UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
___________________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
Commission
file number 000-54696
DATA CALL
TECHNOLOGIES, INC.
(Exact Name Of Registrant
As Specified In Its Charter)
| Nevada | 30-0062823 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| 700 South Friendswood Drive, Suite E, Friendswood, TX | 77546 |
| (Address of Principal Executive Offices) | (ZIP Code) |
Registrant's Telephone Number, Including Area Code: (866) 219-2025
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 by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-Accelerated filer ¨ | Smaller reporting company x |
On March 31, 2013, the Registrant had 35,976,421 shares of common stock outstanding.
| Item | Description |
Page |
| ____ | _________ | ____ |
PART I - FINANCIAL INFORMATION |
||
| ITEM 1. | FINANCIAL STATEMENTS. | 3 |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION. | 9 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 12 |
| ITEM 4. | CONTROLS AND PROCEDURES. | 12 |
PART II - OTHER INFORMATION |
||
| ITEM 1. | LEGAL PROCEEDINGS. | 12 |
| ITEM 1A. | RISK FACTORS | 12 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 12 |
| ITEM 3. | DEFAULT UPON SENIOR SECURITIES. | 13 |
| ITEM 4. | MINE SAFETY DISCLOSURE | 13 |
| ITEM 5. | OTHER INFORMATION. | 13 |
| ITEM 6. | EXHIBITS. | 13 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents
| DATA CALL TECHNOLOGIES, INC. | ||||
| Condensed Balance Sheets | ||||
| March 31, 2013 (Unaudited) and December 31, 2012 (Audited) | ||||
| Back to Table of Contents | ||||
|
March 31, 2013 | December 31, 2012 | ||
| (Unaudited) | (Audited) | |||
Assets |
||||
| Current assets: | ||||
| Cash | $ | 153,411 | $ | 14,568 |
| Accounts receivable | 51,869 | 317,164 | ||
| Prepaid expenses | - | 3,500 | ||
| Total current assets | 205,280 | 335,232 | ||
| Property and equipment | 126,353 | 121,175 | ||
| Less accumulated depreciation and amortization | 120,277 | 119,587 | ||
| Net property and equipment | 6,076 | 1,588 | ||
| Other assets | 1,755 | 1,755 | ||
| Total assets | $ | 213,111 | $ | 338,575 |
Liabilities and Stockholders' Equity |
||||
| Current liabilities: | ||||
| Accounts payable | $ | 81,024 | $ | 89,998 |
| Accrued salaries - related party | 15,697 | 103,771 | ||
| Accrued interest - related party | 17,375 | 16,000 | ||
| Convertible short-term note payable to shareholder | 10,000 | 10,000 | ||
| Deferred revenue | 196,243 | 269,834 | ||
| Short-term note payable to shareholder | 120,250 | 50,000 | ||
| Total current liabilities | 440,589 | 539,603 | ||
| Total liabilities | 440,589 | 539,603 | ||
| Stockholders' deficit: | ||||
| Preferred stock, $0.001 par value. Authorized 10,000,000 shares: | ||||
| Series A 12% Convertible - 800,000 shares issued and outstanding | ||||
| at December 31, 2011 and at December 31, 2010 | 800 | 800 | ||
| Common stock, $0.001 par value. Authorized 200,000,000 shares: | ||||
| 35,976,421 shares issued and outstanding at March 31, 2013, | ||||
| 19,976,421 shares issued and outstanding at December 31, 2012 | 35,976 | 19,976 | ||
| Additional paid-in capital | 8,860,232 | 8,772,514 | ||
| Accumulated deficit | (9,124,486) | (8,994,318) | ||
| Total stockholders' deficit | (227,478) | (201,028) | ||
| Total liabilities and stockholders' deficit | $ | 213,111 | $ | 338,575 |
| The accompanying notes are an integral part of these financial statements. | ||||
| DATA CALL TECHNOLOGIES, INC. | ||||
| Condensed Statements of Operations | ||||
| Three Months Ended March 31, 2013 and 2012 (Unaudited) | ||||
| Back to Table of Contents | ||||
| Three Months | Three Months | |||
| ended | ended | |||
| March 31, 2013 | March 31, 2012 | |||
| Revenues | ||||
| Sales | $ | 157,100 | $ | 161,421 |
| Cost of sales | 28,557 | 31,423 | ||
| Gross margin | 128,543 | 129,998 | ||
| Selling, general and administrative expenses | 258,028 | 122,216 | ||
| Depreciation and amortization expense | 690 | 567 | ||
| Total operating expenses | 258,718 | 122,783 | ||
| Other income | ||||
| Interest income | 8 | - | ||
| Net income (loss) before income taxes | (130,167) | 7,215 | ||
| Provision for income taxes | - | - | ||
| Net income (loss) | $ | (130,167) | $ | 7,215 |
| Net income (loss) per common share - basic and diluted: | ||||
| Net income (loss) applicable to common shareholders | $ | (0.00) | $ | 0.00 |
| Weighted average common shares: | ||||
| Basic | 34,376,421 | 19,925,421 | ||
| Diluted | 34,376,421 | 20,997,254 | ||
| The accompanying notes are an integral part of these financial statements. | ||||
| DATA CALL TECHNOLOGIES INC. | ||||
| Condensed Statements of Cash Flows | ||||
| Three Months Ended March 31, 2013 and 2012 (Unaudited) | ||||
| Back to Table of Contents | ||||
| Three Months | Three Months | |||
| Ended | Ended | |||
| March 31, 2013 | March 31, 2012 | |||
| Cash flows from operating activities: | ||||
| Net income or (loss) | $ | (130,167) | $ | 7,215 |
| Adjustments to reconcile net income or (loss) to net cash used in operating activities: | ||||
| Depreciation | 690 | 567 | ||
| Stock issued for services | 39,448 | - | ||
| Loss on conversion of debt to equity | 50,000 | - | ||
| Options and warrants | 4,270 | - | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | 265,295 | (303) | ||
| Prepaid expenses | 3,500 | (10,000) | ||
| Accounts payable | (8,974) | 25,120 | ||
| Accrued salaries and related liabilities | 6,551 | (3,451) | ||
| Deferred revenues | (73,591) | 47,183 | ||
| Net cash provided by (used in) operating activities | 157,021 | 66,631 | ||
| Cash flows from investing activities | ||||
| Purchase of property and equipment | (5,178) | - | ||
| Net cash used in investing activities | (5,178) | - | ||
| Cash flows from financing activities: | ||||
| Proceeds from short-term borrowing from shareholder | 10,000 | - | ||
| Payments on borrowing from shareholder | (23,000) | - | ||
| Net cash provided by (used in) financing activities | (13,000) | - | ||
| Net increase (decrease) in cash | 138,843 | 66,331 | ||
| Cash at beginning of year | 14,568 | 44,851 | ||
| Cash at end of period | $ | 153,411 | $ | 111,182 |
| Non-cash activity: | ||||
| Conversion of short-term borrowing from shareholder to common stock | $ | 10,000 | - | |
| The accompanying notes are an integral part of these financial statements. | ||||
DATA CALL TECHNOLOGIES, INC.
Notes to Financial Statements
March 31, 2013
Back to Table of
Contents
(1) Summary of Significant Acounting Policies
Organization, Ownership and Business
Data Call Technologies, Inc. (the "Company") was incorporated under the laws of the State of Nevada in 2002. The Company's mission is to integrate cutting-edge information delivery solutions that are currently deployed by the media, and put them within the control of retail and commercial enterprises. The Company's software and services put its clients in control of real-time advertising, news, and other content, including emergency alerts.
The accompanying unaudited financial statements have been prepared in accordance with U. S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2013 are not indicative of the results that may be expected for the year ending December 31, 2013.
As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-X, the accompanying financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual financial statements and footnotes thereto. For further information, refer to the Company's audited consolidated financial statements and related footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2012. There were no cash equivalents as of March 31, 2013 or December 31, 2012.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents. There were no cash equivalents as of March 31, 2013 and December 31, 2012.
Revenue Recognition
Company recognizes revenues based on monthly fees for services provided to customers. Some customers prepay for annual services and the Company defers such amounts and amortizes them into revenues as the service is provided.
Accounts Receivable
Accounts receivable consist primarily of trade receivables. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $0 as of March 31, 2013 and December 31, 2012 as we believe all of our receivables are fully collectable.
Property, Equipment and Depreciation
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (3-5 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations as incurred.
Advertising Costs
The cost of advertising is expensed as incurred.
Research and Development
Research and development costs are expensed as incurred.
Product Development Costs
Product development costs consist of cost incurred to develop the Company's website and software for internal and external use. All product development costs are expensed as incurred.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.
Use of Estimates
The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
Stock-based Compensation
We account for stock-based compensation in accordance with “FASB ASC 718-10.” Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the
Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.
Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.
On January 1, 2009, the Company adopted an accounting standard for applying fair value measurements to certain assets, liabilities and transactions that are periodically measured at fair value. The adoption did not have a material effect on the Company's financial position, results of operations or cash flows. In August 2009, the FASB issued an amendment to the accounting standards related to the measurement of liabilities that are routinely recognized or disclosed at fair value. This standard clarifies how a company should measure the fair value of liabilities, and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard became effective for the Company on October 1, 2009. The adoption of this standard did not have a material impact on the Company's financial statements. The fair value accounting standard creates a three level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The following table presents the Company’s Assets & Liabilities within the fair value hierarchy utilized to measure fair value on a recurring basis as of March 31, 2013 and December 31, 2012:
(Level 1) |
(Level 2) |
(Level 3) |
||||
| March 31, 2013 | $ |
0 | $ |
0 |
$ |
0 |
| December 31, 2012 | $ |
0 | $ |
0 |
$ |
0 |
Recent Accounting Pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
(2) Related Party Transactions
During the quarter ended March 31, 2013, two related parties agreed to convert their accrued salaries and related interest to notes. As of March 31, 2013, the total due to these two related parties for past accrued salaries is $70,250.
During the first quarter of 2013, the Company issued unregistered shares as follows: (i) 7,500,000 restricted shares to Tim Vance, the Company's CEO, in connection with the execution of a new 5 year employment agreement; and 7,500,000 restricted shares to Gary Woerz, the Company's newly designated CFO, in connection with the execution of a new 5 year employment agreement. The restricted shares were valued at $0.06 per share using the closing price of the stock on the date of grant. Total expense associated with the issuances is calculated at $900,000 to be recognized over the 5 year term of the agreements. The expense recognized in the first quarter of 2013 was $39,448.
During the first quarter of 2013, the Company granted a total of 900,000 options for the purchase of up to 900,000 shares of common stock to Tim Vance, the Company's CEO, in connection with the execution of a new 5 year employment agreement and to Gary Woerz, the Company's newly designated CFO, in connection with the execution of a new 5 year employment agreement. The Company uses the Black-Scholes option valuation model to value stock options granted. The Black- Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates, which are subjective and may not be representative of actual results. The Company recorded $4,270 (2012: $0) in stock option compensation expense, in relation to these options, during the quarter ended March 31, 2013. Total stock option compensation expense is calculated at $26,872, to be recognized over the expected life of 1 1/2 years.
During the first quarter of 2013, the Company received cash in the sum of $10,000 from a shareholder for a note payable at a 5% interest rate. The note and related interest were converted to 1,000,000 shares of common stock resulting in a loss of $50,000 on conversion using the closing price of the stock on the date of conversion of $0.06 per share.
(3) Capital Stock, Warrants and Options
The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $.001 par value per share, of which 800,000 shares of Series A convertible preferred stock are outstanding at March 31, 2013 and December 31,2012. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions.
Each share of Series A Preferred Stock shall bear a preferential dividend of twelve percent (12%) per year and is convertible into a number shares of the Company’s common stock, par value $.001 per share (“Common Stock”) based upon Fifty (50%) percent of the average closing bid price of the Common Stock During the ten (10) day period prior to the conversion. The Company has not declared or accrued any dividends and as of March 31, 2012unaccrued and undeclared dividends were $1,200.00.
During the first quarter of 2013, the Company issued unregistered shares as follows: (i) 7,500,000 restricted shares to Tim Vance, the Company's CEO, in connection with the execution of a new 5 year employment agreement; and 7,500,000 restricted shares to Gary Woerz, the Company's newly designated CFO, in connection with the execution of a new 5 year employment agreement. The restricted shares were valued at $0.06 per share using the closing price of the stock on the date of grant. Total expense associated with the issuances is calculated at $900,000 to be recognized over the 5 year term of the agreements. The expense recognized in the first quarter of 2013 was $39,448.
During the first quarter of 2013, the Company granted a total of 900,000 options for the purchase of up to 900,000 shares of common stock to Tim Vance, the Company's CEO, in connection with the execution of a new 5 year employment agreement and to Gary Woerz, the Company's newly designated CFO, in connection with the execution of a new 5 year employment agreement. The Company uses the Black-Scholes option valuation model to value stock options granted. The Black- Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates, which are subjective and may not be representative of actual results. Assumptions used to determine the fair value of the stock based compensation is as follows:
Risk free interest rate
Expected dividend yield
Expected stock price volatility
Expected life of options
Exercise price |
Total Options Outstanding |
Weighted Average Remaining Life (Years) |
Total Weighted Average Exercise Price |
Options Exercisable |
$0.001 |
900,000 |
1.84 |
$0.001 |
900,000 |
The Company recorded $4,270 (2012: $0l) in stock option compensation expense, in relation to these options, during the quarter ended March 31, 2013. Total stock option compensation expense is calculated at $26,872, to be recognized over the expected life of 1 1/2 years.
During the first quarter of 2013, the Company converted a $10,000 note payable and related interest from a shareholder into 1,000,000 shares of common stock resulting in a loss of $50,000 on conversion using the closing price of the stock on the date of conversion of $0.06 per share.
The Company’s convertible notes include warrants. When the convertible notes were issued the price of our stock was $0.0065. The Company believes that the common stock is illiquid and has been infrequently traded during the last three years, the trading price of the stock price was not deemed to be a fair value of the conversion feature. Management decided that because of the Company’s ability to continue as a going concern was in question a price of less than $0.005 was a more reasonable measure of the fair market value. Based on that decision, no beneficial conversion feature was reflected in the financial statements.
(4) Property and Equipment
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
Years |
March 31, 2013 |
December 31, 2012 |
|||
Equipment |
3-5 |
$ |
96,237 |
$ |
92,680 |
Office furniture |
7 |
21,680 |
20,482 |
||
Leasehold improvements |
3 |
8,436 |
8,013 |
||
126,353 |
121,175 |
||||
Less accumulated depreciation and amortization |
120,277 |
119,587 |
|||
Net property and equipment |
$ |
6,076 |
$ |
1,588 |
(5) Going Concern
The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business for the foreseeable future. The Company has accumulated losses, negative working capital and without additional sales or capital will not be able to meet operating needs for the next twelve months, all of which raise substantial doubt about the Company’s ability to continue as a going concern.
In the near term management plans to continue to focus on increasing sales and raising the funds necessary to fully implement the Company’s business plan. Management believes that certain shareholders will continue to advance the capital required to meet the Company’s financial obligations. There is no assurance however, that these shareholders will continue to advance capital to the Company or that the business operations will be profitable.
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
(6) Shareholder Notes Payable
During the first quarter of 2013, the Company received cash in the sum of $10,000 from a shareholder for a note payable at a 5% interest rate. The note and related interest were converted to 1,000,000 shares of common stock resulting in a loss of $50,000 on conversion using the closing price of the stock on the date of conversion of $0.06 per share.
During the first quarter of 2013, the Company converted two related party accrued salary balances and related interest to notes payable at a 5% interest rate. The interest for the notes payable balances has been calculated annually and has been accrued for the first quarter of 2013.
(7) Subsequent Events and Contingencies
The Company has evaluated subsequent events from the date on the balance sheet through the date these financial statements are being filed with the Securities and Exchange Commission. No material events or transactions have occurred during this subsequent event reporting period which required recognition or disclosure in the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION Back to Table of Contents
Some of the statements contained in this quarterly report of Data Call Technologies, Inc., Nevada corporation (hereinafter referred to as "we", "us", "our", "Company" and the "Registrant") discuss future expectations, contain projections of our plan of operation or financial condition or state other forward-looking information. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
Data Call Technologies, Inc. ("Data Call," or the “Company”) was incorporated under the laws of the State of Nevada as Data Call Wireless on April 4, 2002. On March 1, 2006, we changed our name to Data Call Technologies, Inc.
Our mission is to integrate cutting-edge information/content delivery solutions currently deployed by the media and make this content rapidly available to and within the control of our retail and commercial clients. The Company's software and services put its clients in control of real-time, news, and other content, including emergency alerts, displayed within one building as well as to thousands of local, regional and national clients, through Digital Signage and Kiosk networks.
Our business plan is to focus on growing our client base by continued offering of real-time information/content, seeking to continually improve the delivery, security and variety of information/content to the Digital Signage and Kiosk community, while developing a similar offering for smart phones through the app community.
Overview
What Is Digital Signage?
Plasma and LCD displays are rapidly replacing printed marketing materials such as signs and placards, as well as the old fashioned whiteboard, for product and corporate branding, marketing and assisted selling. The appeal of instantly updating product videos and promotional messages on one or a thousand remotely located displays is driving the adoption of this exciting marketing tool. Digital signage presentations are typically comprised of repeating loops of information used to brand, market or sell the owner’s products and services. But once seen, this information becomes repetitive and the viewer tunes it out, resulting in low retention of the client’s message. As digital signage comes of age, the “dynamic” characteristic of the presentation has taken center stage dynamic being fresh, relevant, updated content.
Digital Signage Comes of Age
Digital signage is coming of age and Data Call Technologies has been there from the start Five years ago, a company wanting to take the digital signage plunge was faced with a myriad of hardware and software companies, all offering their own “vision” of what digital signage should be. They were given the tools of digital signage, but were left pretty much left to their own devices as to what to build. Those companies that took the early plunge where then faced with the fact that no one had come before them to show the rights and wrongs, the dos and don’ts of content development. But, even at this early stage of the game, Data Call recognized that these pioneers of digital signage lacked a key component that would become an integral part of any successful implementation-active content.
In the years since those early days of digital signage, the market has taken care of weeding out the weaker providers of hardware and software. Companies now have a clearer understanding of what digital signage is, what is needed for a successful implementation and the best use of content space given their more-defined and attainable goals. In the past three years, as the cost of platforms, supporting infrastructure and displays has fallen dramatically; digital signage has become more accessible to a wider range of companies while the growing Kiosk market has cross-pollinated with Digital Signage. And those combined companies are realizing that the initial, one-time cost of getting into the game is far outweighed by the cost of staying in the game, in the form of ongoing content development. As the cost of deployment decreased, companies began focusing on attention-grabbing content. Whether the goal of the presentation was product branding, marketing or assisted selling, content became king. Active content is on everyone’s “needs” list because it is proven to draw customers to the core message and keep customers engaged throughout the presentation, and Data Call stands ready to serve this exploding market.
The Need for Speed--Active Content
Active content is that part of a digital signage presentation that is constantly updated with timely and relevant information. For instance, a typical presentation may contain ten 15-second loops that provide the primary message of the presentation, but the active dynamic content, such as that provided by Data Call, is updated with new information throughout the day. Those seeking to add active and dynamic content to their digital signage presentations are advised to employ Data Call’s integrated content rather than shoehorning broadcast content into their digital signage presentation.
However, by integrating Data Call’s active content alongside their presentations, companies can provide the entertainment content so necessary in dwell-time retention without disrupting the core message of the presentation. Information categories provided by Data Call include news, weather, sports, financial data and the latest traffic alerts, amongst others. With such a broad range of offerings, companies have access to the active and dynamic content they need, regardless of the market they are addressing.
Data Call Opportunities
The opportunities for Data Call in the digital signage industry are countless. Many companies nowadays would outsource all or part of their content creation. Data Call stands ready as their outsourced provider of active content data. Whether it’s general entertainment information (news, sports, stocks, etc.) or location-targeted active content (weather, traffic, etc), research is validating the long-held assumption that it is active content that draws viewers to digital signage and keeps them engaged throughout the presentation.
Over the past six years, Data Call has worked with the industry leaders in digital signage to develop the data formats and communication methods to allow Data Call’s active content to be easily integrated into their hardware and software products.
Partners, Not Customers
Data Call’s approach to customer relations is to not accumulate customers, but to build partnerships. Each Data Call partner is as unique as the digital signage market they service, and each has their own requirements for active content. In developing active content for digital signage, Data Call identified three factors that had to be addressed - reliability, objectivity and ease of implementation. To address the reliability requirement, Data Call opted to license information from the leaders that create news, weather, sports and financial data rather than “scrapping” information from the Internet (which can be illegal) or pulling RSS feeds (which may come and go at the provider’s whim). Licensing data from these providers also satisfied the second requirement, objectivity. The Internet is as littered of slanted opinions and hidden agendas as there are users of the Internet, So arbitrarily allowing these “news” sources to go unchecked into Data Call’s active content was completely unacceptable. Finally, the third requirement, ease of implementation, was address by both Data Call’s licensing of data and the method by which it was disseminated to their partners.
Data Call understood that digital signage and Kiosk implementers had larger issues to tackle than the multitude of licenses that would need to be managed and the varying formats of the source data to be dealt with if active content was obtained from multiple vendors. Data Call offers a “one stop shop” for all of their active content requirements covered by a single license. Ease of implementation also would require that the multiple formats of all Data Call’s data providers be distilled into a single format. Because active content may be displayed in a multitude of ways (banners, tickers, scrolls or artistically integrated with the overall presentation), Data Call produced a set of common data layouts in the industry-standard XML (extensible markup language) format. Many partners find these formats to be easily integrated into their products, but in several cases, Data Call has produced customized data formats to the exact requirements of their partners. This customization ensures the highest level of reliable and ease of integration possible.
Market demand, opportunity and technology converge at a single point in time, and Data Call is there. Digital signage platforms are evolving to meet mass market requirements, costs for hardware and software are falling to the point of becoming commodities and the markets for digital signage are clarifying through historical trial and error.
Business Operations
We currently offer our Direct Lynk Messenger service to customers through the Internet. The Direct Lynk Messenger Service is a Digital Signage product and real-time information service which provides a wide range of up-to-date information for display. The Direct Lynk Messenger service is able to work concurrently with customers' existing digital signage systems.
Digital Signage is still a relatively new and exciting method advertisers can use to promote, inform, educate, and entertain clients and customers about their businesses and products. Through Digital Signage, companies and businesses can use a single television or a series of networked flat LCD or Plasma screens to market their services and products on site to their clients and customers in real time. Additionally, because Digital Signage advertising takes place in real time, businesses can change their marketing efforts at a moment’s notice. We believe this real time advertising better allows companies to tailor their advertising to individual customers, and thereby advertise and sell inventory which appeals to those individual customers, thereby increasing sales and revenues. Benefits to Digital Signage compared to regular print or video advertising include, being able to immediately change a digitally displayed image or advertisement depending on the business’s current clients and customers, and not getting locked into print advertising days or months in advance, which may become stale or obsolete prior to the advertising date of such print advertising.
Data Call specializes in allowing its clients to create their own Digital Signage dynamic content feeds delivered, via the Internet, to digital display devices (plasma, LCD, Jumbotron, Kiosks etc.) at their establishments. The only requirements our clients must have are 1) a supported third party digital signage or Kiosk solution, or similar device, which receives the data from our servers via the Internet, and displays the content on digital displays and 2) an Internet connection. The Direct Lynk System is supported by various third party systems, varying in cost from $350 to $5,000, such as those marketed by 3M Digital Signage, BroadSignCoolsign, Scala, and Cisco amongst others.
The Direct Lynk System allows customers to select from the pre-determined data and information services described below. The client may choose which individual locations and which displays they would like to receive our feeds based on how their digital signage network is configured.
The current types of data and information, for which a client is able to subscribe to through the Direct Lynk System include:
| - | Headline News top world and national news headlines; |
| - | Business News top business headlines; |
| - | Financial Highlights world-based financial indicators ; |
| - | Entertainment News top entertainment headlines; |
| - | Health/Science News top science/health headlines; |
| - | Quirky News Bits latest off-beat news headlines; |
| - | Sports Headlines top sports headlines |
| - | Latest Sports Lines - latest sports odds for NFL, NBA, NHL, NCAA Football and NCAA Basketball; |
| - | National Football League latest game schedule and in-game updates; |
| - | National Basketball Association - latest game schedule and in-game updates; |
| - | Major League Baseball - latest game schedule and in-game updates; |
| - | National Hockey League - latest game schedule and in-game updates; |
| - | NCAA Football - latest game schedule and in-game updates; |
| - | NCAA Men's Basketball - latest game schedule and in-game updates; |
| - | Professional Golf Association top 10 leaders continuously updated throughout the four-day tournament; |
| - | NASCAR top 10 race positions updated every 20 laps throughout the race; |
| - | Major league soccer; |
| - | Traffic Mapping; |
| - | Animated Doppler Radar and Forecast Maps; |
| - | Listings of the day's horoscopes; |
| - | Listings of the birthdays of famous persons born on each day; |
| - | Amber alerts; |
| - | Listings of historical events which occurred on each day in history; and |
| - | Localized Traffic and Weather Forecasts. |
Results of Operations
The following discussion should be read in conjunction with our financial statements.
During the last twelve months, the Company has implemented cost management measurements to review monthly expenditures.. We will continue these efforts to streamline operations, as we focus on increasing sales and gross revenues over the next twelve months.. We do not currently have any plans to increase our monthly expenditures or number of employees. We estimate the Company will generate revenues in excess of $500,000 in 2013.
We plan to continue to grow our business and market our Direct Lynk System to potential customers over the course of the next twelve months by marketing our technology to digital signage manufacturers, Kiosk manufactures, the mobile app market, trade magazines, trade shows and call centers. We will also continue on a limited basis our practice of providing potential customers free trials of the Direct Lynk System, for which we will receive no revenue, in an attempt to build both product awareness for the Direct Lynk System and to potentially lead to sales down the road, which in the opinion of our management has been successful both in building brand awareness for the Direct Lynk System and in bringing in new clients for subscriptions. We continually add subscribers for our technology throughout and intend to build and increase such subscribers moving forward.
We are planning and negotiating with current vendors and partners, to expand our offering to other lateral markets. Hardware, software, and sales processes are currently being modified and/or developed. We are currently in the completion phases of our mobile application platform that we expect to bring to market during fiscal year 2013.
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
Our revenues for the three months ended March 31, 2013 were $157,100 compared to $161,421 for the three-month period ended March 31, 2012, representing a decrease of $4,321 or 2.7% during the same period in the prior year. The decrease in revenues was mainly due to the non renewal of annual contracts at the beginning of the year.
Costs of sales for the three months ended March 31, 2013 were $28,557 compared to $31,423 for the three-month period ended March 31, 2013, which represents a decrease of $2,866 or 9.1%. Costs of sales did not decrease in direct proportion to a decrease in revenues because costs of sales are directly linked to the bandwidth required to provide the subscription services. Costs of sales decreased substantially because of the discontinuance of the new products and our continued efforts to find less expensive bandwidth providers.
Gross margins for the three months ended March 31, 2013 were $128,543 or 81.8% compared to $129,998 or 80.5% for the three-month period ended March 31, 2012.
Selling, General and Administrative expenses for the three months ended March 31, 2013 were $258,028 compared to $122,216 for the three-month period ended March 31, 2012, representing an increase of $135,812 or a 111.1 % increase from the same period in the prior year. The increase in SG&A expenses is mainly due to increased non-recurring legal expenses of $10,000 due to the management changes at the beginning of the year. The non-recurring payments to board members of $25,000 non-recurring payments made to prior management of $28,300, non-recurring expenses related to short-term borrowings of $60,000 and non recurring expenses related to reissuance of a prior year opinion of $5,000.
Net loss for the three months ended March 31, 2013 was $130,167 compared to a net income of $7,215 for the three-month period ended March 31, 2012. The Company’s net loss was significantly higher for the first quarter due to reorganization expenses, which were occurred at the beginning of the year. The Company has calculated all of the expenses for the quarter which were due to the reorganization. Excluding costs associated to our reorganisation, our net loss would have $1,867 if the above non-recurring expenses are removed from the current net loss.
We had total current assets of $205,280 consisting of $153,411 of cash and $51,869 in accounts receivable. As of March 31, 2013, we had total current liabilities of $440,589, which represented $81,024 in accounts payable, $15,697 in accrued salaries, $17,375 in accrued interest and related liabilities, deferred revenues of $196,243 and a $130,250 short-term notes payable.
We had a negative working capital of $ 235,309 and an accumulated deficit of $9,124,486 on March 31, 2013.
We used $157,021 in our operating activities during the three-month period ended March 31, 2013, which was mainly due to a net loss of $130,168, a decrease in deferred revenues and decrease in accounts payable offset by a decrease in accounts receivables of $265,295, non-cash compensation valued at $39,448, a $50,000 loss incurred related to the conversion of debt into equity, non-cash expenses related to options and warrants of $4,270, $3,500 in prepaid expenses and $6,551 related to accrued salaries and related liabilities. We had investing activities of $5,178 during the three-month period ended March 31, 2013. We used $13,000 in our financing activities during the three months ended March 31, 2013, which payaments were related to net repayments on shareholder notes.
Due to our limited cash position, we believe that we have to raise additional funds to continue our operations for approximately the next three months. We believe we will require approximately $500,000 to maintain our operations for the next twelve months. We plan to raise additional capital through the sale of debt and/or equity, which sales may cause dilution to our then existing shareholders, moving forward if needed to support our ongoing operations and expenses. There can be no assurances that we will be able to raise additional capital in the future, and/or that such sales of securities will not be on unfavorable terms.
Although we hope to continue to generate meaningful revenues sufficient to support our operations in the next eight to twelve months, if we are unsuccessful in generating such revenues, we will likely need to take steps to raise equity capital or to borrow additional funds, to continue our operations and meet liabilities. We have no commitments from officers, Directors or affiliates to provide funding. Our failure to obtain adequate additional financing may require us to delay, curtail or scale back some or all of our operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Back to Table of Contents
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents
Evaluation of disclosure controls and procedures. As of March 31, 2013, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. Management has identified corrective actions for the weakness and has begun implementation during the first quarter of 2013.
Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS Back to Table of Contents
None.
ITEM 1A. RISK FACTORS Back to Table of Contents
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1. Description of Business, subheading Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K is not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Back to Table of Contents
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents
None.
ITEM 4. MINE SAFETY DISCLOSURE Back to Table of Contents
None.
ITEM 5. OTHER INFORMATION Back to Table of Contents
None.
ITEM 6. EXHIBITS Back to Table of Contents
(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
Exhibit No. |
Description |
|---|---|
| 31.1 | Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements 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 date indicated.
/s/ Timothy E.
Vance
Timothy E. Vance
CEO
Dated: May 6, 2013
/s/ Gary Woerz
Gary Woerz
CFO
Dated: May 6, 2013
I, Timothy E. Vance, certify that:
1. I have reviewed this quarterly report of Data Call Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as 4efined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether r not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
Date: May 6, 2013
/s/ Timothy E. Vance
CEO
I, Gary Woerz, certify that:
1. I have reviewed this quarterly report of Data Call Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as 4efined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether r not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
Date: May 6, 2013
/s/ Gary Woerz
CFO and Director
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Data Call Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Timothy E. Vance, CEO of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Timothy E. Vance
Timothy E. Vance
CEO
Dated: May 6, 2013
A signed original of this written statement required by Section 906 has been provided to Data Call Technologies, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Data Call Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Gary Woerz, CFO and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Larry Mosley
Gary Woerz
CFO and Director
Dated: May 6, 2013
A signed original of this written statement required by Section 906 has been provided to Data Call Technologies, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.