<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, 1997
Commission file number: 33-21508
DATALINK SYSTEMS CORPORATION
----------------------------------------------------
(Exact name of small business issuer in its charter)
Nevada 35-3574355
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
2105 Hamilton Avenue, Suite 240, San Jose, CA 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 19,283,925 shares of the Registrant's Common Stock outstanding as
of June 30, 1997.
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, 1997 and March 31, 1997 3
b. Condensed Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996 and
the period from June 15, 1993 (date of inception)
to June 30, 1997 4
c. Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996 and
the period from June 15, 1993 (date of inception)
to June 30, 1997 5-6
d. Notes to the Condensed Consolidated Financial
Statements 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 10
ITEM 2. CHANGES IN SECURITIES. 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 10
ITEM 5. OTHER INFORMATION. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
EXHIBITS
INDEX TO EXHIBITS 12
EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF NET
LOSS PER SHARE 13
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 March 31
1997 1997
(unaudited) (audited)
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,445,330 $1,916,509
Accounts receivable 64,133 49,685
Note receivable 200,000 --
Other receivables 8,187 4,733
Prepaid expenses 18,806 5,432
----------- ----------
Total current assets $ 2,736,456 1,976,359
Fixed assets, net 367,260 321,368
Other assets 2,500 14,741
----------- ----------
Total assets $ 3,106,216 $2,312,468
LIABILITIES:
Current liabilities:
Bank Overdraft $ 21,521
Accounts payable $ 248,501 131,188
Accrued liabilities 71,215 93,024
Current portion on advance
on technology sales (note 3) 457,096 263,292
----------- ----------
Total current liabilities 776,812 509,025
Advance on technology sale, net
of current portion (note 3) 2,573,920 1,531,154
----------- ----------
Total Liabilities $ 3,350,732 $2,040,179
Commitments and contingencies (note 3)
SHAREHOLDERS' EQUITY
Preferred stock
Common stock 19,283 19,183
Additional paid-in capital 8,535,677 8,335,777
Foreign currency translation
Adjustment (29,381) (57,655)
Note receivable (958,682) (1,089,410)
Deficit accumulated during the
development stage (7,811,413) (6,935,606)
----------- ----------
Total shareholders' equity (244,516) 272,289
----------- ----------
Total liabilities and shareholders'
equity $ 3,106,216 $2,312,468
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
June 15,
Three Months Ended 1993(date of
June 30, inception)to
1997 1996 June 30, 1997
---------- ---------- --------------
Net sales $ 149,453 $ 22,908 $ 346,344
Cost of sales 99,697 17,324 258,755
---------- ---------- ----------
Gross profit 49,756 5,584 87,589
---------- ---------- ----------
Operating expenses:
Research and development 147,411 78,901 1,065,823
Sales and marketing 386,948 60,574 1,665,100
General and administrative 478,527 1,111,401 5,611,834
Owners fees, sales of
technology (note 3) 392,500 -- 666,250
---------- ---------- ----------
Total operating expenses 1,405,386 1,250,876 9,009,007
---------- ---------- ----------
Loss from operations 1,355,630 1,245,292 8,921,418
Other income (expense):
Interest 418,164 -- 831,432
Amortization of
Technology advance, (note 3) 67,005 -- 203,206
Miscellaneous (5,346) (61,173) 75,367
---------- ---------- ----------
Net loss $ 875,807 $1,306,465 $7,811,413
Net loss per share $ 0.05 $ 0.09
Shares used in per share
calculations 19,275,233 15,922,074
The accompanying notes are an integral part of these financial statements.
-3-
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Period from
June 15,
Three Months Ended 1993 (date of
June 30, inception) to
1997 1996 June 30, 1997
---------- -------- -------------
Cash flows from operating
activities:
Net loss $ (875,807) $(1,306,465) $(7,811,413)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 147,179 96,861 695,257
Amortization of technology
advance (66,995) -- (197,605)
Common stock issued for
services 770,126 3,188,857
Changes in assets and liabilities:
Accounts and other receivables (17,902) (22,768) (72,320)
Prepaid and other assets (1,133) (113) (21,306)
Accounts payable and accrued
Liabilities 122,525 (43,498) 319,716
Deferred revenue -- -- --
---------- -------- -----------
Net cash used in operating
activities (692,133) (505,857) (3,898,814)
---------- -------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (61,090) (23,360) (452,449)
---------- -------- -----------
Cash flows from financing activities:
Issuance of convertible debentures -- 130,000 130,000
Proceeds from sale of common stock -- 297,000 3,447,972
Repurchases of common stock (10,000) (10,000)
Advances on technology fee 1,303,565 3,228,621
---------- -------- -----------
Net cash provided by financ-
ing activities 1,303,565 417,000 6,796,593
---------- -------- -----------
Net increase(decrease) in cash and
cash equivalents 550,342 (112,217) 2,445,330
Cash and cash equivalents, beginning
of period 1,894,988 357,556 --
---------- -------- -----------
Cash and cash equivalents, end of
period $2,445,330 $245,339 $ 2,445,330
The accompanying notes are an integral part of these financial statements.
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Statements of cash flows, continued
Period from
June 15,
Three Months Ended 1993 (date of
June 30, inception) to
1997 1996 June 30, 1997
---------- -------- -------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange
for services performed -- 770,126 1,655,214
Issuance of stock options in exchange
For services performed -- -- 152,892
Issuance of common stock in exchange
For employee compensation -- -- 110,751
Common stock exchanged for debentures
exercised -- -- 1,270,000
Issuance of common stock in exchange
For stock subscriptions -- 271,049 271,049
Foreign currency translation
Adjustment (28,274) 3,185 29,381
Common stock issued in exchange for
Notes receivable 200,000 1,568,750 1,768,750
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DATALINK SYSTEMS CORPORATION
(a development stage company)
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Formation and Business of The Company:
Datalink Systems Corporation (formerly Lord Abbott, Inc., a publicly traded
shell corporation) (the Company), is engaged in research and development and
marketing of wireless communication technologies. The Company s primary
activities to date have been acquiring and developing certain wireless
technologies, marketing, recruiting personnel and obtaining capital.
The Company is a development stage organization and accordingly its principal
functions have been completion of research and development activities, and
establishment of market presence.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the Company as well as other
information integral to these financial statements have been disclosed in the
notes to the financial statements included in the financial statements
included in form 10-KSB filed with the Securities and Exchange Commission at
the Company s fiscal year end, March 31, 1997. Readers of this form 10-QSB are
encouranged to refer to that form for additional details of the Company and
its accounting policies and required financial disclosures.
3. Sales of Technology
Effective May, 1997, Datalink completed a transaction with a Canadian
corporation (the Buyer) selling the Company's technology for cash and a note.
At closing for settlement Datalink received approximately $1,304,000, and a
note for approximate1y $10,100,000. The note is due June 30, 2007 and bears
interest at 6% per annum. The note is collateralized by the technology.
Datalink and the Buyer entered into a "Management and Marketing Agreement"
dated May, 1997 (the Agreement). The Agreement expires May, 2002, and may be
extended for two additional two year terms. The extension of the term will be
automatic and Datalink or the Buyer during any extension can terminate the
agreement with 90 days notice to the other party. The significant terms of the
agreement are as follows:
* Datalink will receive an annual fee of 15% of "Direct Cost Marketing,
Distributing and Selling" technology related services, as defined in the
Agreement,
* Datalink receives an exclusive worldwide right to use, modify and sub-
license the source code for the technology, including application software,
intellectual property and documentation,
* Datalink has first right of resale in the event the Buyer desires to
transfer all or part of the application software,
* The Buyer will receive, commencing September 30, 1997, an annual
"owners fee" of $475,000, the owners fee to be applied as follows: pay accrued
interest and the excess., if any; a) 55% of the remaining fee applied to the
note balance, and b) 45% of the remaining fee paid in cash to the Buyer until
the note is paid in full,
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Buyer will receive the "net revenue less owners fee payable," as defined in
the Agreement, related to the technology sold to be applied as follow: a) 55%
of the net revenue applied to the note balance, and b) 45% of the net revenue
paid in cash to the Buyer until the note is paid in full, and
* After the note is paid, the "net revenue," as defined in the Agreement,
related to the technology sold to be applied as follows; 45% of the net
revenue paid in cash to the Buyer, and 55% retained by the Company.
The cash received by Datalink has been accounted for under the provisions of
the "Emerging Issues Task Force, 88- 18: Sale of Future Revenues." It is
expected that the owners fees and net revenue allocated to the buyer will not
be sufficient to service the note receivable principle and interest payments
due Datalink and as such the note has not been recorded.
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 '98 Q1 '97 Change
------- -------- --------
Net sales $149,453 $22,908 $126,545
Net sales increased due to the Company realizing revenue from sales of
services to customers during the quarter for its QuoteXpress product. In the
first quarter of fiscal 1997, sales of services were just commencing.
GROSS PROFIT Q1 '98 Q1 '97 Change
------- -------- -------
Gross profit $49,756 $5,584 $44,172
Percentage of net sales 34% 25%
Gross profit as well as the gross profit percentage increased due to the
Company experiencing economies of scale. In Q1'97, the Company was
establishing an infrastructure to commence sales of services to customers.
RESEARCH AND DEVELOPMENT Q1 '98 Q1 '97 Change
-------- -------- -------
Research and development $147,411 $78,901 $68,510
Percentage of net sales 99% 345%
Research and Development expenses increased in absolute dollars, primarily due
to increases in personnel 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 $386,948 $60,574 $326,374
Percentage of net sales 259% 265%
-8-
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Selling and marketing expenses increased in absolute dollars due to increased
advertising expenditures, consultants and salaries. As the Company s products
have become ready for sale, the costs to market them have increased
accordingly. On a percentage basis the amount of expenses decreased due to the
sales dollars increasing.
GENERAL AND ADMINISTRATIVE Q1 '98 Q1 '97 Change
-------- ---------- ---------
General and administrative $478,527 $1,170,463 $(691,935)
Percentage of net sales 321% 5,110%
General and administrative expenses for the quarter decreased compared to the
first quarter of 1997, largely due to the fact that in Q1, 1997 there were a
number of equity related transactions which resulted in the recognition of
general and administrative expenses. In the current Q1, 1998 there were less
expenses.
TECHNOLOGY OWNERS FEES Q1 '98 Q1 '97 Change
-------- ------ ---------
Shalcor Owner's Fees $273,750 0 $273,750
Romex Owners's Fees 118,750 0 118,750
-------- ---- --------
Totals 392,500 0 392,500
Percentage of net sales 263%
The Company has ontered into the sales of technology. The income related to
these sales is being recognized ratably over the payment period. These
agreements were not in existance in Q1 1997.
OTHER INCOME (EXPENSE) Q1 '98 Q1 '97 Change
------- -------- -------
Other income (expense) $479,824 $(61,173) $540,997
Percentage of sales 321% (409)%
Other income includes interest income from notes receivable related to the
sales of technology (see above discussion). This agreement was not in
existence in Q1 1997.
NET LOSS Q1 '98 Q1 '97 Change
-------- ---------- ---------
Net loss $875,807 $1,306,465 $(430,658)
Percentage of net sales 586% 5,703%
Net losses decreased due to a decrease in the costs of equity related
transactions which were charged to general and administrative expenses in Q1
1997, but which were not charged in Q1 1998.
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.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $1,959,644 in working capital compared to
$1,467,334 at March 31, 1997. The increase was due primarily to the receipt
of $1,303,565 in connection with the sale of certain technology, which was
offset by the $875,807 loss for the three months ended June 30, 1997.
For the three months ended June 30, 1997, cash used in operating activities
totaled approximately $700,000, consisting primarily of increases in sales and
marketing expenses as well as general and administrative expenses necessary in
establishing the Company.
Subsequent to the end of the quarter the Company entered into a letter of
intent with an investment banking firm for a private offering of convertible
preferred stock. The offering will be a best efforts offering with a $4
million minimum and an $8 million maximum. There is no assurance that the
offering will be completed.
The Company believes that existing cash balances together with the additional
equity investment will be sufficient to finance the Company's 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.
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
Exhibit 27 - Financial Data Schedule
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 19, 1997 By/s/ Anthony N. LaPine
Anthony N. LaPine, President and
Chief Executive Officer (Principal
Executive Officer)
By/s/ Thomas C. Bland
Thomas C. Bland, Chief Financial
Officer (Principal Financial Officer)
DATALINK SYSTEMS CORPORATION
COMPUTATION OF NET LOSS PER SHARE
(unaudited)
Cumulative
period from
June 15,
Three Months Ended 1993 (date of
June 30, inception) to
Primary: 1997 1996 June 30, 1997
- -------- --------- --------- -------------
Weighted average common shares out-
standing for the period 19,275,233 15,922,074 13,780,986
---------- ---------- ----------
Shares used in per share calcula-
tions 19,275,233 15,922,074 13,780,986
Net loss $ 875,807 $ 1,365,527 $7,811,413
Net loss per share $ 0.05 $ 0.09 $ 0.57
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 3 and 4 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,445,330
<SECURITIES> 0
<RECEIVABLES> 275,088
<ALLOWANCES> (2,768)
<INVENTORY> 0
<CURRENT-ASSETS> 2,736,456
<PP&E> 452,449
<DEPRECIATION> (85,189)
<TOTAL-ASSETS> 3,106,216
<CURRENT-LIABILITIES> 776,812
<BONDS> 0
<COMMON> 19,283
0
0
<OTHER-SE> (263,799)
<TOTAL-LIABILITY-AND-EQUITY> 2,736,456
<SALES> 149,453
<TOTAL-REVENUES> 149,453
<CGS> (99,697)
<TOTAL-COSTS> 1,405,386
<OTHER-EXPENSES> (875,807)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (875,807)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875,807)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
