<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
         JANUARY 31, 1998.
         ----------------

                                       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 January 31, 1998: 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 -                
                              January 31, 1998 and
                              April 30, 1997                            3

                              Condensed Statements
                              Of Consolidated
                              Operations - Three
                              Months Ended January 31,
                              1998 and January 31, 1997 and
                              Nine Months Ended January 31,
                              1998 and January 31, 1997                 4

                              Condensed Statements
                              Of Consolidated Cash
                              Flows - Nine Months
                              Ended January  31, 1998
                              and January 31, 1997                      5

                              Notes to Financial Statements             6

            Item 2.           Management's Discussion
                              and Analysis of Results
                              of Operations and
                              Financial Condition                     7 - 13

PART II.    OTHER INFORMATION

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

            Signatures                                                  14




                                                         


<PAGE>




PART 1.     FINANCIAL INFORMATION

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

                                     ASSETS
<CAPTION>
                                                                
                                             January 31, 1998    April 30, 1997
                                             ----------------    --------------
                                               (Unaudited)
<S>                                            <C>               <C>    

Current assets
   Cash and cash equivalents                      $29,150           $32,939
   Accounts receivable                              7,867            22,857
   Notes receivable                               286,703             ---
   Notes receivable-officers                       95,847            90,404
   Investments                                      ---              13,001
   Prepaid financing costs and other expenses       1,836            56,314
                                                  -------           -------
                   Total current assets           421,403           215,515
                                                  -------           -------

Property and equipment , at cost
   Furniture and fixtures                          42,543            42,543
   Molds, tools and dies                          262,123           267,498
                                                  -------           -------
                                                  304,666           310,041
   Less: accumulated depreciation                 282,733           263,083
                                                  -------           -------
                                                   21,933            46,958
                                                  -------           -------

Investment in Datatec                           2,961,436         1,694,395
Security deposits                                     700               700
                                                ---------         ---------
                                                2,962,136         1,695,095
                                                ---------         ---------

             Total assets                      $3,405,472        $1,957,568
                                               ==========        ==========


                          LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities                       
   Accounts payable                              $548,219          $534,901
   Accrued expenses and taxes payable             111,705            85,564
   Notes payable-officers and stockholders          ---             253,680
   Notes payable-other,  current portion        2,138,078         1,404,661
   Investment, warrants to sell Datatec             ---             300,000
                                                ---------         ---------
             Total current liabilities          2,798,002         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                         (4,555,041)       (5,668,408)
   Accumulated other comprehensive income          ---              (95,341)
                                                ---------        ----------
      Total stockholders' equity                  607,470          (621,238)
                                                ---------        ----------
      Total liabilities and stockholders'
        equity                                 $3,405,472        $1,957,568
                                               ==========        ==========

</TABLE>

<PAGE>
<TABLE>

                Direct Connect International Inc. and Subsidiary
                      Consolidated Statements of Operations
<CAPTION>

                                                    For the                             For the
                                                Three Months Ended                  Nine Months Ended
                                                ------------------                  -----------------
                                           January 31       January 31         January 31       January 31
                                             1998              1997              1998             1997
                                             ----              ----              ----             ----
                                                   (Unaudited)                         (Unaudited)
<S>                                         <C>              <C>                <C>             <C>    

Revenues:
   Sales                                      $ ---           $60,733           $  ---           $492,320
                                              ------          -------           ------           --------
                                                     
Costs and expenses
   Cost of goods sold                           ---            45,600              ---            333,790
   Royalties/licensing fees                     ---             4,968              ---             27,658
   Product development cost                     ---             6,000              ---             18,000
   Advertising and promotion                    ---              ---               ---              4,539
   Depreciation                                6,549            6,549              19,649          19,649
   General and administrative expenses       247,529          230,442             815,231         781,476
   Less: management fees                        ---          (185,500)            (42,407)       (605,158)
                                             -------         --------             -------        -------- 
                                             254,078          108,059             792,473         579,954
                                             -------          -------             -------         -------

Operating income (loss)                     (254,078)         (47,326)           (792,473)        (87,634)

Gain on sale of securities                   156,888          144,038           2,032,436       1,757,858
Interest income                               12,031            1,406              18,759           2,178
Other income                                   ---               ---                  277           3,372
Interest expense                             (44,913)         (35,906)           (145,632)        (87,169)
                                             -------          -------           ---------         ------- 
Net income (loss)                           (130,072)          62,212           1,113,367       1,588,605
                                            ========           ======           =========       =========

Income (loss) per share                      ($0.01)           $0.00               $0.07           $0.11
                                            ========           =======          =========       =========  

</TABLE>




<PAGE>


<TABLE>


                Direct Connect International Inc. and Subsidiary

                      Consolidated Statements of Cash Flows
<CAPTION>
                                                                 For Nine Months Ended
                                                         January 31, 1998       January 31, 1997
                                                         ----------------       ----------------
                                                                      (Unaudited)
<S>                                                          <C>                    <C>    
                                                                               

 Cash flows from operating activities
      Net income                                             $1,113,367             $1,588,605
                                                             ----------             ----------
      Adjustments to reconcile net income
         to net cash (used in) operating activities:
         Depreciation                                            19,650                 19,650
         Gain on sale of Datatec stock                       (2,106,905)            (1,757,858)
         Loss on sale of Mark Solution stock                     74,469                  ---

      Decrease (increase) in assets
         Accounts receivable                                     14,990                 12,830
         Prepaid financing costs and expenses                    54,478                 67,568
      Increase (decrease) in liabilities
         Accounts payable                                        13,318               (610,204)
         Accrued expenses and taxes payable                      26,141                242,781
                                                              ---------              ---------
      Total adjustments                                      (1,903,859)            (2,025,233)
                                                              ---------              ---------
      Net cash (used in) operating activities                  (790,492)              (436,628)
                                                                -------                -------


 Cash flow from investing activities
      Notes receivable-officers, increase                        (5,443)               (20,374)
      Proceeds from sale of Datatec stock                     2,396,189              2,005,973
      Increase in Due from Kidsview, Inc.                          ---                (103,973)
      Increase in Notes Receivable                             (286,703)                 ---
      Increase in Investment in Evolutions, Inc.                   ---              (1,800,000)
      Disposal of molds, tools, and dies                          5,375                  ---
      Acquisition of Datatec stock                           (1,856,325)                 ---
      Aquisition of property and equipment                         ---                  (1,369)
      Proceeds from sale of Mark Solution stock                  33,873                  ---
                                                                -------                 ------
      Net cash provided by  investing activities                286,966                 80,257
                                                                -------                 ------

 Cash flows from financing activities
      Increase in notes payable-officer and stockholders           ---                   2,804
      Decrease in notes payable -officer and stockholders      (253,680)                 ---
      Increase in notes payable-other                           784,421              1,743,636
      Decrease in notes payable-other                           (51,004)            (1,433,892)
      Increase in paid in capital                                20,000                  ---
                                                                -------                -------
      Net cash provided by financing activities                 499,737                312,548
                                                                -------                -------
 Net increase (decrease) in cash and cash  equivalents           (3,789)               (43,823)
 Cash and cash equivalents at beginning of period                32,939                 67,886
                                                                 ------                 ------
 Cash and cash equivalents at end of period                     $29,150                $24,063
                                                                 ======                 ======
</TABLE>
















<PAGE>



                          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 January 31, 1998,  (b) the results of  operations  for the three and
         nine months ended January 31, 1998 and January 31, 1997 and (c) changes
         in cash flows for the nine  months  ended  January 31, 1998 and January
         31, 1997.

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 January 31, 1998 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
         $2,500,000  at January 31, 1998 and which expire  during  various years
         through 2011.

5.       As reported, the   Company  holds  shares of  common  stock  of Glasgal
         Communications, Inc., now Datatec Systems, Inc.



















                                       




<PAGE>



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

RESULTS OF OPERATIONS

General
-------

The Company had no revenues from  operations for the three and nine months ended
January 31, 1998, and unless the Company  develops  additional  product lines or
enters into management  arrangements with other companies, as it has done in the
past, the Company will have to sell assets to pay its obligations as they become
do.

Net Sales
---------

Net sales for the three and nine month  periods  ended January 31, 1998 amounted
to $0 and $0, respectively,  as compared to $60,733 and $492,320,  respectively,
for the same periods 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 January 31, 1998, the Company did not have a backlog of confirmed orders from
its customers.

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

Gross Profit  percentage  for the three months ended  January 31, 1998 was 0% as
compared to 25% for the three  months  ended  January  31,  1997.  Gross  Profit
percentage  for the nine months ended January 31, 1998 was 0% as compared to 32%
for the nine months ended January 31, 1997. Such decrease for the three and nine
months ended January 31, 1998 was a result of no sales during the three and nine
months ended January 31, 1998.

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

Royalties/licensing fees are variable expenses which increase as sales increase.
For the three and nine month periods ended January 31, 1998, the Company paid $0
and $0, respectively,  as compared to $4,968 (or 8% of sales) and $27,658 (or 6%
of  sales)  for the  three  and nine  month  periods  ended  January  31,  1997,
respectively.  The  decrease in  royalties  was a result of no sales  during the
three and nine months ended January 31, 1998.







<PAGE>



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

Other income amounted to approximately $169,000 and $2,051,000 for the three and
nine months  ended  January 31, 1998 as compared to  approximately  $145,000 and
$1,760,000  for the three and nine months ended  January 31, 1997.  Other income
for the nine months ended January 31, 1998 is primarily comprised of the gain on
the sale of 265,667 shares of common stock of Glasgal Communications,  Inc., now
Datatec Systems, Inc. (Datatec) held by the Company.

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

For the three and nine months ended January 31, 1998, the Company  received from
its  management  arrangement  with  Evolutions,  Inc.  (EVO)  $ 0  and  $42,407,
respectively, as compared to $185,500 and $605,158,  respectively, for the three
and nine months ended January 31, 1997,  which covers the monthly  reimbursement
of the  back  office  costs  incurred  by the  Company  in  connection  with its
operations as it relates to supporting the product lines which were sold to EVO.
The reason for the decrease was the reduction in activity in connection with the
Company's  management  arrangements  on behalf of EVO,  which  terminated in May
1997.  Additional  costs were incurred by the Company after the termination date
for which the Company was reimbursed during this period. Set forth below are the
principal components.

General and  administrative  expenses for the three and nine month periods ended
January  31,  1998 were  $247,529  and  $815,231,  respectively,  as compared to
$230,442 and $781,476,  respectively, for the three month and nine month periods
ended January 31, 1997. For the three month and nine month periods ended January
31, 1998 there were no commissions  as compared to $0 and $7,808,  respectively,
for the three month and nine month periods ended January 31, 1997. This decrease
resulted  because  there  were  no  sales  upon  which  commissions  are  based.
Professional fees were $24,844 and $98,326, respectively, for the three and nine
month  periods  ended  January 31,  1998 as  compared  to $24,500  and  $95,649,
respectively,  for the three and nine month  periods  ended  January  31,  1997.
Letter of credit and foreign  office  expenses  amounted to $16,800 and $50,869,
respectively,  for the three month and nine month periods ended January 31, 1998
as compared to $9,598 and  $32,941,  respectively,  for the three month and nine
month  periods  ended  January 31, 1997.  This increase was due primarily to the
activity by Amerawell Products, Ltd., the Company's wholly-owned subsidiary,  in
connection with the terminated management arrangement with EVO.

For the three and nine month  periods  ended  January 31,  1998,  salaries  were
$107,295  and  $381,985,  respectively,  as compared to $102,848  and  $350,411,
respectively,  for the three and nine month periods ended January 31, 1997. Such
increases  resulted from additions to payroll in  anticipation  of the Company's
development of new business opportunities.








<PAGE>



Travel and entertainment  expenses amounted to $22,538 and $69,382 for the three
and nine month  periods  ended  January  31,  1998 as  compared  to $35,800  and
$102,430  for the three and nine month  periods  ended  January 31,  1997.  Such
decreases  resulted from the reduction of activity  caused by the termination of
the management arrangement referred to above

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  $2,138,000.  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 856,000 shares of common
stock of Datatec  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 nine months ended January 31, 1998 the Company used cash from operations
in the amount of $790,492 as compared to using $436,628 from  operations for the
nine months  ended  January 31, 1997.  The Company  obtained  $499,737  from its
financing  activities  for the nine months ended January 31, 1998 as compared to
obtaining  approximately  $312,548 for the nine months  ended  January 31, 1997.
These amounts  resulted  primarily from borrowings  using the Company's  Datatec
shares as collateral.

For the nine months ended January 31, 1998, the Company  provided  $286,966 from
its investing  activities  as compared to providing  $80,257 for the nine months
ended January 31, 1997. Included in the amount for the nine months ended January
31,  1998 were  proceeds  in the amount of  $2,396,189  from the sale of 265,667
shares of Datatec  stock and  proceeds in the amount of $33,873 from the sale of
8,334 shares of stock of Mark Solutions,  Inc. held by the Company.  The Company
also used  $1,856,325  of such  proceeds  to acquire  480,000  shares of Datatec
stock. Cash flows for the nine months ended January 31, 1997 included $2,005,973
from the sale of 256,667 shares of Datatec  stock.  Also included in that amount
was cash used to increase the Company's  advances to Kidsview,  Inc. by $103,973
and to increase its  investment in EVO by  $1,800,000.  In  connection  with the
transactions  involving the Datatec stock,  Datatec relinquished certain options
regarding the purchase of shares of such stock from the Company,  and the option
granted to the Company by Datatec to purchase additional shares of Datatec 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


                                                         







<PAGE>



Company at an exercise price of $.20 per share.  At January 31, 1998 the Company
received  $155,110  under such  lending  arrangement  and issued  notes for such
amount.  Such notes are secured by 69,100 shares of Datatec  common  stock.  Two
notes aggregating  $115,000 became due in November 1997 and two additional notes
issued in August and September 1997 aggregating  $40,110,  and secured by 11,600
shares of Datatec common stock, became due in December 1997. Such notes have not
been paid.

In  September  1997,  the Company  entered  into a lending  arrangement  with an
individual  lender whereby the Company issued  secured  promissory  notes in the
aggregate  principal  amount of  $250,000.  Such notes are secured by a total of
62,000  shares of Datatec  common stock and bear interest at the rate of 10% per
annum and became due in November 1997, as extended.  As an inducement for making
the loans,  the Company agreed to pay such lender $30,000 as an inducement  fee.
Such notes have not been paid.

Of the proceeds received from such lending arrangements,  $118,000 were used for
the  Company's  operational  expenses and an aggregate of $287,000 was loaned to
two  companies,  evidenced  by 15% and  10%  promissory  notes  and  secured  by
inventory and receivables. Such lending arrangements provide for an aggregate of
$14,500 to be paid to the Company as an inducement  fee. The notes became due in
December  1997, as extended,  and have not been paid.  The purpose of such loans
was to develop potential  business  opportunities  with such companies.  Messrs.
Peter Schneider and Y. S. Ling, the President and an Executive Vice President of
the Company, respectively,  have an equity interest in one of such companies. In
October 1997 the Company received  advances  aggregating  $15,600 from a company
controlled by Peter Schneider.

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 Datatec 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
Datatec  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 Datatec 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 Datatec  common  stock as  consideration  for such
extension.

To continue 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.


                                                      





<PAGE>



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%. The
Company is  obligated to pay such  investor the value of the note,  plus accrued
interest, aggregating, after giving effect to partial repayments,  approximately
$196,000 at October 31, 1997.  Such  obligation  was acquired by Medical  Device
Alliance,  Inc. 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 Datatec 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
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.

                                                     




<PAGE>



In order to provide for additional working capital,  to meet expenses related to
a proposed,  but not consummated,  merger with Datatec, and to be in position to
assist Datatec 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 outstanding notes matured between December 31, 1993, as extended, and
December  31, 1995.  At January 31, 1998,  such  outstanding  notes  amounted to
approximately  $650,000 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  $1,500,000  of the  Company's  total
outstanding notes have been acquired by Medical Device Alliance, Inc.

The Company,  after  termination of the proposed Datatec merger,  entered into a
common stock purchase agreement (the "Agreement") with Datatec governing certain
equity  investments  which the  Company has made,  and in the future  intends to
make, in Datatec common stock.  Pursuant to the  Agreement,  in January 1994 the
Company converted  outstanding  indebtedness of Datatec owed to the Company into
equity of Datatec which,  upon consummation of the Datatec merger with Sellectek
Incorporated,   resulted  in  the  Company  owning   approximately  28%  of  the
outstanding  shares of Datatec or 18.5% on a fully diluted  basis.  In addition,
the  Agreement  gives  Datatec  the right to require  the Company to purchase an
additional 1,337,239 shares of common stock of Datatec at November 30, 1997 (the
"Additional  Shares"),  for an aggregate  of  approximately  $8.4 million  after
giving  effect  to  certain  warrant  solicitation  fees  (the  "Additional  DCI
Investment").  Datatec 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



                                




<PAGE>


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 March 31,
1999,  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 Datatec if the  aggregate  amount of warrant
exercise  proceeds  applied to the purchase of Datatec  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  1997, the price of the Common Stock has been 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 Datatec  equity),  equity  financings  or some  combination  thereof.  If
Datatec 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 Datatec to fulfill
certain  commitments to Datatec. 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. Such notes have been paid.

DEFERRED INCOME TAX ASSETS

Deferred  income tax assets as of April 30, 1997 and January  31,1998  have been
reduced to zero due to uncertainties concerning their realization.

PART II.          OTHER INFORMATION

Item 6.           Exhibits and Reports on Form 8-K

                  Exhibits:

                           Financial Data Schedule

                  Reports on Form 8-K:

                           None




<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:    March 12, 1998                 By /s/Peter L. Schneider
         --------------                    ---------------------   
                                            Peter L. Schneider
                                            President and Chief
                                            Operating Officer

Date:    March 12, 1998                 By /s/Barry A. Rosner
         --------------                    ------------------
                                            Barry A. Rosner
                                            Treasurer and Chief
                                            Financial Officer