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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 1999
Commission file number: 1-15569
DATALINK.NET, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
Nevada 35-3574355
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
1735 Technology Drive, Suite 790, San Jose, CA 95110
-----------------------------------------------------------
(Address of Principal Executive Offices including zip code)
(408) 367-1700
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
There were 3,967,124 shares of the Registrant's Common Stock outstanding as of
December 31, 1999.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
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DATALINK.NET, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Condensed Consolidated Balance Sheets
December 31, 1999 and March 31, 1999 3
b. Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three and nine month
periods ended December 31, 1999 and 1998 4
c. Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1999 and 1998 5
d. Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
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. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K 16
SIGNATURES 17
EXHIBITS
INDEX TO EXHIBITS
EXHIBIT 27 FINANCIAL DATA SCHEDULE
2
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 March 31
1999 1999
ASSETS (Unaudited)
Current Assets: ------------ ------------
Cash and cash equivalents $ 1,652,957 $ 3,169,443
Restricted cash 1,011,013 --
Trade receivables 44,578 63,319
Other receivables 9,006 6,372
Prepaid expenses 14,583 41,612
----------- -----------
Total current assets 2,732,137 3,280,746
Property and equipment, net 574,605 699,591
Other assets 53,038 76,730
----------- -----------
Total assets $ 3,359,780 $ 4,057,067
=========== ===========
LIABILITIES
Current Liabilities:
Accounts payable $ 494,526 $ 617,456
Note payable to bank 1,011,013 --
Accrued expenses and other
current liabilities 265,658 220,919
Current portion of capital
lease obligation 15,332 14,004
Current portion of advances
on technology sales 407,674 432,022
Deferred revenue 185,005 332,212
----------- -----------
Total current liabilities 2,379,208 1,616,613
Capital lease obligation, net of
current portion 34,743 47,439
Advances on technology sales, net
of current portion 1,428,031 1,730,610
----------- -----------
Total liabilities 3,841,982 3,394,662
----------- -----------
SHAREHOLDERS' EQUITY
Convertible Preferred stock 1,072 2,366
Common stock 39,671 24,143
Additional paid-in capital 29,085,278 28,084,147
Accumulated other comprehensive loss (81,698) (82,002)
Notes receivable (1,309,873) (1,261,675)
Accumulated deficit (28,216,252) (26,104,574)
----------- ----------
Total shareholders' equity (deficit) (482,202) 662,405
----------- -----------
Total liabilities and
shareholders' equity (deficit) $3,359,780 $4,057,067
=========== ==========
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)
Three Months Ended Nine Months Ended
December 31 December 31
----------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Revenue $ 326,761 $ 561,414 $ 1,146,699 $ 1,658,070
Cost of revenue (172,113) (204,771) (597,049) (637,115)
Research and development (140,986) (153,023) (426,001) (595,082)
Sales and marketing (303,127) (625,366) (966,535) (2,534,922)
General and administrative (674,768) (621,215) (1,745,054) (2,152,961)
Other income (Note 3) 152,289 204,381 475,862 648,394
---------- ---------- ----------- -----------
Net loss available to
common shareholders $(811,944) $(838,580) $(2,112,078) $(3,613,616)
========= ========= =========== ===========
Other comprehensive
income (loss) -
Translation (618) (36,039) 304 (31,801)
--------- ---------- ----------- -----------
Comprehensive loss $(812,562) $ (874,619) $(2,111,774) $(3,645,417)
========== =========== =========== ============
Net loss per share
(Note 4):
Basic $ (0.23) $ (0.41) $ (0.68) $ (1.78)
Diluted $ (0.23) $ (0.41) $ (0.68) $ (1.78)
Shares used in per share
calculation, basic and
diluted 3,573,153 2,039,701 3,110,583 2,031,873
=========== ============ =========== ============
See accompanying notes to condensed consolidated financial statements.
4
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
December 31
---------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss $(2,112,078) $(3,613,616)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 178,050 127,490
Foreign currency translation adjustment 304 (31,801)
Issuance of common stock for services 121,719 --
Compensation related to warrants issued 105,550 --
Amortization of technology advances (326,925) (347,876)
Amortization of note receivable (48,198) 318,635
Changes in assets and liabilities:
Trade and other receivables 16,107 2,986
Prepaid expenses and other assets 27,029 (27,273)
Accounts payable and accrued liabilities (78,191) 334,180
Deferred revenue (147,207) 86,759
----------- -----------
Net cash used in operating activities (2,263,840) (3,150,516)
Cash flows from investing activities:
Acquisition of property and equipment (53,064) (250,288)
Other assets 23,690 (31,166)
----------- -----------
Net cash used in investing activities (29,374) (281,454)
Cash flows from financing activities:
Proceeds from note payable to bank 1,011,013 --
Proceeds from sales of common stock 788,096 46,888
Payments on capital lease (11,368) (11,286)
----------- -----------
Net cash provided by financing activities 1,787,741 35,602
----------- -----------
Net decrease in cash and cash
equivalents (505,473) (3,396,368)
Cash and cash equivalents and restricted
cash, beginning of period 3,169,443 7,353,719
----------- -----------
Cash and cash equivalents and restricted
cash, end of period $ 2,663,970 $ 3,957,351
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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DATALINK.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
1999 1998
-------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 37,379 $ 7,352
======== ========
Cash paid for income taxes $ 940 $ 2,005
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Preferred stock converted to common
stock $ 1,294 $ 124
======== ========
Common stock exchanged for accrued
expenses $ -- $ 18,176
======== ========
Cashless exercise of warrants $ 69 $ --
======== ========
See accompanying notes to condensed consolidated financial statements.
6
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DATALINK.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. FORMATION AND BUSINESS OF THE COMPANY
Datalink.net, Inc., formerly Datalink Systems Corporation (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 provides Web-to-
Wireless(TM) services for Internet-based enterprises and for consumers seeking
wireless access to Internet content and information. Through its patented
XpressLink middleware platform, the Company constructs an array of information
products that address the needs of consumers and enterprises to receive and
distribute selective data to individuals using wireless devices such as
pagers, digital cellular phones, or PDA's (Personal Digital Assistants).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine-month
period ended December 31, 1999 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended March 31, 1999.
3. OTHER INCOME
Other income (expense) consists of the following items:
Three Months Ended Nine Months Ended
December 31 December 31
---------------------- --------------------
Description 1999 1998 1999 1998
- ------------------------ --------- --------- --------- --------
Owners fee sales
of technology $(392,500) $(392,500) $(1,177,500) $(1,177,500)
Interest on note from
sales of technology 392,500 392,500 1,177,500 1,177,500
Amortization of
technology advances 107,083 114,331 326,925 347,876
7
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Interest income 59,208 98,286 175,992 325,150
Miscellaneous (14,002) (8,236) (27,055) (24,632)
--------- --------- ---------- ---------
Total other income
(expenses) $ 152,289 $ 204,381 $ 475,862 $ 648,394
========= ========= ========= =========
4. CALCULATIONS OF NET LOSS PER SHARE
Three Months Ended Nine Months Ended
December 31 December 31
------------------------ ------------------------
1999 1998 1999 1998
---------- ----------- ---------- -----------
Weighted average
common shares
outstanding for
the period 3,573,153 2,039,701 3,110,583 2,031,873
Shares used in per
share calculations 3,573,153 2,039,701 3,110,583 2,031,873
Net loss available to
common shareholders $ (811,944) $ (838,580) $(2,112,078) $ (3,613,616)
Net loss per share $ (0.23) $ (0.41) $ (0.68) $ (1.78)
Calculated in accordance with the guidelines of Item 601 of Regulation S-B.
Basic and fully diluted calculations are substantially the same.
Common stock equivalents resulting from convertible preferred shares, warrants
and stock options amounted to 3,654,694 and 5,328,930 as of December 31, 1999
and 1998, respectively. These common stock equivalents are excluded from the
weighted average common shares outstanding for the periods because their
inclusion would be anti-dilutive.
5. NOTE PAYABLE TO BANK
During the fiscal year ended March 31, 1999, Datalink.net entered into a Line
of Credit agreement with a financial services company. The credit line is in
the amount of $1,000,000 and is collateralized by funds on account at the
financial services company. At December 31, 1999, credit line borrowings,
including accrued interest amounted to $1,011,013, resulting in a like amount
of cash being classified as restricted on the balance sheet of the Company.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the attached
financial statements and notes thereto. Except for the historical information
contained herein, the matters discussed in this document are forward-looking
statements that involve certain risks and uncertainties, including, among
others, the risks and uncertainties discussed below and in the Company's Form
10-KSB for the year ended March 31, 1999:
OVERVIEW
In FY 2000, the Company announced a strategic repositioning as a Wireless
Application Service Provider (w-ASP), which involved major infrastructure
changes. This strategic repositioning, with its focus on the B2B (business-
to-business) marketplace and a shift to indirect, strategic partner sales
channels, necessitated a drastic reduction in the direct marketing, media
supported, programs previously dedicated to promoting the Company's B2C
(business-to-consumer) products. The Company's B2B strategy has moved forward
significantly, encompassing the formation of a new business unit,
Net2Wireless.com. Net2Wireless.com will concentrate on providing B2B
consulting services and turnkey applications for wireless enablement of
corporate Intranet, Internet and e-commerce transactions. These comprehensive
business solutions, initiatives and capabilities are now being marketed to
manufacturers of wireless devices, wireless channels, financial institutions,
web developers, and corporate businesses requiring wireless solutions. Newly
focused marketing and sales efforts, moving in concert with continuing
development of services for two-way and Wireless Application Protocol (WAP)-
enabled products, are intended to position Datalink.net in the B2B Wireless
Application Service Provider space.
The new strategy has resulted in reduced direct sales of products on an
interim basis. However, despite the drastic cut in advertising programs since
January 1999, the Company has retained its B2C subscriber base at a relatively
steady level and continues to receive a significant residual revenue stream
from its B2C customer base developed from prior advertising campaigns. This
suggests a considerable degree of success in establishing brand recognition in
the consumer marketplace, a strength that the Company will utilize in
sustaining its B2C operations without significant further investment of
resources.
The shift in the B2C product sales principally to indirect sales channels is
through partners such as SkyTel, Arch/MobileComm, and BellSouth Wireless.
While these indirect sale channels enhance the Company's new B2B strategy,
they have not been in place long enough to produce sufficient sales to replace
the revenues lost due to the reduction in direct sales of B2C products.
Nevertheless, as part of this new program, the Company continues the
rationalization of its overhead cost infrastructure to match the revenues
generated, which has reduced the net loss.
Also, during the quarter ended December 31, 1999, the Company's common stock
was approved for listing on the American Stock Exchange (AMEX), and trading
commenced under the symbol DLK at the opening of trading on Wednesday,
December 29, 1999.
9
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During the quarter, the Company arranged a private placement offering of $10
million in convertible preferred shares. This transaction closed on February
11, 2000, and funds will be used to implement the Company's B2B strategy and
increase engineering, marketing and sales efforts.
RESULTS OF OPERATIONS
The net loss available to common shareholders decreased during the three and
nine month periods ended December 31, 1999 to $811,944 and $2,112,078
respectively, from $838,580 and $3,613,616 in the three and nine month periods
ended December 31, 1998.
Revenues for the three and nine month periods ended December 31, 1999 were
$326,761 and $1,146,699 respectively, as compared to $561,414 and $1,658,070
for the like periods ended December 31, 1998. Revenue decreases resulted
principally from the Company's strategic repositioning as a wireless
application service provider (w-ASP), as further described in the "Overview"
above.
COST OF REVENUES AND GROSS MARGIN
Cost of revenues has decreased during the three and nine months ended December
31, 1999, as compared to the prior year period, principally due to the
decrease in net revenues. Cost of revenues represents the direct costs
necessary to provide the services to customers. This cost is not directly
proportional to revenues, and when revenues decrease, as they have in the
current quarter and nine month periods, the cost of revenues has not changed
proportionally. Additionally, certain salary costs totaling $8,250 and
$24,750 were charged to cost of revenues for the three and nine month periods
ended December 31, 1999 that were classified as sales expenses in the prior
year. Cost of revenues principally includes costs to obtain data feeds from
various exchanges, costs of pager rental or depreciation and pager airtime for
those customers without their own pagers, and certain telephone, computer and
other direct operational costs. The following tables show the net revenues,
cost of revenues and gross margin for the three month and nine month periods
ended December 31, 1999 and 1998:
Three Months Ended December 31 (Decrease)
-------------------------------- ---------------------
1999 1998 $ %
----------- ------------- --------- ---------
Net revenues $ 326,761 $ 561,414 $(234,653) (41.8)%
Cost of revenue $ 172,113 $ 204,771 $ (32,658) (19.0)%
Gross margin $ 154,648 $ 356,643 $(201,995) (56.6)%
Nine Months Ended December 31 (Decrease)
------------------------------ ----------------------
1999 1998 $ %
----------- ------------ ---------- ---------
Net revenues $1,146,699 $1,658,070 $(511,371) (44.6)%
Cost of revenue 597,049 637,115 (40,066) (6.7)%
Gross margin 549,650 1,020,955 (471,305) (46.2)%
10
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OPERATING EXPENSES
Operating expenses have decreased during the three month and nine month
periods ended December 31, 1999 from the same periods of 1998. The Company
categorizes operating expenses into three major categories: research and
development, sales and marketing and general and administrative. The tables
below summarize the changes in these three categories of operating expenses:
Three Months Ended December 31 Increase (Decrease)
------------------------------- ----------------------
Description 1999 1998 $ %
- ------------- ------------ ------------- ------------ --------
Research and
development $ 140,986 $ 153,023 $ (12,037) (7.9)%
Sales and
marketing 303,127 625,366 (322,239) (51.5)%
General and
administrative 674,768 621,215 53,553 8.6 %
---------- ---------- ----------- -----
Totals $1,118,881 $1,399,604 $ (280,723) (20.1)%
========== ========== =========== =====
Nine Months Ended December 31 (Decrease)
------------------------------ ----------------------
Description 1999 1998 $ %
- ------------ ----------- ------------ ------------ -------
Research and
development $ 426,001 $ 595,082 $ (169,081) (39.7)%
Sales and
marketing 966,535 2,534,922 (1,568,387) (61.9)%
General and
administrative 1,745,054 2,152,961 (407,907) (19.0)%
---------- ----------- ----------- ------
Totals $3,137,590 $5,282,965 $(2,145,375) (40.6)%
========== ========== =========== =====
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 decrease in these costs is due
principally to additional personnel and consultants engaged in the prior year
period in the development of lifestyle and other new products, and last year's
periods included one additional management person.
Sales and marketing expenses consist of costs incurred to develop and
implement marketing and sales programs for the Company's product line. These
include costs required to staff 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 sales
personnel and a customer support call center. These costs have decreased
11
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substantially in the quarter and nine month periods ended December 31, 1999
from the periods ended December 31, 1998, due principally to elimination of
virtually all advertising during the current periods. This advertising
decrease amounted to a savings of approximately $277,000 and $1,406,000 for
the three and nine month periods ended December 31, 1999.
General and administrative expenses include accounting and legal, including
the costs associated with being a publicly traded company, rent,
depreciation of furniture and fixtures and other fixed assets, administrative
personnel, and other overhead related costs. These costs decreased in the
current periods due in part to reductions in administrative and accounting
personnel and the cessation of non-cash costs associated with a loan
forgiveness agreement with the Company's chief executive officer, due to the
completion of the amortization of the loan forgiveness period.
NON-OPERATING REVENUES AND EXPENSES
Non-operating revenues and expenses are primarily made up of interest income
from invested cash, amortization of deferred revenue from 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):
Three Months Ended December 31 Increase (Decrease)
------------------------------- --------------------
Description 1999 1998 $ %
- ----------------- ------------ --------------- --------- --------
Owner's fee-sales
of technology $ (392,500) $ (392,500) $ 0 0 %
Interest income
sales of
technology 392,500 392,500 0 0 %
Amortization of
technology
advances 107,083 114,331 (7,248) (6.3)%
Interest income 59,208 98,286 (39,078) (39.8)%
Miscellaneous (14,002) (8,236) 5,766 70.0 %
---------- ----------- --------- -----
Totals $ 152,289 $ 204,381 $ (52,092) (25.5)%
========== =========== ========= =====
12
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Nine Months Ended December 31 Increase (Decrease)
----------------------------- ---------------------
Description 1999 1998 $ %
- ----------------- ------------ ------------- ---------- ---------
Owner's fee-sales
of technology $(1,177,500) $(1,177,500) $ 0 0 %
Interest income
sales of
technology 1,177,500 1,177,500 0 0 %
Amortization of
technology
advances 326,925 347,876 (20,951) (6.0)%
Interest income 175,992 325,150 (149,158) (45.9)%
Miscellaneous (27,055) (24,632) 2,423 9.8 %
---------- ----------- --------- ------
Totals $ 475,862 $ 648,394 $(172,532) (26.6)%
========== =========== ========= ======
As reflected in the above tables, other than interest income, most other
income (expense) items have remained relatively constant. The amortization of
technology advances has decreased slightly due to the application of the
effective interest method of amortization on the balance. Interest income has
decreased because of the reduction of cash available for investment due to
cash utilized in operations, as reflected in the following table of Liquidity
and Capital Resources.
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of cash during the nine month periods are summarized below:
Nine Months Ended December 31
------------------------------
Favorable
Product 1999 1998 Change
- --------------- ------------ ------------- -----------
Cash used in operating
activities $(2,263,840) $(3,150,516) $ 886,676
Cash used in investing
activities (29,374) (281,454) 252,080
Cash provided by
financing activities 1,787,741 35,602 1,752,139
----------- ----------- ----------
Net decrease
in cash and cash
equivalents and
restricted cash $ (505,473) $(3,396,368) $2,890,895
=========== =========== ==========
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As of December 31, 1999, the Company had cash and cash equivalents and
restricted cash amounting to $2,663,970 exclusive of reserves on deposit with
our merchant bank of $51,245, which reserves may not all be immediately
available for usage. Additionally, the restricted cash of $1,011,013 is
available for usage only upon repayment of a note payable to a financial
services company in a like amount. The remainder of cash and cash equivalents
available for usage amounted to $1,652,957. Cash, cash equivalents and
restricted cash decreased $505,473 during the nine months ended December 31,
1999 principally due to the net loss for the period of $2,006,528 offset
somewhat by credit line borrowings amounted to $1,011,013. Credit line
borrowings amounted to $1,011,013 and sales of common stock through the
exercise of warrants and employee stock options amounted to $788,096. The
Company has not yet generated sufficient revenues to cover the cost
associated with product support and development, marketing and sales, and
administrative costs, as the Company is continuing to develop its markets as
mentioned under Results of Operations. There are no material advertising
contracts or commitments for capital expenditures. As mentioned above, the
Company borrowed $1,011,013 during the nine month period from a financial
services company, against cash deposits, such borrowings have essentially been
repaid from continuing receipts from the exercise of common stock warrants
subsequent to December 31, 1999. Working capital appears adequate for the
remainder of the fiscal year and beyond, and subsequent to December 31, 1999,
management announced an investment of $10 million in convertible preferred
shares of the Company in a private placement which will fund new marketing and
development initiatives and insure adequate working capital for continued
expansion.
YEAR 2000 COMPLIANCE
The Company did not directly experience any problems related to 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 of Datalink.net's
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 for the Year 2000. The Year 2000 issues
result from the inability of some computer programs to distinguish the year
1900 from the year 2000. Many computer programs and operating systems were
written using two digits to define the applicable year rather than four
digits. This means that any equipment containing computer programs with time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. In some instances, this could result in system failures,
disruption in operations and possible inaccuracies of data.
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The Company does not use mainframe computers in its internal operations.
Consequently, it does not have the extent of Year 2000 issues of other
companies that depend on what is commonly know as "legacy" systems. The
Company uses PCS and "server class" systems in its operations and the
operating system for its software platform and technology is Microsoft Windows
NT.
Phase I of the Company's Year 2000 initiative has been to substantially
complete an inventory of all its IT and non-IT systems and equipment, and
based on this inventory, review its IT and non-IT proprietary systems and
contact its significant vendors to determine how their IT and non-IT products
and services might be effected by the Year 2000 issues. The Company's review
of its internal systems has resulted in the Company's determination that its
proprietary IT and non-IT systems meet the compliance requirements of the Year
2000. Ninety percent of the Company's vendors have provided statements that
their IT and non-IT systems are Year 2000 compliant. The Company continues to
collect statements from the remaining ten percent of its vendors.
The Company anticipates that there will be little or no Year 2000 issues and
therefore little or no cost will be incurred therefrom. However, although
compliance confirmation has been provided by ninety percent of the Company's
vendors, and the remaining ten percent have indicated that they are currently
Year 2000 compliant, there can be no assurance that these vendors will not
experience some level of Year 2000 issues that in some way may have an adverse
effect on the Company's systems. The level of risk related to this occurrence
has been assessed as very low. The Company's contingency plan in the event
that an unforeseen Year 2000 issues should occur is to change to another
vendor that is Year 2000 compliant. For this reason, Phase II of the
Company's Year 2000 initiative has been to develop an inventory of back-up
vendors for each vendor whose systems are currently used so that if a current
vendor develops a Year 2000 issue, the back-up vendor may be called upon to
provide services in accordance with Year 2000 compliance standards.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
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 December 31, 1999, the Company issued a total of
39,553 shares of its common stock to suppliers of services to the Company.
Also, the Company issued 11,167 shares of its common stock to holders of the
$3.75 agent warrants in exchange for cash, and 134,990 shares of its common
stock to the holders of $5.00 private placement warrants in exchange for cash,
for total proceeds to the company of $716,826.
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 - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
A) Exhibits:
Exhibits 27 - Financial Data Schedule
B) Reports on Form 8K
None
16
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATALINK SYSTEMS CORPORATION
Date: February 14, 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)
17
<PAGE>
INDEX TO EXHIBITS
EXHIBIT METHOD OF FILING
- ------- -------------------------
27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 3 and 4 of the
Company's Form 10-Q for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,663,970
<SECURITIES> 0
<RECEIVABLES> 58,584
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,732,137
<PP&E> 1,146,421
<DEPRECIATION> 571,816
<TOTAL-ASSETS> 3,359,780
<CURRENT-LIABILITIES> 2,379,208
<BONDS> 0
<COMMON> 39,671
0
1,072
<OTHER-SE> (522,945)
<TOTAL-LIABILITY-AND-EQUITY> 3,359,780
<SALES> 1,146,699
<TOTAL-REVENUES> 1,146,699
<CGS> 597,049
<TOTAL-COSTS> 3,734,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,112,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,112,078)
<EPS-BASIC> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
