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:
June 30, 1997 2-96976-D
- ----------------------- ------------------
DCI TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 84-1155041
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(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
611 Access Road, Stratford, Connecticut 06497
-------------------------------------------------------------
(Address and zip code of principal executive offices)
(203) 380-0910
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(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
- ---------------------------- ------- ----------
10,009,244 Common Stock, August 14, 1997
$.0001 par value
<PAGE>
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet June 30, 1997 3
Statements of Operations
Three Months Ended June 30, 1997 and 1996 4
Statements of Cash Flow
Three Months Ended June 30, 1997 and 1996 5
Notes to Unaudited Financial Statements
June 30, 1997 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
Other Information 11
Signatures 13
2
<PAGE>
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
June 30,
ASSETS 1997
Current Assets:
Cash $1,082,158
Investments 43,575
Accounts Receivable 3,831,400
Prepaid expenses 213,811
Inventory 221,355
---------
Total Current Assets 5,392,299
Property and Equipment 1,516,321
Less: Accumulated depreciation 585,997
---------
Net property and equipment 930,324
---------
Accounts receivable 664,163
Deferred financing costs 139,727
Deposits 113,629
Other Assets - copyrights 1,700,000
- customer base 653,752
- costs in excess of net assets acquired 6,605,650
---------
8,959,402
Less: Accumulated amortization 533,767
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Net other assets 8,425,635
---------
Total Assets $15,665,777
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Due to Shareholders $ 388,139
Notes and settlements payable 313,431
Accounts payable and accrued expenses 4,865,486
Participations payable 1,505,604
Income Taxes Payable 194,929
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Total Current Liabilities 7,267,589
Participations payable 688,481
Long Term Debt 646,074
Deferred Income Taxes 248,202
Redeemable, convertible preferred stock $1,000 par and
redemption value, 2,000,000 shares authorized, 1,302
shares issued and outstanding 1,302,000
Total Liabilities 10,152,346
Commitments and Contingencies (Note 11)
Shareholders' Equity:
9.25% cumulative convertible, preferred stock
$100 par value, 5,000,000 shares authorized,
29,076 shares issued and outstanding; 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
9,003,074 shares issued
and outstanding 900
Paid in capital 5,634,244
Treasury Stock (13)
Unrealized Capital Loss (5,495)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) (421,205)
---------
Total Shareholders' Equity 5,513,431
---------
Total Liabilities and Shareholders' Equity $15,665,777
-----------
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended
June 30,
1997 1996
Net Sales $3,387,462 $ 540,404
Cost of Sales 2,181,946 378,787
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Gross Profit 1,205,516 161,617
Selling, General &
Admin. Expenses 500,517 106,487
Salaries and
Compensation 378,376 100,176
Amortization &
Depreciation 117,027 61,236
Professional and
Consulting Fees 112,615 23,189
--------- --------
1,108,535 291,088
Income (Loss)
from Operations 96,981 (129,471)
Other Income and (Expense):
Interest Expense (39,022) (7,127)
Interest Income 11,950 94
Net Income(Loss) 69,909 (136,504)
Net Income(Loss)
per common share $0.01 ($0.04)
Fully Diluted Income (Loss)
per common share ($0.00) ($0.04)
Weighted average common
shares outstanding 8,915,937 3,389,051
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
June 30,
Cash Flows from Operating Activities: 1997 1996
Net Income (Loss) $ 69,909 ($136,504)
-------- ---------
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 117,027 61,236
Stock issued for services 800
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts & Contracts Receivable (217,726) 5,905
Inventory 24,915
Deposits & Prepayments (75,447) 1,164
Deferred Financing Costs 35,515
Increase (Decrease) in:
Accounts & Contracts Payable (328,951) (136,543)
Accrued Expenses (433,000) 645
Income taxes 35,733
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Total Adjustments: (841,134) ( 67,593)
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Net cash provided by (used in)
operating activities (771,225) (204,097)
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Cash flows from (used in) investing activities:
Additions to property,
plant & equipment ( 11,359) (11,514)
Cash acquired with acquisition 110,629
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Net cash provided by (used in)
investing activities 99,270 (11,514)
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Cash flows from (used in) financing activities:
Advances from (to)shareholders 373,979 ( 35,639)
Proceeds from sale of
stock & options 68,077 368,514
Bank overdraft (36,724)
Payment of notes payable ( 2,024) (3,555)
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Net cash provided by (used in)
financing activities 440,032 292,596
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Net Increase (Decrease) in cash (231,923) 76,985
Cash, Beginning of Year 1,314,081 32,073
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Cash, End of Period $1,082,158 $109,058
Three Months Ended
June 30,
1997 1996
Supplemental disclosures of cash flow information:
Non cash investing and financing transactions:
Acquisition by stock issuance:
CardCall International $3,600,722
Non cash settlements $ 40,000
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements June 30, 1997
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 report the acquisition of The Travel Source,
Ltd. as a pooling of interest.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, (CardCall International,
CyberFax Inc., Privilege Enterprises Limited and The Travel Source,
Limited)and R&D Scientific and Muller Media as if the purchase and
sale agreement with R&D Scientific and stock purchase agreement with
Muller were completed. 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-K filed for the year ended
March 31, 1997.
Income (loss) per share was computed using the weighted average
number of common shares outstanding.
NOTE 2. CardCall International Holdings Inc.
- --------------------------------------------
In 1997 DCI and CardCall International Holdings Inc. ("CardCall")
entered into discussions regarding the combination of the two
companies. CardCall, a Delaware corporation, is the parent company of
6
<PAGE>
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 which provide the cardholder access
to long distance service through its switching facility. In February
1997, the Company invested $1,500,000 in CardCall. The Company raised
this money through the issuance of DCI convertible preferred stock to
certain shareholders of CardCall.
Subsequent to March 31, 1997 CardCall agreed to accept DCI's offer to
purchase all of the issued and outstanding common shares (8,238,125)
and warrants of CardCall. In connection with this transaction for
each 100 shares of common stock of CardCall held by a shareholder,
DCI will issue up to 6 shares of common stock (subject to certain
conditions upon conversion of Series C Preferred Stock) and a warrant
to purchase 9 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 on or before July 31, 1997 at a
purchase price of $.20 per share. Such options expire on April 30,
2002.
NOTE 3. Acquisition of R&D Scientific Corp.
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On June 19, 1995, DCI entered into an agreement to acquire the common
stock of R&D Scientific Corp. (R&D), a New Jersey Corporation, for
106,250 shares (to be adjusted on or before December 31, 1997 for a
value of $1,700,000). The shares are to be exchanged subject to the
condition that the Company make a cash infusion requirement of
$150,000 to R & D. Such shares remain in escrow but are included in
outstanding common stock for the period ended June 30, 1997. The
Company was granted an extension until December 31, 1997 to make the
cash infusion of $150,000, required by the agreement, in order to
consummate the transaction with R&D. In consideration for the
extension, R&D has the right to terminate the purchase and sale
agreement at its sole discretion prior to DCI making the cash
infusion. As of June 30 1997, $90,000 of the cash infusion has been
made.
7
<PAGE>
The Company's financial statements include the operations of R&D from
June 19, 1995, the date of the purchase and sale agreement. The
financial statements do not include any adjustments that might result
from the termination of the purchase and sale agreement.
NOTE 4. Acquisition of Muller Media, Inc.
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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 one million two hundred thousand
(1,200,000) shares of common stock for all of the shares of Muller
capital stock. The DCI stock was valued at two dollars and fifty
cents ($2.50) per share ($3 million in total).
The shares of both companies have been deposited with an escrow
agent. DCI must repurchase the shares, if Muller exercises a "put"
option which commences on the earlier of 120 days from December 27,
1996, unless an extension is requested by DCI, which Muller cannot
unreasonably withhold, or 14 days after DCI has received an aggregate
of $3,000,000 in net proceeds from the sale of its capital stock. An
extension was granted by Muller through December 31, 1997. The
selling stockholders have an option to keep DCI stock or accept up to
$3,000,000 in cash from DCI. Muller is a distributor of syndicated
programming and motion pictures to the television and cable industry.
The acquisition has been accounted for as a purchase.
NOTE 5. Common and Preferred Stock
- -----------------------------------
During the three months ended June 30, 1997, the holders of 198
shares of Series C Convertible Preferred Stock elected to convert
into common shares, resulting in the issue of 115,126 common shares.
In addition, options to purchase 370,000 common shares were exercised
during the quarter.
8
<PAGE>
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, 1997. 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,
cellular as well as Internet connections. Through continued
investments and fiscal 1997 business acquisitions, the Company has
expanded its business into rapidly developing markets.
Recent Acquisitions
- -------------------
The acquisition of CardCall International and CyberFax in the quarter
ended June 30, 1997 were accounted for under the purchase method of
accounting under both U.S. and United Kingdom generally accepted
accounting principles. The Company believes that CardCall
International, operating with the combined networks, financial
resources, management, personnel and technical expertise of the
Company, CyberFax and DCI UK Limited, will be better able to
capitalize on the world wide growth opportunities in the
telecommunications industry. In addition, the Company expects these
companies will be able to derive significant advantages from the more
efficient utilization of their combined assets, management and
personnel.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
On December 30, 1994 and January 5, 1995 the Company acquired the
assets of Sigma Telecommunications and Alpha Products through the
issue of 1,330,000 shares of common stock, and renamed the Company
DCI Telecommunications, Inc. The liabilities remaining from the
former Fantastic Foods International, Inc. at acquisition left the
Company with negative working capital and little financing
capability. In June 1995 the Company acquired R&D Scientific and in
November 1996 acquired Muller Media, both through the issue of common
stock. The acquisitions, particularly Muller Media, greatly improved
the Company's financial position and at March 31, 1997 the current
ratio was a positive 1.9 to 1 and cash on hand was $1,300,000.
However, with the acquisition of CardCall International in the
quarter ended June 30, 1997, the Company's current ratio dropped to a
negative position.
Cash used in operations was $771,000 in the three months ended June
30, 1997. The Company was able to partially overcome this shortfall
by proceeds from the exercise of stock options, and advances from
stockholders totaling $440,000.
While CyberFax had limited operations during the quarter, it has
secured nine contracts in four countries for its real time fax to fax
transmission packages. CardCall UK is expanding its distribution
network to vending machines and CardCaller Canada is embarking on a
prepaid cellular phone program. All of these programs will require
significant cash to finance the expansion plans.
The Company is continuing to pursue long-term financing for its
acquisition and expansion program. However, no assurance can be given
that additional financing will be available or, if available, that it
will be on acceptable terms. The ability to finance all new and
existing operations will be heavily dependent on external sources.
Consolidated Results of Operations
- ----------------------------------
All of the variances in the results of operations are predominantly
due to the addition of CardCall International in the quarter ended
June 30, 1997.
10
<PAGE>
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 12.
11
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8K
On April 18, 1997 the Company filed a Form 8K which described the
acquisition of CyberFax Inc.
12
<PAGE>
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: August 19, 1997 By: Joseph J. Murphy
----------------
Joseph J. Murphy
President
By: Russell B. Hintz
----------------
Russell B. Hintz
Chief Financial Officer
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