Data Call Technologies - Quarter Report: 2010 September (Form 10-Q)

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. ("DataCall," 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.

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 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 Dynamic being fresh, relevant, updated content.

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.

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 three 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 everyone’s “needs” list because it is proven to draw customers to the core message and keep customers engaged throughout the presentation, And DataCall stands ready to serve this exploding market.

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 DataCall, 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 DataCall’s integrated content rather than shoehorning broadcast content into their digital signage presentation.

However, by integrating DataCall’s 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 DataCall 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.

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 that it is active content that draws viewers to digital signage and keeps them engaged throughout the presentation.

Over the past five years, DataCall has worked with the industry leaders in digital signage to develop the data formats and communication methods to allow DataCall’s active content to be easily integrated into their hardware and software products.

The stage is set and the players are on their marks. The experience and lessons learned by both providers and implementers of digital signage and Kiosk networks 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.

Already, DataCall is actively developing the next generation in digital signage content. Delivering active content video is an opportunity that is in the immediate future, as well as implementation of interactive digital signage. Whether it is the use of radio frequency identification (RFID) to delivery active content directly to customers via their cell phone or engaging the customer to create their own digital signage experience via text messaging, DataCall will be at the forefront of the evolution of digital signage just as DataCall was at the forefront of the revolution of digital signage. DataCall is poised to ride this explosive growth in digital signage not just as a service provider, but as a partner providing a key component to the most successful implementations of digital signage,

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 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 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.

DataCall 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. DataCall 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 DataCall’s 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), DataCall 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, DataCall 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 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.

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 business’s 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 cost from $350 to $5,000, such as those marketed by 3M Digital Signage, BroadSign, ChyTV, Hughes, Key West Technologies, Coolsign, Scala, and Cisco amongst others .

The Direct Lynk System allows customers to select from the pre-determined data and information services described below,. The client may which individual locations and which displays they would like to receive our feeds based on how their digital signage network is configured.

The current types of data and information, for which a client is able to subscribe to through the Direct Lynk System include:

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 operating expexpenditures is approximately $30,000. 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 do not currently have any plans to increase our monthly expenditures or number of employees. We estimate the Company will generate revenues in excess of $500,000 in 2010.

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, the mobile app market, trade magazines, trade shows and call centers. We will also continue on a limited basis our practice of providing potential customers free trials of the Direct Lynk System, for which we will receive no revenue, in an attempt to build both product awareness for the Direct Lynk System and to potentially lead to sales down the road, which in the opinion of our management has been successful both in building brand awareness for the Direct Lynk System and in bringing in new clients for subscriptions. 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. We are currently in the completion phases of our mobile application platform that we expect to bring to market during fiscal year 2010.

The Company has generated positive cash flow from operations in the third quarter of 2010 and expects positive cash flow from operations for the year ended December 31, 2010.

Our revenues for the three months ended September 30, 2010 were $104,976, compared to $104,349 for the three-month period ended September 30, 2009, representing an insignificant increase from the same period in the prior year.

Costs of sales for the three months ended September 30, 2010 were $23,671, compared to $24,444 for the three-month period ended September 30, 2009. Cost of sales decreased due to decreased costs related to the bandwidth required to provide the subscription services.

Gross margins for the three months ended September 30, 2010 were 77%, compared to 76%, for the three-month period ended September 30, 2009.

Operating expenses for the three months ended September 30, 2010 were $211,300, compared to $124,402 for the three-month period ended September 30, 2009, representing an increase of $86,898 or 70% increase from the same period in the prior year. The increase in operating expenses is mainly due to an increase in professional fees, compensation expenses, other expenses and product development costs.

Net loss for the three months ended September 30, 2010 was $129,995, compared to $44,497 for the three-month period ended September 30, 2009. The increase in our net loss was due to the increase in operating expenses as noted above.

Our revenues for the nine months ended September 30, 2010 were $314,384, compared to $334,652 for the nine-month period ended September 30, 2009, representing a decrease of 6% from the same period in the prior year. The decrease in revenues was mainly due to the deteriorating economic environment in connection with the current economic downturn.

Costs of sales for the nine months ended September 30, 2010 were $72,935, compared to $64,499 for the nine-month period ended September 30, 2009. Cost of sales decreased due to decresed costs related to the bandwidth required to provide the subscription services.

Gross margins for the nine months ended September 30, 2010 were 77%, compared to 81%, for the nine-month period ended September 30, 2009.

Operating expenses for the nine months ended September 30, 2010 were $582,101, compared to $419,607 for the nine-month period ended September 30, 2009, representing an increase of $75,596 or 39% increase from the same period in the prior year. The increase in operating expenses is mainly due to an increase in professional fees, compensation costs, other expenses and product development costs.

Net loss for the nine months ended September 30, 2010 was $340,652, compared to $149,454 for the nine-month period ended September 30, 2009. The increase in our net loss was due to the decrease in revenues and increase in operating expenses as noted above.

As of September 30, 2010, we had total current assets of $129,500, consisting of $83,876 in cash, $15,624 in accounts receivable and $30,000 in prepaid expenses. We had total current liabilities of $335,363 as of September 30, 2010, consisting of $44,933 in accounts payable, $143,111 in accrued salaries and related liabilities, $107,915 in deferred revenues and a $55,000 short-term note.

We had a negative working capital of $205,863 and an accumulated deficit of $8,892,212 as of September 30, 2010. The Company is operating with limited capital. As a result, the Company is dependent on the procurement of additional financing to continue as a going concern.

We generated $8,648 of cash in our operating activities during the nine-month period ended September 30, 2010, which was based on a net loss of $340,652, offset by $117,500 in non-cash stock compensation, $22,337 in compensation for stock options and warrants, $77,782 in amortization of deferred stock-based compensation, increase in accrued salaries of $8,400, deferred revenues of $107,915 and depreciation costs of $9,136. Our accounts payable increased by $5,251 and our accounts receivable increased by $979. All such changes had a positive impact on our cash flow from operations.

Our investing activities were limited to the purchase of  property and equipment in the amount of $2,303 during the nine-month period ended September 30, 2010.  We received $40,000 from financing activities through the issuance of preferred shares during the nine months ended September 30, 2010.

Due to our limited cash position, we believe that we have to raise additinal funds to continue our operations for approximately the next three months. We believe we will require approximately $500,000 to maintain our operations for the next twelve months. 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 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.