<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JANUARY 31,1999.
----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
----- -----
COMMISSION FILE NUMBER
0-18288
DIRECT CONNECT INTERNATIONAL INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2705223
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
637 Wyckoff Avenue #194
Wyckoff, New Jersey 07481
- ------------------- -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code - (201) 445-2101
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
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 registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1999: 9,062,066
---------
<PAGE>
DIRECT CONNECT INTERNATIONAL INC. AND SUBSIDIARY
------------------------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO
Item 1. Financial Statements
Condensed Consolidated
Balance Sheets -
January 31, 1999 and
April 30, 1998 3
Condensed Consolidated
Statements of
Operations - Three
Months Ended January 31,
1999 and January 31, 1998 and 4
Nine months ended January 31, 1999
and January 31, 1998
Condensed Consolidated
Statements of Cash
Flows - Nine Months
Ended January 31, 1999
and January 31, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion
and Analysis of Results
of Operations and
Financial Condition 7 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports
on Form 8-K 14
Signatures 15
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
Direct Connect International Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
ASSETS
January 31, 1999 April 30, 1998
---------------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $51,341 $437,869
Investments in Datatec, at cost 264,815 1,548,107
Prepaid expenses and other current assets 100 50,265
Notes receivable Omnet Corp. 308,708 0
Notes receivable Image Tech. Corp. 50,000 0
---------------------------
Total current assets 674,964 2,036,241
---------------------------
Property and equipment , at cost
Furniture and fixtures 17,425 7,568
Less: accumulated depreciation 7,568 7,568
---------------------------
9,857 0
---------------------------
Notes Receivable - officers 108,585 99,195
---------------------------
108,585 99,195
===========================
Total assets $793,406 $2,135,436
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $317,689 $355,647
Accrued expenses and taxes payable 220,475 229,573
Notes payable-other, current portion 955,761 2,241,362
Notes payable-officer 30,000 0
----------------------------
Total current liabilities 1,523,925 2,826,582
----------------------------
Stockholders'equity
Convertible preferred stock:
Authorized 5,000,000 shares, $.001
par value; issued and outstanding-
5,000,000 shares 5,000 5,000
Common stock:
Authorized 15,000,000 shares, $.001
par value; issued and outstanding-
9,062,066 shares 9,062 9,062
Capital in excess of par value 5,160,949 5,160,949
Accumulated deficit (5,905,530) (5,866,157)
------------------------------
Total stockholders' equity (730,519) (691,146)
------------------------------
Total liabilities and stockholders'
equity $793,406 $2,135,436
==============================
</TABLE>
3
<PAGE>
<TABLE>
Direct Connect International Inc. and Subsidiary
Consolidated Statements of Operations
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
------------------- ------------------
January 31 January 31 January 31 January 31
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $0 $0 $0 $0
------------ ------------ ------------ ------------
Costs and expenses
Depreciation --- 6,549 --- 19,649
General and administrative expenses 253,509 247,529 717,730 815,231
Less: management fees --- --- --- (42,407)
------------ ------------ ------------ ------------
253,509 254,078 717,730 792,473
------------ ------------ ------------ ------------
Operating income (loss) (253,509) (254,078) (717,730) (792,473)
Gain (loss) on sale of securities (10,754) 156,888 695,608 2,032,436
Interest income 6,810 12,031 14,240 18,759
Other income 45,000 --- 60,000 277
Interest expense (17,296) (44,913) (91,491) (145,632)
------------ ------------ ------------ ------------
Net income (loss) (229,749) (130,072) (39,373) 1,113,367
============ ============ ============ ============
Earnings (loss) per common share ($0.03) ($0.01) ($0.00) $0.07
============ ============ ============ ============
</TABLE>
4
<PAGE>
<TABLE>
Direct Connect International Inc. and Subsidiary
Consolidated Statements of Cash Flows
<CAPTION>
For The Nine Months Ended
---------------------------------------
January 31, 1999 January 31, 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income ($39,373) $1,113,367
------------------ ------------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)operating activities:
Depreciation --- 19,650
Gain on sale of Datatec stock (695,608) (2,106,905)
Loss on sale of Mark Solutions stock --- 74,469
Decrease (increase) in assets
Accounts receivable --- 14,990
Prepaid expenses and other current assets 50,165 54,478
Increase (decrease) in liabilities
Accounts payable (37,958) 13,318
Accrued expenses and taxes payable (9,098) 26,141
------------------ ------------------
Total adjustments (692,499) (1,903,859)
------------------ ------------------
Net cash (used in) operating activities (731,872) (790,492)
------------------ ------------------
Cash flow from investing activities
Notes receivable-officers, increase (9,390) (5,443)
Proceeds from sale of Datatec stock 1,978,900 2,396,189
Increase in due from IBN, Inc. --- 227,399
Increase in due from Funatics, Inc. --- 59,304
Increase in due from Omnet (358,708) ---
Disposal of molds, tools, and dies --- 5,375
Acquisition of office equipment (9,857) ---
Acquisition of Datatec stock --- (1,856,325)
Proceeds from sale of Mark Solutions stock --- 33,873
------------------ ------------------
Net cash provided by investing activities 1,600,945 860,372
------------------ ------------------
Cash flows from financing activities
Decrease in notes payable -officer and stockholders --- (253,680)
Increase in notes payable-officer 30,000 ---
Increase in notes payable-other 91,440 784,421
Decrease in notes payable-other (1,377,041) (51,004)
Increase in paid in capital --- 20,000
------------------ ------------------
Net cash provided by (used in) by financing activities (1,255,601) 499,737
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (386,528) 569,617
Cash and cash equivalents at beginning of period 437,869 32,939
------------------ ------------------
Cash and cash equivalents at end of period $51,341 $602,556
================== ==================
Supplemental disclosure of a cash flows information
Cash paid during the nine months for interest
$237,344 $ ---
-------------------- ------------------
</TABLE>
5
<PAGE>
DIRECT CONNECT INTERNATIONAL INC.
AND SUBSIDIARY
Notes to Financial Statements
1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly (a) the financial position as
of January 31, 1999, (b) the results of operations for the three months
and nine months ended January 31, 1999 and January 31, 1998 and (c)
changes in cash flows for the nine months ended January 31, 1999 and
January 31, 1998.
2. Refer to the audited financial statements for the fiscal year ended
April 30, 1998 for details of accounting policies and accounts, none of
which have changed significantly in composition since that date.
3. Financial results for the interim period ended January 31, 1999 may not
be indicative of the financial results for the fiscal year ending
April 30,1999.
4. The Company has available carry forward losses applicable to the
reduction of future Federal income taxes aggregating approximately
$4,680,000 at December 31, 1998 and which expire during various years
through 2012.
5. As reported, the Company holds shares of common stock of Glasgal
Communications, Inc., now Datatec Systems, Inc. (Datatec).
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
- -------
The Company had no revenues from operations for the three and nine months ended
January 31,1999, and unless the Company develops business opportunities or
enters into management arrangements with other companies, as it has done in the
past, the Company will have to sell assets to pay its obligations as they become
due.
Net Sales
- ---------
Net sales for the three and nine months periods ended January 31,1999 were $0,
and $0 for the same periods in the prior fiscal year.
The Company will have to develop business opportunities; however, there can be
no assurance that it will be able to do so on a commercially viable basis.
At January 31,1999, the Company did not have a backlog of orders from its
customers.
Gross Profit
- ------------
Gross Profit percentage for the three months ended January 31,1999 was 0%.
7
<PAGE>
Gain (Loss) on Sale of Securities, Interest Income and Other Income
- -------------------------------------------------------------------
Gain (loss) on sale of securities, interest income and other income amounted to
approximately ($41,056) and $769,848 for the three and nine months ended January
31,1999 as compared to approximately $169,000 and $2,051,000 for the three and
nine months ended January 31,1998. The decrease for the three month and nine
month period ended January 31,1999 was due to the difference in the number of
shares and selling price in connection with the sale of Datatec shares held by
the Company, which were sold at a loss.
General and Administrative Expenses
- -----------------------------------
For the three and nine months ended January 31,1999, the Company received from
its management arrangement with Evolutions, Inc. (EVO) $0 as compared to $0 and
$42,407 for the three and nine months ended January 31,1998, which covers the
monthly reimbursement of the back office costs incurred by the Company in
connection with its operations as it relates to supporting the product lines
which were sold to EVO. The reason for the decrease was the reduction in
activity in connection with the Company's management arrangements on behalf of
EVO, which terminated during April 1997.
General and administrative expenses for the three and nine months ended January
31,1999 were $253,509 and $717,730 as compared to $247,529 and $815,231 for the
three and nine months ended January 31,1998. Professional fees were $42,940 and
$111,300 for the three and nine months ended January 31,1999 as compared to
$24,844 and $98,326 for the three and nine months ended January 31, 1998. The
increases were due to additional services required to explore various business
opportunities.
For the three and nine months ended January 31,1999, salaries were $114,033 and
$312,047 as compared to $107,295 and $381,985 for the three and nine months
ended January 31,1998. Such decrease for the nine month period resulted from
reductions in payroll.
Travel and entertainment expenses amounted to $17,511 and $51,057 for the three
and nine months ended January 31, 1999 as compared to $22,538 and $69,382 for
the three and nine months ended January 31,1998. Such overall decrease resulted
from the reduction in business activity.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the next twelve months, in addition to meeting its operating needs, the
Company will have notes payable in the amount of approximately $986,100. The
Company does not believe that it will be able to pay these obligations out of
operating revenues, and, accordingly, it will have to seek additional financing
or sell assets to do so. The Company owns approximately 225,047 shares of common
stock of Datatec and may, from time to time, sell a portion of such shares.
There can be no assurance that the Company will be able to obtain such financing
or sell assets, in which event such obligations will have a material adverse
effect upon the Company's operations.
To continue its business, the Company will have to seek additional financing and
there can be no assurance that it will be able to obtain such financing. No
assurance can be given as to the number of outstanding warrants, which represent
a potential source of funds, that will be exercised. The Company is exploring
alternatives to utilizing its equity investments in connection with financing
its operations and developing new business opportunities.
On December 1, 1998, the Company signed a merger agreement (the Agreement) with
Image Technology Corp. (Image) whereby the Company will merge into a subsidiary
of Image, and the Company will become the surviving corporation. Shareholders of
the Company will receive, subject to adjustment, an aggregate of approximately
25% of Image's issued and outstanding common stock. The Agreement is subject to
receipt by the Company's Board of Directors of a fairness opinion by an
independent financial consultant or investment banking firm and shareholder
approval. The Agreement is also subject to approval of Image's shareholders.
In anticipation of the proposed merger, the Company will loan Image, for working
capital purposes, the principal amount of $260,000 with interest at the rate of
six and one-half percent (6-1/2%) per annum. The promissory note, dated November
30, 1998, evidencing the obligation is due, in the event that the Agreement is
terminated by Image, on or before the 30th day after such termination.
The Agreement provides that at the time of filing of the Certificate of Merger
in Delaware, the Company will have at least $1,000,000 of unrestricted free cash
together with a sufficient sum of liquid tangible assets to pay all outstanding
liabilities and all other fees of the Company in connection with the merger. In
addition, Image will use its best efforts to raise a minimum of $2,000,000 of
additional capital during the period ending September 30, 1999. If Image fails
to raise such additional capital, then the holders of Image's common stock, at
the date of execution of the Agreement, will be entitled to increase their
aggregate holdings so as to be equivalent to 85% of the outstanding shares of
Image common stock at the time of filing of the Certificate of Merger.
Image's principal business is conducted through Court Record Services, Inc.,
which is one of the leading providers of Records and Briefs for the Federal
Courts of Appeal and the U.S. Supreme Court to law libraries and the legal
profession. Image has significant assets in its vast collections of microfilmed
and digitized Records and Briefs of the U.S. Federal Courts of Appeal and the
9
<PAGE>
U.S. Supreme Court. The collection also includes cases for appellate courts of
the states of New York and Pennsylvania. These assets enable Image through its
CourtRecordServices.com web site to offer Records and Briefs instantaneously
through the Internet to the attorney, professor or law librarian who requires
such information.
The assets of the Company will assist Image to achieve its goal of becoming the
proprietary supplier of judicial Records and Briefs over the Internet.
In November 1998, the Company and Omnet Technology Corp. (Omnet) mutually
terminated their merger agreement. The Company is the holder of a note issued by
Omnet in the principal amount of $300,000 with interest at the rate of six and
one-half percent (6-1/2%) per annum. The note is due on August 19, 1999 and is
guaranteed by principal stockholders of Omnet.
For the nine months ended January 31,1999 the Company used cash from operations
in the amount of $731,872 as compared to using $790,492 from operations for the
nine months ended January 31,1998. The Company used $1,255,601 from its
financing activities due to a reduction in the Company's notes payable for the
nine months ended January 31,1999. During the nine months ended January 31,
1998, the Company obtained approximately $499,737 from its financing activities.
For the nine months ended January 31,1999, cash of $1,600,945 from the Company's
investing activities was provided as compared to providing $286,966 for the nine
months ended January 31, 1998. Included in the amount for the nine months ended
January 31,1999 were proceeds in the amount of $1,978,900 from the sale of
503,271 shares of Datatec stock. Cash flows for the nine months ended January
31,1998 included $2,396,189 from the sale of 256,667 shares of Datatec stock
held by the Company. The Company also used $1,856,325 of such proceeds to
acquire 480,000 shares of Datatec stock. In connection with the transactions
involving the Datatec stock, Datatec relinquished certain options regarding the
purchase of shares of such stock from the Company, and the option granted to the
Company by Datatec to purchase additional shares of Datatec stock was increased.
During 1998 in consideration of providing an open line of credit of $225,000 to
the Company, the Company issued to the wife of one of its officers warrants to
purchase 100,000 shares of the Company's common stock at an exercise price of
$.20 per share. The time for exercise of such warrants expires in 2002. At
January 31,1999, the Company's obligation under this line of credit amounted to
approximately $90,000. This obligation is included under notes payable other,
and is secured by 40,000 shares of Datatec common stock owned by the Company.
In September 1997, the Company entered into a lending arrangement with an
individual lender whereby the Company issued secured promissory notes in the
aggregate principal amount of $250,000. Such notes are secured by a total of
62,000 shares of Datatec common stock and bear interest at the rate of 10% per
annum and became due in November 1997, as extended. As an inducement for making
the loans, the Company agreed to pay such lender $30,000 as an inducement fee.
Such notes have been paid.
10
<PAGE>
Of the proceeds received from such lending arrangements, $118,000 were used for
the Company's operational expenses and an aggregate of $287,500 was loaned to
two companies, evidenced by 15% and 10% promissory notes and secured by
inventory and receivables. Such lending arrangements provide for an aggregate of
$14,500 to be paid to the Company as an inducement fee. The notes became due in
December 1997, as extended, and have not been paid. The purpose of such loans
was to develop potential business opportunities with such companies. Messrs.
Peter Schneider and Y.S. Ling, the President and an Executive Vice President of
the Company, respectively, have an interest in one of such companies. Y.S. Ling
is a creditor and Peter Schneider is both a creditor and stockholder, holding
less than 5% of the equity of such company. In October 1998, the Company, which
had previously written off certain indebtedness (amounting to approximately
$200,000) from such company, agreed to accept $60,000 in full settlement
thereof, which has been paid. In October 1997, the Company received advances
aggregating $15,600 from a company controlled by Peter Schneider.
In October 1995 the Company issued to two individual lenders promissory notes in
the aggregate principal amount of $350,000. Such notes bear interest at the rate
of 10% per annum and became due on October 15, 1996. As an inducement for the
noteholders to make the $350,000 loan to the Company, the Company agreed to
deliver to such holders an aggregate of 19,444 shares of Datatec common stock
held by the Company and to deliver to such holders (a) warrants to purchase for
a period of twenty-four months an aggregate of 19,444 shares of Datatec common
stock held by the Company at an exercise price of $2.00 per share, as adjusted,
which were exercised and (b) warrants to purchase for a period of twenty-four
months an aggregate of 38,880 shares of the Company's common stock at an
exercise price of $ .20 per share. The time for exercise of such warrants has
been extended for an indefinite period. The Company in 1998 recognized a gain of
approximately $100,000 as a result of these transactions.
In order to supplement its cash flow, the Company, on March 6, 1991, entered
into loan agreements with several investors whereby the Company borrowed an
aggregate of $282,000 for six months with interest at the semiannual rate of
14.5%. As part of such transaction, the Company issued to such investors, in a
private placement, an aggregate of 17,000 shares of its common stock, on a
restricted basis, for an aggregate consideration of approximately $22,000. In
October 1991, the Company paid off $32,000 (plus accrued interest) with respect
to such loans.
At such time the Company renegotiated the balance of such loans (plus accrued
interest) and issued new notes, maturing in one year, amounting to approximately
$290,000 including interest thereon at the annual rate of 10%. The Company is
obligated to pay such investor the value of the note, plus accrued interest.
Such obligation was acquired by Medical Device Alliance, Inc. (MDA), as set
forth below.
The Company intends either to pay off its note obligations or to convert the
notes (including accrued interest thereon) into Common Stock at a rate of five
shares of Common Stock in connection with a proposed meeting of stockholders.
There can be no assurance that the Company will be able to effectuate such
payment or conversion. Litigation by noteholders to enforce the notes would
materially adversely affect the Company's operations. In connection with the
11
<PAGE>
acquisition of certain outstanding notes of the Company by MDA, all of which are
past due, aggregating approximately $651,000 at January 31, 1999, the Company
delivered 228,571 shares of its Datatec stock in May 1998, in transferable form,
as collateral for such obligations. The Company has been advised that all such
shares were subsequently sold resulting in proceeds to MDA of approximately
$976,000 in reduction of such obligations. The Company recognized a gain of
approximately $750,000 in connection with the sale of these shares.
In 1992, the Company, in order to regain listing on the NASDAQ Small Cap System,
to provide for operating requirements and in contemplation of a possible change
in the nature of the Company's business, completed a private placement of
securities in October 1992, in which investors subscribed for 100 Units, each
Unit consisting of 50,000 shares of Convertible Preferred Stock and 25,000 1992
Warrants to purchase shares of Common Stock, for a total of $3,000,000. The
warrants expired on June 30, 1997. Such private placement was closed in two
stages, the first of which involved the purchase of 52-1/2 Units and closed in
July 1992, with the balance of the Units offered (47-1/2 Units) being purchased
in October 1992. At July 31, 1997 approximately 53% of such Preferred Stock was
acquired by MDA. As a result of the consummation of such private placement, (a)
the Redeemable Class A Warrant exercise price has been adjusted from $1.00 per
share to $.53 per share and the number of shares of Common Stock issuable upon
exercise of Redeemable Class A Warrants has been increased from 3,438,900 shares
to 6,488,517 shares of Common Stock so that each holder of a Redeemable Class A
Warrant will be able to purchase 1.8868 shares of Common Stock for $1.00 upon
exercise of each Warrant and (b) the Redeemable Class B Warrant exercise price
has been adjusted from $1.50 per share to $ .75 per share and the number of
shares of Common Stock issuable upon exercise of Redeemable Class B Warrants has
been increased from 1,719,450 shares to 3,438,900 shares of Common Stock so that
each holder of a Redeemable Class B Warrant will be able to purchase one share
of Common Stock per warrant upon exercise of such Warrant. As a result of the
proposed merger with Image Technology Corp., referred to herein, there may be a
further adjustment in the exercise price and the number of shares issuable upon
such exercise.
The Company entered into a common stock purchase agreement (the "Agreement")
with Datatec governing certain equity investments which the Company has made,
and in the future intends to make, in Datatec common stock. Pursuant to the
Agreement, in January 1994 the Company converted outstanding indebtedness of
Datatec owed to the Company into equity of Datatec which, upon consummation of
the Datatec merger with Sellectek Incorporated, resulted in the Company owning
approximately 28% of the outstanding shares of Datatec or 18.5% on a fully
diluted basis. In addition, the Agreement gives Datatec the right to require the
Company to purchase an additional number of shares of common stock of Datatec
equal to 13.5% of the then outstanding shares (the "Additional Shares"), or 10%
on a fully diluted basis, for an aggregate of approximately $8.4 million after
giving effect to certain fees (the "Additional DCI Investment"). Datatec may
require this purchase if, and then only to the extent that, the Company receives
proceeds from the exercise of existing Company warrants. There can be no
assurance that any or all of such warrants will be exercised. The Company has
issued warrants to the public to purchase 6,448,517 shares of Common Stock at
$.53 per share and warrants to purchase 3,438,900 shares of Common Stock at $.75
per share. Such warrants will expire on March 31, 1999, as extended. The Company
has the right to retain the first $500,000 of warrant exercise proceeds;
however, such amount must be used by the Company to purchase shares of Datatec
12
<PAGE>
common stock, if the aggregate amount of warrant exercise proceeds applied to
the purchase of Datatec common stock, after the earlier of the expiration of
exercise of all warrants or 24 months after the effectiveness of the
registration statement covering the Common Stock underlying the warrants, is
less than $8.4 million. In view of the fact that, at the present time and
throughout 1998, the price of the Common Stock has been below the exercise price
of the warrants, it is impossible to predict the timing of exercise of any of
the outstanding warrants, or if such warrants will ever be exercised. The
Company anticipates such an event will not arise for at least two years and
that, should such eventuality arise, the Company will attempt to meet such
obligation either through loans (which may be secured by all or a portion of its
Datatec equity), equity financings or some combination thereof. If Datatec does
not require the Additional DCI Investment, the Company may still purchase, on
the same terms, the Additional Shares.
In November 1993, the Company issued to several investors secured promissory
notes aggregating $500,000 with interest thereon at the annual rate of 8%. Such
notes were secured by all the assets of the Company and matured on September 30,
1994, as extended, and were paid off on October 6, 1994. As an inducement for
such investors to make such loan, the Company issued to such investors warrants,
which expired on November 23, 1998, to purchase an aggregate of 750,000 shares
of Common Stock at an exercise price of $ .05 per share, as adjusted ("1993
Warrants"). The proceeds from such transaction were loaned to Datatec to fulfill
certain commitments to Datatec. As an inducement to extend the maturity date of
such notes to September 30, 1994, the Company issued an aggregate of 500,000
additional warrants ("1994 Warrants") to the holders of such notes on the same
terms and conditions as the 1993 Warrants except that the exercise price of the
1994 Warrants is $ .20 per share. Such notes have been paid. The time for
exercise of the 1994 Warrants expired on November 23, 1998.
DEFERRED INCOME TAX ASSETS
- --------------------------
Deferred income tax assets as of April 30,1998 and January 31,1999 have been
reduced to zero due to uncertainties concerning their realization.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Financial Data Schedule
Reports on Form 8-K:
Form 8-K, dated November 30, 1998, regarding a
proposed merger between the Company and Image
Technology Corp.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIRECT CONNECT INTERNATIONAL INC.
(Registrant)
Date: March 12, 1999 By /s/Peter L. Schneider
-------------- ---------------------
Peter L. Schneider
President and Chief
Operating Officer
Date: March 12, 1999 By/s/Barry A. Rosner
-------------- ---------------------
Barry A. Rosner
Treasurer and Chief
Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 51,341
<SECURITIES> 264,815
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 674,964
<PP&E> 17,425
<DEPRECIATION> 7,568
<TOTAL-ASSETS> 793,406
<CURRENT-LIABILITIES> 1,523,925
<BONDS> 0
0
5,000
<COMMON> 9,062
<OTHER-SE> (744,581)
<TOTAL-LIABILITY-AND-EQUITY> 793,406
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 717,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,491
<INCOME-PRETAX> (39,373)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,373)
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</TABLE>
