UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number: 1-13088
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
(Name of small business issuer in its charter)
Delaware 65-0014636
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248
(Address of principal executive offices; telephone number)
(972) 248-1922
(Issuer's telephone number)
------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
The number of shares outstanding of the common stock of the registrant on
January 31, 1997, the latest practicable date, was 7,240,046.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1996
(Unaudited) (Audited)
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 465,177 $ 615,037
Marketable securities 936,833 1,900,050
Accounts receivable, net of allowance for doubtful accounts of
$475,000 at December 31, 1996 and $414,000 at June 30, 1996 6,946,653 3,719,265
Inventories 2,351,964 2,862,911
Prepaid expenses and other current assets 673,884 614,210
---------------- ----------------
Total current assets 11,374,511 9,711,473
---------------- ----------------
Property, plant and equipment, net 5,694,061 5,469,304
Other assets 165,663 81,343
Loans receivable, related parties 414,698 413,369
---------------- ----------------
Total assets $ 17,648,933 $ 15,675,489
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 2,709,602 $ 1,625,325
Current portion, long-term debt 425,130 935,127
Accounts payable 3,477,304 3,032,236
Accrued liabilities 557,360 362,520
---------------- ----------------
Total current liabilities 7,169,396 5,955,208
---------------- ----------------
Long-term debt, less current portion 1,987,078 1,666,063
Deferred tax liability 417,672 157,216
Commitments and contingencies
Stockholders' Equity:
Series A convertible preferred stock, 10,000,000 shares of $.00001 par
value per share authorized; 10,000 and 100,000 shares issued and
outstanding as of December 31, 1996 and June 30, 1996,
respectively, $100,000 liquidation preference 1 10
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 7,190,426 and 6,332,116 issued and 6,953,504 and
6,125,162 shares outstanding as of December 31, 1996 and
June 30, 1996, respectively 1,438 1,266
Additional paid-in capital 8,679,155 8,479,318
Retained earnings 1,127,405 1,030,152
Investment in Millennia, Inc. (1,084,983) (1,084,983)
Net unrealized holding loss on investment securities (648,229) (528,761)
---------------- ----------------
Total stockholders' equity 8,074,787 7,897,002
---------------- ----------------
Total liabilities and stockholders' equity $ 17,648,933 $ 15,675,489
================ ================
The accompanying notes are an integral part of the financial statements
1
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the three months ended For the six months ended
December 31, December 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net sales $ 8,794,479 $ 7,895,511 $ 15,814,416 $ 13,281,982
------------- ------------- ------------- -------------
Costs and Expenses:
Cost of goods sold 7,073,707 6,278,412 12,650,843 10,462,738
Selling expenses 335,282 310,573 641,160 564,152
General and administrative expenses 564,167 484,562 1,187,712 844,471
Depreciation and amortization 375,168 307,549 720,409 605,620
------------- -------------
Total costs and expenses 8,348,324 7,381,096 15,200,124 12,476,981
------------- ------------- -------------
Operating profit 446,155 514,415 614,292 805,001
------------- ------------- ------------- -------------
Other income (expense):
Realized gains (losses) from investment
transactions 20,963 (43,573) 92,082 72,438
Interest and other income 0 10,182 0 21,612
Interest expense (103,184) (203,566) (211,692) (379,929)
------------- ------------- -------------
(82,221) (236,957) (119,610) (285,879)
------------- ------------- ------------- -------------
Income from continuing operations
before provision for income taxes 363,934 277,458 494,682 519,122
Provision for income taxes 127,411 107,436 192,742 201,000
------------- ------------- ------------- -------------
Income from continuing operations 236,523 170,022 301,940 318,122
Discontinued operations:
(Loss) gain from operations of discontinued
operation, net of related income taxes of $0,
$21,900, $0 and $60,500, respectively (4,935) 36,359 (4,685) 95,360
------------- ------------- ------------- -------------
Net income $ 231,588 $ 206,381 $ 297,255 $ 413,482
============= ============= ============= =============
Preferred dividends 50,000 0 250,000 0
------------- ------------- ------------- -------------
Net income available to common stockholders $ 181,588 $ 206,381 $ 47,255 $ 413,482
============= ============== ============= ==============
Weighted average shares of common stock
outstanding 6,706,104 5,677,443 6,405,890 5,411,957
============= ============== ============= ==============
Earnings per share:
Continuing operations $ 0.03 $ 0.03 $ 0.01 $ 0.06
Discontinued operations 0.00 0.01 0.00 0.02
------------- -------------- ------------- -------------
Net income $ 0.03 $ 0.04 $ 0.01 $ 0.08
============= ============== ============= =============
The accompanying notes are an integral part of the financial statements
2
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
December 31,
1996 1995
---------------- ---------------
Cash flows from operating activities:
Net income $ 297,255 $ 413,482
---------------- ---------------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 720,409 605,620
Gain on sale of marketable securities (92,082) (72,438)
Provision for bad debts 60,833 112,495
Increase in accounts receivable (3,288,221) (1,331,822)
Decrease (increase) in inventories 510,947 (147,497)
Increase in prepaid expenses and other (143,994) 162,226
Increase (decrease) in accounts payable 445,068 (576,943)
Increase in accrued liabilities 194,840 264,920
Increase in deferred tax liability 260,456 0
Net cash used in operating activities (1,034,489) (569,957)
---------------- ---------------
Cash flows from investing activities:
(Increase) decrease in loans receivable, related parties (1,329) 148,678
Change in marketable securities - available for sale 935,829 1,014,367
Increase in other assets and other liabilities 0 (21,892)
Capital expenditures (945,166) (457,482)
---------------- ---------------
Net cash (used in) provided by investing activities (10,666) 683,671
---------------- ---------------
Cash flows from financing activities:
Net long-term repayments (188,982) (356,568)
Net short-term borrowings 1,084,277 360,000
---------------- ---------------
Net cash provided by financing activities 895,295 3,432
---------------- ---------------
(Decrease) increase in cash and cash equivalents (149,860) 117,146
Cash and cash equivalents at beginning of period 615,037 284,837
---------------- ---------------
Cash and cash equivalents at end of period $ 465,177 $ 401,983
================ ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 173,631 $ 379,550
================ ===============
Income taxes $ - $ -
================ ===============
The accompanying notes are an integral part of the financial statements
3
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying consolidated financial statements include the accounts of
Digital Communications Technology Corporation, (D/B/A MagneTech Corporation) and
its wholly-owned subsidiaries, Tapes Unlimited, Inc. and DCT - Internet
Corporation. The operations of Tapes Unlimited, Inc. which were formerly
consolidated with the operations of the Company, have been segregated as
discontinued operations. All significant intercompany transactions have been
eliminated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from these unaudited internal financial
statements. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual audited
financial statements.
Certain amounts in the prior period financial statements have been reclassified
to conform with current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, (consisting of only normal recurring accruals)
necessary to conform with generally accepted accounting principles. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
2. Marketable Securities
---------------------
Marketable securities consist of equity securities with an aggregate cost, based
on specific identification, of $1,585,062 as of December 31, 1996. The
marketable securities portfolio contains unrealized losses of $648,229,
resulting in a carrying value of $936,833 at December 31, 1996. The unrealized
losses are reported as a separate component of stockholders' equity. All of the
Company's securities are classified as available for sale securities.
3. Inventory
---------
Inventories are valued at the lower of cost (weighted average) or market and
consisted of the following:
December 31, June 30,
1996 1996
------------ -----------
Raw materials $ 1,510,108 $ 1,891,393
Work-in-process 673,485 769,254
Finished goods 168,371 202,264
----------- -----------
$ 2,351,964 $ 2,862,911
=========== ===========
4
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
4. Property, Plant and Equipment
-----------------------------
Property, plant and equipment consist of the following:
December 31, June 30,
1996 1996
-------------- --------------
Land $ 73,000 $ 73,000
Buildings and improvements 727,529 546,703
Machinery and equipment 10,377,207 9,612,867
------------ ------------
11,177,736 10,232,570
Less accumulated depreciation (5,483,675) (4,763,266)
Net property, plant and equipment $ 5,694,061 $ 5,469,304
============ ============
5. Revolving Lines of Credit
-------------------------
The Company has a revolving line of credit agreement for aggregate borrowings of
up to $5,000,000. Interest is payable on all outstanding cash advances at the
bank's base lending rate (closely related to the bank's prime interest rate)
plus 1/2%. At December 31, 1996 the interest rate was 8.75%. Any unpaid
principal and accrued interest is due on demand, but no later than October 31,
1998. The line of credit is collateralized by accounts receivable, inventory and
equipment. The terms of the agreement require, among other provisions, that the
Company comply with requirements for maintaining certain cash flow and other
financial ratios and restricts the payment of cash dividends. As of December 31,
1996, $2,710,000 has been drawn upon the Company's line of credit.
Long Term Debt
--------------
Long term debt consists of the following:
December 31, June 30,
1996 1996
------------------- ------------------
Various mortgages and notes payable with
interest rates ranging from 7.63% to 1%
over prime. Monthly payments range from
$3,198 to $29,000 and expiration dates
range from 1997 to 2007. $ 612,208 $ 2,601,190
Loan payable to bank in monthly installments
of $30,000 plus interest at the bank's base
rate (prime) plus 1/2%, maturing October 1998;
collateralized by accounts receivables,
inventory and equipment. The terms of the
agreement require, among other provisions, that
the Company comply with certain ratios and covenants. 1,800,000 0
------------ -------------
2,412,208 2,601,190
Less current portion (425,130) (935,127)
$ 1,987,078 $ 1,666,063
============ =============
5
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
7. Preferred Stock:
---------------
On May 6, 1996 the Company sold 100,000 shares of Class A Convertible Preferred
Stock ("Preferred Stock") in a private placement. The Preferred Stock is
convertible into Common Stock at the discretion of the holder at the lesser of
(i) 20% discount on the previous five day average closing bid at conversion, or
(ii) previous five day average closing bid price at closing. The holder may
convert up to 20% of the Preferred Stock every 30 days beginning June 15, 1996.
The Preferred Stock is convertible for a term of three years, and accrues
dividends at a rate of 7% per annum (dividends are rescinded if the shares are
converted in the first year). The holders of the preferred shares do not have
any voting rights.
Through December 1996, 90,000 shares of Series A Preferred Stock had been
converted, pursuant to their original terms, into 858,310 shares of Common Stock
at an average per share conversion price of $1.10. The terms of the Preferred
Stock which provided for a lower conversion price than the quoted market price
of the Common Stock at the time of conversion resulted in an aggregate
difference of $250,000 related to all of shares which could have been converted
through December, 1996. Such terms take into account a number of factors
affecting value, including the ability to market a significant number of shares
of the underlying common stock which were negotiated at the time of the issuance
of the Preferred Stock. Due to a recent SEC Staff Announcement regarding the
accounting for convertible debt and preferred stock with discounted conversion
rates, the difference has now been accounted for as a Preferred Stock dividend.
This difference was previously recorded at the carrying amount of the Preferred
Stock converted. Although this change in accounting does not impact the
Company's statements of operations or total stockholders' equity, it does
adversely impact the Company's earnings per share calculation. Based upon the
market price of the stock at the beginning of each respective period, an
additional 157,500 and 95,000 shares were added to the weighted average shares
of common stock, for the three month period and six month period, respectively.
6
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
By: /s/ Douglas L. Miller Date: May 2, 1997
---------------------
Douglas L. Miller, Vice-President and
Chief Financial Officer