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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2000
Commission file number: 1-15569
DATALINK.NET, INC.
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(Name of small business issuer in its Charter)
Nevada 36-3574355
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1735 Technology Drive, Suite 790, San Jose, California 95110
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(Address of principal executive offices, including zip code)
(408) 367-1700
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(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $0.01 Par Value
Securities Registered Pursuant to Section 12(g) of the Act: None.
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 $1,459,920.
As of June 8, 2000, 14,009,872 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $162,623,400.
DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for Annual Meeting of
Shareholders to be held on August 14, 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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. In the June 27, 1996 acquisition of DCC,
the Company issued 3,293,064 shares of its $0.01 par value Common Stock (as
adjusted for the 1 for 10 reverse split effective on February 9, 1998 and a 2
for 1 forward split effective April 27, 2000) to the holders of 100% of the
outstanding Common Stock of DCC, and DCC became a wholly owned subsidiary of the
Company. As a part of the transaction, the Company acquired a Canadian
corporation, DSC Datalink Systems Corporation, incorporated in Vancouver,
British Columbia.
Datalink.net is a leading wireless application service provider (w-ASP) that
delivers end-to-end wireless data solutions to enterprises and consumer data
applications to their customers. As today's premier provider of consumer
wireless data, and the first to deliver real-time wireless financial
information, Datalink.net pioneered the development of wireless information
technology. Datalink.net enables a new generation of wireless devices that allow
enterprises and consumers to customize, respond, and interact with critical
data. Datalink.net's XpressLink technology processes high-speed data content
feeds or corporate databases for wireless applications that are compatible with
the entire range of wireless devices, networks and protocols. Datalink.net is
based in San Jose, Calif. with research facilities in Vancouver, British
Columbia.
RECENT DEVELOPMENTS
In FY 2000, the Company announced a strategic repositioning as a Wireless
Application Service Provider (w-ASP), which involved major infrastructure
changes. The Company is successfully completing this repositioning by its focus
on the Business to Business (B2B) marketplace and end-to-end mobile data
solutions utilizing unique and patented Wireless Information Technology. This
strategy has necessitated a drastic reduction in the direct marketing, media
supported programs previously dedicated to promoting the Company's Business to
Consumer (B2C) products. The Company's B2B strategy has moved forward
significantly with the formation of a new business unit, Net2Wireless.com which
is concentrating on providing consulting and engineering services and turnkey
applications for wireless enablement of corporate Intranet, Internet and
e-commerce transactions.
As of February 9, 2000, Datalink.net, Inc. consummated a private placement to
two investment funds of (i) 769,231 shares of Series B convertible preferred
stock (post split each share of Series B preferred stock is convertible into two
shares of common stock) and (ii) five-year warrants to purchase up to an
aggregate of 1,153,846 shares of common stock at an exercise price of $8.75 per
share. The Company also issued to H. C. Wainwright & Co.,
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Inc. a warrant to purchase up to 153,846 shares of common stock, at an exercise
price of $6.50 per share, for its services as placement agent with respect to
the private placement. The Company received approximately $9,315,000 in cash,
net of expenses and commissions of $685,000.
As of March 1, 2000, 772,060 remaining Series A convertible preferred shares
were automatically converted into 1,544,120 (post two for one split) shares of
Datalink.net common stock. On March 2, 2000, the remaining $2.50 common stock
purchase warrants issued in conjunction with the Series A preferred shares were
provided a notice of redemption. Of the 1,059,946 warrants outstanding on March
2, 2000, 894,600 had been exercised by March 31, 2000, and the remaining 165,346
were exercised by April 3, 2000.
On June 22, 1999, the shareholders voted to amend the Company's Articles of
Incorporation increasing the authorized common stock to 50,000,000 shares.
On March 13, 2000 the Board of Directors of the Company approved a 2 for 1 stock
split. The 2 for 1 stock split was effected on April 27, 2000 and applied to all
holders of common stock of record. As a result of the split the number of shares
of common stock into which the preferred stock could be converted was increased
to 1,538,462 from 769,231. The number of shares of common stock issued and
outstanding at March 31, 2000 was 13,135,788. All financial data and share data
in this Form 10-KSB give retroactive effect to this split, unless otherwise
indicated.
Unless the context otherwise requires, the term "Company" as used herein refers
to Datalink.net, Inc. and its wholly owned subsidiaries Datalink Communications
Corporation, and DSC Datalink Systems Corporation.
DESCRIPTION OF BUSINESS
Except for the historical information contained herein, this report contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this section under "General" and "Risk Factors" as well as in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
OVERVIEW
The growth of the wireless industry and instant information requirements has
created many opportunities for Datalink.net. Since its inception in 1993, the
Company has developed a strong base of wireless consumer products and services
and then shifted its primary focus to the corporate enterprise market,
transforming itself into a wireless application service provider (w-ASP)
specializing in wireless enterprise solutions. The Company offers
professional-level products that make the wireless enablement of Web sites,
corporate operations and third party data a reality.
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Datalink.net addresses the new needs of the Information Revolution by offering a
suite of products and services for the enterprise customer. The Company's
ability to combine the Web and Wireless communications meets the expectations of
the industry's wireless technology users.
TARGET MARKETS
Wireless data technology is advancing quickly and its capabilities are becoming
more fine-tuned. As a result of this rapid technological development,
enterprises in almost every market segment are adopting wireless solutions in
order to increase and better equip their employees and customers with the
information that is most critical to them. Datalink.net's technology can service
any enterprise in any of the current market segments; however, the Company has
chosen to focus on three of the areas that project the greatest amount of growth
potential and the greatest need for wireless solutions. Those segments are:
field services, financial services and the healthcare industry.
FIELD SERVICES: Datalink.net addresses the needs of enterprises with large
numbers of employees in the field by providing complete solutions that assist
field service organizations with routing and dispatching, communication order
status, access to corporate databases and customer billing. By increasing the
field service worker's productivity with access to technical information,
inventory status and corporate databases, wireless data solutions are becoming a
critical component of many enterprises today.
FINANCIAL SERVICES: Wireless data services, handheld devices, and financial
management applications are now standard on the floors of stock exchanges. This
type of data delivery can put the individual traders one step ahead of the
market, increasing their transaction time and giving them the competitive
advantage. It is for this reason that Datalink.net engineered Global Market
Pro(TM), a professional level financial product designed specifically for
traders and financial professionals in the global capital, derivative and
foreign exchange markets.
HEALTHCARE SERVICES: It has been reported that home healthcare is one of
the fastest growing segments of the U.S. healthcare industry (Wireless Data
Forum, 1999) and is making access to patient information and medical assistance
an industry requirement. Wireless data solutions are assisting those delivery
needs by providing patient care plans, test results and medical histories to
healthcare professionals whether they are in the office or making a house call.
PRODUCTS
Datalink.net is continually developing new wireless information services to
reflect multiple personal and enterprise information requirements. The Company
takes wireless information services to the next level by customizing and
delivering actionable and time sensitive information wherever that information
is most valuable to the customer. Services and applications are device agnostic
and protocol independent integrating seamlessly into every enterprise
infrastructure and working with every wireless carrier and all text messaging
devices.
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In addition, Datalink.net develops Wireless Application Protocol (WAP) and
delivers that technology to users worldwide. At present, WAP appears to be a
de-facto world standard for wireless and telephony services of digital mobile
phones and other wireless terminals. Datalink.net's WAP enabled products give
customers the ability to access information from the Internet on demand via
their phone or pages as well as to respond to that information instantly from
the same device.
WIRELESS ENTERPRISE SOLUTIONS: Datalink.net offers specialized wireless
solutions designed to expand the market reach for all enterprises. The Company
has developed a suite of wireless enablement products and services that give
Internet marketers and corporate enterprises a wireless outreach.
Currently, the Company's enterprise business solutions suite includes:
WIRELESS BOOKMARK(TM). A wireless enablement tool for Web sites and other
content providers. Product sales and support is managed by the company's
Xpresslink platform. Wireless Bookmark acts as a digital reminder for users. The
tool enables Web sites to wirelessly remind their customers to return to the
site to participate in a future event.
AUCTION ENGINE(TM). Allows auction Web sites to send alerts to users when
an item that matches their interest comes up for bid, when they are outbid, or
when an auction is ending. This product gives users the ability to bid using a
two-way wireless device.
CONTENT ENGINE(TM). A premium service for Web sites that serves as a
marketing tool. The Content Engine takes Web content and makes it wireless,
increasing site awareness and driving site traffic. Users are able to opt-in to
the content in which they have the most interest and site operators are able to
update them on events occurring within the site.
TRANSACTION ENGINE. Provides WAP and Palm wireless transaction capabilities
to e-commerce sites. Datalink.net technology wirelessly enables shopping portals
and other commerce sites on the Internet making them "mobile malls".
INTRANET PRODUCTIVITY TOOL. Allows corporate intranet operators to send
information from an intranet site to and from any location, regardless of the
devices or transport protocol. The technology offers several diverse potential
applications, including delivery companies, transporting information to and from
trading floors, health care applications and any company with a mobile or
disparate workforce.
CUSTOM WIRELESS APPLICATION. Creates applications that meet the specific
needs of corporate clients. Using the wireless infrastructure components
developed by Datalink.net, including the XpressLink application server,
Datalink.net builds applications tailored to each requirement. While the core
infrastructure components remain similar each time, the customization occurs at
two points of the customer information: The back-end database or enterprise
application, and the mobile device end-user interface. Because Datalink.net's
technology is device agnostic and carrier independent, each corporate client can
choose an implementation that meets their needs and still falls within
Datalink.net's proven areas of expertise. Many of the Company's custom
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wireless applications are focused in the vertical markets of financial services
and healthcare, as well as the horizontal markets of ERP, CRM, and web site
wireless enablement.
BUSINESS TO CONSUMER PRODUCTS
Datalink.net's consumer product line focuses on the device owner as the
customer. From critical financial data to information supporting the
individual's lifestyle, these products allow customers to receive customized
information from real-time data feeds, receive and send messages and other
information, as well as set their own parameters for data they wish to receive.
Real-time stock quotes, news and sports are but a few examples of the
information that customers can receive at scheduled times, intervals or as event
driven alerts. Datalink.net's current line of consumer products includes:
QuoteXpress(R), SplitXpress(TM), CompanyNews, MailXpress(TM), MessageX(TM),
RumorXpress(TM), InfoXtraII(TM), Net2Go and RelayXpress(TM).
DISTRIBUTION
Datalink.net distributes its products by target customer category -
business-to-business and business-to-consumer. The B2B group's products are
distributed primarily through direct sales targeting e-commerce, finance, and
healthcare organizations. The B2C group sells its products and services to
paging, PCS, Internet, e-commerce and direct wireless providers through channel
partners.
KEY PARTNERS
One of the Company's key strengths lies in its ability to search out and
establish relationships with content providers, carriers, networks, and device
makers. It is these relationships combined with the Company's superior
technologic capabilities that make Datalink.net one of the most complete w-ASPs
in the industry.
CONTENT PARTNERS:
GovPX
Market News International
Reuters
Hoovers Online
StockRumors.com
Comtex
Sportsticker.com
Zacks.com
Accuweather
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CARRIER PARTNERS
Bellsouth
MCI WorldCom
AT&T
PageNet
MetroCall
Arch Communications
SkyTel
DEVICE PARTNERS
Nokia
Ericsson
Palm Computing
Handspring
Motorola
RIM (Research In Motion)
COMPETITION
The Company is participating in a highly competitive industry, with competition
from a broad range of both large and small information product and service
providers. Certain of the companies have far greater financial, technical and
marketing resources than the Company.
Competitive pressures within the wireless and Internet industries are
considerable as different players position themselves to reach more customers
and establish industry standards. Within this highly competitive market, the
Company is attempting to establish a strong position among a diverse group:
software companies, technology platform companies, carriers, service providers,
and content providers. To a great extent, the industry is in flux. In the face
of such uncertainly, the Company will need to create strategic alliances, remain
innovative, and respond quickly to change in order to be successful.
RESEARCH AND DEVELOPMENT
Datalink.net maintains its research and development operations in Vancouver,
B.C., and as of June 15, 2000, employed 21 personnel in research and
development. The Company finds it advantageous to have its research and
development activities in Vancouver due to the abundance of available, talented
software engineers. Total costs incurred in research and development amounted
to $600,957 and $798,549 respectively, in the years ended March 31, 2000 and
1999.
INTELLECTUAL PROPERTY
Datalink.net protects its significant intellectual property holdings with
patents for software related to its business, creating an entry barrier to any
potential competition. Additionally, Datalink.net relies on contractual
restrictions, copyright, trademark, service mark and trade secret laws to
protect its intellectual properties. Most competing technologies lack the
strong patent protection that Datalink.net has. The Company has a total of
seven issued patents as of June 2000, as follows:
Interactive Two-Way Pager System #5,838,252
Divisional Case #6,049,291
Pager Enhanced Keyboard and system #5,964,833
System and Method for a Real-Time Data Stream
Analyzer and Alert System #5,872,921
Virtual Transcription System #5,875,436
Mail Alert System #6,035,104
Alphanumeric Paging System Operating on
the Internet #6,040,784
EMPLOYEES
At June 15, 2000, the Company had 65 full-time employees, approximately 18 of
whom were engaged in sales and customer support, 11 in marketing, 15 in finance
and administration, and 21 in engineering. No employees of the Company are
covered by a collective bargaining agreement.
RISK FACTORS
Shareholders or investors in shares of the Company's Common Stock should
consider the following risk factors, in addition to other information in this
Report.
1. LIMITED OPERATING HISTORY, OPERATING LOSSES. We have recorded a net loss for
each year since our current business started in 1996 through our fiscal year
ended March 31, 2000. As of March 31,2000, we had an accumulated deficit of
$30,351,523. Because we expect to continue to incur significant sales and
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marketing, systems development and administrative expenses, we will need to
generate significant revenue to become profitable and sustain our revenue or
profit goals and our losses may continue to grow in the future. As a result, we
may not be able to increase revenue or achieve profitability on a quarterly or
annual basis.
2. THERE IS NO ESTABLISHED MARKET FOR WIRELESS DATA SERVICES AND WE MAY NOT BE
ABLE TO SELL ENOUGH OF OUR SERVICES TO BECOME PROFITABLE. The markets for
wireless data services are still emerging and continued growth in demand for and
acceptance of these services remains uncertain. Current barriers to market
acceptance of these services include cost, reliability, functionality and ease
of use. We cannot be certain that these barriers will be overcome. Our
competitors may develop alternative wireless data communications systems that
gain broader market acceptance than our systems. If the market for our services
does not grow or grows more slowly than we currently anticipate, we may not be
able to attract customers for our services and our revenues would be adversely
affected.
3. WE MAY NOT ACHIEVE PROFITABILITY IF WE ARE UNABLE TO MAINTAIN, IMPROVE AND
DEVELOP THE WIRELESS DATA SERVICES WE OFFER. We believe that our future business
prospects depend in part on our ability to maintain and improve our current
services and to develop new ones on a timely basis. Our services will have to
achieve market acceptance, maintain technological competitiveness and meet an
expanding range of customer requirements. As a result of the complexities
inherent in our service offerings, major new wireless data services and service
enhancements require long development and testing periods. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new services and service enhancements.
Additionally, our new services and service enhancements may not achieve market
acceptance. If we cannot effectively maintain, improve and develop services we
may not be able to recover our fixed costs or otherwise become profitable.
4. IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR SERVICES MAY BECOME OBSOLETE AND WE MAY LOSE SALES. The wireless and
data communications industries are characterized by rapidly changing
technologies, industry standards, customer needs and competition, as well as by
frequent new product and service introductions. Our services are integrated with
wireless handheld devices and the computer systems of our customers. Our
services must also be compatible with the data networks of wireless carriers. We
must respond to technological changes affecting both our customers and
suppliers. We may not be successful in developing and marketing, on a timely and
cost-effective basis, new services that respond to technological changes,
evolving industry standards or changing customer requirements. Our ability to
grow and achieve profitability will depend, in part, on our ability to
accomplish all of the following in a timely and cost-effective manner.
Effectively use and integrate new wireless and data technologies; continue to
develop our technical expertise; enhance our wireless data, engineering and
system design services; develop applications for new wireless networks; and
influence and respond to emerging industry standards and other changes.
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5. WE DEPEND UPON WIRELESS NETWORKS OWNED AND CONTROLLED BY OTHERS. IF WE DO NOT
HAVE CONTINUED ACCESS TO SUFFICIENT CAPACITY ON RELIABLE NETWORKS, WE MAY BE
UNABLE TO DELIVER SERVICES AND OUR SALES COULD DECREASE. Our ability to grow and
achieve profitability partly depends on our ability to buy sufficient capacity
on the networks of wireless carriers and on the reliability and security of
their systems. We depend on these companies to provide uninterrupted and "bug
free" service and would not be able to satisfy our customers' needs if they
failed to provide the required capacity or needed level of service. In addition,
our expenses would increase and our profitability could be materially adversely
affected if wireless carriers were to increase the prices of their services.
6. WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS WHICH COULD
REDUCE DEMAND FOR OUR SERVICES AND MATERIALLY ADVERSELY AFFECT OUR REVENUE. Our
business strategy is based on the assumption that the number of subscribers to
our services, the amount of information they want to receive and the number of
services we offer will all increase. We must continue to develop and expand our
systems and operations to accommodate this growth. The expansion and adaptation
of our customer service and network operations center requires substantial
financial, operational and management resources. We may be unable to expand our
operations for one or more of the following reasons.
We may not be able to locate or hire at reasonable compensation rates qualified
engineers and other employees necessary to expand our capacity; we may not be
able to obtain the hardware necessary to expand our capacity; we may not be able
to expand our customer service, billing and other related support systems; and
we may not be able to obtain sufficient additional capacity from wireless
carriers.
Due to the limited deployment of our services to date, the ability of our
systems and operations to connect and manage a substantially larger number of
customers while maintaining superior performance is unknown. Any failure on our
part to develop and maintain our wireless data services as we experience rapid
growth could significantly reduce demand for our services and materially
adversely affect our revenue.
7. WE DEPEND ON RECRUITING AND RETAINING KEY MANAGEMENT AND TECHNICAL PERSONNEL
WITH WIRELESS DATA AND SOFTWARE EXPERIENCE AND WE MAY NOT BE ABLE TO DEVELOP NEW
PRODUCTS OR SUPPORT EXISTING PRODUCTS IF WE CANNOT HIRE OR RETAIN QUALIFIED
EMPLOYEES. Because of the technical nature of our products and the dynamic
market in which we compete, our performance depends on attracting and retaining
key employees. Competition for qualified personnel in the wireless data and
software industries is intense and finding qualified personnel with experience
in both industries is even more difficult. We believe there are only a limited
number of individuals with the requisite skills in the field of wireless data
communication, and it is becoming increasingly difficult to hire and retain
these persons. We have a written employment agreement and key-man life insurance
in the face amount of $3 million with Anthony N. LaPine, the Company's chairman,
CEO and president. We do not have employment agreements or key-man life
insurance with any other officer. The loss of Mr. LaPine or any other officer
may have an adverse effect on our business and prospects by depriving us of the
management services necessary to operate Datalink.net and achieve profitability.
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8. THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE AGAINST
CURRENT AND FUTURE COMPETITORS. OUR MARKET IS VERY COMPETITIVE. There are a
number of competitors who are larger and have much greater resources than we do.
Our competitors have more experienced people and larger facilities and budgets
than we do. These competitors could use their resources to conduct greater
amounts of research and development and to offer services at lower prices than
we can. These factors may adversely affect our ability to compete by decreasing
the demand for our products and services.
9. WE MAY NEED TO RAISE ADDITIONAL FUNDS. These funds may not be available to
us. Alternatively, raising additional funds may dilute your share ownership. We
have met capital needs with private sales of securities. However, we cannot
assure you that we will not need additional funds, that any needed funds will be
available to us at all, or that any available funds will be given on acceptable
terms. If we need additional funds, and are unable to raise them, we will not be
able to continue our business operations. If we raise funds by selling equity
securities, those sales may dilute your share ownership. If we raise funds by
forming joint ventures with other companies, we may have to give up some of our
rights to certain technologies, products or marketing territories.
10. OUR PATENTS MAY NOT PROTECT US FROM COMPETITORS. Costs of prosecuting and
defending patent infringement claims could hurt our business. We currently own a
number of patents related to our products, and have applied for additional
patents. We are not certain whether any new patents will be granted in the
future. Even if we receive additional patents, they may not provide us with
protection from competitors. Our failure to obtain patent protection, or illegal
use by others of any patents we have or may obtain could adversely affect our
business, financial condition and operating results. In addition, the laws of
certain foreign countries do not protect proprietary rights to the same extent
as the laws of the United States. Claims for damages resulting from any such
infringement may be asserted or prosecuted against us. The validity of any
patents we have or obtain could also be challenged. Any such claims could be
time consuming and costly to defend, diverting management's attention and our
resources.
11. WE MAY BE SUBJECT TO LIABILITY FOR TRANSMITTING INFORMATION, AND OUR
INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY. We may
be subject to claims relating to information transmitted over systems we develop
or operate. These claims could take the form of lawsuits for defamation,
negligence, copyright or trademark infringement or other actions based on the
nature and content of the materials. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that may be imposed.
12. DISRUPTION OF OUR SERVICES DUE TO ACCIDENTAL OR INTENTIONAL SECURITY
BREACHES MAY HARM OUR REPUTATION CAUSING A LOSS OF SALES AND COULD INCREASE OUR
EXPENSES. A significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect
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against the threat of security breaches or to alleviate problems caused by such
breaches. If a third-party were able to misappropriate our users' personal or
proprietary information or credit card information, we could be subject to
claims, litigation or other potential liabilities that could materially
adversely impact our revenue and may result in the loss of customers.
13. ANY TYPE OF SYSTEMS FAILURE COULD REDUCE SALES, OR INCREASE COSTS OR RESULT
IN CLAIMS OF LIABILITY. Our existing wireless data services are dependent on
real-time, continuous feeds. The ability of our subscribers to obtain data or
make securities trades through our service requires timely and uninterrupted
connections with our wireless network carriers. Any disruption could result in
delays in our subscribers' ability to receive information or execute trades.
There can be no assurance that our systems will operate appropriately if we
experience a hardware or software failure or if there is an earthquake, fire or
other natural disaster, a power or telecommunications failure, an act of God or
an act of war. A failure in our systems could cause delays in transmitting data,
and as a result we may lose customers or face litigation that could involve
material costs and distract management from operating our business.
14. AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM
THIRD PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES. In designing,
developing and supporting our wireless data services, we rely on wireless
carriers, wireless handheld device manufacturers, content providers and software
providers. These suppliers may experience difficulty in supplying us products or
services sufficient to meet our needs or they may terminate or fail to renew
contracts for supplying us these products or services on terms we find
acceptable. Any significant interruption in the supply of any of these products
or services could cause a decline in sales of our services unless and until we
are able to replace the functionality provided by these products and services.
We also depend on third parties to deliver and support reliable products,
enhance their current products, develop new products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes. In addition, we rely on the ability of our content to
continue to provide us with uninterrupted access to the news and financial
information we provide to our customers. The failure of third parties to meet
these criteria, or their refusal or failure to deliver the information for
whatever reason, could materially harm our business.
15. NEW LAWS AND REGULATIONS THAT IMPACT OUR INDUSTRY COULD INCREASE OUR COSTS
OR REDUCE OUR OPPORTUNITIES TO EARN REVENUE. We are not currently subject to
direct regulation by the Federal Communications Commission or any other
governmental agency, other than regulations applicable to businesses in general.
However, in the future, we may become subject to regulation by the FCC or
another regulatory agency. In addition, the wireless carriers who supply us
airtime are subject to regulation by the FCC and regulations that affect them
could increase our costs or reduce our ability to continue selling and
supporting our services.
16. OUR STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE VOLATILE. We
expect that the market price of our common stock will be volatile. We are
involved in a highly visible, rapidly changing industry and
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stock prices in our and similar industries have risen and fallen in response to
a variety of factors, including announcements of new wireless data
communications technologies and new providers of wireless data communications;
acquisitions of or strategic alliances among providers of wireless data
communications; changes in recommendations by securities analysts regarding the
results or prospects of providers of wireless data communications; and changes
in investor perceptions of the acceptance or profitability of wireless data
communications.
17. WE DO NOT PLAN TO PAY ANY DIVIDENDS. Our shares should not be purchased by
investors who need income from their holdings. We intend to retain any future
earnings to fund the operation and expansion of our business. We do not
anticipate paying cash dividends on our shares in the future. As a result, our
common stock is not a good investment for people who need income from their
holdings.
18. THE RESALES OF OUR COMMON STOCK RECENTLY REGISTERED COULD HAVE A DEPRESSIVE
EFFECT ON THE MARKET PRICE OF OUR SHARES. We recently registered 2,692,308
shares of common stock subject to resale by certain security holders of
Datalink.net. Up to 1,538,462 of those shares are issuable upon the conversion
of Series B Convertible Preferred Stock and up to 1,153,846 of those shares are
issuable upon the exercise of warrants. We are unable to predict the effect that
sales of these shares may have on the then prevailing market price of our
shares. It is likely that market sales of large amounts of Datalink.net shares
(or the potential for those sales even if they do not actually occur) will have
the effect of depressing the market price of our shares.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's main headquarters are located in San Jose, California. The
Marketing, Sales, and Customer Support departments are housed at this location.
The headquarters facility is approximately 6,000 square feet, which is under a
lease that expires on August 31, 2002. The monthly rent is $17,000. The Company
recently signed a lease agreement, effective April 15, 2000, for an additional
2,719 square feet of office space, adjacent to its current offices, to expand
the facilities at the San Jose locale. This lease expires on August 14, 2002.
The monthly rent is $8,102.62 with about a 5% increase every year.
The Company's Research and Development group is located in Vancouver,
British Columbia, where they occupy a facility approximately 2,200 square feet.
Under the lease agreement, the monthly rent for the property is $5,000. On
August 31, 2000, the lease expires. A second lease for additional space in the
same location in Canada became effective April 1, 2000, giving the Research and
Development group an additional 2,010 square feet, for $2,345 per month. This
lease expires on March 31, 2003. There is approximately a 10% increase per year
for the rent at the Vancouver site.
On November 1, 1999, the Company terminated the three year lease agreement
with Anthony and Pamela LaPine, which leased 4,000 square feet of office space
located at the LaPine's home. The space in the LaPine's home was leased at a
rate of $100,000 per year.
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<PAGE> 13
The Company believes that the recent expansion of the San Jose and Canada
facilities will be sufficient to meet the Company's current needs. Should the
Company need additional space to accommodate its increased activities, the
Management believes it can secure additional space.
ITEM 3. LEGAL PROCEEDINGS.
Outside any routine litigation that is incidental to the business, the Company
is a party in one pending legal proceeding. The suit was filed on March 23, 2000
in the Superior Court of California, County of Santa Clara by Theresa Dorr, a
former company employee, who claims that the Company wrongfully terminated her
employment, discriminated /harassed her based on her sex, and breached her
alleged implied employment contract and covenant of good faith/fair dealing.
Plaintiff is seeking damages in an unspecified amount for lost earnings,
emotional distress, punitive damages and recovery of attorney's fees and costs.
The Company denies all allegations, believes the suit is entirely without merit
and intends to contest the suit vigorously.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
quarter ended March 31, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. On December 29, 1999, trading in the Company's
common stock moved to the American Stock Exchange ("AMEX"), under the symbol
"DLK" from the OTC Bulletin Board.
The following table sets forth the Company's common stock high and low bid
quotations as reported by the OTC Bulletin Board for the periods indicated.
These prices are held to be inter-dealer quotations, which excludes retail
mark-ups, mark-downs, or other fees or commissions, and may not represent actual
transactions.
Quarter Ended High Bid Low Bid
------------- -------- -------
June 30, 1998 $ 3.97 $ 2.00
September 30, 1998 $ 2.47 $ 0.50
December 31, 1998 $ 0.65 $ 0.32
March 31, 1999 $ 2.00 $ 0.53
June 30, 1999 $ 3.07 $ 1.21
September 30, 1999 $ 2.60 $ 1.32
December 31, 1999
(through December 28) $ 6.07 $ 1.22
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The following table sets forth the high and low closing sales prices of the
Company's common stock as reported by the AMEX for the periods indicated:
High Bid Low Bid
-------- -------
December 29 to
December 31, 1999 $ 5.50 $5.28
Quarter ended
March 31, 2000 $42.00 $3.50
June 30, 2000
(through June 28, 2000) $27.97 $8.12
A 2 for 1 forward stock split became effective on April 27, 2000. Share prices
have been adjusted to reflect this split.
(a) HOLDERS. As of June 6, 2000 the Company had approximately 13,850
beneficial holders of the Company's common stock and 236 shareholders of record.
(b) DIVIDENDS. The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.
(c) RECENT SALES OF UNREGISTERED SECURITIES. 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. Each unit
consisted of 40,000 shares of preferred stock, par value $.001, and each share
of preferred stock was convertible into two shares of common stock. Also
included with each unit was a detachable common stock purchase warrant to
purchase 40,000 shares of the Company's common stock at a purchase price of
$2.50 per share. The Company received approximately $8.0 million in cash, net of
expenses, plus $1.05 million in a note receivable from the CEO of the Company.
Expenses and commissions related to the private placement totaled approximately
$1.3 million.
As of February 9, 2000, Datalink.net, Inc. consummated a private placement to
two investment funds of (i) 769,231 shares of Series B convertible preferred
stock (post split each share of Series B preferred stock is convertible one for
two into common stock) and (ii) five-year warrants to purchase up to an
aggregate of 1,153,846 shares of common stock at an exercise price of $8.75 per
share. The Company also issued to H.C. Wainwright & Co., Inc. a warrant to
purchase up to 153,846 shares of common stock, at an exercise price of $6.50 per
share, for its services as placement agent with respect to the private
placement. The Company received $9,315,501 in cash, net of expenses, and
expenses and commissions related to the private placement totaled $684,499.
ITEM 6. 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.
OVERVIEW
In FY 2000, the Company announced a strategic repositioning as a Wireless
Application Service Provider (w-ASP), which involved major infrastructure
changes. The Company is completing this repositioning with its focus on the
Business to Business (B2B) marketplace and end-to-end mobile data solutions
utilizing unique and patented Wireless Information Technology. This strategy has
necessitated a drastic reduction in the direct marketing, media supported
programs previously dedicated to promoting the Company's Business to Consumer
(B2C) products. The Company's B2B strategy has moved forward significantly with
the formation of a new business unit, Net2Wireless.com which is concentrating on
providing consulting and engineering services and turnkey applications for
wireless enablement of corporate Intranet, Internet and e-commerce transactions.
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<PAGE> 15
The highlights of FY 2000:
1. Datalink.net repositioned itself as a w-ASP, specializing in wireless
enterprise solutions.
2. Developed a real time wireless information system for financial market
professionals.
3. Letter of Intent signed with Chase Manhattan Bank for licensing of a
professional financial product.
4. Common Stock listed on American Stock Exchange, under symbol DLK in December
1999.
5. Private placement of equity on February 11, 2000 resulting in $9,315,501 in
proceeds, net of expenses.
6. Sustained increases in common stock price enabled the call for redemption of
common stock warrants and exercise of common stock options, which raised
$7,047,928 in additional capital.
7. Recruited new senior executives in positions of Chief Operating Officer,
Executive Vice-President for mergers and acquisitions, and a Vice-President of
Strategic Sales.
8. Strengthening of engineering, sales and marketing staffs with the addition of
over 20 professionals.
9. Initiated extensive participation in and/or sponsorship of the Wireless Data
Forum, the WAP Forum, and other wireless trade organizations. Anthony LaPine,
Chairman and CEO of Datalink.net was appointed Co-Chair of the WAP
Interoperability Group.
Although the Company's strategic repositioning is in place, the majority of the
resultant financial benefit should take place in FY 2001 and beyond, as the
contracts and business initiatives begun in FY 2000 ultimately generate
revenues.
DATALINK.NET B2B TARGET MARKETS
Wireless data technology is advancing quickly and its capabilities are becoming
more fine-tuned. As a result of this rapid technological development,
enterprises in almost every market segment are adopting wireless solutions in
order to increase and better equip their employees and customers with the
information that is most critical to them. Datalink.net's technology can service
any enterprise in any of the current market segments; however, the Company has
chosen to focus on three of the areas that project the greatest amount of growth
potential and the greatest need for wireless solutions. Those segments are:
field services, financial services and the healthcare industry.
FIELD SERVICES
Datalink.net addresses the needs of enterprises with large numbers of employees
in the field by providing complete solutions that assist field service
organizations with routing and dispatching, communication order status, access
to corporate databases and customer billing. By increasing the field service
worker's productivity with access to technical information, inventory status and
corporate databases, wireless data solutions are becoming a critical component
of many enterprises today.
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<PAGE> 16
FINANCIAL SERVICES
Wireless data services, handheld devices, and financial management applications
are now standard on the floors of stock exchanges. This type of data delivery
can put the individual traders one step ahead of the market, increasing their
transaction time and giving them the competitive advantage. It is for this
reason that Datalink.net engineered Global Market Pro(TM), a professional level
financial product designed specifically for traders and financial professionals
in the global capital, derivative and foreign exchange markets.
HEALTHCARE SERVICES
Home healthcare is reported to be one of the fastest growing segments of the
U.S. healthcare industry (Wireless Data Forum, 1999) and is making access to
patient information and medical assistance an industry requirement. Wireless
data solutions are meeting those delivery needs by providing patient care plans,
test results and medical histories to healthcare professionals whether they are
in the office or making a house call.
The new B2B sales and product strategy creates an exciting future for
Datalink.net, but in the interim, has not been in place long enough with
sufficient resources to develop meaningful revenues. This, combined with the
reduced direct sales of products in the consumer sector (B2C) has contributed to
an overall decline in revenues from the prior period. The decline in the B2C
revenues would appear to be the direct result of the decision to drastically cut
advertising programs for consumer wireless services starting in January, 1999,
with a reliance principally on new business and renewals from established brand
recognition previously developed through extensive media advertising campaigns.
Datalink.net, in addition to aggressively marketing w-ASP products and services,
has continued its legacy business to consumer product sales, principally through
indirect sales channels such as SkyTel, Arch/Mobilecomm and BellSouthWireless
and through its Internet store.
RESULTS OF OPERATIONS
The net loss decreased during the year ended March 31, 2000 to $4,246,949, from
$4,430,164 in the year ended March 31, 1999.
Revenues for the year ended March 31, 2000 amounted to $1,459,920, as compared
to $2,128,438 for the like period ended March 31, 1999. Revenue decrease
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 year ended March 31, 2000, as compared
to the prior year, 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
16
<PAGE> 17
revenues decrease, as they have in the current year, the cost of revenues has
not changed proportionally. 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. The following tables
show the net revenues, cost of revenues, and gross margin for the years ended
March 31, 2000 and 1999.
DECREASE
YEAR ENDED MARCH 31, --------------------
2000 1999 $ %
-------- -------- ---------- -------
Net revenues $1,459,920 $2,128,438 $ 668,518 31.4%
Cost of revenues $ 805,099 $ 822,636 $ 17,537 2.1%
Gross margin $ 654,821 $1,305,802 $ 650,981 49.9%
OPERATING EXPENSES
Operating expenses have decreased overall during the year ended March 31, 2000
from the year ended March 31, 1999. 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:
Increase (Decrease)
Year Ended March 31, -----------------------
Description 2000 1999 $ %
-------------- ---------- ----------- ---------- --------
Research and
development $ 600,957 $ 798,549 $ (197,592) (24.7)%
Sales and
marketing 1,608,056 2,937,140 (1,329,084) (45.3)%
General and
administrative 3,428,314 2,816,655 611,659 21.7 %
---------- ----------- ----------- ---------
Totals $5,637,327 $6,552,344 $ (915,017) (14.0)%
========== =========== =========== =========
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 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
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<PAGE> 18
substantially in the year ended March 31, 2000 from the year ended March 31,
1999, due principally to elimination of virtually all advertising during the
current periods. This advertising decrease amounted to a savings of
approximately $1,332,000 from the prior year.
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 over head related costs. These costs increased in the current year due
principally to non-cash stock and warrant based compensation, offset somewhat by
reductions in administrative and accounting personnel.
Non-cash charges totaled $1,060,487 in the year ended March 31, 2000, with
virtually no corresponding amount in the prior year, and consisted of $226,487
in compensation expense related to stock issued for services and $834,000 in
compensation expense related to options and warrants for services. These
non-cash charges originated from the issuance of common stock and common stock
purchase warrants in exchange for financial and marketing consulting services,
and were negotiated in lieu of cash payments for such services and valued at the
fair market value of stock issued, or in the instance of common stock purchase
warrants, in accordance with the Black-Scholes pricing guidelines. Absent these
non-cash charges, general and administrative expenses decreased by $448,828
during the year ended March 31, 2000 as compared to the prior year. Certain
options, which have been repriced, are subject to the variable plan requirements
of APB No. 25, that requires the Company to record compensation expense for
changes in the fair value of the Company's common stock. While no compensation
expense was required to be recognized in FY 2000, expense will be recognized in
the future, effective with those re-priced options vesting starting the second
quarter of FY 2001.
NON-OPERATING REVENUES AND EXPENSES
Non-operating revenues and expenses are primarily made up of interest income
from invested cash, interest expense, 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).
INCREASE (DECREASE)
YEAR ENDED MARCH 31, -----------------------
DESCRIPTION 2000 1999 $ %
----------- ------------ ------------ ----------- ----------
Owners fee
sales of
technology $(1,570,000) $(1,570,000) $ 0 0
Interest income
sales of
technology 1,570,000 1,570,000 0 0
Amortization of
technology
advance 432,021 460,502 (28,481) (6.2%)
Interest income 313,876 402,164 (88,288) (22.0%)
Miscellaneous (10,340) (46,288) 35,948 77.7%
----------- ----------- ---------- -----------
Totals $ 735,557 $ 816,378 $ (80,821) (9.9%)
============ ============ =========== ===========
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Non-operating revenues, net of expenses, decreased approximately 10 percent in
the year ended March 31, 2000 from the prior year, due primarily to a reduction
in interest income resulting from less cash during the year that was available
for investment, due to cash utilized in operations, prior to the infusion of
cash from the private placement, as reflected in the following table of
Liquidity and Capital Resources. Amortization of technology advance decreased
somewhat, due to the application of the effective interest method of
amortization on the balances.
LIQUIDITY AND CAPITAL RESOURCES
On February 11, 2000, the Company completed a private placement of convertible
preferred stock and common stock purchase warrants, which, net of expenses,
contributed $9,315,501 to cash. Additionally, conversion of common stock
warrants and exercise of common stock options during the year ended March 31,
2000 added $7,047,928 to cash. The sources and uses of cash are summarized as
follows:
YEAR ENDED MARCH 31,
2000 1999 CHANGE
----------- ----------- -----------
Cash used in
operating activities $(3,711,130) $(3,850,717) $ 139,587
Cash used in
investing activities (133,277) (328,305) 195,028
Cash provided by (used in)
financing activities 16,348,228 (5,254) 16,353,482
----------- ----------- -----------
Net increase (decrease)in
cash and cash equivalents $12,503,821 $(4,184,276) $16,688,097
=========== =========== ===========
As of March 31, 2000, the Company had cash and cash equivalents amounting to
$15,673,264, an increase of $12,503,821 from the balance at March 31, 1999.
Working capital increased to $14,560,421 as compared to $1,664,133 at the prior
year end. Subsequent to March 31, 2000, the 165,346 remaining $2.50 common stock
purchase warrants were exercised, resulting in additional cash received of
$413,365. The increases in cash and working capital were achieved through the
private placement of convertible preferred stock and exercise of stock options
and warrants, offset somewhat by working capital utilized in operations. 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 March 31, 2000.
At March 31, 2000, the company had a deferred tax asset of approximately
$6,000,000, principally arising from net operating loss carryforwards
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<PAGE> 20
available to offset future taxable income. As management cannot determine that
it more likely than not that the Company will realize the benefit of this asset,
a 100% valuation allowance has been established.
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 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.
RECENT PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
does not currently or intend to engage in any derivative or hedging activities.
As such, the accounting and disclosure prescribed by SFAS No. 133 are not
expected to have a material impact on the Company.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the quarter ending September 30, 2000. The Company does not
believe that the adoption of SAB 101 will have a material affect on the
Company's financial results.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Due to the repricing of options, Fin 44 may have a material effect on the
Company's financial position and results of operations.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-23 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on August 14,
2000 under the caption "Directors and Executive Officers" which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the fiscal year ended March 31, 2000, and is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on August 14,
2000 under the caption "Executive Compensation" which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year ended March 31, 2000, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on August 14,
2000 under the caption "Security Ownership of Certain Beneficial Owners
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<PAGE> 21
and Management" which will be filed with the Securities and Exchange Commission
no later than 120 days after the close of the fiscal year ended March 31, 2000,
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on August 14,
2000 under the caption "Certain Relationships and Related Transactions" which
will be filed with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year ended March 31, 2000, and is incorporated
herein by reference.
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 Amended and Restated Bylaws Incorporated by reference to
of the Company dated January Exhibit 3.1 to the Registrant's
24, 2000. Form 8-K Filed on February 17,
2000.
3.2 Certificate of Amendment to Incorporated by reference to
the Articles of Incorporation Exhibit 3.2 to the Registrant's
dated February 17, 1998 Form 10-KSB for the year ended
March 31, 1998.
3.3 Certificate of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.4 to the Registrant's
dated July 6, 1999. Form 8-A12B filed on
December 21, 1999.
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<PAGE> 22
4.0 Specimen Stock Certificate Incorporated by reference to
Exhibit 4.1 to the Registrant's
Form 8-A-12B filed on
December 21,1999
4.1 Certificate of the Designations Incorporated by reference to
of the Series B Convertible Exhibit 4.1 to the Registrant's
Preferred Stock. Form 8-K filed February 17, 2000.
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
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<PAGE> 23
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 Letter Agreement, dated as of Incorporated by reference to
September 7, 1999, by and Exhibit 10.1 to the Registrant's
between The Seidler Companies Form S-3 filed on April 21,
Incorporated and Datalink.net. 2000.
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-KSB for the
year ended 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-KSB for the
year ended March 31, 1997
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-KSB for the
year ended March 31, 1997
10.10 Application Software Purchase Incorporated by reference to
Agreement between Datalink Exhibit 10.1 to the Regis-
Systems Corporation and 605285 trant's Form 8-K dated May 6,
Ontario Inc. 1997
10.11 Management and Marketing Incorporated by reference to
Agreement between Datalink Exhibit 10.2 to the Regis-
Systems Corporation and 605285 trant's Form 8-K dated May 6,
Ontario 1997
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<PAGE> 24
10.12 6% Secured Term Note Incorporated by reference to
Exhibit No. 10.3 to the
Registrant's Form 8-K dated
May 6, 1997
10.13 Securities Purchase Agreement, Incorporated by reference to
dated as of February 9, 2000, Exhibit 99.1 to the Regis-
by and among the Company, Brown trant's 8-K Filed on February
Simpson Strategic Growth Fund, 17, 2000.
Ltd. and Brown Simpson Strategic
Growth Fund.
10.14 Registration Rights Agreement, Incorporated by reference to
dated as of February 9, 2000, Exhibit 99.2 to the Regis-
by and among the Company, Brown trant's 8-K Filed on February
Simpson Strategic Growth Fund, 17, 2000.
Ltd. and Brown Simpson Strategic
Growth Fund, L.P.
10.15 Warrant to purchase up to Incorporated by reference to
375,000 shares of common stock Exhibit 4.2 to the Registrant's
issued to Brown Simpson Strategic Form 8-K filed February 17,
Fund, Ltd., dated February 9, 2000.
2000.
10.16 Warrant to purchase up to Incorporated by reference to
150,000 shares of common stock Exhibit 4.2 to the Registrant's
issued to Anthony N. LaPine, Form S-3 filed on April 21,
dated December 1, 1999. 2000.
10.17 Warrant to purchase up to Incorporated by reference to
201,923 shares of common stock Exhibit 4.3 to the Registrant's
issued to Brown Simpson Form 8-K filed February 17,
Strategic Fund, L.P., dated 2000.
February 9, 2000.
10.18 Warrant to purchase up to Incorporated by reference to
76,923 shares of common stock Exhibit 4.4 to the Registrant's
issued to H.C. Wainwright & Co., Form 8-K filed February 17,
Inc., dated February 14, 2000. 2000.
10.19 Secured Promissory Note with Filed electronically herewith
Anthony LaPine dated
February 29, 2000
10.20 Loan Forgiveness Agreement with Filed electronically herewith
Anthony LaPine dated January 19,
2000
10.21 Option to Repurchase Technology Filed electronically herewith
Agreement with 605285 Ontario
Inc. dated June 14, 2000
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, LLP Filed electronically herewith
27 Financial Data Schedule Filed electronically herewith
(b) REPORTS ON FORM 8-K. On February 17, 2000 the Company filed a report on Form
8-K, reporting private placement offering of 769,231 shares of Series B
Convertible Preferred Stock and warrants to purchase up to 576,923 shares of the
Company's common stock.
24
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
Report of Independent Certified Public Accountants . . . . . F-2
Financial Statements:
Consolidated Balance Sheets, March 31, 2000 and 1999 . . F-3
Consolidated Statements of Operations and Comprehensive
Loss for the years ended March 31, 2000 and 1999 . . . . F-4
Consolidated Statements of Shareholders' Equity
for the years ended March 31, 2000 and 1999. . . . . . . F-5 - F-6
Consolidated Statements of Cash Flows for the years
ended March 31, 2000 and 1999. . . . . . . . . . . . . . F-7 - F-8
Notes to Financial Statements. . . . . . . . . . . . . . F-9 - F-22
F-1
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Datalink.net,Inc.:
We have audited the accompanying consolidated balance sheets of Datalink.net,
Inc. and subsidiary as of March 31, 2000 and 1999, and the related consolidated
statements of operations and comprehensive loss, 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 our audits 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.net, Inc.
and subsidiary as of March 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
BDO Seidman, L.L.P.
San Jose, California
May 1, 2000
F-2
<PAGE> 27
DATALINK.NET, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS March 31 March 31
2000 1999
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $15,673,264 $ 3,169,443
Trade receivables (net of allowance for
doubtful accounts of $337 in 2000
and $21,715 in 1999) 36,717 63,319
Other receivables 4,962 6,372
Prepaid expenses 216,942 41,612
----------- -----------
Total current assets 15,931,885 3,280,746
Property and equipment, net 576,674 699,591
Other assets 88,847 76,730
----------- -----------
Total assets $16,597,406 $ 4,057,067
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 539,791 $ 617,456
Accrued expenses and other current liabilities 214,342 220,919
Current portion of capital lease obligation 15,332 14,004
Current portion of advances on technology sales 398,930 432,022
Deferred revenue 202,069 332,212
----------- -----------
Total current liabilities 1,370,464 1,616,613
Capital lease obligation,
net of current portion 30,910 47,439
Advances on technology sales,
net of current portion 1,331,680 1,730,610
----------- -----------
Total liabilities 2,733,054 3,394,662
----------- -----------
Commitments and contingencies (Notes 13 and 15)
SHAREHOLDERS' EQUITY:
Convertible preferred stock, Series A: $0.001 par
value; $3.75 liquidation value; authorized:
5,000,000 shares; issued and outstanding: None in
2000 and 2,365,540 in 1999 -- 2,366
Convertible preferred stock, Series B: $0.001 par
value; $13.00 liquidation value; authorized:
5,000,000 shares; issued and outstanding:
769,231 in 2000 and none in 1999. 769 --
Common stock: $0.01 par value in 2000; authorized:
50,000,000 shares; issued and outstanding:
13,135,788 in 2000 and 4,828,614 in 1999 131,358 48,286
Additional paid-in capital 45,513,895 28,060,004
Accumulated other comprehensive loss (81,400) (82,002)
Notes receivable (1,348,747) (1,261,675)
Accumulated deficit (30,351,523) (26,104,574)
----------- -----------
Total shareholders' equity 13,864,352 662,405
----------- -----------
Total liabilities and shareholders' equity $16,597,406 $ 4,057,067
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 28
DATALINK.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year Ended
March 31,
2000 1999
---------- ----------
Revenue $ 1,459,920 $ 2,128,438
Cost of revenue 805,099 822,636
Research and development 600,957 798,549
Sales and marketing 1,608,056 2,937,140
General and administrative 3,428,314 2,816,655
Other income (notes 5 and 11) 735,557 816,378
---------- ----------
Net loss (4,246,949) (4,430,164)
Other comprehensive income
(loss) - Translation adjustment 602 (28,079)
------------- -------------
Comprehensive loss $ (4,246,347) $ (4,458,243)
============= =============
Net loss per share:
Basic $ (0.59) $ (1.06)
Diluted $ (0.59) $ (1.06)
Shares used in per share
calculation, basic and
diluted 7,213,715 4,187,374
============= =============
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 29
DATALINK.NET, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
3/31/1998 2,740,000 $ 2,740 4,036,586 $ 40,366 $27,986,854
Options exercised - - 43,108 430 80,266
Conversion of preferred
to common (374,460) (374) 748,920 7,490 (7,116)
Amortization of note
receivable, net of
accrued interest due - - - - -
Translation adjustment - - - - -
Net loss - - - - -
----------- ----------- ----------- -------- -----------
Balance at 3/31/1999 2,365,540 2,366 4,828,614 48,286 28,060,004
Common stock issued
for:
Options exercised - - 223,856 2,238 246,353
Services rendered - - 114,296 1,144 225,343
Exercise of warrants
for cash and notes
receivable - - 2,955,664 29,556 6,881,231
Cashless exercise
of warrants - - 282,278 2,822 (2,822)
Compensation
associated with stock
options and warrants
granted for services - - - - 834,000
Conversion of
preferred, Series
A to common stock (2,365,540) (2,366) 4,731,080 47,312 (44,946)
Preferred, Series B
shares issued in
conjunction with
private placement
2/11/2000 769,231 769 - - 9,314,732
Translation adjustment - - - - -
Amortization of notes
receivable, net of
accrued interest due - - - - -
-------- ---------- --------- --------- -----------
Balance at 3/31/2000 769,231 $ 769 13,135,788 $ 131,358 $45,513,895
======== ========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 30
DATALINK.NET, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE NOTES ACCUMULATED
LOSS RECEIVABLE DEFICIT TOTAL
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at
3/31/1998 $ (53,923) $(1,692,234) $(21,674,410) $ 4,609,393
Options exercised - - - 80,696
Conversion of preferred
to common - - - -
Amortization of note
receivable, net of
accrued interest due - 430,559 - 430,559
Translation adjustment (28,079) - - (28,079)
Net loss - - (4,430,164) (4,430,164)
------------- -------------- ------------- ------------
Balance at 3/31/1999 (82,002) (1,261,675) (26,104,574) 662,405
Common stock issued
for:
Options exercised - - - 248,591
Services rendered - - - 226,487
Exercise of warrants
for cash and notes
receivable - (100,000) - 6,810,787
Cashless exercise
of warrants - - - 0
Compensation
associated with stock
options and warrants
granted for services - - - 834,000
Conversion of
preferred, Series
A to common stock - - - 0
Preferred, Series B
shares issued in
conjunction with
private placement
2/11/2000 - - - 9,315,501
Translation adjustment 602 - - 602
Amortization of note
receivable net of
accrued interest due - 12,928 - 12,928
Net loss (4,246,949) (4,246,949)
----------- ------------ ------------- ------------
Balance at 3/31/2000 $ (81,400) $(1,348,747) $(30,351,523) $13,864,352
=========== ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 31
DATALINK.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
March 31,
2000 1999
------------ -----------
Cash flows from operating activities:
Net loss $(4,246,949) $(4,430,164)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 244,077 205,305
Allowance for doubtful accounts (21,378) 11,915
Compensation expense related to stock
issued for services 226,487 --
Compensation expenses relating to options/
warrants for services 834,000 --
Foreign currency translation adjustment 602 (28,079)
Amortization of technology advances (432,022) (460,499)
Amortization of notes receivable 12,928 430,559
Changes in assets and liabilities:
Accounts and other receivables 49,390 (15,865)
Prepaid expenses and other assets (175,330) 925
Accounts payable and accrued liabilities (72,792) 372,512
Deferred revenue (130,143) 62,674
----------- ----------
Net cash used in operating activities (3,711,130) (3,850,717)
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (121,160) (275,200)
Other assets (12,117) (53,105)
----------- ----------
Net cash used in investing activities (133,277) (328,305)
----------- ----------
Cash flows from financing activities:
Proceeds from note payable to bank 1,000,000 --
Repayments of note payable to bank (1,000,000) --
Repayments of capital lease obligations (15,201) (14,896)
Proceeds from issuance of preferred stock 9,315,501 --
Proceeds from exercise of options and warrants 7,047,928 9,642
------------ ----------
Net cash provided by (used in) financing
activities 16,348,228 (5,254)
----------- ----------
Net increase (decrease) in cash and cash
equivalents 12,503,821 (4,184,276)
Cash and cash equivalents, beginning
of year 3,169,443 7,353,719
----------- ----------
Cash and cash equivalents, end of year $15,673,264 $3,169,443
=========== ==========
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 32
DATALINK.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
2000 1999
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 42,400 $ 9,958
============ ============
Cash paid for income taxes $ 800 $ 800
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock options exercised in
exchange for accrued expenses $ 11,450 $ 71,056
============ ============
Preferred stock converted to common
stock $ 2,366 $ 374
============ ============
Cashless exercise of warrants $ 2,822 $ --
============ ============
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 33
DATALINK.NET, INC.
NOTES TO 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 wireless application service provider, marketing a
suite of products and services for both the B2B (business to business) and B2C
(business to consumer) markets. The B2B Group extends Internet franchises to the
wireless world through the company's patented Xpresslink(TM) Application Server,
while the B2C Group provides custom tailored information to the wireless user,
through devices such as pagers, WAP phones and personal digital assistants, such
as the Palm V and VII.
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.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly owned Canadian subsidiary, DSC Datalink Systems Corporation. All
significant intercompany transactions and balances have been eliminated in
consolidation. Operations of the Canadian subsidiary consist mainly of research
and development on behalf of the parent. As sales made by the Canadian
subsidiary are not significant, the Company does not believe that it has a
separately reportable segment.
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 amounts of 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 to be cash equivalents. The Company places
substantially all of its cash and cash equivalents in demand deposit accounts
with one bank and a financial services company.
F-9
<PAGE> 34
CONCENTRATIONS OF RISK:
Financial instruments which potentially subject the Company to concentrations of
risk consist principally of 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. The Company does not require cash collateral or
other security to support customer receivables. Provision is made for estimated
losses on uncollectible accounts.
The Company rents pagers to customers supplied principally from one supplier.
Management believes that other suppliers could provide similar equipment 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, net of accumulated depreciation and
amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets, generally three to seven years.
LONG-TERM ASSETS:
The carrying value of property and equipment is assessed annually or when
factors indicating an impairment are present. The Company determines such
impairment by measuring undiscounted future cash flows. If an impairment is
present, the assets are reported at the lower of carrying value or fair value.
FOREIGN CURRENCY TRANSLATION:
Exchange adjustments resulting from foreign currency transactions are generally
recognized in operations. Adjustments resulting from translation of financial
statements are reflected as a separate component of shareholders' equity. Net
foreign currency transaction gains or losses are not material in any of the
years presented.
STOCK BASED COMPENSATION:
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under this
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. The fair value
method is required for all stock-based compensation issued to non- employees,
including consultants and advisors. Under the fair value method, compensation
cost relating to issuances of stock options, warrants and appreciation rights is
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Companies are permitted to continue to account for employee stock-based
transactions under Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," but are required to disclose pro forma net
income and earnings per share as if the fair value method has been adopted. The
Company has elected to continue to account for stock based compensation under
APB No. 25. Certain options, which have been repriced, are subject to the
variable plan requirements of APB No. 25, that requires the Company to record
compensation expense for changes in the fair value of the Company's common
stock.
F-10
<PAGE> 35
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.
REVENUE RECOGNITION:
The Company recognizes revenues from transaction fees, monthly charges, and
pager rental income from its services. Revenues are recognized over the service
period and expenses are recognized when goods have been received or services
provided.
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 and
services 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, 2000 and 1999, 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.
Research and development expenditures are expensed as incurred.
ADVERTISING EXPENDITURES:
Advertising expenditures including production costs, of $239,361 and $1,571,964
in 2000 and 1999 respectively, were charged to operations as incurred.
BASIC AND DILUTED NET LOSS PER SHARE:
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon conversion of convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method).
Outstanding common shares and per share amounts have been adjusted for a 2 for 1
stock split which was effective April 27, 2000.
F-11
<PAGE> 36
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.
COMPREHENSIVE INCOME (LOSS):
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which was adopted by the Company in the third quarter of fiscal 1999. SFAS 130
establishes standards for reporting comprehensive income and its components in
a financial statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Items to be
included, which are excluded from net income (loss) include foreign currency
translation adjustments.
RECENT PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
does not currently or intend to engage in any derivative or hedging activities.
As such, the accounting and disclosure prescribed by SFAS No. 133 are not
expected to have a material impact on the Company.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB 101 must be applied to the financial statements
no later than the quarter ending September 30, 2000. The Company does not
believe that the adoption of SAB 101 will have a material affect on the
Company's financial results.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
Due to the repricing of options, FIN 44 may have a material effect on the
Company's financial position and results of operations.
F-12
<PAGE> 37
4. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
MARCH 31,
2000 1999
----------- ----------
Furniture and fixtures $ 162,112 $167,592
Computer and office equipment 784,511 687,788
Equipment under capital lease 81,640 81,640
Purchased software 177,019 156,337
----------- ----------
1,205,282 1,093,357
Less accumulated depreciation
and amortization (628,608) (393,766)
----------- ----------
$ 576,674 $699,591
=========== ==========
5. ADVANCES ON TECHNOLOGY SALES:
During fiscal year 1997, the Company entered into two separate transactions
involving the sale of rights to its technologies underlying two products,
QuoteXpress and MailXpress. The transactions occurred with two separate Canadian
companies and were nearly identical in nature in that they involved the receipt
of cash and notes receivable from the buyers, with the notes receivable being
collateralized by the intellectual properties being sold. Concurrent with the
sales, Datalink and the buyers entered into "Management and Marketing
Agreements" with the buyers giving the Company exclusive worldwide rights to
use, modify and sub license the source code for the technologies and providing
for fees to be paid to the buyers under certain conditions. Any payments between
parties are contingent upon each other, and are structured in such a way to
minimize the possibility that either party will ever make payments to the other.
At this time, no money has been paid to the buyers and based upon current
projections, it is anticipated that no moneys will be paid under the remainder
of the terms.
The cash payments received up front, amounting to $2,190,000 and $2,900,000
respectively, have been accounted for under the provisions of the "Emerging
Issues Task Force 88-18: Sales of Future Revenues" (EITF 88-18) and as such,
were deferred and are reflected under the balance sheet caption "Advances on
technology sales", and are being amortized to income using the interest method
over the terms of the agreements. The notes receivable due to the Company
resulting form the sales have not been recorded, as it is expected that any fees
or revenue share that otherwise might accrue to the buyers of the technologies
as a result of the management and marketing agreements would not be sufficient
to service the note receivable principle and interest payments due Datalink. If
the notes receivable due to the Company are not repaid, as presently projected,
the ownership of the intellectual properties will revert back to the Company at
the end of the agreements. Interest income on the notes has been recognized to
the extent of the amounts due to buyers under the "Owners fee" provisions of the
sales agreements, with both the interest income and the "Owners fee" reflected
in other income, along with the amortization of the technology advances.
6. CAPITAL LEASE:
Effective October 1997, the Company 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 with
interest at 10.45% per annum. Payments, in the initial three years of the lease
are approximately $2,000 per month. During the last two years of the lease the
F-13
<PAGE> 38
payments are reduced to approximately $1,100 per month. The lease is
collateralized by the underlying equipment included in property and equipment
with an original capitalized value of $81,640. Accumulated depreciation on
capitalized lease assets was $35,377 and $23,131 at March 31, 2000 and 1999
respectively. The combined principal and interest portions being recognized
under the capital lease for the next three years are as follows:
Year ended March 31,
2001 $ 21,033
2002 21,033
2003 12,269
--------
54,335
Less imputed interest (8,093)
--------
Total $46,242
========
7. INCOME TAXES:
At March 31, 2000, the Company has approximately $930,900 in Canadian net
operating loss carryforwards which expire in the years 2001 through 2006.
Deferred tax benefits arising from 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 recognized under generally accepted accounting principles, but 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
----------- ---------- ---------- ----------
$2,729,703 2012 $2,729,703 2005
3,219,423 2013 2,632,477 2005
4,427,050 2019 1,640,034 2005
4,302,268 2020 2,151,134 2005
----------- ----------
$14,678,444 $9,153,348
=========== ==========
At March 31, 2000 and 1999, the Company had net deferred tax assets of
approximately $6,000,000 and $5,000,000, respectively, which were fully offset
by valuation allowances. These net deferred tax assets principally arise due to
the Company's net operating loss carryforwards.
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.
F-14
<PAGE> 39
8. SHAREHOLDERS' EQUITY:
On June 22, 1999, the shareholders voted to amend the Company's Articles of
Incorporation increasing the authorized common stock to 50,000,000 shares.
On August 23, 1999 the Board approved an exchange offer to reduce the number of
outstanding warrants. The Company was authorized to issue 1 share of common
stock for each 8 Private Placement Warrants received, and 1 share of common
stock for each 6 Agent Warrants received. The Exchange Offer commenced on August
25, 1999 and terminated on September 23, 1999. A total of 386,640 Private
Placement Warrants were validly delivered, and not withdrawn, for exchange in
connection with the Exchange Offer. All such Private Placement Warrants were
accepted by the Issuer for exchange in accordance with the terms of the Exchange
Offer, and 48,330 shares of the Issuer's common stock were exchanged for such
warrants. A total of 9,968 Agent Warrants were validly delivered, and not
withdrawn, for exchange in connection with the Exchange Offer. All such Agent
Warrants were accepted by the Issuer for exchange in accordance with the terms
of the Exchange Offer, and 1,662 shares of the Issuer's common stock were
exchanged for such warrants. In addition, 374,248 common stock purchase warrants
were exchange for 232,286 shares of common stock during the year ended March 31,
2000.
On March 13, 2000 the Board of Directors of the Company approved a 2 for 1 stock
split. The 2 for 1 stock split was effected on April 27, 2000 and applied to all
holders of common stock of record. As a result of the split the number of shares
of common stock into which the preferred stock could be converted was increased
to 1,538,462 from 769,231. The number of shares of common stock issued and
outstanding at March 31, 2000 was 13,135,788. All financial data and share data
in this Form 10-KSB 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 has been designated as Series A preferred stock, and 769,231 as Series
B 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. Each unit consisted of 40,000 shares of preferred stock, par value
$.001, and each share of preferred stock was convertible into two shares of
common stock. Also included with each unit was a detachable common stock
purchase warrant to purchase 40,000 shares of the Company's common stock at a
purchase price of $2.50 per share. The Company received approximately $8.0
million in cash, net of expenses, plus $1.05 million in a note receivable from
the CEO of the Company. Expenses and commissions related to the private
placement totaled approximately $1.3 million.
During the year ended March 31, 2000, all of the remaining Series A convertible
preferred shares were converted into common stock. On March 2, 2000, the
remaining $2.50 common stock purchase warrants issued in conjunction with the
Series A Preferred Shares were provided a notice of redemption. Of the 1,059,946
warrants outstanding on March 2, 2000, 894,600 had been exercised by March 31,
2000, and the remaining 165,346 were exercised by April 3, 2000.
As of February 9, 2000, Datalink.net, Inc. consummated a private placement to
two investment funds of (i) 769,231 shares of Series B Convertible preferred
stock (post split each share of Series B preferred stock is convertible into two
shares of common stock) and (ii) five-year warrants to purchase up to an
aggregate of 1,153,846 shares
F-15
<PAGE> 40
of common stock at an exercise price of $8.75 per share. The Company also issued
to H.C. Wainwright & Co., Inc. a warrant to purchase up to 153,846 shares of
common stock, at an exercise price of $6.50 per share, for its services as
placement agent with respect to the private placement. The Company received
$9,315,501 in cash, net of expenses and commissions of $684,499.
Series B Convertible Preferred Stock Provisions
DIVIDENDS: The holders of shares of Series B 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 its Series B Convertible preferred stock is then convertible. As
of March 31, 2000, 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 B 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 B 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
$13.00 per share. If, upon such liquidation, the assets of the Corporation
available for distribution to the holders of the Series B preferred stock and
any other series of preferred stock then outstanding ranking on parity with the
Series B preferred stock upon liquidation ("Parity stock") shall be insufficient
to permit payment in full to the holders of the Series B 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 ratably among the holders of the Series B
preferred stock and parity stock based upon the proportion which the total
amount distributable on each share upon liquidation bears to the aggregate
amount available for distribution on all shares of the Series B preferred stock
and such parity stock, if any.
CONVERSION: Each share of preferred stock, at the option of the holder, is
convertible into two fully paid and non-assessable shares of common stock.
REDEMPTION: The Series B preferred stock is not redeemable.
VOTING RIGHTS: The holders of Series B preferred stock are not entitled to
voting rights.
1996 STOCK PURCHASE PLAN:
In September 1996, the Company adopted the 1996 Nonqualified Stock Purchase Plan
(the Nonqualified Plan). The Company has reserved 100,000 shares of its $.01 par
value common stock for issuance to eligible persons under this plan. As of March
31, 2000, no shares had been granted under this plan. The Company does not
intend to grant options under this plan.
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 1,000,000 shares of common stock under the Plan, and intends to seek
Shareholder approval to issue additional shares. The Plan expires ten years
after its adoption.
F-16
<PAGE> 41
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, as defined under the Plan, at the date of grant for
incentive stock options. The Board of Directors also has the authority to set
exercise dates (no longer 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 over four years at a rate of 25% after year one and then equally
on a monthly basis over the next three years from the date of grant. As of March
31, 2000, no stock appreciation rights have been granted under the Plan.
Effective May 24, 1999 the Board of Directors of the Company approved the
repricing of all of the options held by employees of the Company except for
those options held by the Company's CEO and the Company's Vice President of
Marketing. Employees with an exercise price ranging between $0.375 per share and
$3.50 per share were offered the opportunity to amend their option grants to
reprice the exercise price to $1.29 per share.
Effective November 17, 1999, the Company's Board of Directors approved the
repricing of all of the options held by Directors of the Company. All of the
Directors were offered the opportunity to amend their option grants to reprice
the exercise price to $1.56, and $1.72 for 10% or greater shareholders.
Activity for stock options under the 1996 Stock Option Incentive Plan through
March 31, 2000 is as follows:
WEIGHTED
SHARES NUMBER AGGREGATE AVERAGE
AVAILABLE OF PRICE PER EXERCISE EXERCISE
FOR GRANT OPTIONS SHARE PRICE PRICE
----------- --------- ------------- --------- --------
Balance,3/31/1998 331,850 662,710 $ 1.40-$10.00 $1,526,309 $ 2.30
Authorized - - - - -
Granted (482,904) 482,904 $ 0.37-$ 3.46 $ 568,133 $ 1.17
Canceled 153,646 (153,646) $ 1.40-$10.00 (457,012) $ 2.95
Exercised - (43,108) $ 1.22-$ 3.00 (80,696) $ 1.87
----------- --------- ---------- --------
Balance, 3/31/1999 2,592 948,860 $ 0.37-$10.00 $1,556,734 $ 1.64
Authorized - - - - -
Granted (1,557,456) 1,557,456 $ 1.29-$20.00 7,257,848 4.50
Canceled 715,272 (715,272) $ 0.37-$ 3.19 (1,364,527) 1.91
Exercised - (223,856) $ 0.50-$ 2.35 (248,591) 1.11
----------- ---------- ------------- ---------- -------
Balance, 3/31/2000 (858,592) 1,586,188 $ 0.50-$20.00 $7,201,464 $ 4.54
=========== ========== ============= ========== =======
During the year ended March 31, 2000, the Board of Directors approved the grants
of 1,556,456 options, which exceeded the grants authorized by the shareholders
by 858,592. The Company plans to request shareholder approval for additional
grants at its next meeting of shareholders to be held during the second quarter
of FY 2001. Assuming shareholder approval, the Company will record compensation
expense over the life of the options, for any excess of the fair market value
of the Company's stock, on the date of approval, over the exercise price.
The weighted average fair value of those options granted during the years ended
March 31, 2000 and 1999 was $9.17 and $0.80, respectively. Options to purchase
316,754 and 527,568 shares were exercisable with a weighted average exercise
price of $2.10 and $2.00 at March 31, 2000 and March 31,1999 respectively.
F-17
<PAGE> 42
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 2000 and 1999 would have been adjusted to the pro forma
amounts indicated below:
2000 1999
Net loss available to ----------- -------------
common shareholders
As reported $(4,246,949) $ (4,430,164)
Pro forma (4,865,606) (4,710,975)
Net loss per share
As reported, basic
and diluted (0.59) (1.06)
Pro forma, basic
and diluted (0.67) (1.13)
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 2000 and 1999:
2000 1999
----------- ----------
Expected dividend $ -- $ --
Expected life of option 1-4 years 1-4 years
Risk-free interest rate 4.61%-5.75% 4.63%-5.60%
Expected volatility 244.3% 93.5%
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, 2000:
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, 2000
$ 0.50-$ 1.00 103,004 7.6 $ 0.51 20,336 $ 0.56
$ 1.01-$ 2.00 421,060 7.5 1.58 201,961 1.66
$ 2.01-$ 3.00 78,000 7.5 2.21 50,000 2.21
$ 3.01-$ 4.00 604,000 9.4 3.71 24,333 3.49
$ 4.01-$ 8.00 91,000 8.7 6.90 20,000 6.50
$ 8.01-$20.00 289,124 9.9 11.93 124 10.00
--------- --- ------ ------- ------
1,586,188 8.6 $ 4.54 316,754 $ 2.12
========= === ====== ======= ======
10. REVENUE:
The Company has sales to customers in both Canada and the U.S. Revenue from
Canadian Sales totaled $51,886 and $68,224 and sales from United States
customers totaled $1,408,034 and $2,060,214 in 2000 and 1999, respectively.
F-18
<PAGE> 43
11. OTHER INCOME:
Other income (expense) consists of the following items:
YEAR ENDED
DESCRIPTION 2000 1999
--------------------- ------------ -----------
Owners fee sales $(1,570,000) $(1,570,000)
of technology
Interest on note from 1,570,000 1,570,000
sales of technology
Amortization of 432,021 460,502
technology advances
Interest income 313,876 402,164
Miscellaneous (10,340) (46,288)
----------- ------------
Total other income $ 735,557 $ 816,378
=========== ============
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,
2000 1999
------------ -------------
Basic EPS:
Net loss $ (4,246,949) $ (4,430,164)
============= =============
Average common shares outstanding 7,213,715 4,187,374
------------ ------------
Basic EPS $ (0.59) $ (1.06)
============ ============
Diluted EPS:
Net loss $(4,246,949) $ (4,430,164)
============ ============
Average common shares outstanding 7,213,715 4,187,374
Convertible preferred - -
Warrants - -
Stock options - -
------------ -------------
Total shares 7,213,715 4,187,374
------------ ------------
Diluted EPS $ (0.59) $ (1.06)
=========== ============
F-19
<PAGE> 44
In 2000 and 1999, 6,467,088 potential shares and 10,770,832 potential shares
respectively 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 $279,909 in 2000 and $259,000 in 1999.
Future minimum lease payments due under these agreements are as follows for the
years ending March 31:
2001 $ 344,370
2002 355,049
2003 159,197
----------
$ 858,616
==========
14. RELATED PARTY TRANSACTIONS:
Effective May 1, 1996, The Company entered into a three year employment
agreement with the Company's Chief Executive Officer. This agreement was
extended to May 1, 2004. The agreement automatically renews for one year terms
unless notice is provided by either party.
Concurrently with the execution of the original employment agreement, the
Company's Chief Executive Officer entered into a Stock Purchase Agreement
pursuant to which he purchased 400,000 shares of the Common Stock of DCC (which
were later exchanged for 400,000 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 bore interest at 10.5% per annum and the principal plus
interest were due on or before April 1, 2001. As security for the note, the
Chief Executive Officer granted the Company a security interest in the 400,000
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 plus interest was amortized over
the period of the contract of employment as compensation. Consequently, in the
years ended March 31, 2000 and 1999, expense of $48,754 and $585,044
respectively has been recorded as compensation expense. On May 1, 1999, the note
and accrued interest was forgiven in full.
On January 2, 1997, the Company entered into a three year non-cancelable lease
agreement with the Chief Executive Officer of the Company where the Company
leased office space owned by the Chief Executive Officer at an annual rate of
$100,000 or $8,333.37 per month. This lease was cancelled on November 1, 1999.
In conjunction with the private placement dated November 5, 1997 the Chief
Executive Officer of the Company entered into a stock purchase agreement. Under
the terms of the agreement, the Chief Executive Officer received 280,000 shares
of preferred stock with detachable warrants to purchase 280,000 shares of the
Company's common stock at $2.50 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%.
On December 1, 1999, the Company issued warrants to purchase 300,000 shares of
common stock at $2.375 per share to the Chief Executive Officer.
F-20
<PAGE> 45
On January 15, 2000, the Company entered into a Loan Forgiveness Agreement with
the Chief Executive Officer which provided that the $1,050,000 promissory note
would be forgiven if he continues to serve as the Company's Chief Executive
Officer through May 1, 2004, and there are no uncured defaults by him under his
Employment Agreement on May 1, 2004. The note, together with interest accrued
thereon has been presented as contra-equity in the balance sheet. The note plus
interest is being amortized over the period of the contract of employment.
Consequently, in the year ended March 31, 2000 expense of $93,888 has been
recorded as employment compensation.
On February 29, 2000, the Company entered into a secured promissory note with
the Chief Executive Officer, in the amount of $100,000 to cover the cost of the
Chief Executive Officer's exercise of 40,000 warrants, that would otherwise be
redeemed by the corporation on April 3, 2000, pursuant to the Company's
automatic redemption rights against all holders of the Company's $2.50 warrants.
15. COMMITMENTS AND CONTINGENCIES:
During 1999 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, 2001, with an automatic one year renewal provision.
The Company also has a letter of credit agreement with Union Bank of California
as a condition of its pager rental agreement. Under the terms of the agreement,
the letter of credit is in the amount of $200,000. Borrowings under the letter
of credit bear interest at prime plus 2% and required a compensating balance to
be on deposit at the bank of $200,000. The letter of credit expires February 1,
2001, and is renewable. There were no amounts outstanding under either
arrangement as of March 31, 2000 or 1999 and this agreement is in the process of
cancellation as the Company has purchased its pager inventory from the vendor.
The Company is subject to various lawsuits and claims with respect to matters
arising out of the normal course of business. While the impact on future
financial results is not subject to reasonable estimation because considerable
uncertainty exists, management believes, after consulting with counsel, that the
ultimate liabilities resulting from such lawsuits and claims will not materially
affect the consolidated results, liquidity or financial position of the Company.
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 2000 or 1999.
17. SUBSEQUENT EVENTS
By April 3, 2000, all of the remaining $2.50 Common Stock Purchase Warrants were
exercised, pursuant to a notice of redemption from the Company, resulting in
additional cash received of $413,365.
F-21
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 29, 2000 DATALINK.NET, INC.
By: /S/ ANTHONY N. LAPINE
-----------------------------
Anthony N. LaPine
Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ ANTHONY N. LAPINE
------------------------ Chief Executive Officer June 29, 2000
Anthony N. LaPine and Chairman of the Board
/S/ WILLIAM A. MAHAN
------------------------ Chief Financial Officer June 29, 2000
William A. Mahan and Treasurer
/S/ CHARLES K. DARGAN II
------------------------ Executive Vice President
Charles K. Dargan II and Director June 29, 2000
/S/ FREDERICK M. HOAR
------------------------ Director June 29, 2000
Frederick M. Hoar
/S/ JASON PAVONA
------------------------ Director June 29, 2000
Jason Pavona
