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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 December 31, 1998
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
Incorporation or Organization) Number)
1735 Technology Drive, Suite 790, San Jose, CA 95110
-----------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(408) 367-1700
---------------------------
(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 2,157,779 shares of the Registrant's Common Stock outstanding as of
December 31, 1998.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
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DATALINK SYSTEMS CORPORATION
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Condensed Consolidated Balance Sheets
December 31, 1998 and March 31, 1998 3
b. Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three months ended
December 31, 1998 and 1997, and the nine months
ended December 31, 1998 and 1997 4
c. Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1998 and 1997 5
d. Notes to the Condensed Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 14
ITEM 2. CHANGES IN SECURITIES. 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14
ITEM 5. OTHER INFORMATION. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
EXHIBITS
INDEX TO EXHIBITS
EXHIBIT 27 FINANCIAL DATA SCHEDULE
2
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DATALINK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1998 1998
(unaudited)
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,957,351 $ 7,353,719
Trade receivables 57,491 65,241
Other receivables 5,264 500
Prepaid expenses 69,810 42,537
------------ ------------
Total current assets 4,089,916 7,461,997
Property and equipment, net 752,494 629,696
Other assets 54,791 23,625
------------ ------------
Total assets $ 4,897,201 $ 8,115,318
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 688,911 $ 236,469
Accrued liabilities 164,012 300,450
Current portion of capital
lease obligation 13,664 13,699
Current portion of advance
on technology sales 439,547 460,501
Deferred revenue 356,297 269,538
------------ ------------
Total current liabilities 1,662,431 1,280,657
Obligation under capital lease,
net of current portion 51,389 62,640
Advances on technology sales, net
of current portion 1,835,706 2,162,628
------------ ------------
Total Liabilities 3,549,526 3,505,925
SHAREHOLDERS' EQUITY
Convertible Preferred stock 2,616 2,740
Common stock 21,577 20,183
Additional paid-in capital 28,070,831 28,007,037
Foreign currency translation
adjustment (85,724) (53,923)
Notes receivable (1,373,599) (1,692,234)
Accumulated deficit (25,288,026) (21,674,410)
------------ ------------
Total shareholders' equity 1,347,675 4,609,393
------------ ------------
Total liabilities and
shareholders' equity $ 4,897,201 $ 8,115,318
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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DATALINK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 561,414 $ 271,367 $ 1,658,070 $ 643,632
Cost of revenue (204,771) (136,515) (637,115) (341,982)
Research and develop-
ment (153,023) (201,652) (595,082) (520,325)
Sales and marketing (625,366) (536,185) (2,534,922) (1,351,825)
General and adminis-
trative (621,215) (493,737) (2,152,961) (1,776,879)
Other income (Note 3) 204,381 242,724 648,394 535,086
---------- ------------ ----------- ------------
Net loss $ (838,580) $ (853,998) $(3,613,616) $ (2,812,293)
Deemed dividends on
Preferred stock (8,083,000) (8,083,000)
Beneficial conversion
Feature of warrants in
association with
Preferred stock (2,624,000) (2,624,000)
---------- ------------ ----------- ------------
Net loss
Available to common
Shareholders $ (838,580) $(11,560,998) $(3,613,616) $(13,519,293)
========== ============ =========== ============
Net loss, per above $ (838,580) $ (853,998) $(3,613,616) $( 2,812,293)
Other Comprehensive
Income (Loss) -
Translation (36,039) (4,761) (31,801) 13,798
---------- ------------ ----------- ------------
Comprehensive Loss $ (874,619) $ (858,759) $(3,645,417) $( 2,798,495)
========== ============ =========== ============
Net loss per share:
Basic $ (0.41) $ (5.93) $ (1.78) $ (6.99)
Diluted $ (0.41) $ (5.93) $ (1.78) $ (6.99)
Shares used in per
share calculations,
basic and diluted 2,039,701 1,950,901 2,031,873 1,934,111
========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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DATALINK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
December 31,
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $(3,613,616) $(2,812,293)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 127,490 79,882
Foreign currency translation adjustment (31,801) 13,798
Amortization of technology advances (347,876) (354,444)
Amortization of notes receivable 318,635 346,431
Changes in assets and liabilities:
Accounts and other receivables 2,986 (18,938)
Prepaid and other assets (27,273) (28,155)
Accounts payable and accrued liabilities 334,180 164,240
Deferred revenue 86,759 113,683
----------- ------------
Net cash used in operating activities (3,150,516) (2,495,796)
----------- ------------
Cash used in investing activities:
Acquisition of fixed assets (250,288) (259,541)
Deposits (31,166) (13,860)
----------- ------------
Net cash used in investing activities (281,454) (273,401)
----------- ------------
Cash flows from financing activities:
Issuance of preferred stock 9,226,000
Offering expenses, sale of
Preferred stock (1,309,000)
Payments on capital leases (11,286) (2,093)
Proceeds from sale of common stock 46,888
Advances on technology fee 1,303,565
----------- ------------
Net cash provided by financing
activities 35,602 9,218,472
----------- ------------
Net increase (decrease)in cash and
cash equivalents (3,396,368) 6,449,275
Cash and cash equivalents, beginning
of period 7,353,719 1,916,509
----------- ------------
Cash and cash equivalents, end of period $ 3,957,351 $ 8,365,784
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Preferred stock issued in exchange for
Notes receivable $ -- $ 1,050,000
=========== ============
Equipment exchanged for capital lease $ -- $ 81,640
=========== ============
Common Stock exchanged for accrued expenses $ 18,176 $ --
=========== ============
Common Stock exchanged for Preferred Stock $ 124 $ --
=========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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DATALINK SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Formation and Business of the Company
Datalink Systems Corporation (the "Company") was established in 1993 to
deliver personalized financial and lifestyle information to wireless devices.
The Company developed technology that combines real-time data feeds, and
Internet and wireless communications to provide customized information
services to wireless devices such as pagers and digital cellular phones. The
Company web site and customer support team both provide account maintenance
services that enable subscribers to customize the types of information alerts
they receive. All services are marketed from an e-commerce enabled web site
as well as through direct and indirect re-seller distribution channels.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine-month
period ended December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB-A for the year
ended March 31, 1998. Per SFAS 130, Reporting Comprehensive Income, all
changes in equity except those resulting from investments by owners and
distributions to owners should be reported in comprehensive income.
Accordingly, the Company has included its foreign translation adjustment in
the statement of comprehensive loss for the respective periods.
3. Other Income
Other income consists of the following items:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
Description 1998 1997 1998 1997
- ----------- ---------- --------- ------------ ------------
Owners fee sale of
technology $(392,500) $(392,500) $(1,177,500) $(1,177,500)
Interest on note from
sales of technology 392,500 392,500 1,177,500 1,177,500
Amortization of tech-
nology advance 114,331 120,570 347,881 354,444
Interest income 98,286 122,837 325,145 228,891
Miscellaneous expenses (8,236) (683) (24,632) (48,249)
--------- --------- ------------ -----------
Total other income
$ 204,381 $ 242,724 $ 648,394 $ 535,086
========= ========= =========== ===========
6
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4. Calculations of Net Loss per share
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
------------ ------------ ----------- ------------
Weighted average common
shares outstanding for
the period 2,039,701 1,950,901 2,031,873 1,934,111
Shares used in per
share calculations 2,039,701 1,950,901 2,031,873 1,934,111
Net loss available to $ (838,580) $(11,560,998) $(3,613,616) $(13,519,293)
common shareholders =========== =========== =========== ============
Net loss per share $ (0.41) $ (5.93) $ (1.78) $ (6.99)
Calculated in accordance with the guidelines of Item 601 of Regulation S-B.
Basic and diluted calculations are substantially the same.
Common stock equivalents resulting from convertible preferred shares, warrants
and stock options amounted to 5,328,930 and 5,233,639 as of December 31, 1998
and 1997, respectively. These common stock equivalents are excluded from the
weighted average common shares outstanding for the periods because their
inclusion would be anti-dilutive.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue increased from $271,367 and $643,632 in the three and nine month
periods ended December 31, 1997 to $561,414 and $1,658,070 in the three and
nine month periods ended December 31, 1998. The increase in revenues is due
principally to development of new products along with sales and marketing
strategies designed to capture new business through both direct and indirect
sales channels utilizing sales personnel and extensive print and media
advertising.
Net Revenues for the Three
Months Ended December 31,
----------------------------
Product 1998 1997 Increase
- ------- ---------- ---------- ----------
QuoteXpress $ 289,808 $ 216,965 $ 72,843
SplitXpress 231,770 53,723 178,047
CommodityXpress 19,739 0 19,739
Other 20,097 679 19,418
---------- ---------- ----------
Totals $ 561,414 $ 271,367 $ 290,047
========== ========== ==========
Net Revenues for the Nine
Months Ended December 31,
----------------------------
Product 1998 1997 Increase
- ------- ---------- ---------- ----------
QuoteXpress $ 787,425 $ 546,688 $ 240,737
SplitXpress 792,263 95,703 696,560
CommodityXpress 53,537 0 53,537
Other 24,845 1,241 23,604
---------- ---------- ----------
Totals $1,658,070 $ 643,632 $1,014,438
========== ========== ==========
In the later part of 1997, the Company recruited personnel to refine and
execute the Company's marketing and sales plan. These individuals developed a
sales and marketing strategy which identified key markets and business
opportunities, and which required development of additional sophisticated
financial information products. The sales and marketing strategy provided for
the use of a direct sales channel utilizing extensive print and media
advertising together with an inside sales call center and world wide web site
to solicit subscriptions to the Company's services directly from consumers.
In addition, an indirect sales channel initiative was launched which involves
developing joint marketing alliances with various wireless carriers,
information service providers, Internet companies and retail stores to market
and sell the Company's services as value added to the products and services
provided by the alliance company.
In early 1998, an extensive advertising campaign involving direct mail,
television and print advertisements was implemented to promote the direct
sales channel marketing initiative. In May 1998, the Company recognized a
8
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need to develop a series of non-financial products relating to life style.
Among these products are a real-time sports alert service, a general lifestyle
service providing updates on weather, horoscopes, ski and surf reports,
winning lottery numbers, and other information. The Company also launched a
major Internet marketing initiative providing on-line capabilities for sales
and account maintenance of these new products along with the financial
products.
The new lifestyle products were introduced in the Fall of 1998, about the time
the US financial markets were negatively impacted by a stock market
correction. A decrease in new financial product sales at that time caused the
Company to reassess its marketing plan and it was determined that the costs of
continuing to acquire additional customers through direct sales, driven
principally by extensive media and print advertising, was not cost effective.
While continuing to promote and sell products through the direct channel
marketing model, the Company is engaging in an indirect channel strategy for
marketing its services.
COST OF REVENUES AND GROSS MARGIN
The cost of revenues has increased from the three and nine month periods ended
December 31, 1997, due to the increase in net revenues. Cost of revenues
represents the direct costs necessary to provide the services to customers.
As more services are provided to more customers, the cost of providing these
services also increases. Cost of revenues principally includes costs to
obtain data feeds from various exchanges, costs for pager rental and airtime,
and certain telephone costs. The following tables show the net revenues, cost
of revenues, and gross margin for the three months and nine months ended
December 31, 1998 and 1997:
Three Months Ended December 31, Increase
-------------------------------- --------------------
1998 1997 $ %
------------- --------------- -------- --------
Net revenues $561,414 $271,367 $290,047 106.9%
Cost of revenues 204,771 136,515 68,256 50.0%
Gross margin 356,643 134,852 221,791 164.5%
Nine Months Ended December 31, Increase
------------------------------ ----------------------
1998 1997 $ %
------------- ------------- ---------- --------
Net revenues $1,658,070 $643,632 $1,014,438 157.7%
Cost of revenues 637,115 341,982 295,133 86.3%
Gross margin 1,020,955 301,650 719,305 238.5%
As can be noted from the tables, the increase in revenues has not resulted in
a proportional increase in the cost of revenues. This is due to the economies
of scale, as some portions of costs are relatively fixed and do not increase
in proportion to revenues.
OPERATING EXPENSES
Operating expenses have increased overall from the prior year periods. The
Company classifies operating expenses into three major categories: research
and development, sales and marketing, and general and administrative. The
tables shown below summarize the changes in these three categories of
operating expenses:
9
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Three Months Ended December 31, Increase (Decrease)
-------------------------------- ---------------------
Description 1998 1997 $ %
- ----------- ------------- --------------- ---------- --------
Research and
development $ 153,023 $ 201,652 $ (48,629) (24.2%)
Sales and
marketing 625,366 536,185 89,181 16.7%
General and
administrative 621,215 493,737 127,478 25.9%
---------- ---------- ---------- -----
Totals $1,399,604 $1,231,574 $ 168,030 13.7%
========== ========== ========== =====
Nine Months Ended December 31, Increase
------------------------------ ---------------------
Description 1998 1997 $ %
- ----------- ------------- ------------- ---------- --------
Research and
development $ 595,082 $ 520,325 $ 74,757 14.4%
Sales and
marketing 2,534,922 1,351,825 1,183,097 87.6%
General and
administrative 2,152,961 1,776,879 376,082 21.2%
---------- ---------- ---------- -----
Totals $5,282,965 $3,649,029 $1,633,936 44.8%
========== ========== ========== =====
Research and development expenses are expenses incurred in developing new
products and product enhancements for current products. While research and
development costs increased in the nine month period due principally to the
costs related to new product development including CompanyNewsX, Sports2Go,
RumorXpress, InfoXtra and InfoSampler, most of these increased costs were
incurred prior to the last quarter. Research and development enjoyed a small
decrease in the last quarter due primarily to a reduction in engineering
personnel.
Sales and marketing expenses consist of costs incurred to develop marketing
programs to market the Company's products, including costs required to staff
and execute a sales and marketing strategy, participation in trade shows,
media development, advertising in media such as television and printed
financial publications and the related overhead, and web site development and
maintenance. These costs also include the expense of an inside sales staff
and outside key account sales force, and an inside customer support call
center. These sales and marketing expenses have increased from prior year
periods, although the nine month increase is substantially higher both in
dollars and percentage than the three month increase because the increased
investment in sales and marketing was primarily initiated during the quarter
ended December 31, 1997. Also, sales and marketing expenses have actually
decreased substantially in the quarter ended December 31, 1998 from the
previous quarter ended September 30, 1998 due primarily to a phase down of
advertising and public relations expenditures. Over the course of the last
twelve months, the Company hired additional marketing and sales personnel,
conducted market research, developed new sales and marketing materials for all
products, including materials for the new products, Sports2Go, RumorXpress,
InfoXtra, CompanyNewsX and the InfoSampler.
10
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Media and print advertising materials and advertising placement were increased
substantially, although these costs have been substantially reduced in the
quarter ended December 31, 1998 due to the Company's decision to discontinue
the extensive media and print advertising at this time. Other increases were
expenditures related to the development of the Company's web site for product
sales and account maintenance, which was considered necessary for e-commerce,
development of collateral for trade shows and the initiation of the Company's
retail marketing and sales effort through retail stores selling wireless
hardware and airtime.
General and administrative expenses are classified as costs incurred in the
development and operation of the infrastructure of the Company. These costs
consist of rent, insurance, legal, accounting and audit, depreciation
expenses, general management personnel and other overhead related expenses.
These expenses tend to be higher in relation to revenues than expected due
several factors including the costs related to Datalink being a publicly held
corporation, competition for qualified professional personnel in the Silicon
Valley, and the developing nature of the business. Additionally, general and
administrative costs include non-cash, note amortization expenses of
approximately $318,000 and $346,000 in the nine month periods ended December
31, 1998 and 1997, respectively. General and administrative expenses have
increased in the quarter and nine month periods from the prior year periods
due to growth related expenses including larger office facilities in San Jose,
additional staff including a Director of Human Resources and a full time Chief
Financial Officer, and overhead related to the increase in Company operations.
NON-OPERATING REVENUES AND EXPENSES
Non-operating revenues and expenses consist primarily of interest income from
invested cash, amortization of deferred revenue from technology sales
advances), and the owners fees and associated interest income related to the
sale of technology. The following tables show the changes in the other income
(expense) account.
Three Months Ended December 31, Increase (Decrease)
------------------------------- ---------------------
Description 1998 1997 $ %
- ----------- ------------- --------------- ---------- ---------
Owner's fee-sales
of technology $(392,500) $(392,500) $ 0 0%
Interest income
sales of tech-
nology 392,500 392,500 0 0%
Amortization of
technology
advance 114,331 120,570 (6,239) 5.2%
Interest income 98,286 122,837 (24,551) (20.0%)
Miscellaneous (8,236) (683) (7,553) (110.6%)
--------- --------- --------- --------
Totals $ 204,381 $ 242,724 $(38,343) (15.8%)
========= ========= ========= ========
11
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Nine Months Ended December 31, Increase (Decrease)
----------------------------- ----------------------
Description 1998 1997 $ %
- ----------- ------------- ------------- ----------- ---------
Owner's fee-sales
of technology $(1,177,500) $(1,177,500) $ 0 0%
Interest income
sales of tech-
nology 1,177,500 1,177,500 0 0%
Amortization of
technology
advance 347,881 354,444 (6,563) (1.9%)
Interest income 325,145 228,891 96,254 42.1%
Miscellaneous (24,632) (48,249) 23,617 (49.0%)
----------- ----------- --------- -----
Totals $ 648,394 $ 535,086 $ 113,308 21.2%
=========== =========== ========= =====
As shown in the above tables, other income (expense) remain relatively
constant at this time. The amortization of the technology advances decreases
due to the application of the effective interest method of amortization on the
balance. As a result of the Private Placement which occurred in November 1997,
interest income (from invested cash) has increase in the nine month period
over the prior year period. Due to the usage of cash in operations subsequent
to the placement, interest income has decreased in the three month period
ended December 31, 1998 from the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a private placement of preferred stock during the
quarter ended December 31, 1997 which netted approximately $8,000,000 in new
funds. The Company also completed the sale of the QuoteXpress technology
during the nine months ended December 31, 1997, which generated an up-front
payment of approximately $1,300,000. Sources and uses of cash during the nine
month periods ended December 31, 1998 and 1997 were as follows:
Nine Months Ended December 31,
------------------------------
Product 1998 1997 Change
- ------- ------------ ------------- -----------
Cash used in operating
activities $(3,150,516) $(2,495,796) $ (654,720)
Cash used in investing
activities (281,454) (273,401) (8,053)
Cash provided by financ-
ing activities 35,602 9,218,472 (9,182,870)
----------- ---------- -----------
Net increase (decrease)
in cash $(3,396,368) $6,449,275 $(9,845,643)
=========== ========== ===========
As of December 31, 1998, the Company had cash and cash equivalents amounting
to $3,957,351, exclusive of reserves on deposit with our merchant bank of
$46,304, which reserves are not immediately available for usage. Working
capital decreased from $6,181,340 as of March 31, 1998, to $2,427,484 at
December 31, 1998, due in part to funds invested in development of new
products and aggressive media and print advertising campaigns. Additionally,
the Company has not yet generated sufficient revenues to defray costs
associated with continued product support and development, marketing and sales
costs and administrative expenses.
12
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As previously mentioned, a change in focus from direct channel marketing with
its attendant requirement of extensive advertising expenditures to development
of indirect channel marketing processes through suppliers and providers of
pagers and paging services, digital wireless phones and other related
services, along with our web based affiliate programs, should result in a
reduction of sales and marketing expenses in future periods. As of December
31, 1998, the Company has no ongoing advertising commitments, and there are no
material commitments for capital expenditures. Management believes that it
has adequate working capital for the next 12 months. The Company has a letter
of credit with a bank in the amount of $200,000, and has obtained a credit
line in the amount of $1,000,000.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the functioning of the
programming code in computer systems as the Year 2000 approaches. The Year
2000 issues result from the inability of some computer programs to distinguish
the year 1900 from the year 2000. Many computer programs and operating
systems were written using two digits to define the applicable year rather
than four digits. This means that any equipment containing computer programs
with time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. In some instances, this could result in system
failures, disruption in operations and possible inaccuracies of data.
Phase I of the Company's Year 2000 initiative has been to substantially
complete an inventory of all its IT and non-IT systems and equipment, and
based on this inventory, review its IT and non-IT proprietary systems and
contact its significant vendors to determine how their IT and non-IT products
and services might be effected by the Year 2000 issues. The Company's review
of its internal systems has resulted in the Company's determination that its
proprietary IT and non-IT systems meet the compliance requirements of the Year
2000. Eighty percent of the Company's vendors have provided statements that
their IT and non-IT systems are Year 2000 compliant. The Company continues to
collect statements from the remaining twenty percent of its vendors.
The Company anticipates that there will be little or no Year 2000 issues and
therefore little or no cost will be incurred therefrom. However, although
compliance confirmation has been provided by eighty percent of the Company's
vendors, and the remaining twenty percent have indicated that they are
currently Year 2000 compliant, there can be no assurance that these vendors
will not experience some level of Year 2000 issues that in some way may have
an adverse effect on the Company's systems. The level of risk related to this
occurrence has been assessed as very low. The Company's contingency plan in
the event that an unforeseen Year 2000 issues should occur
will be to change to another vendor that is Year 2000 compliant. For this
reason, Phase II of the Company's Year 2000 initiative is to develop an
inventory of back-up vendors for each vendor whose systems are currently used
so that if a current vendor develops a Year 2000 issue, the back-up vendor may
be called upon to provide services in accordance with Year 2000 compliance
standards.
13
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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.
On December 4, 1998 the Company held its annual meeting of shareholders. The
meeting took place at the Company offices. The record date for the meeting
was set as of the close of business on November 9, 1998. As of that date
there were 2,033,699 shares of the Company's common stock outstanding and
2,739,973 shares of Series A convertible preferred stock outstanding. The two
items voted on at the meeting were the election of directors and the
ratification of the appointment of the Company's auditors.
The results of the voting for the election of directors is as follows:
Anthony N PaPine, Chairman, 2,521,279 shares for and 18,092 shares withheld;
Marshall Geller, 2,521,966 shares for and 17,405 shares withheld, Frederick M.
Hoar, 2,521,966 shares for and 17,405 shares withheld, David Ladd, 2,521,966
shares for and 17,405 shares withheld, and Robert Priddy, 2,521,966 shares for
and 17,405 shares withheld. All the above were elected as directors of the
Company.
The appointment of BDO Seidman LLP as the Company's auditors was ratified with
2,411,208 shares for, 8,069 shares against and 2,328 shares abstaining.
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) Reports on Form 8-K. None
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: February 15, 1999 By:/s/ Anthony N. LaPine
Anthony N. LaPine, President and
Chief Executive Officer (Principal
Executive Officer)
By:/s/ William Mahan
William Mahan, Chief Financial
Officer (Principal Financial Officer)
14
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INDEX TO EXHIBITS
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule Filed herewith electronically
<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-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,957,351
<SECURITIES> 0
<RECEIVABLES> 81,350
<ALLOWANCES> (23,859)
<INVENTORY> 0
<CURRENT-ASSETS> 4,089,915
<PP&E> 1,068,445
<DEPRECIATION> (315,951)
<TOTAL-ASSETS> 4,897,200
<CURRENT-LIABILITIES> 1,662,431
<BONDS> 0
<COMMON> 21,577
0
2,616
<OTHER-SE> 1,323,482
<TOTAL-LIABILITY-AND-EQUITY> 4,897,200
<SALES> 1,658,070
<TOTAL-REVENUES> 1,658,070
<CGS> 637,115
<TOTAL-COSTS> 637,115
<OTHER-EXPENSES> 5,282,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,613,616)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,613,616)
<EPS-PRIMARY> (1.78)
<EPS-DILUTED> (1.78)
</TABLE>
