Data Call Technologies - Quarter Report: 2014 June (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. ("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.

Overview

What Is Digital Signage?

LCD and LED displays have been 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 Comes of Age

Digital signage is coming of age and Data Call Technologies has been there from the start. Ten 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 seven 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.

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 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.

Data Call Opportunities

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 ten 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.

Partners, Not Customers

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 six 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.

Business Operations

We currently offer our Direct Lynk Messenger and DLMedia services to customers through the Internet. Both DLM Servicesare Digital Signage products and real-time information services which provides a wide range of up-to-date information for display. Both DLM servicesare able to work concurrently with customers' existing digital signage systems. The Direct Lynk Messenger is slowly becoming a legacy product with the DLMedia product in the forefront.

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 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 costs from $350 to $5,000.

The Direct Lynk Systems allow 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.

In August of 2013, the Company announced the release of its Direct Lynk Media (DLMedia) product. The DLMedia product encapsulates the Direct Lynk Messenger product with major enhancements and options that allows the client to select and include in their feed images relative to the news feeds. Also in the release, both Weather and Traffic image products have been enhanced considerably. Other additions included within the release bring more value to the company's clients and create more interest from new and existing clients.

In the first quarter of 2014, the company released its "Playlist Ready" products that broaden the company's reach of clients. One product within the "Above the Fold" product line received a high level of acceptance at the industry trade shows. More on the product can be found at the company's website.

Results of Operations

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 review monthly expenditures. 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 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 2014.

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Our revenues for the three months ended June 30, 2014 were $164,713, compared to $157,388 for the three-month period ended June 30, 2013, representing an increase of $7,325 or an increase of approximately 4.7% from the same period in the prior year. The increase in revenues was mainly due to standard renewals and new business.

Costs of sales for the months ended June 30, 2014 were $26,921 compared to $26,348 for the three-month period ended June 30, 2013. Cost of sales increased $573 because of costs related to the bandwidth required to provide the subscription services.

Gross margins for the three months ended June 30, 2014 were 83.7%, compared to 83.3%, for the three-month period ended June 30, 2013.

Operating expenses for the three months ended June 30, 2014 were $144,632, compared to $128,812 for the three-month period ended June 30, 2013, representing an increase of $15,820 from the same period in the prior year. The increase in operating expenses is mainly due to the expense of stock options and warrants.

Net loss for the three months ended June 30, 2014 was $9,711, compared to $641 for the three month period ended June 30, 2013. The increase in our net loss is mainly due to the expense of stock options and warrants. Profit from operations for the quarter was $37,895 (2013: $100,307). Operating profit is calculated by adding back the expense for non-cash items such as shares issued for services.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Our revenues for the six months ended June 30, 2014 were $331,488, compared to $314,488 for the six-month period ended June 30, 2013, representing an increase of $17,000 from the same period in the prior year. The increase in revenues was mainly due to the standard renewals and new business.

Costs of sales for the six months ended June 30, 2014 were $59,495, compared to $54,905 for the six-month period ended June 30, 2013. Cost of sales increased due the costs related to the bandwidth required to provide the subscription services and the additional cost associated with the increase in revenue.

Gross margins for the six months ended June 30, 2014 were 82.1%, compared to 82.5%, for the six-month period ended June 30, 2013.

Operating expenses for the six months ended June 30, 2014 were $289,254, compared to $386,155 for the six-month period ended June 30, 2013, representing a decrease of $96,901 from the same period in the prior year. The decrease in operating expenses is mainly due to the decreased expense associated with the issuance of stock and options.

Net loss for the six months ended June 30, 2014 was $(23,003), compared to a net loss of $130,808 for the six-month period ended June 30, 2013. The net loss was due to the expense of stock issuances and options. Profit from operations for the six-month period ended June 30, 2014 was $72,322 (2013: $63,858). Operating profit is calculated by adding back the expense for non-cash items such as shares issued for services.

Liquidity and Capital Resources

We had total current assets of $108,519, consisting of $70,797 of cash and $37,722 accounts receivable. We had total current liabilities of $134,103 as of June 30, 2014, which represented $36,890 of accounts payable, $17,779 in accrued salaries and related liabilities, accrued interests of $24,250, deferred revenues of $6,084 and $51,100 in short-term notes.

We had a negative working capital of $27,800 and an accumulated deficit of $9,237,490 on June 30, 2014.

We were provided $82,547 of cash in our operating activities during the six-month period ended June 30, 2014, which was mainly due to a net loss of $23,003, common stock and warrant expense of $95,325 an decrease in accounts receivables of $165,649 , an increase in accounts payable of $19,067 and an increase in deferred revenues of $136,029. We had no investing activities during the six-month period ended June 30, 2014. We used $11,750 in our financing activities during the six months ended June 30, 2014, consisting of $11,750 of repayment of shareholder notes payable.

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.