Frequently Asked Investor Questions
Last update: May 11, 1999
How does DCI resume trading?
DCI has restated its last three quarterly statements to reflect
the Edge acquisition under the purchase method of
accounting. Those filings are available via the Edgar system.
In order for a Market Maker to resume quoting our common
stock, it must file a Form 15c2-11. DCI has been in contact
with all of its Market Makers and has provided them with all
the necessary compliance information. According to the
compliance department of the OTCBB, DCI can resume
trading after 11:59PM May 14, 1999, however, the public
quotation system may lag behind. We will continue to work
with our Market Makers to provide our shareholders with
timely quotations.
Why did the SEC suspend trading of DCI Common Stock?
The Order of Suspension of Trading from the SEC reads as
follows: "…DCI was suspended because of questions
regarding the accuracy and adequacy of DCI's financial
statements, specifically, DCI's apparent inflation of revenues
by accounting for one or more business combinations as a
pooling of interests."
What is the difference between pooling-of-interests
accounting and the purchase method of accounting?
Pooling-of-Interests Method: The pooling-of-interests method
accounts for a corporate acquisition as the uniting of
ownership interests of two companies by exchange of equity
(common stock) securities. Accounting views the exchange
of equity interests as a change in form, not in substance; that
is, the shareholders of the predecessor companies become
shareholders in the new combined enterprise. Each of the
predecessor companies continues carrying out its operations
as before. Because the substance of neither the ownership
interest nor the nature of the activities of the enterprises
changes, no new basis of accountability arises. In other
words, the book values of the assets and liabilities of the
predecessor companies carry over to the new combined, or
consolidated, enterprise. Unlike the purchase method, assets
and liabilities do not reflect market values at the date of
acquisition on the consolidated balance sheet.
Purchase Method of Accounting: 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 against the
buying company's earnings over time. In addition, companies
in purchase based mergers can use strictly cash for the
transaction if so desired.
What will be the effect on reported revenue in the year just
ended after restating the Edge acquisition using the
purchase accounting treatment rather than pooling of
interests?
Under so-called purchase accounting, DCI's revenue for the
March 1999 fiscal year will be reduced by approximately
$1,000,000, or 2% of anticipated total-year revenues, which
will be publicly reported early in June. This reduction results
from the fact that Edge's revenues from the month of April
(1998) will not be included in fiscal 1999 results under
purchase accounting. Edge's revenues also will be
eliminated from DCI's quarterly restated results for the prior
fiscal year (1998). There will be no impact upon DCI's reported
revenues from Edge in either the current fiscal year (ending
March 2000) or in future years due to the future use of
purchasing accounting.
What will be the financial effect on DCI's anticipated net profit
or loss in the year just ended due to the restatement of the
Edge acquisition using purchase accounting treatment rather
than pooling of interests?
Aside from the gross margin relating to the approximate $1.0
million reduction in sales, there will be no other effect on
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA), which is a key factor in the telecom
industry. This accounting change will have no bearing on the
company's current or future business activities. Subject to a
definitive determination by our auditors, we estimate that
DCI's net results will be reduced by approximately $400,000 of
amortization of goodwill in the year just ended, and that there
will be a similar reduction in future years, which equates
annually to between one and two pennies per share on a fully
diluted basis for future years. This is due to the fact that
purchase accounting requires that the cost of an acquisition
[In this case, the difference between (1) the value of the DCI
shares used to acquire Edge and (2) Edge's book value at
that time] be amortized over 20 years. Amortization is a
non-cash charge against income.
It is important to note that DCI's cash position and previously
reported cash flows will not be adversely impacted by this
change in accounting treatment.
In terms of valuation and based on EPS, how can you make a
case for the company being undervalued?
As a growth company, we wouldn't expect DCI to trade off of
P/E multiples. Currently DCI trades at a Price to Sales ratio of
1.36, a Price to Book ratio of 2.52, and Price to Tangible Book
ratio of 2.52, where our Industry standards are 6.63, 7.27 and
9.87 respectively. Our corresponding Industry averages for
those same ratios are 5.11, 6.61, and 8.84. Based on those
figures, it appears that DCI is undervalued.
When will DCI's new switch be installed and fully operational?
The new Harris switch will be installed in London and fully
operational on or around May 15th.
Since you are rapidly building infrastructure, are you also
adding personnel?
We are currently looking to add quality personnel. In fact we
are conducting a search for a president for our European
operations. The ideal individual must be bi-lingual (Spanish
and English) and have senior management experience with a
major telecommunications company. For more information on
available positions please refer to the Employment
Opportunities section of DCI's web site, which will be
available shortly.
There is an item in the Annual Report entitled "Due to
Shareholders" - could you explain?
Note 12 (Related Party Transactions) does not go into the
details of the aforementioned question. With the approval of
the Board of Directors, Mr. and Mrs. Murphy sold shares in
private transactions in March and June of 1997, the proceeds
of which were put back into DCI. These proceeds were
specifically earmarked for CardCall companies. These
transactions were fully reported to the Securities and
Exchange Commission via 10Q, 10K, and 144 filings which can
be verified through DCI's EDGAR filings (click on stock quote
on our home page from there you will see a link to "Insider").
Does the Securities and Exchange Commission monitor
Internet bulletin boards relating to DCI?
It is our understanding that these type of forums are
monitored by both the Enforcement Division of the SEC and
NASDAQ. DCI agrees with the monitoring process as it
protects investors of potential.
Whatever happened to those individuals who allegedly
slandered DCI on the Internet about one year ago?
Our counsel, Whitman Breed Abbott & Morgan sent two
letters to Silicon Investor requesting the names of the
following aliases:
King Ralph (electro boy@hotmail.com)
sharkie
bobyv
e.murrow
thesurf
irwin yertzer
warner foxx
Tellitlikeitis
To date, we have had no response from Silicon Investor. In
the meantime we have hired an investigative service,
comprised of former U. S. Marines, U.S. Marshalls and U.S.
Attorneys. Included in their service is the pursuit of these
individuals. If necessary, DCI will initiate legal action forcing
Silicon Investor to provide the real names of the
aforementioned individuals.
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