SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
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. The Company has
not included R&D in the accompanying financial statements.
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.
<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 May 29, 1997 the Company completed the acquisition of CardCall
International Holdings, Inc. ("CardCall") whereby DCI acquired 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 assembles 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
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. 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 $2,165,938 $ 1,297,766 $110,385 -- --
Gross profit 625,887 250,068 63,728 -- --
(Loss) before
income taxes (146,547) (740,885) (1,095,485) (103,699) (844,008)
Net (loss) ($146,547) ($740,885) ($1,095,485) ($103,699) ($844,008)
Net (loss)
per share (b) ($0.04) ($0.40) ($1.95) ($1.30) ($13.10)
BALANCE SHEET DATA
Working capital $1,794,436 ($293,431) ($247,357) ($399,369) ($375,470)
Total assets 9,091,681 814,527 3,364,196 1,670 2,402
Long-term debt 14,016 -- -- -- --
Stockholders'
equity 4,385,764 219,881 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.
None of the operations of these three companies are included in the year
ended March 31, 1997 results.
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 November 1996 the Company
acquired Muller Media, through the issue of common stock. The
acquisition of 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 $1,287,000.
<PAGE>
However, cash used in operations was $646,000 and $298,000 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 Muller Media as
if the purchase agreement with 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 $2,165,938 $1,297,766
Net sales increased $868,172 or 67% 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 $1,540,051 $1,047,698
Cost of sales increased $492,353 or 47% 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 and Travel Agency rose due to higher sales and more salaries allocated
to cost of sales.
<PAGE>
1997 1996
Selling, General and Administrative $245,292 $300,059
Selling, General & Administrative expenses declined $54,767 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 debt settlements, lower director fees and various other
reductions entirely offset the Muller and PEL increases.
1997 1996
Salaries and Compensation $348,867 $346,943
Salaries increased $1,924 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 $89,981 $128,954
Professional and consulting fees declined $38,973 or 30% 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 declined $92,703 in 1997. The amortization
of Muller goodwill begining in 1997 resulted in an increase of $24,000.
This was more than offset by the absence of goodwill amortization of the
former Casino Marketing trademarks which totaled $117,000 in 1996.
Other Income and Expense
1997 1996
Interest (Expense) ($ 4,872) ($19,421)
Interest Income $19,571 $120
Interest expense declined $14,549 in 1997 due to the overall decline
in corporate debt. Interest income in 1997 is almost entirely due to
Muller's short term investments.
<PAGE>
Results of Operations - 1996 Compared to 1995 (excluding Travel Source in
both years since 1995 not available).
1996 1995
Net Sales $ 269,612 $ 110,385
Net sales in 1996 amounted to $269,612 compared to only $110,385 in 1995.
Sales in 1996 include a full twelve months of telecommunications, data
acquisition and computer related sales while sales in 1995 reflect only
three months of operations. There were no operations earlier in the 1995
fiscal year.
1996 1995
Cost of Sales $ 124,079 $ 46,657
Cost of sales in 1996 reflects twelve months of telecommunication, data
acquisition and computer related costs while 1995 costs reflects only
three months of activity.
1996 1995
Salaries and Compensation $ 301,650 $ 112,819
Salaries and compensation rose from $112,819 in 1995 to $301,650 in 1996
almost exclusively due to twelve months activity versus only three months
activity in 1995.
1996 1995
Selling, General and Administrative $ 249,168 $ 125,868
Selling, general and administrative expenses increased to $249,168 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 $ 127,057 $ 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 and stock to the former president and others for
services to establish the Company.
1996 1995
Amortization and Depreciation $ 194,561 $ 18,901
Amortization and depreciation increased to $194,561 in 1996 from $18,901 in
1995. Amortization in 1996 includes twelve months of customer base totaling
$65,375 and $117,000 Casino Marketing trademarks. Amortization in 1995
included only three months of customer base amortization totaling
$13,672.
<PAGE>
1996 1995
Other Income and (Expense) ($ 19,301) ($ 74,494)
Net other expense declined $55,193 in 1996 compared to 1995, principally
due to the inclusion in 1995 of settlement expenses associated with the
former Fantastic Foods obligations.
<PAGE>
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 260,000 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 (a) 12.1%
(iii) All executive officers and
directors as a group 3,016,709 (b) 28.1%
NOTES:
(a) Includes 1,200,000 shares upon completion of acquisition of Muller Media
(b) 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.
(1) Stock Purchase and Sale Agreement E-1
between DCI Telecommunications, Inc.
and The Travel Source Limited and
Lois Morris and Sandra Perry
(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
PAGE
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 Note 1 to the financial statements, the Company's 1997
and 1996 financial statements included the results of operations of R&D
Scientific Corporation as if the stock purchase agreement between the
Company and R&D Scientific was completed. The stock purchase agreement was
terminated subsequent to the issuance of the financial statements. The
financial statements have been restated to reflect this correction.
Schnitzer & Kondub, P.C.
Eastchester, New York
June 18, 1997 except for Note 1, as to which the date is December 18, 1997.
F-1
<PAGE>
DCI Telecommunications, Inc.
Consolidated Balance Sheets
March 31,
ASSETS 1997 1996
Current Assets:
Cash $1,287,441 $ 2,814
Restricted cash 10,000 10,000
Investments 43,575
Accounts Receivable 2,182,196 50,585
Due from shareholders 4,160 106,412
Due from affiliate 85,000
Prepaid expenses 42,818
Inventory 27,685 27,169
--------- --------
Total Current Assets 3,682,875 196,980
Property and equipment 245,196 65,227
Less: accumulated depreciation 116,207 24,635
--------- --------
Net property and equipment 128,989 40,592
Investment in
CardCall International Holdings, Inc. 1,500,000
Accounts receivable 1,114,389
Deferred financing costs 175,242
Deposits 15,034 2,250
Other Assets
- customer base 653,752 653,752
- costs in excess of
net assets acquired 1,989,823
--------- --------
2,643,575 653,752
Less: Accumulated amortization 168,423 79,047
--------- --------
Net other assets 2,475,152 574,705
--------- --------
Total Assets $ 9,091,681 $ 814,527
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ $42,004
Notes and settlements payable 6,479 165,624
Accounts payable and accrued expenses 214,925 282,783
Participations payable 1,533,966
Income taxes payable 133,069
--------- ---------
Total Current Liabilities 1,888,439 490,411
F-2 (1)
<PAGE>
Participations payable 888,307
Long Term Debt 14,016
Preferred Stock dividend 140,976 104,235
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 4,705,917 594,646
Commitments and Contingencies (Note 11)
Shareholders' Equity:
9.25% cumulative convertible, preferred
stock $100 par value, 5,000,000 shares
authorized, 3,972 shares issued and
outstanding 305,000 305,000
Common stock, $.0001 par value,
500,000,000 shares authorized,
7,931,118 and 2,299,176 shares issued
and outstanding 793 230
Paid in capital 4,261,833 (55,513)
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) (176,354) ( 29,807)
--------- --------
Total Shareholders' Equity 4,385,764 219,881
Total Liabilities and Shareholders' Equity $ 9,091,681 $ 814,527
See Accompanying Notes to Consolidated Financial Statements
F-2 (2)
<PAGE>
DCI Telecommunications, Inc.
Consolidated Statements of Operations
Year Ended March 31,
1997 1996
Travel Service sales $1,088,713 $1,028,154
Product Sales 1,077,225 269,612
---------- ----------
Net Sales 2,165,938 1,297,766
Cost of sales - travel 978,573 923,619
Cost of sales - product 561,478 124,079
---------- ----------
Cost of Sales 1,540,051 1,047,698
Gross Profit 625,887 250,068
Selling, General & Administrative Expenses 245,292 300,059
Salaries and Compensation 348,867 346,943
Professional and Consulting Fees 89,981 128,954
Amortization and Depreciation 102,993 195,696
--------- ---------
787,133 971,652
(Loss) from Operations (161,246) (721,584)
Other Income and (Expense):
Interest Expense ( 4,872) (19,421)
Interest Income 19,571 120
---------- ---------
14,699 (19,301)
Net (Loss) ($146,547) ($740,885)
---------- ----------
Dividends on preferred stock (36,741) (27,921)
Loss applicable to common shareholders (183,288) (768,806)
---------- ---------
Net (loss) per common share ($0.04) ($0.40)
Weighted average common shares
outstanding 4,879,889 1,927,364
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 $6,486,170 ($3,984,509) $2,766,873
Preferred stock dividend
(27,921) (27,921)
Shares issued for options exercised
16,819 2 235,372 235,374
Shares issued for services
822 46,150 4 298,133 298,137
Shares canceled - employment contracts
(781,237) (13) (781,250)
Shares sold
400 40,000 120,883 12 116,972 156,984
Quasi reorganization - 12/31/95
(6,383,002) (16) 4,695,587 (1,687,431)
Net Loss
(740,885) (740,885)
- ------ -------- --------- ---- ---------- ----- ---------- ----- ----------
Balances, March 31, 1996
3,972 $305,000 2,299,176 $230 ($55,513) ($29) ($ 29,807) $ 219,881
Preferred Stock dividend
( 36,741) (36,741)
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 1,026,454 1,026,773
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
(146,547) (146,547)
- ------ -------- --------- ---- ---------- ---- --------- ------- ----------
Balances March 31, 1997
3,972 $305,000 7,931,118 $793 $4,261,833 ($13) ($176,354) ($5,495) $4,385,764
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 ($146,547) ($740,885)
Adjustment to reconcile net loss to net
cash from (used in) operating activities:
Depreciation and amortization 102,898 195,696
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 371,736 (25,820)
Inventory (516) 6,006
Deposits (1,284) (5,920)
Prepayments (27,353)
Deferred Financing Costs (175,242)
Increase (Decrease) in:
Accounts Payable and accrued expenses (217,445) 63,247
Contracts Payable (319,563)
Income taxes (97,661)
-------- -------
Total Adjustments: (499,603) 443,256
-------- --------
Net cash from (used in) operating
activities (646,150) (297,629)
Cash flows from (used in) investing activities:
Additions to property, plant &
equipment (40,082) (3,595)
Cash acquired with acquisitions 878,586
Investment in CardCall
International (1,500,000)
Investment in Muller Media (98,962)
---------- --------
Net cash (used in) from investing
activities (760,458) (3,595)
Cash flows from (used in) financing activities:
Proceeds from stock options 140,804 282,117
Proceeds from sale of stock 1,026,773 145,000
Bank overdraft (42,004) 11,936
Payment of notes payable (2,843)
Proceeds from sale of Preferred
Stock 1,500,000
Due from affiliate (85,000)
Note payable - shareholder 23,962 (50,000)
Due from Shareholders 129,543 (91,784)
Proceeds from affilates 6,077
---------- --------
Net cash (used in) from financing
activities 2,691,235 303,346
Net Increase in cash 1,284,627 2,122
Cash, Beginning of Year 2,814 692
---------- --------
Cash, End of Year $1,287,441 $ 2,814
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:
Muller Media $3,000,000
Bettencourt and Associates $10,345
Non cash settlements $165,624
Fixed Assets Acquired by Debt $ 22,195
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 3)
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 Company's previously issued financial statements included the operations
of R&D from June 19, 1995, the date of the purchase and sale agreement. The
accompanying financial statements do not include any results from R&D as the
Company and R&D did not consummate the purchase and sale agreement.
<PAGE>
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.
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
determined that the value of the trademarks should be $0 and wrote off
$1,507,000 of the net remaining investment in Casino Marketing as part of its
quasi reorganization. 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 totaled
$117,000.
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 $4,695,587,
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 Muller as if the 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.
Restricted 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).
Travel agency revenues are recorded when a customer makes a reservation for
at trip. Reservations are accepted upon payment by the agency's customers
with a credit card or check.
Revenue from the distribution of the value added consumer discount cards is
recorded upon delivery of the cards to the customer.
<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.
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 files
a separate tax return based upon its 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.
On March 31, 1997 DCI entered into an agreement with CardCall to
purchase all of the issued and outstanding common shares (8,238,125) and
warrants to purchase common shares of CardCall. CardCall's Board of
Directors had approved the agreement on March 29, 1997, subject to
shareholder approval. In connection with this transaction for each
100 shares of common stock of CardCall held by a shareholder, DCI
will issue up to 6 shares of common stock 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 at a purchase price of $.20 per share.
CardCall will be accounted for as a purchase, and is not included in the
financial statements. 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
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. No adjustments were necessary to the net assets or income (loss)
of the combining companies as a reult of the pooling of interest. 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 $ 1,077,225 $ 269,612
Travel Source 1,088,713 1,028,154
----------- -----------
Combined $ 2,165,938 $ 1,297,766
======== ========
Net(Loss) Earnings:
DCI ($ 163,948) ($ 746,324)
Travel Source 17,401 5,439
----------- -----------
Combined ($ 146,547) ($ 740,885)
======== ========
<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, 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 $11,864,430 $ 7,260,069
Cost of Sales 10,590,488 5,876,784
----------- -----------
Gross Margin 1,273,942 1,383,285
Selling, General and
Administrative Expenses 5,069,566 3,748,940
----------- -----------
(Loss) from Operations (3,795,624) (2,365,655)
Interest Income 49,205 40,149
Interest Expense (47,815) (72,867)
----------- -----------
Net (Loss) ($ 3,794,234) ($2,398,373)
(Loss) per Share ($ .27) ($ .21)
Cash $ 1,462,482 $ 1,297,807
Accounts Receivable 5,285,262 2,058,456
Fixed Assets, Net 920,700 586,595
Intangible Assets 3,975,152 574,705
Other Assets 673,201 406,116
----------- -----------
Total Assets $12,316,797 $ 4,923,679
========= ========
Accounts Payable and
Accrued Expenses $ 7,833,132 $ 3,105,191
Income Taxes 407,398 386,231
Due to Related Parties 363,292
Long-Term Debt 70,618 92,874
Other Liabilities 148,366 323,157
----------- -----------
Total Liabilities $ 8,459,514 $ 4,270,745
======== ========
<PAGE>
Note 5. Common Stock
During the year ended March 31,1997 the Company raised approximately
$1,026,000 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.
The Company accounts for stock options under APB Opinion No. 25 "Accounting
for Stock Issued to Employees" under which no compensation expense is
recongnized. In the year ended March 31, 1996 the Company adopted Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123) for disclosure purposes; accordingly, no
compensation expense has been recognized in the results of operation for its
stock option plan as required by APB Opinion No. 25.
For disclosure purposes the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for stock options granted
in 1996 and 1997: Annual dividends 0, expected volatility 88%, risk free
interest rate of 5.56% and expected life of five years for all grants.
Under the above model, the total value of stock options granted in 1997 and
1996 was $3,258,000 and $56,000. Had the Company determined compensation cost
for this plan in accordance with SFAS No. 123, the Company's pro forma net
loss and net loss per share would have been ($3,441,288) and ($.71) in 1997
and ($824,806) and ($.42) in 1996. The SFAS No. 123 method of accounting
does not apply to options granted prior to January 1, 1995, and accordingly,
the resulting pro forma compensation cost may not be representative of that
to be expected in future 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
======
Investments 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 current accounts receivable are Muller Media accounts
receivable totaling $2,074,375. This balance represents those amounts
contractually due within one year of the balance sheet date. Muller also
has balances due under these contracts with contractual payment terms over
one year totaling $1,114,389. This balance has been classified as a long
term receivable.
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 400 shares of
Series A preferred stock for $40,000, and issued 822 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. Accrued preferred stock dividends
at March 31, 1997 and 1996 are $140,976 and $104,235 respectively.
<PAGE>
Note 9. Long Term Debt
Long-term debt consists of the following:
March 31,
1997 1996
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-
------- ------
20,495 -0-
Less current portion oflong-term debt 6,479 -0-
------- ------
$ 14,016 -0-
====== ======
Aggregate annual principal payments are as follows;
1998 $6,479: 1999 $7,794: 2000, $6,222
<PAGE>
Note 10. Related Party Transactions
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 $4,160 and $106,412, 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, results of operations
or cash flows 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 $ 6,479 $ -0-
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
Settlement of claims for compensation
and expense reimbursement by former
employees and affiliated persons -0- 28,046
--------- ---------
$ 6,479 $ 165,624
====== ======
Note 13. Employee Benefit Plans
The Company and its subsidiaries 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
Computer Equipment and Software 85,535 49,804
Furniture and Fixtures 159,661 15,423
------- -------
245,196 65,527
Accumulated Depreciation (116,207) ( 24,635)
-------- --------
$128,989 $ 40,592
====== ======
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 $217,016 0 $2,165,938
Operating(Loss)
Earnings $168,273 ($54,293) $15,032 ($290,258) ($161,246)
Identifiable
Assets $6,216,388 $95,481 $ 595,499 $2,184,313 $ 9,091,681
Depreciation $ 2,106 $ 352 $ 1,850 $ 9,309 $ 15,772
Capital
Expenditures 0 $17,141 $ 22,195 $23,851 $ 63,187
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 computer equipment.
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.
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.
<PAGE>
EXHIBIT 1
Stock Purchase and Sale Agreement
Between DCI Telecommunications, Inc.
and The Travel Source Limited
and Lois Morris and Sandra Perry
E-1
<PAGE>
STOCK PURCHASE AND SALES AGREEMENT
AGREEMENT made this March 25, 1997, by and between DCI
Telecommunications, a Colorado corporation ("Purchaser") and
Travel Source Limited (TSL), a Rhode Island corporation and
Lois Morris and Sandra Perry ("Seller").
WHEREAS, the SELLER desires to sell to the PURCHASER and the
PURCHASER desires to purchase from the SELLER all of the issued
and outstanding stock of TSL, a Rhode Island corporation.
WHEREAS, the Parties desire to evidence the Stock Purchase and
Sales Agreement in a writing between them.
NOW, THEREFORE, the Parties mutually agree as follows:
ARTICLE I - SALE & PURCHASE OF SHARES OF CAPITAL STOCK OF TSL
1.01 In consideration of the payment of Twenty Nine Thousand
Four Hundred Twelve (29,412) shares of DCI, hereinafter called
the "Purchase Price", payable upon the terms and conditions
provided herein, the SELLER shall sell to the PURCHASER and,
the PURCHASER shall purchase from TSL all of the shares of the
Capital Stock of TSL which the SELLER represents and warrants
shall constitute at the Closing one-hundred percent (100%) all
of the authorized, issued and outstanding shares of TSL. The
PURCHASER in reliance upon the representations, agreements and
warranties of the SELLER contained herein and subject to the
terms and conditions of this Agreement shall purchase such
shares from the SELLER at the Closing for the Purchase Price as
set forth above, which Purchase Price shall be payable in the
following manner:
(a) 29,412 shares of DCI 144 Common stock at closing. SELLER
shall have full piggy-back registration rights for such stock.
(b) Said shares are valued at a market price of $3.40 per
share. It is further agreed that six months from closing if
the shares of DCI are selling (based on an average of the bid
and asked price on such day) at less than $3.40 per share, DCI
shall give SELLER additional shares of 144 stock, at the then
current average price, to bring the total purchase back to
$100,000. (The price will be determined by taking an average
between the bid and ask.)
E-2
<PAGE>
c) SELLER will have one seat on the Board of Directors of DCI.
This person will be designated by SELLER.
d) SELLER, or either of them, will have the right of first
refusal if TSL is put up for sale by DCI. DCI shall give
written notice to Seller of any bona fide offer to purchase TSL
which DCI desires to accept. Such notice from DCI shall contain
the name of the proposed purchaser together with all of the
terms and conditions, including, without limitation, price, of
such offer. SELLER shall have a period of thirty (30) days
thereafter to notify DCI if SELLER desires to match such offer.
If SELLER desires to match such offer, SELLER and DCI shall
proceed to consummate such transaction within thirty (30) days
after receipt by DCI of SELLER's notice. If SELLER notifies DCI
that it does not desire to match such offer or fails to submit
a response within such thirty (30) day period, DCI shall be
free to consummate the transaction described in its notice to
SELLER with the party named therein upon the terms and
conditions provided therein within the next thirty (30) days.
Thereafter, this Section 1.02(d) shall remain in full force and
effect.
e) Lois Morris and Sandra Perry will have employment contracts.
DCI shall allow Morris and Perry to manage the daily operations
of TSL as they see fit in the best interests of the
Corporation.
f) DCI shall reimburse $3,000 of legal fees incurred by SELLER
in connection with the transactions described herein.
1.02 Seller shall provide at closing to PURCHASER, in
accordance with generally accepted accounting principles, a
balance sheet and profit and loss statement as of December 31,
1996.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE SELLER
2.01 The SELLER represents and warrants to the PURCHASER as
follows:
(a) Organization and Standing: TSL is a Corporation duly
organized, validly existing and in good standing under the Laws
of the State of Rhode Island;
(b) Corporate Power and Authority: TSL has full power and
authority to conduct its Business as presently conducted and is
in compliance with all applicable laws. TSL has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated herein. TSL has taken all actions
required by Law, its Charter, its Certificate of Incorporation,
its By-Laws or otherwise, to authorize the execution and
delivery of this Agreement and will take all further actions
necessary to carry out the transactions contemplated herein
prior to Closing;
E-3
<PAGE>
(c) Binding Effect: This Agreement, when executed, shall
constitute a binding Agreement of the SELLER and will be
enforceable against the SELLER in accordance with its terms;
(d) Title to Property: The SELLER has good and marketable
Title to the outstanding Capital shares of Stock of TSL as of
the execution date of this Agreement free and clear of any
security interest, liens, claims, options or encumbrances and,
will have such Title at Closing. No other Party has any
interest directly or indirectly in any of the shares in the
Corporate Stock of TSL and, the SELLER will hold the PURCHASER
harmless from any claims to the contrary. At the time of
Closing, TSL will have good and marketable Title to all of the
equipment described on Schedule A attached hereto and made a
part hereof, together with all accounts receivable, inventory,
licenses, trademarks, fixtures, prepaid taxes, prepaid
expenses, and notes receivable, free and clear of any security
interest, liens, claims, liabilities, options or encumbrances;
(e) Litigation: There is no litigation, proceeding, material
claim, investigation or material unasserted claim which the
SELLER believes is probable of assertion, pending or threatened
against or relating to TSL before any court, governmental
authority or arbitration board and, there will be no such
claims at time of Closing which claims arose during a period of
time prior to Closing, said claim shall be the responsibility
of the SELLER and, the SELLER shall hold the PURCHASER harmless
therefrom;
(f) Liabilities at Closing: At the time of Closing: TSL will
have no liabilities of any nature, except as set forth on
Schedule B attached to this Agreement.
2.02 Survival of Representations and Warranties: The
representations and warranties of the SELLER made in or
pursuant to this Agreement shall survive and remain valid and
enforceable beyond the date of the execution and delivery of
this Agreement and the Closing of the transactions contemplated
herein for a period of one (1) year. A claim for a SELLER's
breach of representations and warranties must be asserted in
writing to the SELLER by the Purchaser.
ARTICLE III - REPRESENTATIONS OF PURCHASER
3.01 Purchaser represents and warrants to Seller as follows:
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<PAGE>
3.0 Organization: DCI is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Colorado, with the corporate power and authority to
carry on its business as now being conducted. DCI is duly
qualified to do business in each jurisdiction in which the
nature of its business requires it to be so qualified. The
execution and delivery of this Agreement and the consummation
of the transactions being contemplated in the Agreement have
been, or will be prior to Closing, duly authorized by all
requisite corporate actions on the part of DCI, to the extent,
if any, that such authorizations are necessary. This Agreement
has been duly executed and delivered by DCI and constitutes the
valid, binding, and enforceable obligation of DCI.
3.1 Ability to Carry Out Agreement: The execution and
performance of this Agreement will not violate, result in a
breach of, or constitute a default in, any provisions of
applicable law, any agreement, instrument, judgment, order or
decree to which DCI is a party or to which DCI is subject,
other than such violations, breaches, or defaults which,
singularly or in the aggregate, do not have a material adverse
effect on the business as a whole or on the enforceability or
validity of this Agreement. No consents of any persons under
any contract or agreement required to be disclosed or disclosed
pursuant to this Agreement are required for the execution,
delivery, and performance by DCI of this Agreement. All stock
issued to Seller hereunder shall be validly issued and
authorized, fully paid and non-assessable. DCI shall at all
times have reserved sufficient shares of stock in the event of
any adjustment required pursuant to Section 1.02(b) hereof, and
all such additional stock shall be validly issued, non-
assessable and fully paid.
3.2 Financial Information: DCI has provided, or will provide
prior to Closing, to Seller financial statements of DCI
consisting of its most recent Form 10-K and Form 10-Q. DCI
has also provided to Seller, or will provide prior to closing,
documents and other information relating to its financial
condition in the DCI Disclosure Documents. The Annual Report,
SEC filings, and all other financial statements and financial
information included in the DCI Disclosure Documents shall be
referred to as the "DCI Financials". All financial statements
and reports included in the DCI Financials are in accordance
with the books and records of DCI (subject to normal year-end
adjustments) and present fairly the financial condition of DCI
and the results of its operation for the period therein
specified, all in accordance with generally accepted
accounting principals applied on a basis consistent with prior
accounting periods. Except as set forth in the DCI
Financials, DCI has no obligations or liabilities (whether
accrued, absolute, contingent, liquidated or otherwise,
including without limitation any tax liabilities due or to
become due) which are not fully disclosed and adequately
provided for in the DCI Financials, excepting current
liabilities incurred in the usual and ordinary course of
business.
E-5
<PAGE>
3.3 Litigation: Except as disclosed in the DCI Disclosure
Documents, there is neither pending nor threatened, any action,
suit, arbitration, proceeding (whether federal, state, local or
foreign) or claim to which DCI is or is likely to be named as a
party or to which its property, assets or business is or is
likely to be subject and in which an unfavorable outcome, ruling
or finding will or is likely to have a material adverse effect on
the condition, financial or otherwise, or properties, assets,
business or operations of DCI or create any material liability on
the part of DCI or which would conflict with this Agreement or
any action taken or to be taken in connection with it.
3.4 Contracts: Except as disclosed in the DCI Financials or the
DCI Disclosure Documents, there are no contracts, actual or
contingent obligations, agreements, franchises, license
agreements, or other commitments to which DCI is a party or by
which it or any of its properties or assets are bound which are
material to the business, financial condition, or results of
operation of DCI.
3.5 Material Contract Breaches; Defaults: DCI has not
materially breached, nor has it any knowledge of any pending or
threatened claims or any legal basis for a claim that DCI has
materially breached, any of the terms or conditions of any
agreements, contracts, or commitments to which it is a party or
is bound and which are material to the business, financial
condition or results of operation of DCI, taken as a whole. To
the best of its knowledge and belief, DCI is not in default in
any material respect under the terms of any outstanding contract,
agreement, lease, or other commitment which is material to the
business, operations, properties, assets, or condition of DCI,
and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in
any material respect under any such contract, agreement, lease,
or other commitment in respect of which DCI has not taken
adequate steps to prevent such a default from occurring.
3.6 Directors and Officers: The DCI Disclosure Documents
accurately set forth the names and titles of the persons serving
as directors and officers of DCI.
3.7 Leaseholds: Except as disclosed pursuant to this Agreement,
each and every lease to which DCI is a party is valid and
enforceable. DCI has not received any notice of default by it
under the terms of any such lease which default remains uncured,
and DCI is not in material breach or default by it under the
terms of any such lease.
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<PAGE>
3.8 Permits: DCI has obtained and maintained in full force and
effect all franchises, permits, certificates, authorizations,
licenses and other similar authority required by law or
governmental regulations from all applicable federal, state
authorities and any other regulatory authorities, which are
necessary for the conduct of its business as now being conducted
by it and as planned to be conducted, and it is not in default or
noncompliance in any material respect under any of such
franchises, permits, certificates, authorizations, licenses or
other similar authority.
3.9 Compliance with Laws, Rules, Etc.: The business and
operations of DCI has been conducted in compliance with all
applicable federal, state, and local laws, rules and regulations.
DCI is not in violation of any terms of its Articles of
Incorporation or By-laws or any term of any mortgage, indenture,
contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation to which it is subject, except to the
extent any violation or noncompliance would not materially and
adversely affect the business, operations, properties, assets, or
condition of DCI, except to the extent that any violation or
noncompliance would not result in the incurring of any material
liability. DCI has not been notified by any regulatory or
governmental authority that it is now in violation of any law,
rule, regulation, ordinance, or order.
3.10 Insurance: There are in full force and effect policies of
insurance issued by insurers of recognized responsibility
insuring DCI and its properties and business against such losses
and risks, and in such amounts, as are customary for its
business.
3.11 Securities Laws: DCI is a public company and represents
that, to the best of its knowledge, except as disclosed in the
DCI Disclosure Documents, it has no existing or threatened
liabilities, claims, lawsuits, or basis for the same with respect
to its original stock issuance to its founders, its public
offering, or any dealings with its stockholders, the public, the
brokerage community, the Securities and Exchange Commission, any
state regulatory agencies, or other persons.
3.12 Conflict of Interest Transactions: Except as disclosed in
the DCI Disclosure Documents, no past or present shareholder,
director, officer, or employee of DCI or any of its Subsidiaries,
and no Associate of any past or present shareholder, director,
officer, or employee of DCI (i) is indebted to, or has any
financial, business, or contractual relationship or arrangement
with DCI (ii) has any direct or indirect interest in any
property, asset, or right which is owned or used by DCI or (iii)
has been directly or indirectly involved in any transaction with
DCI.
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<PAGE>
3.13 Approvals: Except as otherwise provided in this Agreement,
to DCI's best knowledge and belief, no authorization, consent, or
approval of, or registration or filing with, any governmental
authority or any other person is required to be obtained or made
by DCI in connection with the execution, deliver, or performance
of this Agreement.
3.14 Full Disclosure: The information concerning DCI set forth
in this Agreement, in the DCI Disclosure Documents, and in the
DCI Financials is, to the best of DCI's knowledge and belief,
complete and accurate in all material respects and does not
contain any untrue statement of a material fact or omit to state
a material fact required to make the statements made, in light of
the circumstances under which they were made, not misleading.
3.15 Date of Representations and Warranties: Each of the
representations and warranties of DCI set forth in this Agreement
is true and correct at and as of the Closing Date, with the same
force and effect as though made at and as of contemplated by this
Agreement.
3.16 Survival of Representations and Warranties: The
representations and warranties of the PURCHASER made in or
pursuant to this Agreement shall survive and remain valid and
enforceable beyond the date of the execution and delivery of
this Agreement and the Closing of the transactions contemplated
herein for a period of one (1) year. A claim for a PURCHASER'S
breach of representations and warranties must be asserted in
writing to the PURCHASER by the Seller.
ARTICLE IV - COVENANTS OF THE SELLER
4.01 The SELLER covenants that:
(a) Power and Authority: The SELLER has full power and
authority to enter into this Contract and to carry out the
transactions contemplated herein. TSL has taken all actions
required of TSL by the Laws, its Charter, its Certificate of
Incorporation, it's By-Laws or otherwise, to authorize the
execution and delivery of this Agreement and will take all
actions necessary to carry out the transactions contemplated
herein;
(b) Taxes: The SELLER shall prepare and file all proper and
necessary Tax Returns for all applicable periods prior to the
date of Closing. Following the Closing date, the PURCHASER
shall assume the responsibility for filing those Tax Returns
for all periods which end following the Closing with an
appropriate pro rated adjustment of liability thereunder being
made between the PURCHASER and the SELLER. Each party will
furnish the other with such information as is necessary to file
said Returns which a party has in its possession.
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ARTICLE V - COVENANTS OF THE PURCHASER
5.01 The PURCHASER covenants that:
(a) Power and Authority: The PURCHASER has full power and
authority to enter into this Contract and to carry out the
transactions contemplated herein. The PURCHASER has taken all
actions required of DCI by the Laws, its Charter, its
Certificate of Incorporation, it's By-laws or otherwise, to
authorize the execution and delivery of this Agreement and will
take all actions necessary to carry out the transactions
contemplated herein.
ARTICLE VI - CLOSING
6.01 Closing Date: The Closing of the transaction provided
for under this Agreement shall take place on March 25, 1997 at
the offices of DCI Telecommunications or at such other time and
place as the Parties may designate by mutual agreement in
writing.
6.02 Delivery of Documents at Closing:
(a) At Closing, the SELLER will deliver to the PURCHASER the
following:
(1) Certificates for the Capital Stock of TSL which will be one-
hundred percent (100%) of the outstanding Capital Stock of TSL
at that time, duly endorsed for transfer to the PURCHASER, with
proper state transfer tax stamps affixed, if any are required,
at the expense of the SELLER
(2) A copy of the Certificate of Incorporation of, its By-
Laws, Minute Books, Stock Book and Seal, all brought up to
current condition as of the Closing Date.
(b) At Closing, the Purchaser will deliver to the Seller the
following:
(1) Certificates for 29,412 shares of DCI 144 common stock,
duly endorsed for transfer to the Purchaser, with proper state
transfer tax stamps affixed, if any are required, at the
expense of the Purchaser; and
(2) Duly executed Employment Agreements between TSL and Lois
Morris and Sandra Perry, respectively.
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<PAGE>
ARTICLE VII - INDEMNIFICATION
7.01 Indemnification of SELLER: To the extent that a party
breaches any of its representations or convenants hereunder,
such party shall defend, indemnify and hold harmless the other
party from and against any and all liabilities, debts and
claims arising from such breach. All rights and remedies
granted in this Agreement to the Purchaser or SELLER shall be
not exclusive of all other rights and remedies which the
PURCHASER or SELLER may have at law or in equity and, the
PURCHASER or SELLER may exercise all or any of such rights and
remedies in any one or more times without being deemed to have
waived any or all other rights and remedies which the PURCHASER
or SELLER may have in this manner. This indemnification extends
to all losses, expenses, claims and liabilities, including all
costs and expenses related thereto.
7.02 Notice of Claim for Indemnification: Either Party to this
Agreement shall give prompt written notice to the other Party
of any matter for which indemnification may be sought. In the
event of an indemnification claim, the Party to be indemnified
shall notify the other Party of any claim which the
indemnifiable Party claims is the responsibility of the other
Party in writing within twenty (20) days after the claim has
been asserted and, the indemnifying Party shall either settle
said claim or contest said claim at the indemnifier's sole cost
and expense. The indemnified party may, if it so desires, at
its sole cost and expense, select Counsel of its choice to
enter any appearance in any litigation although the control of
said litigation shall remain under the control of the party
ultimately responsible for the payment of the claim. In the
case of claims for breach of warranty or misrepresentations
(other than indemnifiable claims), claims of these breaches
must be made in writing by the claiming party against the other
Party hereto within ninety (90) days after said breach or
misrepresentation is discovered.
If the indemnifying party fails to assume the defense of a
claim within a reasonable time, the indemnifiable party may
assume such defense and the reasonable fees and expenses of its
attorney will be covered by the indemnity provided for in this
ARTICLE. No such action, suit or proceeding shall be
compromised or settled in any manner which might adversely
affect the interests of the indemnifying party without the
prior written consent of such indemnifying party which shall
not be unreasonably withheld. Notwithstanding anything in this
Paragraph to the contrary, no such action, suit or proceeding
shall be compromised or settled in any manner which might
adversely affect the interests of the indemnifying party
without the prior written consent of such indemnifying party
which shall not be unreasonably withheld. Notwithstanding
anything in this Paragraph to the contrary, the indemnifying
party shall not, without the written consent of the
indemnifiable party which shall not be unreasonably withheld:
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<PAGE>
(a) settle or compromise any action, suit or proceeding or
consent to the entry of any judgment which does not include as
an unconditional term thereof the delivery by the claimant or
plaintiff to the indemnified party of a written release from
all liability in respect of such action, suit or proceeding; or
(b) settle or compromise any action, suit or proceeding in any
manner that may materially and adversely affect the indemnified
party. Seller shall have no liability under this Article VII or
otherwise under this Agreement in excess of the value of the
stock it is receving hereunder as of the date hereof.
ARTICLE VIII - RISK OF LOSS
8.01 Risk of Loss: The risk of loss or destruction of or
damage to, said inventory, fixtures, equipment and real
property from any cause whatsoever at all times on or
subsequent to execution of this document but before closing
shall be borne by the Seller.
ARTICLE IX - MISCELLANEOUS
9.0 Notices: All notices to be given under or in connection
with this Agreement, shall be in writing and deemed given when
delivered personally or mailed by registered or certified mail,
return receipt requested, to the parties at the following
addresses, or at such other addresses as a party shall
designate by like notice:
IF TO THE SELLER: Lois Morris and Sandra Perry
Travel Source Limited
99 Fortin Road
Kingston, RI 02881
IF TO THE PURCHASER: DCI Telecommunications, Inc.
PO Box 320334
Fairfield, CT 06432-0334
9.01 Assignment: Neither Party may assign this Agreement in
whole or in part without the prior written consent of the other
Party.
9.02 Governing Law: This Agreement shall be construed and
enforced in all respects under and in accordance with the Laws
of the State of Connecticut.
9.03 Binding Effect: This Agreement shall be binding upon and
inure to the benefit of the Parties of this Agreement and their
respective successors, heirs and assigns.
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<PAGE>
9.04 Headings: Headings as used in this Agreement are for
convenience only and are not construed as having any
substantive effect by way of limitation or otherwise.
9.05 Severability: If one (1) or more of the provisions of
this Agreement shall, by any court or under any provision of
law, be found to be void or unenforceable, the Agreement as a
whole shall not be affected thereby, and the provision in
question shall be replaced by an interpretation in conformity
with law which comes closest to effecting the Parties' original
intention.
9.06 Force Majeure: If, either Party hereto finds itself, in
spite of ordinary care, unable, by reason of any event beyond
its reasonable control, such as acts of government or
sovereignty, war (whether declared or not), riot, insurrection,
civil commotion, sabotage or other disturbances, accident,
fire, flood, explosion or other similar cause, to carry out its
obligations in whole or in part, it shall not be liable for
such failure to fulfill or such delay in fulfilling its
obligations hereunder to the extent they are affected by such
effect. The parties so affected shall use its best efforts to
avoid to remove such causes of non-performance and shall
continue and resume the carrying out of its obligations with
the utmost dispatch when such causes are removed.
ARTICLE X - BENEFIT
10.01 This Agreement shall be finding upon and shall inure to
the benefit of the Parties hereto, their heirs, legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the Parties have hereunto signed this
Agreement the day and year first above written.
In the Presence of: SELLER: Travel Source Limited
99 Fortin Road
Kingston, RI 02881
By: /s/ Sandra J. Perry
----------------------------
Its President
/s/ Lois Morris
----------------------------
Lois Morris
/s/ Sandra J. Perry
----------------------------
Sandra Perry
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<PAGE>
In the Presence of: PURCHASER: DCI Telecommunications Inc.
P.O. Box 320334
Fairfield, CT 06432
By: Joseph J. Murphy
----------------------------
JOSEPH MURPHY
Its President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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