DataWind Provides Update Regarding Key Performance Indicators & its Annual and Quarterly Filings

MISSISSAUGA, Ontario, Sept. 06, 2016 (GLOBE NEWSWIRE) — DataWind Inc. (TSX:DW), the leader in delivering Internet access to emerging markets, is providing its fifth required bi-weekly default status report, an update on two key performance indicators, and details regarding the reason for the delay in the filing of its audited annual financial statements for the year ended March 31, 2016, the related management’s discussion and analysis (MD&A), certificates of its CEO and CFO, its annual information form and its quarterly financial statements and MD&A for the three month period ended June 30, 2016 (the “Required Annual and Interim Filings”) and plan to rectify as outlined below.
DataWind selected Deloitte to be its auditor since the 2015 fiscal year end because of their strong global presence and ability to handle complex audits. In completing the audit for the 2015 fiscal year, there were a number of issues related to the review, by Deloitte Canada, of materials from Deloitte India that extended the audit report beyond the anticipated reporting date. As a result of these secondary reviews by Deloitte Canada, DataWind missed its reporting deadline by one week due to no fault of the company.
In preparation for the fiscal 2016 audit, company management travelled with representatives from Deloitte Canada to India in an effort to ensure that the 2016 audit was well planned and the delays encountered in 2015 would not be repeated. Upon receiving confirmation from Deloitte that the audit would be completed on time, meetings of the DataWind Audit Committee and Board were called for June 28, 2016 to approve the year-end financial statements. At the Audit Committee meeting prior to the Board meeting, Deloitte indicated that they were not able to deliver their report by the filing deadline. Deloitte agreed that it would have the audit completed by July 7, 2016 and issued a memo to the Ontario Securities Commission (the “OSC”) as principal regulator, noting July 7, 2016 as the date by which the audit report would be delivered.
During the two weeks following the anticipated July 7, 2016 completion date, DataWind was told by Deloitte that they wanted to improve their documented support for many transactions and requested that the company provide several hundred records. DataWind provided the information requested in a timely manner and maintained an active list of outstanding items which it confirmed with Deloitte regularly. Most of these documents were provided previously, in the normal course, as part of the audit field work. At this point, the company was aware of several less impactful issues which were being reviewed by the auditor. Subsequent to this, Deloitte indicated that they wanted to review the accounting policies on a number of transactions related to the sale of DataWind’s proprietary internet delivery platform. Another examination of DataWind’s revenue recognition policy with respect to hardware and software allocations was then conducted by a new partner to the file who continued to interact with the company on until July 22, 2016. On July 18, 2016 another examination was commenced with respect to a channel partner that primarily focuses on TV home shopping.
DataWind was challenged to understand how after completing the 2015 audit and several quarterly reviews by Deloitte, such basic questions with respect to the operation of the business were being asked again by Deloitte staff unfamiliar with the company. All of the issues identified above had been reviewed during prior audits and numerous discussions had taken place in the past with Deloitte in respect of these issues. Detailed memos with supporting evidence have been shared by the company with Deloitte on all of these issues. DataWind requested that Deloitte provide in writing, the basis for their preliminary positions and analysis on these issues and received written feedback on only one of the issues related to their TV Home Shopping channel partner.
The proposed adjustment being debated was a move to a cash basis of accounting for one channel partner. The impact of this would have been to defer the recognition of these sales until the cash had been received. In this case, the company believes that Deloitte is in agreement with management that all of the criteria required to recognize revenues have been met with the exception being that Deloitte is not yet convinced there is enough evidence for management to conclude that the customer has the ability to pay at the time of the sale. This customer has a three-year history with DataWind and has never missed a payment. Further, the company has provided statistical evidence to support there is no correlation between the size of the sale made to this customer and their payment timeline. They remit payment faster than the company’s average customers and they have fully paid what was owed at year end, during the subsequent three months. This situation is further exacerbated by the fact that the Deloitte India audit team has indicated that they did not come to the same conclusion as Deloitte Canada. Deloitte has reviewed and accepted this accounting treatment in the previous audit and during the intervening quarters.
On August 10, 2016 Deloitte requested additional information regarding this matter to help them determine the correct accounting treatment; to date this matter remains unresolved. Given the nature of the discussions with Deloitte on this issue DataWind sought input from a number of knowledgeable individuals with relevant experience in this area from reputable accounting firms and universities, and received corroborating support for DataWind’s view of the issue.   DataWind believes its application of accounting principles is correct and that the position being taken by Deloitte is very aggressive, is not consistent with convention and contradicts IAS 18.  In light of this, the company continued to have discussions with Deloitte regarding the issues and the additional information that was being requested of the company.
On August 25, 2016, following the company’s filing of its bi-weekly status report on August 24, 2016, the company’s counsel spoke with the OSC regarding the company’s frustration with the status of the completion of its audit and its plans for remedying its filing defaults.
Subsequent to its discussions with the OSC, on August 26, 2016, the company asked Deloitte to complete their report on the audit if the company simply accepted their most conservative position despite their not having concluded on it and Deloitte indicated to the Company that this was possible. On this basis, and the belief that Deloitte had completed the balance of its audit work, the company confirmed its intention to the OSC on August 26, 2016 that it would rectify all filing defaults by September 6, 2016.
Subsequently, after being asked for a plan to completion, Deloitte indicated that it would take approximately four additional weeks for them to complete the audit and that it is possible that new issues may still emerge that could lead to further delays in reporting. At this point, management lost confidence in Deloitte’s ability to complete the audit in any reasonable timeline.
In light of the challenges in concluding this audit and the company’s past experience with Deloitte, it has become clear that a new auditor will be required to complete the audit. As a risk mitigation strategy in the event the audit could not be completed by Deloitte in a timely manner, the company has commenced discussions with two alternative audit firms with similar experience, both of which are now in the final stages of their client acceptance process and appear to be willing to step in to complete the current audit. One of the audit firms being considered has indicated that they anticipate the audit can be completed by October 31, 2016. The company is taking these steps to ensure the issues experienced with Deloitte to date do not continue and the company can proceed to rectify its filing defaults in as expeditious a manner as possible. Both alternative audit firms are familiar with the issues the company has been discussing with Deloitte.
Despite the auditing issues, DataWind continues its business operations as usual.  In view of the delay in the release of audited results, the company is pre-releasing its cash balance which increased from $230,000 at March 31, 2016 to $5.1 million at June 30, 2016 in part due to a financing. During the quarter ended March 31, 2016, DataWind shipped 339,000 units up 35% from the previous quarter followed by 380,000 units shipped during the quarter ended June 30, 2016. According to CyberMedia Research, DataWind is the largest supplier of tablets in India for the past three quarters, shipping almost twice the number of units as the second largest supplier.
DataWind has the necessary financial and human resources, including a board of directors and officers to address the defaults in a timely and effective manner and it will continue to comply with all other continuous disclosure requirements for the duration of the MCTO, including its continued compliance with the alternative information guidelines set forth in sections 4.3 and 4.4 of National Policy 12-203.
The company confirms that it is not in default for any reason other than the failure to file its audited financial statements for the year ended March 31, 2016 and related MD&A, certifications and AIF and its quarterly financial statements and MD&A for the 3-month period ended June 30, 2016, all of which will be rectified by October 31, 2016. All of these documents have been prepared and are in near final form.
As previously disclosed, on July 6, 2016, in response to an application made by the company in connection with the company’s delay in filing the Required Annual Filings with Canadian securities regulators by the June 29, 2016 filing deadline, a customary management cease trade order (the “MCTO”) relating to the trading in securities of the company by the company’s CEO and CFO was issued by the Ontario Securities Commission. The MCTO prohibits all trading in securities of the company, whether directly or indirectly, by the company’s CEO and CFO. The MCTO does not affect the ability of other shareholders to trade in the securities of the company. However, the applicable Canadian securities regulatory authorities could determine, in their discretion, that it would be appropriate to issue a general cease trade order against the company affecting all of the securities of the company.
In connection with the issuance of the MCTO, and in accordance with its obligation to provide bi-weekly updates under the alternative information guidelines set out in National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults, the company confirms that it has fulfilled its stated intentions regarding compliance with such alternative information guidelines and that, except as disclosed herein or as previously disclosed, there have been no material changes to the information relating to the company’s delay in making the Required Annual and Interim Filings under applicable Canadian securities laws or otherwise concerning the affairs of the company.
Forward-Looking Information
This press release includes certain forward-looking statements that are based upon current expectations, which involve risks and uncertainties associated with our business and the environment in which the business operates. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend” and similar expressions to the extent they relate to the company or its management. The forward- looking statements are not historical facts, but reflect management’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. The company does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in the company’s expectations, except as prescribed by applicable securities laws.
No securities regulatory authority has either approved or disapproved the contents of this press release/media advisory.
About DataWind
DataWind, Inc. is a leader in providing affordable mobile Internet connectivity in emerging markets. The company’s patented, cloud-based technology reduces up to 97% the amount of data needed for web browsing, providing a broadband experience on any network — even on legacy 2G networks that are still prevalent in developing countries. DataWind also provides economical smartphones and tablets that come bundled with one year of unlimited Internet access, making it the largest tablet provider in India. DataWind’s unique solution offers broad social and economic benefits for the billions of people around the world for whom an Internet connection was previously out of reach. DataWind is traded on the Toronto Stock Exchange (TSX:DW). For more information, visit www.datawind.com.

Company Contact:
Dan Hilton
Chief Financial Officer
DataWind Inc.
+1(613) 277-3266
dan.hilton@datawind.com
Investor Relations:
Michael Koehler
Liolios Investor Relations
+1(949) 574-3860
DW@liolios.com