Data Call Technologies - Quarter Report: 2012 March (Form 10-Q)

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.

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 three-month period ended March 31, 2012 are not indicative of the results that may be expected for the year ending December 31, 2012.

As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-X, 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, 2011.

Company recognizes revenues based on monthly fees for services provided to customers. Some customers prepay for annual services and the Company defers such amounts and amortizes them into revenues as the service is provided.

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 June 2011, the FASB issued authoritative accounting guidance related to “Presentation of Comprehensive Income” which amended existing accounting guidance related to “Comprehensive Income.” The update gives companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments should be applied retrospectively for all prior periods presented. Early adoption is permitted because compliance with the amendments is already permitted. The adoption of this pronouncement did not have a material effect on our consolidated financial statements.

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $.001 par value per share, of which 800,000 shares of Series A convertible preferred stock are outstanding at March 31, 2012 and December 31,2011. 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.

Each share of Series A Preferred Stock shall bear a preferential dividend of twelve percent (12%) per year and is convertible into a number shares of the Company’s common stock, par value $.001 per share (“Common Stock”) based upon Fifty (50%) percent of the average closing bid price of the Common Stock During the ten (10) day period prior to the conversion. The Company has not declared or accrued any dividends and as of March 31, 2011 unaccrued and undeclared dividends were $1,200.00.

The Company’s convertible notes include warrants. When the convertible notes were issued the price of our stock was $0.0065. The Company believes that the common stock is illiquid and has been infrequently traded during the last three years, the trading price of the stock price was not deemed to be a fair value of the conversion feature. Management decided that because of the Company’s ability to continue as a going concern was in question a price of less than $0.005 was a more reasonable measure of the fair market value. Based on that decision, no beneficial conversion feature was reflected in the financial statements.

The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business for the foreseeable future. The Company has accumulated losses, negative working capital and without additional sales or capital will not be able to meet operating needs for the next twelve months, all of which raise substantial doubt about the Company’s ability to continue as a going concern.

In the near term management plans to continue to focus on increasing sales and raising the funds necessary to fully implement the Company’s business plan. Management believes that certain shareholders will continue to advance the capital required to meet the Company’s financial obligations. There is no assurance however, that these shareholders will continue to advance capital to the Company or that the business operations will be profitable.

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company may from time to time be involved in legal proceedings arising from the normal course of business. The Company currently has no claims or litigation. The Company recently has reached an agreement to extend the maturity date of the note payable of $50,000 plus accrued interest to January 21, 2013.

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. ("Data Call," 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 Data Call Technologies has been there from the start Five 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, Data Call 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 Data Call 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 Data Call, 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 Data Call’s integrated content rather than shoehorning broadcast content into their digital signage presentation.

However, by integrating Data Call’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 Data Call 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 Data Call in the digital signage industry are countless. Many companies nowadays would outsource all or part of their content creation. Data Call 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 six years, Data Call has worked with the industry leaders in digital signage to develop the data formats and communication methods to allow Data Call’s active content to be easily integrated into their hardware and software products.

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

Data Call 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. Data Call 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 Data Call’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), Data Call 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, Data Call 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 Data Call 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 moment’s 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 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 choose 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 expenditures is approximately $40,000. We will continue these efforts to streamline operations, as we focus on increasing sales and gross revenues over the next twelve months.. 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 2012.

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 2012.

Our revenues for the three months ended March 31, 2012 were $161,421, compared to $129,682 for the three-month period ended March 31, 2011, representing an increase of $31,739 or an increase of 24.5% from the same period in the prior year. The increase in revenues was mainly due to the expansion of current customer networks as well as new sales generation.

Costs of sales for the three months ended March 31, 2012 were $31,423, compared to $29,440 for the three-month period ended March 31, 2012 an increase of $1,983 or about 6.7%. 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 and new products

Gross margins for the three months ended March 31, 2012 were $129,998 or 80.5%, compared to $100,242 or 77.2% for the three-month period ended March 31, 2011.

Selling, General and Administrative expenses for the three months ended March 31, 2012 were $122,216, compared to $112,892 for the three-month period ended March 31, 2011, representing an increase of $9,324 or an 8.3 % increase from the same period in the prior year. The increase in SG&A expenses is mainly due to increase in legal and accounting expenses.

Net income for the three months ended March 31, 2012 was $7,215 compared to a net loss of $(13,488), for the three-month period ended March 31, 2011. The improvement in our net income is due to the company’s ongoing efforts to increase sales.

We had total current assets of $168,709, consisting of $111,182 of cash, $47,527 in accounts receivable and $10,000 in prepaid expenses. We had total current liabilities of $379,658 as of March 31, 2012, which represented $66,009 of accounts payable, $111,792 in accrued salaries, and accrued interest and related liabilities of $6,875, deferred revenues of $129,982, and a $65,000 short-term note.

We had a negative working capital of $ 210,949 and an accumulated deficit of $8,995,498 on March 31, 2012.

We had an increase of $66,330 of cash in our operating activities during the three-month period ended March 31, 2012, which was mainly due to net income of $7,215, an increase in accounts payables of $25,120 and an increase in deferred revenues of $47,183.We had no investing activities during the three-month period ended March 31, 2012. We had no financing activities during the three months ended March 31, 2012.

Due to our limited cash position, we believe that we have to raise additional 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 continue 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.

Evaluation of disclosure controls and procedures. As of March 31, 2012, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, we have concluded that our internal control over financial reporting had no material weaknesses because of the new internal accounting procedures implemented in order to ensure complete documentation of transactions during the period ended March 31, 2012.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1. Description of Business, subheading Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K/A is not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.