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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 17, 1998
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Date of Report (date of earliest event reported)
DATALINK SYSTEMS CORPORATION
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Exact Name of Registrant as Specified in its Charter
Nevada 0-21069 35-3574355
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State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
1735 Technology Drive, Suite 790, San Jose, CA 95110
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Address of Principal Executive Offices, Including Zip Code
(408) 367-1700
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Registrant's Telephone Number, Including Area Code
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ITEM 4. CHANGES IN THE REGISTRANT'S CERTIFYING ACCOUNTANT
On July 17, 1998, Datalink Systems Corporation (the "Company") received
notification from Pricewaterhouse Coopers LLP ("PwC"), formerly Coopers &
Lybrand L.L.P., the Company's independent accountants for the fiscal years
ended March 31, 1996, 1997 and 1998 stating that PwC had resigned. The
reports of PwC on the Company's financial statements for the fiscal years
ended March 31, 1996, 1997 and 1998 did not contain an adverse opinion or
disclaimer of an opinion nor were they qualified or modified as to
uncertainty, audit scope or accounting principles or practices.
In Exhibit 16 to this Current Report on Form 8-K/A, PwC has submitted a
response letter, as required by Item 304(a) of Regulation S-B, to the
Company's 8-K filing made on July 24, 1998. The Company agrees with the
statement of PWC made therein that,
"Other than this matter, in connection with its audits for the
two most recent fiscal years and through July 17, 1998, there
have been no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved
to the satisfaction of PwC would have caused them to make reference
in their report on the financial statements for such years."
The PwC "matter" referred to above concerns a disagreement the Company had
with PwC regarding the application of Emerging Issues Task Force abstract
88-18 (hereinafter "EITF 88-18") to revenues from certain sales of technology
in fiscal years 1997 and 1998.
During the course of the fiscal year ended March 31, 1997, PwC did not
recommend the application of EITF 88-18 to the treatment of such revenues for
purposes of the Company's financial disclosure in its quarterly SEC filings.
However, prior to filing the Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997 (the "1997 10-KSB"), PwC introduced the EITF 88-18
treatment to said revenues. At that time, the Company raised concerns
regarding this treatment, as documented in PwC's correspondence to the
Company's Board of Directors dated September 29, 1997, wherein PwC states:
"Recognition of the Shalcor transaction in accordance with EITF
88-18 is required and though management disagreed with the account-
ing treatment it did record the transaction in accordance with
EITF 88-18."
The same EITF 88-18 issue arose during the audit for the fiscal year 1998
concerning a similar sale of technology. Once again, the Company and PwC
revisited the applicability of this treatment to the sale of technology. The
Company asked PwC to explain the rationale for using EITF 88-18 and had
discussions with PwC regarding the meaning of the term "investor" as used in
the application of EITF 88-18.
With the intention of researching the EITF 88-18 treatment, the Company
consulted with two accounting consultants regarding clarification of the
foregoing issue; however, the Company did not, and disclaims any suggestion
that it did, seek the opinion of any accountant other than PwC. Although
alternative sale of technology accounting treatments were suggested by the
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Company, none were found acceptable to PwC. Consequently, the Company
acquiesced in favor of PwC. All financial disclosures in the Company's SEC
filings for the fiscal years 1997 and 1998 have been made in accordance with
PwC's direction and approval.
Regarding other issues addressed in the PwC response letter (Exhibit 16),
the Company submits the following:
In September 1997, PwC advised the Company's Board of Directors of
certain "internal control weaknesses." The Company's management has addressed
and rectified each of these issues, as described below:
PWC ISSUE: Failure to timely file periodic reports as required by
the Securities Exchange Act of 1934, as amended (the "Exchange Act.")
COMPANY RESOLUTION: The Company was late in filing the 1997 10-KSB.
This was in large part due to requirements made by PwC during July
1997 to make last minute adjustments to the 10-KSB as required by
the unexpected application of EITF 88-18. PwC delivered its original,
manually-executed report on the Company's financial statements for the
year ended March 31, 1997 under a cover letter dated August 12, 1997.
This is the same date of PwC's consent to refer to and include its
report in the 1997 10-KSB. The 1997 10-KSB was subsequently filed
on August 12, 1997. The last minute adjustments required for the
1997 10-KSB also applied to the report for the quarter ended June 30,
1997 and caused this report to be filed one date late. The Company
has since filed all reports required to be filed by it pursuant to
the Exchange Act on a timely basis.
PWC ISSUE: Material Audit adjustments related to the sale of tech-
nology, accounts payable and accrued liabilities and common stock
transaction.
COMPANY RESOLUTION: All adjustments related to the sale of tech-
nology were made as a result of the implementation of EITF 88-18.
Adjustments to accounts payable, accrued liabilities, and common
stock transactions were required due to Company practices occurring
prior to the Company becoming publicly-held. After the Company
became public, all required adjustments were completed. PwC has
since audited and issued its report on the Company's financial
statements for the fiscal year ended March 31, 1998.
PWC ISSUE: Adequacy of records maintained by the Company related
to certain prior common stock transactions.
COMPANY RESOLUTION: The claimed inadequacy of records maintain by
the Company related to certain prior common stock transactions were
considered to be the result of past practices prior to the date the
Company became a public company. Since the Company became publicly-
held, such records have also been maintained by the Company's trans-
fer agent, American Securities Transfer & Trust, Inc. PwC has since
audited and issued its report on the Company's financial statements
for the fiscal year ended March 31, 1998.
In addition, PwC states in the response letter (Exhibit 16) that
"material audit adjustments were necessary" causing a need for the Company to
restate its report for the quarter ended December 31, 1997, in Form 10-QSB.
Although Company management is unaware of any communication made by PwC during
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the March 31, 1998 audit advising the necessity of material adjustments to its
report for the quarter ended December 31, 1997, in Form 10-QSB, the Company is
prepared to make any adjustments that PwC requires.
Finally, the report of PwC dated June 19, 1997 on the Company's financial
statements as of March 31, 1997 and for the year then ended, which contained a
paragraph stating that the Company's recurring losses from operations raised
substantial doubt as to the Company's ability to continue as a going
concerning, was filed with the Commission in August 1997 as required.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: None
(b) Pro Forma Financial Information: None
(c) Exhibits:
16 Letter of PricewaterhouseCoopers LLP required by
Item 304(a)(3) of Regulation S-B*
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* Filed herewith electronically.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, hereunto duly authorized.
DATALINK SYSTEMS CORPORATION
Dated: August 5, 1998 By/s/ Anthony N. LaPine
Anthony N. LaPine, President
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EXHIBIT 16
PricewaterhouseCoopers, LLP
Ten Almaden Boulevard, Suite 1600
San Jose, California 95113
July 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Datalink Systems Corporation (copy
attached) which we understand were filed with the Commission, pursuant to Item
4 of Form 8-K, as part of the Company's Form 8-K report for the month of July
1998. We agree with the statements concerning our Firm, which should have
been referred to as PwC, contained in such Form 8-K, except as set forth
below:
The second sentence of paragraph 2 states that "the Company asked PC to
explain the rationale for using EITF 88-18 including the ambiguity of the term
"investor" required in the application of EITF 88-18. When PC could not do
so, the Company questioned the applicability of EITF 88-18." We consider
there to be no ambiguity over the accounting treatment of revenues arising
from the sale of certain technologies and that EITF 88-18, "Sale of Future
Revenues," including its definition of "investor," applies to these
transactions. The rationale for using EITF 88-18 was discussed at length with
the Company's management during our audits for the years ended March 31, 1998
and 1997. Footnotes 5 and 6 of the financial statements for the years ended
March 31, 1998 and 1997, respectively, disclose the nature of the transaction
and related accounting.
The first sentence of paragraph 3 states "the Company was asked by PC to
provide an alternative GAAP treatment that PC would find acceptable." We did
not request the Company to seek an alternative accounting treatment. The
Company advised PwC that it would seek alternative accounting treatment if PwC
did not change its position on the appropriate accounting. We continually
advised the Company that EITF 88-18 was the appropriate accounting principle.
The third sentence of paragraph 3 states "all SEC filings have been made in
accordance with PC's direction and approval." Our role is not to direct and
approve SEC filings. Our responsibility with respect to other information in
a document (e.g., Form 10-KSB) does not extend beyond the financial
information identified in our report.
Paragraph 5 of the filing states that "The Company is not aware of any current
disagreement or reportable event, within the meaning of Item 304 of Regulation
S-B." In September 1997, we advised the Board of Directors of certain
internal control weaknesses, which we considered to be reportable conditions
which constituted "material weaknesses" as defined by the American Institute
of Certified Public Accountants. These material weaknesses were as follows:
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* Failure to file periodic reports required under the Securities
and Exchange Act of 1934 on a timely basis;
* Material audit adjustments related to the sale of technology,
accounts payable and accrued liabilities and common stock
transactions;
* Adequacy of accounting records maintained by the Company related
to common stock transactions.
Similarly, during the March 31, 1998 audit, material audit adjustments were
necessary in connection with certain equity related transactions. In June
1998, we advised the Company that those adjustments would necessitate the
restatement of the Company's financial statements in its Form 10-QSB for the
quarter ended December 31, 1997. The effect of such restatement would be to
increase additional paid-in capital and accumulated deficit by approximately
$10.7 million and to adjust related loss-per-share data. As of the date of
this letter, we are not aware that an amended Form 10-QSB has been filed with
the Commission. Concurrent with the issuance of this letter, we will be
formally advising the Audit Committee that these adjustments also constitute
"material weaknesses" in internal control.
Other matters, which should have been disclosed by the Company, are as
follows.
Except as described below in the following sentence, the reports of PwC on the
Company's financial statements for the fiscal years ended March 31, 1996 and
1997 did not contained an adverse opinion or disclaimer of opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The report of PwC dated June 19, 1997 on the Company's financial
statements as of March 31, 1997 and for the year then ended contained a
paragraph stating that the Company's recurring losses from operations raised
substantial doubt as to the Company's ability to continue as a going concern.
The disagreement discussed in paragraph 2 occurred during both of the
Company's fiscal years ended March 31, 1998 and 1997. Other than this matter,
in connection with its audits for the two most recent fiscal years and through
July 17, 1998, there have been no disagreements with PwC on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PwC would have caused them to make reference thereto in their
report on the financial statements for such years.
During our audit for the Company's fiscal year end March 31, 1998, we were
informed by certain members of management that they had sought the opinions of
several other accounting firms regarding the matter of disagreement discussed
above.
Very truly yours,
PricewaterhouseCoopers LLP
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