Data Call Technologies - Quarter Report: 2009 June (Form 10-Q)

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 advertising, news, and other content, including emergency alerts, within one building as well as to thousands of local, regional and national clients.

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. James Bickers, senior editor of Digital Signage Today magazine recently described digital signage as “any form of business communication where a dynamic messaging device is used to take the place of, or supplement, other forms of messaging.” The key word in this definition of digital signage is “dynamic.” 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.

Digital Signage Comes of Age

Digital signage is coming of age and DataCall Technologies has been there from the start. Four 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, DataCall recognized that these pioneers of digital signage lacked a key component that would become an integral part of any successful implementation—active content.

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 content, such as that provided by DataCall, is updated with new information throughout the day. Those seeking to add active content to their digital signage presentations are advised to employ DataCall’s integrated content rather than shoehorning broadcast content into their digital signage presentation.

DataCall Opportunities

The opportunities for DataCall in the digital signage industry are countless. Many companies nowadays would outsource all or part of their content creation. DataCall 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--it is active content that draws viewers to digital signage and keeps them engaged throughout the presentation.

The Stage is Set

The stage is set and the players are on their marks. The experience and lessons learned by both providers and implementers of digital signage are converging at that point where explosive growth in the industry can be realistically anticipated. DataCall is excited to be in the position they are, poised to leverage their expertise and relationships in the digital signage industry to bring its offerings to the next level.

Partners, Not Customers

DataCall’s approach to customer relations is to not accumulate customers, but to build partnerships. Each DataCall 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, DataCall identified three factors that had to be addressed—reliability, objectivity and ease of implementation. To address the reliability requirement, DataCall opted to license information from the leaders 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 DataCall’s active content was completely unacceptable. Finally, the third requirement—ease of implementation—was address by both DataCall’s licensing of data and the method by which it was disseminated to their partners.

Go For Launch

The stage is set and the players are on their marks. Market demand, opportunity and technology converge at a single point in time, and DataCall 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.

The following discussion should be read in conjunction with our financial statements.

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. Additionally, we are negotiating with a national broadcast news group to provide localized and repurposed video clips, through a Data Call Technologies licensing agreement, to the digital signage space.

Projected revenue for the third quarter ending September 30, 2009 is $130,000. The Company’s operations are expected to generate positive cash flow from operations in the third quarter of 2009.

Our revenues for the three months ended June 30, 2009 were $120,363, compared to $83,745 for the three-month period ended June 30, 2008 representing an increase of 44% from the same period in the prior year. The increase in revenues was mainly due to an increase subscriptions from current customers and new customer subscriptions.

Costs of sales for the three months ended June 30, 2009 were $19,347, compared to $9,952, for the three-month period ended June 30, 2008. Costs of sales do not increase in direct proportion to an increase in revenues because costs of sales are related to the bandwidth required to provide the subscription services.

Gross margins for the three months ended June 30, 2009 were 84%, compared to 88%, for the three-month period ended June 30, 2008.

Operating expenses for the three months ended June 30, 2009 were $139,781, compared to $179,253, for the three-month period ended June 30, 2008, representing a decrease of $39,472 or 22% decrease from the same period in the prior year. The decrease in operating expenses is mainly due to a decreased compensation costs, travel expenses and legal and accounting fees.

Net loss for the three months ended June 30, 2009 was $38,765, compared to $105,460, for the three-month period ended June 30, 2008. The significant decrease in our net loss is due to the increase in revenues and a decrease in operating expenses as noted above.

Our revenues for the six months ended June 30, 2009 were $230,303, compared to $154,372 for the six-month period ended June 30, 2008, representing an increase of 49% from the same period in the prior year. The increase in revenues was mainly due to an increase subscriptions from current customers and new customer subscriptions.

Costs of sales for the six months ended June 30, 2009 were $40,055, compared to $23,869, for the six-month period ended June 30, 2008. Costs of sales do not increase in direct proportion to an increase in revenues because costs of sales are related to the bandwidth required to provide the subscription services.

Gross margins for the six months ended June 30, 2009 were 83%, compared to 84%, for the six-month period ended June 30, 2008.

Operating expenses for the six months ended June 30, 2009 were $295,205, compared to $463,959, for the six-month period ended June 30, 2008, representing a decrease of $168,754 or 36% from the same period in the prior year. The significant decrease in operating expenses is due to a decrease in compensation costs, travel expenses and advertising.

Net losses for the six months ended June 30, 2009 were $104,957, compared to $333,456, for the six-month period ended June 30, 2008. The significant decrease in our net loss is due to the increase in revenues and decrease in operating expenses as noted above.

We had total current assets of $25,962, consisting of $5,030 of cash and $20,932 in accounts receivable. We had total current liabilities of $206,962 as of June 30, 2009, which represented $71,979 in accounts payable and $134,983 in accrued salaries and related liabilities.

We had non-current liabilities of $204,400 as of June 30, 2009, consisting of redeemable common stock. Redeemable common stock consisted of shares of common stock sold to certain investors from 2003-2006, which investors may have ongoing rescission rights, even though those investors previously rejected our rescission offer to them to return their shares of our common stock for their original subscription cost plus statutory interest. While we are obligated to carry the $204,400 in redeemable common stock on our balance sheet as a liability, we believe that the likelihood of any of the shareholders who hold those shares exercising their remaining rescission rights, if any, is very small.

On June 30, 2009, we had negative working capital of $181,000 and an accumulated defict of $8,490,466.

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 Company was a development stage company from inception through 2008.

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 six-month period ended June 30, 2009 are not indicative of the results that may be expected for the year ending December 31, 2009.

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, 2008.

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.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FAS 133, which requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for those instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of those instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for us beginning January 1, 2009. We are currently assessing the potential impact that adoption of SFAS No. 161 may have on our financial statements.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations". SFAS 141R requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS 141R also requires additional disclosure of information surrounding a business combination, such that users of the entity's financial statements can fully understand the nature and financial impact of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.

In December 2007, the FASB issued SFAS No. 160. “Noncontrolling Interests in Consolidated Financial Statements-and Amendment of ARB No. 51.” SFAS 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This statement also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008.

Management has reviewed these new standards and believes that they have no impact on the financial statements of the Company at this time; however, they may apply in the future.

The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $.001 par value per share, of which none are presently outstanding. 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.

The Company is authorized to issue up to 200,000,000 shares of Common Stock, of which 83,213,100 shares were issued and outstanding at June 30, 2009, and 17,600,000 shares were reserved for issuance pursuant to the exercise of outstanding stock options and warrants as of June 30, 2009.

In addition to the amount of common shares issued and outstanding as noted above, 2,044,000 shares were issued and are in the hands of shareholders at June 30, 2009; however, these shares are not included in the Company’s permanent equity at June 30, 2009. These shares are considered “Redeemable Common Stock” and are included in the financial statements as a long-term liability.

The following table summarizes information about options and warrants outstanding at June 30, 2009 and 2008: