DATA CALL TECHNOLOGIES, INC.
Notes to Financial Statements
March 31, 2014
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Contents
(1) Summary of Significant Accounting 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, 2014 are
not indicative of the results that may be expected for the year ending December 31, 2014.
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, 2013.
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, 2014 and
December 31, 2013.
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,
2014 and December 31, 2013 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.
Beneficial Conversion Feature
Convertible debt includes conversion terms that are considered in the
money compared to the market price of the stock on the date of the related agreement. The
Company calculates the beneficial conversion feature and records a debt discount with the
amount being amortized to interest expense over the term of the note.
Management's Estimates and Assumptions
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, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses. Actual results could differ from these 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, 2014 and December 31, 2013:
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
March
31, 2014
|
$
|
0
|
$
|
0
|
$
|
0
|
|
December
31, 2013
|
$
|
0
|
$
|
0
|
$
|
0
|
Recent Accounting Pronouncements
In July 2013, FASB issued ASU No. 2013-11,
"Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a
Tax Credit Carryforward Exists."
The provisions of ASU No. 2013-11 require an
entity to present an unrecognized tax benefit, or portion thereof, in the statement of
financial position as a reduction to a deferred tax asset for a net operating loss
carryforward or a tax credit carryforward, with certain exceptions related to
availability. ASU No. 2013-11 is effective for interim and annual reporting periods
beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have
a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,
Comprehensive Income
(Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income
, to improve the transparency of reporting these reclassifications. Other
comprehensive income includes gains and losses that are initially excluded from net income
for an accounting period. Those gains and losses are later reclassified out of accumulated
other comprehensive income into net income. The amendments in the ASU do not change the
current requirements for reporting net income or other comprehensive income in financial
statements. All of the information that this ASU requires already is required to be
disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will
require an organization to same reporting period; and
- Cross-reference to other disclosures currently
required under U.S. GAAP for other reclassification items (that are not required under
U.S. GAAP) to be reclassified directly to net income in their entirety in the same
reporting period. This would be the case when a portion of the amount reclassified out of
accumulated other comprehensive income is initially transferred to a balance sheet account
(e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies
that report items of other comprehensive income. Public companies are required to comply
with these amendments for all reporting periods (interim and annual). The amendments are
effective for reporting periods beginning after December 15, 2012, for public companies.
Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a
material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities
, which clarifies which instruments and transactions are subject to the
offsetting disclosure requirements originally established by ASU 2011-11. The new ASU
addresses preparer concerns that the scope of the disclosure requirements under ASU
2011-11 was overly broad and imposed unintended costs that were not commensurate with
estimated benefits to financial statement users. In choosing to narrow the scope of the
offsetting disclosures, the Board determined that it could make them more operable and
cost effective for preparers while still giving financial statement users sufficient
information to analyze the most significant presentation differences between financial
statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU
2011-11, the amendments in this update will be effective for fiscal periods beginning on,
or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material
impact on our financial position or results of operations.
- Present (either on the face of the statement where net income is
presented or in the notes) the effects on the line items of net income of significant
amounts reclassified out of accumulated other comprehensive income - but only if the item
reclassified is required under U.S. GAAP to be reclassified to net income in its entirety
in the In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2013-04, “Technical Corrections and Improvements” in
Accounting Standards Update No. 2013-04. 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, 2013. The adoption of ASU
2013-04 is not expected to have a material impact on our financial position or results of
operations.
In August 2012, the FASB issued ASU 2013-03, “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. 2013-03. This update amends various SEC
paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2013-03 is not
expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2013-02, “Intangibles –
Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment” in Accounting Standards Update No. 2013-02. 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, 2013.
Early adoption is permitted, including for annual and interim impairment tests performed
as of a date before July 27, 2013, 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 2013-02 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, 2014 and 2013, the total due to these two related parties for past accrued
salaries is $2,750 and $70,250, respectively.
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 2014 was $43,831.
During the first quarter of 2014, 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 2013 5 year employment agreement and to Gary Woerz,
CFO, in connection with the execution of a 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 $457 (2013: $0) in stock option compensation expense, in relation to
these options, during the quarter ended March 31, 2014. Total stock option compensation
expense is calculated at $2,877.
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 $2,356 (2013:$4,270)
in stock option compensation expense, in relation to these options, during the quarter
ended March 31, 2014. Total stock option compensation expense is calculated at $26,872.
(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, 2014 and December 31,2013. 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, 2014 and 2013 unaccrued and undeclared dividends were
$1,200.
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 2014 was $43,831 (2013:
$39,448).
During the first quarter of 2014, 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 2013 5 year employment agreement and to Gary Woerz,
CFO, in connection with the execution of the 2013 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:
|
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 $457 in stock option compensation expense,
in relation to these options, during the quarter ended March 31, 2014. Total stock option
compensation expense is calculated at $2,877.
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:
|
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 $2,356 (2013: $4,270) in stock option
compensation expense, in relation to these options, during the quarter ended March 31,
2014. Total stock option compensation expense is calculated at $26,872.
(4) Property and Equipment
Major classes of property and equipment together with their estimated useful lives,
consisted of the following:
|
|
Years
|
|
March
31, 2014
|
|
December
31, 2013
|
|
Equipment
|
3-5
|
$
|
96,236
|
$
|
96,236
|
|
Office
furniture
|
7
|
|
21,681
|
|
21,681
|
|
Leasehold
improvements
|
3
|
|
10,656
|
|
10,656
|
|
|
|
|
128,573
|
|
128,573
|
|
Less
accumulated depreciation and amortization
|
|
|
123,648
|
|
122,805
|
|
Net
property and equipment
|
|
$
|
4,925
|
$
|
5,768
|
(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
Repayments on shareholder notes payable during the quarter ended March
31, 2014 totaled $9,000 (2013: $23,000).
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 2013.
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 2014.
(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
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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.
Overview
What Is Digital Signage?
LCD and LED displays have been 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. Ten 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 seven 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 ten 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 six 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 and DLMedia services to
customers through the Internet. Both DLM Servicesare Digital Signage products and
real-time information services which provides a wide range of up-to-date information for
display. Both DLM servicesare able to work concurrently with customers' existing digital
signage systems. The Direct Lynk Messenger is slowly becoming a legacy product with the
DLMedia product in the forefront.
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 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 costs from $350 to $5,000.
The Direct Lynk Systems allow 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.
In August of 2013, the Company announced the release of its Direct Lynk
Media (DLMedia) product. The DLMedia product encapsulates the Direct Lynk Messenger
product with major enhancements and options that allows the client to select and include
in their feed images relative to the news feeds. Also in the release, both Weather and
Traffic image products have been enhanced considerably. Other additions included within
the release bring more value to the company’s clients and create more interest from
new and existing clients.
In the first quarter of 2014, the company released its “Playlist
Ready” products that broaden the company’s reach of clients. One product within
the “Above the Fold” product line received a high level of acceptance at the
industry trade shows. More on the product can be found at the company’s website.
The current types of data and information, for which a client is able to
subscribe to in multiple formats through the Direct Lynk Systems include:
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Headline
News top world and national news headlines;
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Business
News top business headlines;
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Financial
Highlights world-based financial indicators ;
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Entertainment
News top entertainment headlines;
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Health/Science
News top science/health headlines;
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Quirky News
Bits latest off-beat news headlines;
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Sports
Headlines top sports headlines
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Latest
Sports Lines - latest sports odds for NFL, NBA, NHL, NCAA Football and NCAA Basketball;
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National
Football League latest game schedule and in-game updates;
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National
Basketball Association - latest game schedule and in-game updates;
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Major
League Baseball - latest game schedule and in-game updates;
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National
Hockey League - latest game schedule and in-game updates;
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NCAA
Football - latest game schedule and in-game updates;
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NCAA Men's
Basketball - latest game schedule and in-game updates;
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Professional
Golf Association top 10 leaders continuously updated throughout the four-day tournament;
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NASCAR top
10 race positions updated every 20 laps throughout the race;
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Major
league soccer;
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Traffic
Mapping;
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Animated
Doppler Radar and Forecast Maps;
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Listings of
the day's horoscopes;
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Listings of
the birthdays of famous persons born on each day;
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Amber
alerts;
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Listings of
historical events which occurred on each day in history; and
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Localized
Traffic and Weather Forecasts.
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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 2014.
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 2014.
Three Months Ended March 31, 2014
Compared to Three Months Ended March 31, 2013
Our revenues for the three months ended March 31,
2014 were $166,775 compared to $157,100 for the three-month period ended March 31, 2013,
representing an increase of $9,675 or 6.2% during the same period in the prior year. The
increase in revenues was mainly due to additional contracts and the renewal of annual
contracts at the beginning of the year.
Costs of sales for the three months ended March
31, 2014 were $32,574 compared to $28,557 for the three-month period ended March 31, 2014,
which represents an increase of $4,017 or 14.1%. Costs of sales did not increase in direct
proportion to an increase in revenues because costs of sales are directly linked to the
bandwidth required to provide the subscription services. Costs of sales increased
substantially because of the new products.
Gross margins for the three months ended March
31, 2014 were $134,201 compared to $128,543 or 81.8% for the three-month period ended
March 31, 2013.
Selling, General and Administrative expenses for
the three months ended March 31, 2014 were $143,779 compared to $256,653 for the
three-month period ended March 31, 2013, representing a decrease of $112,874 from the same
period in the prior year. The increase in SG&A expenses is mainly due to decreased
legal expenses of $32,476 due to the management changes at the beginning of the year 2013.
The non-recurring payments to made to prior management of $9,000, and the difference
between non-recurring expenses related to the issuance of stock and options to management
in the amount of $41,728.
Net loss for the three months ended March 31,
2014 was $13,292 compared to a net loss of $130,167 for the three-month period ended March
31, 2013. The Company’s net loss was significantly lower for the first quarter due to
reorganization expenses, which were occurred at the beginning of theyear 2013. The Company
has calculated all of the expenses for the quarter, which were due to the reorganization.
Excluding costs associated with our 2013reorganization, our net loss would have $1,867 if
the above non-recurring expenses are removed from the current net loss. The Company has
calculated that net income from operations for the first quarter of 2014 would have been
$43,427 if the above non-recurring expenses are removed from the current net loss.
Liquidity and Capital Resources
We had total current assets of $131,328
consisting of $77,649 of cash and $53,679 in accounts receivable as of March 31, 2014. As
of March 31, 2014, we had total current liabilities of $194,127, which represented $35,627
in accounts payable, $22,497 in accrued salaries, $22,875 in accrued interest and related
liabilities, deferred revenues of $59,278 and $53,850 short-term notes payable.
We had a negative working capital of $62,799 and
an accumulated deficit of $9,227,779 on March 31, 2014.
We were provided $86,649 in our operating
activities during the three-month period ended March 31, 2014, which was mainly due to a
net loss of $13,292, a decrease in deferred revenues of $81,313 and decrease in accounts
payableof $18,886 offset by a decrease in accounts receivables of $149,692, non-cash
compensation valued at $44,906, and non-cash expenses related to options and warrants of
$2,813. We had no investing activities during the three-month period ended March 31, 2014.
We used $9,000 in financing activities during the three months ended March 31, 2014 for
the repayment of shareholder notes payable.
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
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We have not entered
into, and do not expect to enter into, financial instruments for trading or hedging
purposes.
ITEM 4.
CONTROLS AND PROCEDURES
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Evaluation of disclosure controls and
procedures.
As of March 31, 2014, 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 second quarter of 2014.
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
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None.
ITEM 1A.
RISK FACTORS
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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, 2013, 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
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None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM
4. MINE SAFETY DISCLOSURE
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None.
ITEM
5. OTHER INFORMATION
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None.
ITEM
6. EXHIBITS
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(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.
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Exhibit
No.
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Description
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31.1
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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.
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31.2
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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.
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32.1
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Certification of CEO pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2
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Certification of CFO pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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