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 December 31, 1997

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

         For the transition period from ______________ to _____________

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                         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: February 10, 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 December 31, 1997

                                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                                                  16

  Item 2   Changes in Securities                                              16

  Item 3   Defaults Upon Senior Securities                                    16

  Item 4   Submission of Matters to a Vote of Security Holders                16

  Item 5   Other Information                                                  16

  Item 6   Exhibits and Reports on Form 8-K                                   16



                                                                              2

<PAGE>



Part 1 - Item 1 - Financial Statements

<TABLE>
<CAPTION>

                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                       December 31, 1997 and June 30, 1997

<S>                                                                             <C>      <C>     
                            
                                                                           (Unaudited)       (Audited)
                                                                           December 31,       June 30,
              ASSETS                                                          1997              1997
              ------                                                     ------------    ------------    
Current Assets
   Cash on hand and in bank                                              $      4,199    $    229,740
   Marketable securities                                                    2,238,631         657,562
   Accounts receivable, net of allowance for doubtful
      accounts of approximately $1,000,000, respectively                    2,285,097       3,219,433
   Recoverable income taxes                                                   489,977         374,000
   Intercompany accounts receivable                                           603,441          39,678
   Inventories                                                                713,711       1,679,011
   Prepaid expenses and other current assets                                     --           128,385
                                                                         ------------    ------------
         Total current assets                                               6,335,056       6,327,809
                                                                         ------------    ------------

Property and Equipment, net                                                 5,720,964       5,823,634
                                                                         ------------    ------------

Other Assets                                                                  169,989         193,859
                                                                         ------------    ------------

TOTAL ASSETS                                                             $ 12,226,009    $ 12,345,302
                                                                         ============    ============

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Revolving line of credit                                              $  1,713,709    $  2,485,346
   Current portion of long-term debt                                        1,564,728       1,564,728
   Cash overdraft                                                              37,529         174,616
   Accounts payable                                                         3,147,297       2,577,706
   Advances from affiliates                                                      --              --
   Accrued liabilities                                                        610,071         387,646
                                                                         ------------    ------------
         Total current liabilities                                          7,073,334       7,190,042
                                                                         ------------    ------------

Long-term Debt, net of current maturities                                     285,224         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                                                     (4,001,884)     (2,417,237)
   Investment in Millennia, Inc.                                                 --        (1,529,157)
   Unrealized holding gain on marketable securities                           262,272          79,316
                                                                         ------------    ------------
         Total shareholders' equity                                         4,867,451       4,645,894
                                                                         ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $ 12,226,009    $ 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 
             Six and Three months ended December 31, 1997 and 1996
                                   (Unaudited)

<S>                                                                             <C>         <C>            <C>   

                                                              Six months      Six months    Three months    Three months
                                                                ended           ended           ended           ended
                                                             December 31,    December 31,   December 31,    December 31,
                                                                1997            1996            1997            1996
                                                            ------------     ------------   ------------    ------------

Net sales                                                   $  3,388,841    $ 15,814,416    $  1,182,983    $  8,794,479
                                                            ------------    ------------    ------------    ------------

Costs and Expenses
   Cost of goods sold, exclusive
      of depreciation and amortization                         3,243,868      12,650,843       1,250,060       7,073,707
   Selling expenses, exclusive
      of depreciation and amortization                           146,754         641,160          29,679         335,282
   General and administrative expenses,
      exclusive of depreciation
      and amortization                                         1,299,944       1,187,712         362,039         564,167
   Depreciation and amortization                                 730,101         720,409         363,600         375,168
                                                            ------------    ------------    ------------    ------------
      Total costs and expenses                                 5,420,667      15,200,124       2,005,378       8,348,324
                                                            ------------    ------------    ------------    ------------

Income (loss) from operations                                 (2,031,826)        614,292        (822,395)        446,155
                                                            ------------    ------------    ------------    ------------

Other income (expense)
   Realized gains (losses) from
      sales of marketable securities                            (173,130)         92,082            --            20,963
   Gain on sale of fixed assets                                  557,227            --           427,182            --
   Other income (expense)                                        177,730            --           (99,892)           --
   Interest expense                                             (114,648)       (211,692)            681        (103,184)
                                                            ------------    ------------    ------------    ------------

Income (loss) from continuing operations
   before provision for income taxes                          (1,584,647)        494,682        (494,424)        363,934

Provision (benefit) for income taxes                                --           192,742            --           127,411
                                                            ------------    ------------    ------------    ------------

Income (loss) from continuing operations                      (1,584,647)        301,940        (494,424)        236,523

Discontinued operations
   Gain from operations of
      discontinued business, net                                    --            (4,685)           --            (4,935)
                                                            ------------    ------------    ------------    ------------

Net income (loss)                                           $ (1,584,647)   $    297,255    $   (494,424)   $    231,588
                                                            ============    ============    ============    ============

Income (loss) per weighted-average share
   of common stock outstanding
      From continuing operations                            $      (2.14)   $       0.48    $      (0.66)   $       0.36
      From discontinued operations                                  --             (0.01)           --             (0.01)
                                                            ------------    ------------    ------------    ------------
         Total                                              $      (2.14)   $       0.47    $      (0.66)   $       0.35
                                                            ============    ============    ============    ============

Weighted-average number of shares of
   common stock outstanding                                      741,804         631,089         745,568         654,860
                                                            ============    ============    ============    ============

</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>

<TABLE>
<CAPTION>


                  DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION
                                 AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Six months ended December 31, 1997 and 1996
                                   (Unaudited)

<S>                                                                             <C>     <C>    
                                                                           Six months    Six months
                                                                             ended        ended
                                                                          December 31,   December 31,
                                                                             1997           1996
                                                                         ------------   ------------
Cash Flows from Operating Activities
   Net income (loss)                                                     $(1,584,647)   $    65,667
   Adjustments to reconcile net income (loss) to
      net cash provided by (used in) operating activities
         Depreciation and amortization                                       730,101        355,251
         Gain on disposition of fixed assets                                (557,227)          --
         (Gain) Loss on sale of marketable securities                        173,130        (71,119)
         Compensation settlement paid with common stock                       94,091           --
         Provision for bad debts                                                --           18,777
         (Increase) decrease in:
            Accounts receivable                                              934,336     (1,675,716)
            Inventories                                                      965,300        (58,262)
            Prepaid expenses and other                                        36,278       (404,788)
         Increase (decrease) in:
            Accounts payable                                                 569,591      1,178,809
            Accrued liabilities                                              222,425        (23,481)
            Deferred tax liability                                              --          390,415
                                                                         -----------    -----------
Net cash provided by (used in) operating activities                        1,583,378       (224,447)
                                                                         -----------    -----------

Cash Flows from Investing Activities
   Cash received from or (advanced to) affiliates                           (563,763)          (741)
   Cash used to purchase marketable securities                              (624,665)          --
   Cash received from sale of marketable securities                          582,579        186,859
   Proceeds from sale of property and equipment                              668,047           --
   Purchases of property and equipment                                      (738,251)      (556,512)
                                                                         -----------    -----------
Net cash used in investing activities                                       (676,053)      (370,394)
                                                                         -----------    -----------

Cash Flows from Financing Activities
   Reduction of cash overdraft                                              (137,087)          --
   Net long-term debt repayments                                            (224,142)      (182,142)
   Net short-term borrowings (repayments)                                   (771,637)       414,619
                                                                         -----------    -----------
Net cash provided by (used in) financing activities                       (1,132,866)       232,477
                                                                         -----------    -----------

Increase (Decrease) in Cash and Cash Equivalents                            (225,541)      (362,364)
Cash and cash equivalents at beginning of period                             229,740        615,037
                                                                         -----------    -----------

Cash and cash equivalents at end of period                               $     4,199    $   252,673
                                                                         ===========    ===========

Supplemental Disclosures of Interest and Income Taxes Paid
      Interest paid during the period                                    $   114,648    $   110,638
                                                                         ===========    ===========
      Income taxes paid (refunded)                                       $   115,977    $      --
                                                                         ===========    ===========


</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.
                                                                              5

<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 has  traded on the  American  Stock  Exchange  since May 23,  1994.  As of
December 31, 1997,  Millennia,  Inc. owned  approximately  9.7% of the Company's
issued and outstanding Common Stock.

DCT offers its 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 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  pancake and shells 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 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.

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.




                                                                              6

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 1 - Basis of Presentation - continued

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.

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.

Funds to  reduce  the Bank  debt are  being  generated  from the  collection  of
accounts  receivable  and the  sale of video  tape  duplication  equipment.  The
inability  to draw upon the Bank credit  facility  has left the Company with few
alternatives  other  than to  retire  the  outstanding  bank  debt and allow the
release of existing liens which cover virtually all of the Company's assets.

The Company  anticipates having sufficient  remaining  equipment to continue its
video tape duplication  business on a reduced scale, if it so chooses, or it may
enter another line of business.

As a result of these  events,  the  Company  effectively  ceased  all video tape
duplication  activities  on  December  31,  1997 and has laid off a  significant
portion of its workforce.

Further,  the Company,  at this time, does not fully satisfy all of the American
Stock Exchange  guidelines for continued listing and,  accordingly,  there is no
assurance that such listing will be continued by the American Stock Exchange.


Note 3 - Summary of Significant Accounting Policies

a) Marketable securities

   Marketable  securities  consist of equity  securities  which had an aggregate
   cost of  approximately  $1,996,446  at  September  30, 1997.  The  marketable
   securities portfolio contains net unrealized gains of approximately $262,272,
   resulting in a net carrying  amount of  approximately  $2,238,631 at December
   31,  1997.  The  unrealized  gains are  reported as a separate  component  of
   stockholders'  equity.  The  Company's  marketable  securities  portfolio  is
   classified as "available for sale" securities.

                                                                              7

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 3 - Summary of Significant Accounting Policies - continued

a) Marketable securities - continued

   During  the first  quarter  of Fiscal  1998,  the  Company  reclassified  its
   holdings in Millennia,  Inc., 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.

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 the
   first quarter 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 December 31, 1997 and June 30, 1997, respectively:

                                                    December 31,     June 30,
                                                       1997           1997
                                                    ------------  ------------
               Raw materials                        $  503,138      $1,164,970
               Work-in-process                          53,609         474,091
               Finished goods                          156,964          39,950
                                                    ----------      ----------

                                                    $  713,711      $2,921,173
                                                    ==========      ==========

Note 5 - Property and equipment

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

                                                    December 31,     June 30,
                                                        1997          1997
                                                   ------------    -----------
               Machinery and equipment             $ 9,907,950     $ 9,794,616
               Buildings and improvements                    -         332,440
               Leasehold improvements                1,554,384         973,608
               Computer equipment                      455,643         447,087
               Furniture and fixtures                  309,640         304,055
               Transportation equipment                260,154         269,966
                                                   -----------     -----------
                                                    12,487,771      12,121,772
               Accumulated depreciation             (6,766,807)     (6,371,138)
                                                    ----------     -----------
                                                     5,720,964       5,750,634
               Land                                         -           73,000
                                                   -----------     -----------  

               Net property and equipment          $ 5,720,964     $ 5,823,634
                                                   ===========     ===========


                                                                              8

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


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.

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 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  is  pursuing a program of
collecting  accounts  receivable and selling excess  equipment which it believes
will result in payment in full of the Bank debt in a short period of time.

While  there are no  on-going  negotiations  to seek  replacement  resources  of
financing at this time, after the Bank is paid in full, the Company will be able
to  reassess  its  situation  and  determine  whether  then to seek  alternative
financing in order to pay its trade  creditors or pursue other  arrangements  to
pay or compromise its debts. The Company  continues to assess its future courses
of action including the exploration of various business  alternatives  including
the  continuation of its video tape  duplication  business on a reduced scale or
entering another line of business.

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.

                                                                              9

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 7 - Litigation - continued

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.  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.

A court hearing  related to this case commenced on February 9, 1998 to ascertain
if the Plaintiffs have met the legal  requirements to file and pursue this case.
This hearing is continuing as of the date of this filing.  The Company continues
to believe that the results of this lawsuit will not have any material impact on
the operations or financial  condition of the Company other than the expenditure
of legal and professional fees, which are currently in excess of $600,000 in the
aggregate, related to this specific matter.

(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.



                                                                             10

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 7 - Litigation - continued

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 December 1997, 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 $625,000,  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.  The parties  have begun
negotiations to settle this matter and the Company believes that it will be able
to satisfy this judgment after the remainder of its secured indebtedness to Bank
One, Texas, N. A. has been extinguished.

(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
believes  that it will be able to satisfy  all  legitimate  claims  against  it,
arising out of accounts payable or unsecured  indebtedness,  after the remainder
of its secured indebtedness to Bank One, Texas, N. A. has been extinguished.

(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.

It is unclear at this time whether or not any current or pending litigation will
have  a  material  adverse  effect  on the  Company's  business,  its  financial
condition and the related future results of operations.


Note 7 - 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.



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                                                                             11

<PAGE>



          DIGITAL COMMUNICATIONS TECHNOLOGY CORPORATION AND SUBSIDIARY

             Notes to Consolidated Financial Statements - Continued


Note 8 - 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.







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                                                                             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.

Funds to  reduce  the Bank  debt are  being  generated  from the  collection  of
accounts  receivable  and the  sale of video  tape  duplication  equipment.  The
inability  to draw upon the Bank credit  facility  has left the Company with few
alternatives  other  than to  retire  the  outstanding  bank  debt and allow the
release of existing liens which cover virtually all of the Company's assets.

The Company  anticipates having sufficient  remaining  equipment to continue its
video tape duplication  business on a reduced scale, if it so chooses, or it may
enter another line of business.

As a result of these  events,  the  Company  effectively  ceased  all video tape
duplication  activities  on  December  31,  1997 and has laid off a  significant
portion of its workforce.

Further,  the Company,  at this time, does not fully satisfy all of the American
Stock Exchange  guidelines for continued listing and,  accordingly,  there is no
assurance that such listing will be continued by the American Stock Exchange.

The Company continues to experience  elevated general and  administrative  costs
due to general overhead matters and legal and professional  costs related to the
stockholder  derivative  litigation.  A  court  hearing  related  to  this  case
commenced on February 9, 1998 to ascertain if the Plaintiffs  have met the legal
requirements  to file and pursue this case. This hearing is continuing as of the
date of this filing.  The Company  continues to believe that the results of this
lawsuit  will  not have any  material  impact  on the  operations  or  financial
condition of the Company other than the  expenditure  of legal and  professional
fees,  which are  currently in excess of $600,000 in the  aggregate,  related to
this specific matter.


                                                                             13

<PAGE>



Results of operations

The  Company   experienced  a  decline  in  second  quarter  sales  volume  from
approximately  $8.8  million for the three  months  ended  December  31, 1996 to
approximately  $1.2  million  for the three  months  ended  December  31,  1997.
Further,  the  Company's  revenues  for the first six months of Fiscal 1998 were
approximately  $3.4 million as compared to  approximately  $15.8 million for the
comparable period in Fiscal 1997. Several factors impacted this decline in sales
including,  but not limited to, management  evaluation of the Company's customer
base and  elimination of inefficient and  unprofitable  accounts and the overall
industry  decline in product sales.  Additionally,  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 will be realized in future periods.

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 will negatively impact its ability
to solicit sales to customers  during the last half of the Company's fiscal year
ending June 30, 1998.

The Company  incurred  costs of sales of  approximately  $1.25 million and $3.24
million,  respectively,  for the three and six month periods ended  December 31,
1997 as  compared to  approximately  $7.09  million  and $12.65  million for the
comparable  periods  ended  December  31, 1996.  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 were  approximately  106% and 95.6% of sales for the three
and six months ended  December 31, 1997 as compared to  approximately  80.4% and
80.0% for the comparable periods ended December 31, 1996.  Management  continues
to evaluate its fixed and variable costs in relation to sales activity to strive
towards  optimum  efficiency and  profitable  operations.  Further,  the Company
intends  to  continuing  to reduce  its  inventory  levels  to  achieve a better
utilization of available resources.

Selling expenses decreased by approximately  $305,000 and $494,000 for the three
and six  months  ended  December  31,  1997 from the  comparable  periods  ended
December  31,  1996.  These  costs  continue  to  decline as a result of reduced
business  activity  related to  diminished  cash flows as a direct result of the
inability to access the Company's existing credit facilities.

General and administrative expenses continue to experience pressure from general
corporate  overhead  and legal  and  professional  fees.  The  Company  incurred
aggregate costs of approximately  $362,000 and $1.3 million during the three and
six month  periods  ended  December  31,  1997,  respectively.  These costs were
approximately $564,000 and $1.2 million for the comparable period ended December
31,  1996.  A  significant  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.


(3)   Liquidity and capital requirements

During the first six months of Fiscal  1998,  the Company  experienced  net cash
provided by operations of approximately  $1.583 million as compared to using net
cash in operations  of  approximately  $(224,000)  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
$930,000 and the reduction of inventories of approximately  $965,000.  The funds
provided  by  these  inflows  were  utilized  to  reduce  accounts   payable  by
approximately $569,000.

Further  liquidity was provided by  approximately  $168,000 in proceeds from the
sale  of  the  satellite  uplink  equipment  to an  unrelated  third  party  and
approximately  $500,000 in proceeds  from 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.


                                                                             14

<PAGE>



The Company also  utilized cash during the first half of Fiscal 1998 to reduce a
book cash overdraft by approximately  $137,000, to lower the outstanding balance
on the  Company's  revolving  line of credit of  approximately  $772,000  and to
reduce the Company's long-term debt by approximately  $224,000.  Further, during
January  1998,  the  Company  utilized  the  proceeds  from the  sale of  excess
equipment  and  collection  of  trade  accounts  receivable  to  further  reduce
outstanding  bank  debt due to Bank  One,  Texas,  N. A.,  as  discussed  in the
accompanying notes to the consolidated financial statements.

Overall,  the  Company's  available  cash on  hand  decreased  by  approximately
$225,000  from June 30, 1997 to December  31, 1997 with the net change  relating
principally   to  the  overall   increase  in  property  and  equipment  at  the
Indianapolis facility as a result of relocating the Ft. Lauderdale operations.

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 is designed to optimize process flow, to reduce product handling
and to  minimize  the  total  cycle  time of  productions  from  order  entry to
delivery. As mentioned, the Company added approximately $739,000 in property and
equipment  during  the first six  months of Fiscal  1998.  In the event that the
Company  continues  its video  tape  duplication  business,  due to the  capital
intensive and high  technology  nature of this business line,  certain levels of
capital  acquisitions  for  new  duplication  and  production  equipment  and/or
upgrades of existing  equipment may be required to keep the Company  competitive
in the marketplace.  Any such expenditures,  if necessary, are proposed, at this
time,  to   potentially  be  financed   through   operations   and/or   separate
financing/leasing  arrangements.  There can be no assurances,  however, that the
Company  will either  continue its video tape  duplication  business or actually
incur further  capital  expenditures.  At this time, the Company has no plans to
acquire or upgrade any  equipment  for the  remainder  of the fiscal year ending
June 30, 1998.








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                                                                             15

<PAGE>



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

     The Company held its Annual Meeting of Stockholders on November 25, 1997.

     All five of its current directors,  Kevin B. Halter,  Kevin B. Halter, Jr.,
     Don R.  Benton,  Gary C. Evans and James  Smith were  re-elected  with each
     receiving the favorable vote of more than 94% of the shares actually voted.

     The  stockholders  approved  the planned  one for ten reverse  split of the
     Company's   issued  and   outstanding   common  stock  with  3,798,970  (or
     approximately  89%)  voting  in  favor of this  proposal  and  430,448  (or
     approximately  10%) voting  against this  proposal.  The reverse  split was
     implemented  and effective on December 9, 1997 thereby  reducing the number
     of issued and outstanding shares of common stock to 745,568.

     The stockholders also ratified the appointment of Coopers & Lybrand, LLP as
     the Company's independent auditors for the year ending June 30, 1998.

Item 5 - Other Information

     None

Item 6 - Exhibits and Reports on Form 8-K

November 26, 1997   Announced  shareholder  approval  of a  one-for-ten  reverse
                    split of the Company's common stock to be effective December
                    9, 1997.                                                    
                    
January 6, 1998     Announced the dismissal of Coopers & Lybrand as  independent
                    auditors for the Company and  announced the hiring of Hein +
                    Associates as replacements, effective January 12, 1998.     
                    
                    







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                                                                             16

<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


February 13, 1997                              /s/ Kevin B. Halter
         --------                          -------------------------------------
                                                                 Kevin B. Halter
                                           Chairman and Chief Accounting Officer





                                                                             17