<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1998
Commission file number: 0-21069
DATALINK SYSTEMS CORPORATION
----------------------------------------------
(Name of small business issuer in its Charter)
Nevada 36-3574355
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1735 Technology Drive, Suite 790, San Jose, California 95110
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(408) 367-1700
---------------------------
(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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
[ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $962,461.
As of May 18, 1998, 2,018,293 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $8,790,618.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3 Articles of Incorporation and Incorporated by reference to
Bylaws Exhibit Nos. 2 and 3 to the
Registrant's Form 8-A filed
on July 22, 1996 (No. 0-21069)
3.1 Certificate of Designations, Filed herewith electronically
Powers, Preferences and Rights
of the Series A Convertible
Preferred Stock.
3.2 Certificate of Amendment to Filed herewith electronically
Articles of Incorporation
10.1 Agreement Concerning the Incorporated by reference to
Exchange of Common Stock Exhibit No. 10 to the Regis-
Between Datalink Systems trant's Form 8-K dated June 27,
Corporation and Datalink 1996
Communications Corporation
10.2 Application Software Purchase Incorporated by reference to
Agreement between Datalink Exhibit No. 10.1 to the Regis-
Systems Corporation and trant's Form 8-K dated August
Shalcor Investments 26, 1996
10.3 Management and Marketing Incorporated by reference to
Agreement between Datalink Exhibit No. 10.2 to the Regis-
Systems Corporation and trant's Form 8-K dated August
Shalcor Investments 26, 1996
10.4 8% Secured Term Note Incorporated by reference to
Exhibit No. 10.3 to the Regis-
trant's Form 8-K dated August
26, 1996
10.5 Employment Agreement with Incorporated by reference to
Nicholas Miller dated May 1, Exhibit 10.5 to the Regis-
1996 trant's Form 10-K dated
March 31, 1997
10.6 Employment Agreement with Anthony Incorporated by reference to
LaPine dated May 1, 1996 Exhibit 10.6 to the Regis-
trant's Form 10-K dated
March 31, 1997
10.7 Amendment No. 1 to Employment Incorporated by reference to
Agreement with Anthony LaPine Exhibit 10.7 to the Regis-
dated January 1, 1997 trant's Form 10-K dated
March 31, 1997
2
<PAGE>
<PAGE>
10.8 Lease Agreement with Anthony Incorporated by reference to
and Pamela LaPine dated January 2, Exhibit 10.8 to the Regis-
1997 trant's Form 10-K dated
March 31, 1997
10.9 Loan Forgiveness Agreement with Incorporated by reference to
Anthony LaPine dated June 28, 1996 Exhibit 10.9 to the Regis-
trant's Form 10-K dated
March 31, 1997
10.10 Directors Agreement with Nicholas Incorporated by reference to
Miller dated September 17, 1996 Exhibit 10.10 to the Regis-
trant's Form 10-K dated
March 31, 1997
10.11 Application Software Purchase Incorporated by reference to
Agreement between Datalink Systems Exhibit 10.1 to the Regis-
Corporation and 605285 Ontario Ltd. Form 8-K dated May 6, 1997
10.12 Management and Marketing Agreement Incorporated by reference to
between Datalink Systems Corpora- reference to Exhibit 10.2
tion and 6045285 Ontario Ltd. to the Registrant's Form 8-K
dated May 6, 1997
10.13 6% Secured Term Note Incorporated by reference to
Exhibit No. 10.3 to the
Registrant's Form 8-K dated
May 6, 1997
21 Subsidiaries of the Registrant Incorporated by reference to
Exhibit 22 to the Registrant's
Form 10-K dated March 31, 1997
23 Consent of BDO Seidman, L.L.P. Filed electronically herewith
27 Financial Data Schedule Previously filed
(b) REPORTS ON FORM 8-K. None.
3
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
Report of Independent Accountants . . . . . . . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheets, March 31, 1998 and 1997 . . F-3
Consolidated Statements of Operations for the years
ended March 31, 1998 and 1997. . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity
for the years ended March 31, 1998 and 1997. . . . . . . F-5 - F-8
Consolidated Statements of Cash Flows for the years
ended March 31, 1998 and 1997. . . . . . . . . . . . . . F-9 - F-10
Notes to Financial Statements. . . . . . . . . . . . . . F-11 - F-25
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Datalink Systems Corporation:
We have audited the accompanying consolidated balance sheets of Datalink
Systems Corporation and subsidiary as of March 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Datalink Systems
Corporation and subsidiary as of March 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman, L.L.P.
BDO SEIDMAN, L.L.P.
San Jose, California
December 2, 1998
F-2
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1998 1997
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 7,353,719 $ 1,916,509
Trade receivables (net of allowance for
doubtful accounts of $9,800 in 1998
and $1,500 in 1997) 65,241 49,685
Other receivables 500 4,733
Prepaid expenses 42,537 5,432
----------- -----------
Total current assets 7,461,997 1,976,359
Property and equipment, net 629,696 321,368
Other assets 23,625 14,741
----------- -----------
Total assets $ 8,115,318 $ 2,312,468
=========== ===========
LIABILITIES
Current liabilities:
Bank overdraft $ - $ 21,521
Accounts payable 236,469 131,188
Accrued liabilities 300,450 93,024
Deferred revenue 269,538 -
Current portion of capital lease obligation 13,699 -
Current portion of advances on technology sales 460,501 263,292
----------- -----------
Total current liabilities 1,280,657 509,025
Advances on technology sales,
net of current portion 2,162,628 1,531,154
Obligations under capital leases,
net of current portion 62,640 -
----------- -----------
Total liabilities 3,505,925 2,040,179
----------- -----------
Commitments and contingencies (Notes 13 and 15)
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock: $.001 par value:
Authorized: 5,000,000 convertible shares in 1998
and 1997; issued and outstanding: 2,740,000 in
1998 and none in 1997 2,740 -
Common Stock: $.01 par value in 1998; Authorized:
8,000,000 shares in 1998 and 5,000,000 shares
in 1997; issued and outstanding: 2,018,293
shares in 1998 and 1,918,293 shares in 1997 20,183 19,183
Additional paid-in capital 28,007,037 8,335,777
Foreign currency translation adjustment (53,923) (57,655)
Notes receivable (1,692,234) (1,089,410)
Accumulated deficit (21,674,410) (6,935,606)
----------- -----------
Total shareholders' equity 4,609,393 272,289
----------- -----------
Total liabilities and shareholders' equity $ 8,115,318 $ 2,312,468
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
--------------------------
1998 1997
------------ -----------
Revenue $ 962,461 $ 196,891
Cost of revenue (530,545) (159,058)
Research and development (755,080) (544,585)
Sales and marketing (2,133,635) (1,023,492)
General and administrative (2,406,434) (3,907,438)
Other income (notes 5 and 11) 831,429 128,271
------------ -----------
Net loss (4,031,804) (5,309,411)
Deemed dividends on preferred
stock (8,083,000) -
Beneficial conversion feature
of warrants in association
with preferred stock (2,624,000) -
------------ -----------
Net loss available to
common shareholders $(14,738,804) $(5,309,411)
============ ===========
Basic $ (7.53) $ (3.01)
Diluted $ (7.53) $ (3.01)
Shares used in per share
calculation, Basic and
Diluted 1,958,622 1,763,638
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK STOCK
ADDITIONAL
------------------------ -------------------- SUB-
PAID
SHARES AMOUNT SHARES AMOUNT CRIPTION IN
CAPITAL
----------- ----------- ----------- -------- ---------
- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
3/31/1996 - $ - 1,453,501 $14,535 $271,049
$1,638,583
Common stock
subscription
exercised
April, May
1996, $7.50
per share - - 27,105 271 (271,049)
270,778
Shares issued
April, May
1996, $7.50
per share - - 35,933 359 -
296,641
Shares issued
for finder's
fee, May 1996,
$7.50 per share - - 100,667 1,007 -
753,993
Shares repurchased
in June 1996,
$0.065 per share - - (153,333) (1,533) -
(8,467)
Shares issued for
options exer-
cised November
1996, to Feb-
ruary 1997, $20.00
per share - - 2,720 27 -
54,373
Debentures con-
verted to shares
(Note 6) - - 240,000 2,400 -
3,397,600
Stock issued for
public relations
services, Febru-
ary 1997, $10.00
per share - - 10,000 100 -
99,900
Compensation ex-
pense for options
granted (Note 9) - - - - -
152,892
Note receivable,
May 1996 (Note 14) - - 200,000 2,000 -
1,568,750
Note receivable
amortization - - - - -
-
Stock issued for
services, March,
1997, $22.70 per
share - - 1,700 17 -
38,546
Compensation ex-
pense - - - - -
72,188
Translation ad-
justments - - - - -
-
Net loss - - - - -
-
---------- ----------- ---------- ------- -------
- -----------
F-5
<PAGE>
<PAGE>
Balance at
3/31/1997 - - 1,918,293 19,183 -
8,335,777
Common Stock
issued in ex-
change for notes
receivable
8/20/1997 - - 10,000 100 -
99,900
Notes receivable
canceled and com-
mon stock returned
9/23/1997 - - (10,000) (100) -
(99,900)
Peter Allard is-
sued antidilu-
tive shares
11/15/1997 - - 100,000 1,000 -
1,000
Notes receivable
issued to officer
in exchange for
preferred shares 280,000 280 - - -
1,049,720
11/5/1997
Preferred shares
issued in con-
junction with
private placement
11/5/1997 2,460,000 2,460 - - -
7,913,540
Beneficial conver-
sion for preferred
shareholders -
Warrants - - - - -
2,329,000
Deemed dividends on
Preferred Stock - - - - -
8,083,000
Beneficial conver-
sion for Peter
Allard - - - - -
295,000
Translation adjust-
ment - - - - -
-
Amortization of
Notes receivable - - - - -
-
Net loss - - - - -
-
---------- ----------- ---------- ------- -------
- -----------
Balance at
3/31/1998 2,740,000 $ 2,740 2,018,293 $20,183 -
$28,007,037
========== =========== ========== ======= =======
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED NOTES TRANSLATION
DEFICIT RECEIVABLE ADJUSTMENT TOTAL
------------- ------------ -----------
- -----------
<S> <C> <C> <C> <C>
Balance at
3/31/1996 $ (1,626,195) $ - $ 3,185 $
301,157
Common stock
subscription
exercised
April, May
1996, $7.50
per share - - -
- -
Shares issued
April, May
1996, $7.50
per share - - -
297,000
Shares issued
for finder's
fee, May 1996,
$7.50 per share - - -
755,000
Shares repurchased
in June 1996,
$0.065 per share - - -
(10,000)
Shares issued for
options exer-
cised November
1996, to Feb-
ruary 1997, $20.00 - - -
54,400
per share
Debentures con-
verted for shares
(Note 7) - - -
3,400,000
Stock issued for
public relations
services, Febru-
ary 1997, $10.00
per share - - -
100,000
Compensation ex-
pense for options
granted - - -
152,892
Note receivable,
May 1996 (Note 14) - (1,568,750) -
2,000
Note receivable
amortization - 479,340 -
479,340
Stock issued for
services, March,
1997, $22.70 per
share - - -
38,563
Compensation ex-
pense - - -
72,188
Translation ad-
justments - - (60,840)
(60,840)
Net loss (5,309,411) - -
(5,309,411)
------------ ------------ ---------
- ------------
F-7
<PAGE>
<PAGE>
Balance at
3/31/1997 (6,935,606) (1,089,410) (57,655)
272,289
Common Stock
issued in ex-
change for notes
receivable
100,000
8/20/1997 - - -
Notes receivable
canceled and com-
mon stock returned
9/23/1997 - - -
(100,000)
Peter Allard is-
sued antidilu-
tive shares
11/15/1997 - - -
2,000
Notes receivable
issued to officer
in exchange for
preferred shares
11/5/1997 - (1,050,000) -
- -
Preferred shares
issued in con-
junction with
private placement
11/5/1997 - - -
7,916,000
Beneficial conver-
sion for preferred
shareholders -
Warrants (2,329,000) - -
- -
Deemed dividends on
Preferred Stock (8,083,000) - -
- -
Beneficial conver-
sion for Peter
Allard (295,000) - -
- -
Translation adjust-
ment - - 3,732
3,732
Amortization of
Notes receivable - 447,176 -
447,176
Net loss for the
year (4,031,804) - -
(4,031,804)
------------ ------------ ---------
- ------------
Balance at 3/31/1998 $(21,674,410) $ (1,692,234) $ (53,923) $
4,609,393
============ ============ =========
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(4,031,804) $(5,309,411)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of technology advance (474,882) (136,201)
Depreciation and amortization 570,631 537,413
Common Stock issued in conjunction
with anti-dilution agreement 2,000 -
Common Stock issued for services - 2,467,807
Changes in operating assets and
liabilities:
Accounts receivable (15,556) (33,623)
Other current assets (38,599) 6,002
Accounts payable and accrued
liabilities 291,186 129,015
Deferred revenue 269,538 (73,000)
---------- ----------
Net cash used in operating
activities (3,431,486) (2,411,998)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (346,411) (280,355)
Deposits (3,157) (14,741)
---------- ----------
Net cash used in investing
activities (349,568) (295,096)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of debentures - 2,000,000
Proceeds from issuance of Common Stock - 351,400
Net proceeds from the issuance of Preferred
Stock 7,916,000 -
Repurchase of Common Stock - (10,000)
Advance on technology fee 1,303,565 1,924,647
Payments on capital lease (5,301) -
---------- ----------
Net cash provided by
financing activities 9,214,264 4,266,047
---------- ----------
Net increase in cash and cash equivalents 5,437,210 1,558,953
Cash and cash equivalents, beginning
of year 1,916,509 357,556
---------- ----------
Cash and cash equivalents, end of year $7,353,719 $1,916,509
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock in exchange
for services performed -- $ 855,000
Issuance of stock option in exchange
for services performed -- 152,892
Issuance of Common Stock in exchange
for employee compensation -- 110,751
Common Stock issued in exchange for
debentures exercised -- 3,400,000
Issuance of Common Stock in exchange
for stock subscription -- 271,049
Foreign currency translation
adjustment -- (60,840)
Common Stock issued in exchange for
note receivable -- 1,568,750
Preferred Stock issued in exchange for
note receivable $1,050,000 --
Equipment purchased with capital lease 81,640 --
Common Stock issued in accordance with
antidilution agreement 2,000 --
Beneficial conversion feature of warrants
in association with Preferred Stock 2,329,000 --
Beneficial conversion feature for
Peter Allard 295,000 --
Deemed dividends on Preferred Stock 8,083,000 --
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
<PAGE>
DATALINK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
DataLink Systems Corporation (formerly Lord Abbott, Inc., a publicly traded
shell corporation) (the Company), is engaged in providing wireless
communication services.
On June 27, 1996 the Company completed the acquisition of 100% of the
outstanding common stock of Datalink Communication Corporation (DCC) a U.S.
corporation in exchange for shares of the Company's Common Stock. The Company
issued a total of 1,646,532 shares of its $0.01 par value Common Stock to the
shareholders of DCC. For accounting purposes, the acquisition has been treated
as the acquisition of the Company by DCC with DCC as the acquiror (reverse
acquisition). The historical financial statements prior to June 27, 1996 are
those of DCC. Since the Company prior to the reverse acquisition was a public
shell corporation no pro-forma information giving effect to the acquisition is
required. All shares and per share data have been restated to reflect the
stock issuance and stock split.
In anticipation of the above acquisition, the Company changed its domicile
from the State of Colorado to the State of Nevada, changed its name from Lord
Abbott, Inc. to Datalink Systems Corporation, and effected a 1-for-300 reverse
stock split.
On January 16, 1996, shareholders of DSC Datalink Systems Corporation (a
company in the development stage) (a Canadian Corporation) (DSC) exchanged
100% of their shares for 100% of the shares in DCC. As a result, DSC Datalink
Systems Corporation became a wholly owned subsidiary company of DCC. For
accounting purposes, the acquisition has been treated as the acquisition of
DCC by DSC with DSC as the acquiror (reverse acquisition).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following summary of significant accounting policies is presented to
assist the reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
BASIS OF PRESENTATION:
Revenues are deferred until services have been performed, and expenses are
recognized when goods have been received or services provided.
PRINCIPALS OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary DSC Datalink Systems Corporation. All significant
intercompany transactions and balances have been eliminated in consolidation.
F-11
<PAGE>
<PAGE>
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with original
maturities of three months or less from the date of purchase to be cash
equivalents. The Company places substantially all of its cash and cash
equivalents in a demand deposit account with one bank and a financial services
company.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, trade and
other receivables, and accounts payable.
Trade receivables are with a large number of customers, dispersed across a
wide national and Canadian geographic base. The Company extends credit to its
customers in the ordinary course of business and periodically reviews the
credit levels extended to customers. Provision is made for estimated losses on
uncollectible accounts.
The Company rents pager inventory principally from one supplier. Management
believes that other suppliers could provide similar inventory on comparable
terms. A change in supplier, however, could cause a delay and a possible loss
of sales, which would affect operating results adversely.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets
which are generally three to seven years. Maintenance and repairs are charged
to expense as incurred; expenditures for additions, improvements and
replacements are capitalized. Upon disposal of fixed assets, the accounts are
relieved of the related costs and accumulated depreciation and resulting gains
or losses are reflected in operations. The Company assesses its ability to
recover the net book value of property and equipment. The carrying value of
assets determined to be impaired are written down to net realizable value.
FOREIGN CURRENCY TRANSLATION:
Exchange adjustments resulting from foreign currency transactions are
generally recognized in operations where adjustments resulting from
translation of financial statements are reflected as a separate component of
shareholder's equity. Net foreign currency transaction gains or losses are
not material in any of the years presented.
F-12
<PAGE>
<PAGE>
INCOME TAXES:
Deferred income taxes have been recorded for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts using enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances reduce deferred tax assets to the amount
expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, receivables and payables are
a reasonable estimate of their fair value due to their short-term nature.
RESEARCH AND DEVELOPMENT EXPENDITURES:
Expenditures related to research, design and development of products are
charged to product development and engineering expenses as incurred. Software
development costs are capitalized beginning when a product's technological
feasibility has been established and ending when a product is available for
general release to customers. At March 31, 1998 and 1997, there were no
capitalized software development expenditures since the period between
technological feasibility and availability have coincided and products under
development have not yet achieved technological feasibility.
ADVERTISING EXPENDITURES:
Advertising expenditures of $1,196,903 and $321,229 in 1998 and 1997
respectively, were charged to operations as incurred.
COMPUTATION OF NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), which specifies the computation presentation
and disclosure requirements for earnings per share. SFAS 128 superseded
Accounting Principles Board Opinion No. 15 and became effective for financial
statements issued for periods ending after December 15, 1997. SFAS 128
required restatement of all prior-period earnings per share data presented
after the effective date. The Company's financial statements have been
revised to effect the new standard.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassification
has no effect on previously reported net loss or shareholders' equity.
F-13
<PAGE>
<PAGE>
2. RECENT PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This Statement establishes standards for reporting and
displaying comprehensive income and its components in the consolidated
financial statements. It does not, however, require a specific format for the
statement, but requires the Company to display an amount representing total
comprehensive income for the period in that financial statement. The Company
believes that the adoption of SFAS 130 will have an immaterial impact on the
financial statements. This Statement is effective for the Company's 1999
fiscal year.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Statement establishes standards for
how public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement is effective for the Company's
1999 fiscal year. The Company does not believe it currently has any
separately reportable segments.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist principally of balances due from customers, net of
allowance for doubtful accounts. The customers are billed through customers'
Visa, Mastercard, and American Express accounts. Amounts due from Visa,
Mastercard, and American Express were $22,099, $10,947 and $8,442 in 1998, and
$30,493, $14,231 and $0 in 1997, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
MARCH 31,
1998 1997
-------- --------
Furniture and fixtures $114,328 $ 71,424
Computer and office equipment 506,470 295,238
Equipment under capital lease 81,640
Software 115,719 14,021
Leasehold improvements 9,423
-------- --------
818,157 390,106
Less accumulated depreciation
and amortization (188,461) (68,738)
-------- --------
$629,696 $321,368
======== ========
F-14
<PAGE>
<PAGE>
5. SALES OF TECHNOLOGY:
Effective August 21, 1996, Datalink completed a transaction with a Canadian
corporation (the Buyer) selling the Company's technology for cash and a note
under the terms of a sales agreement (sales agreement). At closing Datalink
received approximately $1,095,000, and an additional payment of approximately
$1,095,000 was received November 1996, and a note for approximately
$26,800,000. The note is due December 31, 2006 and bears interest at 8% per
annum. The note is collateralized by the technology.
Datalink and the Buyer entered into a "Management and Marketing Agreement"
dated August 21, 1996 (the Agreement). The Agreement expires August 31, 2001,
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 follow:
Datalink will receive an annual fee of 10% of "Direct Cost of 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
refusal in the event the Buyer desires to transfer all or part of the
application software,
The Buyer will receive, commencing January 1, 1997, an annual "owners fee" of
$1,095,000, the owners fee to be applied as follows: pay accrued interest and
the excess, if any; a) 60% of the remaining fee applied to the note balance,
and b) 40% of the remaining fee paid in cash to the Buyer until the note is
paid in full, 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) 60% of the net revenue applied to the note balance, and b) 40% of
the net revenue paid in cash to the Buyer until the note is paid in full.
After the note is paid, the "net revenue," as defined in the Agreement,
related to the technology sold to be applied as follows:
40% of the net revenue paid in cash to the Buyer, and 60% retained by the
Company.
Effective May 1997, the Company completed a transaction with a Canadian
corporation selling certain other of the Company's technology for cash and a
note. At closing, Datalink received approximately $2,900,000, and a note for
approximately $10,100,000. The note is due December 31, 2006 and bears
interest at 6% per annum. The note is collateralized by the technology. This
transaction is accounted for in the same manner as the sale of technology
agreement detailed above; both the $26,800,000 and the $10,100,000 notes
receivable have not been recorded as it is not expected that the fees and
revenues allocated to the buyer will be sufficient to service the notes
receivable principal and interest payments due to Datalink.
The cash received by Datalink has been accounted for under the provisions of
the Emerging Issues Task Force, 88-18: "Sales of Future Revenues" (EITF
88-18). 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.
F-15
<PAGE>
<PAGE>
Based on the criteria included within EITF 88-18, the amounts received under
the sales agreement have been included within the balance sheet caption
"Advance on Technology Sales" and is being amortized using the interest method
over the term of the agreement. (Note 11.)
Other income for fiscal years 1998 and 1997 includes as an expense within the
caption "Technology Owners Fee" of $1,570,000 and $273,750, representing a
portion of the owners fee earned through March 31, 1998 and 1997,
respectively. The sale agreement requires that the owners fee be applied to
the interest owed by the buyer on the note. Interest, if accrued through
March 31, 1998 and 1997 would have approximated $4,000,000 and $1,312,000,
respectively. Since it is uncertain whether the interest and principal will
be collected over the term of the agreement, interest income on the note has
been recognized to the extent of the amounts due under the Technology Owners
Fee provision of the sales agreement. (Note 11.)
6. CONVERTIBLE DEBENTURES AND WARRANTS:
On June 27, 1996, The Company issued a convertible debenture of $130,000
during fiscal year 1997 as a finders fee which was exercisable into shares of
Common Stock. The debenture was subsequently converted into 130,000 shares in
October 1996. The Company recorded an expense of $1.17 million associated with
the issuance.
The Company also issued a convertible debenture in the sum of $2 million which
was subsequently converted into 100,000 shares. On July 1, 1996, the Company
issued the same investor a warrant to purchase 100,000 shares of Common Stock
at $25 per share exercisable at any time prior to July 1, 1998. During the
year ended March 31, 1998, the warrants were repriced to $3.75 (post reverse
split) per share.
The Common Stock issued under these agreements was issued pursuant to the
exemption from registration under the Securities Act of 1933 (the Securities
Act) provided under Regulation S; the Company was a "Reporting Issuer" under
the provisions of the Securities Act, as amended.
7. CAPITAL LEASES:
The Company has entered into a leasing agreement for certain equipment used in
the operation of the Company. The lease has been classified as a capital
lease, and is for a five year term, with payments due monthly at an interest
rate of 10.45% per annum. Payments, including interest in the initial three
years of the lease are approximately $2,000 per month. During the last two
years of the lease the payments are reduced to approximately $1,100 per month.
The combined principal and interest portions being recognized under the
capital lease for the next five years are as follows:
Year ended March 31,
1999 $ 21,033
2000 21,033
2001 21,033
2002 21,033
2003 12,269
--------
Less imputed interest $(20,062)
--------
$ 76,339
========
F-16
<PAGE>
<PAGE>
8. INCOME TAXES:
At March 31, 1998, the Company has approximately $370,000 in Canadian net
operating loss carryforwards which expire in the years 2000 through 2004.
Net operating loss carryforwards were determined using the applicable
statutory rates. The net operating loss carryforward balances vary from the
applicable percentages of net loss due to expenses applied under generally
accepted accounting principles not deductible for tax purposes.
Net operating loss carryforwards available for the Company for U.S. tax
purposes are as follows:
FEDERAL STATE
------------------------- -------------------------
BALANCE EXPIRATION BALANCE EXPIRATION
---------- ---------- ---------- ----------
$ 980,000 2012 $ 500,000 2002
1,650,000 2013 800,000 2003
---------- ----------
$2,630,000 $1,300,000
========== ==========
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities are as follows:
MARCH 31, MARCH 31,
1998 1997
Deferred tax assets: ---------- ---------
Net operating loss carryforwards $4,300,000 $520,000
Less: valuation allowance (4,300,000) (520,000)
---------- --------
$ - $ -
========== ========
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that
a tax benefit may be realized from the asset in the future. The Company has
established a valuation allowance to the extent of its deferred tax assets
since it is more likely than not that the benefit cannot be realized in the
future.
9. SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of Common Stock and Preferred
Stock.
On November 5, 1997, the Company completed the sale of units of the Company's
Series A Convertible Preferred Stock. The units were sold in a private
placement pursuant to an agreement with an investment banking firm. A total
of 68.5 units were sold at a cost of $150,000 per unit for total gross
proceeds of $10,275,000. The Company received approximately $8.0 million in
cash, net of expenses, and $1.05 million in a note receivable from an officer
of the Company. Expenses and commissions related to the private placement
totaled approximately $1.3 million. Each unit consisted of 40,000 shares of
Preferred Stock, par value $.001, and each share of Preferred Stock is now
convertible into one share of Common Stock. Also included with each unit was
a detachable Common Stock purchase warrant to purchase 20,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share.
F-17
<PAGE>
<PAGE>
On January 8, 1998, shareholders holding 10,582,523 shares (pre-split) of the
Company's $.001 par value Common Stock (the "Common Stock"), and 1,415,580
shares of the Company's Series A Convertible Preferred Stock (the "Preferred
Stock"), signed written consents approving a one for ten (1 for 10) reverse
split of the Company's outstanding Common Stock and an increase in the number
of shares of Common Stock which may be acquired upon the exercise of options
under the Company's 1996 Stock Option Plan from 300,000 to 500,000 after the
reverse split. On January 8, 1998, there were 20,182,925 shares of Common
Stock issued and outstanding, and 2,740,000 shares of Preferred Stock
outstanding.
On January 15, 1998 the Board of Directors of the Company approved a 1 for 10
reverse stock split. The 1 for 10 reverse stock split was effected on
February 9, 1998, and applied to all shareholders of record. Subsequent to
the split the number of shares of Common Stock into which the Preferred Stock
could be converted was reduced from 27,400,000 to 2,740,000, and the number of
shares of Common Stock issued and outstanding was 2,018,293. All financial
data and share data in this Form 10-KSB/A give retroactive effect to this
split, unless otherwise indicated.
CONVERTIBLE PREFERRED STOCK:
Under the Company's Articles of Incorporation, as amended in February 1998,
the Company is authorized to issue 5,000,000 shares of Preferred Stock, of
which 2,740,000 have been designated as Series A Preferred Stock.
DIVIDENDS: The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, non-cumulative, out of any assets legally
available therefor, ratably with any declaration or payment of any dividend
with holders of the Common Stock or other junior securities of this
Corporation, when as and if declared by the Board of Directors, based on the
number of shares of Common Stock into which each share of its Series A
Convertible Preferred Stock is then convertible. As of March 31, 1998, no
dividends have been declared.
LIQUIDATION: In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of record of the
shares of the Series A Preferred Stock shall be entitled to receive, before
and in preference to any distribution or payment of assets of the Company or
the proceeds thereof may be made or set apart for the holders of Common Stock
or any other security junior to the Series A Preferred Stock in respect of
distributions upon liquidation out of the assets of the Corporation legally
available for distribution to its stockholders, in an amount in cash equal to
$37.5 per share. If, upon such liquidation, the assets of the Corporation
available for distribution to the holders of the Series A Preferred Stock and
any other series of preferred stock then outstanding ranking on parity with
the Series A Preferred Stock upon liquidation ("Parity Stock") shall be
insufficient to permit payment in full to the holders of the Series A
Preferred Stock and Parity Stock, then the entire assets and funds of the
Company legally available for distribution to such holders and the holders of
the Parity Stock then outstanding shall be distributed ratable among the
holders of the Series A Preferred Stock and Parity Stock based upon the
F-18
<PAGE>
<PAGE>
proportion the total amount distributable on each share upon liquidation bears
to the aggregate amount available for distribution on all shares of the Series
A Preferred Stock and such Parity Stock, if any.
CONVERSION: Each share of Preferred Stock, at the option of the holder,
is convertible into one fully paid and non-assessable share of Common Stock.
Conversion is automatic immediately commencing 18 months after the final
closing of the Private Placement if the closing price of the Company's Common
Stock equals or exceeds $10.00 per share for 30 consecutive trading days and a
registration statement covering the shares of Common Stock issuable upon
conversion of the Preferred Stock has been declared effective by the
Securities and Exchange Commission.
REDEMPTION: The Series A Preferred Stock is not redeemable.
VOTING RIGHTS: The holder of each share of Preferred Stock is entitled
to one vote for each share of Common Stock into which each share of Series A
Preferred Stock could be converted.
DETACHABLE WARRANTS: The Company has granted the Series A Preferred
Stock holders detachable warrants to purchase 1,370,000 shares of Common
Stock. The warrants are exercisable for a period of four years commencing one
year after the date of initial closing of the offering at an exercise price of
$5.00 per share and expire in November 2002. The warrants are subject to
redemption by the Company upon 30 days' prior notice at $.50 per warrant
commencing 18 months after the final closing, provided that the Warrants and
the underlying common shares have been registered under the Securities Act and
the Common Stock has traded at or above $12.50 per share for 30 consecutive
trading days. In connection with the private placement, the placement agent
received warrants to purchase 824,383 shares of Common Stock with an exercise
price of $3.75.
The deemed dividends on the preferred stock of $8,083,000 and on warrants of
$2,624,000 issued in conjunction with the private placement, reflect the
beneficial conversion feature, which is the difference between the proceeds
allocated to the preferred stock or warrants respectively, and the fair value
of the preferred stock or warrants (assuming immediate conversion) upon
issuance.
STOCK OPTION PLAN:
In June 1996, the Company adopted the 1996 Stock Option Incentive Plan (the
"Plan"). The "Plan" provides for the granting of stock options to acquire
Common Stock and/or the granting of stock appreciation rights to obtain, in
cash or shares of Common Stock, the benefit of the appreciation of the value
of shares of Common Stock after the grant date. The Company is currently
authorized to issue up to 500,000 shares of Common Stock under the Plan. The
Plan expires ten years after its adoption.
Under the Plan, the Board of Directors may grant incentive stock options to
purchase shares of the Company's Common Stock only to employees, directors,
officers, consultants and advisers of the Company. The Board of Directors may
grant options to purchase shares of the Company's Common Stock at prices not
less than fair market value at the date of grant for incentive stock options.
The Board of Directors also has the authority to set exercise dates (no longer
F-19
<PAGE>
<PAGE>
than ten years from the date of grant), payment terms and other provisions for
each grant. In addition, incentive options may be granted to persons owning
more than 10% of the voting power of all classes of stock, at a price no lower
than 110% of the fair market value at the date of grant, as determined by the
Board of Directors. Options granted under the Plan generally vest at a rate
of 25% per annum over 4 years from the date of grant.
Activity under the 1996 Stock Incentive Plan through March 31, 1998 is as
follows:
WEIGHTED
SHARES NUMBER AGGREGATE AVERAGE
AVAILABLE OF PRICE PER EXERCISE EXERCISE
FOR GRANT OPTIONS SHARE PRICE PRICE
----------- --------- ----------- ---------- --------
Balance,
3/31/1996 - - - - -
Authorized 300,000
Granted (277,000) 277,000 $20.00-$40.00 $6,284,400 $22.40
Canceled 3,000 (3,000) 20.00 (60,000) 20.00
Exercised - (2,720) 20.00 (54,400) 20.00
--------- --------- ---------- ------
Balance,
3/31/1997 26,000 271,280 20.00- 40.00 6,170,000 22.51
--------- --------- ---------- ------
Options repriced (3,838,151) 4.28
Authorized 200,000
Granted (116,605) 116,605 2.79- 6.41 477,060 4.09
Canceled 56,530 (56,530) 4.00- 40.00 (1,282,600) 22.69
Exercised - -
--------- --------- ---------- ------
Balance,
3/31/1998 165,925 331,355 $ 2.97-$20.00 $1,526,309 $ 4.61
========= ========= ========== ======
The weighted average fair value of those options granted through March 31,
1998 and 1997 was $4.61 and $22.40, respectively. Options to purchase 198,632
and 139,866 shares were exercisable with a weighted average exercise price of
$4.97 and $21.30 at March 31, 1998 and 1997 respectively. Effective August
18, 1997, the Board of Directors repriced the employee options to $4.00 to
$4.40 per option share.
1996 STOCK PURCHASE PLAN:
In September 1996, the Company adopted the 1996 Nonqualified Stock Purchase
Plan (the Nonqualified Plan). The Company has reserved 224,622 shares of its
$.01 par value Common Stock for issuance to eligible persons under this plan.
Stock granted under this plan are subject to a purchase option that expires
over a five year period at the original issuance price.
As of March 31, 1998, no shares had been granted under this plan.
F-20
<PAGE>
<PAGE>
PRO FORMA STOCK-BASED COMPENSATION:
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock
Based Compensation. Accordingly, no compensation expense has been recognized
for these plans. Had compensation expense been determined on the fair value
at the grant dates for awards under these plans consistent with the method of
SFAS 123, the Company's net loss in 1998 and 1997 would have been adjusted to
the pro forma amounts indicated below:
1998 1997
Net loss available to ------------- -----------
common shareholders
As reported $(14,738,804) $(5,309,411)
Pro forma (15,551,523) (5,938,181)
Net loss per share
As Reported, Basic
and Diluted (7.53) (3.01)
Pro forma, Basic
and Diluted (7.94) (3.37)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants under the Plan in 1998 and 1997:
1998 1997
----------- ----------
Expected dividend $ -- $ --
Expected life of option 1-4 years 1-4 years
Risk-free interest rate 5.60%-6.62% 6.01%-6.63%
Expected volatility 90% 40%
The above pro forma disclosures are not likely to be representative of the
effects on reported net income for future years.
The following table summarizes the stock options outstanding at March 31,
1998:
OPTIONS
OPTIONS OUTSTANDING CURRENTLY EXERCISABLE
- ----------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------- ----------- ----------- -------- ----------- --------
MARCH 31, 1998
$ 1.00-$ 3.00 5,000 6.0 $ 2.89 0 $ 0
$ 3.01-$ 4.00 109,665 7.4 3.80 22,178 3.99
$ 4.01-$ 5.00 203,750 8.4 4.46 166,656 4.40
$ 5.01-$ 6.00 3,240 6.5 6.00 2,440 6.00
$ 6.01-$ 7.00 2,000 .8 6.41 0 0
$ 7.01-$10.00 0 0 0 0 0
$10.01-$20.00 7,700 0 20.00 7,558 20.00
------- --- ------ ------- ------
331,355 7.8 $ 4.61 198,632 $ 4.97
======= === ====== ======= ======
F-21
<PAGE>
<PAGE>
10. REVENUE:
The Company has sales to customers in both Canada and the U.S. Revenue from
Canadian Sales totaled $103,340 and $122,526 and sales from United States
customers totaled $859,121 and $74,365 in 1998 and 1997, respectively.
11. OTHER INCOME:
Other Income (expense) consists of the following items:
YEAR ENDED
DESCRIPTION 1998 1997
--------------------- ------------ ----------
Owners fee sale $(1,570,000) $(273,750)
of technology
Interest on note from 1,570,000 273,750
sale of technology
Amortization of 474,882 136,201
technology advance
Interest income 367,436 136,070
Miscellaneous (10,889) (144,000)
----------- ---------
Total other income $ 831,429 $ 128,271
=========== =========
12. EARNINGS PER SHARE (EPS) DISCLOSURES:
NET LOSS PER SHARE:
The Company has adopted Financial Accounting Standards Board No. 128 "Earnings
Per Share" (EPS) and accordingly all prior periods have been restated. Basic
EPS is computed as net income (loss) divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities. Common equivalent shares are
excluded from the computation of net loss per share if their effect is anti-
dilutive.
The following is a reconciliation of the numerator (net loss) and denominator
(number of shares) used in the basic and diluted EPS calculation:
MARCH 31,
1998 1997
----------- -----------
Basic EPS:
Net Loss $ (4,031,804) $(5,309,411)
Deemed dividends on preferred
stock (8,083,000) -
Beneficial conversion feature
of warrants in association
with preferred stock (2,624,000) -
------------ -----------
Net loss available to common
shareholders $(14,738,804) $(5,309,411)
============ ===========
F-22
<PAGE>
<PAGE>
Average common shares outstanding 1,958,622 1,763,638
------------ -----------
Basic EPS $ (7.53) $ (3.01)
============ ===========
Diluted EPS:
Net loss $(4,031,804) $(5,309,411)
Deemed dividends on preferred
stock (8,083,000) -
Beneficial conversion feature
of warrants in association
with preferred stock (2,624,000) -
------------ -----------
Net loss available to common
shareholders $(14,738,804) $(5,309,411)
============ ===========
Average common shares outstanding 1,958,622 1,763,638
Convertible notes - -
Warrants - -
Stock options - -
Total shares 1,958,622 1,763,638
------------ -----------
Diluted EPS $ (7.53) $ (3.01)
=========== ===========
Options and convertible securities covering 5,666,107 shares in 1998, and
362,360 shares in 1997 were excluded from the shares used to calculate diluted
EPS as their effect is anti-dilutive.
13. OPERATING LEASES:
The Company leases space for both its San Jose and Vancouver locations through
2003. Rental expense for these leases and for various equipment leases
totaled approximately $123,000 in 1998 and $79,000 in 1997.
Future minimum lease payments due under these agreements are as follows for
the years ending March 31:
1999 $ 254,800
2000 239,331
2001 231,004
2002 237,217
2003 100,829
----------
$1,063,181
==========
14. RELATED PARTY TRANSACTIONS:
Effective May 1, 1996, DCC, entered into a three year employment agreement
with the Company's Chief Executive Officer.
F-23
<PAGE>
<PAGE>
Concurrently with the execution of the employment agreement, the Company's
Chief Executive Officer entered into a Stock Purchase Agreement pursuant to
which he purchased 200,000 shares of the Common Stock of DCC (which were later
exchanged for 200,000 shares of the Company's Common Stock), and as payment
terms he executed a non-recourse promissory note in the amount of $1,500,000.
The note bears interest at 5% per annum and the principal plus interest are
due on or before April 1, 2001. As security for the note, the Chief Executive
Officer has granted the Company a security interest in the 2,000,000 shares of
Common Stock.
On June 26, 1996, the Company entered into a Loan Forgiveness Agreement with
the Chief Executive Officer which provided that the $1,500,000 promissory note
would be forgiven if he continues to serve as the Company's Chief Executive
Officer through May 1, 1999, and there are no uncured defaults by him under
this Employment Agreement on May 1, 1999.
The note, together with interest accrued thereon has been incorporated as a
contra-equity account. The note plus interest is being amortized over the
period of the contract as employment. Consequently, in the years ended March
31, 1998 and 1997, expense of $585,044 and $479,340 has been recorded as
compensation expense.
On January 2, 1997, the Company entered into a three year noncancelable lease
agreement with an officer of the Company where the Company leases office space
owned by the officer at an annual rate of $100,000 or $8,333.37 per month.
In conjunction with the private placement dated November 5, 1997 an officer of
the Company entered into a stock purchase agreement. Under the terms of the
agreement, the officer received 28,000 shares of Preferred Stock with
detachable warrants to purchase 140,000 shares of the Company's Common Stock
at $5.00 per share, in exchange for a note receivable in the amount of
$1,050,000. The note is collateralized by certain assets of the officer and
bears interest at a rate of 10.25%. No payments are due until November 5,
2002 at which time the full amount is due.
15. COMMITMENTS AND CONTINGENCIES:
The Company has a letter of credit agreement with Union Bank of California as
condition of its pager rental agreement in the amount of $200,000. Borrowings
under the letter of credit bear interest at prime plus 2% and requires a
compensating balance to be on deposit at the bank of $200,000. The letter of
credit expires February 1, 1999, and is renewable. There were no amounts
outstanding under this arrangement as of March 31, 1998 or March 31, 1997.
16. EMPLOYEE BENEFIT PLAN:
During 1998, the Company established a plan (the "Plan") which is qualified
under Section 401(k) of the Internal Revenue Code of 1986. Eligible employees
may make voluntary contributions to the Plan of up to 20% of their annual
compensation, not to exceed the statutory amount, and the Company may make
matching contributions. The Company made no contributions in 1998.
F-24
<PAGE>
<PAGE>
17. SUBSEQUENT EVENTS:
Subsequent to year end the Company entered into a Line of Credit agreement
with a financial services company. The line of credit is for the express
purpose of purchasing wireless information devices. The line of credit is in
the amount of $1,000,000 and is collateralized by funds on account at the
financial services company. Borrowings under the line of credit bear interest
at a variable rate equal to 2.4% above the 30-day commercial paper rate. The
line of credit expires March 27, 1999, with an automatic one year renewal
provision.
SCHEDULE 2
Supplementary Income Statement Information:
COLUMN A COLUMN B
ITEM CHARGED TO COSTS AND EXPENSE
- -------------------------------------- ----------------------------
Maintenance and Repairs $ 6,372
Depreciation of Property and Equipment 119,723
Amortization of Notes Receivable 447,176
Advertising Costs 1,196,903
Bad Debt Charge-Offs 32,523
F-25
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 11, 1999 DATALINK SYSTEMS CORPORATION
By:/s/ Anthony N. LaPine
Anthony N. LaPine
Chief Executive Officer,
President and Chairman of the Board
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(par value $.001 per share)
of
DATALINK SYSTEMS CORPORATION
a Nevada Corporation
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of Datalink
Systems Corporation, a Nevada corporation (the "Corporation"), by unanimous
written consent in lieu of a meeting effective August 30, 1997:
RESOLVED, that one series of the class of authorized preferred stock,
$.001 par value, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating, optional or
other special rights of the shares of such series, and qualifications,
limitations or restrictions thereof, are hereby fixed as follows (this
instrument hereinafter referred to as the "Designation"):
1. Number of Shares and Designations. 2,740,000 shares of the preferred
stock, $.001 par value, of the Corporation are hereby constituted as a series
of preferred stock of the Corporation designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock").
2. Dividend Provisions. Subject to the rights of any other series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, ratably with any declaration or
payment of any dividend with holders of the Common Stock or other junior
securities of this Corporation, when, as and if declared by the Board of
Directors, based on the number of shares of Common Stock into which each share
of Series A Convertible Preferred Stock is then convertible.
3. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary ("Liquidation"), the holders of
record of the shares of the Series A Preferred Stock shall be entitled to
receive, before and in preference to any distribution or payment of assets of
the Corporation or the proceeds thereof may be made or set apart for the
holders of Common Stock or any other security junior to the Series A Preferred
Stock in respect of distributions upon Liquidation out of the assets of the
Corporation legally available for distribution to its stockholders, an amount
in cash equal to $3.75 per share (subject to adjustment in the event of stock
splits, combinations or similar events). If, upon such Liquidation, the
assets of the Corporation available for distribution to the holders of Series
A Preferred Stock and any other series of preferred stock then outstanding
ranking on parity with the Series A Preferred Stock upon liquidation ("Parity
Stock") shall be insufficient to permit payment in full to the holders of the
Series A Preferred Stock and Parity Stock, then the entire assets and funds of
the Corporation legally available for distribution to such holders and the
holders of the Parity Stock then outstanding shall be distributed ratably
among the holders of the Series A Preferred Stock and Parity Stock based upon
<PAGE>
<PAGE>
the proportion the total amount distributable on each share upon liquidation
bears to the aggregate amount available for distribution on all shares of the
Series A Preferred Stock and of such Parity Stock, if any.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Paragraph 3 and any other distribution that may be
required with respect to series of preferred stock that may from time to time
come into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of the
Common Stock.
(c) For purposes of this Paragraph 3, a merger or consolidation or a
sale of all or substantially all of the assets of the Corporation shall be
considered a Liquidation except in the event that in such a transaction, the
holders of the Series A Preferred Stock receive securities of the surviving
corporation having substantially similar rights as the Series A Preferred
Stock and the stockholders of the Corporation immediately prior to such
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter. Notwithstanding Paragraph 6
hereof, such provision may be waived in writing by a majority of the holders
of the then outstanding Series A Preferred Stock.
4. Redemption. The Series A Preferred Stock is not redeemable.
5. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Voluntary Conversion. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
issuance at the office of the Corporation or any transfer agent for such
stock, or if there is none, then at the office of the transfer agent for the
Common Stock, or if there is no such transfer agent, at the principal
executive office of the Company, into that number of fully paid and
non-assessable shares of Common Stock of the Company equal to $3.75 divided by
the conversion price in effect at the time of conversion (the "Conversion
Price"), determined as hereinafter provided. The Conversion Price shall
initially be $.375, but shall be subject to adjustment as set forth in
Paragraph 5(d). The number of shares of Common Stock into which each share of
Preferred Stock is convertible is hereinafter collectively referred to as the
"Conversion Rate." For purposes of this Paragraph 5(a), such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
(b) Automatic Conversion. Commencing 18 months after the final
closing of the Private Placement (the "Final Closing"), if (i) the closing
price (as determined in accordance with Paragraph 5(f)(2)) of the Company's
Common Stock equals or exceeds $1.00 per share for 30 consecutive trading days
and (ii) a registration statement covering the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock has been declared effective by
the Securities and Exchange Commisson, each share of Series A Preferred Stock
then outstanding shall, by virtue of such conditions and without any action on
the part of the holder thereof, be deemed automatically converted into that
number of shares of Common Stock into which the Series A Preferred Stock would
then be converted at the then effective Conversion Rate.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
2
<PAGE>
<PAGE>
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock, and shall give written notice to the Corporation
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon
as practicable thereafter, issue and deliver to such holder of Series A
Preferred Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date.
(d) Conversion Price Adjustments. The Conversion Price of the
Series A Preferred Stock shall be subject to adjustment from time to time as
set forth below.
(i)(A) The Conversion Price of the Series A Preferred Stock
shall be adjusted to a price equal to the weighted average of the price or
prices of any shares of Common Stock issued by the Company (the "Weighted
Average Price"), other than "Excluded Securities" (as defined below), on a
cumulative basis, sold by the Company on or after the date of the Final
Closing. The Weighted Average Price shall be computed by dividing (A) for
all such issuances of Common Stock, the product of (i) the sales price of each
such issuance of Common Stock and (ii) the number of shares of Common Stock in
each such issuance by (B) the aggregate number of shares of such Common Stock
issued in all such issuances. Notwithstanding anything to the contrary
contained herein, in the event the Company shall, at any time during the
one-year period commencing on the date of the initial closing of the Private
Placement, sell any shares of Common Stock for a consideration per share less
than the Conversion Price, the Conversion Price shall be immediately adjusted
to equal such issuance price. The provisions of this subparagraph 5(d)(i)
shall not apply retroactively to any Series APreferred Stock which has been
converted prior to the date of the adjustment.
(B) Except as otherwise provided in subparagraph 5(d)(iii)
below, in no event shall the Conversion Price be increased above the initial
Conversion Price, as otherwise adjusted pursuant to this Paragraph 5.
(C) Upon each adjustment of the Conversion Price pursuant to
this subparagraph 5(d)(i), the total number of shares of Common Stock
purchasable upon the conversion of each share of Series A Preferred Stock
shall be such number of shares (calculated to the nearest one-hundredth and
pursuant to the terms of subparagraph 5(f)(i); provided, however, that in no
event shall the Conversion Price increase as a result of such rounding
calculation) purchasable at the Conversion Price in effect immediately prior
to such adjustment multiplied by a fraction, the numerator of which shall be
the Conversion Price in effect immediately prior to such adjustment and the
denominator of which shall be the Conversion Price in effect immediately after
such adjustment.
(D) No adjustment in the Conversion Price or the number of
shares of Common Stock into which a share of Series A Preferred Stock may be
converted shall be required unless such adjustment (plus any adjustments not
previously made by reason of this subparagraph (D)) would require an increase
or decrease of at least 5% in the number of shares of Common Stock into which
each share of the Series A Preferred Stock is then convertible, provided,
however, that any adjustments which are not required to be made by reason of
this subparagraph (D) shall be carried forward and taken into account in any
3
<PAGE>
<PAGE>
subsequent adjustment. All calculations and adjustments shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(E) After each adjustment of the Conversion Price the
Company shall promptly prepare a certificate signed by its President or Chief
Financial Officer and a Secretary or Assistant Secretary setting forth: the
Conversion Price, as so adjusted; the number of shares of Common Stock into
which the Series A Preferred Stock may be converted; and a statement of the
facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent, if any, for the Series A Preferred
Stock, and the Company shall cause such a copy of statement to be sent by
ordinary first class mail to each holder of Series A Preferred Stock.
(F) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(G) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors.
(H) In the case of the issuance after the Issuance Date of
options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subparagraph 5(d)(i) and subparagraph 5(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions
to exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration (determined in the manner provided in subparagraphs 5(d)(i)(F)
and 5(d)(i)(G)), if any, received by the Company upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued and for
a consideration equal to the consideration, if any, received by the Company
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Company
(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the
manner provided in subparagraphs 5(d)(i)(F) and 5(d)(i)(G)).
4
<PAGE>
<PAGE>
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Company
upon exercise of such options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities (excluding a change resulting
solely from the antidilution provisions thereof if such change results from an
event which gives rise to an antidilution adjustment under this Paragraph
5(d)), the Conversion Price of the Series A Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subparagraphs
5(d)(i)(H)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subparagraph
5(d)(i)(H)(3) or (4).
(6) Notwithstanding the provisions of subparagraphs
5(d)(i)(H)(1)-(5) above, in the event that on or after the date hereof the
Company issues any options to purchase or rights to subscribe for Common
Stock, securities by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such convertible or
exchangeable securities, if the conversion or exercise price is not then
determinable or is based on future events, such shares of Common Stock shall
not be deemed to be issued until the price is determinable or such event has
occurred and the conversion or exercise price shall be subject to adjustment
pursuant to subparagraph 5(d)(i) above at the time of such determination or
the occurrence of such event even if the price is determined or such event
occurs after such date.
(ii) The following issuances of Common Stock ("Excluded
Securities") shall be excluded from the adjustments set forth in this
Paragraph 5(d):
(A) shares of capital stock issued pursuant to a stock
dividend or a stock split or other subdivision or recombination of shares;
(B) Common Stock issued upon exercise of any warrants,
options or other securities outstanding on the date of the Final Closing;
(C) securities issued by the Company in an underwritten
public offering at not less than 95% of the then effective Conversion Price;
(D) securities issued pursuant to the direct or indirect
bona fide acquisition by the Company of any Person, whether by merger,
purchase of stock, purchase of assets or otherwise;
5
<PAGE>
<PAGE>
(E) securities issued upon exercise, conversion or exchange
of capital stock, rights, options or subscription calls, warrants or other
securities; and
(F) Common Stock or options or warrants to purchase Common
Stock issued to officers, directors or employees of or consultants to the
Company pursuant to any compensation agreement, plan or arrangement or the
issuance of Common Stock upon the exercise of any such options or warrants,
provided such issuances do not exceed 10% of the Company's outstanding Common
Stock and preferred stock on the date of the Final Closing.
(iii) In case the Company shall (a) issue Common Stock as a
dividend or distribution on any class of the capital stock of the Company, (b)
split or otherwise subdivide its outstanding Common Stock, (c) combine the
outstanding Common Stock into a smaller number of shares, or (d) issue by
reclassification of its Common Stock (except in the case of a merger,
consolidation or sale of all or substantially all of the assets of the Company
as set forth in subparagraph 5(d)(iv) below) any shares of the capital stock
of the Company, any shares of the capital stock of the Company, the Conversion
Price in effect on the record date for any stock dividend or the effective
date of any such other event shall be decreased (or increased in the case of a
reverse stock split) so that the holder of each share of the Series A
Preferred Stock shall thereafter be entitled to receive, upon the conversion
of such share, the number of shares of Common Stock or other capital stock
which it would own or be entitled to receive immediately after the happening
of any of the events mentioned above had such share of the Series A Preferred
Stock been converted immediately prior to the close of business on such record
date or effective date. The adjustments herein provided shall become
effective immediately following the record date for any such stock dividend or
the effective date of any such other events. There shall be no reduction in
the Conversion Price in the event that the Company pays a cash dividend.
(iv) In case of any reclassification or similar change of
outstanding shares of Common Stock of the Company, or in case of the
consolidation or merger of the Company with another corporation, or the
conveyance of all or substantially all of the assets of the Company in a
transaction in which holders of the Common Stock receive shares of stock or
other property including cash, each share of the Series A Preferred Stock
shall, after such event and subject to the other rights of the Series A
Preferred Stock as set forth elsewhere herein, be convertible only into the
number of shares of stock or other securities or property, including cash, to
which a holder of the number of shares of Common Stock of the Company
deliverable upon conversion of such shares of the Series A Preferred Stock
would have been entitled upon such reclassification, change, consolidation,
merger or conveyance had such share been converted immediately prior to the
effective date of such event.
(e) The Company shall at all times commencing sixty (60) days after
the initial closing of the Private Placement, reserve and keep available, out
of its authorized but unissued shares of Common Stock or out of shares of
Common Stock held in its treasury, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, the full number of
shares of Common Stock deliverable upon the conversion of all shares of the
Series A Preferred Stock from time to time outstanding. The Company shall
from time to time in accordance with Nevada law take all steps necessary to
increase the authorized amount of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the shares of the Series A
Preferred Stock.
6
<PAGE>
<PAGE>
(f) (i) No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Series A
Preferred Stock. In lieu of any fractional shares to which a holder would
otherwise be entitled, the Company shall pay cash, equal to such fraction
multiplied by the closing price (determined as provided in subparagraph (ii)
of this Paragraph 5(f)) of the Common Stock on the day of conversion.
(ii) For the purposes of any computation under subparagraph
5(f)(i), the current market price per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices for the 20 consecutive
business days prior to the day in question. The closing price for each day
shall be the last sales price regular way or in case no sale takes place on
such day, the average of the closing high bid and low asked prices regular
way, in either case (a) as officially quoted by the Nasdaq SmallCap Market or
the Nasdaq National Market or such other market on which the Common Stock is
then listed for trading, or (b) if, in the reasonable judgment of the Board of
Directors of the Company, the Nasdaq SmallCap Market or the Nasdaq National
Market is no longer the principal United States market for the Common Stock,
then as quoted on the principal United States market for the Common Stock, as
determined by the Board of Directors of the Company, or (c) if, in the
reasonable judgment of the Board of Directors of the Company, there exists no
principal United States market for the Common Stock, then as reasonably
determined by the Board of Directors of the Company.
(g) The Company will pay any taxes that may be payable in respect of
any issue or delivery of shares of Common Stock on conversion of shares of the
Series A Preferred Stock. However, the Company shall not be required to pay
any tax which may be payable in respect to any transfer involved in the issue
and delivery of shares of Common Stock upon conversion in a name other than
that in which the shares of the Series A Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Company the amount of
any such tax, or has established, to the satisfaction of the Company, that
such tax has been paid.
(h) The Company will not, by amendment of its Articles of
Incorporation, as amended, or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph 5 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
6. Voting Rights.
(a) In addition to any other rights provided for herein or by law,
the holders of Series A Preferred Stock shall be entitled to vote, together
with the holders of Common Stock as one class, on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such Common Stock holders. In any such vote each share of
Series A Preferred Stock shall entitle the holder thereof to the number of
votes per share that equals the number of whole shares of Common Stock into
which each such share of Series A Preferred Stock is then convertible,
calculated to the nearest of a share.
(b) So long as any shares of the Series A Preferred Stock remain
outstanding, the consent of the holders of two-thirds of the then outstanding
Series A Preferred Stock, voting as one class, either expressed in writing or
7
<PAGE>
<PAGE>
at a meeting called for that purpose, shall be necessary to permit, effect or
validate the creation and issuance of any series of preferred stock or other
security of the Company which is senior as to liquidation and/or dividend
rights to the Series A Preferred Stock.
(c) So long as any shares of the Series A Preferred Stock remain
outstanding, the consent of two-thirds of the holders of the then outstanding
Series A Preferred Stock, voting as one class, either expressed in writing or
at a meeting called for that purpose, shall be necessary to repeal, amend or
otherwise change this Designation or the Articles of Incorporation of the
Company, as amended, in a manner which would alter or change the powers,
preferences, rights privileges, restrictions and conditions of the Series A
Preferred Stock so as to adversely affect the Series A Preferred Stock.
(d) Each share of the Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters to be voted on by the holders of the
Series A Preferred Stock, as set forth above.
(e) In the event that the holders of the Series A Preferred Stock
are required to vote as a class on any other matter, the affirmative vote of
holders of not less than fifty percent (50%) of the outstanding shares of
Series A Preferred Stock shall be required to approve each such matter to be
voted upon, and if any matter is approved by such requisite percentage of
holders of Series A Preferred Stock, such matter shall bind all holders of
Series A Preferred Stock.
7. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Paragraph 5 hereof, the shares
so converted shall be cancelled and shall not be issuable by the Corporation.
The Articles of Incorporation of the Corporation, as amended, may be
appropriately amended from time to time to effect the corresponding reduction
in the Corporation's authorized capital stock.
8. Miscellaneous.
(a) There is no sinking fund with respect to the Series A Preferred
Stock.
(b) The shares of the Series A Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Designation and in the
Articles of Incorporation of the Company, as amended.
(c) The holders of the Series A Preferred Stock shall be entitled
to receive all communications sent by the Company to the holders of the Common
Stock.
IN WITNESS WHEREOF, Datalink Systems Corporation has caused this
Designation to be executed this 31st day of October, 1997.
DATALINK SYSTEMS CORPORATION
By: /s/ Anthony N. LaPine
Name: Anthony N. LaPine
Title: President
Attest:
By: /s/ Nicholas Miller
Name: Nicholas Miller
Title: Secretary
8
CERTIFICATE OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
DATALINK SYSTEMS CORPORATION
Datalink Systems Corporation, a corporation organized and existing under the
Nevada General Corporation Law, does hereby certify as follows:
FIRST: ARTICLE IV - CAPITAL STOCK of the Articles of Incorporation is hereby
amended to read as follows:
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which this Corporation shall have
authority to issue is: Eight Million (8,000,000) shares of $.01 par value
each, which shares shall be designated "Common Stock"; and Five Million
(5,000,000) shares of $.001 par value each, which shares shall be designated
"Preferred Stock" and which may be issued in one or more series at the
discretion of the Board of Directors. The Board of Directors is hereby vested
with authority to fix by resolution or resolutions the designations and the
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including
without limitation the dividend rate, conversion or exchange rights,
redemption price and liquidation preference, of any series of shares of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any such series (but not
below the number of shares thereof then outstanding). In case the number of
shares of any such series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution or resolutions originally fixing the number of shares of such
series. All shares of any one series shall be alike in every particular
except as otherwise provided by these Articles of Incorporation or the Nevada
Business Corpo- ration Act.
No holder of any shares of the Corporation, whether now or hereafter
authorized, shall have any preemptive or preferential right to acquire any
shares or securities of the Corporation, including shares or securities held
in the treasury of the Corporation.
SECOND: The foregoing Amendment was adopted by written unanimous consent of
the Board of Directors of the Corporation on January 8, 1998, in accordance
with the provisions of Section 78.315.2 of the Nevada General Corporation Law.
THIRD: The foregoing Amendment was approved by the affirmative vote of
holders of shares representing a majority of the voting power of each class or
series of the Corporation's voting shares on January 8, 1998, in accordance
with the provisions of Section 78.390.1(b) of the Nevada General Corporation
Law.
FOURTH: The current number of authorized shares and the par value of each
class and series of shares before the change:
Common Stock, $.001 par value 80,000,000 Shares
Preferred Stock, $.001 par value 5,000,000 Shares
<PAGE>
<PAGE>
FIFTH: The number of authorized shares and the par value of each class and
series of shares after the change:
Common Stock, $.01 par value 8,000,000 Shares
Preferred Stock, $.001 par value 5,000,000 Shares
SIXTH: The number of shares of Common Stock to be issued after the change in
exchange for each issued share of the same class is:
One share of Common Stock to be issued for each ten (10) shares of
Common Stock previously issued and outstanding.
SEVENTH: The provisions for the issuance of fractional shares, or for the
payment of money or issuance of scrip to stockholders otherwise entitled to a
fraction of a share and the percentage of outstanding shares affected thereby
are:
No fractional shares will be issued and instead a whole share will be
issued to any shareholder entitled to a fraction of a share.
EIGHTH: The written approval of affected stockholders has been obtained.
NINETH: The change is effective on filing the Certificate with the Nevada
Secretary of State.
IN WITNESS WHEREOF, Datalink Systems Corporation has caused this
Certificate of Amendment to be signed and acknowledged by its President and
Assistant Secretary this 17th day of February, 1998.
DATALINK SYSTEMS CORPORATION
By:/s/ Anthony N. LaPine
Anthony N. LaPine, President
By:/s/ Sara Fiscus
Sara Fiscus, Assistant Secretary
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I, Margaret A. Beck, a Notary Public, hereby certify that on the 17th day
of February, 1998, personally appeared before me Anthony N. LaPine and Sara
Fiscus, who being by me first duly sworn, declared and acknowledged that they
signed the foregoing document as President and Assistant Secretary,
respectively, of the corporation named therein and that each of them are above
the age of eighteen years and that the statements contained therein are true
and correct to the best of their knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Margaret A. Beck
Notary Public
[ S E A L ]
My commission expires: 7/25/98
2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statement
on Form S-8 of Datalink Systems Corporation (SEC File No. 333-15399) of our
report dated December 2, 1998, relating to the consolidated financial
statements of Datalink Systems Corporation appearing in the Annual Report on
Form 10-KSB/A for the year ended March 31, 1998.
/s/ BDO Seidman, L.L.P.
BDO SEIDMAN, L.L.P.
San Jose, California
January 11, 1999
