SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K SB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1997
Commission File Number: 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 No.)
of incorporation or organization)
611 Access Road, Stratford, Connecticut 06497
(Address of principle executive offices, including zip code)
Registrant's telephone number, including area code: (203) 259-7713
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.0001 par value)
Indicate by check mark whether the company (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ____
The aggregate market value of voting stock held by nonaffiliates of the
Company was approximately $15,581,898 as of June 11, 1997.
9,227,961
------------------
(Number of shares of Common Stock outstanding as of June 11, 1997)
<PAGE>
PART I
ITEM 1 - BUSINESS
General
The Registrant was originally incorporated on February 4, 1985 as Alfab,
Inc. ("Alfab"), and was inactive after the year ended June 30, 1989 until
October 1991, when it completed a reorganization ("Reorganization") with
Fantastic Foods International, Inc. ("FFI"). The Reorganization was
accounted for as though it were a recapitalization of FFI through the
transfer of 10,002 shares of Common Stock in exchange for all the assets of
Alfab, which were not significant. The name of the registrant was changed
to Fantastic Foods International, Inc. subsequent to the Reorganization.
The shareholders of Fantastic Foods International (FFI) at a shareholders
meeting on December 30, 1994 approved the acquisition of the assets of
Sigma Telecommunications, Inc. in a stock for asset purchase, with FFI
exchanging four hundred and eighty thousand (480,000) common shares for the
assets of Sigma Telecommunications, Inc. Concurrent with the merger, the
name was changed to DCI Telecommunications, Inc. ("DCI" or the "Company").
On January 5, 1995 the Board of Directors approved the acquisition of
certain assets of Sigma Industries, Inc. (Alpha Products) in a stock for
asset purchase with the Company exchanging eight hundred and fifty thousand
(850,000) common shares for the assets of Alpha Products.
On June 19, 1995, the Company entered into an agreement to acquire the
common stock of R&D Scientific Corporation ("R&D") in a stock for stock
purchase, with the Company exchanging 106,250 shares for all of R&D's
outstanding stock. The stock of both companies is being held in escrow
pending certain cash infusion requirements. The Company was granted an
extension until December 31, 1997 to make the cash infusion of $150,000 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 contract at
its sole discretion prior to DCI making the cash infusion.
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. ("Muller"), (a New York corporation that distributes
syndicated programming and motion pictures to the television and cable
industry) 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 common shares of
Muller. The DCI stock was valued at two dollars and fifty cents ($2.50) per
share ($3,000,000 in total). The shares of both companies have been
deposited with an escrow agent but are included in outstanding common stock
for the year ended March 31, 1997 based upon the intention of the Company.
<PAGE>
DCI is required to repurchase the shares for $3,000,000, 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 July 15, 1997. The selling
stockholders also have an option to keep DCI stock or accept up to
$3,000,000 in cash from DCI.
Subsequent Events
On April 9, 1997 the Company acquired, for 400,000 shares of common stock,
all of the outstanding shares of CyberFax, Inc., a Canadian corporation
engaged in the business of providing real time fax capabilities on the
Internet.
On April 23, 1997 the Company acquired all of the outstanding shares of
Crossmain Ltd, a British corporation, for 4,285,714 options to purchase
common stock over a two year period subject to certain earning provisions
to be obtained by Crossmain. Crossmain is engaged in the business of
providing long distance telecommunications throughout Europe via a private
leased line network.
On June 17, 1997 the Company completed the acquisition of CardCall
International Holdings, Inc. ("CardCall") whereby DCI will acquire all the
outstanding common shares and warrants of CardCall in exchange for a
maximum of 494,287 common DCI shares, 7,002,406 options to purchase DCI
stock at $.20 per share, and 741,432 warrants for DCI stock at $4.00 per
share. CardCall develops and markets prepaid phone cards and cellular
telephones.
Business Activity
DCI Telecommunications, Inc. (the "Company") is engaged through its
operating subsidiaries in long distance telecommunications, prepaid
cellular and Internet related products and services. The Company through
the acquisition of Crossmain Limited (since renamed DCI UK Limited), a
London based company, is involved in providing long distance telephone
service to businesses and individuals through a private leased line network
being established throughout Europe where deregulation in the
telecommunications industry is just now being implemented. A leased line
network from one country to another is one of the least expensive methods
for a small company to gain entry into the long distance business.
CardCall International Holdings, Inc. (and its subsidiaries CardCall UK and
CardCaller Canada), also acquired by the Company, develops and markets
standard prepaid phone cards as well as voice-activated prepaid phone cards
through an extensive and growing distribution network for its products and
services throughout Europe and Canada. A prepaid phone card permits the
holder of the card to place long distance and international calls from any
<PAGE>
touch-tone phone, eliminating the need for coins and collect calls. The
card user, who has prepaid for telephone minutes, simply dials an 800
number which connects the user to one of the Company's switching
facilities. The caller is then prompted for his or her personal
identification number (PIN) and destination phone number. The call is then
routed through the Company's switch to the ultimate destination via a long
distance carrier. The phone cards are sold through national distributors
in both the UK and Canada with 55,000 and 3,000 distribution points
respectively.
The Company, through its Privilege Enterprises Limited subsidiary (PEL),
designs and markets corporate sponsored value-added phone cards (called
Privilege CardsT) and specialized card-based membership programs to the
international consumer and commercial marketplaces. PEL has established a
merchant network of over 8,000 businesses in the United States who accept
the Privilege CardT and offer the card holder some form of discount, free
gift or "privilege". The Privilege Cards are distributed by corporate
sponsors and through membership groups.
CardCaller Canada (CCC), a DCI subsidiary recently announced the launch of
its first prepaid cellular telephone. This new and exciting product was
developed in large part for the over 30% of applicants who are rejected for
cellular service due to either poor credit or no credit history. CCC is a
switch based reseller utilizing its own prepaid switching platform which
enables it to offer customized prepaid cellular service that is extremely
suitable for Canadian based users. This product will be sold through CCC's
national network of distributors.
R&D Scientific has developed a proprietary data monitoring system for a
number of industries including hospitals, blood banks, pharmaceutical
companies and government institutions. It assemble and sells a broad
product line of data acquisition and control devices for personal computers
and has recently introduced a wireless probe which allows the sending and
receiving of digital data over existing electrical wiring.
Muller Media is engaged in the business of purchasing, selling,
distributing, licensing and otherwise dealing in the acquisition and
transfer of motion picture and other entertainment media principally to
major television and cable networks.
The Company's corporate strategy takes into consideration opportunities the
Internet may provide in the telecommunications area. In this regard, the
Company acquired Cyberfax, Inc. which immediately gives the Company a
product which integrates a communication tool used world-wide with the
Internet. Cyberfax software and hardware allows fax to fax transmission
over the Internet in real-time (not store and forward) with delays which
are virtually nil and with standard confirmation protocols. This products
will be marketed by various Internet Service Providers (ISP's) and
telephone companies throughout the world.
<PAGE>
The Company's growth plan is based on internal product development
supported by strategic acquisitions and joint ventures in the
telecommunications area which will immediately and significantly enhance
its product offerings, distribution channels, market penetration and
earnings.
Copyright
R&D Scientific owns a copyright on its Datatron System which provides a
tamperproof data acquisition system to monitor environmental areas for the
pharmaceutical and clinical blood bank industries.
Employees
The Company has eighty six employees.
Competition
The Company has numerous competitors, many with substantially more
resources than the Company. Management believes that no single competitor,
however, has a dominant market position. Management believes that the
Company is able to compete successfully on the basis of product efficiency,
reliability, and service to customers.
Major Customers
Three customers accounted for approximately 43% and 49% of R&D Scientific
sales in 1997 and 1996. Four customers accounted for approximately 59% of
Muller Media sales in 1997.
ITEM 2 - PROPERTIES
The Company is presently negotiating an operating lease agreement for
approximately 1,400 square feet of office space in Stratford, Connecticut
for its corporate headquarters. R&D Scientific owns condominium office
space in Flanders, New Jersey totaling 3,000 square feet which is secured
by a first mortgages totaling $165,000. It also rents 1,500 additional
square feet for office and assembly space under a lease that expired on
June 1, 1997. Other leased office space includes 1,000 square feet for
Travel Source in Kingston, Rhode Island, 800 square feet for Muller Media
in New York City, and 1,000 square feet for Privilege Enterprises in
Uxbridge, Massachusetts. All properties are considered in good condition.
ITEM 3 - LEGAL PROCEEDINGS
See Notes to Financial Statements
ITEM 4 - SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on
NASDAQ's electronic bulletin board. Its symbol is "DCTC".
The quotations set forth represent prices between dealers and do not
include retail markups, markdowns or commissions and do not necessarily
represent actual transactions. These quotations were obtained from the
National Association of Securities Dealers.
1996(1) HIGH LOW
First quarter ended
June 30, 1995 $3.13 $ .40
Second quarter ended
September 30, 1995 $1.20 $ .40
Third quarter ended
December 31, 1995 $ .90 $ .20
Fourth quarter ended
March 31, 1996 $4.50 $ .10
1997 HIGH LOW
First quarter ended
June 30, 1996 $ 1.31 $ .13
Second quarter ended
September 30, 1996 $ 3.81 $ .84
Third quarter ended
December 31, 1996 $ 2.63 $1.00
Fourth quarter ended
March 31, 1997 $ 5.50 $1.56
(1) Restated for forty for one split on March 7, 1996 and one for four
hundred reverse split on March 14, 1996
As of June 11, 1997 there were approximately 2,002 recorded holders of the
Company's stock.
<PAGE>
To date, the Company has not paid cash dividends on its Common Stock.
Holders of Common Stock are entitled to receive such dividends as may be
declared and paid from time to time by the Board of Directors out of funds
legally available therefore. The Company intends to retain all earnings
for the operation and expansion of its business and does not anticipate
paying cash dividends in the foreseeable future. Any future determination
as to the payment of cash dividends will depend upon future earnings,
results of operations, capital requirements, the Company's financial
condition and such other factors as the Company's Board of Directors may
consider.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selected Financial Data
The following table sets forth selected consolidated financial data of the
Company for the years ended March 31, 1993 through 1997.
STATEMENT OF OPERATIONS DATA (a)
Years Ended March 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net sales and
other revenue $2,793,948 $ 1,842,170 $110,385 -- --
Gross profit 850,244 442,308 63,728 -- --
(Loss) before
income taxes (373,278) (711,914) (1,095,485) (103,699) (844,008)
Net (loss) ($373,278) ($711,914) ($1,095,485) ($103,699) ($844,008)
Net (loss)
per share (b) ($0.07) ($0.36) ($1.95) ($1.30) ($13.10)
BALANCE SHEET DATA
Working capital $1,768,902 ($287,706) ($247,357) ($399,369) ($375,470)
Total assets 10,733,959 2,606,532 3,364,196 1,670 2,402
Long-term debt 180,022 83,655 -- -- --
Stockholders'
equity 5,931,334 1,925,791 2,842,060 (397,769) (373,070)
(a) Includes the results of purchased businesses from acquisition dates,
except for Travel Source which was treated as a pooling of interest. (Data
for Travel Source not available 1993-1995).
(b) Adjusted to reflect a one for twenty reverse stock split effected
January 25, 1995, a forty for one split effected March 7, 1996 and
a one for four hundred reverse split effected March 14, 1996.
<PAGE>
References herein to the years 1997, 1996 and 1995 refer to the Company's
fiscal years ended March 31.
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 two
years ended March 31, 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
services. 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.
Acquisition Agreements
The acquisitions of CardCall International, CyberFax and DCI UK Limited
will be 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, (Privilege Enterprises Limited and The
Travel Source, Limited) and R&D Scientific and Muller Media since
acquisition dates, as if the stock purchase agreements with R&D and Muller
were completed.
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
<PAGE>
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, cash used in operations was $745,000 and $311,000 in the years
ended March 31, 1997 and 1996 respectively. The Company was able to
overcome these shortfalls from the sale of common stock and proceeds from
the exercise of stock options.
Shortly after the close of fiscal year March 31, 1997, the Company
completed the acquisition of CardCall International, CyberFax and DCI UK,
which combined will require significant amounts of cash to finance their
expansion plans.
The Company is continuing to pursue long-term financing for its acquisition
and expansion program, and with its currently unleveraged position, will
most likely engage in debt financing. 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
The following provides a discussion of the Company's consolidated results,
comprised of the Company and its wholly owned subsidiaries, (Privilege
Enterprises Limited, and The Travel Source, LTD) and R&D Scientific and
Muller Media as if the purchase agreements with R&D and Muller were
completed. References herein to the years 1997, 1996 and 1995 refer to the
Company's Fiscal Years ended March 31.
Results of Operations - 1997 Compared to 1996
1997 1996
Net Sales $2,793,948 $1,842,170
Net sales increased $951,778 or 52% in 1997 compared to 1996. The increase
is principally due to Muller Media sales since its acquisition in November
1996. Small increases in Technology and Travel Agency sales also
contributed to the increase.
1997 1996
Cost of Sales $1,943,704 $1,399,862
Cost of sales increased $543,842 or 39% in 1997. Cost of sales associated
with Muller Media sales for the four months since its acquisition amounted
to approximately $385,000. In addition, cost of sales for the Technology
Group increased $137,000 due to more salaries being allocated to cost of
sales in 1997.
<PAGE>
1997 1996
Selling, General and Administrative $408,810 $416,141
Selling, General & Administrative expenses declined $7,604 in 1997.
Expenses increased approximately $170,000 as a result of several months of
activity from Muller and PEL (acquired in November 1996). However,
increased favorable debt settlements, lower director fees and various other
reductions entirely offset the Muller and PEL increases.
1997 1996
Salaries and Compensation $438,867 $383,510
Salaries increased $55,357 or 14% in 1997. Salaries of Muller and PEL
since their acquisition amounted to $176,830 but was significantly offset
due to the allocation of more salaries to cost of sales.
1997 1996
Professional and Consulting Fees $96,880 $130,962
Professional and consulting fees declined $34,082 or 26% in 1997.
Increased fees as a result of Muller and PEL activity since acquisition
totaled $40,874 and was offset by lower fees associated with debt
settlements and the expanded use of internal resources for administrative
responsibilities.
1997 1996
Amortization and Depreciation $277,737 $193,059
Amortization and depreciation increased $85,812 in 1997. A full year's
amortization of the R&D copyright (acquired June 1995) resulted in a
$57,500 increase, and amortization of Muller goodwill beginning in 1997
resulted in an additional $24,000.
Other Income and Expense
1997 1996
Interest (Expense) ($20,799) ($30,670)
Interest Income $19,571 $120
Interest expense declined $9,871 in 1997 due to the overall decline in
corporate debt. Interest income in 1997 is almost entirely due to Muller's
short term investments.
Results of Operations - 1996 Compared to 1995 (excluding Travel Source in
both years since 1995 not available).
<PAGE>
1996 1995
Net Sales $ 814,016 $ 110,385
Net sales in 1996 amounted to $814,016 compared to only $110,385 in 1995.
Sales in 1996 include a full twelve months of telecommunications, data
acquisition and computer related sales as well as $544,404 medical systems
sales since the proposed acquisition of R&D Scientific on June 19, 1995.
Sales in 1995 reflect only three months of operations.
Net sales in 1995 represents sales of data acquisition, telecommunications
components and collectible items since the acquisition of DCI and Alpha
Products, or the last quarter of 1995. There were no operations earlier in
the 1995 fiscal year.
1996 1995
Cost of Sales $ 476,243 $ 46,657
Cost of sales in 1996 reflects twelve months of telecommunication, data
acquisition and computer related costs and over nine months of R&D
Scientific costs, while 1995 costs reflects only three months of activity.
1996 1995
Salaries and Compensation $ 338,217 $ 112,819
Salaries and compensation rose from $112,819 in 1995 to $338,217 in 1996
almost exclusively due to twelve months activity and the addition of R&D
Scientific versus only three months activity in 1995.
1996 1995
Selling, General and Administrative $ 365,250 $ 125,868
Selling, general and administrative expenses increased to $365,250 in 1996,
compared to $125,868 in 1995. The increase represents utilities, rent,
travel and other expenses associated with a full year of operations.
1996 1995
Professional and Consulting Fees $ 129,065 $ 768,631
Professional and consulting fees decreased from 1995 due to the high
settlement of legal issues in the year ending March 31, 1995. This
variance is also due to the inclusion in 1995 of stock related to Casino
Marketing employees (which was written off in the 1996 quasi
reorganization) and stock to the former president and others for services
to establish the Company.
1996 1995
Amortization and Depreciation $ 191,924 $ 77,401
Amortization and depreciation increased to $191,924 in 1996 from $77,401 in
1995. Amortization in 1996 includes twelve months of customer base totaling
$65,375 and ten months of R&D Scientific copyrights of $112,500.
Amortization in 1995 included only three months of customer base
amortization and $58,500 associated with Casino Marketing trademarks which
was written off in 1996.
<PAGE>
1996 1995
Other Income and (Expense) ($ 30,670) ($ 74,494)
Net other expense declined $43,824 in 1996 compared to 1995, principally
due to the inclusion in 1995 of settlement expenses associated with the
former Fantastic Foods obligations. This was partially offset by $16,915
higher interest expense on notes and accounts payable in 1996.
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
commencing on page F-1.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The present and nominated Directors and Executive Officers of the Company
are set forth below.
DIRECTOR AGE DIRECTOR
SINCE
Joseph J. Murphy 58 1995
Chairman of the Board, President and CEO for the Company. Within the past
five years, he was president and CEO of Alpha Products. Prior to that he
was executive vice president, member of the Board of Directors, and chief
financial officer for Aquarion, a New York Stock Exchange Company.
Larry Shatsoff 43 1995
Director, Vice president and Chief Operations Officer for the Company.
Within the past five years he has been vice president and chief
operations officer for Alpha Products. Prior to that, he was executive
vice president of Kalon Systems (a data processing services company),
manager of information systems for Aquarion, a New York Stock Exchange
Company.
Richard Sheppard 51 1995
Director, President and CEO of R&D Scientific Corp, a position he has
held over the last five years.
<PAGE>
John J. Adams 58 1995
Director, Vice President Marketing DCI Telecommunications, Inc. During
the last five years Mr. Adams has been Vice President for R&D Scientific
Corp. and founder and President of Validation Services Corp. Mr. Adams
was previously President of Prevent Chemicals, Ltd., a publicly traded
manufacturer of specialty chemicals.
Carter Hills 66 1995
Director, retired diplomat. Extensive experience in economic development
and management planning under auspices of Department of State and major
international organizations. Directs such programs in countries of Near
East and Vietnam. Served as financial adviser and delegate for U.S. at
key international conferences.
Paul Bettencourt 50 1996
Director, President of Privilege Enterprises Limited. During the last
five years has been president of Bettencourt and Associates. Mr.
Bettencourt is advisor to the American Hotel and Motel Association and a
publishing consultant to segments of the Defense Department.
Lois S. Morris 46 1997
Director, Chief Executive Officer of The Travel Source Limited, a
position she has held for the last five years. Ms. Morris is on the Board
of Directors of the Ocean State Business School, and a member of the Town
of Richmond, Rhode Island Economic Development Commission.
Donald Mactaggart 59 1997
Director, CEO of CyberFax. Prior to creating CyberFax he was an ITU
Associate Rapporteur for G3 facsimile, and helped Unitel launch the
first fax-specific long distance service. He also founded Textran,
Canada's first dedicated provider of enhanced telecommunications
services.
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
Executive Compensation
|Annual Compensation| Long Term Compensation|
Name Other Restricted
and Annual Stock LTIP All Other
Principal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
Joseph
J. Murphy 1995 100,000
CEO 1996 100,000 5,872
1997 100,000 600,000
Options/SAR Grants in Last Fiscal Year
% of Total
Options/SARs
Options/SARs Granted to Employees Exercise or Base
Name Granted (#) in Fiscal Year Price ($/Sh) Expiration Date
Joseph
J. Murphy 600,000 17.4 $.1875 4/12/01
CEO
Options Exercised in Last Fiscal Year
Shares Value of Unexercised
Acquired on Value Unexercised Options In the Money Options
Name Exercise Realized at Fiscal Year End Fiscal Year End
Joseph
J. Murphy -- -- 600,000 $2,287,500
The Company entered into an employment agreement dated January 1, 1995 with
Mr. Murphy for services rendered the Company as its President and Chief
Executive Officer for an annual base salary of $100,000.
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of June 11, 1997 by: (i) each of the Company's executive
officers and directors, (ii) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, and
(iii) all of the Company's officers and directors as a group:
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
(i)Joseph J. Murphy 1,530,019 14.2%
Larry Shatsoff 442,150 4.1%
Richard Sheppard 355,625 (a) 3.3%
John J. Adams 215,312 2.0%
Carter H. Hills 252,000 2.3%
Paul Bettencourt 6,897 .1%
Lois Morris 14,706 .1%
Donald Mactaggart 200,000 1.9%
(ii) Robert Muller 1,298,000 (b) 12.1%
(iii) All executive officers and
directors as a group 3,016,709 (c) 28.1%
NOTES:
(a) Includes 95,625 shares upon completion of acquisition of R&D Scientific
(b) Includes 1,200,000 shares upon completion of acquisition of Muller Media
(c) Included in shares owned above are shares which the beneficial owner
has the right to acquire from options within sixty days as follows: J.
Murphy, 600,000 shares; L. Shatsoff, 350,000 shares; R. Sheppard, 260,000
shares; J. Adams, 185,000 shares; C. Hills, 100,000 shares
<PAGE>
ITEMS 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engaged in certain related party transactions in the ordinary
course of business during the last fiscal year. See Notes to Financial
Statements.
PART IV
ITEM 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion is submitted as a
separate Section of this report commencing on page F-1.
(a) (3) and (c) Exhibit (numbered in accordance with Item 601 of
Regulation S-K)
Exhibit No. Description Page No.
(3a) Articles of Incorporation (a)
(3b) By-Laws (a)
(4) NA
(9) NA
(10) NA
(11) NA
(12) NA
(13) NA
(16) Change in Certifying Accountant (b)
(18) NA
(19) NA
(21) Subsidiaries Travel Source, Ltd.,
Privilege Enterprises Ltd.
(22) NA
(23) NA
(24) NA
(25) NA
(28) NA
(29) NA
(a) - Filed with Registration Statement on Form S-18 (File 2-96976-D) and
incorporated by reference herein.
(b) - Filed with Form 8K dated June 28, 1995
During the quarter ended March 31, 1997, the following Form 8k's were
filed:
January 7, 1997 Acquisition agreement with Muller Media, Inc.
April 3, 1997 Certified financial statements of Muller Media, Inc.
April 18, 1997 Stock purchase agreement for acquisition of CyberFax
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 25, 1997 By:
Joseph J. Murphy
President and Chief
Executive Officer,
Director
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: June 25, 1997
Joseph J. Murphy
President and Chief
Executive Officer, Director
Date: June 25, 1997
Larry Shatsoff, Director
Date: June 25, 1997 /s/Richard Sheppard, Director
Date: June 25, 1997 /s/John J. Adams, Director
Date: June 25, 1997 /s/Carter Hills, Director
Date: June 25, 1997 /s/Paul Bettencourt, Director
<PAGE>
FINANCIAL STATEMENTS
TABLE OF CONTENTS
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DCI Telecommunications, Inc.
Report of Independent Auditor F-1
Balance Sheets - March 31, 1997 and 1996 F-2
Statements of Operations
Years Ended March 31, 1997 and 1996 F-3
Statements of Changes in Stockholders' Equity
Years Ended March 31, 1997 and 1996 F-4
Statements of Cash Flows
Years Ended March 31, 1997 and 1996 F-5(1-2)
Notes to Financial Statements F-6 through F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFYING ACCOUNTANT
Shareholders and Board of Directors
DCI Telecommunications, Inc.
We have audited the accompanying consolidated balance sheets of DCI
Telecommunications, Inc. as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of DCI Telecommunications,
Inc. as of March 31, 1997 and 1996 and the results of its operations, and
its cash flows for each of the two years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 the Company has not completed the purchase
and sale agreement with R&D Scientific Corporation and the stock purchase
agreement with Muller Media Inc.. Although management believes the
acquisitions of R&D Scientific Corporation and Muller Media Inc. will
occur, no assurance can be given that these acquisitions will occur. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Schnitzer & Kondub, P.C.
Eastchester, New York
June 4, 1997
F-1
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DCI Telecommunications, Inc.
Consolidated Balance Sheets
March 31,
ASSETS 1997 1996
Current Assets:
Cash $1,314,081 $42,198
Investments 43,575 -
Accounts Receivable 2,286,430 141,510
Due from shareholders 14,160 98,503
Prepaid expenses 43,088 -
Inventory 27,685 27,169
Total Current Assets 3,729,019 309,380
Property and equipment 429,419 156,812
Less: accumulated depreciation 123,296 26,885
Net property and equipment 306,123 129,927
Investment in
CardCall International Holdings, Inc. 1,500,000 -
Accounts receivable 1,114,389 -
Deferred financing costs 175,242 -
Deposits 16,534 5,020
Other Assets - copyright 1,700,000 1,700,000
- customer base 653,752 653,752
- costs in excess of
net assets acquired 1,989,823 -
Less: Accumulated amortization 450,923 191,547
Net other assets 3,892,652 2,162,205
Total Assets $10,733,959 $2,606,532
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ - $42,004
Notes and settlements payable 40,391 198,426
Accounts payable and accrued expenses 252,541 356,656
Participations payable 1,533,966 -
Income taxes payable 133,219 -
Total Current Liabilities 1,960,117 597,086
F-2 (1)
<PAGE>
Participations payable 888,307 -
Long Term Debt 180,022 83,655
Deferred Income taxes 274,179 -
Redeemable, convertible preferred stock $1,000
par and redemption value, 2,000,000 shares
authorized, 1,500 shares issued
and outstanding 1,500,000 -
Total Liabilities 4,802,625 680,741
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 305,000 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
8,037,368 and 2,405,426 shares issued
and outstanding 804 241
Paid in capital 6,122,152 1,738,415
Treasury Stock (13) (29)
Unrealized Capital Loss (5,495)
Retained earnings subsequent to 12/31/95,
date of quasi-reorganization (total
deficit eliminated $4,578,587) (491,114) (117,836)
Total Shareholders' Equity 5,931,334 1,925,791
Total Liabilities and Shareholders' Equity $10,733,959 $2,606,532
See Accompanying Notes to Consolidated Financial Statements
F-2 (2)
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Operations
Year Ended March 31,
1997 1996
Net Sales $2,793,948 $1,842,170
Cost of Sales 1,943,704 1,399,862
Gross Profit 850,244 442,308
Selling, General & Administrative 408,810 416,141
Salaries and Compensation 438,867 383,510
Professional and Consulting Fees 96,880 130,962
Amortization and Depreciation 277,737 193,059
1,222,294 1,123,672
(Loss) from Operations (372,050) (681,364)
Other Income and (Expense):
Interest Expense (20,799) (30,670)
Interest Income 19,571 120
(1,228) (30,550)
Net (Loss) ($373,278) ($711,914)
Net (loss) per common shares ($0.07) ($0.36)
Weighted average common shares
outstanding 4,986,139 1,988,426
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1997 and 1996
Unrealized
Added Capital
Preferred Stock Common Stock Paid in Treas. Accum. (Losses)
Shares Amount Shares Amount Capital Stock Deficit Gains Total
------ ------- ------- ------ -------- ----- ------- --------- -------
Balances, April 1, 1995
2,750 $265,000 2,115,324 $212 $6,552,188 -- ($3,984,509) -- $2,832,891
Shares issued for options exercised
-- -- 16,819 2 235,372 -- -- -- 235,374
Shares issued for services
11,326 -- 46,150 4 298,133 -- -- -- 298,137
Shares issued for stock of R&D Scientific
-- -- 106,250 11 1,699,989 -- -- -- 1,700,000
Shares canceled - employment contracts
-- -- -- -- (781,237) (13) -- -- (781,250)
Shares sold
15,000 40,000 120,883 12 116,972 -- -- -- 156,984
Quasi reorganization - 12/31/95
-- -- -- -- (6,383,002) (16) 4,578,587 -- (1,804,431)
Net Loss
-- -- -- -- -- -- (711,914) -- (711,914)
Balances, March 31, 1996
29,076 $305,000 2,405,426 $241 $1,738,415 ($29) ($117,836) -- $1,925,791
Shares issued for options exercised
-- -- 678,700 $68 $140,736 -- -- -- $140,804
Shares issued for services
-- -- 176,211 18 93,402 -- -- -- 93,420
Shares issued for Stock of Muller Media
-- -- 1,200,000 120 2,999,880 -- -- -- 3,000,000
Shares issued for Stock of Bettencourt and Associates
-- -- 6,897 1 10,344 -- -- -- 10,345
Shares sold
-- -- 3,195,181 319 1,056,104 -- -- -- 1,056,423
Shares issued for settlements
-- -- 42,000 4 83,320 -- -- -- 83,324
Shares issued for investment in CardCall
-- -- 545,453 54 (54) -- -- -- 0
Shares cancelled
-- -- (212,500) (21) 5 16 -- -- 0
Change in unrealized capital losses
-- -- -- -- -- -- -- (5,495) (5,495)
Net Loss
-- -- -- -- -- -- (373,278) -- (373,278)
Balances March 31, 1997
29,076 $305,000 8,037,368 $804 $6,122,152 ($13) ($491,114) ($5,495) $5,931,334
See accompanying notes to consolidated financial statements
F-4
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
Cash Flows from Operating Activities: Year Ended March 31,
1997 1996
Net Loss ($373,278) ($711,914)
Adjustment to reconcile net loss to net
cash from (used in) operating activities:
Depreciation and amortization 277,737 193,059
Stock issued for services 11,120 266,671
Note and Account Settlements (146,819) (92,231)
Accrued Interest 5,600
Loss on property disposition 30,007
Changes in assets and liabilities:
(Increase) Decrease in:
Investments 526
Accounts Receivable 362,538 (86,388)
Inventory (516) 6,006
Deposits (1,214) (7,360)
Prepayments (27,623)
Deferred Financing Costs (175,242)
Increase (Decrease) in:
Accounts Payable and accrued expenses (254,928) 85,391
Contracts Payable (319,563)
Income taxes (97,511)
Total Adjustments: (371,495) 400,755
Net cash from (used in) operating (744,773) (311,159)
activities
Cash flows from (used in) investing activities:
Additions to property, plant & (47,720) (3,595)
equipment
Cash acquired with acquisitions 878,586 22,807
Investment in CardCall (1,500,000)
International
Investment in Muller Media (98,962)
Net cash (used in) from investing (768,096) 19,212
activities
Cash flows from (used in) financing activities:
Proceeds from stock options 140,804 282,117
Proceeds from sale of stock 1,056,422 145,000
Bank overdraft (42,004) 11,936
Payment of notes payable (5,492) (2,454)
Proceeds from sale of Preferred 1,500,000
Stock
Proceeds from notes 16,595
Note payable - shareholder 15,479 (50,000)
Due from Shareholders 119,543 (91,784)
Proceeds from affilates 12,043
Net cash (used in) from financing 2,784,752 323,453
activities
Net Increase in cash 1,271,883 31,506
Cash, Beginning of Year 42,198 10,692
Cash, End of Year $1,314,081 $42,198
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
Year Ended March 31,
1997 1996
Supplemental disclosures of cash flow information:
Cash Paid for Interest $21,000 $25,000
Non cash investing and financing transactions:
Acquisitions by stock issuance:
R&D Scientific $1,700,000
Muller Media $3,000,000
Bettencourt and Associates $10,345
Non cash settlements $165,624
Fixed Assets Acquired by Debt $107,195
See Accompanying Notes to Consolidated Financial Statements
F-5 (2)
<PAGE>
DCI Telecommunications, Inc.
Notes to Consolidated Financial Statements
Years Ended March 31, 1997 and 1996
Note 1. Organization and Significant Accounting Policies
DCI Telecommunications, Inc. (the "Company") was originally incorporated on
February 4, 1985, as ALFAB, Inc. and subsequently became Fantastic Foods
International, Inc. ("Fantastic Foods") after a reorganization in 1991.
The shareholders of Fantastic Foods International, Inc. at a shareholders
meeting on December 30, 1994 approved the acquisition of the assets of
Sigma Telecommunications, Inc. in a stock for asset purchase, with
Fantastic Foods exchanging four hundred, eighty thousand (480,000) common
shares valued at $140,000 for the assets of Sigma Telecommunications, Inc.
which totaled $140,000. Concurrent with the merger, the name was changed
to DCI Telecommunications, Inc.
On January 5, 1995 the Board of Directors approved the acquisition of
certain assets of Sigma Industries, Inc. (Alpha Products) in a stock for
asset purchase with DCI exchanging eight hundred, fifty thousand (850,000)
common shares valued at $672,400 for the assets of Alpha Products, Inc.
which totaled $672,400. The above acquisitions were accounted for using
the purchase method of accounting.
The Company's Board of Directors approved a one-for twenty reverse split of
its common stock on January 25, 1995, a forty for one split on March 8,
1996 and a one for four hundred reverse split on March 14, 1996.
Accordingly, the financial statements and related footnotes have been
restated to reflect these transactions as of April 1, 1995.
In the year ended March 31,1997 the Company acquired The Travel Sources
Ltd. , a travel agency, and the assets of Paul Bettencourt Associates
(PEL), a value added marketing card company. (see note 2)
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 which develops
computer software programs) 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 years ended March 31, 1997 and
1996. 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 March 31, 1997,
$85,000 of the cash infusion was made by the Company.
<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.
On November 26, 1996, DCI entered into a stock purchase agreement with
Muller Media, Inc. ("Muller"), (a New York corporation that distributes
syndicated programming and motion pictures to the television and cable
industry) 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 common shares of
Muller. The DCI stock was valued at two dollars and fifty cents ($2.50) per
share ($3,000,000 in total). The shares of both companies have been
deposited with an escrow agent but are included in outstanding common stock
for the year ended March 31, 1997 based upon the intention of the Company.
DCI is required to repurchase the shares , for $3,000,000 , 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 July 15, 1997. The selling
stockholders also have an option to keep DCI stock or accept up to
$3,000,000 in cash from DCI.
The Company's financial statements include the operations of Muller from
November 26,1996, the date of the stock purchase agreement. The financial
statements do not include any adjustments that might result from the
termination of the stock purchase agreement or exercise of the option
described above.
In the year ended March 31, 1995, DCI entered into an agreement to purchase
Casino Marketing, Inc. In the year ended March 31, 1996, the Company
reversed $1,624,500 of the net remaining investment in trademarks
associated with Casino Marketing. Since the transaction with Casino
Marketing, Inc. was not consummated, all of the 162,500 shares of stock
issued for the trademarks, which had been held in escrow, were returned to
the Company and were cancelled. Amortization recorded in the first two
quarters of 1996 totaling $117,000 was also reversed.
Quasi Reorganization
At the Annual Meeting of Shareholders on July 26, 1995, the shareholders
approved a quasi reorganization of the Company to adjust the carrying value
of assets and liabilities to their fair market value. The Company reduced
its inventory valuation by $63,182. The accumulated deficit of $4,578,587,
at December 31, 1995, the effective date of the reorganization, was
eliminated in full and charged to paid in capital. Retained earnings
(deficit) starting date is January 1, 1996.
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, (Privilege Enterprises Limited and The
Travel Source, LTD.) and R&D Scientific and Muller 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.
Cash
For purposes of the statement of cash flows, the Company considers cash as
cash held in operating accounts and all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Cash includes $10,000 which is collateral for a $10,000 letter of credit
with a commercial bank that expires April 30, 1998.
The Company maintains its cash balances at several financial institutions.
Accounts at these institutions are secured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances are approximately $840,000
at March 31, 1997.
Inventory
Inventory of $ 27,685, stated at the lower of cost or market (first in,
first out), consists of microchips, data acquisition and telecommunications
components.
Revenue Recognition
Revenue is recorded when goods are shipped or when services are rendered to
the customer. The Company utilizes the direct write off method for valuing
accounts receivable.
Revenues and expenses from the distribution of motion pictures and other
entertainment events are recognized in accordance with Financial Accounting
Standards No. 53. Revenues are recognized upon the commencement of the
television and cable station's license period. The related expense
incurred in the distribution of motion pictures and other entertainment
events is recognized as revenue is earned. The primary expense(cost of
sales) incurred in the distribution of motion pictures and other
entertainment events is the amount due the producers of the motion pictures
(reflected as participations payable in the financial statements).
<PAGE>
Investments
The Company accounts for investments under Statement of Financial Accounting
Standards No. 115, which requires that fixed maturities and equity
securities that have readily determined fair values be segregated into
categories based upon the Company's intention for those securities. Equity
securities are classified as available for sale and stated at fair value
with unrealized gains and losses, net of related deferred income taxes,
reported as a separate component of shareholders' equity.
Realized investment gains and losses, accounted for by the specific
identification method, are included in the statements of income.
Investment income is recognized when earned.
Property and Equipment
Property and equipment is stated at cost. Major additions are capitalized;
expenditures for repairs and maintenance are charged against operations.
Depreciation is calculated under the straight-line method over the
anticipated useful lives of the assets which range from 5 to 7 years.
Copyright
In connection with the purchase and sale agreement with R&D Scientific
Corp. on June 19, 1995, the Company acquires a copyright on R&D's Datatron
System for tamper proof data acquisition. The copyright is valued at
$1,700,000 which is being amortized over ten years. Accumulated
amortization at March 31, 1997 was $282,500.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired (Goodwill) of $1,989,823 represents
the consideration paid in excess of net assets acquired in the Muller Media
acquisition. Accumulated amortization at March 31, 1997 was $24, 000.
Goodwill is being amortized over 20 years.
Deferred Compensation
Certain officers of the Company received stock options as part of
compensation agreements entered into in 1995. The options were exercised in
1995 and the value of the options, based upon quoted market prices of the
Company's stock was being amortized over six years, the term of the
employment agreement. During the twelve months ended March 31, 1995 the
Company issued 125,000 shares of its $.0001 par value common stock for
services provided to the Company and under employment contracts.
Subsequent to March 31, 1996, the Company agreed to cancell the options and
shares with respect to such employment agreements. This transaction which
has the impact of reducing deferred compensation and paid in capital, by
$759,550 and $781,237, respectively was recorded as if the event took place
<PAGE>
as of March 31, 1996. The shares, which are to be cancelled, are shown as
treasury stock as of March 31, 1997.
Customer Base
The customer base, of $653,752, relates to the value of the customer list
acquired with the asset acquisition of Alpha Products and is being
amortized over ten years. Accumulated amortization at March 31, 1997 was
$144,423.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." The Company
files a consolidated tax return with its subsidiaries. Muller and R& D
Scientific file separate tax returns based upon their individual financial
results.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding. Common stock equivalents have not been considered as their
effect would be anti-dilutive.
Use of Estimates
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 and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications and Restatements
Certain reclassifications and restatements have been made to prior years
financial statements to conform with the current years presentation and to
report the acquisition of The Travel Source, LTD as a pooling of interest.
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 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 as described in Note 8.
<PAGE>
The investment is represented by two notes receivable of $300,000 and
$900,000 payable 120 days after demand. The $300,000 balance of the
investment are advances issued to CardCall without any stipulated
repayment terms.
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 to purchase common shares of CardCall. In connection with this
transaction for each 100 shares of common stock of CardCall held by a
shareholder, DCI will issue 6 shares of common 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.
Summarized unaudited financial data of CardCall at March 31,1997 and 1996
is as follows:
1997 1996
Net Sales $ 6,497,932 $ 4,345,595
Cost of Sales 6,873,153 3,916,140
Gross Margin (375,221) 429,455
Selling, General and 3,398,661 1,940,492
Administrative Expenses
(Loss) from Operations (3,773,882) (1,511,037)
Interest Expense 42,943 53,446
Net (Loss) ($3,816,825) ($1,564,483)
========= =========
Cash $ 165,041 $ 292,121
Accounts Receivable 1,988,677 358,800
Fixed Assets, Net 791,711 512,716
Other Assets 269,687 192,526
Total Assets $3,215,116 $1,356,163
========= ========
Accounts Payable and
Accrued Expenses $5,219,530 $1,413,695
Due to Related Parties 0 363,292
Long-Term Debt 56,652 92,874
Other Liabilities 107,975 82,727
Total Liabilities $ 5,384,157 $ 1,952,588
=========== ==========
The financial statements of CardCall were translated from the Canadian
dollar , for CardCall Canada Inc. and the British pound for CardCall(UK)
Limited to the United States dollar.
<PAGE>
Note 3. Acquisitions
R&D Scientific Corporation
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 years ended
March 31, 1997 and 1996. 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 March 31 1997, $85,000 of the cash infusion has been
made.
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. Summarized financial data
of R&D Scientific included in the financial statements since June 19, 1995,
date of purchase and sale agreement, is as follows:
March 31,
1997 1996
Net Sales $ 628,010 $ 544,404
Cost of Sales 403,653 352,164
Gross Profit 224,357 192,240
Selling, General and
Administrative Expenses 163,518 116,082
Salaries and Compensation 90,000 36,567
Professional Fees 6,899 2,008
Depreciation 4,744 1,863
265,161 156,520
(Loss) Income from Operations ( 40,804) 35,720
Interest Expense 15,927 11,249
Net(Loss) Income ($ 56,731) $24,471
====== ======
Cash $ 16,640 $ 29,384
Accounts Receivable 110,123 90,925
Fixed Assets, Net 177,134 89,722
Other 1,770 7,446
Total Assets $ 305,667 $ 217,477
====== ======
Accounts Payable and Accrued Expenses $ 40,278 $ 68,640
Bank Note Payable 38,289 32,077
Long-Term Debt 166,006 84,380
Due to Shareholder -0- 7,909
Total Liabilities $ 244,573 $ 193,006
====== ======
Three customers accounted for approximately 43% and 49% of sales in
1997 and 1996.
<PAGE>
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 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 July 15, 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.
Summarized financial data of Muller included in the financial statements
since November 26, 1996, date of stock purchase agreement, is as follows:
1997
Net Sales $ 825,225
Cost of Sales 378,631
Gross Profit 446,594
Selling, General & Administrative Expenses 119,416
Salaries and Compensation 133,361
Professional Fees 23,348
Depreciation 2,106
278,321
Income from Operations 168,273
Interest Income 18,313
Net Income $ 186,586
======
Cash $ 936,973
Accounts Receivable 2,095,375
Investments 43,575
Fixed Assets, Net 26,608
Long-Term Accounts Receivable 1,114,389
Other 33,645
Total Assets $ 4,250,565
=======
Accounts Payable and Accrued Expenses $ 136,141
Participations Payable - Current 1,533,966
Income Taxes 132,819
Participations Payable - Long-Term 888,307
Deferred Income Taxes 274,179
Total Liabilities $2,965,412
=======
Four customers accounted for approximately 59% of sales in 1997 .
<PAGE>
Privilege Enterprises Limited
On November 5, 1996, DCI acquired the assets of Paul Bettencourt Associates
in exchange for 6,897 shares of DCI stock valued at approximately $10,000.
Privilege Enterprises Limited ("PEL") a New Hampshire corporation, was
formed by the Company to continue the business of Bettencourt and
Associates. The acquisition has been accounted for as a purchase. PEL is
in the business of value added card based and other marketing programs.
The Travel Source, LTD.
On March 25 ,1997 the Company issued 29,412 shares of common stock for all
of the outstanding shares of The Travel Source LTD. ("Travel Source") a
travel agency. The acquisition has been accounted for as a pooling of
interests, and accordingly, the accompanying financial information has been
restated to include the accounts of Travel Source for all periods
presented. Since Travel Source was acquired on March 25,1997, all
operations were considered prior to date of acquisition. Net sales and net
(loss) earnings of the separate companies are as follows:
Years ended March 31,
1997 1996
Net Sales:
DCI $ 1,705,235 $ 814,016
Travel Source 1,088,713 1,028,154
Combined $ 2,793,948 $ 1,842,170
======== ========
Net(Loss) Earnings:
DCI ($ 390,679) ($ 717,353)
Travel Source 17,401 5,439
Combined ($ 373,278) ($ 711,914)
======== ========
<PAGE>
Note 4. Pro Forma Financial Information (Unaudited)
The following table summarizes the unaudited pro forma results of
operations of the Company for the fiscal years ended March 31, 1997 and
1996, assuming the acquisitions of CardCall, R&D, Muller, PEL and Travel
Source had occurred on April 1, 1995. The unaudited 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, 1995 or of future results of operations.
1997 1996
Net Sales $12,492,440 $ 7,905,300
Cost of Sales 10,994,141 6,278,948
Gross Margin 1,498,299 1,626,352
Selling, General and
Administrative Expenses 5,504,727 4,133,439
(Loss) from Operations (4,006,428) (2,507,087)
Interest Income 49,205 40,149
Interest Expense (63,742) (86,116)
Net (Loss) ($ 4,020,965) ($2,553,054)
(Loss) per Share ($ .29) ($ .22)
Cash $ 1,479,122 $ 1,327,191
Accounts Receivable 5,389,496 2,149,381
Fixed Assets, Net 1,097,834 675,930
Intangible Assets 5,392,652 2,162,205
Other Assets 589,971 400,977
Total Assets $13,949,075 $ 6,715,684
========= ========
Accounts Payable and $ 7,894,344 $ 3,201,400
Accrued Expenses
Income Taxes 407,398 386,231
Due to Related Parties - 363,292
Long-Term Debt 236,624 176,529
Other Liabilities 148,366 323,157
Total Liabilities $ 8,686,732 $ 4,450,609
======== ========
<PAGE>
Note 5. Common Stock
During the year ended March 31,1997 the Company raised approximately
$1,056,000 in cash by issuing 3,195,181 common shares under Regulation 504
and 505 of the securities act.
In the year ended March 31, 1995, the Company established an incentive
stock option plan reserving 10,000,000 shares of common stock for certain
employees, officers and directors. The exercise price must be at least the
fair market value of the stock on the date of the grant, and the term of
each option granted will not be more than ten years from the date of the
grant. Where options are granted to stockholders owning more than 10% of
the outstanding common stock, the exercise price must be at least 110% of
the fair market value of the stock, and the term is limited to 5 years. The
Company has placed an annual limit on options of $100,000 per calendar year
for each employee. To the extent that the above limit is not used in any
calendar year, 50% of the excess for an individual may be carried over for
up to three years. Summarized information regarding stock options
outstanding and exercisable at March 31,1997 is as follows:
Number of shares Average price
Outstanding at April 1,1995 -0- -0-
Granted 114,819 $ .70
Exercised (16,819) $ 1.40
Outstanding at March 31,1996 98,000 $ .58
Granted 3,450,000 $ .19
Exercised (678,700) $ .19
Outstanding at March 31,1997 2,869,300 $ .20
========
Note 6. Investments
At March 31, 1997, the Company has classified all of its equity securities
as available-for-sale and, accordingly, has reported the securities at
approximate market value, with unrealized gains and losses, net of
applicable income taxes, excluded from operations and reported as a
separate component of stockholder's equity as follows:
Marketable securities, at cost $ 49,070
Unrealized loss 5,495
Market value $ 43,575
======
Marketable securities consist of bond mutual funds. No sales of
securities took place during the year ended March 31, 1997.
Note 7. Accounts Receivable
Included in the 1997 trade receivables are contracts receivable of Muller
totaling $ 2,074,375. Muller also has media contracts receivable with
payment terms over one year totaling $1,114,389. In addition, Muller has
license agreements totaling approximately $1,494,000 whose license period
will begin after March 31, 1997, and therefore, not reflected in the
financial statements. One of Muller Media's major producers has a security
interest in certain contracts totaling $1,965,600 as of March 31, 1997.
<PAGE>
Note 8. Preferred Stock
The Company has authorized but unissued shares of non-voting preferred
stock which may be issued in series with such preferences as determined by
the Board of Directors. At March 31, 1997, and 1996 the following issues of
preferred stock were outstanding:
Series C
On February 18,1997 the Company issued $1,500,000 of Series C non -voting
convertible preferred shares repayable on February 28, 1999. The shares are
convertible to common stock 60 days from the issue date at the lesser of
$2.75 per share or 75% of the average closing bid price of the common stock
for the 5 days prior to conversion. If the conversion takes place 90 days
after the issue date, the shares are convertible to common stock at the
lesser of $2.75 or 70% of the average closing bid price of the common stock
for the 5 days prior to conversion. In connection with this offering,
545,455 common shares were placed with an escrow agent to facilitate any
conversions. In addition, 140,000 warrants exercisable at $3.625 for a
period of three years from the issue date were granted to these preferred
shareholders.
DCI may repurchase the common stock issuable under the preferred stock
agreement described above within 90 days from date of issue at a price of
$3.67 per share or the average closing bid price of the common stock for
the 5 days prior to conversion.
Series A
The holders of the preferred shares are entitled to receive dividends at
9.25% per annum at the time legally available. Such dividends are
cumulative from the date of purchase of the stock. The preferred shares are
non-voting and in the event of liquidation of the Company the preferred
shareholders are entitled to payment of an amount equal to par value of the
preferred shares before any distribution to other shareholders. The
preferred shares may be converted at the option of the holder, into 1/3
share of common stock for each share of preferred stock through January 1,
1997. Upon conversion shareholders are entitled to receive payment of any
accrued but unpaid dividends except for the final calendar quarter prior
to conversion.
During the year ended March 31, 1996, the Company sold 15,000 shares of
Series A preferred stock for $40,000, and issued 11,326 shares of Series A
preferred stock for services rendered the Company.
There are no stated redemption terms associated with the Company's
preferred stock. No preferred stock dividends have been declared or paid in
the years ended March 31, 1997 and 1996.
<PAGE>
Note 9. Long Term Debt
Long-term debt consists of the following:
March 31,
1997 1996
Mortgage with a bank on an office condominium owned
by R&D Scientific. The mortgage note bears interest
at the bank's prime rate plus 2% adjusted annually
with a lifetime cap of 16%. The note is payable in
monthly installments of principal and interest of
$833 with a balloon payment for the balance of the
note due in April 2020. $ 82,807 $ 84,380
Mortgage with a bank on an office condominium owned by
R&D Scientific. The mortgage note bears interest at
10.51%. The note is payable in monthly installments
of principal and interest of $803 and is due in
March 2022. 84,883 -0-
Equipment financing note bearing interest at 17.17%
secured by the equipment purchased, payable in
monthly installments of $132 due in March, 2000. 3,620 -0-
Equipment financing note bearing interest at 17.17%
secured by the equipment purchased, payable in
monthly installments of $661 due in December, 1999. 16,875 -0-
188,185 84,380
less current portion oflong-term debt 8,163 725
$ 180,022 $83,655
====== ======
Aggregate annual principal payments are as follows;
1998 $8,163: 1999 $9,667: 2000, $8,300: 2001, $2,304: 2002,$2,632 : 2003
and thereafter $157,119.
<PAGE>
Note 10. Related Party Transactions
During the year ended March 31, 1996, certain officers and shareholders
made cash advances to the Company. $7,909 of the advances remain unpaid at
March 31, 1996 and are included in accounts payable.
Also, during the years ended March 31, 1997 and 1996, the Company made
payments for liabilities on behalf of certain officers and shareholders.
These payments are being repaid to the Company primarily by cash payments
and salary reductions. The amount due from the officers and shareholders
was $14,160 and $98,503, at March 31, 1997 and March 31, 1996,
respectively.
Note 11. Commitments and Contingencies
(a) Leases
The Company is presently negotiating several operating lease agreements for
office space. Aggregate annual minimum future rental payments under current
leases are $ 66,264, in 1998: $ 45,000, in 1999: and $ 11,250, in 2000.
Rent expense was $92,867 and $37,464, in the years ended March 31, 1997 and
1996, respectively.
(b) Employment Agreements
The Company has employment contracts with certain key employees which
provide for minimum annual compensation of $388,000 in 1998 and 1999, plus
annual increases based on the consumer price index.
(c) Litigation
On April 21, 1995 the Company was sued for $81,000 by Podoll & Podoll PC,
former counsel to Fantastic Foods International, Inc., DCI's predecessor.
The suit alleges failure to pay on a Fantastic Foods note dated February
13, 1993 in the principal amount of $60,000 with interest at 10% per annum.
On November 7, 1995, the District Court issued a summary judgment in favor
of Podoll & Podoll for $60,000 plus $27,459 accrued interest, with interest
continuing to accrue at 18% until paid. In April 1996, Podoll & Podoll
had seized certain assets of the Company's office furniture and equipment
with a book value of approximately $30,000 which was recognized as a loss
in the 1996 financial statements. This litigation was settled in the year
ended March 31,1997 by the assumption of the debt by the chief executive
officer of the Company. As of May 31, 1997, $65, 000 of the debt was paid.
In addition to the aforementioned litigation, the Company is party to legal
actions arising during the normal course of business.
In the opinion of management, the ultimate outcome of the above litigation
will have no material effect on the financial position of the Company.
(d) Common and Preferred Stock
During the fiscal years ended March 31, 1996 and 1997, the Company issued
shares of its common and preferred stock. These shares were not registered
under the Securities Act of 1933 based on the exemption from registration
thereunder provided by section 4 (2), thereof for offerings not involving a
public offering.
(e) Letter of credit
The Company has a $10,000 letter of credit with a bank for purposes of
doing business as a travel agent with the airlines. The letter of credit
expires in April of 1998 and is secured by $10,000 in a savings account.
<PAGE>
Note 12. Notes and Settlements Payable
Amounts due at March 31, 1997 and 1996 consist of the following:
1997 1996
Current portion of long-term debt $ 8,163 $ 725
Note payable - stockholder -0- 50,000
In connection with a judgment of $119,000
against the Company for liability incurred while
it was operating as Fantastic Foods. The Company
entered into a settlement agreement to pay the
claimant $80,000 and issue 60,000 shares of common
stock. In the year ended March 31,1997 an additional
40,000 common shares were issued to settle the judgment.
Note payable - Vendor -0- 87,578
This represents a judgment of $60,000 against
the Company for liability incurred while it was
operating as Fantastic Foods. The amount includes
interest and costs of $27,578 which is accruing at
18% per annum. This judgment was settled in the year ended
March 31,1997 by the assumption of the debt by the
chief executive officer of the Company
Note Payable - Bank 32,228 32,077
Amount outstanding at March 31, 1996 under a
$50,000 line of credit of R&D Scientific bearing
interest at 10.42%. The line of credit is secured by the
assets of R&D Scientific and is personally guaranteed by
a shareholder and officer of R&D Scientific.
Settlement of claims for compensation
and expense reimbursement by former
employees and affiliated persons -0- 28,046
$ 40,391 $ 198,426
====== ======
Note 13. Employee Benefit Plans
The Company and its subsidiaries and R & D Scientific, do not have employee
pension plans. Muller maintains a defined contribution plan for its
employees. Pension expense was $10,000 since the date of the stock
purchase agreement with Muller.
<PAGE>
Note 14. Property and Equipment
Property and equipment consist of:
March 31,
1997 1996
Buildings $ 182,410 $ 91,585
Computer Equipment and Software 87,348 49,804
Furniture and Fixtures 159,661 15,423
429,419 156,812
Accumulated Depreciation (123,296) ( 26,885)
$306,123 $129,927
====== ======
Note 15. Income Taxes
In February 1992, the Financial Accounting Standards Board issued SFAS 109,
effective for fiscal years beginning after December 15, 1992 with early
adoption encouraged. This statement established financial accounting and
reporting standards for the effect of deferred income taxes using the
liability approach as compared to the concept of matching tax expense to
pre-tax income (deferred method) required under previous accounting
standards. In addition, under previous accounting standards, the tax
benefit of utilizing operating loss carryforwards was reflected as an
extraordinary item.
Deferred tax assets and liabilities are determined utilizing the enacted
tax rates applicable to the period the temporary differences are expected
to be paid or recovered. Accordingly, the current period tax provision can
be affected by the enactment of new tax rates. The statement requires a
valuation allowance reducing the deferred tax asset if it is more likely
than not that some portion of the asset will not be realized. DCI and its
wholly-owned subsidiaries has a net operating loss carryforward of
approximately $ 1,310,000 as of March 31,1997 which expires through 2012.
A deferred tax benefit has not been recorded with respect to the net
operating loss carryforward.
The deferred tax liability reported on the accompanying balance sheets
apply to Muller Media, Inc. For income tax reporting Muller uses the
installment method of accounting. This method recognizes revenue and the
related expense over the installments paid by the television stations to
Muller, usually over twelve to thirty six months. Deferred income taxes
have been recorded for the excess of financial statement income over
taxable income.
Note 16. Segment Information
The following table shows sales , operating (loss) earnings and other
financial information by industry segment for the year ended March 31,1997.
The Company operated only in the technology segment in the year ending
March 31, 1996.
Media Consumer Technology Corporate Consolidated
Sales $825,225 $1,123,69 $845,026 0 $2,793,948
Operating(Loss) $168,273 ($54,293) ($25,772) ($460,258) ($372,050)
Earnings
Identifiable
Assets $6,216,38 $95,481 $2,318,666 $2,103,424 $10,733,959
Depreciation $ 2,106 $ 352 $ 6,594 $ 9,309 $ 18,361
Capital
Expenditures 0 $17,141 $114,833 $23,851 $155,825
The Company's operations are classified into three business segments as
follows:
Media - Includes the national distribution and syndication of feature
films and programs to the broadcast and cable T.V. industry.
Technology - Includes the design and production of tamperproof software
used in the healthcare industry.
Consumer - Includes the distribution of value added consumer discount cards
and a travel agency.
In the Media segment four customers accounted for approximately 59% of
sales in 1997 and five customers comprise approximately ($2,123,000) 67%
of accounts receivable at March 31,1997.
In the Technology segment three customers accounted for approximately 43%
and 49% of sales in 1997 and 1996.
Note 17. Subsequent Events
On April 9,1997 the Company acquired , for 400,000 shares of common stock,
all of the outstanding shares of CyberFax, Inc., a Canadian corporation
engaged in the business of providing real time fax capabilities on the
Internet.
On April 23,1997 the Company acquired, all of the outstanding shares of
Crossmain Ltd., a British corporation, for 4,285,714 options to purchase
common stock over a two year period subject to certain earning provisions
to be obtained by Crossmain. Crossmain is engaged in the business of
providing long distance telecommunications throughout Europe via a private
leased line network which is the least expensive method of establishing a
telecommunications presence in the European market. Crossmain was renamed
DCI UK Ltd.
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