UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

--------------------------------------------------------------------------------


(Mark one)
      XX   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----------
           ACT OF 1934

                  For the quarterly period ended March 31, 1998

     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

         For the transition period from ______________ to _____________

--------------------------------------------------------------------------------


                         Commission File Number: 1-13088

                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
        (Exact name of small business issuer as specified in its charter)

      Delaware                                                 65-0014636
(State of incorporation)                                (IRS Employer ID Number)

                   16910 Dallas Parkway, Suite 100, Dallas, TX   75248 
                    (Address of principal executive offices)

                                 (972) 248-1922
                           (Issuer's telephone number)


--------------------------------------------------------------------------------


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES X NO

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: May 15, 1998: 745,568

Transitional Small Business Disclosure Format (check one):    YES       NO X



<PAGE>



                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION

                Form 10-QSB for the Quarter ended March 31, 1998

                                Table of Contents


                                                                           Page
Part I - Financial Information

  Item 1   Financial Statements                                              3

  Item 2   Management's Discussion and Analysis or Plan of Operation        13


Part II - Other Information

  Item 1   Legal Proceedings                                                15

  Item 2   Changes in Securities                                            15

  Item 3   Defaults Upon Senior Securities                                  15

  Item 4   Submission of Matters to a Vote of Security Holders              15

  Item 5   Other Information                                                15

  Item 6   Exhibits and Reports on Form 8-K                                 15






                                                                               2

<PAGE>


<TABLE>
<CAPTION>

Part 1 - Item 1 - Financial Statements

                                   DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                                  AND SUBSIDIARY
                                            CONSOLIDATED BALANCE SHEETS
                                         March 31, 1998 and June 30, 1997
                                                                           (Unaudited)     (Audited)
                                                                            March 31,       June 30,
               ASSETS                                                          1998           1997
               ------                                                    --------------  ------------
<S>                                                                             <C>      <C>     

Current Assets
   Cash on hand and in bank                                              $      3,126    $    229,740
   Marketable securities                                                      565,478         657,562
   Accounts receivable
      Trade,  net of allowance for doubtful accounts
      of approximately $ 1,792 and $1,000,000, respectively                   160,627       3,219,433
      Recoverable income taxes                                                   --           374,000
      Affiliate                                                               152,011          39,678
   Inventories                                                                   --         1,679,011
   Prepaid expenses and other current assets                                  104,974         128,385
                                                                         ------------    ------------
         Total current assets                                                 986,216       6,327,809
                                                                         ------------    ------------

Property and Equipment, net                                                   247,673       5,823,634
                                                                         ------------    ------------

Other Assets                                                                  162,363         193,859
                                                                         ------------    ------------

TOTAL ASSETS                                                               $1 396,252    $ 12,345,302
                                                                         ============    ============

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Revolving line of credit                                              $    436,631    $  2,485,346
   Current portion of long-term debt                                          246,994       1,564,728
   Cash overdraft                                                                --           174,616
   Accounts payable                                                         2,803,268       2,577,706
   Accrued liabilities                                                        931,588         387,646
                                                                         ------------    ------------
         Total current liabilities                                          4,418,481       7,190,042
                                                                         ------------    ------------

Long-term Debt, net of current maturities                                        --           509,366
                                                                         ------------    ------------

Commitments and Contingencies

Stockholders' Equity
   Common stock - $0.002 par value.  25,000,000 shares authorized 
      745,568 and 731,502 shares issued and outstanding, respectively           1,491           1,463
   Additional paid-in capital                                               8,605,572       8,511,509
   Accumulated deficit                                                    (10,394,144)     (2,417,237)
   Investment in Millennia, Inc.                                                 --        (1,529,157)
   Unrealized holding loss on marketable securities                        (1,235,148)         79,316
                                                                         ------------    ------------
         Total shareholders' equity                                        (3,022,229)      4,645,894
                                                                         ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $  1,396,252    $ 12,345,302
                                                                         ============    ============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.  The  financial  information  presented  herein has been prepared by
management without audit by independent certified public accountants.
                                                                               3

<PAGE>

<TABLE>
<CAPTION>


                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               Nine and Three months ended March 31, 1998 and 1997
                                   (Unaudited)

                                            Nine months    Nine months     Three months    Three months
                                              ended           ended           ended            ended
                                             March 31,       March 31,       March 31,       March 31,
                                              1998             1997           1998             1997
                                           ------------    ------------    ------------    ------------

<S>                                                                             <C>        <C>    

Net sales                                  $  3,415,560    $ 19,795,659    $     26,719    $  3,981,243
                                           ------------    ------------    ------------    ------------
Costs and Expenses
   Cost of goods sold, exclusive
      of depreciation and amortization        3,969,699      16,243,305         725,831       3,601,034
   Selling expenses, exclusive
      of depreciation and amortization          164,570         947,473          17,816         306,313
   General and administrative expenses,
      exclusive of depreciation
      and amortization                        2,404,247       1,803,528       1,104,303         615,816
   Depreciation and amortization                970,510       1,108,458         240,409         379,477
                                           ------------    ------------    ------------    ------------
      Total costs and expenses                7,509,026      20,102,764       2,088,359       4,902,640
                                           ------------    ------------    ------------    ------------

Income (loss) from operations                (4,093,466)       (307,105)     (2,061,640)       (921,397)
                                           ------------    ------------    ------------    ------------

Other income (expense)
   Realized gains (losses) from
      sales of marketable securities           (312,840)         99,536        (139,710)          7,454
   Gain (loss) on sale of fixed assets       (3,452,803)           --        (4,010,030)           --
   Other income (expense)                        (3,150)         (5,393)       (180,880)         (5,393)
   Interest expense                            (114,648)       (317,904)           --          (106,212)
                                           ------------    ------------    ------------    ------------

Income (loss) from continuing operations
   before provision for income taxes         (7,976,907)       (530,866)     (6,392,260)     (1,025,548)

Provision (benefit) for income taxes               --           (33,311)           --          (226,053)
                                           ------------    ------------    ------------    ------------

Income (loss) from continuing operations     (7,976,907)       (497,555)     (6,392,260)       (799,495)

Discontinued operations
   Gain from operations of
      discontinued business, net                   --            (1,722)           --             2,963
                                           ------------    ------------    ------------    ------------

Net income (loss)                          $ (7,976,907)   $   (499,277)   $ (6,392,260)   $   (796,532)
                                           ============    ============    ============    ============

Preferred dividends                                --           250,000            --              --
                                           ------------    ------------    ------------    ------------

Net income (loss) attributable
   to common stockholders                  $ (7,976,907)   $   (749,277)   $ (6,392,260)   $   (796,532)
                                           ============    ============    ============    ============

Income (loss) per weighted-average share
   of common stock outstanding
      From continuing operations           $     (10.73)   $      (1.16)   $      (8.57)   $      (1.13)
      From discontinued operations                 --             (0.00)           --             (0.00)
                                           ------------    ------------    ------------    ------------
         Total                             $     (10.73)   $      (1.16)   $      (8.57)   $      (1.13)
                                           ============    ============    ============    ============

Weighted-average number of shares of
   common stock outstanding                     743,378         646,198         745,568         704,050
                                           ============    ============    ============    ============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.  The  financial  information  presented  herein has been prepared by
management without audit by independent certified public accountants.
                                                                               4

<PAGE>



                                   DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                                  AND SUBSIDIARY
                                  CONSOLIDATED   STATEMENTS   OF   COMPREHENSIVE
                                     INCOME Nine months ended March 31, 1998 and
                                     1997
                                                    (Unaudited)

                                                      Nine months    Nine months
                                                         ended         ended
                                                       March 31,      March 31,
                                                         1998           1997
                                                     -----------    ------------

Net Loss                                             $(7,976,907)   $  (749,277)

Other comprehensive income
   Unrealized loss on marketable securities           (1,314,464)      (209,457)
                                                     -----------    -----------

Other comprehensive income before income taxes        (9,291,371)      (958,734)

Income tax provision on other comprehensive income          --             --
                                                     -----------    -----------

Comprehensive income                                 $(9,291,371)   $  (958,734)
                                                     ===========    ===========




The  accompanying  notes are an integral  part of these  consolidated  financial
statements.  The  financial  information  presented  herein has been prepared by
management without audit by independent certified public accountants.
                                                                               5

<PAGE>

<TABLE>
<CAPTION>


                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Nine months ended March 31, 1998 and 1997
                                   (Unaudited)

                                                              Nine months     Nine months
                                                                 ended           ended
                                                               March 31,      March 31,
                                                                 1998            1997
                                                             -----------    -------------
<S>                                                                             <C>     

Cash Flows from Operating Activities
   Net income (loss)                                         $(7,976,907)   $  (499,277)
   Adjustments to reconcile net income (loss) to
      net cash provided by (used in) operating activities
         Depreciation and amortization                           970,510      1,108,458
         Gain (loss) on disposition of fixed assets            3,452,803           --
         (Gain) Loss on sale of marketable securities            312,840        (99,536)
         Compensation settlement paid with common stock           94,091           --
         Provision for bad debts                                    --          105,833
         (Increase) decrease in:
            Accounts receivable                                3,058,806       (661,183)
            Recoverable income taxes                             374,000           --
            Inventories                                        1,679,011        692,385
            Prepaid expenses and other                            54,907       (426,267)
         Increase (decrease) in:
            Accounts payable                                     225,562     (2,270,305)
            Accrued liabilities                                  543,942         56,690
            Deferred tax liability                                  --          260,456
                                                             -----------    -----------
Net cash provided by (used in) operating activities            2,789,565     (1,732,746)
                                                             -----------    -----------

Cash Flows from Investing Activities
   Cash received from or (advanced to) affiliates               (112,333)          (931)
   Cash used to purchase marketable securities                  (624,665)          --
   Cash received from sale of marketable securities              618,602        903,042
   Proceeds from sale of property and equipment                1,890,899           --
   Purchases of property and equipment                          (738,251)    (1,089,463)
                                                             -----------    -----------
Net cash used in investing activities                          1,034,252       (187,352)
                                                             -----------    -----------

Cash Flows from Financing Activities
   Cash advances from shareholder                                   --             --
   Decrease in cash overdraft                                   (174,616)          --
   Sale of common stock                                             --           32,378
   Net long-term debt repayments                              (1,827,100)      (224,792)
   Net short-term borrowings (repayments)                     (2,048,715)     1,272,170
                                                             -----------    -----------
Net cash provided by (used in) financing activities           (4,050,431)     1,079,756
                                                             -----------    -----------

Increase (Decrease) in Cash and Cash Equivalents                (226,614)      (840,342)
Cash and cash equivalents at beginning of period                 229,740        615,037
                                                             -----------    -----------

Cash and cash equivalents at end of period                   $     3,126    $  (225,305)
                                                             ===========    ===========

Supplemental Disclosures of Interest and Income Taxes Paid
      Interest paid during the period                        $   114,648    $   286,006
                                                             ===========    ===========
      Income taxes paid (refunded)                           $  (374,000)   $      --
                                                             ===========    ===========

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.  The  financial  information  presented  herein has been prepared by
management without audit by independent certified public accountants.
                                                                               6

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


Note 1 - Basis of Presentation

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.  Through  September 1997, the Company also provided mobile
satellite  uplink  services  of  breaking  news  stories  and of  entertainment,
sporting and other events for both domestic and  international  major television
networks   and  news   gathering   organizations.   Additionally,   DCT-Internet
Corporation (a wholly-owned  subsidiary) provides  professional internet 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 was traded on the American  Stock  Exchange  from May 23, 1994 until April
27, 1998. As of December 31, 1997,  Millennia,  Inc. owned approximately 9.7% of
the Company's issued and outstanding Common Stock.

Through  December  31, 1997,  DCT offered  video tape  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 and Canada.  DCT  purchased  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 majority of the Company's video  duplication  equipment was
manufactured  by several major  manufacturers  in Japan and was  purchased  from
domestic  distributors.  The Company  purchased its materials and equipment from
several major  manufacturers  and believed 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.

The  accompanying  consolidated  financial  statements  include the  accounts of
Digital Communications  Technology Corporation (d/b/a Magnatech Corporation) and
its  wholly-owned   subsidiary,   DCT-Internet   Corporation.   All  significant
intercompany   transactions   have  been   eliminated  in   consolidation.   The
consolidated entities are referred to as Company.

During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the  Securities and Exchange  Commission.  The
June 30, 1997 consolidated balance sheet data was derived from audited financial
statements  of the  Company,  but does not include all  disclosures  required by
generally  accepted  accounting  principles.   Users  of  financial  information
provided for interim  periods should refer to the annual  financial  information
and footnotes  contained in its Annual Report Pursuant to Section 13 or 15(d) of
The  Securities  Exchange Act of 1934 on Form 10-KSB when  reviewing the interim
financial results presented herein.

In the opinion of management,  the accompanying  interim  financial  statements,
prepared in accordance with the instructions for Form 10-QSB,  are unaudited and
contain  all  material   adjustments,   consisting  only  of  normal   recurring
adjustments  necessary to present  fairly the  financial  condition,  results of
operations  and cash flows of the Company  for the  respective  interim  periods
presented.  The  current  period  results  of  operations  are  not  necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending June 30, 1998.


                                                                               7

<PAGE>

The  costs  of  the  Company's  products  are  subject,  from  time-to-time,  to
inflationary  pressures  and  commodity  price  fluctuations.  In addition,  the
Company from time-to-time experiences increases in costs of materials and labor,
as well as other manufacturing and operating expenses.  The Company's ability to
pass along such increased costs through  increased prices has been difficult due
to  competitive  pressures.  The Company  attempts  to  minimize  any effects of
inflation on its operations by monitoring and controlling these costs.





                                                                           

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 1 - Basis of Presentation - continued

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  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.


Note 2 - Liquidity uncertainty

On August 21, 1997, the Company's lending  institution,  Bank One, Texas, N. A.,
notified the Company that the lending institution intended,  120 days subsequent
to the notice,  to stop making further  advances on the Company's line of credit
and accelerate the maturity of the debt then owed.

On December 1, 1997, the Company  announced that it had filed a lender liability
lawsuit  in Dallas  County,  Texas  against  Bank One,  Texas,  N. A.  (Bank) in
connection  with  the  Bank's   commitment  in  November  1996  to  lend  up  to
approximately  $9 million  for working  capital  and funds  needed to permit the
relocation and expansion of the Company's business.  In the lawsuit, the Company
has alleged that the Bank's conduct constitutes breach of contract, fraud in the
inducement and several  violations of the Bank's  statutory duties of good faith
and fair  dealings  which have  resulted in damages  exceeding $5 million to the
Company.

During the first quarter of 1998,  funds to reduce the Bank debt were  generated
from  the  collection  of  accounts  receivable  and  the  sale  of  video  tape
duplication  equipment  and all of the  Company's  other  tangible  assets.  The
inability  to draw  upon the Bank  credit  facility  left the  Company  with few
alternatives other than to retire the outstanding bank debt and seek the release
of existing liens in favor of the Bank, which cover all of the Company's assets.

As a result of these  events,  the  Company  effectively  ceased  all video tape
duplication  activities on December 31, 1997 and laid off a significant  portion
of its workforce. During the third quarter of Fiscal 1998, the Company exchanged
various  inventory  and capital  assets to various  creditors in  settlement  of
various  litigation  and open trade  payables.  Further,  the  Company  has sold
various  capital  assets with the net proceeds  going  directly to the Company's
financial institution for settlement of outstanding debts.

Further,  the  Company has been  delisted by the  American  Stock  Exchange  and
currently has its common stock listed for trading on the NASDAQ Bulletin Board.

Note 3 - Summary of Significant Accounting Policies

a) Marketable securities

   Marketable  securities  consist of equity  securities  which had an aggregate
   cost of approximately $1,800,626 at March 31, 1998. The marketable securities
   portfolio  contains  net  unrealized  losses  of  approximately   $1,235,148,
   resulting in a net  carrying  amount of  approximately  $565,478 at March 31,
   1998.  The  unrealized  losses  are  reported  as  a  separate  component  of
   stockholders'  equity.  The  Company's  marketable  securities  portfolio  is
   classified as "available for sale" securities.

   During  the first  quarter  of Fiscal  1998,  the  Company  reclassified  its
   holdings in Millennia,  Inc., then consisting of approximately 730,627 shares
   at a historical cost of approximately $1,867,782, to its "available for sale"
   portfolio.  These costs and related  effects of unrealized  holding gains are
   included in the amounts shown in the preceding paragraph.

                                                                               8

<PAGE>


          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 3 - Summary of Significant Accounting Policies - continued

b) Accounting principles adopted during the current period

   During the first  quarter of Fiscal 1998,  effective at the  beginning of the
   quarter,   the  Company  adopted  Financial   Accounting  Standard  No.  121,
   "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
   to be Disposed Of". In accordance with the Standard,  the Company adopted the
   policy of evaluating  all  qualifying  assets as of the end of each reporting
   quarter. No adjustments for impairment were charged to operations during each
   of the first three quarters of Fiscal 1998.


Note 4 - Inventory

Inventories  are  valued  at the lower of cost or  market  using  the  first-in,
first-out method of accounting.  Inventory consists of the following  components
as of March 31, 1998 and June 30, 1997, respectively:

                                              March 31,         June 30,
                                                1998            1997
               Raw materials                  $    -           $1,164,970
               Work-in-process                     -              474,091
               Finished goods                      -               39,950
                                              -------          ----------


                                             $    -            $2,921,173
                                             ========          ==========
Note 5 - Property and equipment

Property and equipment  consists of the following at March 31, 1998 and June 30,
1997, respectively:

                                               March 31,         June 30,
                                                 1998            1997
         Machinery and equipment              $     -      $  9,794,616
         Buildings and improvements                 -           332,440
         Leasehold improvements                     -           973,608
         Computer equipment                   455,643           447,087
         Furniture and fixtures               196,075           304,055
         Transportation equipment                   -           269,966
                                              -------      ------------
                                              651,718        12,121,772
         Accumulated depreciation            (404,045)       (6,371,138)
                                              -------         ---------
                                              247,673         5,750,634
         Land                                       -            73,000
                                             --------      ------------

         Net property and equipment          $247,673      $  5,823,634
                                             ========      ============

Note 6 - Bank credits

Starting in November 1996, Bank One, Texas, N. A. (Bank) had extended,  pursuant
to its commitments in a loan  agreement,  various credits to the Company under a
secured line of credit and a secured term loan,  whereby the Bank was to provide
up to $5.0  million  of  working  capital  on a  revolving  basis and up to $4.0
million to permit the relocation and expansion of the Company's business.  These
credits are secured by all of the Company's  accounts  receivable  and inventory
and substantially all of its other assets.


                                                                               9

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 6 - Bank credits - continued

On August 21, 1997,  the Bank  notified  the Company that it intended,  120 days
after the  notice,  to stop  making  advances  under  the line of credit  and to
accelerate the maturity of the debt then owed. Although the Company continued to
negotiate  with the Bank  for  several  months  with a goal of  maintaining  the
availability  of needed  working  capital under the line of credit,  the Company
determined that, as a result of the Bank's actions, it was in the Company's best
interests to attempt to secure replacement financing from other sources.

On December 1, 1997, the Company  announced that it had filed a lender liability
lawsuit  against  the Bank in Dallas  County,  Texas  resulting  from the Bank's
refusal  to  continue  making  advances  under the line of credit and the Bank's
failure to continue to negotiate  in good faith.  In this  lawsuit,  the Company
alleges that the Bank's  conduct  constitutes  breach of contract,  fraud in the
inducement,  and several violations of the Bank's statutory duties of good faith
and fair dealing, all of which have resulted in damages to the Company exceeding
$5.0 million. This lawsuit is pending.

On December 12, 1997,  the Company  announced that it had been forced to curtail
its video tape  duplication  operations and lay off most of its employees due to
severe cash flow  problems  which had been caused by its inability to draw funds
under the Bank line of credit.

On January 22, 1998, the Company announced that it had raised approximately $1.5
million  from the sale of  equipment  on which  the Bank had a lien and that the
proceeds had been used to retire  outstanding  Bank debt,  thereby  reducing the
amount owed to the Bank to approximately $2.0 million. As a result of the Bank's
actions,  the Company  determined  that its only course of action was to pay the
Bank in full,  thereby  obtaining  a release of the  Bank's  liens on its excess
collateral. To accomplish this goal, the Company pursued a program of collecting
accounts receivable and selling tangible assets in order to pay the Bank in full
as quickly as  possible.  As of this  filing,  the  Company  still owes the Bank
approximately $180,000.


Note 7 - Litigation

The  Company  may from time to time be party to various  legal  actions  arising
during  the  ordinary  course of its  business.  In  addition,  the  Company  is
currently involved in the following litigation:

(a) On March 4, 1996,  Richard Abrons,  allegedly on behalf of the Company,  and
Adrian Jacoby,  allegedly on behalf of an affiliate  company,  Millennia,  Inc.,
formerly known as S.O.I.  Industries,  Inc.  ("Millennia"),  brought a purported
shareholder  derivative lawsuit against the Company's board of directors - Kevin
B.  Halter,  Kevin B.  Halter,  Jr.,  Gary C. Evans and James Smith - as well as
Halter Capital Corporation and Securities Transfer Corporation. In addition, the
Company and Millennia have been joined as "nominal  defendants." In the lawsuit,
the plaintiffs have alleged breaches of fiduciary duty, fraud, and violations of
state  securities  laws. The plaintiffs  seek  unspecified  actual and exemplary
damages,  a  constructive  trust  against  the assets of the  defendants  and an
accounting of the affairs of the defendants  with respect to their dealings with
the  Company  and  Millennia.  In  addition,  the  plaintiffs  have  requested a
temporary  injunction  and the  appointment  of a receiver  for the  Company and
Millennia.

In 1995, Halter Capital Corporation  ("HCC"), in which Kevin B. Halter and Kevin
B. Halter,  Jr. (the "Halters") are principals,  negotiated the  satisfaction of
$1,217,000 in debt owed to creditors by Millennia's subsidiary, American Quality
Manufacturing Corporation ("AQM," since sold). The Halters are also officers and
directors  of  Millennia.  HCC  satisfied  these debts by  transferring,  in the
aggregate, 1,659,000 shares of Millennia common stock it owned to the creditors.
To repay HCC for the AQM  indebtedness  HCC paid,  Millennia  transferred to HCC
1,622,000 shares of DCT Common Stock it held as an investment.  With the payment
of DCT Common Stock to HCC and the salaries or other compensation  received from
Millennia by the Halters,  Mr. Evans and Mr. Smith,  plaintiffs assert that each
breached their duties of loyalty,  usurped corporate opportunities and committed
gross  mismanagement  by wrongfully  using  Millennia and DCT as instruments for
their own and HCC's pecuniary gain to the detriment of Millennia,  DCT and their
shareholders.

                                                                              10

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 7 - Litigation - continued

If any damages are ultimately  awarded to the plaintiffs,  those damages will be
on behalf of, and for the benefit  of, the Company and all of its  shareholders.
If they are successful,  the plaintiffs may recover certain  attorney's fees and
costs.  This case is  entitled  Richard  Abrons et al v. Kevin B.  Halter et al,
Cause No. 96-02169-G, in the 134th Judicial District, Dallas County, Texas. Even
though the Company is a nominal  defendant in the lawsuit,  the Plaintiffs  have
not sought to recover any damages against the Company.  In this type of lawsuit,
the Company is joined as a procedural matter to make it a party to the lawsuit.

All of the defendants have answered denying all of the material  allegations and
claims in the Petition, disputing the plaintiffs' contention that it is a proper
shareholder  derivative  action,  denying that the plaintiffs  have the right to
pursue this lawsuit on behalf of the Company and  Millennia  and are  vigorously
defending the lawsuit.  In addition,  the  defendants  have filed  counterclaims
against the plaintiffs and third party actions  against Blake Beckham,  Attorney
at Law, Beckham & Thomas, L.L.P., Sanford Whitman, the former CFO of the Company
and Jack D. Brown Jr., the former  President of the Company,  seeking damages in
excess of $50 million.  In its  counterclaim,  the Company has asserted that the
filing of this lawsuit and the temporary restraining order the plaintiffs caused
to be issued in the case resulted in damages to the Company.

The  Company  does not  believe  that the  results of this  lawsuit  will have a
material   impact  on  the  financial   condition  of  the  Company  beyond  its
expenditures for legal and professional fees.

(b)  In  February  1996,   Convention  Tapes  International,   Inc.,  a  Florida
corporation,  filed a civil  action in the  Circuit  Court of the 11th  Judicial
Circuit for Dade County,  Florida,  against Tapes Unlimited,  Inc. and MagneTech
Corporation for damages "in excess of $50,000"  allegedly  resulting from breach
of  contract  and  warranty,   and  fraudulent   inducement   and/or   negligent
misrepresentation on the part of Tapes Unlimited.  MagneTech  Corporation is the
previous  name of the  Company,  and Tapes  Unlimited  was an  Orlando,  Florida
subsidiary of the Company from March 1994 until Tapes Unlimited was dissolved in
October  1995.  Tapes  Unlimited  ceased  operations  in  June  1995.  MagneTech
Corporation is a named  defendant  against whom plaintiff  asserts  vicarious or
successor  liability for its alleged damages,  claiming that Tapes Unlimited was
the "alter  ego" or "mere  instrumentality"  of  MagneTech.  Upon  motion of the
defendants,  in July 1996 the civil action was  transferred to the Circuit Court
in Orange County, Florida, Case No. CI96-5851.

As best the Company has been able to  determine,  Tapes  Unlimited,  in February
1995,  duplicated  certain  videotapes for the plaintiff from videotape  masters
provided  by the  plaintiff.  The  plaintiff  has  alleged  that  the  videotape
duplicates  delivered by Tapes  Unlimited  contained,  in part,  extraneous  and
pornographic  material which caused  plaintiff to lose the business of a certain
account, as well as the prospective business of other,  unspecified persons. The
plaintiff has since ceased doing business.

The Company currently has pending a motion to dismiss the matter and, therefore,
has not filed a substantive  response to  plaintiff's  complaint.  Discovery and
settlement  discussions  have commenced.  Until the court rules on the Company's
motion to dismiss,  it is  uncertain  whether  the Company  must even defend the
action.  Even  assuming  that the motion to dismiss is denied,  the  validity or
depth of the claim is unknown to the  Company.  Similarly,  the  probability  of
judgment,  if any, and the potential range of monetary award thereon,  cannot be
evaluated until  substantive,  formal  discovery is undertaken.  Meanwhile,  the
Company   intends  to   vigorously   defend  this   matter,   procedurally   and
substantively.

(c) In March 1998,  Infiniti  Cassettes,  Inc.  obtained a judgment  against the
Company on an open account arising from its sale of raw materials to the Company
in the approximate amount of $792,000,  plus interest and court costs. This case
was filed in the Superior  Court of the State of  California,  for the County of
Los Angeles,  Central District as Case No. BC180727. This plaintiff has obtained
title to 150,000 shares of the common stock of Millennia, Inc. which was pledged
to secure this obligation.


                                                                              11

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 7 - Litigation - continued

(d) Numerous  other  lawsuits  have been filed  against the Company by creditors
alleging  non-payment  of open or unsecured  accounts.  These have been filed in
various  state  courts  located in Florida  and  Indiana  where the  Company has
maintained  offices and done  business.  The State of Florida has filed liens in
Florida in an effort to collect sales tax assessments of approximately $300,000,
which it alleges are due and payable. The Company is in the process of reviewing
all pending  litigation,  as well as certain  threatened  claims for money which
have been received,  and will  vigorously  defend those in which it believes its
creditors are trying to collect more than is rightfully  owed.  The Company does
not believe that it currently  has any assets  available to satisfy any of these
judgments and obligations.

(e) On December 1, 1997, the Company filed a lender  liability  lawsuit  against
Bank One,  Texas,  N. A. (Bank) in State District Court in Dallas County,  Texas
resulting from the Bank's refusal to continue  making advances under the line of
credit and the Bank's  failure to continue to negotiate  in good faith.  In this
lawsuit,  the Company  alleges  that the Bank's  conduct  constitutes  breach of
contract, fraud in the inducement and several violations of the Bank's statutory
duties of good faith and fair dealing,  all of which have resulted in damages to
the Company exceeding $5.0 million.
This suit is  pending,  discovery  has not yet begun and no trial  date has been
set.


Note 8 - Common Stock Transactions

Effective December 9, 1997, the Company,  with the approval of its stockholders,
effected a one-for-ten reverse split of the issued and outstanding shares of the
Company's  common  stock.  The effect of this reverse  split is reflected in the
accompanying  financial  statements  as if the reverse split had occurred on the
first day of the earliest period presented.


Note 9 - Earnings per share

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128) to be effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997,
including interim periods.  FAS 128 specifies new standards  designed to improve
the EPS information provided in financial statements by simplifying the existing
computational guidelines,  revising the disclosure requirements,  and increasing
the  comparability  of EPS data on an international  basis.  Some of the changes
made to simplify the EPS computations  include: (a) eliminating the presentation
of primary EPS and replacing it with basic EPS,  with the  principal  difference
being that common stock  equivalents  are not considered in computing basic EPS,
(b)  eliminating  the  modified  treasury  stock  method  and the three  percent
materiality provision,  and (c) revising the contingent share provisions and the
supplemental  EPS data  requirements.  FAS 128 also made a number of  changes to
former  disclosure  requirements.  There  has been no  effect  on the  Company's
presentation of basic earnings per share in the implementation of this standard.
Due to the Company's net operating loss position,  all outstanding stock options
are  considered  anti-dilutive  and no  fully  diluted  earnings  per  share  is
presented.




                (Remainder of this page left blank intentionally)



                                                                              12

<PAGE>



Part I - Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
   AND RESULTS OF OPERATIONS

(1)   Caution Regarding Forward-Looking Information

This  quarterly   report  contains   certain   forward-looking   statements  and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to  the  Company  or  management.   When  used  in  this  document,   the  words
"anticipate,"   "believe,"   "estimate,"   "expect"  and  "intend"  and  similar
expressions,  as they relate to the Company or its  management,  are intended to
identify forward- looking  statements.  Such statements reflect the current view
of the  Company  regarding  future  events and are  subject  to  certain  risks,
uncertainties  and  assumptions,  including the risks and  uncertainties  noted.
Should  one or more of  these  risks or  uncertainties  materialize,  or  should
underlying assumptions prove incorrect,  actual results may vary materially from
those  described  herein  as  anticipated,   believed,  estimated,  expected  or
intended. In each instance,  forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.

(2)   Results of Operations

Overview

On August 21, 1997, the Company's lending  institution,  Bank One, Texas, N. A.,
notified the Company that the lending institution intended,  120 days subsequent
to the notice,  to stop making further  advances on the Company's line of credit
and accelerate the maturity of the debt then owed.

On December 1, 1997, the Company  announced that it had filed a lender liability
lawsuit  in Dallas  County,  Texas  against  Bank One,  Texas,  N. A.  (Bank) in
connection  with  the  Bank's   commitment  in  November  1996  to  lend  up  to
approximately  $9 million  for working  capital  and funds  needed to permit the
relocation and expansion of the Company's business.  In the lawsuit, the Company
has alleged that the Bank's conduct constitutes breach of contract, fraud in the
inducement and several  violations of the Bank's  statutory duties of good faith
and fair  dealings  which have  resulted in damages  exceeding $5 million to the
Company.

During  the  first  quarter  of 1998,  funds to  reduce  the Bank debt are being
generated from the collection of accounts  receivable and the sale of video tape
duplication  equipment  and all of the  Company's  other  tangible  assets.  The
inability  to draw  upon the Bank  credit  facility  left the  Company  with few
alternatives other than to retire the outstanding bank debt and seek the release
of existing liens in favor of the Bank which cover all of the Company's assets.

As a result of these  events,  the  Company  effectively  ceased  all video tape
duplication  activities on December 31, 1997 and laid off a significant  portion
of its workforce. During the third quarter of Fiscal 1998, the Company exchanged
various  inventory  and capital  assets to various  creditors in  settlement  of
various  litigation  and open trade  payables.  Further,  the  Company  has sold
various  capital  assets with the net proceeds  going  directly to the Company's
financial  institution for settlement of outstanding debts. On March 26, 1998, a
public auction was held in  Indianapolis,  Indiana at which virtually all of the
Company's  remaining  tangible  assets were sold.  The net proceeds  reduced the
amount owed to the Bank to approximately $180,000 as of this filing.

Further,  the  Company has been  delisted by the  American  Stock  Exchange  and
currently has its common stock listed for trading on the NASDAQ Bulletin Board.

Results of operations

Due to the actions of Bank One,  Texas,  N. A., and the  resultant  cessation of
operations,  the Company realized net revenues of  approximately  $27,000 during
the third quarter of Fiscal 1998 as compared to  approximately  $4.0 million for
the  comparable  quarter of Fiscal 1997.  Gross year to date revenues for Fiscal
1998 and 1997 were approximately  $3.4 million and $19.8 million,  respectively.
Due to the lack of available  funding on its  existing  credit  facilities,  the
Company  effectively  ceased all video tape  duplication  operations,  effective
December  31,  1997.  The full impact of this  curtailment  was  realized in the
current quarter, and by April 1, 1998, the Company ceased operations  completely
and terminated its few remaining employees.

                                                                              13

<PAGE>



The  industry  consensus  is that the overall  industry  sales  activity  during
Calendar  1997  was  significantly   slower  than  expected.   The  Company  has
experienced severe cash flow problems caused by its inability to access its line
of credit from its lending  institution which negatively impacted its ability to
solicit sales to customers and forced the Company to cease operations.

The Company incurred costs of sales of approximately  $966,000 and $4.9 million,
respectively,  for the three and nine  month  periods  ended  March 31,  1998 as
compared to  approximately  $3.6  million and $16.2  million for the  comparable
periods ended March 31, 1997.  The primary  component of these  expenses are the
Company's  fixed  costs  related to its  production  facility  in  Indianapolis,
Indiana and its former production  facility in Ft.  Lauderdale,  Florida.  These
costs  during the third  quarter of Fiscal  1998  relate to the  abandonment  of
unsalable inventory that could not be liquidated due to the actions of Bank One,
Texas, N. A. Had the Bank not taken the actions taken, this inventory would have
been usable by the Company in its on-going operations.

Due to the cessation of videotape  duplication  efforts,  the Company's  selling
expenses declined to approximately $18,000 for the quarter ended March 31, 1998.
It is  anticipated  that the Company  will incur only nominal  selling  expenses
related to the operation of DCT-Internet Corporation,  a wholly-owned subsidiary
of the Company.

General and administrative  expenses experienced pressure from general corporate
overhead and legal and professional  fees. The Company incurred  aggregate costs
of  approximately  $1.1 million and $2.4 million during the three and nine month
periods  ended  March  31,  1998  and  1997,  respectively.   These  costs  were
approximately  $616,000 and $1.8 million for the comparable  periods ended March
31, 1997. A component of these expenses occurred during the July- September 1997
quarter as an effect of closing and  relocating of the Ft.  Lauderdale,  Florida
operations to the Indianapolis,  Indiana facility. Management was of the opinion
that the closing of the Ft.  Lauderdale  facility  and the sale of the assets of
its satellite  uplink  operation would  significantly  contribute to future cost
savings for the Company.  Additionally,  the actions of Bank One,  Texas,  N. A.
caused increased legal, appraisal and liquidation expenses to the Company. It is
anticipated that these expense items will continue into future periods until the
litigation associated with the Bank's actions are completed.

The blanket lien held by Bank One, Texas, N. A. caused the Company into a forced
liquidation  of various  assets and  settlement of open accounts  receivable and
settlement of open accounts payable. As this situation was an involuntary action
by the  Company,  the Company  was unable to control the orderly and  systematic
liquidation of these items and,  accordingly,  did not receive the highest value
for all of the items disposed.  Accordingly,  the Company experienced a net loss
on the disposition of assets of approximately  $(3.4) million for the nine month
period ended March 31, 1998 and  approximately  $(4.0)  million during the third
quarter of Fiscal 1998.

The  Company  experienced  a  year-to-date  net loss per share of  approximately
$(10.73) per weighted-average share outstanding as of March 31, 1998 as compared
to a net loss per share of approximately $(1.16) per weighted-average share. The
effect of the forced  liquidation  of various assets  contributed  approximately
$(4.64) per share for Fiscal 1998.

(3)   Liquidity and capital requirements

During the first nine months of Fiscal 1998,  the Company  experienced  net cash
provided by operations of  approximately  $2.79 million as compared to using net
cash in  operations  of  approximately  $(1.72)  during  the same  period of the
preceding  year.  Included  in this  net cash  flow  into  the  Company  was the
collection, and affiliated reduction, of accounts receivable of approximately $3
million and the reduction of  inventories  of  approximately  $1.7 million.  The
funds provided by these inflows were directly  collected by Bank One,  Texas, N.
A. and were applied  against the  outstanding  balances on loans  payable to the
Bank.

Further  liquidity was provided by  approximately  $1.9 million in proceeds from
the sale various fixed assets  including the sale of satellite  uplink equipment
and the sale of the closed Ft.  Lauderdale  facility.  These cash  inflows  were
offset by purchases and upgrading of video duplication  equipment and leaseholds
at the Indianapolis facility of approximately $739,000, during the first quarter
of Fiscal 1998. Any residual  amounts were collected by Bank One,  Texas,  N. A.
and were applied against the outstanding  balances on loans payable to the Bank.
The net proceeds from the sale of assets and the funds  generated from operating
activities   reduced  the   Company's   aggregate   outstanding   bank  debt  by
approximately $3.875 million.


                                                                              14

<PAGE>



The Company relocated and expanded the entire  Indianapolis  facility into a new
172,000 square foot building during Fiscal 1997. The  Indianapolis  plant opened
in June 1997 with an increased  operating capacity of approximately 20%. The new
facility  layout was  designed  to  optimize  process  flow,  to reduce  product
handling and to minimize the total cycle time of productions from order entry to
delivery.  The Company  added  approximately  $739,000 in property and equipment
during the first six months of Fiscal  1998.  On April 6, 1998,  the Company was
evicted  from this  facility by the  landlord  and  ownership  of all  leasehold
improvements  passed to the landlord  which has filed suit to attempt to recover
more than $400,000 which the landlord alleges is currently due to it.


Part II - Other Information

Item 1 - Legal Proceedings

   See the Notes to Consolidated Financial Statements

Item 2 - Changes in Securities

   None

Item 3 - Defaults on Senior Securities

   None

Item 4 - Submission of Matters to a Vote of Security Holders

   None

Item 5 - Other Information

   None

Item 6 - Exhibits and Reports on Form 8-K

a)    Exhibits

         None

b)    Reports on Form 8-K

         None




                (Remainder of this page left blank intentionally)




                                                                              15

<PAGE>



                                                    SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                   DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION


May    15   , 1998                       /s/ Kevin B. Halter
    --------                      ----------------------------------------------
                                                                 Kevin B. Halter
                                           Chairman and Chief Accounting Officer







                                                                              16