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 September 30, 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
October 31, 1996, the latest practicable date, was 6,465,610.
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DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, June 30,
1996 1996
(Unaudited) (Audited)
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 252,673 $ 615,037
Marketable securities 1,905,976 1,900,050
Accounts receivable, net of allowance for doubtful accounts of
$433,000 at September 30, 1996 and $414,000 at June 30, 1996 5,376,204 3,719,265
Inventories 2,921,173 2,862,911
Prepaid expenses and other current assets 819,074 614,210
---------------- ----------------
Total current assets 11,275,100 9,711,473
---------------- ----------------
Property, plant and equipment, net 5,670,565 5,469,304
Other assets 281,265 81,343
Loans receivable, related parties 414,110 413,369
---------------- ----------------
Total assets $ 17,641,040 $ 15,675,489
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 2,039,944 $ 1,625,325
Current portion, long-term debt 913,715 935,127
Accounts payable 4,211,045 3,032,236
Accrued liabilities 339,039 362,520
---------------- ----------------
Total current liabilities 7,503,743 5,955,208
---------------- ----------------
Long-term debt, less current portion 1,505,333 1,666,063
Deferred tax liability 547,631 157,216
Commitments and contingencies
Stockholders' Equity:
Series A convertible preferred stock, 10,000,000 shares of $.00001 par
value per share authorized; 80,000 and 100,000 shares issued and
outstanding as of September 30, 1996 and June 30, 1996,
respectively, $1,000,000 liquidation preference 1 10
Common stock, 25,000,000 shares of $.0002 par value per share
authorized; 6,465,610 and 6,332,116 issued and 6,152,273 and
6,125,162 shares outstanding as of September 30, 1996 and
June 30, 1996, respectively 1,293 1,266
Additional paid-in capital 8,679,300 8,479,318
Retained earnings 895,817 1,030,152
Investment in S.O.I. Industries, Inc. (1,084,983) (1,084,983)
Net unrealized holding loss on investment securities (407,095) (528,761)
---------------- ----------------
Total stockholders' equity 8,084,333 7,897,002
---------------- ----------------
Total liabilities and stockholders' equity $ 17,641,040 $ 15,675,489
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements
1
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DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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For the three months ended
September 30,
1996 1995
---------------- ----------------
Net sales $ 7,019,937 $ 5,386,471
---------------- ----------------
Costs and Expenses:
Cost of goods sold 5,567,126 4,084,326
Selling expenses 305,878 253,579
General and administrative expenses 623,545 459,909
Depreciation and amortization 355,251 298,071
---------------- ----------------
Total costs and expenses 6,851,800 5,095,885
---------------- ----------------
Operating profit 168,137 290,586
---------------- ----------------
Other income (expense):
Realized gains from investment transactions 71,119 116,011
Interest and other income 0 11,430
Interest expense (108,508) (176,363)
---------------- ----------------
(37,389) (48,922)
---------------- ----------------
Income from continuing operations before
provision for income taxes 130,748 241,664
Provision for income taxes 65,331 93,564
---------------- ----------------
Income from continuing operations 65,417 148,100
Discontinued operations:
Gain from operations of discontinued operation, net of related income taxes
of $0 and $38,600 for the three months ended
September 30, 1996 and 1995, respectively 250 59,001
---------------- ----------------
Net income $ 65,667 $ 207,101
================ ================
Preferred dividends 200,000 0
---------------- ----------------
Net (loss) income available to common stockholders $ (134,333) $ 207,101
================ ================
Weighted average shares of common stock outstanding 6,534,723 5,313,641
================ ================
Earnings per share:
Continuing operations $ (0.02) $ 0.03
Discontinued operations 0.00 0.01
---------------- ----------------
Net income $ (0.02) $ 0.04
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements
2
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DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the three months ended
September 30,
1996 1995
---------------- ----------------
Cash flows from operating activities:
Net income $ 65,667 $ 207,101
---------------- ----------------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 355,251 298,071
Gain on sale of marketable securities (71,119) (116,011)
Provision for bad debts 18,777 75,000
Increase in accounts receivable (1,675,716) (802,236)
(Increase) decrease in inventories (58,262) 277,618
Increase in prepaid expenses and other (404,788) (29)
Increase (decrease) in accounts payable 1,178,809 (286,811)
(Decrease) increase in accrued liabilities (23,481) 218,177
Increase in deferred tax liability 390,415 0
Net cash (used in) operating activities (224,447) (129,120)
---------------- ----------------
Cash flows from investing activities:
(Increase) decrease in loans receivable, related parties (741) 109,418
Change in marketable securities - available for sale 186,859 512,644
Capital expenditures (556,512) (330,319)
---------------- ----------------
Net cash (used in) provided by investing activities (370,394) 291,743
---------------- ----------------
Cash flows from financing activities:
Net long-term repayments (182,142) (179,150)
Net short-term borrowings 414,619 260,000
---------------- ----------------
Net cash provided by financing activities 232,477 80,850
---------------- ----------------
(Decrease) increase in cash and cash equivalents (362,364) 243,473
Cash and cash equivalents at beginning of period 615,037 284,837
---------------- ----------------
Cash and cash equivalents at end of period $ 252,673 $ 528,310
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 110,638 $ 161,704
================ ================
Income taxes $ - $ -
================ ================
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The accompanying notes are an integral part of the financial statements
3
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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 $2,313,071 as of September 30, 1996. The
marketable securities portfolio contains unrealized losses of $407,095,
resulting in a carrying value of $1,905,976 at September 30, 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:
September 30, June 30,
1996 1996
-------------- ---------------
Raw materials $ 2,066,096 $ 1,891,393
Work-in-process 684,061 769,254
Finished goods 171,016 202,264
----------- ------------
$ 2,921,173 $ 2,862,911
=========== ============
4
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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:
September 30, June 30,
1996 1996
------------- -------------
Land $ 73,000 $ 73,000
Buildings and improvements 611,588 546,703
Machinery and equipment 10,104,494 9,612,867
---------- ----------
10,789,082 10,232,570
Less accumulated depreciation (5,118,517) (4,763,266)
---------- ----------
Net property, plant and equipment $ 5,670,565 $ 5,469,304
========== ==========
5. Revolving Lines of Credit
-------------------------
The Company has a revolving line of credit agreement for aggregate borrowings of
up to $4,000,000. Interest is payable on all outstanding cash advances at the
bank's prime lending rate plus 3/8% (8.625% at September 30, 1996). Any unpaid
principal and accrued interest is due on demand, but no later than August 1996.
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 September
30, 1996, $2,040,000 has been drawn upon the Company's line of credit.
Effective November 7, 1996, the Company entered into a new credit facility Bank
One, N.A. ("Bank") which replaced the existing facility with NBD Bank, N.A. The
new financing consists of a revolving line of credit, term loans and a long term
lease agreement. Under the revolving line of credit, borrowings can be made up
to $5,000,000 based upon collateral values as determined under the agreement.
The term loans consist of a $1,800,000 secured term loan and a capital
expenditure term loan facility for up to $1,950,000, based upon 80% of the
acquisition costs of new machinery and equipment. The long term lease agreement
is collateralized with new equipment in excess of $700,000. All of the above
agreements are collateralized by accounts receivable, inventory and equipment.
The facility has a two year term and includes interest rates at .50% above the
Bank's base rate (closely related to the Bank's prime interest rate).
5
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DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
6. Long-Term Debt
--------------
Long-term debt is summarized as follows:
Various mortgages and notes payable with interest
rates ranging from 8.75% to 1% over prime. Monthly
payments range from $3,198 to $29,000 and expiration
dates range from 1997 through 2007. $ 2,419,048
Less current portion (913,715)
--------------
$ 1,505,333
==============
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 September 1996, 20,000 shares of Series A Preferred Stock had been
converted, pursuant to their original terms, into 133,494 shares of Common Stock
at an average per share conversion price of $1.57. 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 $200,000 related to the shares that could have been converted
through September, 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. Based upon the market price
of the stock at the beginning of the period, an additional 382,000 shares were
added to the weighted average shares of common stock.
6
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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
