DATA CALL TECHNOLOGIES, INC.
Notes to Financial Statements
September 30, 2013
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(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, within one building or 10,000, local or
thousands of miles away.
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 and nine-month period ended September
30, 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.
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 September 30, 2013 or
December 31, 2012.
Revenue Recognition
The 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 customers trade
accounts receivable. The allowance for doubtful trade receivables was $0 as of September
30, 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
Companys 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.
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.
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 Companys Assets and Liabilities
within the fair value hierarchy utilized to measure fair value on a recurring basis as of
September 30, 2013 and December 31, 2012:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
September
30, 2013
|
|
|
|
|
|
|
Convertible notes payable
|
$
|
0
|
$
|
0
|
$
|
51,400
|
December
31, 2012
|
|
|
|
|
|
|
Convertible notes payable
|
$
|
0
|
$
|
0
|
$
|
60,000
|
Recent Accounting Pronouncements
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:
- 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 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.
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 entitys 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 third quarter of 2013, the Company issued unregistered shares
as follows: (i) 1,000,000 restricted shares to Jim Tevis, the Company's CTO, in connection
with the execution of a new 2 year consulting agreement. The restricted shares were valued
at $0.0185 per share using the closing price of the stock on the date of grant. Total
expense associated with the issuances is calculated at $18,500 to be recognized over the 2
year term of the agreement. The expense recognized in the third quarter of 2013 and for
the Nine Months ended September 30, 2013 was $1,951.
During the quarter ended March 31, 2013, two related
parties agreed to convert their accrued salaries and related interest to notes payable
carrying 5% interest. As of September 30, 2013, the total due to these two related parties
for past accrued salaries is $31,250. For the Nine Months ended September 30, 2013,
$62,000 of the balance was repaid.
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 third quarter of 2013 was $44,805 and $113,571
for the Nine Months ended September 30, 2013.
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 $6,773 (2012: $Nil)
in stock option compensation expense, in relation to these options, during the quarter
ended September 30, 2013 and $17,673 for the Nine Months ended September 30, 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 September 30, 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
Companys 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 September 30, 2013 unaccrued and undeclared dividends were $3,600.
During the quarter ended September 30, 2013 the Company amended its
Articles of Incorporation to authorize 1,000,000 shares of Series B Preferred Stock at a
par value of $0.001. The Series B Preferred Stock may be issued in one or more series by
the terms of which may be and may include preferences as to dividends and liquidation,
conversion, redemption rights and sinking fund provisions. The Series B Preferred Shares
have the right to vote in the aggregate, on all shareholder matters votes equal to 30% of
the total shareholder vote on any and all shareholder matters. The Series B Preferred
Stock will be entitled to this 30% voting right no matter how many shares of common stock
or other voting stock of Data Call Technology stock is issued and outstanding in the
future.
During the quarter ended September 30, 2013,the Company amended a note
agreement with our creditor who held a $50,000 note payable adding a conversion feature at
$0.0001 per share. The amendment was treated as a debt modification and the amended terms
resulted in a beneficial conversion feature. The conversion feature was evaluated with a
debt discount of $50,000 being recorded and expensed during the quarter ending September
30, 2013 as the note was considered due. The creditor sold a portion of his note for
$8,600. At the request of the new creditors the Company issued 86,000,000 shares of common
stock at $0.0001 in terms with the amended agreement. No gain or loss was recorded on the
debt modification or the conversion of debt to equity during the period ending September
30, 2013.
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 second quarter of 2013 was $44,805 and $113,571
for the Nine Months ended September 30, 2013.
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 $6,773 (2012: $Nil) in stock option
compensation expense, in relation to these options, during the quarter ended September 30,
2013 and $17,673 for the nine months ended September 30, 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 third quarter of 2013, the Company issued unregistered shares
as follows: (i) 1,000,000 restricted shares to Jim Tevis, the Company's CTO, in connection
with the execution of a new 2 year consulting agreement. The restricted shares were valued
at $0.0185 per share using the closing price of the stock on the date of grant. Total
expense associated with the issuances is calculated at $18,500 to be recognized over the 2
year term of the agreement. The expense recognized in the third quarter of 2013 and for
the Nine Months ended September 30, 2013 was $1,951.
The Companys 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 six
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 Companys 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.
The Company is authorized to issue up to 200,000,000 shares of Common
Stock of which 122,976,421 are issued and outstanding at September 30, 2013.
(4) Property and Equipment
Major classes of property and equipment together with their estimated
useful lives, consisted of the following:
|
Years
|
|
September
30, 2013
|
|
December 31,
2012
|
Equipment
|
3-5
|
$
|
96,237
|
$
|
92,680
|
Office
furniture
|
7
|
|
23,900
|
|
20,482
|
Leasehold
improvements
|
3
|
|
8,436
|
|
8,013
|
|
|
|
128,573
|
|
121,175
|
Less
accumulated depreciation and amortization
|
|
|
121,962
|
|
119,587
|
Net property
and equipment
|
|
$
|
6,611
|
$
|
1,588
|
(5) Going Concern
The Companys 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 Companys 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 Companys business plan.
Management believes that certain shareholders will continue to advance the capital
required to meet the Companys 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. As of September 30, 2013, the total due to these
related parties for accrued salaries was $50,750 and included in short-term note payable
to shareholder. For the Nine Months ended September 30, 2013, $62,000 of the balance
converted was repaid.
(7) Debt Modification and Beneficial Conversion Feature
During the quarter ended September 30, 2013, a note
payable agreement was amended to include a conversion feature to the Companys common
stock at $0.0001 per share. Under ASC 470-50, the amendment adds a substantive conversion
option which causes the amended note to be evaluated as a new debt issuance. As the
conversion term is considered in the money a beneficial conversion feature was present
with a debt discount calculated at $50,000. The debt discount was amortized to interest
expense during the third quarter of 2013 due to the note being due at the time of the
amendment.
(8) 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,
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
owners products and services. But once seen, this information becomes repetitive and
the viewer tunes it out, resulting in low retention of the clients 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 donts 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 six 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 everyones
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 Calls
integrated content rather than shoehorning broadcast content into their digital signage
presentation.
However, by integrating Data Calls 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
its 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
Calls active content to be easily integrated into their hardware and software
products.
Partners, Not Customers
Data Calls 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 providers 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 Calls active content was
completely unacceptable. Finally, the third requirement, ease of implementation, was
address by both Data Calls 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 Calls 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 moments 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 businesss 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 costs from $350 to
$5,000.
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.
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 allowthe 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 companys clients and create more interest from new
and existing clients.
The current types of data and information, for which a client is able to
subscribe to through the Direct Lynk System 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 reduce monthly expenditures. Our current rate of monthly
expenditures is approximately $50,000. We will continue these efforts to streamline
operations, as we focus on increasing sales and gross revenues over the next twelve
months. We currently have no plans to increase the number of employees. However, as new
opportunities present themselves, we may find it necessary to bring human resources on
staff to accommodate the preparations for those opportunities. 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, trade magazines, trade shows and call centers. 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.
Three Months Ended September 30, 2013 Compared to Three Months Ended
September 30, 2012
Our revenues for the three months ended September 30,
2013 were $152,852, compared to $124,451 for the three-month period ended September 30,
2012, representing an increase of $28,401 or an increase of approximately 22.8% from the
same period in the prior year. The increase in revenues was mainly due to standard
renewals and new business. Costs of sales for the months ended September 30, 2013 were
$29,327 compared to $32,587 for the three-month period ended September 30, 2012. Cost of
sales decreased $(3,260) or approximately 10.0% because of costs related to the bandwidth
required to provide the subscription services.
Gross margins for the three months ended September 30,
2013 were 80.8%, compared to 73.8%, for the three -month period ended September 30, 2012.
Operating expenses for the three months ended September
30, 2013 were $150,451, compared to $91,620 for the three-month period ended September 30,
2012, representing an increase of $58,831 from the same period in the prior year. The
increase in operating expenses is mainly due to the expense of stock options, warrants,
amortization of debt discount and payments to prior management and board members.
Net loss for the three months ended September 30, 2013 was $(79,798),
compared to $244 for the three month period ended September 30, 2012. The increase in our
net loss was due to the non-cash expenses associated with expensing of options and
warrants ($52,693) plus the increase in cash expense for the payments made to prior
management and board members ($19,500) and amortization of debt discount ($50,000).
Nine Months Ended September 30, 2013 Compared to Nine Months Ended
September 30, 2012
Our revenues for the Nine Months ended September 30,
2013 were $467,340, compared to $433,611 for the nine-month period ended September 30,
2012, representing an increase of $33,729 from the same period in the prior year. The
increase in revenues was mainly due to the standard renewals and new business.
Costs of sales for the Nine Months ended September 30,
2013 were $84,232, compared to $92,237 for the nine-month period ended September 30, 2012
representing a decrease of $8,005. Cost of sales decreased due the costs related to the
bandwidth required to provide the subscription services.
Gross margins for the Nine Months ended September 30,
2013 were 82.0%, compared to 78.7%, for the nine-month period ended September 30, 2012.
Operating expenses for the Nine Months ended September
30, 2013 were $536,606, compared to $336,332 for the nine-month period ended September 30,
2012, representing an increase of $200,274 from the same period in the prior year. The
increase in operating expenses is mainly due to the non-cashexpense associated with the
issuance of stock and options ($197,359) and the cash expense associated with payments
made to prior management and board members of $62,000.
Net income/(loss) for the Nine Months ended September 30, 2013 was
$(210,606), compared to a net income of $5,052 for the nine-month period ended September
30, 2012. The net loss was due to the expense of stock issuances and options, amortization
of debt discount and payments made to prior management and board members. TheCompany would
have shown a profit from operations of $36,753 if the non-cash expense of $247,359 was
excluded and the income would have been $98,753 if it were not absorbing the payments to
prior management and board members ($62,000).
Liquidity and Capital Resources
We had total current assets of $86,766 consisting of $17,280 of cash and $69,486 in
accounts receivable. We had total current liabilities of $239,016 as of September 30,
2013, which represented $38,593 of accounts payable, $30,842 in accrued salaries and
related liabilities, accrued interests of $20,126, deferred revenues of $66,805 and
$72,650 in short-term notes.
We had a negative working capital of $152,250 and an accumulated deficit of $9,204,924
on September 30, 2013.
We generated $62,109 of cash in our operating activities during the nine-month period
ended September 30, 2013, which was mainly due to a net loss of $159,769, common stock and
warrant expense of $198,195, amortization of debt discount of $50,000, a decrease in
accounts receivables of $247,678, a decrease in prepaid expenses of $3,500, a decrease in
accounts payable of $51,405, increase in accrued salaries and liabilities of $24,446 and a
decrease in deferred revenues of $203,029. We had investing activities of $7,397 during
the nine-month period ended September 30, 2013. We used $52,000 in our financing
activities during the Nine Months ended September 30, 2013, consisting of $10,000 of
related party borrowings and $62,000 of repayment of related party notes payable.
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.
Critical Accounting Policies Involving Management Estimates and
Assumptions
Our discussion and analysis of our financial condition
and results of operations is based on our financial statements. In preparing our financial
statements in conformity with accounting principles generally accepted in the United
States of America, we must make a variety of estimates that affect the reported amounts
and related disclosures.
Stock Based Compensation
. We will account for employee stock-based
compensation costs in accordance with accounting standards requiring all share-based
payments to employees, including grants of employee stock options, to be recognized in our
statements of operations based on their fair values. We will utilize the Black-Scholes
option pricing model to estimate the fair value of employee stock based compensation at
the date of grant, which requires the input of highly subjective assumptions, including
expected volatility and expected life. Changes in these inputs and assumptions could
materially affect the measure of estimated fair value of our stock-based compensation.
Use of Estimates
. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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A smaller reporting company, as defined by Item 10 of Regulation
S-K, is not required to provide the information required by this item.
ITEM 4.
CONTROLS AND PROCEDURES
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Evaluation of disclosure controls and procedures.
Management has assessed the effectiveness of our internal control over financial reporting
as of September 30, 2013. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on our assessment and those criteria, we have
concluded that our internal control over financial reporting had material weaknesses
including lack of sufficient internal accounting personnel in order to ensure complete
documentation of complex transactions and adequate financial reporting during the period
ended September 30, 2013. Management has identified corrective actions for the weakness
and has begun implementation during the remainder 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
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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, 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
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None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM
4. MINE SAFTY 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.
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
|
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
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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.
|
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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