-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rc5EXbvAuqzwOeMNBzMlfqTsjW5gPzNtKgZJD4RvWAHnqWdHepwMEMvNFMuqFSXb mnETpHypOkjp6SqBkj5aFw== 0000948830-00-000054.txt : 20000215 0000948830-00-000054.hdr.sgml : 20000215 ACCESSION NUMBER: 0000948830-00-000054 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATALINK NET INC CENTRAL INDEX KEY: 0000832370 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 353574355 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-15569 FILM NUMBER: 542057 BUSINESS ADDRESS: STREET 1: 1735 TECHNOLOGY WAY STREET 2: STE 790 CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 4083671700 MAIL ADDRESS: STREET 1: 1705 TECHNOLOGY WAY STREET 2: SUITE 790 CITY: SAN JOSE STATE: CA ZIP: 95110 FORMER COMPANY: FORMER CONFORMED NAME: DATALINK SYSTEMS CORP /CA/ DATE OF NAME CHANGE: 19960723 FORMER COMPANY: FORMER CONFORMED NAME: PLATINUM PRODUCTIONS INC /CO DATE OF NAME CHANGE: 19930803 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT INC DATE OF NAME CHANGE: 19920703 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1999 Commission file number: 1-15569 DATALINK.NET, INC. ---------------------------------------------------- (Exact name of small business issuer in its charter) Nevada 35-3574355 - ------------------------------- ------------------------------- (State or other jurisdiction of (IRS Employer Identification Incorporation or Organization) Number) 1735 Technology Drive, Suite 790, San Jose, CA 95110 ----------------------------------------------------------- (Address of Principal Executive Offices including zip code) (408) 367-1700 --------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] There were 3,967,124 shares of the Registrant's Common Stock outstanding as of December 31, 1999. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] DATALINK.NET, INC. TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: a. Condensed Consolidated Balance Sheets December 31, 1999 and March 31, 1999 3 b. Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine month periods ended December 31, 1999 and 1998 4 c. Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 1999 and 1998 5 d. Notes to Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 16 ITEM 2. CHANGES IN SECURITIES. 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16 ITEM 5. OTHER INFORMATION. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8K 16 SIGNATURES 17 EXHIBITS INDEX TO EXHIBITS EXHIBIT 27 FINANCIAL DATA SCHEDULE 2 DATALINK.NET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS December 31 March 31 1999 1999 ASSETS (Unaudited) Current Assets: ------------ ------------ Cash and cash equivalents $ 1,652,957 $ 3,169,443 Restricted cash 1,011,013 -- Trade receivables 44,578 63,319 Other receivables 9,006 6,372 Prepaid expenses 14,583 41,612 ----------- ----------- Total current assets 2,732,137 3,280,746 Property and equipment, net 574,605 699,591 Other assets 53,038 76,730 ----------- ----------- Total assets $ 3,359,780 $ 4,057,067 =========== =========== LIABILITIES Current Liabilities: Accounts payable $ 494,526 $ 617,456 Note payable to bank 1,011,013 -- Accrued expenses and other current liabilities 265,658 220,919 Current portion of capital lease obligation 15,332 14,004 Current portion of advances on technology sales 407,674 432,022 Deferred revenue 185,005 332,212 ----------- ----------- Total current liabilities 2,379,208 1,616,613 Capital lease obligation, net of current portion 34,743 47,439 Advances on technology sales, net of current portion 1,428,031 1,730,610 ----------- ----------- Total liabilities 3,841,982 3,394,662 ----------- ----------- SHAREHOLDERS' EQUITY Convertible Preferred stock 1,072 2,366 Common stock 39,671 24,143 Additional paid-in capital 29,085,278 28,084,147 Accumulated other comprehensive loss (81,698) (82,002) Notes receivable (1,309,873) (1,261,675) Accumulated deficit (28,216,252) (26,104,574) ----------- ---------- Total shareholders' equity (deficit) (482,202) 662,405 ----------- ----------- Total liabilities and shareholders' equity (deficit) $3,359,780 $4,057,067 =========== ========== See accompanying notes to condensed consolidated financial statements. 3 DATALINK.NET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) Three Months Ended Nine Months Ended December 31 December 31 ----------------------- ------------------------ 1999 1998 1999 1998 ---------- ---------- ----------- ----------- Revenue $ 326,761 $ 561,414 $ 1,146,699 $ 1,658,070 Cost of revenue (172,113) (204,771) (597,049) (637,115) Research and development (140,986) (153,023) (426,001) (595,082) Sales and marketing (303,127) (625,366) (966,535) (2,534,922) General and administrative (674,768) (621,215) (1,745,054) (2,152,961) Other income (Note 3) 152,289 204,381 475,862 648,394 ---------- ---------- ----------- ----------- Net loss available to common shareholders $(811,944) $(838,580) $(2,112,078) $(3,613,616) ========= ========= =========== =========== Other comprehensive income (loss) - Translation (618) (36,039) 304 (31,801) --------- ---------- ----------- ----------- Comprehensive loss $(812,562) $ (874,619) $(2,111,774) $(3,645,417) ========== =========== =========== ============ Net loss per share (Note 4): Basic $ (0.23) $ (0.41) $ (0.68) $ (1.78) Diluted $ (0.23) $ (0.41) $ (0.68) $ (1.78) Shares used in per share calculation, basic and diluted 3,573,153 2,039,701 3,110,583 2,031,873 =========== ============ =========== ============ See accompanying notes to condensed consolidated financial statements. 4 DATALINK.NET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31 --------------------------- 1999 1998 ------------ ------------ Cash flows from operating activities: Net loss $(2,112,078) $(3,613,616) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 178,050 127,490 Foreign currency translation adjustment 304 (31,801) Issuance of common stock for services 121,719 -- Compensation related to warrants issued 105,550 -- Amortization of technology advances (326,925) (347,876) Amortization of note receivable (48,198) 318,635 Changes in assets and liabilities: Trade and other receivables 16,107 2,986 Prepaid expenses and other assets 27,029 (27,273) Accounts payable and accrued liabilities (78,191) 334,180 Deferred revenue (147,207) 86,759 ----------- ----------- Net cash used in operating activities (2,263,840) (3,150,516) Cash flows from investing activities: Acquisition of property and equipment (53,064) (250,288) Other assets 23,690 (31,166) ----------- ----------- Net cash used in investing activities (29,374) (281,454) Cash flows from financing activities: Proceeds from note payable to bank 1,011,013 -- Proceeds from sales of common stock 788,096 46,888 Payments on capital lease (11,368) (11,286) ----------- ----------- Net cash provided by financing activities 1,787,741 35,602 ----------- ----------- Net decrease in cash and cash equivalents (505,473) (3,396,368) Cash and cash equivalents and restricted cash, beginning of period 3,169,443 7,353,719 ----------- ----------- Cash and cash equivalents and restricted cash, end of period $ 2,663,970 $ 3,957,351 =========== =========== See accompanying notes to condensed consolidated financial statements. 5 DATALINK.NET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 1999 1998 -------- -------- SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ 37,379 $ 7,352 ======== ======== Cash paid for income taxes $ 940 $ 2,005 ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Preferred stock converted to common stock $ 1,294 $ 124 ======== ======== Common stock exchanged for accrued expenses $ -- $ 18,176 ======== ======== Cashless exercise of warrants $ 69 $ -- ======== ======== See accompanying notes to condensed consolidated financial statements. 6 DATALINK.NET, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. FORMATION AND BUSINESS OF THE COMPANY Datalink.net, Inc., formerly Datalink Systems Corporation (the "Company") was formed under the laws of the State of Nevada on June 18, 1996. On June 27, 1996, the Company went public through an acquisition of a public corporation, Datalink Communications Corporation ("DCC"), which was previously Lord Abbott, Inc., a Colorado corporation formed in 1986. Datalink.net provides Web-to- Wireless(TM) services for Internet-based enterprises and for consumers seeking wireless access to Internet content and information. Through its patented XpressLink middleware platform, the Company constructs an array of information products that address the needs of consumers and enterprises to receive and distribute selective data to individuals using wireless devices such as pagers, digital cellular phones, or PDA's (Personal Digital Assistants). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended December 31, 1999 are not necessarily indicative of the results that may be expected for the year ending March 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended March 31, 1999. 3. OTHER INCOME Other income (expense) consists of the following items: Three Months Ended Nine Months Ended December 31 December 31 ---------------------- -------------------- Description 1999 1998 1999 1998 - ------------------------ --------- --------- --------- -------- Owners fee sales of technology $(392,500) $(392,500) $(1,177,500) $(1,177,500) Interest on note from sales of technology 392,500 392,500 1,177,500 1,177,500 Amortization of technology advances 107,083 114,331 326,925 347,876 7 Interest income 59,208 98,286 175,992 325,150 Miscellaneous (14,002) (8,236) (27,055) (24,632) --------- --------- ---------- --------- Total other income (expenses) $ 152,289 $ 204,381 $ 475,862 $ 648,394 ========= ========= ========= ========= 4. CALCULATIONS OF NET LOSS PER SHARE Three Months Ended Nine Months Ended December 31 December 31 ------------------------ ------------------------ 1999 1998 1999 1998 ---------- ----------- ---------- ----------- Weighted average common shares outstanding for the period 3,573,153 2,039,701 3,110,583 2,031,873 Shares used in per share calculations 3,573,153 2,039,701 3,110,583 2,031,873 Net loss available to common shareholders $ (811,944) $ (838,580) $(2,112,078) $ (3,613,616) Net loss per share $ (0.23) $ (0.41) $ (0.68) $ (1.78) Calculated in accordance with the guidelines of Item 601 of Regulation S-B. Basic and fully diluted calculations are substantially the same. Common stock equivalents resulting from convertible preferred shares, warrants and stock options amounted to 3,654,694 and 5,328,930 as of December 31, 1999 and 1998, respectively. These common stock equivalents are excluded from the weighted average common shares outstanding for the periods because their inclusion would be anti-dilutive. 5. NOTE PAYABLE TO BANK During the fiscal year ended March 31, 1999, Datalink.net entered into a Line of Credit agreement with a financial services company. The credit line is in the amount of $1,000,000 and is collateralized by funds on account at the financial services company. At December 31, 1999, credit line borrowings, including accrued interest amounted to $1,011,013, resulting in a like amount of cash being classified as restricted on the balance sheet of the Company. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the attached financial statements and notes thereto. Except for the historical information contained herein, the matters discussed in this document are forward-looking statements that involve certain risks and uncertainties, including, among others, the risks and uncertainties discussed below and in the Company's Form 10-KSB for the year ended March 31, 1999: OVERVIEW In FY 2000, the Company announced a strategic repositioning as a Wireless Application Service Provider (w-ASP), which involved major infrastructure changes. This strategic repositioning, with its focus on the B2B (business- to-business) marketplace and a shift to indirect, strategic partner sales channels, necessitated a drastic reduction in the direct marketing, media supported, programs previously dedicated to promoting the Company's B2C (business-to-consumer) products. The Company's B2B strategy has moved forward significantly, encompassing the formation of a new business unit, Net2Wireless.com. Net2Wireless.com will concentrate on providing B2B consulting services and turnkey applications for wireless enablement of corporate Intranet, Internet and e-commerce transactions. These comprehensive business solutions, initiatives and capabilities are now being marketed to manufacturers of wireless devices, wireless channels, financial institutions, web developers, and corporate businesses requiring wireless solutions. Newly focused marketing and sales efforts, moving in concert with continuing development of services for two-way and Wireless Application Protocol (WAP)- enabled products, are intended to position Datalink.net in the B2B Wireless Application Service Provider space. The new strategy has resulted in reduced direct sales of products on an interim basis. However, despite the drastic cut in advertising programs since January 1999, the Company has retained its B2C subscriber base at a relatively steady level and continues to receive a significant residual revenue stream from its B2C customer base developed from prior advertising campaigns. This suggests a considerable degree of success in establishing brand recognition in the consumer marketplace, a strength that the Company will utilize in sustaining its B2C operations without significant further investment of resources. The shift in the B2C product sales principally to indirect sales channels is through partners such as SkyTel, Arch/MobileComm, and BellSouth Wireless. While these indirect sale channels enhance the Company's new B2B strategy, they have not been in place long enough to produce sufficient sales to replace the revenues lost due to the reduction in direct sales of B2C products. Nevertheless, as part of this new program, the Company continues the rationalization of its overhead cost infrastructure to match the revenues generated, which has reduced the net loss. Also, during the quarter ended December 31, 1999, the Company's common stock was approved for listing on the American Stock Exchange (AMEX), and trading commenced under the symbol DLK at the opening of trading on Wednesday, December 29, 1999. 9 During the quarter, the Company arranged a private placement offering of $10 million in convertible preferred shares. This transaction closed on February 11, 2000, and funds will be used to implement the Company's B2B strategy and increase engineering, marketing and sales efforts. RESULTS OF OPERATIONS The net loss available to common shareholders decreased during the three and nine month periods ended December 31, 1999 to $811,944 and $2,112,078 respectively, from $838,580 and $3,613,616 in the three and nine month periods ended December 31, 1998. Revenues for the three and nine month periods ended December 31, 1999 were $326,761 and $1,146,699 respectively, as compared to $561,414 and $1,658,070 for the like periods ended December 31, 1998. Revenue decreases resulted principally from the Company's strategic repositioning as a wireless application service provider (w-ASP), as further described in the "Overview" above. COST OF REVENUES AND GROSS MARGIN Cost of revenues has decreased during the three and nine months ended December 31, 1999, as compared to the prior year period, principally due to the decrease in net revenues. Cost of revenues represents the direct costs necessary to provide the services to customers. This cost is not directly proportional to revenues, and when revenues decrease, as they have in the current quarter and nine month periods, the cost of revenues has not changed proportionally. Additionally, certain salary costs totaling $8,250 and $24,750 were charged to cost of revenues for the three and nine month periods ended December 31, 1999 that were classified as sales expenses in the prior year. Cost of revenues principally includes costs to obtain data feeds from various exchanges, costs of pager rental or depreciation and pager airtime for those customers without their own pagers, and certain telephone, computer and other direct operational costs. The following tables show the net revenues, cost of revenues and gross margin for the three month and nine month periods ended December 31, 1999 and 1998: Three Months Ended December 31 (Decrease) -------------------------------- --------------------- 1999 1998 $ % ----------- ------------- --------- --------- Net revenues $ 326,761 $ 561,414 $(234,653) (41.8)% Cost of revenue $ 172,113 $ 204,771 $ (32,658) (19.0)% Gross margin $ 154,648 $ 356,643 $(201,995) (56.6)% Nine Months Ended December 31 (Decrease) ------------------------------ ---------------------- 1999 1998 $ % ----------- ------------ ---------- --------- Net revenues $1,146,699 $1,658,070 $(511,371) (44.6)% Cost of revenue 597,049 637,115 (40,066) (6.7)% Gross margin 549,650 1,020,955 (471,305) (46.2)% 10 OPERATING EXPENSES Operating expenses have decreased during the three month and nine month periods ended December 31, 1999 from the same periods of 1998. The Company categorizes operating expenses into three major categories: research and development, sales and marketing and general and administrative. The tables below summarize the changes in these three categories of operating expenses: Three Months Ended December 31 Increase (Decrease) ------------------------------- ---------------------- Description 1999 1998 $ % - ------------- ------------ ------------- ------------ -------- Research and development $ 140,986 $ 153,023 $ (12,037) (7.9)% Sales and marketing 303,127 625,366 (322,239) (51.5)% General and administrative 674,768 621,215 53,553 8.6 % ---------- ---------- ----------- ----- Totals $1,118,881 $1,399,604 $ (280,723) (20.1)% ========== ========== =========== ===== Nine Months Ended December 31 (Decrease) ------------------------------ ---------------------- Description 1999 1998 $ % - ------------ ----------- ------------ ------------ ------- Research and development $ 426,001 $ 595,082 $ (169,081) (39.7)% Sales and marketing 966,535 2,534,922 (1,568,387) (61.9)% General and administrative 1,745,054 2,152,961 (407,907) (19.0)% ---------- ----------- ----------- ------ Totals $3,137,590 $5,282,965 $(2,145,375) (40.6)% ========== ========== =========== ===== Research and development expenses are expenses incurred in developing new products and product enhancements for current products. These expenditures are charged to expense as incurred. The decrease in these costs is due principally to additional personnel and consultants engaged in the prior year period in the development of lifestyle and other new products, and last year's periods included one additional management person. Sales and marketing expenses consist of costs incurred to develop and implement marketing and sales programs for the Company's product line. These include costs required to staff and execute a sales and marketing strategy, participation in trade shows, media development and advertising, and web site development and maintenance. These costs also include the expenses of sales personnel and a customer support call center. These costs have decreased 11 substantially in the quarter and nine month periods ended December 31, 1999 from the periods ended December 31, 1998, due principally to elimination of virtually all advertising during the current periods. This advertising decrease amounted to a savings of approximately $277,000 and $1,406,000 for the three and nine month periods ended December 31, 1999. General and administrative expenses include accounting and legal, including the costs associated with being a publicly traded company, rent, depreciation of furniture and fixtures and other fixed assets, administrative personnel, and other overhead related costs. These costs decreased in the current periods due in part to reductions in administrative and accounting personnel and the cessation of non-cash costs associated with a loan forgiveness agreement with the Company's chief executive officer, due to the completion of the amortization of the loan forgiveness period. NON-OPERATING REVENUES AND EXPENSES Non-operating revenues and expenses are primarily made up of interest income from invested cash, amortization of deferred revenue from technology sales advances received in previous periods, and the owner's fees and offsetting interest income recognized, related to the technology sales. The following tables reflect the changes in other income (expense): Three Months Ended December 31 Increase (Decrease) ------------------------------- -------------------- Description 1999 1998 $ % - ----------------- ------------ --------------- --------- -------- Owner's fee-sales of technology $ (392,500) $ (392,500) $ 0 0 % Interest income sales of technology 392,500 392,500 0 0 % Amortization of technology advances 107,083 114,331 (7,248) (6.3)% Interest income 59,208 98,286 (39,078) (39.8)% Miscellaneous (14,002) (8,236) 5,766 70.0 % ---------- ----------- --------- ----- Totals $ 152,289 $ 204,381 $ (52,092) (25.5)% ========== =========== ========= ===== 12 Nine Months Ended December 31 Increase (Decrease) ----------------------------- --------------------- Description 1999 1998 $ % - ----------------- ------------ ------------- ---------- --------- Owner's fee-sales of technology $(1,177,500) $(1,177,500) $ 0 0 % Interest income sales of technology 1,177,500 1,177,500 0 0 % Amortization of technology advances 326,925 347,876 (20,951) (6.0)% Interest income 175,992 325,150 (149,158) (45.9)% Miscellaneous (27,055) (24,632) 2,423 9.8 % ---------- ----------- --------- ------ Totals $ 475,862 $ 648,394 $(172,532) (26.6)% ========== =========== ========= ====== As reflected in the above tables, other than interest income, most other income (expense) items have remained relatively constant. The amortization of technology advances has decreased slightly due to the application of the effective interest method of amortization on the balance. Interest income has decreased because of the reduction of cash available for investment due to cash utilized in operations, as reflected in the following table of Liquidity and Capital Resources. LIQUIDITY AND CAPITAL RESOURCES Sources and uses of cash during the nine month periods are summarized below: Nine Months Ended December 31 ------------------------------ Favorable Product 1999 1998 Change - --------------- ------------ ------------- ----------- Cash used in operating activities $(2,263,840) $(3,150,516) $ 886,676 Cash used in investing activities (29,374) (281,454) 252,080 Cash provided by financing activities 1,787,741 35,602 1,752,139 ----------- ----------- ---------- Net decrease in cash and cash equivalents and restricted cash $ (505,473) $(3,396,368) $2,890,895 =========== =========== ========== 13 As of December 31, 1999, the Company had cash and cash equivalents and restricted cash amounting to $2,663,970 exclusive of reserves on deposit with our merchant bank of $51,245, which reserves may not all be immediately available for usage. Additionally, the restricted cash of $1,011,013 is available for usage only upon repayment of a note payable to a financial services company in a like amount. The remainder of cash and cash equivalents available for usage amounted to $1,652,957. Cash, cash equivalents and restricted cash decreased $505,473 during the nine months ended December 31, 1999 principally due to the net loss for the period of $2,006,528 offset somewhat by credit line borrowings amounted to $1,011,013. Credit line borrowings amounted to $1,011,013 and sales of common stock through the exercise of warrants and employee stock options amounted to $788,096. The Company has not yet generated sufficient revenues to cover the cost associated with product support and development, marketing and sales, and administrative costs, as the Company is continuing to develop its markets as mentioned under Results of Operations. There are no material advertising contracts or commitments for capital expenditures. As mentioned above, the Company borrowed $1,011,013 during the nine month period from a financial services company, against cash deposits, such borrowings have essentially been repaid from continuing receipts from the exercise of common stock warrants subsequent to December 31, 1999. Working capital appears adequate for the remainder of the fiscal year and beyond, and subsequent to December 31, 1999, management announced an investment of $10 million in convertible preferred shares of the Company in a private placement which will fund new marketing and development initiatives and insure adequate working capital for continued expansion. YEAR 2000 COMPLIANCE The Company did not directly experience any problems related to Y2K. Although the Company had been assured by all related third parties that each was Y2K compliant, one was not. Specifically, the Company's credit card verifier experienced a software problem which caused certain of Datalink.net's customers to be billed multiple times for the same services. This problem has since been rectified. The Company is aware of the issues associated with the functioning of the programming code in computer systems for the Year 2000. The Year 2000 issues result from the inability of some computer programs to distinguish the year 1900 from the year 2000. Many computer programs and operating systems were written using two digits to define the applicable year rather than four digits. This means that any equipment containing computer programs with time- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. In some instances, this could result in system failures, disruption in operations and possible inaccuracies of data. 14 The Company does not use mainframe computers in its internal operations. Consequently, it does not have the extent of Year 2000 issues of other companies that depend on what is commonly know as "legacy" systems. The Company uses PCS and "server class" systems in its operations and the operating system for its software platform and technology is Microsoft Windows NT. Phase I of the Company's Year 2000 initiative has been to substantially complete an inventory of all its IT and non-IT systems and equipment, and based on this inventory, review its IT and non-IT proprietary systems and contact its significant vendors to determine how their IT and non-IT products and services might be effected by the Year 2000 issues. The Company's review of its internal systems has resulted in the Company's determination that its proprietary IT and non-IT systems meet the compliance requirements of the Year 2000. Ninety percent of the Company's vendors have provided statements that their IT and non-IT systems are Year 2000 compliant. The Company continues to collect statements from the remaining ten percent of its vendors. The Company anticipates that there will be little or no Year 2000 issues and therefore little or no cost will be incurred therefrom. However, although compliance confirmation has been provided by ninety percent of the Company's vendors, and the remaining ten percent have indicated that they are currently Year 2000 compliant, there can be no assurance that these vendors will not experience some level of Year 2000 issues that in some way may have an adverse effect on the Company's systems. The level of risk related to this occurrence has been assessed as very low. The Company's contingency plan in the event that an unforeseen Year 2000 issues should occur is to change to another vendor that is Year 2000 compliant. For this reason, Phase II of the Company's Year 2000 initiative has been to develop an inventory of back-up vendors for each vendor whose systems are currently used so that if a current vendor develops a Year 2000 issue, the back-up vendor may be called upon to provide services in accordance with Year 2000 compliance standards. 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - None. ITEM 2. CHANGES IN SECURITIES The Company issued securities which were not registered under the Securities Act of 1933, as amended, as follows: During the quarter ended December 31, 1999, the Company issued a total of 39,553 shares of its common stock to suppliers of services to the Company. Also, the Company issued 11,167 shares of its common stock to holders of the $3.75 agent warrants in exchange for cash, and 134,990 shares of its common stock to the holders of $5.00 private placement warrants in exchange for cash, for total proceeds to the company of $716,826. With respect to these transactions, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The investors were given complete information concerning the Company. The appropriate restrictive legend was placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None. ITEM 5. OTHER INFORMATION - None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K. A) Exhibits: Exhibits 27 - Financial Data Schedule B) Reports on Form 8K None 16 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. DATALINK SYSTEMS CORPORATION Date: February 14, 2000 By:/s/ Anthony N. LaPine Anthony N. LaPine, President and Chief Executive Officer (Principal Executive Officer) By:/s/ William Mahan William Mahan, Chief Financial Officer (Principal Financial Officer) 17 INDEX TO EXHIBITS EXHIBIT METHOD OF FILING - ------- ------------------------- 27. Financial Data Schedule Filed herewith electronically EX-27 2
5 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages 3 and 4 of the Company's Form 10-Q for the year to date, and is qualified in its entirety by reference to such financial statements. 9-MOS MAR-31-1999 DEC-31-1999 2,663,970 0 58,584 5,000 0 2,732,137 1,146,421 571,816 3,359,780 2,379,208 0 39,671 0 1,072 (522,945) 3,359,780 1,146,699 1,146,699 597,049 3,734,639 0 0 0 (2,112,078) 0 0 0 0 0 (2,112,078) (0.68) (0.68)
-----END PRIVACY-ENHANCED MESSAGE-----