Digital Communications Technology Corporation (DCT or Company) is an integrated communications company, primarily engaged in large quantity duplication of prerecorded videocassettes for customers in the entertainment and a wide range of other industries. The Company also provides mobile satellite uplink services of breaking news stories and of entertainment, sporting and other events for major television networks and news gathering organizations in the United States and internationally. DCT's newest subsidiary, DCT-Internet Corporation, provides professional website design, maintenance and hosting for corporate clients worldwide.

DCT, a Delaware corporation, was incorporated on November 12, 1987 under the name MagneTech Corporation as a wholly-owned subsidiary of S.O.I. Industries, Inc. (now Millennia, Inc.). The Company's shareholders changed the name to Digital Communications Technology Corporation on April 29, 1994. DCT's Common Stock has traded on the American Stock Exchange since May 23, 1994. As of June 30, 1997, Millennia, Inc. owned approximately 13% of the Company's issued and outstanding Common Stock. The address of the Company's principal executive office is 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248 and its telephone number is (972) 248-1922.

Products

The Company is an integrated video communications company which offers video tape duplication and satellite communications services. The video tape duplication market is defined by (i) the use or application of the product and (ii) the method by which the product is distributed.

Once solely confined to entertainment uses, video tapes are finding a broader range of uses as communication devices. These uses include direct marketing, product instruction, education and employee/stockholder communications.

Method of distribution further defines the home video business as one market. While the video rental business buys tapes from duplicators. ASell-through," the business of selling, rather than or in addition to renting videos, is another market. Sell-through is generally used for products expected to be used more than once. Many of the tape uses noted above are distributed via sell-through. Further definition of markets by distribution are as follows:

"Catalog" which refers to special interest programming of which expected low volumes cannot support more costly methods of distribution.

AAdvertising and Direct Mail" in which tapes are used as sales tools, similar to written materials.

"Direct Response" in which tapes are used for instruction or motivation in the use of equipment. Exercise equipment is a well-known example.

"Corporate" in which tapes are used for employee communication, sales training, and other functional purposes.

The Company offers its reproduction services to entertainment companies and a wide range of industrial customers, including advertising agencies, direct selling organizations and educational groups throughout the United States, Canada and Latin America.

The Company's satellite operation consists of one mobile KU band unit which is capable of transmitting live or pre-recorded programming from any location to commercial satellites. The Company's satellite customers include local, national and international broadcast network and/or cable television outlets, with signal origination points located principally in the Southeastern United States.

Customers

During the year ended June 30, 1997, two customers, Madacy Entertainment Group and National Syndications, accounted for approximately 36% of the Company=s sales. During the year ended June 30, 1996, one customer, Madacy Entertainment Group, accounted for approximately 17.6% of the Company=s sale.

Raw Materials and Manufacturing

The Company purchases bulk quantities of videotape ( pancake") and empty video cassettes ( shells") for its reproduction business from several manufacturers at market prices in the United States and the Pacific Rim. The videotape and video cassettes are readily available on the open market. The majority of the Company's video duplication equipment is manufactured by several major manufacturers in Japan and purchased from domestic distributors. The equipment utilized in the Company's satellite broadcasting business includes one KU band broadcasting truck, cameras, generators, telephonic equipment and transmitters.

The Company purchases its materials and equipment from several major manufacturers and believes that the loss of any of its suppliers or manufacturers would not have an adverse material effect on the Company's business, financial condition and results of operations.

Properties

During 1997 and 1996, the Company had two videotape duplication facilities located in Ft. Lauderdale, Florida and Indianapolis, Indiana. The Ft. Lauderdale facility was composed of two adjacent buildings and covered a total of approximately 22,000 square feet. This facility was a real-time duplication facility with the capacity to duplicate an average of approximately 15,000 videos per day. The Indianapolis facility covers approximately 172,000 square feet and is a new, automated, state of the art, high-speed duplication facility with the capacity to duplicate 120,000 videos per day. The layout of the Indianapolis facility is designed to optimize process flow, to reduce product handling and to minimize the total cycle time of productions from order entry to delivery.

In September 1997, as reported on Form 8-K, the Company announced the closing and related sale of its Ft. Lauderdale production facility.

Competition

The Company's industry is highly competitive. There are other commercial video duplicating and satellite broadcasting companies which compete with the Company and have greater financial resources and sales volume than the Company. The Company depends upon its ability to provide quality services at competitive prices to its customers in order to be competitive.

Employees

As of June 30, 1997, the Company had a total of approximately 80 employees. None of the employees are represented by a labor union, and the Company believes that it has good relations with its employees.

On May 20, 1997, the Board of Directors removed Hugh C. Coppen as President and Chief Executive Officer, positions he had held since May 1996. Mr. Coppen also resigned as a director effective May 20, 1997. The causes precipitating Mr. Coppen's removal were the poor results of operations for the quarter ended March 31, 1997, Mr. Coppen's failure to report such results to the Board in a timely manner and his failure to take prompt action to reduce costs in proportion to the reduced revenues experienced. Mr. Coppen was immediately replaced by Clifford E. Patton, an experienced manufacturing executive who had been employed by the Company for four months as a consultant.