e-mail of newsletter
March 18, 1999
Dear Friend of DCI,
The financial results of your company for the first nine months of the fiscal year are truly gratifying. Our sales growth rate far exceeds the industry standard and our losses, which primarily relate to the building of infrastructure, are relatively small. This marks real progress in transforming DCI into an international long distance telephone company.
Consolidated Financial Results
Year-to-Date: Consolidated revenues for the nine months ended December 31, 1998 totaled $28.1 million, which is more than three times revenues of $8 million in the comparable year-ago period. Total net loss for the first nine months, before preferred dividends, was $1.9 million, or $0.09 per share, versus a net income of $1.2 million, or $0.08 per share, for the same prior-year period. The prior-year period included a $3.1 million extraordinary gain from the sale of discontinued operations. Current and prior-year results have been restated, in accordance with generally accepted accounting principles, to include Edge Communications, which is accounted for as a pooling of interest.
Third Quarter Consolidated Results: Consolidated revenues totaled $11.1 million for the quarter ended December 31, 1998, a 404% increase over revenues of $2.2 million in the prior-year period. DCI's third quarter net loss from continuing operations was $526,000, or $0.02 cents per share, compared with a net loss of $268,000, or $0.02 cents per share, for the comparable period a year ago.
A significant portion of the quarterly loss was attributed to the continuing expansion of DCI's international infrastructure. The Company has executed a lease on a facility in Madrid, Spain that will house its commercial offices as well as a high-capacity switch for our wholesale and retail telecommunications services. The Madrid facility allows the Company to utilize executed carrier agreements and finalize pending agreements with both national and international carriers in Spain.
Recent News
In March 1999, DCI exchanged 576,047 shares of its common stock, equating to approximately 2% of its existing shares outstanding, for 568,846 common shares of Wavetech International (Nasdaq: ITEL) that represent approximately 19.9% of Wavetech's current outstanding shares.
This stake out position was rendered, in advance of completing the previously announced merger between DCI and Wavetech, to take advantage of certain business opportunities in which our businesses have real synergy and in order to reaffirm our commitment to increasing value to the shareholders of both companies. Completion of the merger itself is subject to, among other conditions, approval of both companies' shareholders and The Nasdaq Stock Market, Inc.
DCI recently announced it will begin operating as a Competitive Local Exchange Carrier (CLEC) throughout Spain as a result of an agreement with Retevision. The agreement allows DCI to offer its telecommunications services utilizing Retevision's government license as a CLEC. In effect, DCI will become an alternative local carrier to Telefonica de Espana. DCI customers will be able to place phone calls anywhere within Spain at rates that are competitive with and in some cases significantly lower than, those currently obtainable from other carriers.
Retevision, based in Madrid, is the national cable television service provider in Spain and has the capability to provide service throughout the country. By establishing a network of wireless transmission facilities, over which its signal can be broadcast countrywide, it has implemented a creative solution to the costly process of running wire across the mountainous topography that is prevalent throughout much of Spain. Retevision's wireless network has been modified to allow DCI to seamlessly transmit its telecommunications services. Currently, Retevision is installing wireless transmission equipment at DCI's new Madrid office. The result is an inexpensive alternative to the "hard-wired" process.
This affiliation is indicative of the growing industry trend toward packaging cable and telecommunication services in order to achieve economies of scale. In the United States, for example, AT&T recently announced it will purchase TCI Cablevision to gain low-cost regional bandwidth capability and access to a large local customer base.
In January, Spain became the latest European country to deregulate its telecommunication industry. DCI has been building infrastructure in Spain over the past year to be in a position to take advantage of this deregulation. DCI has been targeting Spain as an integral part of its European expansion plan, as the opportunity for market growth and profit potential is great within this region. With a population of more than 39 million, Spain also attracts more than 40 million tourists a year. The current annual telecommunications market in Spain is nearly $10 billion. DCI's current goal is to capture one percent of this market through its agreement with Retevision.
Building Infrastructure
A solid plan, capable and motivated people, and adequate financing – all are needed in order to build infrastructure.
The Plan: A solid telecommunications infrastructure cannot be built without a sound business plan. DCI has developed a highly detailed plan that blueprints the deployment of up to $50 million of switching facilities, one step at a time. As a result, we are in the process of the first phase of financing, which will enable us to deploy our initial set of new switches. These "state-of-the-art" switches will be installed in London, New York and Madrid, with each being interconnected via high speed, dedicated lines. This interconnection will give the Company the ability to least cost route traffic from country to country and to transport significant amounts of telecommunications traffic over the network. Conservatively, each switch will be capable of handling 30 million minutes per month in traffic. Combined with its access to IXC-owned lines, a result of the recently announced master service agreement with IXC Communications (Nasdaq: IIXC), these switches will form the backbone of DCI's trans-Atlantic network. This expansion is a result of the existing demand for DCI's services, as evidenced by certain existing switches reaching capacity. It is anticipated that the new switches, once installed, will be carrying approximately 35 million minutes per month.
In January 1999, monthly telecom minutes of use grew to approximately 3.5 million minutes in Europe only, a twelve fold increase over the month of April 1998, which was 300,000 minutes per month.
Our strategic planning incorporates a periodic review of all our operations. We believe it is essential for management to continually evaluate and re-evaluate its operations. It is through this review process that we currently are scrutinizing the progress of our joint venture with DataWave. To date, we feel that the joint venture is performing at sub-optimal levels due in part to certain operational changes that are not acceptable to us. We will be exploring all available opportunities, including disengaging from the joint venture, to restore the Canadian operations to their previous production levels.
Our People: A telecommunications enterprise must include the highly qualified personnel necessary to operate the equipment and infrastructure, as well as to sell the products. Consequently, as part of our European business expansion, DCI is seeking to attract additional qualified telecom people to join our team. As of this writing, we are recruiting top managers from one of the "super carriers" to head up our European operations. In addition, we intend to expand the depth and breath of our financial personnel at the divisional /subsidiary level to ensure integration of sophisticated software packages and fortify our forecasting capabilities.
At the director level, DCI is seeking three additional outside directors to further strengthen our Board of Directors and ensure knowledgeable and balanced oversight so important to the Company's continuing success. I am pleased to report that Carter Hills, a retired diplomat who has served as a director since 1995, will become Chairman of the Audit Committee to improve compliance reporting and strengthen DCI's relationship with the SEC and Nasdaq.
Financing: DCI is in the final stages of selecting a supplier for three additional switches to be deployed in Madrid, London and New York. Due to the complexity and expense involved, additional institutions have been invited to submit proposals. At present, the proposals are being reviewed by management's analysts. Although this has delayed the deployment of these switches, it has become apparent from the additional proposals submitted that considerable cost savings as well as technological flexibility will be gained through this process. Management wants to avoid entering into any transaction that would act as a drag on the future earnings capability of the Company. Thus, it is in our best interests to continue negotiations until a suitable transaction or series of transactions can be finalized.
Wavetech Update
The Company has been in continuing communication with the Securities and Exchange Commission (SEC) since it filed an S-3 Registration Statement in June 1998. The Registration Statement was subjected to a full review and the SEC had many comments. DCI filed its responses to these comments by October 1998. As reported in October 1998, and in February 1999, and as posted on our web site, the Company, pursuant to the SEC's comments, filed a revised Form 10K for the years ended March 31, 1998 and 1997 that reflected adjustments relating to the timing of the CardCall International and Muller Media acquisitions, and to reflect the Travel Source acquisition under the purchase method of accounting.
We welcome this scrutiny by the SEC because it protects you, the investor. At present DCI is an OTC Bulletin Board company. On numerous occasions, I have expressed my dissatisfaction with being on the OTC Bulletin Board and as early as 1996 publicly stated that it is our goal to get off this Board and move forward to a more selective listing. In part, as a result of this goal, we entered into a merger agreement with Wavetech in November, 1998. The combined companies made a presentation to Nasdaq in November 1998 and by mid-December filed an S-4 Registration Statement for the registration of shares of the merged company to be issued to all shareholders of DCI and Wavetech.
In February 1999, the SEC asked for production of documents relating in large part to DCI's acquisitions, acquisition accounting and the effect of such accounting on DCI's financial statements. The Company expedited its response to requests made in connection with the SEC's investigation of these matters as a step toward enabling the SEC to finalize its review of the S-4 Registration Statement necessary for the Wavetech merger. Until such time as the merger can be effectuated, Wavetech and DCI have reaffirmed their commitment to the merger by mutual investments in each other, as described above (see "Recent News").
Community Relations
As a corporation grows, it has an opportunity to return something to the community. DCI management believes the Company should strive to make a positive contribution in the markets its serves through humanitarian endeavors. You should be aware that the precursor to this program was initiated on the basis of a television story about a Hispanic, inner city church in Jersey City, New Jersey that had been robbed of all its Christmas gifts – gifts that were to be to distributed to the less fortunate children of the parish. DCI called the pastor to determine how it could be of assistance. The pastor informed DCI that the church was robbed a second and third time, resulting in the loss of their computer equipment. It was determined that the best course of action was for DCI to send a check for $4,000 to help the parish replace some of its stolen property. We realize that this effort is small in comparison to other contributions of major corporations, but it was our first step and we are proud of it.
In March 1999, management became aware of a missing child report on a nine year old girl named Erica Baker. Erica apparently was abducted from the greater Dayton, Ohio area. DCI is now committing its resources to provide assistance in locating the missing child. Erica's photo is to be imprinted on our prepaid phone cards and distributed locally. She was last seen on February 7, 1999. Erica is 3'11, 65 pounds with blonde hair and hazel eyes.
If you have any information that might be helpful in locating Erica, please contact the Kettering Police Department at 937-296-2570, or The Erica N. Baker Recovery Center,
2280 East Dorothy Lane, Kettering, Ohio 45420; Tel: 937-293-5984; Fax: 937-293-6037;
erica@siscom.net.
Summary
I know that you have shared my impatience over the pace of some of our major developments, such as financing, and completion of the Wavetech merger. However, I know too that you want us to take the time necessary to select the best financing terms and deploy the best switching equipment because we will have to live with those decisions over the long term. As to the completion of the Wavetech merger, we are working as expeditiously as possible with the SEC on this matter. As to the quiet period, we expect to see it end within the next four weeks.
If you look at DCI's stock price and compare our growth rate with industry indicators, you will in all likelihood agree with our conclusion that this company presently is seriously undervalued. It is our belief that the successful conclusion of our ongoing initiatives will result in a valuation of DCI that is more in keeping with the rest of the industry. In the meantime, we appreciate your continuing confidence and support. |
