<PAGE>
    
                                FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

( X )     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
          JULY 31, 1997.
          -------------
          

                                       OR

(   )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
         FROM           TO
              --------     -------

                             COMMISSION FILE NUMBER

                                     0-18288

                        DIRECT CONNECT INTERNATIONAL INC.
                        ---------------------------------
             (Exact name of registrant as specified in its charter)


         Delaware                                           22-2705223
         --------                                           ----------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                        Identification No.)

266 Harristown Road
Glen Rock, New Jersey                                         07452
---------------------                                         -----
(Address of principal executive                            (Zip Code)
offices)

Registrant's telephone number, including area code - (201) 445-2101
                                                     --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 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
                                       ---       ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of July 31, 1997: 9,062,066
                                   ---------




<PAGE>




                DIRECT CONNECT INTERNATIONAL INC. AND SUBSIDIARY

                                      INDEX
                                      -----

PART I.     FINANCIAL INFORMATION                                   PAGE NO
            ---------------------                                   -------

            Item 1.     Financial Statements

                        Condensed Consolidated
                        Balance Sheets -
                        July 31, 1997 and
                        April 30, 1997                                3

                        Condensed Statements
                        Of Consolidated
                        Operations - Three
                        Months Ended July 31,
                        1997 and July 31, 1996                        4

                        Condensed Statements
                        Of Consolidated Cash
                        Flows - Three Months
                        Ended July 31, 1997
                        and July 31, 1996                             5

                        Notes to Financial Statements                 6

            Item 2.     Management's Discussion
                        and Analysis of Results
                        of Operations and
                        Financial Condition                         7 - 12

PART II.    OTHER INFORMATION
            -----------------

            Item 6.     Exhibits and Reports
                        on Form 8-K                                  13

            Signatures                                               14








                                       2




<PAGE>

PART 1.     FINANCIAL INFORMATION

           ITEM 1. FINANCIAL STATEMENTS
<TABLE>
                Direct Connect International Inc. and Subsidiary
                           Consolidated Balance Sheets

                                     ASSETS

<CAPTION>
                                                July 31, 1997     April 30, 1997
                                                -------------     --------------
<S>                                             <C>                  <C>  
                                                (Unaudited)
Current assets
     Cash and cash equivalents                    $101,104              $32,939
     Accounts receivable                            18,617               22,857
     Notes receivable-officers                      91,105               90,404
     Investments                                    13,001               13,001
     Prepaid financing costs and other expenses     71,524               56,314
                                                   -------              -------
                Total current assets               295,351              215,515
                                                   -------              -------

Property and equipment , at cost
     Furniture and fixtures                         42,543               42,543
     Molds, tools and dies                         267,498              267,498
                                                   -------              -------
                                                   310,041              310,041
     Less: accumulated depreciation                269,634              263,083
                                                   -------              -------
                                                    40,407               46,958
                                                   -------              -------

Investment in Glasgal                            3,073,788            1,694,395
Security deposits                                      700                  700
                                                 ---------            ---------
                                                 3,074,488            1,695,095
                                                 ---------            ---------

                Total assets                    $3,410,246           $1,957,568
                                                ==========           ==========


                      LIABILITIES and STOCKHOLDERS' EQUITY

Current liabilities
     Accounts payable                             $548,896             $534,901
     Accrued expenses and taxes payable            138,219               85,564
     Notes payable-officers and stockholders           ---              253,680
     Notes payable-other, current portion        1,795,890            1,404,661
     Investment, warrants to sell Glasgal          300,000              300,000
                                                 ---------            ---------
                Total current liabilities        2,783,005            2,578,806
                                                 ---------            ---------

Stockholders' equity 
     Convertible preferred stock:
         Authorized 5,000,000 shares, $.001
         par value; issued and outstanding-
         5,000,000 shares                            5,000                5,000
     Common stock:
         Authorized 15,000,000 shares, $.001
         par value; issued and outstanding-
         9,062,066 shares                            9,062                9,062
     Capital in excess of par value              5,148,449            5,128,449
     Accumulated deficit                        (4,439,929)          (5,668,408)
     Unrealized loss on investments                (95,341)             (95,341)
                                                 ---------            --------- 
               Total stockholders' equity          627,241             (621,238)
                                                 ---------            --------- 
               Total liabilities and 
                  stockholders' equity          $3,410,246           $1,957,568
                                                ==========           ==========
</TABLE>

                                        3
<PAGE>

<TABLE>

                Direct Connect International Inc. and Subsidiary

                      Consolidated Statements of Operations

<CAPTION>
                                                           For the
                                                       Three Months Ended
                                                       ------------------
                                               July 31,1997       July 31,1996
                                               ------------       ------------
                                                          (Unaudited)
<S>                                            <C>                    <C> 
Revenues:
      Sales                                            $0             $171,749
                                                  -------             --------

Costs and expenses
      Cost of goods sold                              ---              163,477
      Royalties/licensing fees                        ---               15,809
      Product development costs                       ---                6,000
      Depreciation                                  6,551                6,551
      General and administrative expenses         235,484              234,664
      Less:  management fees                       (6,676)            (255,000)
                                                  -------             -------- 
                                                  235,359              171,501
                                                  -------              -------

Operating income (loss)                          (235,359)                 248
Gain on sale of securities                      1,522,614              916,935
Interest income                                       774                   65
Other income                                          ---                2,278
Interest expense                                  (59,551)             (25,753)
                                                ---------              ------- 
Net income                                     $1,228,478             $893,773
                                               ==========             ========

Income per common share                             $0.08                $0.06
                                                    =====                =====

</TABLE>









                                       4

<PAGE>

<TABLE>


                Direct Connect International Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
<CAPTION>
                     
                                                                          For Three Months Ended
                                                                          ----------------------
                                                                    July 31, 1997       July 31, 1996
                                                                    -------------       -------------
                                                                                (Unaudited)
<S>                                                                 <C>                 <C>

Cash flows from operating activities
     Net income (loss)                                               $1,228,478           $893,773
                                                                     ----------           --------
     Adjustments to reconcile net income (loss) 
       to net cash provided by (used in) operating activities:
         Depreciation                                                     6,551              6,551
         Gain on sale of Glasgal stock                               (1,522,614)          (916,935)
     (Increase) decrease  in assets
         Accounts receivable                                              4,240           (179,723)
         Prepaid financing costs and other expenses                     (15,210)            57,468
     Increase (decrease) in liabilities
         Accounts payable                                                13,995            (51,066)
         Accrued expenses and taxes payable                              52,655             70,928
                                                                      ---------          ---------
        
     Total adjustments                                               (1,460,383)        (1,012,777)
                                                                     ----------         ---------- 
     Net cash (used in) operating activites                            (231,905)          (119,004)
                                                                     ----------         ----------     
Cash flows from investing activities
     Notes receivable-officers, increases                                  (701)            (7,635)
     Increase in Due from Kidsview, Inc.                                    ---         (1,179,050)
     Acquisition of property and equipment                                  ---             (9,352)
     Proceeds from sale of Glasgal stock                              1,999,547          1,028,100
     Acquisition of Glasgal stock                                    (1,856,325)               ---
                                                                     ----------          ---------
     Net cash (used in) provided by investing activities                142,521           (167,937)
                                                                        -------           -------- 
Cash flows from financing activities
     Increase in notes payable-officers and stockholders                    ---              1,048
     Decrease in notes payable-officers and stockholders               (253,680)               ---
     Increase in notes payable-other                                    391,229            386,941
     Increase in paid in capital                                         20,000                ---
                                                                      ---------            -------
  Net cash provided by financing activities                             157,549            387,989
                                                                      ---------          ---------

Net increase in cash and cash equivalents                                68,165            101,048
Cash and cash equivalents at beginning of period                         32,939             67,886
                                                                       --------           --------
Cash and cash equivalents at end of period                             $101,104           $168,934
                                                                       ========           ========


Supplemental disclosure of cash flows information
     Cash paid during the three months for interest                     $59,551            $25,753
                                                                        -------            -------

</TABLE>



                                       5
<PAGE>

                        DIRECT CONNECT INTERNATIONAL INC.
                                 AND SUBSIDIARY

                          Notes to Financial Statements

1.       In the opinion of  management,  the  accompanying  unaudited  financial
         statements contain all adjustments, consisting only of normal recurring
         adjustments,  necessary to present fairly (a) the financial position as
         of July 31, 1997,  (b) the results of  operations  for the three months
         ended July 31, 1997 and July 31, 1996 and (c) changes in cash flows for
         the three months ended July 31, 1997 and July 31, 1996.

2.       Refer to the  audited  financial  statements  for the fiscal year ended
         April 30, 1997 for details of accounting policies and accounts, none of
         which have changed significantly in composition since that date.

3.       Financial results for the interim period ended July 31, 1997 may not be
         indicative  of the  financial  results for the fiscal year ending April
         30, 1998.

4.       The  Company has  available  carry  forward  losses  applicable  to the
         reduction  of future  Federal  income taxes  aggregating  approximately
         $2,400,000  at July 31,  1997 and which  expire  during  various  years
         through 2011.























                                       6


<PAGE>



Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Net Sales
---------

Net  sales for the three  months  ended  July 31,  1997 were $0 as  compared  to
$171,749 for the same period in the prior fiscal year.

The Company intends to develop additional product lines;  however,  there can be
no assurance  that it will be able to do so on a commercially  viable basis.  If
such  product  lines are so  developed,  the  Company may be required to sell or
license such product  lines,  depending on, among other  factors,  its financial
resources.

At July 31, 1997,  the Company did not have a backlog of  confirmed  orders from
its customers.

Gross Profit
------------

Gross  Profit  percentage  for the three  months  ended July 31,  1997 was 0% as
compared to 4.81% for the three months ended July 31,  1996.  Such  decrease for
the  three  months  ended  July 31,  1997 was a result of no sales  during  this
period.

Royalties/Licensing Fees
------------------------

Royalties/Licensing fees are variable expenses which increase as sales increase.
For the three month period ended July 31, 1997,  the Company paid $0 and $15,809
(or 9% of sales) for the three  months  ended July 31,  1996.  The  decrease  in
royalties was a result of no sales during the three months ended July 31, 1997.

Other Income
------------

Other income  amounted to  approximately  $1,500,000  for the three months ended
July 31, 1997 as compared to  approximately  $900,000 for the three months ended
July 31,  1996.  The increase for the three month period ended July 31, 1997 was
due to the sale of additional shares of Glasgal stock by the Company at a higher
price than in the prior year..

General and Administrative Expenses
-----------------------------------

For the three months ended July 31, 1997, the Company earned a management fee of
$6,676 as compared to $255,000 for the three  months ended July 31, 1996,  which
covers  the  monthly  reimbursement  of the costs  incurred  by the  Company  in
connection  with its  operations as it relates to  supporting  the product lines
which were sold.  The reason for the decrease was the reduction in revenues from
the  Company's  management  activities  on behalf  of  Evolutions,  Inc.,  which
terminated in May 1997. Set forth below are the principal components.




                                       7
<PAGE>

General and  administrative  expenses  for the three  months ended July 31, 1997
were  $235,484 as compared to $234,664 for the three months ended July 31, 1996.
For the three months ended July 31, 1997 there were no  commissions  as compared
to $8,467 in  commissions  for the three  months ended  January 31,  1996.  This
decrease  resulted  primarily from the decline in the amount of sales upon which
commissions are based. Professional fees were $37,524 for the three months ended
July 31, 1997 as compared to $12,049 for the three  months  ended July 31, 1996.
This  increase  for the three  months  ended July 31, 1997 was due  primarily to
incurring  professional  fees in connection with the Company's  annual audit and
expenses  involved  with respect to financing  activities.  Letter of credit and
foreign office expenses  amounted to $0 for the three months ended July 31, 1997
as compared to $13,065 for the three months ended July 31, 1996.  This  decrease
was due  primarily  to the decline in purchases  resulting  from the decrease in
sales and the decline in the cost of goods purchased.

For the three months ended July 31, 1997,  salaries  were $82,807 as compared to
$109,275 for the three months ended July 31, 1996.

Travel and  entertainment  expenses  increased  to $37,200 for the three  months
ended July 31, 1997 as compared to $33,218 for the three  months  ended July 31,
1996.  This increase  resulted from the Company's  efforts to expand sales under
its management activities which have terminated.

LIQUIDITY AND CAPITAL RESOURCES

During the next twelve months,  in addition to meeting its operating  needs, the
Company  will have  notes  payable  in the  amount of  approximately  $1,800,000
becoming  due.  The Company  does not believe  that it will be able to pay these
obligations out of operating revenues,  and,  accordingly,  it will have to seek
additional  financing  or sell assets to do so. The Company  owns  approximately
1,000,000 shares of common stock of Glasgal  Communications,  Inc. (Glasgal) and
may, from time to time, sell a portion of such shares. There can be no assurance
that the Company will be able to obtain such financing or sell assets,  in which
event such  obligations  will have a material  adverse effect upon the Company's
operations.

For the three months  ended July 31, 1997 the Company used cash from  operations
in the amount of $231,905 as compared to using $119,004 from  operations for the
three  months  ended July 31,  1996.  The Company  obtained  $157,549,  from its
financing  activities  for the three  months  ended July 31, 1997 as compared to
obtaining  $387,989  for the three months  ended July 31,  1996.  These  amounts
resulted  primarily  from  borrowings  using  the  Company's  Glasgal  shares as
collateral.









                                       8

<PAGE>



For the three months ended July 31, 1997, the Company provided $142,521 from its
investing  activities  as compared to using  $167,937 for the three months ended
July 31,  1996.  Included in the amount for the three months ended July 31, 1997
were  proceeds  received  in the amount of  $1,999,547  from the sale of 493,300
shares of Glasgal  stock.  The Company also used  $1,856,325 to acquire  480,000
shares of Glasgal  stock.  Cash flows for the three  months  ended July 31, 1996
included  $1,028,100  from the sale of  115,000  shares of Glasgal  stock.  Also
included  in that  amount was cash used to increase  the  Company's  advances to
Kidsview, Inc. by $1,179,050.  In connection with the transactions involving the
Glasgal stock, Glasgal relinquished certain options regarding purchase of shares
of such stock from the Company, and the option granted to the Company by Glasgal
to purchase additional shares of Glasgal stock was increased.


In June 1997,  the  Company  entered  into a lending  arrangement  with  Barbara
Rosner,  wife of a director and chief financial officer of the Company,  whereby
she agreed to provide funds to the Company in the aggregate  amount of $225,000.
The Company agreed to issue to her secured  promissory  notes,  with interest at
the rate of 10% per annum,  to cover the loans as made from time to time.  As an
inducement  for her to make  the  loans,  the  Company  agreed  to  issue to her
warrants to  purchase  an  aggregate  of 100,000  shares of common  stock of the
Company at an  exercise  price of $.20 per share.  At July 31,  1997 the Company
received  $115,000  under such  lending  arrangement  and issued  notes for such
amount.  Such notes are secured by 64,100 shares of Glasgal  common  stock.  Two
notes  aggregating  $115,000 become due in October 1997 and two additional notes
issued in August 1997 aggregating $20,110, and secured by 6600 shares of Glasgal
common stock, become due in December 1997. .

In October 1995 the Company issued to two individual lenders promissory notes in
the aggregate principal amount of $350,000. Such notes are secured by a total of
200,000  shares of Glasgal common stock held by the Company and bear interest at
the rate of 10% per annum and  became  due in March  1997,  as  extended.  As an
inducement  for the  noteholders  to make the $350,000 loan to the Company,  the
Company  agreed to deliver  to such  holders an  aggregate  of 19,440  shares of
Glasgal  common  stock held by the  Company  and to deliver to such  holders (a)
warrants to purchase for a period of  twenty-four  months an aggregate of 19,440
shares of Glasgal common stock held by the Company at an exercise price of $2.00
per share, as adjusted, and (b) warrants to purchase for a period of twenty-four
months  an  aggregate  of  38,880  shares of the  Company's  common  stock at an
exercise price of $ .20 per share. The Company  negotiated with such noteholders
regarding  the  extension  for  repayment  of the  notes  and  will  deliver  an
additional  11,666  shares of Glasgal  common  stock as  consideration  for such
extension.

To expand its business,  the Company will have to seek additional  financing and
there can be no  assurance  that it will be able to obtain  such  financing.  No
assurance can be given as to the number of outstanding warrants, which represent
a potential  source of funds,  that will be exercised.  The Company is exploring
alternatives  to utilizing its equity  investments in connection  with financing
its operations and developing new products.



                                       9
<PAGE>

In order to  arrive at the  completed  stage,  the  Company's  products  must go
through the following processes: product concept and design, product development
and   engineering,   pre-production   approval  and  product   manufacture   and
distribution.

In order to supplement  its cash flow,  the Company,  on March 6, 1991,  entered
into loan  agreements  with several  investors  whereby the Company  borrowed an
aggregate of $282,000  for six months with  interest at the  semiannual  rate of
14.5%. As part of such transaction,  the Company issued to such investors,  in a
private  placement,  an aggregate  of 17,000  shares of its common  stock,  on a
restricted basis, for an aggregate  consideration of approximately  $22,000.  In
October 1991, the Company paid off $32,000 (plus accrued  interest) with respect
to such loans. At such time the Company  renegotiated  the balance of such loans
(plus accrued interest) and issued new notes, maturing in one year, amounting to
approximately  $290,000 including interest thereon at the annual rate of 10%. In
September  1992 the Company  delivered  200,000 shares of common stock to one of
such investors in exchange for the  contemplated  cancellation of  substantially
all the balance of such loans.  The Company under the terms of this  arrangement
remains  contingently  liable for the prior  obligation  depending on the future
stock price and  salability of the shares.  The investor has been unable to sell
the shares for a price of at least  $1.625 and,  accordingly,  the shares can be
returned to the Company. The Company is obligated to pay such investor the value
of the note, plus accrued interest,  aggregating, after giving effect to partial
repayments, approximately $190,000 at July 31, 1997. If the Company is unable to
pay this obligation out of operating  revenues,  it will have to seek additional
financing  or sell a portion of its equity  holdings in Glasgal to do so.  There
can be no assurance  that the Company  will be able to obtain such  financing or
sell such equity,  in which event this obligation  would have a material adverse
effect upon the Company's operations.

Given the nature of the Company's  business,  the length of the typical  product
cycle in the toy business,  the need to respond  rapidly to  developments in the
marketplace  and to, if  necessary,  make rapid  changes  in  product  lines and
strategic  plans to meet the rapid  changes in the  marketplace,  the  Company's
planning   historically  has  been  limited  to  approximately  a  twelve  month
time-frame at any given time. It is  anticipated  that the Company will continue
to operate in a similar  fashion in the  future.  Accordingly,  analyses of long
term liquidity and capital requirements are not meaningful.

In 1992, the Company, in order to regain listing on the NASDAQ Small Cap System,
to provide for operating  requirements and in contemplation of a possible change
in the  nature of the  Company's  business,  completed  a private  placement  of
securities in October 1992, in which  investors  subscribed for 100 Units,  each
Unit consisting of 50,000 shares of Convertible  Preferred Stock and 25,000 1992
Warrants to purchase  shares of Common  Stock,  for a total of  $3,000,000.  The
warrants  expired on June 30,  1997.  Such private  placement  was closed in two
stages,  the first of which  involved the purchase of 52-1/2 Units and closed in
July 1992, with the balance of the Units offered  (47-1/2 Units) being purchased





                                       10
<PAGE>



in October 1992. As a result of the consummation of such private placement,  (a)
the Redeemable  Class A Warrant  exercise price has been adjusted from $1.00 per
share to $.53 per share and the number of shares of Common Stock  issuable  upon
exercise of Redeemable Class A Warrants has been increased from 3,438,900 shares
to 6,488,517  shares of Common Stock so that each holder of a Redeemable Class A
Warrant  will be able to purchase  1.8868  shares of Common Stock for $1.00 upon
exercise of each Warrant and (b) the Redeemable  Class B Warrant  exercise price
has been  adjusted  from  $1.50 per  share to $ .75 per share and the  number of
shares of Common Stock issuable upon exercise of Redeemable Class B Warrants has
been increased from 1,719,450 shares to 3,438,900 shares of Common Stock so that
each holder of a  Redeemable  Class B Warrant will be able to purchase one share
of Common Stock per warrant upon exercise of such Warrant.

In order to provide for additional working capital,  to meet expenses related to
a proposed,  but not consummated,  merger with Glasgal, and to be in position to
assist Glasgal in solving its cash flow problems in contemplation of the merger,
the Company entered into lending  arrangements  with several  individuals  under
which the Company issued notes aggregating $780,000 plus interest thereon at the
annual  rate  of  8%  in  private  placements  pursuant  to  an  exemption  from
registration  under Section 4(2) of the  Securities Act of 1933, as amended (the
Act).  Such notes matured between  December 31, 1993, as extended,  and December
31,  1995.  At July 31,  1997,  such notes  amounted to  approximately  $823,000
including accrued interest  thereon.  As an inducement for making such loans, it
was intended  that the holders would have an  opportunity  to convert such notes
into equity securities when the Company next undertook a private placement,  the
terms  of  which  had  not  been  determined,  provided  that  the  holders  met
suitability  requirements thereof. The Company believes that all of such holders
either were  officers of the Company or relatives of officers of the Company who
in all cases were deemed to be suitable  investors or other  individuals who had
preexisting  personal  relationships  with  officers or directors of the Company
and, in addition,  would have been deemed "accredited investors" as such term is
defined  in Rule 501 of  Regulation  D under  the Act if an  exemption  had been
sought under  Regulation D. In view of the  Company's  default in payment of its
obligations  under the notes and its  inability  to afford  the  noteholders  an
opportunity  to  convert  such  notes  into  equity  securities,  several of the
noteholders have recently  contacted the Company and have threatened to commence
litigation  against the Company to enforce the Company's  obligations  under the
notes.  The Company  intends either to pay off the obligations or to convert the
notes (including  accrued interest  thereon) into Common Stock at a rate of five
shares of Common Stock per dollar subject to stockholder approval of an increase
in authorized  shares of Common Stock in connection  with a proposed  meeting of
stockholders.  There  can be no  assurance  that  the  Company  will  be able to
effectuate such payment or conversion.  Litigation by noteholders to enforce the
notes would materially adversely affect the Company's operations.  Approximately
$1,000,000  of the  Company's  outstanding  notes have been  acquired by Medical
Device Alliance, Inc.

The Company,  after  termination of the proposed Glasgal merger,  entered into a
common stock purchase agreement (the "Agreement") with Glasgal governing certain
equity  investments which the  Company has  made, and  in the  future intends to






                                       11
<PAGE>



make, in Glasgal common stock.  Pursuant to the  Agreement,  in January 1994 the
Company converted  outstanding  indebtedness of Glasgal owed to the Company into
equity of Glasgal which,  upon consummation of the Glasgal merger with Sellectek
Incorporated,   resulted  in  the  Company  owning   approximately  28%  of  the
outstanding  shares of Glasgal or 18.5% on a fully diluted  basis.  In addition,
the  Agreement  gives  Glasgal  the right to require  the Company to purchase an
additional  number of shares of common  stock of  Glasgal  equal to 13.5% of the
then  outstanding  shares (the "Additional  Shares"),  or 10% on a fully diluted
basis,  for an aggregate of  approximately  $8.4 million  after giving effect to
certain warrant solicitation fees (the "Additional DCI Investment"). Glasgal may
require this purchase if, and then only to the extent that, the Company receives
proceeds  from the  exercise  of  existing  Company  warrants.  There  can be no
assurance  that any or all of such warrants  will be exercised.  The Company has
issued warrants to the public to  purchase  6,448,517  shares of Common Stock at
$ .53 per share and warrants to purchase  3,438,900  shares of  Common  Stock at
$ .75 per share.  Such warrants will expire in November  1997, as extended.  The
Company has the right to retain the first $500,000 of warrant exercise proceeds;
however,  such amount  must be used by the Company to purchase  shares of Common
Stock of Glasgal if the aggregate amount of warrant exercise proceeds applied to
the purchase of Glasgal  common  stock,  after the earlier of the  expiration of
exercise  of  all  warrants  or  24  months  after  the   effectiveness  of  the
registration  statement  covering the Common Stock  underlying the warrants,  is
less  than $8.4  million.  In view of the fact  that,  at the  present  time and
throughout 1996, the price of the Common Stock has been substantially  below the
exercise  price of the  warrants,  it is  impossible  to  predict  the timing of
exercise of any of the  outstanding  warrants,  or if such warrants will ever be
exercised. The Company anticipates such an event will not arise for at least two
years and that, should such eventuality  arise, the Company will attempt to meet
such  obligation  either through loans (which may be secured by all or a portion
of its Glasgal  equity),  equity  financings  or some  combination  thereof.  If
Glasgal does not require the  Additional DCI  Investment,  the Company may still
purchase, on the same terms, the Additional Shares.

In November  1993, the Company issued to several  investors  secured  promissory
notes aggregating  $500,000 with interest thereon at the annual rate of 8%. Such
notes were secured by all the assets of the Company and matured on September 30,
1994, as extended,  and were paid off on October 6, 1994.  As an inducement  for
such investors to make such loan, the Company issued to such investors warrants,
which expire on November 23, 1998, to purchase an aggregate of 750,000 shares of
Common  Stock  at an  exercise  price of $ .05 per  share,  as  adjusted  ("1993
Warrants"). The proceeds from such transaction were loaned to Glasgal to fulfill
certain  commitments to Glasgal. As an inducement to extend the maturity date of
such notes to  September  30, 1994,  the Company  issued an aggregate of 500,000
additional  warrants ("1994  Warrants") to the holders of such notes on the same
terms and conditions as the 1993 Warrants  except that the exercise price of the
1994 Warrants is $ .20 per share.

DEFERRED INCOME TAX ASSETS

Deferred  income  tax  assets as of April 30,  1997 and July 31,  1997 have been
reduced to zero due to uncertainties concerning their realization.
                                                                             


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<PAGE>



PART II.          OTHER INFORMATION

Item 6.           Exhibits and Reports on Form 8-K

                  Exhibits:

                           Financial Data Schedule

                  Reports on Form 8-K:

                           None.

































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<PAGE>




                                   SIGNATURES




Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                        DIRECT CONNECT INTERNATIONAL INC.
                                  (Registrant)



Date:    September 18, 1997               By /s/Peter L. Schneider
         ------------------                  ---------------------
                                             Peter L. Schneider
                                             President and Chief
                                             Operating Officer

Date:    September 18, 1997               By /s/Barry A. Rosner
         ------------------                  ------------------
                                             Barry A. Rosner
                                             Treasurer and Chief
                                             Financial Officer




















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