<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission file number: 33-21508
DATALINK SYSTEMS CORPORATION
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(Exact name of small business issuer in its charter)
Nevada 35-3574355
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
17420 High Street, Los Gatos, California 95032
---------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(408) 354-5604
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(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 [ ]
There were 16,638,683 shares of the Registrant's Common Stock outstanding as
of June 30, 1996.
Transitional Small Business Disclosure Format: Yes --- No -X-
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DATALINK SYSTEMS CORPORATION
(a development stage company)
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Condensed Consolidated Balance Sheets
June 30, 1996 and March 31, 1996 2
b. Condensed Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995 and
the period from August 15, 1986 (date of inception)
to June 30, 1996 3
c. Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995 and
the period from August 15, 1986 (date of inception)
to June 30, 1996 4
d. Notes to the Condensed Consolidated Financial
Statements 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 8
ITEM 2. CHANGES IN SECURITIES. 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 8
ITEM 5. OTHER INFORMATION. 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8-9
SIGNATURES 10
EXHIBITS
INDEX TO EXHIBITS 10
EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF NET
LOSS PER SHARE 11
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 March 31
1996 1995
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,228,099 $ 353,274
Accounts receivable 43,564 17,157
Prepaid expenses 5,547 5,491
----------- ----------
Total current assets 2,277,210 375,922
Fixed assets, net 120,624 82,578
----------- ----------
Total assets $ 2,397,834 $ 458,500
LIABILITIES:
Current liabilities:
Accounts payable $ 60,719 $ 51,698
Payable to related parties 18,000 18,000
Debentures payable 130,000 --
----------- ----------
Total liabilities 208,719 69,698
----------- ----------
SHAREHOLDERS' EQUITY
Common stock and other equity 3,630,473 1,384,718
Accumulated deficit (1,441,358) (995,916)
----------- ----------
Total shareholders' equity 2,189,115 388,802
----------- ----------
Total liabilities and shareholders'
equity $2,397,834 $ 458,500
The accompanying notes are an integral part of these financial statements.
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Period from
August 15,
Three Months Ended 1986 (date
of
June 30, inception)
to
1996 1995 June 30, 1996
---------- ----------
- -------------
Net sales $ 21,916 $ 249 $ 117,974
Cost of sales 12,019 3,326 60,585
---------- ---------- ----------
Gross profit (loss) 9,897 (3,077) 57,389
---------- ---------- ----------
Operating expenses:
Research and development 52,780 16,274 521,342
Sales and marketing 39,259 17,674 220,831
General and administrative 367,316 13,873 793,280
---------- ---------- ----------
Total operating expenses 459,355 47,821 1,535,453
---------- ---------- ----------
Loss from operations 449,458 50,898 1,478,064
Other income (expense):
Interest -- -- 28,868
Government grants 4,016 -- 7,838
---------- ---------- ----------
Net loss $ 445,442 $ 50,898 $1,441,358
Net loss per share $ 0.20 $ 0.03 $ 4.01
Shares used in per share calculations 2,198,930 1,706,667 359,420
The accompanying notes are an integral part of these financial statements.
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Period from
August 15,
Three Months Ended 1986 (date of
June 30, inception) to
1996 1995 June 30, 1996
---------- --------
- -------------
Cash flows from operating
activities:
Net loss $ (445,442) $(50,898) $(1,441,358)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 9,765 1,905 26,713
Changes in assets and liabilities:
Accounts receivable (26,407) (2,571) (43,564)
Prepaid expenses (56) -- (5,547)
Accounts payable 9,021 (8,750) 60,719
Deferred revenue -- 11,659 --
---------- -------- -----------
Net cash used in operating
activities (453,119) (48,655) (1,403,037)
---------- -------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (47,811) (8,889) (147,337)
---------- -------- -----------
Cash flows from financing activities:
Issuance of convertible debentures 130,000 -- 130,000
Proceeds from sale of common stock 2,245,755 17,724 3,630,473
Advances from related parties -- 40,211 18,000
---------- -------- -----------
Net cash provided by financ-
ing activities 2,375,755 57,935 3,778,473
---------- -------- -----------
Net increase(decrease) in cash and
cash equivalents 1,874,825 391 2,228,099
Cash and cash equivalents, beginning
of period 353,274 8,967 --
---------- -------- -----------
Cash and cash equivalents, end of
period $2,228,099 $ 9,358 $2,228,099
The accompanying noes are an integral part of these financial statements.
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
On June 27, 1996, Datalink Systems Corporation (formerly Lord Abbott,
Inc.) acquired all of the outstanding common stock of Datalink Communications
Corporation. For accounting purposes, the acquisition has been treated as a
recapitalization of Datalink Communications Corporation with Datalink
Communications Corporation as the acquirer.
Although unaudited, the interim financial statements in this report
reflect all adjustments, consisting of normal recurring accruals, which are,
in the opinion of management, necessary for a fair statement of financial
position, results of operations and cash flows for the interim periods covered
and the financial condition of the Company at the interim balance sheet dates.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the entire year.
The year-end balance sheet information was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. These financial statements should
be read in conjunction with the Company's audited financial statements and
notes thereto for the year ended March 31, 1996, contained in the Company's
1996 Annual Report to Shareholders.
NET LOSS PER SHARE:
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common and common equivalent (when dilutive)
shares of common stock outstanding during each period.
2. ACQUISITION:
On June 27, 1996, Datalink Systems Corporation (formerly Lord Abbott,
Inc.) (the Company) completed the acquisition of 100% of the outstanding
common stock of Datalink Communications Corporation (DSC) in exchange for
shares of the Company's common stock. The Company issued a total of
16,465,316 shares of its common stock to the shareholders of DSC.
In anticipation of the above acquisition, on June 18, 1996, the Company
changed its domicile from Colorado to Nevada, changed its name from Lord
Abbott, Inc. to Datalink Systems Corporation, and effected a 1-for-300 reverse
stock split.
Pursuant to the agreement, at closing, the Company issued to Westridge
Capital Limited, as a finder's fee, a debenture in the principal amount of
$130,000 which is convertible into 1,300,000 shares of the Company's common
stock.
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3. FIXED ASSETS:
June 30, March 31,
1996 1996
-------- ---------
Computer equipment $118,973 $60,422
Furniture and fixtures 10,375 36,363
Computer software 13,774 372
Leasehold improvements 4,245 2,369
-------- -------
Accumulated depreciation 26,713 16,948
-------- -------
$120,624 $82,578
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
financial statements and notes thereto. Except for the historical information
contained herein, the matters discussed in this document are forward-looking
statements that involve certain risks and uncertainties, including, among
others, the risks and uncertainties discussed below.
NET SALES
Q1 '96 Q1 '95 Change
------- -------- --------
Net sales $21,916 $249 $21,667
Net sales increased due to the Company realizing revenue from sales of
services to customers during the quarter. In the first quarter of 1995, sales
of services were just commencing.
GROSS PROFIT (LOSS)
Q1 '96 Q1 '95 Change
------- -------- -------
Gross profit (loss) $9,897 $(3,077) $12,974
Percentage of net sales 45% (1,235)%
Gross profit increased due to the Company experiencing economies of scale. In
Q1'95, the Company was establishing an infrastructure to commence sales of
services to customers.
RESEARCH AND DEVELOPMENT
Q1 '96 Q1 '95 Change
------- -------- -------
Research and development $52,780 $16,274 $36,506
Percentage of net sales 241% 6,536%
Research and Development expenses increased in absolute dollars, primarily due
to increases in personnel and consulting expenses. Because of increased
revenue, the expenses as a percentage of sales decreased. The Company expects
to continue investing significantly in research and product development;
however, dollars and percentages may vary from period to period.
SELLING AND MARKETING
Q1 '96 Q1 '95 Change
------- -------- -------
Selling and marketing $39,259 $17,674 $21,585
Percentage of net sales 179% 7,098%
Selling and marketing expenses increased in absolute dollars due to higher
commissions (associated with higher sales), combined with increases in
marketing literature and certain promotional expenses.
GENERAL AND ADMINISTRATIVE
Q1 '96 Q1 '95 Change
-------- -------- --------
General and administrative $367,316 $13,873 $353,443
Percentage of net sales 1,676% 5,571%
General and administrative expenses for the quarter increased compared to the
first quarter of 1995, largely due to increases in personnel, finders fees,
and corporate organizational expenses.
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<PAGE>
OTHER INCOME (EXPENSE)
Q1 '96 Q1 '95 Change
------- -------- -------
Other income (expense) $4,016 $ -- $4,016
Percentage of sales 18%
Other income includes amounts received from the Canadian government to
encourage the growth of small technology based organizations. These funds
were not available to the Company in Q1'95.
NET LOSS
Q1 '96 Q1 '95 Change
-------- -------- --------
Net loss $445,442 $50,988 $394,454
Percentage of net sales 2,032% 20,477%
Net losses increased due to increases in general and administrative expenses
required as a part of the starting up of the Company.
In addition, a wide variety of factors influence the Company's quarterly and
annual operating results, any of which could materially affect revenues and
profitability. These include, among others, business factors such as
increases in competition and related pricing pressure, changes in distribution
channels, variations in product mix, and potential problems and delays in new
product development and introduction; as well as national economic and other
factors, such as interest rates.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended June 30, 1996, cash used in operating activities
totaled $453,119, consisting primarily of increases in general and
administrative expenses.
During July 1996, the Company completed a transaction in which it sold to an
unaffiliated investor a Convertible Debenture in the principal amount of
$2,000,000. The Debenture matures on July 1, 1998, and is convertible at any
time prior thereto into shares of the Company's Common Stock at $2.00 per
share. The investor was also issued a warrant to purchase up to 1,000,000
shares of the Company's Common Stock at $2.50 per share at any time prior to
July 15, 1998.
The Company believes that existing cash balances will be sufficient to finance
the Company's currently anticipated working capital requirements and capital
expenditure requirements for at least the next twelve months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits have been filed with this report:
Exhibit 11.1 - Statement Regarding Computation of Net Loss
Per Share (p.11)
(b) A report on Form 8-K was filed by the Company during the
period covered by this report. The form 8-K was dated
June 27, 1996 and reported the acquisition of Datalink
Communications Corporation under Items 1, 2 and 7.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATALINK SYSTEMS CORPORATION
Date: August 14, 1996 By /s/ Anthony N. LaPine
Anthony N. LaPine, President and
Chief Executive Officer (Principal
Executive and Financial Officer)
INDEX TO EXHIBITS
EXHIBIT METHOD OF FILING
- ------- ------------------------------
11.1 Statement Regarding Computation of
Net Loss Per Share Filed herewith electronically
27. Financial Data Schedule Filed herewith electronically
DATALINK SYSTEMS CORPORATION
COMPUTATION OF NET LOSS PER SHARE
(unaudited)
Cumulative
period from
August 15,
Three Months Ended 1986 (date of
June 30, inception) to
Primary: 1996 1995 June 30, 1996
- -------- --------- --------- -------------
Weighted average common shares out-
standing for the period 2,198,930 1,706,667 359,420
--------- --------- ----------
Shares used in per share calcula-
tions 2,198,930 1,706,667 359,420
Net loss $ 445,442 $ 50,898 $1,441,358
Net loss per share $ 0.20 $ 0.03 $ 4.01
Calculated in accordance with the guidelines of Item 601 of Regulation S-B.
Primary and fully diluted calculations are substantially the same.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 2 and 3 of the
Company's Form 10-Q for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,228,099
<SECURITIES> 0
<RECEIVABLES> 43,564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,277,210
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,397,834
<CURRENT-LIABILITIES> 208,719
<BONDS> 0
<COMMON> 3,630,473
0
0
<OTHER-SE> (1,441,358)
<TOTAL-LIABILITY-AND-EQUITY> 2,397,834
<SALES> 21,916
<TOTAL-REVENUES> 21,916
<CGS> 12,019
<TOTAL-COSTS> 12,019
<OTHER-EXPENSES> 459,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (445,442)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (445,442)
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
