SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - QSB/A
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
June 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
- ---------------------------- ------- ----------
21,277,689 Common Stock, August 14, 1998
$.0001 par value
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet June 30, 1998 3
Statements of Operations
Three Months Ended June 30, 1998 and 1997 4
Statements of Cash Flow
Three Months Ended June 30, 1998 and 1997 5
Notes to Unaudited Financial Statements
June 30, 1998 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
Other Information 15
Signatures 17
2
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
June 30
ASSETS 1998
Current Assets:
Cash $3,611,830
Restricted cash 34,475
Investments 45,632
Accounts receivable 4,964,023
Receivable from SmarTalk 650,000
Prepaid expenses 128,818
Inventory 462,101
---------
Total Current Assets 9,896,879
Fixed Assets 1,778,640
Less: Accumulated depreciation (234,386)
---------
Net Fixed Assets 1,544,254
---------
Accounts receivable 682,253
Deferred costs 269,876
Deposits 113,188
Other investments 63,905
Prepaid deemed dividend 250,000
Other Assets
- costs in excess of
net assets acquired:
CardCall International 3,818,476
Muller Media 1,266,626
CyberFax 1,033,975
Edge Communications 6,823,586
Travel Source 86,329
----------
13,028,992
Less: Accumulated amortization 398,308
----------
Net other assets 12,630,084
----------
Total Assets $24,450,439
===========
3
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $5,200,729
Preferred stock dividend 278,642
Deferred Revenue 328,433
Due to shareholders 200,370
Income Taxes Payable 138,400
----------
Total Current Liabilities 6,146,574
Long Term accounts payable 506,000
Long Term Debt 135,000
Due to joint venture partner 660,157
Redeemable, convertible preferred stock $10,000 and
$1,000 par and redemption value, 2,000,000
shares authorized, 3,019 shares issued and
outstanding (3,000 shares at $1,000 par and 19
shares at $10,000 par) 3,197,550
---------
Total Liabilities 10,645,281
----------
Minority interests 31,213
Commitments and Contingencies
Shareholders' Equity:
9.25% cumulative convertible, preferred stock
$100 par value, 5,000,000 shares authorized,
3,972 shares issued and outstanding; 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
20,598,678 shares issued and outstanding 2,060
Paid in capital 16,316,783
Treasury Stock (1,155,000 shares at cost) (1,104,379)
Unrealized capital loss (5,495)
Currency translation adjustment (16,736)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) (723,288)
---------
Total Shareholders' Equity 14,773,945
----------
Total Liabilities and Shareholders' Equity $25,450,439
===========
See Accompanying Notes to Consolidated Financial Statements
3(a)
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended
June 30,
1998 1997
---- ----
Sales - travel $ 331,062 $ 298,413
Sales - products 4,601,734 442,197
--------- ----------
Net Sales 4,932,796 740,610
Cost of sales - travel 284,894 281,033
Cost of sales - products 4,105,983 374,016
---------- ----------
Cost of sales 4,390,877 655,049
Gross profit 541,919 85,561
Selling, general and administration expenses 433,184 114,379
Salaries and compensation 512,937 40,255
Professional and consulting fees 322,609 92,510
Amortization and depreciation 225,222 17,339
--------- ----------
1,493,952 264,483
Loss from operations (952,033) (178,922)
Other income and (expense):
Investment income 18,187 25
Interest expense (77,860) (25,582)
--------- -----------
(59,673) (25,557)
Loss from continuing operations before
minority interest (1,011,706) (204,479)
Minority interest in earnings of subsidiary (3,213) --
---------- -----------
Loss from continuing operations (1,014,919) (204,479)
Discontinued operations:
Loss from operations, net of tax:
Computer board - Alpha division -- (49,124)
Privilege card operations - PEL -- 16,145
Prepaid phone card segment - UK -- 34,510
-------- --------
Net income (loss) before dividends
on preferred stock (1,014,919) (202,948)
4
Dividends on preferred stock 543,951 9,185
Income (loss) applicable to
common shareholders ($1,558,870) (212,133)
========= =========
Basic and diluted income (loss) per common share
Continuing operations $(.09) $(.03)
Discontinued operations:
Gain from operations -- --
Total $(.09) $(.03)
========= =========
Weighted average common shares outstanding 17,719,279 8,122,567
See Accompanying Notes to Consolidated Financial Statements
4(a)
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
June 30,
1998 1997
Cash flows from (used in) operating activities:
Net loss from continuing operations ($1,014,919) ($204,479)
Adjustment to reconcile net loss from
continuing operations to net cash from
(used in) operating activities:
Depreciation and amortization 225,222 17,339
Stock issued for services -- 800
Minority interest 3,213 --
Changes in assets and liabilities:
(Increase) Decrease in:
Restricted cash 25,771 --
Accounts receivable (1,997,214) (203,862)
Inventory (259,669) 1,043
Deposits (56,171) (60,971 )
Prepaid expenses (38,879) --
Other assets 57,885 (39,355)
Increase (Decrease) in:
Accounts payable and
accrued expenses 565,526 (24,327)
Deferred revenue 104,545 --
-------- --------
Total Adjustments (1,369,771) (309,333)
-------- --------
Net cash used in operating activities (2,384,690) (513,812)
-------- --------
Cash flows from (used in) investing activities:
Additions to fixed assets (265,076) (19,453)
Investment in CardCall -- (110,000)
Cash acquired with acquisitions 1,548,947 --
Investment in Muller Media (2,000,000) --
-------- --------
Net cash used in investing activities (716,129) (129,453)
-------- --------
Cash flows from (used in) financing activities:
Proceeds from stock
options exercised 248,589 28,702
Purchase of treasury stock (355,318) --
Due to joint venture 688,157 --
Payment of notes payable (4,938,942) --
5
Proceeds from sale of
preferred stock 2,750,000 --
Common stock dividend (203,962) --
Advances from shareholders (305,627) 392,299
Sale of equity securities 8,124,761 --
-------- --------
Net cash from financing activities 6,007,658 421,001
-------- --------
Net cash used in discontinued operations -- (24,368)
Net increase (decrease) in cash 2,906,839 (246,632)
Cash, beginning of year 704,991 350,468
---------- ---------
Cash, end of period $3,611,830 $ 103,836
Three Months Ended
June 30,
1998 1997
Supplemental disclosures of cash flow information:
Cash paid for interest $78,000 $ 26,000
Non cash investing and financing transactions:
Acquisitions by stock issuance:
CardCall International -- $6,956,000
CyberFax -- $1,033,975
Edge Communications $6,823,586 --
Preferred stock dividends $543,951 $ 9,185
Stock issued for liabilities -- $ 40,000
See Accompanying Notes to Consolidated Financial Statements
5(a)
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements June 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 reclassification of prior
year numbers have been made to conform to the current years
presentations, and to account for discontinued operations.
The previously issued financial statements included the results of
operations of CardCall International, Inc., as if the acquisition had
been completed as of April 1, 1997, under the purchase method of
accounting. The accompanying financial statements include the results of
operations of CardCall International, Inc. since May 29, 1997 under the
purchase method of accounting based upon comments and questions by the
Securities and Exchange Commission with respect to the timing of the
acquisition of CardCall. In addition, as a result of inquiries from the
Securities and Exchange Commission, this form 10QSB/A has been restated
to record the acquisition of Muller Media as of June 9, 1998 instead of
November 26, 1996, to account for the acquisition of Edge Communications
on April 30, 1998 using the purchase method of accounting rather than the
pooling of interest method, to account for Travel Source as a purchase
instead of a pooling and to adjust the preferred dividend calculation.
June 30
1998 1997
---- ----
Revenue, as previously reported $6,305,302 $4,195,785
Adjustments for Edge, Muller Media, Inc.,
Travel Source, Inc. and CardCall (1,372,506) (3,455,175)
Restated revenue $4,932,796 $ 740,610
Net income (loss) as previously reported $ (849,678) $ 199,076
Net change in income as a result of
restatement, (709,192) ( 411,209)
Restated net income (loss) $(1,558,870) $( 212,133)
Earnings (loss) per share
as previously reported, $ (.04) $ .02
Net change in as a result
of restatement, (.05) (.03)
Restated net earnings (loss) $ (.09) $ (.01)
per shares
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/A filed for the year ended March 31, 1998.
Income (loss) per share was computed using the weighted average number of
common shares outstanding.
6
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.
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 June 30, 1998, 4,023,685 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 has been recorded under the purchase method of
accounting, effective May 29, 1997. The total purchase price includes the
$1,610,000 in cash, $2,545,000 assigned value for the stock and stock
options, and assumption of net liabilities of $2,801,000. Goodwill was
recorded at $6,956,000. 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.
7
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 under the purchase method of
accounting, effective April 30, 1998. The total purchase price consists
of 4,385,715 shares of common stock valued at $6,644,000 and the
assumption of net liabilities of $179,000. Edge is located in
Gaithersburg, Maryland and is in the prepaid phone card business. For the
twelve months ended March 31, 1998, Edge had net sales of $8,780,000 and
had a loss of $271,000. Goodwill of $6,823,586 has been recorded on the
transaction and is being amortized over 20 years. The financial
statements include the results of operations since April 30, 1998, date
of acquisition.
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.
The transaction was recorded under the purchase method of accounting. The
total purchase price includes $3,000,000 in cash. Goodwill was recorded
at $1,266,626. 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 three months ended June 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. In
addition, options to purchase 1,691,122 common shares were exercised from
which the Company received $248,589.
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. Pro Forma Financial Information
- ---------------------------------------------------
The following table summarizes the unaudited pro forma results of
operations of the Company for the three months ended June 30, 1998 and
1997, assuming the acquisitions of CardCall, CyberFax, Muller, PEL,
Travel Source, Edge Communications, 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.
Three Months Ending
June 30,
1998 1997
---- ----
Net sales $ 6,305,302 $ 4,195,785
----------- ----------
Income (loss):
Continuing operations $( 890,973) $ ( 118,444)
Discontinued operations -- ( 1,531)
------------ ------------
Net income (loss) before
preferred dividends $( 890,973) $( 119,975)
======== ========
Net income (loss) per share:
Continuing operations $ (.07) $ (.02)
Discontinued operations -- --
-------- -----------
Net income (loss) $ (.07) $ (.02)
======== =========
Weighted average shares
outstanding 19,181,184 12,508,282
======== ========
8
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 three months ended June 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 quarter ending June 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 purchase
9
Also during the quarter ended June 30, 1998, the former shareholders of
Muller Media exercised their put options to receive $2,000,000 in cash,
and the Company received back 800,000 shares of its stock, thus
completing the acquisition of Muller Media on June 9, 1998. The
acquisition is accounted for as a purchase.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998 the Company had unrestricted cash of $705,000 and
$8,125,000 of stock of SmarTalk Teleservices, Inc. During the quarter
ended June 30, 1998, the Company sold the 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 during the quarter ending June 30, 1998, the former shareholders of
Muller Media exercised their put options to receive $2,000,000 in cash,
and the Company received back 800,000 shares of its common stock.
Other sources of cash during the quarter included $2,750,000 from the
sale of preferred stock, and $249,000 from the exercise of stock options.
At June 30, 1998 the Company has a current ratio of 1.6 to 1, and has
unrestricted cash of $3,612,000.
The Company has an agreement to acquire Locus Corporation, a facilities
based carrier located in Fort Lee, New Jersey. The Company has also
entered into a Letter of Intent to enter a European joint venture with
TIMEWorldCom, an international provider of long distance services,
located in Gaithersburg, Maryland. Management believes it will need
additional resources to complete the acquisitions, specifically
$10,000,000 for the Locus acquisition, and to fund the future capital
needs of these companies and its existing subsidiaries. The ability of
the Company to finance all new and existing operations will be heavily
dependent on external sources. No assurance can be given that additional
financing will be available, or if available, that it will be on
acceptable terms.
Year 2000 Issues
- ----------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other
words, date-sensitive software may recognize a date using "00" as the
year 1900 rather than the Year 2000. This could result in system failures
or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
10
Company's State of Readiness
One of the Company's critical internal areas is its information
technology systems, including general ledger, accounts receivable,
payable, inventory and related packages for DCI and each of its
subsidiaries. In this regard, the parent company has installed new
software that is Year 2000 compliant and plans to install the same
systems in each of its subsidiaries prior to September 30, 1999.
All of the Company owned switches, used to direct and monitor long
distance telephone traffic, are currently Year 2000 compliant according
to the manufacturer. Other less critical internal systems such as
telephone and voice mail systems are in the process of being evaluated.
The Company also has relationships with outside third parties that could
impact its business. The most important are the carriers that process and
monitor the Company's long distance and prepaid card phone calls. All the
carriers expect to be Year 2000 compliant and are in various stages of
readiness. The Company's travel business is partially dependent on an
outside reservation system representing many airlines. This system
expects to be compliant by the end of 1998, and accepting year 2000
bookings by January 4, 1999.
Costs
The Company is addressing Year 2000 issues in house and at the present
time the only other costs involve the purchase of financial software
packages. Total costs are estimated at $110,000. Costs incurred to date
are approximately $23,000.
Risks
The Company believes that its most reasonable likely worst case Year 2000
scenario would be if any of its third party long distance telephone
carriers were unable to properly monitor or admit authorized personal
identification numbered prepaid phone card calls through their systems.
The time frame for the carrier to fix the problem, or the ability of the
Company to recall prepaid phone cards and switch to another carrier with
competitive rates, could cause a material business interruption.
The risks associated with the failure of the Company's financial
software, or third party payroll preparation and stock transfer system,
are considered less severe in that the Company believes switching to
other vendors or using other methods would be relatively easy.
The risk of failure of the third party airline reservation system is that
the Company would have to secure its travel arrangements by methods that
would be more cumbersome and time consuming than the current automated
system.
11
Contingency Plan
The Company is still evaluating whether it will develop a contingency
plan for any of the risks noted above. A decision is expected by June 30,
1999.
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.
Three Months Ended
June 30,
1998 1997
---- ----
Net Sales $4,932,796 $ 740,610
- ---------
Net sales in the quarter ended June 30, 1998 increased $4,192,186 over
the 1997 first quarter. Phone card sales by Edge Communications since its
April 30 acquisition date account for approximately $3,339,000. Sales of
newly formed PhoneLine were $505,000 more than CardCaller Canada sales in
1997, primarily due to CardCaller only included for one month in the 1997
quarter. Muller sales since its acquisition on June 9, 1998 accounted for
$242,000 of the increase. Travel Source and Spain also had increased
sales.
1998 1997
---- ----
Cost of Sales $4,390,877 $ 655,049
- -------------
Cost of sales increased $3,735,828 in the 1998 first quarter. Cost of
sales for newly acquired Edge amounted to $3,164,346. PhoneLine cost of
sales in 1998 exceeded CardCaller 1997 costs by $457,439 due to the fact
that CardCaller was only included for one month of the 1997 quarter.
Costs associated with newly acquired Muller also contributed to the first
quarter 1998 increase.
1998 1997
-------- --------
Selling, General & Administration Expense $433,184 $114,379
- -----------------------------------------
Selling, general and administrative expenses increased $318,805 in 1998.
Expenses of newly acquired Edge totaled $82,080 in the 1998 first
quarter. PhoneLine expenses in 1998 exceeded CardCaller 1997 expenses by
$85,568 since CardCaller was included for only one month in the 1997
quarter. Expansion of European operations increased 1998 expenses by
$54,253, and newly acquired Muller incurred $12,865. Administrative
12
expenses at the parent level primarily accounted for the balance of the
increase as the Company has grown and became more globally diverse.
Travel costs ($30,000) and establishing a west coast presence ($26,000)
are the largest increases.
1998 1997
---- ----
Salaries and Compensation $512,937 $ 40,255
- -------------------------
Salaries were $473,000 higher in the 1998 first quarter. Of the increase,
$156,000 was associated with the European operations which were not
operational in 1997 and $133,000 was due to corporate staff increases.
Newly acquired Edge and Muller account for $67,000 and $30,000
respectively. Increases are also associated with CyberFax and PhoneLine
(2 companies) versus CardCaller Canada alone in 1997.
1998 1997
---- ----
Professional and Consulting Fees $322,609 $ 92,510
- --------------------------------
Professional and consulting fees increased approximately $230,000 over
1997 levels. Acquisitions, dispositions and general corporate growth all
contributed to an increase of $180,000. Newly acquired Edge and Muller
account for $25,000. PhoneLine 1998 costs exceed CardCaller (1 month)
1997 costs by $15,000.
1998 1997
---- ----
Amortization and Depreciation $225,222 $17,339
- -----------------------------
Amortization and depreciation rose approximately 208,000 in 1998 as
compared to the 1997 first quarter. Amortization in 1998 of goodwill
associated with CyberFax of $12,500, Muller of $24,000, CardCaller of
$50,000, Travel Source $1250, and Edge of $56,858 account for most of the
increase. The balance is due to depreciation expense on the new
companies.
13
1998 1997
---- ----
Interest Income $ 18,187 $ 25
Interest Expense ($77,860) ($25,582)
- ---------------
The $18,000 increase in investment income is a result of $13,000 earned
by DCI on short-term investments plus $5,000 earnings from Muller
Investments.
Interest expense increased $52,000 in 1998. Interest expense on short-
term debt borrowed by DCI against the SmarTalk stock resulted in a
$72,000 increase. This was partially offset by lower interest for
CardCaller Canada which had paid off debt it had in the 1997 first
quarter.
1998 1997
---- ----
Discontinued operations - Alpha -- ($49,124)
- Privilege Card -- $16,145
- CardCall U.K. -- $ 34,510
These balances in 1997 represent the net operating gains (losses) of
operations that were discontinued in 1998.
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 May 14, 1998 the Company filed a Form 8K which described the
acquisition of Edge Communications, Inc.
On May 19, 1998 the Company filed a Form 8K which described the
termination of acquisition discussions with WorldPass Communications
Corporation, the declaring of a $.01 per common share cash dividend, and
the signing of a Letter of Intent with Locus Corporation.
On June 16, 1998 the Company filed a Form 8K which described the
exercising of put options under the stock purchase agreement among the
Company, Muller Media, Inc., and Robert Muller and Daniel Mulholland.
On July 7, 1998 the Company filed a Form 8K which included a copy of the
Escrow Agreement among the selling shareholders of Muller Media, Inc. and
the Company.
On July 27, 1998 the Company filed a Form 8K which described the signing
of a definitive agreement to acquire privately owned Locus Corporation.
Also described was the activity of stock options issued through July 22,
1998.
On August 17, 1998 the Company filed a Form 8K which included the audited
financial statements for Edge Communications, Inc.
16
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: May 10, 1999 By: Joseph J. Murphy
----------------
Joseph J. Murphy
President
By: Russell B. Hintz
----------------
Russell B. Hintz
Chief Financial Officer
17