Minority interests 14,400
Redeemable, convertible preferred stock,
$1,000 par and redemption value, 2,000,000
shares authorized, 2,510 shares issued and
outstanding 2,510,050
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.0001 par value,
500,000,000 shares authorized,
21,677,802 shares issued and outstanding 2,168
Paid in capital 13,146,194
Treasury Stock (1,155,000 shares at cost) (4,104,378)
Currency translation adjustment ( 4,949)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) (1,054,602)
---------
Total Shareholders' Equity 7,984,433
----------
Total Liabilities and Shareholders' Equity $19,273,439
===========
See Accompanying Notes to Consolidated Financial Statements
3(a)
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
Travel Service Sales $ 286,760 $ 280,987 $ 617,822 $ 579,400
Product Sales 10,701,318 2,939,499 16,395,098 5,267,658
---------- ---------- ---------- ----------
Net Sales 10,988,078 3,220,486 17,012,920 5,847,058
Cost of Sales - Travel 280,055 240,758 564,949 521,791
- Product 9,571,269 2,509,190 14,604,700 4,523,636
---------- --------- --------- ----------
Gross Profit 1,136,754 470,538 1,843,271 801,631
Selling, General &
Admin. Expenses 825,600 355,982 1,302,256 543,587
Salaries and
Compensation 650,366 453,515 1,193,124 580,766
Amortization &
Depreciation 98,434 6,780 265,548 16,463
Professional and
Consulting Fees 112,775 180,877 444,097 287,267
--------- -------- --------- ----------
1,687,175 997,154 3,205,025 1,428,083
Income (Loss)
from Operations ( 550,421) (526,616) (1,361,754) (626,452)
Other Income and (Expense):
Interest Expense (11,560) (47,797) (91,913) (97,715)
Interest Income 24,746 1,011 42,933 1,036
--------- ---------- --------- ---------
13,186 (46,786) (48,980) (96,679)
Net (Loss) - Continuing
Operations ( 537,235) (573,402) (1,410,734) (723,131)
Minority interest 15,214 -- 12,001 --
Loss from discontinued computer
board operations -- (526,178) -- (558,958)
Discontinued prepaid phone
card segment - U.K. (585,775) -- (551,265)
Net Income (Loss) ( 522,021) (1,685,355) (1,398,733)(1,833,354)
Preferred dividend (750,000) (195,352) (750,000) (204,538)
---------- --------- --------- ---------
(1,272,021) (1,880,707) (2,148,733)(2,037,892)
Basic and diluted Net
Income (Loss) per share
- continuing operations ($.06) ($.05) ($.11) ($.07)
- discontinued operations -- ($.08) -- ($.08)
----- ------ ------ -------
Net Income (Loss)
per common share ($.06) ($ .13) ($.11) ($.15)
Weighted average common
shares outstanding 20,912,730 14,139,574 20,046,974 13,323,928
See Accompanying Notes to Consolidated Financial Statements
4(a)
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
September 30,
1998 1997
Cash flows from (used in) operating activities:
Net loss from continuing operations ($1,398,733) ($723,131)
Adjustment to reconcile net loss from
continuing operations to net cash from
(used in) operating activities:
Depreciation and amortization 265,548 16,463
Stock issued for services -- 800
Minority interest 12,001 --
Changes in assets and liabilities:
(Increase) Decrease in:
Restricted cash (325,771) --
Accounts receivable (2,057,260) (857,861)
Inventory (1,030,566) 32,583
Deposits ( 4,668) 2,894
Prepaid expenses and deferred costs (493,715) --
Increase (Decrease) in:
Accounts payable and
accrued expenses 1,451,423 637,731
Deferred revenue 439,654 --
-------- --------
Total Adjustments (1,743,354) (167,390)
-------- --------
Net cash (used in) operating activities (3,142,087) (890,521)
-------- --------
Cash flows from (used in) investing activities:
Additions to fixed assets (475,495) (17,468)
Investment in CardCall International -- (110,000)
Cash acquired with acquisition 1,170,486 --
-------- --------
Net cash from (used in) investing
activities 694,991 (127,468)
-------- --------
Cash flows from (used in) financing activities:
Proceeds from stock
options exercised 432,007 38,507
Purchase of treasury stock (2,355,318) (85,000)
Due to joint venture 677,076 --
Payment of notes payable (5,038,942) (144,072)
Increase in long term debt 101,320 --
5
Proceeds from sale of
preferred stock 2,750,000 1,350,000
Common stock dividend (203,962) --
Advances from shareholders (368,058) 395,142
Sale of equity securities 8,124,761 --
-------- --------
Net cash from financing activities 4,118,884 1,554,577
-------- --------
Net cash used in discontinued operations -- (443,349)
Net increase (decrease) in cash 1,671,788 93,239
Cash, beginning of year 1,024,746 764,559
---------- ---------
Cash, end of period $2,696,534 $ 857,798
Six Months Ended
September 30,
1998 1997
Supplemental disclosures of cash flow information:
Cash paid for interest $91,000 $ 97,000
Non cash investing and financing transactions:
Acquisitions by stock issuance:
CardCall International -- $7,008,952
CyberFax -- $1,033,975
Preferred stock dividends $750,000 $ 204,538
Stock issued for liabilities -- $ 40,000
See Accompanying Notes to Consolidated Financial Statements
5(a)
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements September 30, 1998
NOTE 1.
- - -------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the provisions of Regulation SB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Certain restatements of prior year
numbers have been made to conform to the current years presentations, to
report the acquisition of Edge Communications, Inc. as a pooling of
interest, to account for discontinued operations and to revise the
effective acquisition dates of Muller Media and CardCall International
Holdings.
The consolidated financial statements include the accounts of the Company
and its wholly and majority owned subsidiaries. Material intercompany
balances and transactions have been eliminated in consolidation.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The
accompanying financial statements should be read in conjunction with the
Company's form 10-KSB filed for the year ended March 31, 1998.
Income (loss) per share was computed using the weighted average number of
common shares outstanding.
Note 2. Acquisitions
CardCall International Holdings, Inc.
- - -------------------------------------
On March 31, 1997, DCI, entered into an agreement with CardCall
International Holdings, Inc. (CardCall), a Delaware corporation, to
purchase all its outstanding common stock (8,238,125 shares) and
warrants. CardCall's board of directors had approved the agreement on
March 29,1997, subject to shareholder approval.
CardCall is the parent company of CardCaller Canada, Inc., a Canadian
corporation, and CardCall (UK) Limited, incorporated under the laws of
the United Kingdom. CardCall is in the business of designing, developing
and marketing, through distributors, prepaid phone cards that provide the
cardholder access to long distance service through switching facilities.
DCI had previously invested $1,500,000 in CardCall, for which it received
$1,200,000 in notes payable 120 days from demand. The remaining $300,000
did not have any stipulated repayment terms. The Company raised this
money through the issuance of DCI convertible preferred stock to certain
shareholders of CardCall.
6
By May 29, 1997, the shareholders of CardCall had approved the
transaction. For each 100 shares of common stock of CardCall held by a
shareholder, DCI will issue a warrant to purchase nine shares of common
stock for $4.00 per share on or before February 28, 2001. In addition,
each shareholder of CardCall may acquire 85 shares of DCI common stock
under a subscription agreement, for each 100 shares of CardCall held by
such shareholder, at a purchase price of $.20 per share. 7,002,406
options to purchase DCI stock at $.20 per share were granted as a result
of this transaction. As of September 30, 1998, 4,860,777 of these
options for shares of DCI stock had been exercised. Such options expire
on April 30, 2002. In accordance with the agreement, shares of DCI stock
received from the exercise of options have restrictions as to when they
can be sold ranging from September 1, 1997 to December 1, 1998.
The transaction was initially recorded under the purchase method of
accounting, effective April 1, 1997, however the Securities and Exchange
Commission has ruled that the effective acquisition date is May 29, 1997.
The total purchase price includes the $1,610,000 in cash, $2,545,000
assigned value for the stock options, and assumption of net liabilities
of $2,853,000. Goodwill was recorded at $7,008,000. The financial
statements include the results of operations of CardCall since May 29,
1997, the effective date of acquisition. The goodwill is being amortized
over 20 years. The stock offering agreement called for the exchange of
shares by DCI in the acquisition of CardCall. A condition in the offer
was that the number of DCI shares to be issued would be reduced on a
share for share basis by the difference between 545, 455 and the actual
number of shares issued in the Series C preferred stock conversion
described in Note 10 to the financial statements. There was no value
assigned to the common stock that would be distributed per the offering
agreement as these shares were not issued due to the number of common
shares issued in the conversion of the series C preferred stock to
common stock. There was no value assigned to the common stock warrants as
the exercise price of $4 was greater than the market value of the common
stock. The Company valued the options issued at $.30 per option ($.50-.20
exercise price). The difference ($1.60) between the exercise price, $.20
and the stock valuation price of $1.80 was reduced by $1.30 for a 50%
dilution factor, a 10% factor because the shares issued upon exercise of
the options would be restricted and a 10% factor based upon the time from
when the shares could be exercised and tradable.
Edge Communications, Inc.
- - -------------------------
On April 30,1998 the Company issued 4,385,715 shares of common stock for
all of the outstanding shares of Edge Communications, Inc. The
acquisition has been accounted for as a pooling of interests, and
7
accordingly, the accompanying financial information has been restated to
include the accounts of Edge for all periods presented. Net sales and net
(loss) earnings of the separate companies prior to date of acquisition
are as follows:
Three Months
April 1, 1998 Six Months Ended Ended
through September 30, September 30,
April 30, 1998 1997 1997
-------------- --------------- ---------
Net Sales:
DCI $ 737,836 $2,253,302 $1,454,993
Edge Communications, Inc. 1,092,500 3,593,756 1,765,493
---------- ---------- ----------
Combined $1,830,336 $5,847,058 $3,220,486
========= ========== ==========
Net(Loss) From Continuing Operations:
DCI ($301,528) ($1,075,847) (895,169)
Edge Communications, Inc. (56,492) 369,568 321,767
---------- ---------- ---------
Combined ($358,020) ($706,279) ($573,402)
========== ========== =========
Muller Media, Inc.
- - ------------------
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. (Muller), a New York corporation, to acquire 100% of
the outstanding common stock of Muller in a stock-for-stock purchase,
with DCI exchanging 1,200,000 shares of common stock for all of the
shares of Muller capital stock. The DCI stock was valued at $2.50 per
share ($3 million in total) and is included in outstanding common stock
for the years ending March 31, 1998 and 1997.
At the closing, the shares of Muller were transferred to DCI, and DCI
shares were issued to Muller shareholders and then placed with escrow
agents. This was done to facilitate a "put" option which could only be
exercised by Muller subsequent to the closing under the put option. DCI
must repurchase the shares for $3,000,000 if Muller exercised the "put"
option, which commenced on the earlier of 120 days from December 27,
1996, unless an extension was requested by DCI, which Muller could not
unreasonably withhold, or 14 days after DCI had received an aggregate of
$3,000,000 in net proceeds from the sale of its capital stock. Extensions
were granted by Muller through June 3, 1998. The selling stockholders
had an option to keep DCI stock or accept up to $3,000,000 in cash from
DCI.
DCI repurchased 400,000 shares of such common stock in March, 1998 for
$1,000,000 and completed the repurchase from the exercising parties on
June 9, 1998 upon payment of an additional $2,000,000. The financial
statements include the results of operations since June 9, 1998.
8
The transaction was recorded under the purchase method of accounting. The
total purchase price includes $3,000,000 in cash, Goodwill was recorded
at $1,712,403. The financial statements include the results of operations
of Muller since June 9, 1998, the date of acquisition. The goodwill is
being amortized over 20 years.
NOTE 3. Common and Preferred Stock
- - -----------------------------------
In April, 1998 the Company issued $3,000,000 of Series F 8% non -voting
convertible preferred shares. The shares are convertible to common stock
90 days from the issue date at the lesser of 75% of the average closing
bid price of the common stock for the ten days prior to conversion or $4.
The securities must be converted into common shares within two years of
the issue date. In connection with this offering 50,000 warrants
exercisable at $1.56 for a period of five years from the issue date were
granted to these preferred shareholders and 50,000 warrants, at the same
terms, were granted to certain individuals as finder fees for the
placement of the preferred shares with investors.
During the six months ended September 30, 1998, the holders of $687,500
of preferred shares of Series F Convertible Preferred Stock and deemed
dividends of $171,750 were converted to 564,387 common shares.
During the six months ended September 30, 1998, the holders of $412,500
of preferred shares of Series E Convertible Preferred Stock and deemed
dividends of $98,959 were converted to 368,304 common shares.
During the six months ended September 30, 1998, the holders of $305,000
of preferred shares of Series A Convertible Preferred Stock and
dividends of $177,717 were converted to 321,811 common shares.
In addition, options to purchase 2,536,214 common shares were exercised
from which the Company received $432,007.
NOTE 4. PhoneLine CardCall International
- - -----------------------------------------
On March 31, 1998 the Company and DataWave Systems Inc. (DataWave) formed
a Canadian company, PhoneLine CardCall International ("PhoneLine") for
the marketing, sale and service of prepaid long distance telephone
calling cards in Canada. DataWave and CardCaller Canada, Inc. contributed
fixed assets, Canadian business, and certain liabilities to PhoneLine.
DCI owns 60% and DataWave 40% of the company.
The Company's consolidated financial statements include 100% of the
assets, liabilities and operations of PhoneLine. The ownership interest
of DataWave is recorded as a minority interest in the accompanying
financial statements.
NOTE 5. Subsequent Event
- - ------------------------
On November 6, 1998, DCI Telecommunications, Inc. signed a definitive
9
merger agreement with Wavetech International, Inc. The acquisition will
be accounted for as a reverse merger.
NOTE 6. Pro Forma Financial Information
- - ---------------------------------------------------
The following table summarizes the unaudited pro forma results of
operations of the Company for the six months ended September 30, 1998 and
1997, assuming the acquisitions of CardCall, CyberFax, Muller, PEL,
Travel Source, Edge Communications, Wavetech International, Inc. and the
joint venture had occurred on April 1, 1997. The pro forma financial
information presented is not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place on
April 1, 1997 or of future results of operations.
Six Months Ending Three Months Ending
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $17,335,848 $ 8,254,629 $10,988,078 $3,400,275
----------- ---------- ----------- ---------
Income (loss):
Continuing operations $(1,808,575) $ (1,465,990) $(747,737) $(799,331)
Discontinued operations -- (1,110,223) -- (1,111,953)
------------ ------------ ----------- ---------
Net income (loss) before
preferred dividends $(1,808,575) $(2,576,213) $(747,737)$(1,911,284)
======== ======== ========= ===========
Net income (loss) per share:
Continuing operations $ (.10) $ (.08) $(.06) $(.05)
Discontinued operations -- (.05) -- (.06)
-------- ----------- --------- ----------
Net income (loss) $ (.10) $ (.13) $(.06) $(.11)
======== ========= ========= ==========
Weighted average shares
outstanding 24,466,441 20,076,624 24,386,441 18,746,856
======== ======== ========== ==========
10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
- - --------
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of DCI
Telecommunications, Inc. and its subsidiaries (collectively, the
Company), consolidated results of operations and financial condition for
the six months ended September 30, 1998. The discussion should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes.
The Company, since its recent acquisitions, operates predominantly in the
telecommunications industry providing a broad range of communication
service. The Company's services include long distance, prepaid phone
cards, motion picture distribution, a travel agency, as well as real-time
fax over the Internet. Through continued investments and fiscal 1998
business acquisitions, the Company has expanded its business into rapidly
developing markets.
Recent Acquisitions and Dispositions
- - ------------------------------------
In the quarter ended June 30, 1997, the Company acquired CardCall
International and CyberFax. CardCall International, through its
subsidiaries CardCall UK and CardCaller Canada, sold prepaid phone cards.
In the third quarter of fiscal 1998, the Company sold its phone card
distribution contract in the U.K. for $9,000,000. Due to a non-compete
clause in the sale agreement, CardCall UK discontinued its operations
after the sale. During fiscal 1998 the Company also discontinued
operations of Privilege Enterprises Limited and its Alpha Products
division due to a lack of profitability.
On March 31, 1998 the Company and DataWave Systems, Inc. formed a new
company, PhoneLine CardCall International ("PhoneLine") for the
marketing, sale and service of prepaid long distance phone cards in
Canada. The accompanying financial statements include the results of
PhoneLine for the six months ending September 30, 1998. This new company
joins together two of the larger prepaid phone card distributors in
Canada, and the Company is expecting economies of scale by facility and
staff reductions, as well as better long distance rates with carriers.
DCI owns 60% and DataWave 40% of PhoneLine.
During the quarter ended June 30, 1998 the Company acquired Edge
Communications, Inc. This acquisition gave the Company a meaningful
entrance into the U.S. prepaid phone card market. Edge had sales of
$8,780,000 for the twelve months ended March 31, 1998 and has been
sustaining rapid growth in the last several months. Edge was accounted
for as a pooling of interests.
11
Liquidity and Capital Resources
- - -------------------------------
At September 30, 1998 the Company had unrestricted cash of $2,697,000 and
$43,000 of marketable securities. During the quarter ended June 30, 1998,
the Company sold SmarTalk stock realizing net proceeds of $8,125,000. The
Company repaid its loans of $4,939,000 which it had borrowed against its
position in SmarTalk stock.
Also, on June 9, 1998 the former shareholders of Muller Media exercised
their put options to receive $2,000,000 in cash, and the Company
repurchased 800,000 shares of its common stock.
Other sources of cash during the first six months included $2,750,000
from the sale of preferred stock, and $432,000 from the exercise of stock
options.
Consolidated Results of Operations
- - ----------------------------------
Changes reflected in the following analysis that refer to PhoneLine are
gross changes. It should be noted that the Company owns 60% of the
PhoneLine.
Six Months Ended
September 30,
1998 1997
---- ----
Net Sales $17,012,920 $ 5,847,058
- - ---------
Net sales increased $11,165,862 in the 1998 six months compared to the
comparable 1997 period. Edge sales of prepaid phone cards increased
$9,004,000 due to rapid growth and new contracts. Muller Media, which was
acquired as of June 9, 1998, accounted for approximately $1,098,000 of
the increase. The prepaid phone card sales of PhoneLine in 1998 exceeded
CardCaller Canada 1997 sales by $793,000 in the first six months. Travel
Source sales were up $39,000 in 1998, and European sales were up
$113,000.
1998 1997
---- ----
Cost of Sales $15,169,649 $5,045,427
- - -------------
Cost of sales in 1998 exceeded 1997 by approximately $10,124,000. Edge
cost of sales associated with higher sales noted above resulted in
$8,822,000 of the increase. Costs associated with the recently acquired
Muller Media accounted for $741,000 of the increase. PhoneLine 1998 costs
exceeded CardCaller Canada by $431,000. Cost of sales for European
operations were up $122,000 on increased sales.
12
1998 1997
-------- --------
Selling, General & Administration Expense $1,302,256 $543,587
- - -----------------------------------------
Selling, general and administrative increased $759,000 over the 1997
period. CyberFax costs increased $173,000 principally due to higher
research and development costs as its product got closer to market.
Expenses of the newly acquired Muller contributed $120,000 to the
increase. Increased operations in Europe added $70,000 to the increase.
SG&A expenses of PhoneLine, a much larger operation than CardCaller
Canada in 1997, accounted for $114,000 increased costs. SG&A expenses of
DCI corporate and Edge increased $280,000 due to the large growth of both
organizations.
1998 1997
---- ----
Salaries and Compensation $1,193,124 $ 580,766
- - -------------------------
Salaries increased $612,358 over 1997 levels. Salaries at the corporate
level increase $219,000 due to wage increases and additional personnel
added due to growth. The acquisition of Muller accounts for $183,000 of
the increase. Salaries in Europe have increased $146,000 as operations
have now increased. Salaries at Edge have increased $82,000 principally
due to expanded operations.
1998 1997
---- ----
Amortization and Depreciation $265,548 $16,463
- - -----------------------------
The $16,463 in 1997 represents depreciation expense for continuing
operations. Included in 1998 is depreciation of $114,048, amortization of
Travel Source goodwill of $2,500, Muller goodwill of $24,000, CyberFax
goodwill of $25,000 and CardCaller Canada goodwill of $100,000.
1998 1997
---- ----
Professional and Consulting Fees $444,097 $287,267
- - --------------------------------
Professional fees increased $157,000 over the 1997 period. Profession
fees at PhoneLine were $71,000 higher than CardCaller Canada's 1997
charges principally due to the start up of the new joint venture. Edge
professional fees also rose $62,000 due to its dramatic growth. Legal and
accounting fees of the newly acquired Muller and increased CyberFax fees
principally account for the remaining difference.
13
1998 1997
---- ----
Interest Expense ($91,913) ($97,715)
Interest Income $42,933 $ 1,036
- - ---------------
Interest expense did not change materially from 1997.
The $42,000 increase in interest income is a result of $22,000 earned by
DCI on short term investments plus $20,000 of interest earned on short-
term investments of the newly acquired Muller Media.
1998 1997
---- ----
Discontinued operations - Computer Board -- ($558,958)
- Prepaid Phone
Card - UK -- ($551,265)
The computer board loss in 1997 reflects the discontinuance of the Alpha
Products division at September 30, 1997. Included in the loss was the
write-off of unamortized customer base totaling $493,000. The prepaid
phone card discontinued loss was due to a non-compete clause in the 1997
distribution contract sale to Smartalk for $9,000,000, which necessitated
the shut-down of the UK operations.
14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Page 16
15
ITEM 6 - Exhibits and Reports on Form 8K
On July 7, 1998 the Company filed a Form 8K which included the Escrow
Agreement among the selling shareholders of Muller Media, Inc. and DCI
Telecommunications, Inc.
On July 27, 1998 the Company filed a Form 8K which included the Stock
Purchase Agreement among Locus Corporation, Jason Chon, J.P. Lee, James
Ju and DCI Telecommunications, Inc.
On August 17, 1998 the Company filed a Form 8K which contained the
audited financial statements for Edge Communications, Inc. for the years
ending March 31, 1998 and 1997.
On August 31, 1998 the Company filed a Form 8K which contained the
audited financial statements for CardCall International Holding, Inc. for
the years ending March 31, 1997, 1996 and 1995.
On September 11, 1998 the Company filed a Form 8K which included a joint
venture agreement between TIMEWorldcom U.S. and the Company Note:
TIMEWorldcom U.S. are not affiliated in any way with WorldCom, Inc.
On September 29, 1998 the Company filed a Form 8k which contained certain
sales agreements between Edge Communications and Latin Debit Technologies
for the sale of Edge's prepaid phone card products.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DCI TELECOMMUNICATIONS, INC.
(Registrant)
Dated: November 16, 1998 By: Joseph J. Murphy
----------------
Joseph J. Murphy
President
By: Russell B. Hintz
----------------
Russell B. Hintz
Chief Financial Officer
17