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:
September 30, 1997 2-96976-D
- ----------------------- ------------------
DCI TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as specified in its charter)
COLORADO 84-1155041
--------------- -----------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
611 Access Road, Stratford, Connecticut 06497
-------------------------------------------------------------
(Address and zip code of principal executive offices)
(203) 380-0910
-----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Regulation SB of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
YES __X__ NO_____
Indicate the number of shares outstanding of each of the issuer/s classes
of common stock, as of the last practicable date:
Number of Shares Outstanding Class Date
- ---------------------------- ------- ----------
13,266,652 Common Stock, November 13, 1997
$.0001 par value
<PAGE>
DCI TELECOMMUNICATIONS, INC.
Index
PART I FINANCIAL INFORMATION
Balance Sheet September 30, 1997 3
Statements of Operations
Three and Six Months Ended September 30, 1997 and 1996 4
Statements of Cash Flow
Six Months Ended September 30, 1997 and 1996 5
Notes to Unaudited Financial Statements
September 30, 1997 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
Other Information 13
Signatures 15
2
<PAGE>
DCI Telecommunications, Inc.
Consolidated Balance Sheet
(unaudited)
September 30,
ASSETS 1997
Current Assets:
Cash $1,335,655
Investments 43,575
Accounts Receivable 3,565,280
Due from SmarTalk 9,000,000
Prepaid expenses 88,107
Inventory 184,145
---------
Total Current Assets 14,216,762
Property and Equipment 1,320,469
Less: Accumulated depreciation 692,209
---------
Net property and equipment 628,260
---------
Accounts receivable 419,447
Deposits 25,788
Other Assets - copyrights 1,700,000
- costs in excess of net assets acquired 4,843,763
---------
6,543,763
Less: Accumulated amortization 439,500
---------
Net other assets 6,104,263
---------
Total Assets $21,394,520
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans from Shareholders $ 285,286
Notes and settlements payable 79,952
Accounts payable and accrued expenses 4,659,028
Participations payable 1,596,332
Income Taxes Payable 63,792
----------
Total Current Liabilities 6,684,390
Participations payable 469,251
Long Term Debt 460,319
Deferred Income Taxes 386,835
Redeemable, convertible preferred stock $1,000 par and
redemption value, 2,000,000 shares authorized, 1,760
shares issued and outstanding 1,760,000
Total Liabilities 9,760,795
Commitments and Contingencies
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,
10,970,972 shares issued and outstanding 1,097
Paid in capital 10,506,253
Treasury Stock (13)
Unrealized Capital Loss (5,493)
Retained earnings subsequent to 12/31/95, date of
quasi-reorganization (total deficit
eliminated $4,578,587) 826,881
---------
Total Shareholders' Equity 11,633,725
---------
Total Liabilities and Shareholders' Equity $21,394,520
-----------
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
Net Sales $2,057,892 $ 509,661 $4,616,582 $1,050,065
Cost of Sales 1,890,481 408,040 3,850,511 786,827
---------- --------- --------- ----------
Gross Profit 167,411 101,621 766,071 263,238
Selling, General &
Admin. Expenses 294,049 60,101 711,302 166,589
Salaries and
Compensation 505,261 106,880 716,150 207,056
Amortization &
Depreciation 53,043 62,607 158,672 123,843
Professional and
Consulting Fees 168,842 48,003 270,963 71,191
--------- -------- --------- ----------
1,021,195 277,591 1,857,087 568,679
Income (Loss)
from Operations (853,784) (175,970) (1,091,016) (305,441)
Other Income and (Expense):
Interest Expense (44,828) (3,615) (76,541) (10,648)
Interest Income 180,230 -- 192,180 --
--------- ---------- --------- ---------
135,402 (3,615) 115,639 (10,648)
Net (Loss) - Continuing
Operations (718,382) (179,585) (975,377) (316,089)
Loss from discontinued computer
board operations (526,178) (558,958)
Sale of discontinued operation -
prepaid phone card -
UK segment 3,078,421 3,078,421
Discontinued prepaid phone
card segment - U.K. (585,775) (226,091)
Net Income (Loss) 1,248,086 (179,585) 1,317,995 (316,089)
Net Income (Loss)
per common share $0.12 ($0.05) $0.13 ($0.08)
Fully diluted Net
Income (Loss) per share $0.09 ($0.05) $0.10 ($0.08)
Weighted average common
shares outstanding 10,730,520 3,910,553 9,923,048 3,835,098
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
Cash Flows from Operating Activities: 1997 1996
Net Income (Loss)from operations ($ 975,377) ($316,089)
Loss from discontinued computer
board operations (558,958)
Loss from discontinued prepaid phone
card segment - UK (226,091)
Gain on sale of discontinued prepaid
UK segment 3,078,421
-------- ---------
Net Income (Loss) 1,317,995 ( 316,089)
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Gain on contract assignment (3,078,421)
Unamortized customer base 492,985
Depreciation and amortization 256,944 123,843
Stock issued for services 800 10,335
Non-cash settlements (43,235)
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts & Contracts Receivable 274,936 (22,937)
Inventory 61,767 (277)
Deposits & Prepayments (38,858) (1,164)
Increase (Decrease) in:
Accounts & Contracts Payable (1,155,027) (106,171)
Income taxes 43,229
-------- --------
Total Adjustments (3,141,645) ( 39,606)
-------- --------
Net cash provided by (used in)
operating activities (1,823,650) (355,695)
-------- --------
Cash flows from (used in) investing activities:
Additions to property,
plant & equipment (8,503) (16,857)
Cash acquired with acquisition 110,259
Acquisition costs (15,735)
-------- --------
Net cash provided by (used in)
investing activities 86,021 (16,857)
-------- --------
Cash flows from (used in) financing activities:
Advances from (to)shareholders 370,696 ( 57,991)
Proceeds from sale of
stock & options 1,388,507 534,674
Bank overdraft (42,004)
Payment of notes payable (37,184)
-------- --------
Net cash provided by (used in)
financing activities 1,759,203 397,495
-------- --------
Net Increase (Decrease) in cash 21,574 24,943
Cash, Beginning of Year 1,314,081 32,073
--------- --------
Cash, End of Period $1,335,655 $ 57,016
Six Months Ended
September 30,
1997 1996
Supplemental disclosures of cash flow information:
Non cash investing and financing transactions:
Acquisition by stock issuance:
CardCall International $7,518,357
CyberFax $1,000,000
Non cash settlements $ 40,000 $ 151,900
Stock subscriptions receivable $ 58,384
Disposition of prepaid phone
segment ($5,700,000)
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
DCI Telecommunications, Inc.
Notes to Unaudited Financial Statements September 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, DCI UK
Limited, 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. Acquisition of CardCall International Holdings Inc.
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On March 31, 1997, DCI Telecommunications, Inc. made an offer to CardCall
International Holdings, Inc. ("CardCall"), a Delaware Corporation, to
purchase all its outstanding common stock (8,238,125 shares) and
warrants.
6
<PAGE>
CardCall is the parent company of CardCaller Canada, Inc., a Canadian
corporation, and CardCall (UK) Limited incorporated under the Laws of the
United Kingdom. CardCall is in the business of designing, developing and
marketing, through distributors, prepaid phone cards which provide the
cardholder access to long distance service through switching facilities.
DCI had previously invested $1,500,000 in CardCall for which it received
$1,200,000 in notes payable 120 days from demand. The remaining $300,000
did not have any stipulated repayment terms.
In June 1997, the Board of Directors and shareholders of CardCall
approved the transaction. For each 100 shares of common stock of CardCall
held by a shareholder, DCI will issue 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. As of September 30, 1997, options for
223,500 shares of DCI stock had been exercised.
Such options expire on April 30, 2002. In accordance with the agreement,
shares of DCI stock received from the exercise of options has
restrictions on its ability to be sold ranging from September 1, 1997 to
November 1, 1998.
The transaction was recorded under the purchase method of accounting,
effective April 1, 1997. The total purchase price, including goodwill,
was recorded at $7,518,357. See Note 3 for explanation of sale of a
distribution contract of CardCall (UK) and discontinuation of a portion
of the operations.
NOTE 3. Gain from Sale of Distribution Contract
- ------------------------------------------------
In September, 1997, DCI Telecommunications, Inc. agreed in principal with
SmarTalk Teleservices, Inc. to sell its prepaid phone card distribution
contract with D Services, a wholly owned subsidiary of W.H. Smith, for
$9,000,000. DCI received $1,000,000 in cash at the closing and shares of
SmarTalk common stock worth $8,000,000 based on the price of SmarTalk
stock on the closing date.
A non-compete clause in the agreement will preclude DCI or its
subsidiaries from engaging in the prepaid phone card products business
through the distributor for a period of seven years. As a result,
operations to date for CardCall UK are shown as discontinued operations.
Operations of CardCaller Canada are shown as continuing operations.
7
<PAGE>
The gain of the transaction is $3,078,421, after the write-off of
goodwill associated with the CardCall acquisition, and is recorded in the
financial statements for the period ending September 30, 1997.
NOTE 4. Discontinuance of Computer Board Division
- --------------------------------------------------
In the second quarter ended September 30, 1997 the Company discontinued
the operation of its division that assembled computer boards that were
sold to a number of industries including education and government. In
conjunction with this event, unamortized customer base totaling $492,985
was written off and operating losses through September 30, 1997 of
$65,973 are shown as discontinued operations.
NOTE 5. Acquisition of 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 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 September 30, 1997, $145,000 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.
NOTE 6. Acquisition of 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).
8
<PAGE>
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 7. Common and Preferred Stock
- -----------------------------------
During the six months ended September 30, 1997, the holders of 1190
shares of Series C Convertible Preferred Stock elected to convert into
common shares, resulting in the issue of 962,077 common shares. In
addition, options to purchase 590,000 common shares were exercised.
During the first six months the Company has raised approximately
$1,500,000 through the sale of its Convertible Preferred Stock.
9
<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 six months ended September 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 real-time fax over the Internet. 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,
CyberFax and DCI UK Limited, operating with the combined networks,
financial resources, management, personnel and technical expertise of the
Company, 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.
10
<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.
The most significant event was the sale of the prepaid phone card
distribution contract in the United Kingdom to SmarTalk Teleservices,
Inc., a U.S. company trading on NASDAQ, for $1,000,000 in cash and
$8,000,000 in SmarTalk common stock. The stock will be registered upon
DCI's request six months from the closing. While the gain was booked as
of September 30, 1997, the proceeds were received after that date and
therefore was of no benefit to liquidity during the six months ended
September 30. Due to a non-compete clause in the sales contract, CardCall
UK has discontinued its phone card sales through W.H. Smith in the UK.
Since CardCall UK was a net user of cash, it is expected that this will
not have a negative impact on liquidity.
Cash used in operations was $1,800,000 in the six months ended September
30, 1997. The Company was able to overcome this shortfall by proceeds
from the sale of preferred stock of $1,500,000, and advances from
stockholders totaling approximately $400,000.
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. Privilege Enterprises 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.
11
<PAGE>
Consolidated Results of Operations
- ----------------------------------
All of the variances in the results of operations are predominantly due
to the addition of CardCall International effective April 1, 1997.
12
<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 14.
13
<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.
On September 23, 1997 the Company filed a Form 8K which described the
acquisition of CardCall International Holdings.
On October 20, 1997 the Company filed a Form 8K which described the
change in independent accountants.
On November 4, 1997 the Company filed a Form 8K which described the sale
of CardCall UK's distribution contract to SmarTalk.
14
<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: November 14, 1997 By: Joseph J. Murphy
----------------
Joseph J. Murphy
President
By: Russell B. Hintz
----------------
Russell B. Hintz
Chief Financial Officer
15
<PAGE>
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