Stratford, Conn., May 7, 1999 /PRNewswire/ -- DCI Telecommunications, Inc.
(OTC Bulletin Board: DCTC) today confirmed that it will issue re-stated
financial results in response to the Securities and Exchange Commission's
(SEC) temporary suspension in the trading of its common stock.
On Monday, May 3, 1999, the SEC, without warning, issued an order suspending
trading in DCI stock until 11:59pm on May 14, 1999. The order states that
the suspension was due to ".... questions regarding the accuracy and
adequacy of DCI's financial statements, specifically DCI's apparent
inflation of revenues for one or more business combinations as a 'pooling of
interest.' "
The companies DCI acquired and has accounted for via a pooling of interest
were The Travel Source and Edge Communications Inc. (Edge). The former was
restated via the filing of a 10KA for the fiscal years ended March 31, 1998
and March 31, 1997 to the purchase method of accounting, pursuant to an
earlier request by the SEC. DCI said it assumes it is the latter that is
the item in question at present. Edge Communications was acquired on April
30, 1998 and since that time has been reported under the pooling concept.
DCI reports that it relied on outside professionals on the proper accounting
treatment of the transaction and therefore felt that the utilization of the
pooling method for the Edge acquisition was correct.
In a statement issued today, DCI stated, "While we are very concerned over
the action taken by the SEC, we will be restating certain financial
information for the first three quarters of the fiscal year ended March 31,
1999 to reflect the purchase method of accounting for Edge. As the company
is in the process of concluding its year-end audit, it is anticipated that
the effect of a change to the purchase method of accounting, will be a
reduction of approximately $1 million, or 2%, of anticipated sales, and the
addition of approximately $8 million of 'goodwill,' which will be amortized
over 20 years. Aside from a reduction of the gross margin relating to the
reduction in sales, there will be no other effect on Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA), which is a key
measurement factor in the telecom industry. This accounting change will have
no bearing on the company's current or future business activities."
The Financial Accounting Standards Board (FASB), on April 21, 1999,
recommended the elimination of the pooling of interest accounting method for
mergers at some future date, expected to be sometime during the year 2000.
This method allows companies to add together the old book values of their
assets without charging the costs of a merger against the earnings of the
resulting company. Pooling has been a very common method of accounting for a
merger and has been used by companies such as Exxon/Mobil,
Daimler-Benz/Chrysler and MCI/Worldcom, among many others.
The purchase method of accounting adds together all acquired intangible
assets, like trademarks, at their current costs, with any cost above fair
market value, known as goodwill, being charged to the buying company's
earnings over time.
The DCI statement quoted Dr. Debra Jeter, an Assistant Professor of
Management at Vanderbilt University's Owen Graduate School of Management,
commenting on the pooling and purchase methods of accounting in a recent CNN
newsletter, as saying, "Even though a change is being made, no cash
difference exists between the two methods. If the market is perfectly
efficient, it should be able to see right through it, and it shouldn't make
any difference. And it won't mean that using the purchase method will turn a
good deal into a bad one, or vice versa."
DCI is an early-stage company that historically has not traded on revenue
and earnings. "As an OTC Bulletin Board company, we trade for many reasons,
several of which are other than short-term financial. The company by any
financial standard has grown phenomenally over the past three
years," said DCI President and CEO Joseph J. Murphy.
"The Edge acquisition", Murphy said, " has been very positive in that Edge
is the bulwark of our domestic prepaid phone card business. Also, we have
expanded into Europe and are well positioned to benefit from our status as a
local exchange carrier in Spain and from our recently announced alliances
with both Retevision and Cable & Wireless. As part of our growth and
evolution into a larger company, we are upgrading information systems
technology in Europe and augmenting staff resources both here and abroad.
Administrative improvements thus accompany our enhanced business operations
as we strive to reward shareholders for their investment in DCI.
Pursuant to Rule 15c2-11, under the Exchange Act , brokers and dealers
should be alert to the fact that, at the termination of the trading
suspension, no quotation may be entered unless and until they have strictly
complied with all of the provisions of the rule.
DCI Telecommunications is a global provider of telecommunications services,
including long distance, prepaid phone cards and Internet services. It has
an extensive distribution network throughout North America, Europe and the
Far East. The Company owns and operates switching facilities in Canada, the
United Kingdom, Spain and Denmark, with facilities planned for the United
States in the near future. Additional information can be obtained directly
from the company or its web site at dcic.com.
######
Contact: Craig K. Murphy Director, Investor Relations DCI
Telecommunications, Inc., 203-380-0910 ext. 3108, email
InvestorRelations@dcic.com, www.dcic.com
Safe Harbor Statement under the Private Securities Litigation Act of 1995;
The statements which are not historical facts contained in this press
release are forward-looking statements that involve certain risks and
uncertainties including but not limited to risks associated with the new
uncertainty of future financial results, additional financing requirements,
development of new products, regulatory approval processes, the impact of
competitive products or pricing, unpredictability of patent protection,
technological changes, the effect of economic conditions and other
uncertainties detailed in the company's filings with the Securities and
Exchange Commission.
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