<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 September 30, 1996
Commission file number: 0-21069
DATALINK SYSTEMS CORPORATION
----------------------------------------------------
(Exact name of small business issuer in its charter)
Nevada 35-3574355
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2105 Hamilton Avenue, Suite 240, San Jose, California 95125
-----------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(408) 558-0800
-------------------------
(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 September 30, 1996.
Transitional Small Business Disclosure Format: Yes --- No -X-
<PAGE>
DATALINK SYSTEMS CORPORATION
(a development stage company)
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Condensed Consolidated Balance Sheets
September 30, 1996 and March 31, 1996 3
b. Condensed Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995 and
Six months ended September 30, 1996 and 1995 and
the period from August 15, 1986 (date of inception)
to September 30, 1996 4
c. Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1996 and 1995 and
the period from August 15, 1986 (date of inception)
to September 30, 1996 5
d. Notes to the Condensed Consolidated Financial
Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 9
ITEM 2. CHANGES IN SECURITIES. 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 9
ITEM 5. OTHER INFORMATION. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
EXHIBITS
INDEX TO EXHIBITS 11
EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF
NET LOSS PER SHARE
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<PAGE>
DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1996 1996
(Unaudited) (Unaudited)
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $2,471,792 $353,274
Accounts Receivable 1,210,096 17,157
Prepaid expenses 9,689 5,491
---------- ----------
Total current assets 3,691,577 375,922
Equipment, net 215,707 82,578
Other assets, net 89,823 -
---------- -----------
Total assets 3,997,107 458,500
---------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY/DEFICIT:
Current liabilities:
Accounts payable $ 90,051 $ 51,698
Payable to related parties 18,000 18,000
Convertible debentures 2,130,000 -
---------- -----------
Total current liabilties 2,238,051 69,698
Deferred revenue, net 1,940,934 -
---------- -----------
Total liabilities 4,178,985 69,698
---------- -----------
Commitments:
SHAREHOLDERS' EQUITY
Common stock and other equity 1,674,587 1,384,718
Accumulated deficit (1,856,465) (995,916)
---------- -----------
Total shareholders' equity/deficit (181,878) 388,802
---------- -----------
Total liabilities and shareholders $3,997,107 $ 458,500
equity/deficit ---------- -----------
See accompanying notes.
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
August 15,
1986 (date of
Three months ended Six months ended inception)
September 30, September 30, to Sept. 30,
1996 1995 1996 1995 1996
--------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 37,847 $ 305 $ 59,763 $ 12,144 $ 155,821
--------- ---------- --------- ---------- -----------
Costs and operating expenses:
Cost of sales 22,078 1,358 34,097 2,387 82,663
Research and development 104,747 58,684 157,527 13,821 626,089
Sales and marketing 156,639 17,141 195,898 17,971 377,470
General and administrative 248,257 43,478 615,573 61,695 1,041,693
--------- ---------- --------- ---------- -----------
Total operating expenses 531,721 120,661 1,003,095 95,874 2,127,915
--------- ---------- --------- ---------- -----------
Loss from operations (493,874) (120,356) (943,332) (83,730) (1,972,094)
--------- ---------- --------- ---------- -----------
Other income (expense)
Interest 5,666 - 5,666 - 34,534
Government grants - - 4,016 - 7,838
Income from sale of
technology 7,907 - 7,907 - 7,907
Canadian investment
tax credit 65,350 - 65,350 - 65,350
--------- ---------- --------- ---------- -----------
Net loss ($414,951) ($120,356) ($860,393) ($83,730) ($1,856,465)
--------- ---------- --------- ---------- -----------
Net loss per share (0.02) (0.0007) (0.0099) (0.0005) (0.06)
Net loss per share
(fully diluted) (0.02) (0.0007) (0.0097) (0.0005) (0.06)
---------- ----------- ---------- ----------- -----------
Shares used in per share
calculations 16,738,683 162,117,662 87,186,615 162,117,662 32,435,947
Fully diluted shares used in 20,038,683 162,117,662 88,873,281 162,117,662 32,517,131
per share calculations
</TABLE>
See accompanying notes.
-4-
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Six months ended Period from August 15,
September 30, 1986 (date of inception)
1996 1995 to Sept. 30, 1996
---------- --------- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (860,549) $(119,834) $(1,856,465)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation/Amortization 13,022 - 29,650
Changes in assets and liabilities:
Accounts receivable (1,192,939) - (1,210,096)
Prepaid expenses (4,198) - (9,689)
Deferred assets (89,823) - (89,823)
Accounts payable 38,353 119,329 90,051
Advances from related parties - - 18,000
---------- --------- -----------
Net cash used in operating
activities (2,096,134) (505) (3,028,372)
---------- --------- -----------
Cash used in investing activities:
Acquisition of equipment 146,151 18,859 245,357
---------- --------- -----------
Cash flows from financing activities:
Proceeds from sale of technology, net
of transaction costs 1,940,934 - 1,940,934
Issuance of convertible debentures 2,130,000 - 2,130,000
Proceeds from sale of common stock 289,869 14,490 1,674,587
----------- --------- -----------
Net cash provided by financ-
ing activities 4,360,803 14,490 5,745,521
----------- --------- -----------
Net increase (decrease) in cash and
cash equivalents 2,118,518 (4,874) 2,471,792
Cash and cash equivalents, beginning
of period 353,274 10,327 -
----------- --------- -----------
Cash and cash equivalents, end of
period $ 2,471,792 $ 5,453 $ 2,471,792
</TABLE>
See accompanying notes.
-5-
<PAGE>
DATALINK SYSTEMS CORPORATION
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared by the
Company without audit in accordance with generally accepted accounting
principles for interim financial information and pursuant to rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair representation have been included. The
results of operations for the interim periods presented are not necessarily
indicative of the results expected for any other interim period or for the
full year. These financials statements should be read in conjunction with the
Company's consolidated financial statements and notes contained in the
Company's annual report on form 10-KSB for the fiscal year March 31, 1996 and
on form 8-K filed during the period from April 1, 1996 through September 30,
1996.
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 (DCC) (formerly Datalink Systems
Corporation or 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 DCC.
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 (Westridge), 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.
3. CONVERTIBLE DEBENTURES AND WARRANTS:
On July 1, 1996, the Company issued an unaffiliated investor a non interest
bearing convertible debenture in the amount of $2,000,000. The debenture was
convertible at any time prior to its maturity date of July 1, 1998 for
1,000,000 shares of the Company's common stock; subsequent to the quarter
ending September 30, 1996, the debenture was converted to 1,000,00 shares of
common stock. In conjunction with the above issuance, the Company issued to
the same investor a warrant to purchase an additional 1,000,000 shares of
common stock at $2.50 per share any time prior to July 15, 1998.
Westridge, also, exercised its debenture subsequent to the quarter ending
September 30, 1996, and all 1,300,000 shares were issued.
The common stock issued to both the investor and Westridge was issued pursuant
to the exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act") provided by Regulation S; the Company was a
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<PAGE>
"Reporting Issuer" under the provisions of the Securities Exchange Act of
1933, as amended, as such term is defined in Rule 902 under Regulation S, at
the time of the sale of common stock; the Company was current in its reporting
obligations under the Exchange Act at the date of sale; and the sales were
made in "offshore transactions" as such term is defined in Rule 902.
4. NET LOSS PER SHARE
Net income (loss) per share is computed by dividing net income (loss) the
weighted average number of common and common equivalent, when dilutive, shares
of common stock outstanding during each period. All calculations reflect the
effects of the reverse split (300 to 1) of the merger of Lord Abbott, the
original public shell, and the resulting issued and outstanding common stock
of the Company.
The Company is a development stage company. The condensed consolidated
statement of operations includes revenue and expenditures from August 15,
1986, the date of inception, through September 30, 1996, the interim quarterly
reporting period. The outstanding debentures are deemed likely for conversion
and all per share calculations reflect this assumption.
5. FIXED ASSETS:
September 30, March 31,
1996 1996
---------- ----------
Computer equipment $185,940 $60,422
Computer software 28,579 372
Furniture & fixtures 26,618 36,363
Leasehold improvements 4,220 2,369
---------- ----------
Accumulated depreciation (29,650) (16,948)
---------- ----------
Net fixed assets $215,707 $82,578
6. DEFERRED REVENUE:
Deferred revenue represents amounts received pursuant to the sale of
intellectual property technology and is as follows:
September 30, March 31,
1996 1996
------------ --------
Sale of technology, net of transaction
costs of $246,000 $1,940,934 -
------------ --------
Deferred revenue is recognized over a period of 120 months using the straight
line method.
-7-
<PAGE>
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, without
limitation those described in the Company's annual report on Form 10KSB or
Form 8K which have been filed with the Securities and Exchange Commission.
Actual results may differ materially.
NET SALES
Net sales for the second fiscal quarter of 1996 increased over the second
fiscal quarter of 1995 by $37,542 and by $47,619 for the first half of fiscal
1996 as compared to the first half of fiscal 1995 due to the Company realizing
revenue from sales of services to customers. Sales are almost exclusively
Quotexpress customers in Canada. No significant sales are expected until the
first calendar quarter of 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses increased in absolute dollars, primarily due
to patent and trademark expenses and product development. The Company expects
to continue investing significantly in research and product development;
however, dollars and percentages may vary from period to period. Expenditures
for the second quarter of 1996 rose by 78% compared to the second quarter of
1995 and rose by 1,040% for the first half of 1996 compared to the first half
of 1995.
SELLING AND MARKETING
Selling and marketing expenses increased in absolute dollars due to increased
spending on advertising, marketing consulting, and marketing literature.
Expenditures for the second quarter of 1996 rose by 814% compared to the
second quarter of 1995 and rose by 990% for the first half of 1996 compared
to the first half of 1995. The Company expects to continue to invest
significantly in the area of selling and marketing expenditures as it
implements its promotional strategy for its products.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter increased compared to the
first quarter of 1996 largely due to increased costs in the development of
U.S. operations and key personnel travel between the US (San Jose) and the
Canadian (Vancouver) locations. Expenditures for the second quarter of 1996
rose by 471% compared to the second quarter of 1995 and rose by 898% for the
first half of 1996 compared to the first half of 1995.
OTHER INCOME (EXPENSE)
Other income includes an investment tax credit given by the Canadian
government for scientifically related research and development costs, the
recognition revenue from the sale of technology, and money market interest
income from cash management.
-8-
<PAGE>
ADDITIONAL COMMENTS
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 six months ended September 30, 1996 cash and cash equivalents
increased due principally to (1) the issuance of a $2,000,000 debenture and
(2) the sale of intellectual property technology to a Canadian investment
company for $1,094,890 in cash and $1,099,950 as a short term note receivable.
Details related to the sale of technology are contained in the Company's
October 10, 1996 form 8K filing with the SEC.
Total net cash provided by financing activities for the six months ended
September 30, 1996 was $4.36 million which was offset by cash used in
operations of approximately $2.1 million and cash used in the acquisition of
equipment of $146,000. The cash and cash equivalents balance at the end of
the six months ended September 30, 1996 increased by a net of $2.1 million
compared to a decrease in cash and cash equivalents of approximately $5,000
for the six month period ended September 30, 1995.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES - None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits have been filed with this report:
Exhibit 27 - Financial Data Schedule
(b) Amendment No. 1 to 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.
The Company filed Form 8-K dated August 26, 1996 reporting
information under ITEM 2. ACQUISITION OR DISPOSITION OF
ASSETS, and ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
-9-
<PAGE>
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: November 22, 1996 By/s/ Anthony N. LaPine
Anthony N. LaPine, President and
Chief Executive Officer (Principal
Executive and Financial Officer)
-10-
<PAGE>
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)
<TABLE>
<CAPTION>
August 15,
1986
Three months ended Six months ended (date of
September 30, September 30, inception)
1996 1995 1996 1995 30, 1996
----------------------- ----------------------- ----------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Weighted average common
shares outstanding for
the period 16,738,683 162,117,662 87,186,615 162,117,662 32,435,947
---------- ----------- ---------- ----------- ----------
Shares used in per share
calculation 16,738,683 162,117,662 87,186,615 162,117,662 32,435,947
Net loss ($414,951) ($120,356) ($860,393) ($83,730)($1,856,465)
Net Loss per share ($0.02) ($0.001) ($0.01) ($0.001) ($0.06)
FULLY DILUTED:
Weighted average common
shares outstanding for
the period 20,038,683 162,117,662 88,873,281 162,117,662 32,517,131
---------- ----------- ---------- ----------- ----------
Shares used in per share
calculation 20,038,683 162,117,662 88,873,281 162,117,662 32,517,131
Net loss ($414,951) ($120,356) ($860,393) ($83,730)($1,856,465)
Net Loss per share ($0.02) ($0.001) ($0.01) ($0.001) ($0.06)
Calculated in accordance with the guidelines of Item 601 of Regulation S-B.
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
operations found on pages 3-5 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,471,792
<SECURITIES> 0
<RECEIVABLES> 1,210,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,691,577
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,997,107
<CURRENT-LIABILITIES> 2,238,051
<BONDS> 0
<COMMON> 1,674,587
0
0
<OTHER-SE> (1,856,465)
<TOTAL-LIABILITY-AND-EQUITY> 3,997,107
<SALES> 59,763
<TOTAL-REVENUES> 59,763
<CGS> 34,097
<TOTAL-COSTS> 34,097
<OTHER-EXPENSES> 968,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,666
<INCOME-PRETAX> (860,393)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860,393)
<EPS-PRIMARY> (.0097)
<EPS-DILUTED> 0
</TABLE>
