<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Commission file number: 0-21069
DATALINK.NET, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
Nevada 36-3574355
------------------------------- -------------------------------
(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 14,901,794 shares of the Registrant's Common Stock outstanding as of
October 31, 2000.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
1
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DATALINK.NET, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Condensed Consolidated Balance Sheets
September 30, 2000 and March 31, 2000 3
b. Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three and six month periods
ended September 30, 2000 and 1999 4
c. Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 2000 and 1999 5
d. Notes to the Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 16
ITEM 2. CHANGES IN SECURITIES. 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16
ITEM 5. OTHER INFORMATION. 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
2
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 March 31
2000 2000
(unaudited)
ASSETS ----------- -----------
Current Assets:
Cash and cash equivalents $ 12,830,131 $ 15,673,264
Trade receivables 214,530 36,717
Other receivables 152,202 4,962
Prepaid expenses 221,565 216,942
------------ ------------
Total current assets 13,418,428 15,931,885
Property and equipment, net 813,783 576,674
Investments 151,000 --
GMP Intellectual Property 6,460,000 --
Goodwill 3,015,756 --
Other assets 51,286 88,847
------------ ------------
Total assets $ 23,910,253 $ 16,597,406
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 657,406 $ 539,791
Accrued expenses and other
current liabilities 158,221 214,342
Current portion of capital
lease obligation 15,332 15,332
Current portion of advances
on technology sales 322,873 398,930
Deferred revenue 124,199 202,069
------------ ------------
Total current liabilities 1,278,031 1,370,464
Capital lease obligation,
net of current portion 22,476 30,910
Advances on technology sales, net
of current portion 984,677 1,331,680
------------ ------------
Total Liabilities 2,285,184 2,733,054
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock 469 769
Common stock 148,589 131,358
Additional paid-in capital 57,299,836 45,513,895
Accumulated other comprehensive loss (95,014) (81,400)
Notes receivable (1,227,992) (1,348,747)
Accumulated deficit (34,500,819) (30,351,523)
------------ ------------
Total shareholders' equity 21,625,069 13,864,352
------------ ------------
Total liabilities and
shareholders' equity $ 23,910,253 $ 16,597,406
============ ============
See accompanying notes to condensed consolidated financial statements.
3
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue $ 776,592 $ 383,053 $ 1,057,813 $ 819,938
Cost of revenue 391,677 225,801 578,674 424,936
Research and development 257,191 142,666 541,181 285,015
Sales and marketing 965,037 306,963 1,988,388 663,408
General and administrative 1,277,542 490,930 2,084,375 902,265
Depreciation & Amortization 528,317 55,671 682,239 168,021
Other income 314,135 151,576 667,748 323,573
----------- ------------ ------------ -----------
Net loss available to
common shareholders (2,329,037) (687,402) (4,149,296) (1,300,134)
Other comprehensive income
(loss) - Translation
adjustment (6,877) (2,210) (13,614) 922
------------ ------------ ------------- -----------
Comprehensive Loss $ (2,335,914) $ (689,612) $(4,162,910) $(1,299,212)
============ ============ ============= ===========
Net loss per share:
Basic $ (0.16) $ (0.11) $ (0.29) $ (0.23)
Diluted $ (0.16) $ (0.11) $ (0.29) $ (0.23)
Shares used in per share
calculation basic and
diluted 14,577,337 6,486,780 14,157,525 5,756,070
============ =========== ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
September 30,
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $(4,149,296) $(1,300,134)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 494,463 119,267
Compensation expense related to stock
issued for services 60,391 --
Foreign currency translation adjustment (13,614) 922
Non-cash compensation received for services (150,000) --
Amortization of technology advances (206,060) (219,841)
Amortization of note receivable 120,755 (15,198)
Changes in assets and liabilities,
net of acquisitions:
Accounts and other receivables (282,968) 21,697
Prepaid expenses and other assets (4,623) 2,120
Accounts payable and accrued
liabilities (124,777) (59,611)
Deferred revenue (77,870) (115,295)
----------- -----------
Net cash used in operating activities (4,333,599) (1,566,073)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (314,881) (20,177)
Costs of acquisitions, net of cash
acquired (196,004) --
Other assets 36,561 19,501
----------- -----------
Net cash used in investing activities (474,324) (676)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 1,973,224 17,143
Payments on capital lease (8,434) (7,537)
Proceeds from note payable to bank -- 512,895
----------- -----------
Net cash provided by financing activities 1,964,790 522,501
----------- -----------
Net decrease in cash and cash equivalents (2,843,133) (1,044,248)
Cash and cash equivalents, beginning
of period 15,673,264 3,169,443
----------- -----------
Cash and cash equivalents, end of period $12,830,131 $ 2,125,195
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
2000 1999
---------- ------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 3,180 $4,295
========== ======
Cash paid for income taxes $ 1,600 $1,365
========== ======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Non-cash purchase consideration from
acquisitions of Cross Communications Inc.
and Simkin, Inc. through the issuance
of common stock $2,753,900 --
========== ======
Consideration in connection with 40,000
common stock warrants to obtain option to
repurchase license technology $ 217,000 --
========== ======
Preferred stock converted to common
stock $ 600 $1,039
========== ======
See accompanying notes to condensed consolidated financial statements.
6
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DATALINK.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
Datalink.net, Inc., (the "Company") was formed under the laws of the State of
Nevada on June 18, 1996. On June 27, 1996, the Company went public through an
acquisition of a public corporation, Datalink Communications Corporation
("DCC"), which was previously Lord Abbott, Inc., a Colorado corporation formed
in 1986. Datalink.net is a leading wireless information infrastructure provider
and delivers end to end wireless data solutions to enterprises and custom data
applications to their customers utilizing its patented Xpresslink((TM))
Application server. The Company enables enterprises and consumers to customize,
interact with and respond to critical business data utilizing the new generation
of wireless devices.
Datalink.net leverages its core XpressLink technology across the high demand
vertical markets of finance, medical and mobile workforce through its growth of
market leading technology, and through acquisitions of established companies
providing products and services to which Datalink.net can contribute value
through wireless enhancement. Customers include Chase Manhattan Bank, AOL, AT&T,
Lucent, Bank of America, Citibank, EDS, Motorola, Qualcomm, and Fidelity
Investments. Global Market Pro, an advanced wireless application for financial
professionals that was co-developed with Chase Manhattan, is being marketed to
traders and financial professionals at banks and financial institutions. Recent
acquisitions include Cross Communications, Simkin, Inc., and WaresOnTheWeb. For
more information: http://www.datalink.net.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Datalink.net, Inc. and its subsidiaries (see footnote 8,
"Acquisitions"). The condensed consolidated balance sheet as of September 30,
2000, the condensed consolidated statements of operations and comprehensive loss
for the three months and six months ended September 30, 2000 and 1999, and the
condensed consolidated statements of cash flows for the six months ended
September 30, 2000 have been prepared by the Company, without audit and with the
instructions to Form 10-QSB and Regulation S-B. In the opinion of management,
all adjustments (including normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
six-month periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2001. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes that the disclosures provided are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-KSB for the year ended March 31, 2000.
The preparation of condensed consolidated 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 dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
All financial data and share data in this Form 10 QSB give retroactive effect to
the 2 for 1 stock split which was effected on April 27, 2000.
7
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3. REVENUE
The Company derives revenue from its enterprise and retail customers through one
or more of the following services: engineering, monthly usage charges for
wireless information and data transmission and licensing fees. For the three
months and six months ended September 30, 2000, one enterprise customer
accounted for a significant portion, but less than a majority of total revenues.
The Company believes that this customer's contribution as a percentage of total
revenues will decline in future quarters, as other enterprise customers are
added.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 provides guidance on necessary disclosures relating
to revenue recognition policies in addition to outlining the criteria that must
be met in order to recognize revenue. Dependent upon the final guidance on SAB
101 which is expected to be issued by the SEC in the fourth quarter of this
year, the Company may be required to change its policy recognizing activation
fee revenue upon service activation to recognizing the revenue ratably over the
initial term of the subscription contract. During the three and six month
periods ended September 30, 2000, activation fee revenue amounted to $680 and
$2,220, respectively. The Company does not expect this change to have a
material effect on its consolidated results of operations or financial position.
In March 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board (FASB) published their consensus on EITF Issue No 00-3,
Application of AICPA Statement of Position (SOP) 97-2, Software Revenue
Recognition, to Arrangements that Include the Right to Use Software Stored on
Another's Entity's Hardware. The EITF consensus gives guidance on accounting
for hosting arrangements. The Company does not expect the adoption of EITF
Issue No. 00-3 to have a material effect on its consolidated results of
operations or financial position.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25. Interpretation No. 44 clarifies the application of Opinion 25 for the
following issues: (1) the definition of employee for purposes of applying
Opinion 25, (2) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (3) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (4) the accounting
for an exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000. Due to the repricing of options, the
adoption of Interpretation No. 44 may have a material effect on the Company's
consolidated financial position or results of operations.
8
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5. OTHER INCOME
Other income consists of the following items:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- -------------------------
Description 2000 1999 2000 1999
----------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Owners fee sales of
technology $ (392,500) $ (392,500) $ (785,000) $ (785,000)
Interest on notes from
sales of technology 392,500 392,500 785,000 785,000
Amortization of technology
advances 103,030 108,999 206,060 219,841
Interest income 205,502 57,108 456,061 116,783
Miscellaneous 5,603 (14,531) 5,627 (13,051)
------------ ---------- ----------- ----------
Total other income, net $ 314,135 $ 151,576 $ 667,748 $ 323,573
============ ========== =========== ==========
</TABLE>
6. BASIC AND DILUTED EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ------------------------
2000 1999 2000 1999
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding for
the period 14,577,337 6,486,780 14,157,525 5,756,070
Shares used in per share
calculations 14,577,337 6,486,780 14,157,525 5,756,070
Net loss available to
common shareholders $(2,329,037) $ (687,402) $ (4,149,296) $(1,300,134)
Net loss per share $ (0.16) $ (0.11) $ (0.29) $ (0.23)
</TABLE>
Calculated in accordance with the guidelines of Item 601 of Regulation S-B.
Primary and fully diluted calculations are substantially the same.
Common stock equivalents resulting from convertible preferred shares, warrants
and stock options amounted to 6,296,139 and 3,801,671 as of September 30, 2000
and 1999 respectively. These common stock equivalents are excluded from the
weighted average common shares outstanding for the periods because their
inclusion would be anti-dilutive.
<PAGE>
7. WARRANTS
On July 7, 2000 the Company granted an affiliate of Chase Manhattan Bank common
stock warrants to purchase up to 800,000 shares of Datalink.net common stock at
a price of $30.00 per common share. These warrants have a five year life, are
non-callable, and were granted in exchange for all royalty and intellectual
property rights associated with the Global Market Pro product, including all
copyrights, patents and trade secrets. The value of these warrants as calculated
on the date of grant using the Black-Sholes pricing model amounted to $6,800,000
and is being amortized to expense over a five year period. This amount was
recorded in intellectual property with a corresponding increase to additional
paid-in capital. For the three months ended September 30, 2000, amortization
amounted to $340,000.
8. ACQUISITIONS
Cross Communications, Inc.
On July 20, 2000, the Company acquired all of the assets and selected
liabilities of Cross Communications, Inc. ("Cross") for $100,000 in cash and
62,500 shares of Datalink.net common stock valued at $1,316,400. The sole
shareholder of Cross has a performance earnout for which an additional 187,500
shares of Datalink.net common stock may be issued over the next three years
should revenue targets be met.
Cross, established in 1995, is a wireless communications company that provides a
premise based messaging platform under the brand name "HipLink"(TM). The HipLink
solution supports both UNIX and NT and is scalable and configurable to the
specific requirements of the enterprise customer. Cross' established customer
base includes Lucent, IBM, AT&T, Motorola and Sprint PCS.
Simkin, Inc.
On September 12, 2000 the Company acquired all of the capital stock of Simkin,
Inc. ("Simkin") for $160,000 in cash and 100,000 shares of Datalink.net common
stock with a value of $1,437,500. The sole shareholder of Simkin has a
performance earnout for which an additional 212,500 shares of Datalink.net
common stock may be issued over the next three years should revenue targets be
met.
Simkin, established in 1982, is a producer of pharmaceutical and medical
software tools in addition to providing on-site and computer assisted
pharmaceutical training programs. Simkin provides software and training to more
than 900 hospitals in the U.S. and over 100 hospitals in Europe and Asia
including the Mayo Clinic, Mount Sinai, John F. Kennedy, the University of
Florida Medical Center and the University of Pittsburgh Medical Center. Simkin's
core software is a proprietary drug dosing product which also provides the
foundation for a wireless solution presently in prototype which allows
healthcare professionals to improve a patient's drug therapy.
9. SUBSEQUENT EVENTS
Acquisition of ISS, Inc. dba WaresOnTheWeb.com
On October 16, 2000, the Company announced the acquisition of ISS, Inc., doing
business as WaresOnTheWeb.com ("Wares") an established turnkey provider of e-
commerce solutions to leading retailers, distributors and manufacturers. Wares
is an application service provider that enables customers to rapidly create
highly functional commerce based internet/intranet and/or extranet solutions
that integrate seamlessly with legacy and ERP systems. Enterprise customers
include Carlton Cards, FMC Corporation, Host Marriott and Paine Webber.
10
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The acquisition closed on November 13, 2000. The Company acquired all of the
capital stock of Wares for 250,000 shares of Datalink.net common stock. The
Shareholders of Wares have a performance earnout for which an additional 750,000
shares of Datalink.net common stock may be issued over the next three years
should revenue targets be met.
The purchase is a stock for stock transaction with a subsequent performance
earnout for additional shares. The earnout requires a substantial growth in
revenues of $60 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the Company's management
discussion and analysis of financial condition and results of operations, and
audited financial statements and notes thereto for the fiscal years ended March
31, 2000, and 1999 included in the Company's Annual Report on Form 10-KSB for
the year ended March 31, 2000. Except for the historical information contained
herein, the matters discussed in this document are forward-looking statements
that involve certain risks and uncertainties, including, among others, the risks
and uncertainties discussed below and in the Company's Form 10-KSB for the year
ended March 31, 2000:
OVERVIEW
In FY 2000, the Company announced a strategic repositioning as a wireless
infrastructure provider that delivers end to end wireless data solutions to
enterprises and custom data applications to their customers utilizing its
patented Xpresslink(TM) application server. This repositioning involved major
infrastructure changes, which continue into FY 2001. The Company has used
certain of the proceeds of its February 2000 private placement to expand its
engineering capability and research and development efforts, as well as to
increase its sales and marketing presence in the wireless market.
In the current period ended September 30, 2000, the Company's repositioning into
the enterprise B2B market has moved forward significantly with the generation of
enterprise customers. Datalink.net is concentrating on providing consulting and
engineering services and turnkey applications for wireless enablement of
corporate Intranets, Internet and e-commerce transactions. The Company continues
to maintain a legacy consumer B2C business, but it believes that as the B2B
revenues grow, the B2C revenues will decline as a percentage of total revenues.
As part of the Company's growth strategy, Datalink.net has acquired two
companies: Cross Communications, Inc. ("Cross"), Simkin, Inc. ("Simkin") and
closed on WaresOnTheWeb ("Wares") on November 13, 2000. Each should provide
revenues and a significant customer base to allow the Company to add to its
technology and to penetrate targeted vertical markets.
Cross provides a valuable premise-based client hosted wireless solution to its
Fortune 1000 customers. Simkin produces pharmaceutical and medical software
tools as well as onsite and computer assisted pharmaceutical training programs.
Wares is an established turnkey provider of e-commerce solutions to leading
retailers, distributors and manufacturers.
11
<PAGE>
Datalink.net intends to continue to acquire companies that provide strategic
growth for the Company through their technology, customer base or industry or
vertical market presence. This acquisition strategy will necessitate certain
cash investments and the incurrence of non-recurring costs. For the three month
period ended September 30, 2000, due to the Cross, Simkin and subsequent Wares
acquisitions, Datalink.net incurred certain non-recurring costs and non-cash
charges.
RESULTS OF OPERATIONS
Revenues for the three month and six month periods ended September 30, 2000 were
$776,592, and $1,057,813, respectively, as compared to $383,053, and $819,938,
for the like periods ended September 30, 1999.
The increase in revenue results from the Company's strategic repositioning and
its successful effort in the development of enterprise customers. Furthermore,
the overall growth of the B2B marketplace for wireless data solutions has
increased the demand for Datalink.net's products and services. The acquisition
of Cross has increased revenues in the three months ended September 30, 2000,
versus the same period in 1999.
All of the revenues generated in the three month and six month periods ended
September 30, 1999 were from the Company's legacy Business to Consumer ("B2C")
products. While a portion of the revenues in the three month and six month
periods ended September 30, 2000 are from B2C products, the Company believes
that the revenues from its B2C business will decline as a percentage of overall
revenues as Datalink.net penetrates further into the B2B marketplace and fully
integrates its new acquisitions.
COST OF REVENUES AND GROSS MARGIN
The cost of revenue is not directly comparable between the three and six month
periods ended September 30, 2000 and September 30, 1999. In the current fiscal
year, the Company has developed products and services for the B2B marketplace,
while the prior fiscal year products and services were solely for the legacy B2C
marketplace.
The cost of revenues as a percentage of total revenues declined to 50.4% from
58.9% for the three month period ended September 30, 2000 versus September 30,
1999. The cost of revenue as a percentage of total revenues increased slightly
to 54.7% from 51.8% for the six month period ended September 30, 2000 versus
September 30, 1999. The decline for the three month period results from the
improved margin relating to the B2B products, and the increase in the six month
period results from the combination of the lower margin B2C products with
minimum base charges for data feeds largely incurred in the quarter ended June
30, 2000,combined with costs incurred in current period associated with certain
engineering revenues. Cost of revenues principally includes costs to obtain
data feeds from various exchanges, costs for pager rental or depreciation and
pager airtime for those customers without their own pagers, and certain
telephone, computer and other direct operational costs.
OPERATING EXPENSES
Operating expenses increased during the three months and six months ended
September 30, 2000 from the like periods in 1999. The Company categorizes
operating expenses into four major categories: research and development, sales
and marketing, general and administrative and depreciation and amortization. The
tables below summarize the increases in these four categories of operating
expenses:
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ----------------------
Description 2000 1999 2000 1999
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Research and
Development $ 257,191 $142,666 $ 541,181 $ 285,015
Sales and
Marketing 965,037 306,963 1,988,388 663,408
General and
Administrative 1,277,542 490,930 2,084,375 902,265
Depreciation and
Amortization 528,317 55,671 682,239 168,021
---------- -------- ---------- ----------
Totals $3,028,087 $996,230 $5,296,183 $2,018,709
========== ======== ========== ==========
</TABLE>
Research and development expenses are expenses incurred in developing new
products and product enhancements for current products. These expenditures are
charged to expense as incurred. The increase in these costs is due principally
to hiring additional engineering personnel and from the development of new
products, such as Global Market Pro(TM), Mobile Reach(TM) and thinkAnywhere(TM),
a mobile option-trading platform.
Sales and marketing expenses consist of costs incurred to develop and implement
marketing and sales programs for the Company's product lines. These include
costs required to staff the Company and execute a sales and marketing strategy,
participation in trade shows, media development and advertising, and web site
development and maintenance. These costs also include the expenses of hiring
sales personnel and maintaining a customer support call center. These costs
have increased substantially in the three month and six month periods ended
September 30, 2000 from the three month and six month periods ended September
30, 1999, due principally to the addition of 7 new salespeople and new marketing
personnel, in addition to increased participation in wireless data forums and
trade shows. New marketing programs have also been developed and are in the
process of being implemented for new wireless products such as the Global Market
Pro and Mobile Reach.
General and administrative expenses include accounting, legal and consulting.
This category also includes the costs associated with being a publicly traded
company, including the costs of the Nasdaq listing, rent, administrative
personnel, and other overhead related costs. These costs increased in the three
month and six month periods ended September 30, 2000 due to increases in
administrative personnel as well as an expansion of office space in San Jose and
Vancouver. Additional one-time general and administrative cost increases have
resulted from the acquisitions of Cross, Simkin and Wares.
Depreciation and amortization expense includes depreciation of computers and
other related hardware and certain fixtures. Amortization includes goodwill
costs, certain intellectual property costs, and amortization of a note together
with interest, which is being forgiven the Chief Executive Officer. The increase
in this expense during the three and six month periods ended September 30, 2000
is primarily the result of the amortization of goodwill from the Company's
acquisitions and the amortization associated with the warrants awarded to Chase
in connection with Global Market Pro (GMP).
NON-OPERATING REVENUES AND EXPENSES
Non-operating revenues and expenses are primarily made up of interest income
from invested cash, amortization of technology sales advances received in
previous periods, and the owner's fees and offsetting interest income
recognized, related to the technology sales. The following tables reflect the
changes in other income (expense):
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ ------------------------
<S> <C> <C> <C> <C>
Description 2000 1999 2000 1999
----------- ----------- ----------- ----------- ----------
Owners fee sales
of technology $(392,500) $(392,500) $(785,000) $(785,000)
Interest on notes
from sales of
technology 392,500 392,500 785,000 785,000
Amortization of
technology
advances 103,030 108,999 206,060 219,841
Interest income 205,502 57,108 456,061 116,783
Miscellaneous 5,603 (14,531) 5,627 (13,051)
----------- ----------- ----------- ----------
Totals $ 314,135 $ 151,576 $ 667,748 $ 323,573
=========== =========== =========== ==========
</TABLE>
The resultant non-operating income increased during the three month and six
month periods ended September 30, 2000 from the three month and six month
periods ended September 30, 1999 due principally to the increase in interest
income from the cash available for investment from the proceeds raised in the
February 2000 private placement.
COMPREHENSIVE LOSS
The increase in the comprehensive loss of $2,335,914 and $4,162,910 during the
three and six months ended September 30, 2000 compared to $689,612 and
$1,299,212 for the three and six months ended September 30, 1999 was due to the
factors previously described. Further, the expansion of the use of the Company's
resources, including personnel, and its acquisition costs have increased the
loss, but should also create the platform for further revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of cash during the periods are summarized below:
<TABLE>
<CAPTION>
Six Months Ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash used in operating
activities $(4,333,599) $(1,566,073)
Cash used in investing
activities (474,324) (676)
Cash provided by
financing activities 1,964,790 522,501
----------- -----------
Net decrease in cash
and cash equivalents $(2,843,133) $(1,044,248)
=========== ===========
</TABLE>
14
<PAGE>
As of September 30, 2000, the Company had cash and cash equivalents amounting to
$12,830,131, a decrease of $2,843,133 from the balance at March 31, 2000.
Working capital decreased to $12,140,397 as compared to $14,561,421 at March
31, 2000. In the six months ended September 30, 2000 warrants and stock options
were exercised resulting in additional cash to the Company of $1,973,224. The
decreases in cash and working capital resulted from working capital being
utilized in operations and in acquisitions. However, this decrease was offset
somewhat by the exercise of stock options and warrants. The Company has not yet
generated sufficient revenues to cover the costs of continued product
development and support, sales and marketing efforts and general and
administrative expenses. There are no material commitments for capital
expenditures at September 30, 2000.
Management believes that it has adequate working capital for the next 12 months.
YEAR 2000 COMPLIANCE
The Company did not directly experience any problems related to Year 2000 (Y2K).
Although the Company had been assured by all related third parties that each was
Y2K compliant, one was not. Specifically, the Company's credit card verifier
experienced a software problem which caused certain Datalink.net customers to be
billed multiple times for the same services. This problem has since been
rectified.
The Company is aware of the issues associated with the functioning of the
programming code in computer systems.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This report includes forward-looking statements relating to, among other things,
projections of future results of operations, our plans, objectives and
expectations regarding our future services and operations and our acquisitions
of Cross Communications, Inc. and Simkin, Inc., and general industry and
business conditions applicable to us. We have based these forward-looking
statements on our current expectations and projections about future events. You
can find many of these forward-looking statements by looking for words such as
"may", "should", "believes", "expects", "anticipates", "estimates", "intends",
"projects", "goals", "objectives", or similar expressions in this document or in
documents incorporated herein. These forward-looking statements are subject to
a number of risks, uncertainties and assumptions about us that could cause
actual results to differ materially from those in such forward-looking
statements. Such risks, uncertainties and assumptions include, but are not
limited to, our limited operating history, our historical losses, the infancy of
the wireless data industry where there is no established market for our products
and services, our ability to adapt to rapid technological changes, our
dependence on wireless networks owned and controlled by others, and the other
factors that we describe in the section entitled "Risk Factors" in the Company's
Annual Report on Form 10-KSB for the year ended March 31, 2000. Datalink.net
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The wrongful termination lawsuit previously reported has been settled. The
Company paid the sum of $20,200 and the plaintiff dismissed the action and
executed a general release of all claims. The Company is in settlement
discussions with Datalink Corporation regarding the settlement of the trademark
action regarding the "Datalink" mark filed against us. We are expecting that
the suit will be settled in the very near future without the payment of any
damages. As a consequence of this suit and settlement the Company is looking at
the possibility of changing its name.
ITEM 2. CHANGES IN SECURITIES.
The Company issued securities which were not registered under the Securities Act
of 1933, as amended, as follows:
During the quarter ended September 30, 2000, the Company issued a total of 5,563
shares of its common stock to suppliers of services to the Company.
Additionally, the Company issued 100,000 shares of common stock for the purchase
of Simkin, Inc. and 62,500 shares of common stock for the acquisition of Cross
Communications, Inc. Also, the Company issued 12,368 shares of its common stock
to the holders of warrants issued to H.C. Wainwright in February 2000,
exercisable at $6.50 in exchange for cash, issued 466,612 shares of common stock
to the holders of $1.875 warrants originally issued to Commonwealth Associates
and its principals in connection with a November 1997 financing, in exchange for
cash, issued 33,685 shares of its common stock to holders of warrants in a
cashless exchange and issued 16,771 common shares in exchange for employee stock
options and cash for total proceeds to the Company of $983,569.
With respect to these transactions, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended. The investors were given complete
information concerning the Company. The appropriate restrictive legend was
placed on the certificates and stop transfer instructions were issued to the
transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our Annual Meeting of Stockholders on August 14, 2000, for the purpose
of (1) electing four directors, (2) approving an amendment to the Company's
employee stock option plan to increase the number of shares of common stock
issuable upon the exercise of options granted under the plan from 1,000,000
shares to 2,500,000 shares, and (3) ratifying the appointment of BDO Seidman,
LP, as the Company's independent accountants for the fiscal year ending March
31, 2001. The following summarizes the voting results:
Item (1). Stockholders elected Anthony N. LaPine, Frederick M. Hoar, Charles K.
Dargan, II, and Jason Pavona, each until the next Annual Meeting of Stockholders
and until their successors have been duly elected and qualified. The vote for
each director was as follows:
Director Votes For % of Vote Votes Withheld
-------- ---------- ---------- --------------
Anthony N. LaPine 12,292,302 99.7% 35,791
Frederick M. Hoar 12,296,012 99.7% 32,081
Charles K. Dargan, II 12,296,012 99.7% 32,081
Jason Pavona 12,294,232 99.7% 33,861
16
<PAGE>
Item (2). The amendment to the Company's employee stock option plan to increase
the number of shares of common stock issuable upon the exercise of options
granted under the Plan from 1,000,000 shares to 2,500,000 shares was approved.
Votes for Votes Against Votes Broker Non-Votes
------------- -----------------
(% of shares represented) Abstained
------------------------- ---------
4,132,712 (92.9%) 278,390 35,664 7,881,327
Item (3). The appointment of BDO Seidman, LP, as the Company's independent
accountants for the fiscal year ending March 31, 2001 was approved.
Votes For (% of shares represented) Votes Against Votes Abstained
----------------------------------- ------------- ---------------
12,248,552 (99.3%) 21,818 57,723
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) Exhibits
Exhibit 2.1 - Agreement of merger by and among Datalink.net, Inc.,
Acquisition Wireless, Inc., Cross Communications, Inc., and Kathleen M. Wold
made effective as of July 20, 2000.
Exhibit 2.2 - Agreement of Merger by and among Datalink.net, Inc.,
Medical Acquisition Wireless, Inc., Simkin, Inc. and J. Daniel Robinson made
effective as of September 12, 2000.
Exhibit 2.3 - Agreement of Merger by and among Datalink.net, Inc.,
Wares Acquisition, Inc., ISS, Inc. and Stephen J. Casey made effective as of
October 10, 2000.
Exhibit 10.1 - Agreement by and between The Chase Manhattan Bank, CB
Capital Investors, LLC and Datalink.net, Inc.
Exhibit 10.2 - Warrant to purchase up to 800,000 shares of common
stock issued to CB Capital Investors, LLC, dated July 7, 2000.
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on October 16, 2000,
with respect to the authorization of the Company's officers to buy back up to a
maximum of one million shares of the Company's outstanding common stock from
time to time on the open market or otherwise, over the next twelve months.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATALINK.NET, INC.
Date: November 17, 2000 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)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT METHOD OF FILING
------- -------------------------
2.1 Agreement of merger by and among
Datalink.net, Inc., Acquisition
Wireless, Inc., Cross Communications,
Inc., and Kathleen M. Wold made
effective as of July 20, 2000. Filed herewith electronically
2.2 Agreement of Merger by and among
Datalink.net, Inc., Medical
Acquisition Wireless, Inc., Simkin,
Inc. and J. Daniel Robinson made
effective as of September 12, 2000. Filed herewith electronically
2.3 Agreement of Merger by and among
Datalink.net, Inc., Wares
Acquisition, Inc., ISS, Inc. and
Stephen J. Casey made effective as
of October 10, 2000. Filed herewith electronically
10.1 Agreement by and between The Chase
Manhattan Bank, CB Capital Investors,
LLC and Datalink.net, Inc. Filed herewith electronically
10.2 Warrant to purchase up to 800,000
shares of common stock issued to
CB Capital Investors, LLC, dated
July 7, 2000 Filed herewith electronically
27. Financial Data Schedule Filed herewith electronically
