-----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, AofNUMO2CQs/yZxekMnF8zOJhrBq3ns5/Xh9ErKe3QhP9n3HA+XMXGdHc2EcdpEs uEUJwEYQCqdlsP70Y1AgSw== 0000948830-99-000100.txt : 19990217 0000948830-99-000100.hdr.sgml : 19990217 ACCESSION NUMBER: 0000948830-99-000100 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATALINK SYSTEMS CORP /CA/ 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: 000-21069 FILM NUMBER: 99540694 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: 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, 1998 Commission file number: 0-21069 DATALINK SYSTEMS CORPORATION ---------------------------------------------------- (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 2,157,779 shares of the Registrant's Common Stock outstanding as of December 31, 1998. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] DATALINK SYSTEMS CORPORATION TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: a. Condensed Consolidated Balance Sheets December 31, 1998 and March 31, 1998 3 b. Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended December 31, 1998 and 1997, and the nine months ended December 31, 1998 and 1997 4 c. Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 1998 and 1997 5 d. Notes to the Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 14 ITEM 2. CHANGES IN SECURITIES. 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14 ITEM 5. OTHER INFORMATION. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 SIGNATURES 14 EXHIBITS INDEX TO EXHIBITS EXHIBIT 27 FINANCIAL DATA SCHEDULE 2 DATALINK SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS December 31, March 31, 1998 1998 (unaudited) ----------- ------------- ASSETS Current assets: Cash and cash equivalents $ 3,957,351 $ 7,353,719 Trade receivables 57,491 65,241 Other receivables 5,264 500 Prepaid expenses 69,810 42,537 ------------ ------------ Total current assets 4,089,916 7,461,997 Property and equipment, net 752,494 629,696 Other assets 54,791 23,625 ------------ ------------ Total assets $ 4,897,201 $ 8,115,318 ============ ============ LIABILITIES Current liabilities: Accounts payable $ 688,911 $ 236,469 Accrued liabilities 164,012 300,450 Current portion of capital lease obligation 13,664 13,699 Current portion of advance on technology sales 439,547 460,501 Deferred revenue 356,297 269,538 ------------ ------------ Total current liabilities 1,662,431 1,280,657 Obligation under capital lease, net of current portion 51,389 62,640 Advances on technology sales, net of current portion 1,835,706 2,162,628 ------------ ------------ Total Liabilities 3,549,526 3,505,925 SHAREHOLDERS' EQUITY Convertible Preferred stock 2,616 2,740 Common stock 21,577 20,183 Additional paid-in capital 28,070,831 28,007,037 Foreign currency translation adjustment (85,724) (53,923) Notes receivable (1,373,599) (1,692,234) Accumulated deficit (25,288,026) (21,674,410) ------------ ------------ Total shareholders' equity 1,347,675 4,609,393 ------------ ------------ Total liabilities and shareholders' equity $ 4,897,201 $ 8,115,318 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 3 DATALINK SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
Three Months Ended Nine Months Ended December 31, December 31, 1998 1997 1998 1997 ----------- ------------- ------------ ------------- Revenue $ 561,414 $ 271,367 $ 1,658,070 $ 643,632 Cost of revenue (204,771) (136,515) (637,115) (341,982) Research and develop- ment (153,023) (201,652) (595,082) (520,325) Sales and marketing (625,366) (536,185) (2,534,922) (1,351,825) General and adminis- trative (621,215) (493,737) (2,152,961) (1,776,879) Other income (Note 3) 204,381 242,724 648,394 535,086 ---------- ------------ ----------- ------------ Net loss $ (838,580) $ (853,998) $(3,613,616) $ (2,812,293) Deemed dividends on Preferred stock (8,083,000) (8,083,000) Beneficial conversion Feature of warrants in association with Preferred stock (2,624,000) (2,624,000) ---------- ------------ ----------- ------------ Net loss Available to common Shareholders $ (838,580) $(11,560,998) $(3,613,616) $(13,519,293) ========== ============ =========== ============ Net loss, per above $ (838,580) $ (853,998) $(3,613,616) $( 2,812,293) Other Comprehensive Income (Loss) - Translation (36,039) (4,761) (31,801) 13,798 ---------- ------------ ----------- ------------ Comprehensive Loss $ (874,619) $ (858,759) $(3,645,417) $( 2,798,495) ========== ============ =========== ============ Net loss per share: Basic $ (0.41) $ (5.93) $ (1.78) $ (6.99) Diluted $ (0.41) $ (5.93) $ (1.78) $ (6.99) Shares used in per share calculations, basic and diluted 2,039,701 1,950,901 2,031,873 1,934,111 ========== ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. 4 DATALINK SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31, 1998 1997 ------------ ------------ Cash flows from operating activities: Net loss $(3,613,616) $(2,812,293) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 127,490 79,882 Foreign currency translation adjustment (31,801) 13,798 Amortization of technology advances (347,876) (354,444) Amortization of notes receivable 318,635 346,431 Changes in assets and liabilities: Accounts and other receivables 2,986 (18,938) Prepaid and other assets (27,273) (28,155) Accounts payable and accrued liabilities 334,180 164,240 Deferred revenue 86,759 113,683 ----------- ------------ Net cash used in operating activities (3,150,516) (2,495,796) ----------- ------------ Cash used in investing activities: Acquisition of fixed assets (250,288) (259,541) Deposits (31,166) (13,860) ----------- ------------ Net cash used in investing activities (281,454) (273,401) ----------- ------------ Cash flows from financing activities: Issuance of preferred stock 9,226,000 Offering expenses, sale of Preferred stock (1,309,000) Payments on capital leases (11,286) (2,093) Proceeds from sale of common stock 46,888 Advances on technology fee 1,303,565 ----------- ------------ Net cash provided by financing activities 35,602 9,218,472 ----------- ------------ Net increase (decrease)in cash and cash equivalents (3,396,368) 6,449,275 Cash and cash equivalents, beginning of period 7,353,719 1,916,509 ----------- ------------ Cash and cash equivalents, end of period $ 3,957,351 $ 8,365,784 =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Preferred stock issued in exchange for Notes receivable $ -- $ 1,050,000 =========== ============ Equipment exchanged for capital lease $ -- $ 81,640 =========== ============ Common Stock exchanged for accrued expenses $ 18,176 $ -- =========== ============ Common Stock exchanged for Preferred Stock $ 124 $ -- =========== ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 5 DATALINK SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Formation and Business of the Company Datalink Systems Corporation (the "Company") was established in 1993 to deliver personalized financial and lifestyle information to wireless devices. The Company developed technology that combines real-time data feeds, and Internet and wireless communications to provide customized information services to wireless devices such as pagers and digital cellular phones. The Company web site and customer support team both provide account maintenance services that enable subscribers to customize the types of information alerts they receive. All services are marketed from an e-commerce enabled web site as well as through direct and indirect re-seller distribution channels. 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, 1998 are not necessarily indicative of the results that may be expected for the year ending March 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB-A for the year ended March 31, 1998. Per SFAS 130, Reporting Comprehensive Income, all changes in equity except those resulting from investments by owners and distributions to owners should be reported in comprehensive income. Accordingly, the Company has included its foreign translation adjustment in the statement of comprehensive loss for the respective periods. 3. Other Income Other income consists of the following items: Three Months Ended Nine Months Ended December 31, December 31, ---------------------- ---------------------- Description 1998 1997 1998 1997 - ----------- ---------- --------- ------------ ------------ Owners fee sale 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 tech- nology advance 114,331 120,570 347,881 354,444 Interest income 98,286 122,837 325,145 228,891 Miscellaneous expenses (8,236) (683) (24,632) (48,249) --------- --------- ------------ ----------- Total other income $ 204,381 $ 242,724 $ 648,394 $ 535,086 ========= ========= =========== =========== 6 4. Calculations of Net Loss per share Three Months Ended Nine Months Ended December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ----------- ------------ Weighted average common shares outstanding for the period 2,039,701 1,950,901 2,031,873 1,934,111 Shares used in per share calculations 2,039,701 1,950,901 2,031,873 1,934,111 Net loss available to $ (838,580) $(11,560,998) $(3,613,616) $(13,519,293) common shareholders =========== =========== =========== ============ Net loss per share $ (0.41) $ (5.93) $ (1.78) $ (6.99) Calculated in accordance with the guidelines of Item 601 of Regulation S-B. Basic and diluted calculations are substantially the same. Common stock equivalents resulting from convertible preferred shares, warrants and stock options amounted to 5,328,930 and 5,233,639 as of December 31, 1998 and 1997, respectively. These common stock equivalents are excluded from the weighted average common shares outstanding for the periods because their inclusion would be anti-dilutive. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue increased from $271,367 and $643,632 in the three and nine month periods ended December 31, 1997 to $561,414 and $1,658,070 in the three and nine month periods ended December 31, 1998. The increase in revenues is due principally to development of new products along with sales and marketing strategies designed to capture new business through both direct and indirect sales channels utilizing sales personnel and extensive print and media advertising. Net Revenues for the Three Months Ended December 31, ---------------------------- Product 1998 1997 Increase - ------- ---------- ---------- ---------- QuoteXpress $ 289,808 $ 216,965 $ 72,843 SplitXpress 231,770 53,723 178,047 CommodityXpress 19,739 0 19,739 Other 20,097 679 19,418 ---------- ---------- ---------- Totals $ 561,414 $ 271,367 $ 290,047 ========== ========== ========== Net Revenues for the Nine Months Ended December 31, ---------------------------- Product 1998 1997 Increase - ------- ---------- ---------- ---------- QuoteXpress $ 787,425 $ 546,688 $ 240,737 SplitXpress 792,263 95,703 696,560 CommodityXpress 53,537 0 53,537 Other 24,845 1,241 23,604 ---------- ---------- ---------- Totals $1,658,070 $ 643,632 $1,014,438 ========== ========== ========== In the later part of 1997, the Company recruited personnel to refine and execute the Company's marketing and sales plan. These individuals developed a sales and marketing strategy which identified key markets and business opportunities, and which required development of additional sophisticated financial information products. The sales and marketing strategy provided for the use of a direct sales channel utilizing extensive print and media advertising together with an inside sales call center and world wide web site to solicit subscriptions to the Company's services directly from consumers. In addition, an indirect sales channel initiative was launched which involves developing joint marketing alliances with various wireless carriers, information service providers, Internet companies and retail stores to market and sell the Company's services as value added to the products and services provided by the alliance company. In early 1998, an extensive advertising campaign involving direct mail, television and print advertisements was implemented to promote the direct sales channel marketing initiative. In May 1998, the Company recognized a 8 need to develop a series of non-financial products relating to life style. Among these products are a real-time sports alert service, a general lifestyle service providing updates on weather, horoscopes, ski and surf reports, winning lottery numbers, and other information. The Company also launched a major Internet marketing initiative providing on-line capabilities for sales and account maintenance of these new products along with the financial products. The new lifestyle products were introduced in the Fall of 1998, about the time the US financial markets were negatively impacted by a stock market correction. A decrease in new financial product sales at that time caused the Company to reassess its marketing plan and it was determined that the costs of continuing to acquire additional customers through direct sales, driven principally by extensive media and print advertising, was not cost effective. While continuing to promote and sell products through the direct channel marketing model, the Company is engaging in an indirect channel strategy for marketing its services. COST OF REVENUES AND GROSS MARGIN The cost of revenues has increased from the three and nine month periods ended December 31, 1997, due to the increase in net revenues. Cost of revenues represents the direct costs necessary to provide the services to customers. As more services are provided to more customers, the cost of providing these services also increases. Cost of revenues principally includes costs to obtain data feeds from various exchanges, costs for pager rental and airtime, and certain telephone costs. The following tables show the net revenues, cost of revenues, and gross margin for the three months and nine months ended December 31, 1998 and 1997: Three Months Ended December 31, Increase -------------------------------- -------------------- 1998 1997 $ % ------------- --------------- -------- -------- Net revenues $561,414 $271,367 $290,047 106.9% Cost of revenues 204,771 136,515 68,256 50.0% Gross margin 356,643 134,852 221,791 164.5% Nine Months Ended December 31, Increase ------------------------------ ---------------------- 1998 1997 $ % ------------- ------------- ---------- -------- Net revenues $1,658,070 $643,632 $1,014,438 157.7% Cost of revenues 637,115 341,982 295,133 86.3% Gross margin 1,020,955 301,650 719,305 238.5% As can be noted from the tables, the increase in revenues has not resulted in a proportional increase in the cost of revenues. This is due to the economies of scale, as some portions of costs are relatively fixed and do not increase in proportion to revenues. OPERATING EXPENSES Operating expenses have increased overall from the prior year periods. The Company classifies operating expenses into three major categories: research and development, sales and marketing, and general and administrative. The tables shown below summarize the changes in these three categories of operating expenses: 9 Three Months Ended December 31, Increase (Decrease) -------------------------------- --------------------- Description 1998 1997 $ % - ----------- ------------- --------------- ---------- -------- Research and development $ 153,023 $ 201,652 $ (48,629) (24.2%) Sales and marketing 625,366 536,185 89,181 16.7% General and administrative 621,215 493,737 127,478 25.9% ---------- ---------- ---------- ----- Totals $1,399,604 $1,231,574 $ 168,030 13.7% ========== ========== ========== ===== Nine Months Ended December 31, Increase ------------------------------ --------------------- Description 1998 1997 $ % - ----------- ------------- ------------- ---------- -------- Research and development $ 595,082 $ 520,325 $ 74,757 14.4% Sales and marketing 2,534,922 1,351,825 1,183,097 87.6% General and administrative 2,152,961 1,776,879 376,082 21.2% ---------- ---------- ---------- ----- Totals $5,282,965 $3,649,029 $1,633,936 44.8% ========== ========== ========== ===== Research and development expenses are expenses incurred in developing new products and product enhancements for current products. While research and development costs increased in the nine month period due principally to the costs related to new product development including CompanyNewsX, Sports2Go, RumorXpress, InfoXtra and InfoSampler, most of these increased costs were incurred prior to the last quarter. Research and development enjoyed a small decrease in the last quarter due primarily to a reduction in engineering personnel. Sales and marketing expenses consist of costs incurred to develop marketing programs to market the Company's products, including costs required to staff and execute a sales and marketing strategy, participation in trade shows, media development, advertising in media such as television and printed financial publications and the related overhead, and web site development and maintenance. These costs also include the expense of an inside sales staff and outside key account sales force, and an inside customer support call center. These sales and marketing expenses have increased from prior year periods, although the nine month increase is substantially higher both in dollars and percentage than the three month increase because the increased investment in sales and marketing was primarily initiated during the quarter ended December 31, 1997. Also, sales and marketing expenses have actually decreased substantially in the quarter ended December 31, 1998 from the previous quarter ended September 30, 1998 due primarily to a phase down of advertising and public relations expenditures. Over the course of the last twelve months, the Company hired additional marketing and sales personnel, conducted market research, developed new sales and marketing materials for all products, including materials for the new products, Sports2Go, RumorXpress, InfoXtra, CompanyNewsX and the InfoSampler. 10 Media and print advertising materials and advertising placement were increased substantially, although these costs have been substantially reduced in the quarter ended December 31, 1998 due to the Company's decision to discontinue the extensive media and print advertising at this time. Other increases were expenditures related to the development of the Company's web site for product sales and account maintenance, which was considered necessary for e-commerce, development of collateral for trade shows and the initiation of the Company's retail marketing and sales effort through retail stores selling wireless hardware and airtime. General and administrative expenses are classified as costs incurred in the development and operation of the infrastructure of the Company. These costs consist of rent, insurance, legal, accounting and audit, depreciation expenses, general management personnel and other overhead related expenses. These expenses tend to be higher in relation to revenues than expected due several factors including the costs related to Datalink being a publicly held corporation, competition for qualified professional personnel in the Silicon Valley, and the developing nature of the business. Additionally, general and administrative costs include non-cash, note amortization expenses of approximately $318,000 and $346,000 in the nine month periods ended December 31, 1998 and 1997, respectively. General and administrative expenses have increased in the quarter and nine month periods from the prior year periods due to growth related expenses including larger office facilities in San Jose, additional staff including a Director of Human Resources and a full time Chief Financial Officer, and overhead related to the increase in Company operations. NON-OPERATING REVENUES AND EXPENSES Non-operating revenues and expenses consist primarily of interest income from invested cash, amortization of deferred revenue from technology sales advances), and the owners fees and associated interest income related to the sale of technology. The following tables show the changes in the other income (expense) account. Three Months Ended December 31, Increase (Decrease) ------------------------------- --------------------- Description 1998 1997 $ % - ----------- ------------- --------------- ---------- --------- Owner's fee-sales of technology $(392,500) $(392,500) $ 0 0% Interest income sales of tech- nology 392,500 392,500 0 0% Amortization of technology advance 114,331 120,570 (6,239) 5.2% Interest income 98,286 122,837 (24,551) (20.0%) Miscellaneous (8,236) (683) (7,553) (110.6%) --------- --------- --------- -------- Totals $ 204,381 $ 242,724 $(38,343) (15.8%) ========= ========= ========= ======== 11 Nine Months Ended December 31, Increase (Decrease) ----------------------------- ---------------------- Description 1998 1997 $ % - ----------- ------------- ------------- ----------- --------- Owner's fee-sales of technology $(1,177,500) $(1,177,500) $ 0 0% Interest income sales of tech- nology 1,177,500 1,177,500 0 0% Amortization of technology advance 347,881 354,444 (6,563) (1.9%) Interest income 325,145 228,891 96,254 42.1% Miscellaneous (24,632) (48,249) 23,617 (49.0%) ----------- ----------- --------- ----- Totals $ 648,394 $ 535,086 $ 113,308 21.2% =========== =========== ========= ===== As shown in the above tables, other income (expense) remain relatively constant at this time. The amortization of the technology advances decreases due to the application of the effective interest method of amortization on the balance. As a result of the Private Placement which occurred in November 1997, interest income (from invested cash) has increase in the nine month period over the prior year period. Due to the usage of cash in operations subsequent to the placement, interest income has decreased in the three month period ended December 31, 1998 from the prior year period. LIQUIDITY AND CAPITAL RESOURCES The Company completed a private placement of preferred stock during the quarter ended December 31, 1997 which netted approximately $8,000,000 in new funds. The Company also completed the sale of the QuoteXpress technology during the nine months ended December 31, 1997, which generated an up-front payment of approximately $1,300,000. Sources and uses of cash during the nine month periods ended December 31, 1998 and 1997 were as follows: Nine Months Ended December 31, ------------------------------ Product 1998 1997 Change - ------- ------------ ------------- ----------- Cash used in operating activities $(3,150,516) $(2,495,796) $ (654,720) Cash used in investing activities (281,454) (273,401) (8,053) Cash provided by financ- ing activities 35,602 9,218,472 (9,182,870) ----------- ---------- ----------- Net increase (decrease) in cash $(3,396,368) $6,449,275 $(9,845,643) =========== ========== =========== As of December 31, 1998, the Company had cash and cash equivalents amounting to $3,957,351, exclusive of reserves on deposit with our merchant bank of $46,304, which reserves are not immediately available for usage. Working capital decreased from $6,181,340 as of March 31, 1998, to $2,427,484 at December 31, 1998, due in part to funds invested in development of new products and aggressive media and print advertising campaigns. Additionally, the Company has not yet generated sufficient revenues to defray costs associated with continued product support and development, marketing and sales costs and administrative expenses. 12 As previously mentioned, a change in focus from direct channel marketing with its attendant requirement of extensive advertising expenditures to development of indirect channel marketing processes through suppliers and providers of pagers and paging services, digital wireless phones and other related services, along with our web based affiliate programs, should result in a reduction of sales and marketing expenses in future periods. As of December 31, 1998, the Company has no ongoing advertising commitments, and there are no material commitments for capital expenditures. Management believes that it has adequate working capital for the next 12 months. The Company has a letter of credit with a bank in the amount of $200,000, and has obtained a credit line in the amount of $1,000,000. YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the functioning of the programming code in computer systems as the Year 2000 approaches. 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. 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. Eighty 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 twenty 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 eighty percent of the Company's vendors, and the remaining twenty 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 will be to change to another vendor that is Year 2000 compliant. For this reason, Phase II of the Company's Year 2000 initiative is 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. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 4, 1998 the Company held its annual meeting of shareholders. The meeting took place at the Company offices. The record date for the meeting was set as of the close of business on November 9, 1998. As of that date there were 2,033,699 shares of the Company's common stock outstanding and 2,739,973 shares of Series A convertible preferred stock outstanding. The two items voted on at the meeting were the election of directors and the ratification of the appointment of the Company's auditors. The results of the voting for the election of directors is as follows: Anthony N PaPine, Chairman, 2,521,279 shares for and 18,092 shares withheld; Marshall Geller, 2,521,966 shares for and 17,405 shares withheld, Frederick M. Hoar, 2,521,966 shares for and 17,405 shares withheld, David Ladd, 2,521,966 shares for and 17,405 shares withheld, and Robert Priddy, 2,521,966 shares for and 17,405 shares withheld. All the above were elected as directors of the Company. The appointment of BDO Seidman LLP as the Company's auditors was ratified with 2,411,208 shares for, 8,069 shares against and 2,328 shares abstaining. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits have been filed with this report: Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K. None 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 15, 1999 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) 14 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-QSB for the year to date, and is qualified in its entirety by reference to such financial statements. 9-MOS MAR-31-1998 DEC-31-1998 3,957,351 0 81,350 (23,859) 0 4,089,915 1,068,445 (315,951) 4,897,200 1,662,431 0 21,577 0 2,616 1,323,482 4,897,200 1,658,070 1,658,070 637,115 637,115 5,282,965 0 0 (3,613,616) 0 0 0 0 0 (3,613,616) (1.78) (1.78)
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