ITEM 1. DESCRIPTION OF BUSINESS.
Data Call Technologies, Inc. was incorporated under the laws of the State of Nevada as Data Call Wireless on April 4, 2002 and is sometimes referred to herein as "we", "us", "our", "Data Call" or the "Company". 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?
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 Comes of Age
Digital signage is coming of age and DataCall 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, 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-pollenated 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.
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 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.
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 that it is active content that draws viewers to digital signage and keeps them engaged throughout the presentation.
Over the past six 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.
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 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.
Business Operations
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 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:
- Headline News top world and national news headlines;
- Business News top business headlines;
- Financial Highlights world-based financial indicators;
- Entertainment News top entertainment headlines;
- Health/Science News top science/health headlines;
- Quirky News Bits latest off-beat news headlines;
- Sports Headlines top sports headlines;
- Latest Sports Lines - latest sports odds for NFL, NBA, NHL, NCAA Football and NCAA Basketball;
- National Football League latest game schedule, and in-game updates;
- National Basketball Association - latest game schedule, and in-game updates;
- Major League Baseball - latest game schedule, and in-game updates;
- National Hockey League - latest game schedule, and in-game updates;
- NCAA Football - latest game schedule, and in-game updates;
- NCAA Men's Basketball - latest game schedule, and in-game updates;
- Professional Golf Association top 10 leaders continuously updated throughout the four-day tournament;
- NASCAR top 10 race positions updated every 20 laps throughout the race;
- Major league soccer;
- Traffic Mapping;
- Animated Doppler Radar and Forest Maps;
- Listings of the day's horoscopes;
- Listings of the birthdays of famous persons born on each day;
- Amber alerts;
- Listings of historical events which occurred on each day in history; and
- Localized Traffic and Weather Forecasts.
In addition to the above information categories and the client-generated messages, we may, at our discretion, include a Public Service Announcement, third-party advertisement (for additional revenue streams) and/or a Data Call tag line to our streaming text advertising in the future.
Material Contracts
On September 6, 2006, we entered into a two-year renewable services agreement with 3M Digital Signature, pursuant to which we agreed to supply 3M the use of our Direct Lynk Messenger technology. Pursuant to the agreement, all materials made available to us by 3M in connection with the services we will provide will remain the property of 3M. This contract has since been renewed for the years 2010 and 2011.
In September 2007, we entered into a three-year auto renew agreement with a platform developer, Leightronix, a company which manufactures head end hardware and software for use on PEG channels, which allows us to transfer our Direct Lynk System feeds to head ends equipped with the Leightronix product through Leightronix servers.
In March 2008 we entered into an annual agreement with various annual purchase orders through out 2009 and 2010 to provide our Direct Lynk System feeds to York Telecom’s network of digital signage through out digital signage deployements within the Social Security Administrtion offices across the U.S.
Dependence On One Or A Few Customers
At December 31, 2010 we had over 1,000 customers who pay to subscribe to our Direct Lynk System, We also have several companies which are testing the Direct Lynk System, and expect that several of them may become future customers. We are dependent upon three major customers, which include: Leightronix, Inc., Zero in Media, LLC and York Telecom. During 2010, our three largest customers accounted for over 50% of our revenues.
Employees
At December 31, 2010, we had 5 full time employees. Depending upon our level of our growth, we expect that we will be required to hire additional personnel in the areas of sales and marketing, software design, research and development, etc.
Estimate Of The Amount Spent On Research And Development Activities
Since our inception in April 2002, the majority of our expenditures have been on research and development of our Direct Lynk Messenger System, including software and hardware development and testing. The amount spent on this research and development since inception through December 31, 2010 is approximately $2,000,000.
ITEM 1A.
ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESS.
Investing in our common stock will provide an investor with an equity ownership interest. Shareholders will be subject to risks inherent in our business. The performance of our shares will reflect the performance of our business relative to, among other things, general economic and industry conditions, market conditions and competition. The value of the investment may increase or decrease and could result in a loss. An investor should carefully consider the following factors as well as other information contained in this annual report on Form 10-K.
This annual report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risk factors described below and the other factors described elsewhere in this Form 10-K.
We require additional financing to continue our business plan
Additional financing is expected to be required in 2011, but there can be no assurance that such financing will be available at terms and conditions acceptable to the Company. Further, there can be no assurance that unforeseen events, such as the length of time necessary to generate increasing market acceptance of our Direct Lynk System, or any unexpected material increased development costs, or the general economy in the markets where we offer our Direct Lynk System, may result in an inability to secure necessary additional financing at satisfactory terms and conditions, if at all. Since inception, we have been dependent upon financing raised through the sale of restricted shares of our common stock to support our operations. We expect that we will be required to raise additional funding through the issuance of restricted shares of our common stock, but there can be no assurance that we will be able to raise sufficient capital in a timely manner to continue our business plan at anticipated levels of growth.
We do not have any commitments or identified sources of additional capital from third parties or from our officers, directors or principal shareholders. There is no assurance that additional financing will be available on favorable terms in the future, if at all or that our Direct Lynk System will generate sufficient revenues in order for us to continue to grow our operations. If we are unable to raise additional financing in a timely manner, it would have a material adverse effect upon our ability to fully implement our business plan and/or to continue with our current level of operations.
We face minimal competition
We face minimal competition in our efforts to market our Direct Lynk System. Many of our competitors are as well-established as Data Call and may possess far greater financial, technical, human and other resources than does the Company. We must compete against many companies in fragmented, highly competitive markets. Our Direct Lynk System competes principally on the basis of the following factors: product quality and ability to custom design content to a customer’s specifications; and price. Competitive pressures, and other factors could cause us additional difficulties in acquiring a sufficient number of customers and generating a level of subscription sales to grow and become profitable, of which there can be no assurance.
Lack of patent and proprietary information protection
We have no patents, patent applications, trademarks, trademark applications or licenses covering our Direct Lynk System. We may choose to file patent applications in the future, if our management believes it is in our best interests. In the event that our Direct Lynk System infringes the patent or proprietary rights of others, we may be required to modify our process or obtain a license. There can be no assurance that we would be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do so would have a material adverse effect on our business. In addition, there can be no assurance that we will have the financial or other resources necessary to prosecute or defend a patent infringement or proprietary rights action. Moreover, if any of our products infringe patents or proprietary rights of others, we could, under certain circumstances, become liable for damages, which could have a material adverse effect on our operations and financial condition.
We rely on key management personnel
We are highly dependent upon the services and efforts of key management personnel including: Timothy Vance, our Chief Executive Officer, Chief Operating Officer and Director; and James Tevis our Chief Technology Officer. Our ability to operate and implement our business plan is heavily dependent upon the continued service of Messrs. Vance and Tevis, as well as our ability to attract, retain and motivate other qualified personnel. Messrs. Vance and Tevis entered into three-year employment contracts on October 1, 2005, which expired October 1, 2008. We are currently in the process of negotiating new employment agreements with Vance and Tevis. The loss of Messrs. Vance or Tevis, or our inability to hire and retain qualified sales and marketing, software engineers and management personnel would have a material adverse effect on our business and operations and would likely result in a decrease in the value of our securities.
We are highly dependent upon our ability to successfully market Direct Lynk System to subscribers
We are dependent on the abilities of our sales and marketing department, which currently consists of 4 persons, to continue to generate subscriptions for our Direct Lynk System and to broaden our customer base. While the number of paying subscribers for our Direct Lynk System increased at December 31, 2010 compared to December 31, 2009, there can be no assurance that our sales and marketing department will be able to continue to achieve market acceptance for our Direct Lynk System and increase our customer base to a level that will permit profitable operations. If our sales and marketing department is unable to continue to generate new customers and attract trial customers to test our Direct Lynk System and experience what we believe are our advantages and learn of their potential uses, we may not be able to generate sufficient revenues to continue with planned research and development on new products and improve our current products.
Potential future government regulation of the Internet may adversely affect our business
We are dependent upon the Internet in connection with our business operations and the delivery of content for our Direct Lynk System. The United States Federal Communications Commission (the "FCC") does not currently regulate companies that provide services over the Internet, as it does common carriers or tele-communications service providers. Notwithstanding the current state of the FCC's rules and regulations, the potential jurisdiction of the FCC over the Internet is broad and if the FCC should determine in the future to regulate the Internet, our operations, as well as those of other Internet service providers, could be adversely. Compliance with future government regulation of the Internet could result in increased costs and because of our limited resources, it would have a material adverse effect on our business operations and operating results and financial condition.
We are dependent on the security of the Internet to serve our customers; any security breaches or other Internet difficulties could adversely affect our business
Because we offer the majority of our services through our Internet website (www.datacalltech.com), the secure transmission of confidential information over public networks is a critical element of our operations. A party who is able to circumvent security measures ( hacker) could misappropriate proprietary information or cause interruptions in our operations. If we are unable to prevent unauthorized access to our users' information and transactions, our customer relationships could be irreparably harmed. Although we currently have in place security measures that we feel are adequate to protect our business and those of our customers, these measures may not prevent future security breaches. Additionally, heavy stress placed on our systems could cause our systems to fail or cause our systems to operate at speeds unacceptable to our users, in which event we could lose customers and experience a material impact on our financial condition.
We must rely on other companies to maintain the Internet infrastructure if we hope to be successful
Our future success depends, in large part, on other companies maintaining the Internet system infrastructure, including maintaining a reliable network backbone that provides adequate speed, data capacity and security. If the Internet continues to experience anticipated significant growth in the number of users, frequency of use and amount of data transmitted, as well as the number of malicious viruses and worms introduced onto the Internet by hackers and others, the infrastructure of the Internet may be unable to support the demands placed on it at any particular time or from time-to-time. Because we rely heavily on the Internet and our limited capital, any disruption of the Internet could adversely affect us to a greater degree than our competitors and other users of the Internet.
Our website and systems are hosted by a third party and we are vulnerable to disruptions or other events that are beyond our control
Our website and systems are hosted by a third party. We are dependent on our systems’ ability to stream information over the Internet to customers. If our systems fail or become unavailable, it would harm our reputation, result in a loss of current and potential future customers and could cause us to breach existing agreements. Our success depends, in part, on the performance, reliability and availability of our services, which in turn are dependent on our third-party provider. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, break-in, earthquake and similar events. We would face significant damage as a result of these events. For these reasons, we may be unable to develop or successfully manage the infrastructure necessary to meet current or future demands for reliability and scalability of our systems, which would have a negative impact on our business and financial conditions.
Our software could contain bugs or be compromised by viruses which could cause interruption of our services and negatively affect our ability to continue to develop our reputation
Our Direct Lynk System uses sophisticated software which could be found to contain bugs or could be compromised by viruses. While we have not experienced any material bugs or viruses to date, if such event could occur, such event(s) could be costly for us to identify and repair, and until such bugs or viruses, if any, are fixed, they could cause interruptions in our service, which could cause our reputation to decline and/or cause us to lose clients.
Our auditors have expressed a concern about our ability to continue as a going concern
Our auditors, in our audited financial statements expressed a concern about our ability to continue as a going concern. We had negative working capital of $204,001 and an accumulated deficit of $8,893,404 as of December 31, 2010, and have generated limited revenues to date. These factors raise substantial doubt as to whether we will be able to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
Market prices of our equity securities can fluctuate significantly
The market prices of our common stock may change significantly in response to various factors and events beyond our control, including the following:
- the other risk factors described in this Form 10-K;
- changing demand for our products and services and ability to develop and generate sufficient revenues;
- any delay in our ability to generate operating revenue or net income;
- general conditions in markets we operate in;
- general conditions in the securities markets;
- issuance of a significant number of shares, whether for compensation under employee stock options, conversion of debt, potential acquisitions, additional financing or otherwise.
There is only a limited trading market for our common stock
Our Common Stock is subject to quotation on the NASD Bulletin Board. There has only been limited trading activity in our common stock. There can be no assurance that a more active trading market will commence in our securities as a result of the increasing operations of Data Call. Further, in the event that an active trading market commences, there can be no assurance as to the level of any market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.
State blue sky registration; potential limitations on resale of our securities
Our common stock, the class of the Company’s securities that is registered under the Exchange Act, has not been registered for resale under the Securities Act of 1933 or the "blue sky" laws of any state. The holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to resell our securities. Accordingly, investors should consider the secondary market for the Company's securities to be a limited one.
It is the intention of the management to seek coverage and publication of information regarding the Company in an accepted publication which permits a manual exemption. This manual exemption permits a security to be distributed in a particular state without being registered if the Company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a nonissuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities.
Most of the accepted manuals are those published in Standard and Poor's, Moody's Investor Service, Fitch's Investment Service, and Best's Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Dividends unlikely on our common stock
We do not expect to pay dividends for the foreseeable future. The payment of dividends, if any, will be contingent upon our future revenues and earnings, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors. It is our intention to retain all earnings for use in our business operations and accordingly, we do not anticipate that the Company will declare any dividends in the foreseeable future.
Compliance with Penny Stock Rules
Our securities will initially be considered a "penny stock" as defined in the Exchange Act and the rules thereunder, since the price of our shares of common stock is less than $5. Unless our common stock is otherwise excluded from the definition of "penny stock," the penny stock rules apply with respect to that particular security. The penny stock rules require a broker-dealer prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock is subject to the penny stock rules, it may become more difficult to sell such securities. Such requirements, if applicable, could additionally limit the level of trading activity for our common stock and could make it more difficult for investors to sell our common stock.
Shares eligible for future sale
As of December 31, 2010, the Registrant had 99,382,100 shares of common stock issued and outstanding of which 34,755,350 shares are "restricted" as that term is defined under the Securities Act, and in the future may be sold in compliance with Rule 144 under the Securities Act. Rule 144 generally provides that a person holding restricted securities for a period of six months may sell every three months in brokerage transactions and/or market-maker transactions an amount equal to the greater of one (1%) percent of (a) the Company's issued and outstanding common stock or (b) the average weekly trading volume of the common stock during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who has not been an affiliate of the Company during the three months preceding the sale and who has satisfied a two-year holding period. However, all of the current shareholders of the Company owning 5% or more of the issued and outstanding common stock are subject to Rule 144 limitations on selling.
The Nevada Revised Statutes and our articles of incorporation authorize to issue additional shares of common stock and shares of preferred stock, which preferred stock having such rights, preferences and privileges as our board of directors shall determine
Pursuant to our Articles of Incorporation, as amended and restated, we have authorized capital stock of 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of the December 31, 2010, we have 99,382,100 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. Our Board of Directors has the ability, without shareholder approval, to issue a significant number of additional shares of common stock without shareholder approval, which if issued would cause substantial dilution to our then common shareholders. Additionally, shares of preferred stock may be issued by our Board of Directors at their sole discretion and without shareholder approval, in such classes and series, having such rights, including voting rights and super-majority voting rights, and such preferences and relative, participating, optional or other special rights, powers and privileges as determined by our Board of Directors from time-to-time. If shares of preferred stock are issued by our Board of Directors having super-majority voting rights, or having conversion rights to convert their preferred stock into a number of shares of common stock at a ratio of greater that one-for-one, holders of our common stock would be subject to dilution that may be significant.
Our officers and directors do not own a majority of our issued and outstanding shares of common stock and as a result we could experience a change in control
Our current officers and directors can vote an amount of common stock equal to approximately twenty-five percent of our outstanding common stock. As a result, our officers and directors do not have majority voting control over us and our shareholders who are not officers and directors may be able to obtain a sufficient number of votes to choose who serves as our members of our Board of Directors. As a result, the current composition of our Board of Directors may change in the future, which could in turn have an effect on those individuals who currently serve in management positions with us. In such event, our new management could affect a change in our business focus and/or curtail or abandon our business operations, which in turn could cause the value of our securities to decline.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY.
Effective October 1, 2010, we entered into a one-year lease for our principal offices consisting of approximately 2,240 square feet located at 600 Kenrick, Suite B-12, Houston, Texas 77060, with The Khoshbin L.P., an unaffiliated third-party. The lease provides for a monthly rental of $1,164.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
Our common stock is currently quoted on the OTCQB under the symbol DCLT, an inter-dealer automated quotation system for equity securities not included on The Nasdaq Stock Market. Quotation of the Company's securities on the OTCQB limits the liquidity and price of the Company's common stock more than if the Company's shares of common stock were listed on The Nasdaq Stock Market or a national exchange. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
As of December 31, 2010, our shares of common stock were held by approximately 176 stockholders of record.
Dividends
Holders of common stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. We have never declared cash dividends on its common stock and our Board of Directors does not anticipate paying cash dividends in the foreseeable future as it intends to retain future earnings to finance the growth of our businesses. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
No equity compensation plan or agreements under which our common stock is authorized for issuance has been adopted during the fiscal year ended December 31, 2010.
Recent Sales Of Unregistered Securities
Date Title
Shares Issued/to be Issued
Persons
Cash or Non Cash Consideration
01/25/08 Common 400,000 JMW Investments, LLC For Services provided valued at $20,000
02/18/08 Common 800,000 International Monetary For Services provided valued at $72,000
02/18/08 Common 1,000,000 John E. Nelson Private sale at $0.05 per share
02/21/08 Common 200,000 The Taurus Beneficial Fund Private sale at $0.05 per share
02/22/08 Common 1,000,000 Ammon Wengerd Private sale at $0.05 per share
02/22/08 Common 200,000 Don Armstrong Private sale at $0.05 per share
09/17/09 Common 500,000 John W. Nelson Private sale at $0.05 per share
09/22/09 Common 125,000 John W. Nelson For services provided valued at at $0.02 per share
The Company believes that the issuances and sale of the restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. This offering was done with no general solicitation or advertising by the Registrant. The investors in the 2008, 2008 and 2010 private placements were business acquaintances of management and and the private sale transactions were negotiated between the investors and management individually. All recipients of restricted shares either received adequate information about the Company or had access, through employment, relation and/or business relationships with the Company to such information. Based on an analysis of the above factors, the Registrant has met the requirements to qualify this offering and sale for exemption under Section 4(2) of the Securities Act of 1933.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Operating Results Data:
Revenues $ 450,345 $ 474,620
Net loss
(341,844)
(166,051)
Net loss per basic common shareholder
(0.00)
(0.00)
Basic weighted average common shares
99,382,100
83,393,100
Financial Position Data:
Total assets
90,912
105,409
Total liabilities
283,525
213,797
Stockholders' equity (deficit)
(192,613)
(108,388)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION.
We believe that we can continue our business operations for approximately the next three (3) months, assuming expenses do not increase significantly. The Company has implemented cost management measurements to reduce monthly expenditures. Our current rate of monthly expenditures is approximately $32,000. 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 $600,000 in 2011.
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, 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 added subscribers for our technology throughout 2009 and hope to build and increase such subscribers moving forward. However, as of the date of this filing, we have generated only limited revenues through paying subscriptions for the Direct Lynk System, and we can provide no assurances that we will generate any meaningful revenues in the future, that we will be successful in marketing our Direct Lynk System to potential customers. If we are unable to generate sufficient revenues to support our operating expenses moving forward, we may be forced to scale back our marketing efforts (please see "Risk Factors" above for more detailed descriptions of these and other risks to which we are subject).
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has limited capital. Successful development and marketing of the Company’s products and the procurement of additional financing is necessary for the Company to continue as a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
THE YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31,
We had $450,345 of sales revenue for the year ended December 31, 2010, compared to sales revenue of $474,620 for the year ended December 31, 2009, a decrease in sales revenue of $24,275 or 5.4% from the prior period. We generate revenues through subscription fees received in connection with our Direct Lynk System. In accordance with accounting regulations, we have deferred $68,674 which will be distributed in addition to our normal revenue flow in 2011.
We had total costs of sales for the year ended December 31, 2010 of $101,940 compared to total costs of sales of $86,714 for the year ended December 31, 2009, which resulted in a gross margin of $348,405 for the year ended December 31, 2010, compared to a gross margin of $387,906 for the year ended December 31, 2009, a decrease in gross margin of $35,501 from the prior year, which decrease was due to increased cost of sales of our server hosting which included the cost of additional servers and bandwidth necessary for anticipated new applications.
Cost of sales as a percentage of sales was 23% for the year ended December 31, 2010, compared to 18% for the year ended December 31, 2009. As we gain more customers and enter into more service agreements, we anticipate our cost of sales will decrease further as we expect to take advantage of economies of $690,249 for the year ended December 31, 2010, compared to total expenses of $553,957 for the year ended December 31, 2009, an increase in expenses of $136,292 or 20% from the prior period. The increase in expenses was mainly due to increased product development costs, increase professional fees and increase advertising and marketing expenses.
We had a net loss of $341,844 for the year ended December 31, 2010, compared to a net loss of $166,051 for the year ended December 31, 2009, an increase due to higher costs compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
We had current assets of $79,524 as of December 31, 2010, which consisted of $23,052 in cash, $26,472 in accounts receivable and $30,000 in prepaid expenses, compared to total current assets of $84,134 which consisted of $37,531 in cash, $16,603 in accounts receivable and $30,000 in prepaid expenses, as of December 31, 2009, a decrease of $4,610 in current assets from December 31, 2009.
We had total assets of $90,912 as of December 31, 2010 as compared to $105,409, as of December 31, 2009, which consisted of current assets of $79,524, total property and equipment (net of accumulated depreciation) of $6,133, which included high end flat screen televisions, computers and software equipment responsible for running our Direct Lynk System which is stored in our Houston office; and other assets of $5,255, which included our deposit on our Houston office space.
We had total liabilities of$283,525 as of December 31, 2010 as compared to $213,797 as of December 31, 2009, an increase of $69,728 (32%) consisting of accounts payable of $35,069 and $127,782 in accrued salaries. We had a negative working capital of $129,663 and an accumulated deficit of $8,551,560 as of December 31, 2009.
We used $52,176 of cash in our operating activities for the year ended December 31, 2010, which was mainly due to a net loss of $341,844 of shares that were issued to our consultants and employees in connection with services rendered, $117,500 in compensation for stock options and warrants, $77,782 in amortization of deferred stock-based compensation, accrued salaries of $68,674 and depreciation and amortization costs of $89,973.
We had only limited investing activities in the amount of $2,303 in 2010. We investested in additions to PP&E. Financing activities for the year ended December 31, 2010, representing proceeds from the sale of 800 shares of our preferred stock pursuant to a private placement offering and $40,000 in proceeds.
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 our upcoming liabilities, as described above. 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.
ITEM 7A.
ITEM 7A. QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DATA CALL TECHNOLOGIES, INC.
Financial Statements:
Report of Independent Registered Public Accounting Firm
Balance Sheets - December 31, 2010 and 2009
Statements of Operations -Years ended December 31, 2010 and 2009
Statements of Stockholders’ Equity - Years ended December 31, 2010 and 2009
Statements of Cash Flows - Years ended December 31, 2010 and 2009
Notes to Financial Statements
John A. Braden, P.C. 12941 Interstate 45 N., Ste. 422
Houston, Texas 77060
P: 281-873-5005
F: 281-873-5383
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Data Call Technologies:
We have audited the accompanying balance sheet of Data Call Technologies, Inc. (a development state company - the Company) as of December 31, 2010 and 2009, and related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Data Call Technologies, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has limited capital. Successful development and marketing of the Company’s products and procurement of additional financing is necessary for the company to continue as a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
John A. Braden, P.C .
Houston, Texas
April 6, 2011
DATA CALL TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 2010 and 2009
(1) Summary of Significant Accounting Policies
Organization, Ownership and Business
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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consist primarily of trade receivables. We believe all of our receivables are fully collectable.
Property, Equipment and Depreciation
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (3-5 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations as incurred.
Advertising Costs
The cost of advertising is expensed as incurred.
Research and Development
Research and development costs are expensed as incurred.
Product Development Costs
Product development costs consist of cost incurred to develop the Company's website and software for internal and external use. All product development costs are expensed as incurred.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
Earnings (Loss) Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2010 and 2009, potential dilutive securities that had an anti-dilutive effect were not included in the calculation of diluted net loss per common share. These securities include options and warrants to purchase shares of common stock.
Stock-based Compensation
The Company sometimes grants shares of stock for goods and services and in conjunction with certain agreements. These grants are accounted for under ASC 718 (formerly referred to as FASB Statement No. 123R), "Accounting for Stock-Based Compensation" based on the grant date fair values.
Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.
New Pronouncements
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which is effective for us beginning January 1, 2010. This Statement amends Financial Accounting Standards Board Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest Entities an interpretation of ARB No. 51, to require revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We believe the adoption of this pronouncement will not have a material impact on our financial statements.
In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for us to January 1, 2009, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We believe the adoption of the delayed items of SFAS No. 157 will not have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which replaces SFAS No. 141. The statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. In April 2009, the FASB issued FSP FAS 141(R)-1 which amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition contingencies. Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5. SFAS No. 141(R) and FSP FAS 141(R)-1 are effective for us beginning January 1, 2010, and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of SFAS No. 141(R) and FSP FAS 141(R)-1 will depend on the nature of acquisitions completed after the date of adoption.
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.
(2) Related Party Transactions
There were no related party transactions in 2010 and 2009.
(3) Prepaids
The Company entered into a contract on March 20, 2009 with PrioServ and agreed to pay $150,000 and 2,500,000 shares of stock for the client base, information technology, corporate knowledge and infrastructure related to Proserv’s existing operations. Completion of this contract was anticipated to occur in 2009, but has been delayed due to lack of funding. Both parties have agreed to extend the agreement indefinitely and consummate it whenever funds become available.
(4) Property and Equipment
Major classes of property and equipment together with their estimated useful lives, consisted of the following:
(5) Income Taxes
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended December 31, 2010 and 2009 is as follows:
The Company has current net operating loss carryforwards in excess of $8,893,404 as of December 31, 2010, to offset future taxable income, which expire 2029.
Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The components of deferred income tax assets are as follows:
At December 31, 2010, the Company provided a 100% valuation allowance for the deferred tax asset because given the volatility of the current economic climate, it could not be determined whether it was more likely than not that the deferred tax asset/(liability) would be realized.
(6) Lease Agreements
The Company leases office space under noncancellable-operating leases which expire on October 31, 2010. Future minimum lease payments under the operating lease are as follows:
Year December 31,
Amount
11,648
$ 11,648
(7) Capital Stock, Options and Warrants
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 99,382,100 shares were issued and outstanding at December 31, 2010, and 13,500,000 shares were reserved for issuance pursuant to the exercise of outstanding stock options and warrants as of December 31, 2010.
The following table summarizes information about options and warrants outstanding at December 31, 2010 and 2009:
Shares
Weighted Average Exercise Price December 31, 2010
Shares
Weighted Average Exercise Price December 31, 2009
Outstanding at beginning of year
17,600,000
$
.10
17,600,000
$
.10
Granted
-
-
-
-
Exercised
-
-
-
-
Canceled
-
.10
-
-
Outstanding at end of year
17,600,000
$
.10
17,600,000
$
.10
Weighted average fair value of options and warrants granted during the period
N/A
N/A
N/A
$
N/A
Exercisable at end of year 17,600,000
$
.10
17,600,000
.10
Stock-based compensation is composed of the following for the years ended December 31, 2010 and 2009:
Stock-based compensation at fair value
$
117,500
$
2,500
Cancellation of previously issued shares
-
-
Options and warrants
22,337
50,660
Amortization of deferred compensation
77,782
103,332
Total stock-based compensation expense
$
217,619
$
156,492
(8) Going Concern
The Company is a development stage corporation with limited capital. Successful development and marketing of the Company’s products and the procurement of additional financing is necessary for the Company to continue as a going concern.
In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company. Management believes that actions presently being taken to obtain additional equity financing will provide the opportunity to continue as a going concern.
(9) Commitments and Contingencies
The Company received an informal claim from a former officer who resigned from of his position with the Company in 2003. The officer claims that the Company owes him an unresolved amount of shares of the Company's common stock. Management feels that the former officer's claim is without merit and no liability has been established for this contingent liability. The Company currently also has an unresolved dispute with a former consultant. The Company has recorded this expense, but is perusing the possibilities of partial recovery.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Evaluation of disclosure controls and procedures. As of December 31, 2010, 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 fiscal year 2010.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of those internal controls. As defined by the SEC, internal control over financial reporting is a process designed by our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. 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 was effective as of December 31, 2010.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE.
The following table sets forth the name, age and position of each of our Directors and executive officers. Our officers and Directors are as follows:
Name Age Position
Jim Ammons Chairman of the Board
Timothy Vance Chief Executive Officer and Director
Larry Mosley Chief Financial Officer and Director
JIM AMMONS -
CHAIRMAN OF THE BOARD
Jim Ammons, a co-founder, has been a board member since June of 2003 and was previously the Company’s Chief Executive Officer since our inception. From January 2000 through January 2001 Mr Ammons was a consultant for QVS Wireless Corporation. Prior to his consulting, Mr. Ammons was highly respected as a Hotel/F&B director in the Hospitality Sector. Effective January 1, 2006, we entered into a five year renewable employment contract with Mr. Ammons, as described below under “Employment Agreements.” Mr. Ammons works full time for Data Call.
TIMOTHY VANCE - CHIEF EXECUTIVE OFFICER AND DIRECTOR
Timothy Vance, a co-founder, has served as one of our Directors since June 2003 and as our Chief Operating Officer since January 2007. However, Mr. Vance has been part of the Data Call Technologies, Inc. management team since our inception. From January 2000 through January 2001 Mr. Vance was employed at QVS Wireless Corporation, where his employment consisted of general office duties. On January 1, 2006, we entered into a three year renewable employment contract with Mr. Vance, as described below under "Employment Agreements." Mr. Vance works full time for Data Call.
LARRY MOSLEY - CHIEF FINANCIAL OFFICER AND DIRECTOR
Mr. Mosley has served as our Chief Financial Officer and Director since October 11, 2004. Since November 1986, Mr. Mosley has been self employed as a Certified Public Accountant. From September 1985 to November 1986, Mr. Mosley was Vice President for Fiscal Affairs of Hargest College in Houston Texas. From July 1983 to September 1985, Mr. Mosley worked as a Management Consultant at Alexander Grant & Co. (now Grant Thornton) in Houston, Texas. From January 1981 to July 1983, he served as an auditor at Ernst & Whitney (Now Ernst & Young) in Houston, Texas. Mr. Mosley received a degree in Business Administration and Accounting from Texas Southern University in 1980. He has been a Certified Public Accountant since 1984. Effective January 1, 2006, we entered into a three year renewable employment contract with Mr. Mosley, as described below under "Employment Agreements." Since January 1, 2006, Mr. Mosley has worked approximately twenty-five hours per week for Data Call.
Our Directors are elected annually and hold office until our annual meeting of the shareholders and until their successors are elected and qualified. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. There are no family relationships among our officers and Directors. Our officers and Directors may receive compensation as determined by us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Vacancies in the Board are filled by majority vote of the remaining Directors. Directors may be reimbursed by us for expenses incurred in attending meetings of the Board of Directors.
EMPLOYMENT AGREEMENTS
Effective October 1, 2005, we entered into employment agreements with Timothy Vance to serve as our Director of Customer Support and Larry Mosley to serve as our Chief Financial Officer. On February 13, 2006, we entered into Addendums to those agreements, to change the effective date of such agreements from October 1, 2005, to January 1, 2006. The employment agreements have a term of three years and are renewable for successive one-year terms at the mutual acceptance of us and each executive. Mr. Mosley is entitled to receive a salary of $75,000 per year that he is employed under his agreement and Mr. Vance is entitled to receive a salary of $80,000 per year that he is employed under his agreement. Additionally, both Mr. Vance and Mr. Mosley are entitled to reimbursement for business expenses incurred in connection with their employment, not to exceed $500, without our prior approval. Additionally, Mr. Vance and Mr. Mosley are entitled to up to $500 per month to be used for car payments on a car to be used in connection with employment under the employment agreements.
While under their employment agreements, Messer's Vance and Mosley are entitled to receive a salary of $80,000 and $75,000 per year, respectively, the full amount of these salaries have not been paid to Messer's Vance and Mosley to date, and the majority of such salaries is being accrued by Data Call until such time as Data Call has sufficient resources and revenues to pay such salaries (and accrued and unpaid amount).
Additionally, under the executive employment agreements, we agreed to indemnify and hold harmless the executives, their nominees and/or assigns against any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (incurred in any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation that is in any way related to their employment with us (whether or not in connection with any action in which they are a party). Such indemnification does not apply to acts performed by the executives, which are criminal in nature or a violation of law.
The executive employment agreements terminate:
(a) in the event the executive suffers an injury, illness, or incapacity of such character as to prevent him from performing his duties without reasonable accommodation for a period of more than thirty (30) consecutive days upon us giving at least thirty (30) days written notice of termination to him;
(b) upon the death of the executive; c) at any time because of, (i) the conviction of executive of an act or acts constituting a felony or other crime involving moral turpitude, dishonesty or theft or fraud; or (ii) his gross negligence in the performance of his duties hereunder; or (d) additionally, the executive may terminate his employment for "good reason" by giving us ten (10) days written notice if: (i) he is assigned, without his express written consent, any duties materially inconsistent with his positions, duties, responsibilities, or status with us, or a change in his reporting responsibilities or titles as in effect as of the date hereof; (ii) his compensation is reduced; or (iii) we do not pay any material amount of compensation due hereunder and then fail either to pay such amount within the ten (10) day notice period required for termination hereunder or to contest in good faith such notice.
In the event Mr. Vance's or Mr. Mosley's employment is terminated under (a) through (d) above, either of them is entitled to all compensation earned by him through the date of his termination. Additionally, Mr. Vance may be terminated at any time without cause, provided that we pay him a one-time lump sum payment payable within 30 days of his termination without cause of the total amount of salary remaining to be paid under his employment agreement. Mr. Mosley cannot be terminated without cause.
Mr. Ammons employment agreement provides that Mr. Ammons may be provided a car allowance by us, not to exceed $600 per month. In consideration for Mr. Ammons entering into his employment agreement, we agreed to grant him options to purchase 3,000,000 shares of our common stock at $0.10 per share. The options vested immediately upon Mr. Ammons entry into his employment agreement, and expire on February 8, 2011. The options also contain a cashless exercise provision, whereby Mr. Ammons can pay for the exercise of the options in shares of our common stock.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our chief executive officer and other executive officers with annual compensation exceeding $100,000 during the fiscal years ending December 31, 2010, 2009 and 2008.
*Estimated. The individuals listed above have not received any LTIP payouts or nonqualified deferred compensation earnings, over the past three completed fiscal years as compensation from us. Salary amounts listed above do not include perquisites and other personal benefits in amounts less than $10,000.
(a) Other than the individuals listed above, we have no other executive employees who have received more than $100,000 in compensation, including bonuses and options, during each of the last three (3) fiscal years.
(1) In June 2008, Timothy E. Vance was appointed CEO of the Registrant
(2) In February 2006, we entered into a five year employment agreement with Mr. Ammons, which is to pay him $120,000 for the fiscal year ended 2006, and increase by 5% for each of the additional four years of the agreement. Mr. Ammons' employment agreement, including provisions which take effect upon Mr. Ammons termination, is described in greater detail under "Directors, Executive Officers and Control Persons," above.
(3) Mr. Mosley has served as our Chief Financial Officer since October 11, 2004. He entered into a three year employment agreement with us, with an effective date of October 1, 2005, which effective date was subsequently changed to January 1, 2006 pursuant to an addendum to the employment agreement entered into on February 14, 2006.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2010. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors; each of our executive officers; and our executive officers and directors as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.
(1) Applicable percentage ownership is based on 99,382,100 shares of common stock outstanding as of December 31, 2010. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2010 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(2) Includes 5,000,000 options to purchase shares of our common stock at an exercise price of $0.10 per share.
(3) Includes 3,000,000 shares held by an unincorporated entity, Regional Marketing Co., which is controlled by Milford Mast
(4) Milford and Ruth Mast are deemed to beneficially own the shares of common stock held by each other since they are husband and wife.
(5) Includes 1,250,000 options to purchase shares of our common stock at an exercise price of $0.10 per share.
(6) Includes 500,000 options to purchase shares of our common stock at an exercise price of $0.10 per share
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
None.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Independent Public Accountants
Our auditor, John A. Braden, P.C. (formerly John A. Braden & Company, P.C. ("JABCO”)) has served as the Company’s independent registered public accountants for the fiscal year 2010 and 2009.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by
John A. Braden, P.C. and JABCO for the audit of the Registrant's annual financial statements for the years ended December 31, 2010 and 2009, and fees billed for other services rendered by John A. Braden, P.C. and JABCO during those periods.
ITEM 15.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The exhibits listed below are filed as part of this annual report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURE
TITLE
DATE
/s/ Tim Vance
Chief Executive Officer and Director
April 13,
Tim Vance
/s/ Larry Mosley
Chief Financial Officer and Director
April 13,
Larry Mosley