<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from _________ to __________
Commission File Number 0-23152
MOBINETIX SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 33-0253408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 OAKMEAD PARKWAY, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (408) 524-4200
Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Common Stock Purchase Warrants
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 there is no disclosure of delinquent filers in response 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 ]
Issuer's revenues for its most recent fiscal year: $799,344
The aggregate market value of the voting stock held by non-affiliates computed
(based on the average bid and asked closing price of the Registrant's Common
Stock on September 25, 1996 was approximately $1,625,000.
As of June 30, 1996, there were 1,335,809 shares of the Registrant's common
stock, par value $.001 per share, outstanding.
Documents incorporated by reference (to the extent indicated herein)
Proxy Statement for Annual Meeting of Stockholders to be held December 2, 1996.
<PAGE> 2
PART I
ITEM 1. BUSINESS
RECENT EVENTS
On June 10, 1996, PenWare Inc. ("PenWare") completed a reverse acquisition (the
"Reorganization") with PenUltimate, Inc. ("PenUltimate"), a Delaware
corporation. Pursuant to the Agreement and Plan of Reorganization, common and
preferred shareholders of PenWare exchanged their holdings in PenWare for shares
of PenUltimate common and preferred stock, and PenWare became a wholly owned
subsidiary of PenUltimate.
Immediately subsequent to the reorganization and at all times thereafter,
PenWare, the business of which is described below, constituted the operations of
PenUltimate in its entirety. PenUltimate, organized in 1991 and based in Irvine,
California, had been engaged in developing and marketing application software
products for sales and other mobile professionals. As reported on the
PenUltimate Form 10-Q for the period ended March 31, 1996, the former business
operations of PenUltimate were discontinued in January 1996.
On August 26, 1996, PenUltimate changed its corporate name. The new name of the
Registrant is MobiNetix Systems, Inc. ("MobiNetix," the "Registrant," or the
"Company.")
BUSINESS DEVELOPMENT
PenWare, now a wholly owned subsidiary of MobiNetix, was incorporated in 1983
and developed and sold several software products, including the PenCell(R)
spreadsheet for personal digital assistants ("PDAs"). In December 1995, PenWare
acquired the rights to certain technology from Inforite Corporation ("Inforite")
and it now develops and sells products such as the PenWare 100 signature capture
pad and the PenWare 3000, a signature transaction device for paperless
environments. Certain members of the Company's executive team also joined
PenWare from Inforite.
BUSINESS OF THE COMPANY
Principal products. The mission of the successor company, MobiNetix, including
its PenWare subsidiary, is to develop and market devices for paperless
environments and computing software and hardware that is targeted for use in
point-of-sale businesses such as retail, health care and field sales/service.
Current products include the PenWare 100 signature capture pad and the
interactive PenWare 2000 point-of-transaction device, both of which originated
at Inforite. PenWare recently developed and released the PenWare 3000, a product
which integrates a magnetic stripe reader, a large, backlit data entry and
display screen, and an open-platform, expandable design. Software products
include the PenCell spreadsheet for various PDA platforms.
Customer base. During fiscal 1994 and 1995, PenWare derived over 85% of its
revenues from five manufacturers of pen-based computers and PDAs in the U.S. and
Japan. Substantially all of these revenues were related to software development,
consulting and royalties. In 1996, due in large part to an increased proportion
of hardware items in the product mix, there was significantly less dependence on
these customers.
<PAGE> 3
Markets and strategies. In fiscal 1996, PenWare provided specialized, point
transaction technology, as opposed to full solutions, for the mobile business
automation market. The hardware customers of PenWare have included primarily
large companies that typically sought single point solution providers, such as
Kinko's, Polaroid, DataCard and various State Departments of Motor Vehicles
("DMVs"). PenWare has also worked closely with a large number of firmly
established System Integrators, Master Value Added Resellers ("VARs") and
Original Equipment Manufacturers ("OEMs"). For example, PenWare's software
offerings are currently shipped by Sony, Sharp and Motorola in their respective
PDAs.
Moving forward, the Company has repositioned itself to better capture the
anticipated growth and evolution of the paperless transaction market. The
Company currently considers itself a solutions provider able to provide
available technology through proprietary configurations to vertical markets.
These vertical markets are characterized by numerous large-company customers
which have an existing need to improve cost efficiency, productivity and
accuracy in the basic operating functions of their businesses. Growth in the
installed base of network computing systems, together with the increased
availability of enabling technologies (e.g. compact and affordable high-capacity
storage and high-speed processing) has culminated in an environment for rapid
proliferation of efficiency enhancing communications/computing products. The
Company's strategy is to leverage its proven technologies, customer
relationships, and strong management team to become a dominant provider of
complete mobile business transaction solutions. By providing comprehensive, cost
effective, and easily implemented turnkey solutions, the Company intends to
address a high potential, early-stage market.
The Company possesses two primary core competencies: signature transaction
devices, and expertise in the development of miniaturized distributed
software/hardware systems. The Company believes it is well positioned to
leverage its current strengths in software miniaturization and systems design to
address penetrating existing and evolving transaction markets.
The Company's primary strategy is to exploit its historical investment and
expertise in software miniaturization and cost effective hardware design through
a five point strategy focused on: (i) increasing sales and marketing activities
that target Regional Distributors, Master VARs, System Integrators, and major
corporate end-users; (ii) emphasizing rapid adoption of its technologies as an
industry standard in certain vertical markets, (iii) opportunistically forming
strategic relationships and working closely with channel partners, (iv)
continuing to stay ahead of the technology curve by focusing on
price/performance leadership in its approach to product development, and (v)
maintaining a balance with respect to its ability to develop proprietary
software and hardware, thereby positioning the Company to control the creation
of the highest value-added complete solutions available to its vertical target
markets. The Company's strategy is to continue selling paperless transaction
devices to the growing market in point of sale, identification/security,
finance/banking and insurance applications.
The Company currently participates in two existing markets, each of which is
related to, and acts as a method of entry to, the broader solutions markets that
the Company targets in its long term strategy. The Company's signature
transaction products participate in the Card Authorization Terminal ("CAT")
market, and the Company's PenCell software is designed for the PDA market.
Market segments that require signatures to conduct or conclude transactions
include large retail stores, field services, and health-care. These segments
represent key focus areas for the Company.
<PAGE> 4
Competition. Competition in the electronic signature device market is likely to
increase. The Company competes with a number of companies, some of which have
greater financial, technical and marketing resources than the Company. The
Company believes its ability to compete successfully depends on a number of
factors both within and outside its control, including product pricing, quality
and performance; success in developing new products; adequate manufacturing
arrangements and supply of components and materials; effectiveness of sales and
marketing resources and strategies; strategic relationships with suppliers,
system integrators, VARs and major accounts; timing of new product introductions
by the Company and its competitors; general market and economic conditions; and
government actions throughout the world. There can be no assurance that the
Company will be able to compete successfully in the future. The Company depends
to a great extent on certain technologies underlying its products.
Patents. The Company has no patents and relies primarily on trade secret
protection of its intellectual property. MobiNetix is seeking certain patent or
other similar protection, but there is no assurance that it will be able to
protect its trade secrets or that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets. The electronics and software
industries are characterized by frequent litigation regarding patent and other
intellectual property rights, and litigation may be necessary to enforce the
Company's intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of patent infringement. As the number of competing
electronic transaction, data collection and related software products increases
and the functionality of these products further overlaps, manufacturers of such
products, including the Company, could become increasingly subject to patent
infringement claims.
Costs of Environmental Compliance. The Company is aware of the presence of
Hazardous Materials present in the soil and/or groundwater of the property
formerly leased by the Company. Though the Company believes it was not involved
in the deposition of those materials and has received no notice of investigation
or claim with respect to such Hazardous Material, the mere presence of them may
subject the Company to environmental litigation or liability at some point in
the future.
Employees. As of June 30, 1996, the Company, through PenWare, employed 23
people, including 3 in sales and marketing; 14 in research and development, both
hardware and software; 3 in finance and operations; and 3 in administration.
None is subject to collective bargaining agreements, and the Company considers
its employee relations to be good.
Research and development. The Company spent $204,233 and $908,903 on research
and development in fiscal 1995 and 1996, respectively. The increase in fiscal
1996 was primarily due to development of the Company's signature capture
devices.
ITEM 2. PROPERTIES
As of June 30, 1996, the Company was based in Palo Alto, California, where it
leased a 3,000-square foot facility on a month-to-month basis for engineering,
administration and all internal functions. In July 1996, the Company moved all
of these operations into a larger, leased facility in Sunnyvale, California for
a term of 3 years. The new facility can accommodate approximately 10 more
employees than are currently employed, and the Company will seek additional
space as needed in future years.
<PAGE> 5
The Company outsources its manufacturing and repair work to an independent
company in Fremont, California. A portion of inventory costs is governed by a
manufacturing agreement assumed from Inforite, and the Fremont company has a
right of first refusal for PenWare manufacturing. The Company conducts
competitive bidding for its current and future outsourcing needs.
The Company does not currently own any real estate.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any material legal proceedings during the
periods covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From December 27, 1993 through August 2, 1995, the Common Stock and Common Stock
Purchase Warrants of the Company's predecessor, PenUltimate, traded on the
Nasdaq Small Cap Market under the symbols PNLT and PNLTW, respectively. The
Common Stock of PenUltimate subsequently traded on the OTC Bulletin Board from
August 3, 1995 through the date of this report.
The following table sets forth split adjusted market prices for the Company's
Common Stock and Common Stock Purchase Warrants. The table reflects the two-year
high and low bid prices for these securities as reported by the Nasdaq Small Cap
Market through August 2, 1995 and by S&P Compustat, for subsequent periods.
Common Stock
<TABLE>
<CAPTION>
Year Period Bid prices ($)
High Low
<S> <C> <C> <C>
1995 First Quarter 311.65 94.85
Second Quarter 203.25 94.85
Third Quarter 162.60 94.85
Fourth Quarter 135.50 27.10
1996 First Quarter 54.20 20.59
Second Quarter 33.98 8.67
Third Quarter 23.74 10.84
Fourth Quarter 15.18 6.50
</TABLE>
<PAGE> 6
Warrants
<TABLE>
<CAPTION>
Year Period Bid prices
High Low
<S> <C> <C> <C>
1995 First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
1996 First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
</TABLE>
* There was no significant activity for the periods presented.
The quotations set forth above reflect market prices between dealers, without
retail mark-up, mark-down, or commission and may not represent actual
transactions. The bid and ask prices for the common stock on September 25, 1996
were $5 and $8, respectively.
The Company's Common Stock was held by approximately 345 stockholders of record
as of June 30, 1996.
The Company has never paid a dividend and has no plans to do so. The Company
currently intends to retain future earnings, if any, to fund business growth and
development.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This analysis of the Company's financial condition, capital resources and
operating results should be reviewed in conjunction with the accompanying
Financial Statements, including the notes thereto.
This analysis contains certain forward-looking statements. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected.
As discussed further in Note 1 to the MobiNetix 1996 financial statements, the
Company's merger with PenWare was treated as a reverse acquisition for
accounting purposes. Accordingly, the historical operations of PenWare for all
periods prior to the acquisition have been presented as the results of
operations for the combined companies.
Operating results. Sales of signature transaction devices, which were not part
of the Company's product portfolio in fiscal 1995, were the major factor in the
overall 47% increase in net revenues. A majority of the Company's revenues was
derived from sales of PenWare 100 signature transaction products and from
software development contracts. The Company's gross margin percentage from
hardware sales was 39% in fiscal 1996. The Company had no hardware sales in
fiscal 1995. The Company's gross margin from consulting improved to 76% in
fiscal 1996, compared to 5% in 1995. This improvement was primarily due to lower
pricing on certain contracts entered into in 1995 to penetrate certain markets,
and increased efficiency in performance in 1996.
<PAGE> 7
Research and development expenses rose by 345% from fiscal 1995 to fiscal 1996.
This increase is primarily attributable to increased engineering requirements
for hardware product development and manufacturing, and expenses related to
purchased technology. In a series of transactions, the Company acquired the
rights to certain technology in December 1995. The purchase price of $125,000
was fully expensed during fiscal 1996, as the Company has decided not to further
develop the technology acquired. Research and development expenses are generally
charged to operations as incurred. In accordance with Statement of Financial
Accounting Standards No. 86, the Company capitalizes software development costs
when technological feasibility has been established (see Note 1 to the
Consolidated Financial Statements). Costs which were eligible for capitalization
during 1995 and 1996 were insignificant, and the Company charged all software
development costs to research and development expense.
Selling, general and administrative expenses increased by 196% from fiscal 1995
to fiscal 1996, due mainly to expanded efforts for sales, marketing and
promotion, and the hiring of a new, broadened executive team in mid-year 1996.
Overall, personnel-related expenses more than doubled from 1995 to 1996 as the
Company increased staffing levels in all areas to meet anticipated business
growth and administrative needs.
Interest expense on $1.4 million in bridge loan financing, most of which was
received in the last quarter of fiscal 1996, was the primary reason for the
increase in interest expense from 1995 to 1996. $1.1 million of this new
financing, together with an existing $1 million promissory note from a
beneficial shareholder, was converted to preferred stock in June 1996 (see
Liquidity and capital resources, below). Interest accrued on the converted loans
amounting to approximately $140,000 was also converted to preferred stock (see
Note 1 to the Company's 1996 Consolidated Financial Statements for additional
discussion).
Liquidity and capital resources. For the past three fiscal years, the Company
has financed its operations and capital expenditures primarily from proceeds
from the private sale of Preferred Stock and from certain notes payable as
discussed below. The Company completed a series of private placements wherein it
issued 862,447 shares of Series B convertible Preferred Stock in May and June
1996, receiving net proceeds of approximately $2.7 million. Subsequent to the
end of fiscal 1996, the Company sold an additional 390,047 shares of Series B
convertible Preferred Stock, receiving net proceeds of approximately $1.4
million.
Prior to the reverse merger discussed in Note 1 to the Consolidated Financial
Statements, PenWare owed a significant investor $1.0 million; the same investor
owned shares of PenWare preferred stock with a carrying value of $0.9 million.
In connection with the reverse merger, the note and preferred stock held by this
investor were exchanged for 112,500 shares of the Company's Series C Preferred
Stock at $19.17 per share.
During fiscal 1996, the Company borrowed $1.4 million from various private
investors to finance operations. In June 1996, in connection with the reverse
acquisition, the Company repaid $0.3 million of these borrowings in cash. The
remaining $1.1 million converted into 392,574 shares of the Company's Series B
convertible Preferred Stock at $2.72 per share.
At June 30, 1996, the Company's principal sources of liquidity include cash of
$2.4 million. At June 30, 1996, the Company had no long- or short-term debt and
no significant capital commitments other than those under capital leases.
<PAGE> 8
In January 1996 through March 1996, the Company borrowed $469,000 under a
$500,000 unsecured line of credit guaranteed by a major shareholder. This loan,
together with accrued interest, was repaid in full in June 1996 in connection
with the private placements.
In July 1996, the Company completed an additional private placement of
convertible preferred stock, receiving $1,375,750 in net proceeds.
The Company's financing activities generated $3,865,513 in cash during the year,
mainly from the issuance of preferred stock. Operating activities consumed
$1,435,862 in cash during fiscal 1996, compared to $349,128 in 1995, reflecting
the Company's growing working capital requirements.
Outlook. Under current business plans and forecasts, the Company believes that
existing cash resources are sufficient to support operations into the fourth
quarter of fiscal 1997. Working capital requirements for inventory and
receivables, both of which were higher in 1996 than in 1995 due to the Company's
transition toward hardware sales and development, are expected to grow
significantly in fiscal 1997 as the Company ramps up production and sales
volumes of signature transaction devices. Management is investigating credit
line financing and additional sales of equity, but there is no assurance that
additional funding will be available.
The Company will be subject to certain new accounting pronouncements in fiscal
1997. The Company does not expect SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," to have a
material effect on its financial position or results of operations.
SFAS 123, "Accounting for Stock-Based Compensation," which is also effective in
fiscal 1997, establishes a fair value based method of accounting for stock-based
compensation plans, while also permitting an election to continue following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
with disclosures of pro forma net income and earnings per share under the new
method. Upon adoption in fiscal 1997, the Company plans to elect to continue to
measure compensation cost for its employee stock compensation plans using the
method of accounting prescribed by APB Opinion No. 25 while providing the
additional disclosure requirements set forth in SFAS 123.
MobiNetix believes that is has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to be
profitable and sales trends are inherently difficult to predict at this stage of
development. Sales forecast shortfalls, delayed product introductions, and
manufacturing and financing constraints, together with other risk factors, could
lead to adverse fluctuations in revenues and profits in any particular quarter.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and schedules required by Item 7 are set forth in the
index on page F-1.
<PAGE> 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As reported in the Company's Form 8-K dated July 23, 1996, the Board of
Directors voted on July 17, 1996 to (i) engage Arthur Andersen LLP as the
independent public accountants for the Company and to (ii) dismiss Corbin &
Wertz as such independent accountants.
During the two fiscal years ended June 30, 1995 and the subsequent interim
period through July 17, 1996, (i) there were no disagreements with Corbin &
Wertz on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to its satisfaction would have caused it to make reference in connection with
its report to the subject matter of the disagreement, and (ii) Corbin & Wertz
did not advise the Company of any reportable events as defined in paragraph (A)
through (D) of Regulation S-K Item 304 (a)(1)(v).
The accountants' report of Corbin & Wertz on the consolidated financial
statements of PenUltimate for the years ended June 30, 1995 and June 30, 1994,
as reported on Form 10-KSB, included an explanatory paragraph raising
substantial doubt about the Company's ability to continue as a going concern.
The Company has since completed a reverse acquisition with PenWare, as reported
on the Company's report on Form 8-K dated June 10, 1996.
<PAGE> 10
MOBINETIX SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'S EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
FN-1
<PAGE> 11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MobiNetix Systems, Inc.
We have audited the accompanying consolidated balance sheet of MobiNetix
Systems, Inc. (a Delaware corporation) and subsidiary as of June 30, 1996, and
the related consolidated statements of operations, shareholders' deficit and
cash flows for the two years ended June 30, 1996 and June 30, 1995. These
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 the audit 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 financial position of MobiNetix Systems, Inc. and
subsidiary as of June 30, 1996 and the results of its operations and its cash
flows for the two years ended June 30, 1996 and June 30, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
September 25, 1996
<PAGE> 12
MOBINETIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
as of June 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 2,438,368
Trade accounts receivable, less allowance for
doubtful accounts of $20,313 134,762
Inventory 155,508
Prepaid expenses and other current assets 100,685
-----------
Total current assets 2,829,323
-----------
Property and equipment:
Computer equipment and software 181,767
Furniture and equipment 53,666
-----------
Total property and equipment 235,433
Less: Accumulated depreciation (97,926)
-----------
Property and equipment, net 137,507
-----------
Total assets $ 2,966,830
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 233,247
Accrued liabilities 76,206
Accrued professional fees 94,750
Deferred revenues 208,189
Deferred credit for inventory purchase 76,722
Current portion of capital lease obligations 25,000
-----------
Total current liabilities 714,114
-----------
Capital lease obligations, less current portion 18,500
-----------
Commitments (Note 10) --
Shareholders' equity:
Series B convertible preferred stock,
par value $0.001, 1,225,021 shares authorized;
liquidation preference of $7,500,000;
1,255,021 shares issued and outstanding 1,255
Series C convertible preferred stock,
par value $0.001, 112,500 shares authorized;
liquidation preference of $2,250,000;
112,500 shares issued and outstanding 113
Common stock, par value $.001; 2,500,000
shares authorized; 1,335,809 shares
issued and outstanding 1,336
Additional paid-in capital 5,983,309
Accumulated deficit (3,751,797)
-----------
Total shareholders' equity 2,234,216
-----------
Total liabilities and shareholders' equity $ 2,966,830
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 13
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Hardware sales $ 477,515 $ --
Consulting revenues 230,150 315,000
Royalties and other 91,679 229,338
----------- ---------
Total revenues 799,344 544,338
Cost of revenues - hardware 291,682 --
Costs of revenues - consulting 57,663 298,296
----------- ---------
Total cost of revenues 349,345 298,296
----------- ---------
Gross margin 449,999 246,042
----------- ---------
Operating expenses:
Selling, general and administrative 1,086,661 367,344
Research and development 908,903 204,233
----------- ---------
Total operating expenses 1,995,564 571,577
----------- ---------
Loss before interest and income taxes (1,545,565) (325,535)
Interest expense and other (110,742) (59,990)
Interest income 7,902 1,021
----------- ---------
Income before income taxes (1,648,405) (384,504)
Income taxes (800) (800)
----------- ---------
Net loss $(1,649,205) $(385,304)
=========== =========
Pro forma net loss per share $ (1.23) $ (0.29)
Pro forma weighted average shares outstanding 1,334,275 1,335,995
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 14
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the fiscal years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Series B Series C
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1994 -- $ -- 50,000 $ 989,269 318,182 $ 318
Shares repurchased -- -- -- -- (7,557) (7)
Options exercised -- -- -- -- 2,396 3
Net loss -- -- -- -- -- --
--------- ------ ------- --------- --------- ------
Balances as of June 30, 1995 -- -- 50,000 989,269 313,021 314
Cancellation of PenWare shares
in reorganization (Note 1) -- -- -- -- (313,021) (314)
Conversion of promissory note and
Series A Preferred Stock -- -- 62,500 (989,156) -- --
Shares issued to management -- -- -- -- 1,085,809 1,086
Shares issued to PenUltimate
shareholders -- -- -- -- 250,000 250
Shares issued by private placement 862,447 862 -- -- -- --
Shares issued through conversion
of bridge loans 392,574 393 -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ------- --------- --------- ------
Balances as of June 30, 1996 1,255,021 $1,255 112,500 $ 113 1,335,809 $1,336
========= ====== ======= ========= ========= ======
<CAPTION>
Additional
Paid in
Capital
<S> <C>
Balances as of June 30, 1994 $ 12,409
Shares repurchased (295)
Options exercised 476
Net loss --
----------
Balances as of June 30, 1995 12,590
Cancellation of PenWare shares
in reorganization (Note 1) --
Conversion of promissory note and
Series A Preferred Stock 2,155,983
Shares issued to management --
Shares issued to PenUltimate
shareholders 23,563
Shares issued by private placement 2,723,766
Shares issued through conversion
of bridge loans 1,067,407
Net loss --
----------
Balances as of June 30, 1996 $5,983,309
==========
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Accumulated Total
Deficit Shareholders'
Equity (deficit)
<S> <C> <C>
Balances as of June 30, 1994 $(1,717,288) $ (715,292)
Shares repurchased -- (302)
Options exercised -- 479
Net loss (385,304) (385,304)
----------- -----------
Balances as of June 30, 1995 (2,102,592) (1,100,419)
Cancellation of PenWare shares
in reorganization (Note 1) -- (314)
Conversion of promissory note and
Series A Preferred Stock -- 1,166,827
Shares issued to management -- 1,086
Shares issued to PenUltimate
shareholders -- 23,813
Shares issued by private placement -- 2,724,628
Shares issued through conversion
of bridge loans -- 1,067,800
Net loss $(1,649,205) (1,649,205)
----------- -----------
Balances as of June 30, 1996 $(3,751,797) $ 2,234,216
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 16
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net loss $(1,649,205) $(385,304)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,960 25,550
Provision for bad debts 20,313 --
Changes in operating assets and liabilities:
Trade accounts receivable (153,031) 18,206
Inventories (130,508) 101,000
Prepaid expenses and other current assets 79,681 2,670
Other assets 5,382 (139)
Accounts payable 222,102 (877)
Accrued liabilities 127,168 67,511
Deferred revenues 32,276 (177,745)
----------- ---------
Net cash provided by (used in)
operating activities (1,435,862) (349,128)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (68,097) (12,890)
----------- ---------
Net cash used in investing activities (68,097) (12,890)
----------- ---------
Cash flows from financing activities:
Borrowings - credit line 469,000 --
Repayments - credit line (469,000) --
Borrowings - notes payable 1,470,000 387,763
Repayments - notes payable (332,200) --
Issuance of Series B Preferred Stock 3,180,503 --
Series B Preferred Stock issuance costs (455,875) --
Proceeds from issuance of common stock 3,085 479
Repurchase of common stock -- (302)
----------- ---------
Net cash provided by financing activities 3,865,513 387,940
----------- ---------
Net increase (decrease) in cash 2,361,554 25,922
Cash at beginning of year 76,814 50,892
----------- ---------
Cash at end of year $ 2,438,368 $ 76,814
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 800 $ 800
Cash paid for interest $ 1,723 --
Non-cash investing and financing activities:
Conversion of note payable to Preferred Stock $ 2,234,627 --
Acquisition of PenUltimate net assets $ 21,500 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 17
MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. Description of business and summary of significant accounting policies.
Organization and operations
MobiNetix Systems, Inc. ("MobiNetix" or the "Company"), a Delaware Corporation,
(formerly PenUltimate, Inc.), develops and markets devices for paperless
environments and computing software and hardware that is targeted for use in
point-of-sale businesses such as retail, health care and field sales/service
signature transaction devices and mobile computing software, principally in the
United States. The Company is subject to a number of risks common to companies
at a similar stage of development, including concentrations of customers in the
hand-held computer markets, a history of operating losses, the need to obtain
adequate financing, competition from firms that have greater financial resources
than the Company, and dependence on key personnel.
The Company in its present form is the result of an acquisition agreement
between PenUltimate, Inc. ("PenUltimate"), a Delaware corporation, and PenWare
Inc. ("PenWare"). On June 10, 1996, common and preferred shareholders of PenWare
exchanged their holdings in PenWare for shares of PenUltimate common stock, and
PenWare became a wholly owned subsidiary of PenUltimate. On August 26, 1996,
PenUltimate changed its name to MobiNetix Systems, Inc.
After giving effect to a reverse stock split and exchange, wherein existing
PenUltimate shareholders received 250,000 common shares for their outstanding
16,740,934 common shares, PenUltimate issued to the PenWare shareholders
1,084,275 shares of common stock and 112,500 shares of Series C preferred stock
in consideration of the transaction. After completion of the transaction, the
former shareholders of PenWare held approximately 90% of the voting power in
PenUltimate.
For accounting purposes, the acquisition has been treated as a reverse
acquisition. The historical operations of PenWare for all periods prior to the
reverse acquisition have been presented as the results of operations for the
combined companies. No pro forma statement of operations is presented because
PenUltimate was inactive prior to the acquisition and its former business
operations had ceased.
As a result of the reverse acquisition, common stock of the combined companies
represented the capital of PenWare at the date of the reverse acquisition plus
the fair market value of PenUltimate's remaining assets and liabilities. The
shares issued to effect the reverse acquisition have been assigned a value of
$21,500, based on the fair market value of the assets acquired at the closing
date as follows:
<TABLE>
<S> <C>
Property and equipment $ 65,000
Capital lease liability (43,500)
--------
Total $ 21,500
========
</TABLE>
<PAGE> 18
Prior to the reverse acquisition discussed above, PenWare had entered into a
series of transactions wherein it acquired the rights to certain handheld
computer technology for $125,000. The Company subsequently decided not to pursue
further development of this computer, and the $125,000 purchase price was
written off as in-process research and development.
In a related transaction, PenWare also acquired the rights to certain signature
pad technology together with the rights to use certain inventory related to the
manufacture of signature pads. The Company recorded the purchase of the
inventory at fair market value, which exceeds the amount the Company expects to
pay as it utilizes the inventory. The excess of the fair market value over the
purchase price has been recorded as deferred credit in the accompanying
financial statements. The deferred credit is being amortized as the related
inventory is used.
Use of estimates in the preparation of financial statements
The preparation of 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.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany accounts and transactions have
been eliminated.
Revenue recognition
Revenue from sales of hardware products is recognized upon shipment. A provision
for estimated warranty costs is provided upon shipment.
The Company licenses its software to original equipment manufacturers ("OEMs")
under the terms of development and license agreements. Revenue for the
development of software is generally recognized using the percentage-of-
completion method, on a cost-to-cost basis. If no basis for determining the
percentage of completion exists, the completed contract method is used. Royalty
revenues derived from OEM sales of products to end users are recognized when the
OEM advises the Company that the products have shipped.
Other software product revenues are recognized when the related products are
shipped, provided there are no significant post-delivery obligations, delivery
is probable, and payment is due within one year. The Company does not sell
post-contract support services. Payments received from customers for which the
related services have not been performed or for which the royalties have not
been earned, are recorded as deferred revenues.
Cost of revenues for hardware sales consists mainly of purchased electronic
components and contract assembly labor. Cost of revenues for consulting includes
primarily salaries, benefits, and overhead costs related to development
personnel, as well as cost of media on which the product is delivered.
Research and development
Research and development costs are generally expensed as incurred. Statement of
Financial Accounting Standards (SFAS) 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," required capitalization of
<PAGE> 19
certain software development costs subsequent to the establishment of
technological feasibility. In the Company's case, capitalization would begin
upon completion of a working model. As of June 30, 1996 and 1995, such
capitalizable costs were insignificant. Accordingly, the Company has charged all
such costs to research and development expense in the accompanying statements of
operations.
Inventory
Inventory is carried at the lower of cost, as determined on a first-in,
first-out basis, or market. At June 30, 1996, all of the Company's inventory
consisted of raw materials.
Property and equipment
Property and equipment are stated at cost and depreciated using the straight
line method over the estimated useful lives of the assets, generally three to
five years.
Pro forma net loss per share
Due to the significant change in the Company's capital structure that occurred
in connection with the reverse acquisition discussed above, net loss per share
has been calculated using pro forma weighted average shares outstanding. This
calculation assumes that all of the common shares issued as part of the reverse
acquisition were outstanding for all periods presented.
Reclassifications
Certain amounts for fiscal years before 1996 have been reclassified to conform
to the current presentation.
Recent accounting pronouncements
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," is effective for fiscal 1997. The Company does
not expect SFAS 121 to have a material effect on the Company's financial
position or results of operations.
SFAS 123, "Accounting for Stock-Based Compensation," which is also effective in
fiscal 1997, establishes a fair value based method of accounting for stock-
based compensation plans, while also permitting an election to continue
following the requirements of APB Opinion No. 25, "Accounting for Stock Issued
to Employees" with disclosures of pro forma net income and earnings per share
under the new method. Upon adoption in fiscal 1997, the Company plans to elect
to continue to measure compensation cost for its employee stock compensation
plans using the method of accounting prescribed by APB Opinion No. 25 while
providing the additional disclosure requirements set forth in SFAS 123.
2. Income taxes
The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes," whereby deferred tax assets and liabilities reflect the
future income tax effects of temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective bases
for taxation. Deferred tax liabilities and assets are determined on the basis of
enacted tax rates in effect for the years in which the differences are expected
to reverse. The Company's effective tax rate approximates its statutory tax
rate.
<PAGE> 20
Significant components of the Company's deferred tax assets and liabilities are
as follows at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
Gross deferred tax assets:
<S> <C> <C>
Net operating loss carryforward $ 1,402,464 $ 731,368
Tax credit carryforwards 13,795 13,795
Deferred revenue 85,462 71,245
Accrued expenses 14,214 5,973
----------- ---------
Gross deferred tax asset 1,515,935 822,381
Deferred tax liability:
Work in process - inventory -- (10,125)
Deferred tax valuation allowance (1,515,935) (812,256)
----------- ---------
Net deferred tax asset $ -- $ --
=========== =========
</TABLE>
A valuation allowance has been established against the deferred tax asset
because such asset does not meet the criteria for recognition included in SFAS
109.
3. Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and trade receivables. The Company places
its cash with high quality financial institutions.
The Company's customers consist primarily of businesses in the retail, health
care and field sales/services industries and various companies in the handheld
computer industry. The Company maintains an allowance for uncollectible accounts
based upon expected collectibility of all accounts receivable. The Company does
not generally require collateral.
4. Preferred stock
The Company's Series C Preferred stock is convertible to common stock at a rate
of 1 to 10, which is adjustable in the event of certain issuances of additional
Common Stock, including stock dividends, options, and securities convertible to
Common Stock. The conversion rate of 10 shares of common for each preferred
share became effective in June 1996, in connection with the reverse acquisition
discussed in Note 1.
The Company sold and issued 1,255,021 shares of Series B convertible Preferred
Stock in a series of private placements and bridge loan conversions during
fiscal 1996. Each share of Series B Preferred Stock is convertible to Common
Stock at a rate of 1:1, and is adjustable similar to Series C shares.
Both the Series C Preferred Stock and Series B Preferred Stock are subject to
automatic conversion to Common Stock at the current rate upon (1) the closing of
the sale of the Company's Common Stock in an underwritten, public offering
registered under the Securities Act of 1933 with proceeds greater than $6
million, or (2) by written elections of holders of a majority of the Series C or
B Preferred Stock outstanding. Preferred stockholders have voting rights based
on the number of common shares into which they can be converted.
5. Common Stock
<PAGE> 21
On June 10, 1996, the Company effected a 1:4 reverse stock split. All common
share information in these financial statements has been presented to show the
effect of the reverse split.
Approximately 1,084,275 shares were issued to management for cash in December
1995 at a price of $0.001 per share. Fifty percent of these shares vested
immediately and the remaining shares vest on a 1/48 basis for each month
thereafter. As of June 30, 1996, 337,422 shares remain unvested.
The Company's Common Stock Purchase Warrants have strike prices which are
substantially higher than the prevailing price range of the underlying Common
Stock. A total of 833,526 Warrants were outstanding as of June 30, 1996.
6. Notes payable
In fiscal 1994, the Company entered into an unsecured borrowing arrangement, as
amended, with a shareholder allowing the Company to borrow up to $1,000,000. The
amount borrowed carried an interest rate of 8% and was convertible to preferred
stock at the option of the shareholder. In June 1996, the balance of the note
and related accrued interest totaling $1,166,827 were converted into 112,500
shares of Series C Preferred Stock in connection with the reverse acquisition
discussed in Note 1.
Short-term borrowings in fiscal 1996 included an unsecured bank line of credit
of $500,000, the maximum balance of which reached $469,000 during the year. The
loan, which was guaranteed by a major shareholder and bore an interest rate of
2% above the lender's prime rate, was repaid in full in June 1996.
The Company also borrowed $1,400,000 in bridge loans from private investors at
an interest rate of 12.5% in March and April 1996. A portion of this financing
($332,200) was repaid and the remaining $1,067,800 was converted to Series B
Preferred Stock in June 1996.
7. Employee stock options
Under the Company's stock option plan, established in 1992, incentive common
stock options may be granted at prices not lower than fair market value and
nonqualified stock options may be granted at prices not lower than 85% of the
fair market value, as determined by the Board of Directors at the date of the
grant. The options generally vest 12.5% after six months with the remaining
options vesting pro rata over the following 48 months. Options generally expire
after 10 years. Activity relating to the stock option plan is as follows:
<TABLE>
<CAPTION>
Shares Outstanding options
available Number Exercise
for grant of shares price
--------- --------- --------
<S> <C> <C> <C>
Balances, June 30, 1994 81,989 8,921 $0.200
Options granted (17,278) 17,278 $0.200
Options exercised -- (2,396) $0.200
Options cancelled 8,828 (8,828) $0.200
------- -------
Balances, June 30, 1995 73,539 14,975 $0.200
Options granted (31,169) 31,169 $0.004
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Options cancelled 12,500 (12,500) $0.200
------- -------
Balances, June 30, 1996 54,870 33,644 $0.004 to $0.200
======= =======
</TABLE>
As of June 30, 1996, 1,605 options were exercisable at prices ranging from $.004
to $.20 per share. All of the options summarized above were issued by PenWare.
In connection with the reverse acquisition with PenUltimate, the options
converted into options to purchase shares of MobiNetix.
9. Major customers.
The Company's customers representing 10% or more of revenues for fiscal 1995
consisted primarily of makers of pen-based computers and personal digital
assistants, most of which were located in the United States or Japan. In fiscal
1996, the Company began selling its signature transaction devices to a wider
base of customers, mainly in the United States. Major customers are summarized
below for fiscal 1996 and 1995:
<TABLE>
<CAPTION>
Percent of revenues
1996 1995
<S> <C> <C>
Company A (Japan) 34% 25%
Company B (Japan) n/a 33%
Company C (U.S.) n/a 14%
Company D (U.S.) n/a 14%
Company E (U.S.) 12% n/a
</TABLE>
10. Commitments
The Company leased its Palo Alto, California facility under an operating lease
which expired in June 1996. In July 1996, the Company entered into a lease for
new office and operating facilities in Sunnyvale, California under an operating
lease expiring in 1999. The Company has also entered into certain other
operating leases for computers and equipment.
The annual minimum lease payments under these leases are as follows:
1997 $142,080
1998 126,840
1999 131,520
Rent expense was approximately $89,865 and $76,680 for the years ended June 30,
1996 and 1995, respectively.
12. Subsequent events.
The Company sold an additional 390,047 shares of Series B Preferred Stock in
private placements in July 1996 at $4.25 per share, receiving net proceeds of
$1,375,750.
<PAGE> 23
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information required by Item 9 will be included in the Proxy Statement, to
be filed by October 28, 1996, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 will be included in the Proxy Statement, to
be filed by October 28, 1996, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 10 will be included in the Proxy Statement, to
be filed by October 28, 1996, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 10 will be included in the Proxy Statement, to
be filed by October 28, 1996, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
<PAGE> 24
ITEM 13. FINANCIAL STATEMENTS EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report. Audited
financial statements and notes are included in Part II, Item 7, above.
EXHIBITS:
2.1(h) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
shareholders of PenWare, Inc.
3.1(d) Certificate of Incorporation of the Company.
3.2(a) By-laws of the Company.
3.3(a) Articles of Incorporation of PenUltimate, Inc. a California
corporation.
3.4(c) Articles of Incorporation, as amended, of Mount Tabor Properties, a
Nevada corporation.
4.1(c) Specimen certificate for Common Stock of the Company.
4.2(c) Specimen certificate for Common Stock Purchase Warrants.
4.3(d) Warrant Agreement between the Company and U.S. Stock Transfer
Company dated as of December 21, 1993.
4.4(d) Representative's Warrants issued to Paulsen Investment Co., Inc., on
December 31, 1993.
10.1(a) Warrant Agreement between the Company and Horwitz, Cutler & Beam dated
March 31, 1993.
10.2(a) Form of Stock Repurchase Agreement dated August 1, 1991, by and between
the Company and each of its Directors.
10.3(a) 1992 Incentive and Statutory Stock Option Plan of the Company.
10.4(a) Form of Incentive Stock Option under 1992 Incentive and Statutory Stock
Option Plan of the Company.
10.5(a) Form of Nonstatutory Stock Option under 1992 Incentive and Statutory
Stock Option Plan of the Company.
10.6(g) 1995 Incentive and Statutory Stock Option Plan of the Company.
10.7(g) Form of Incentive Stock Option under 1995 Incentive and Statutory Stock
Option Plan of the Company.
10.8(g) Form of Nonstatutory Stock Option under 1995 Incentive and Statutory
Stock Option Plan of the Company.
10.9(a) Form of Series A Warrant issued in connection with the Company's
private placement of securities dated December 14, 1992.
10.10(a) Form of Series B Warrant issued in connection with the Company's
private placement of securities dated December 14, 1992.
10.12(a) Buy and Sell Agreement, dated as of August 20, 1991 among the Company,
Paul E. Mondscheim and Larry R. Taylor.
10.13(b) Amendment dated September 3, 1993 to Warrant Agreement between the
Company and Horwitz, Cutler & Beam dated March 31, 1993, as amended on
August 27, 1993.
10.15(d) Amendment dated April 20, 1994 to Warrants Agreement between the
Company and Horwitz, Cutler & Beam.
10.16 Lease agreement for premises located at 500 Oakmead Parkway, Sunnyvale,
California, 94086.
16(i) Letter re: change in certifying accountant
27 Financial Data Schedule.
<PAGE> 25
(a) Incorporated herein by reference to the Company's Registration Statement
on Form SB-2, File No. 33-67534-LA, as filed with the Commission on August 16,
1993.
(b) Incorporated herein by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on September 13, 1993.
(c) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on October 1, 1993.
(d) Incorporated herein by reference to the Company's Registration Statement
on Form SB-2, File No. 33-78962-LA, as filed with the Commission on May 11,
1994.
(e) Incorporated herein by reference to Amendment No. 6 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on December 21, 1993.
(f) Incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2, File No. 33-78962-LA, as filed with the
Commission on August 4, 1994.
(g) Incorporated herein by reference to the Company's Form 10-K, File No.
0-23152, for the fiscal year ended June 30, 1995.
(h) Incorporated herein by reference to the Company's Report on Form 8-K dated
June 10, 1996 and filed with the Commission on June 25, 1996.
(i) Incorporated herein by reference to the Company's Report on Form 8-K dated
July 17, 1996 and filed with the Commission on July 23, 1996.
(2) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE 30, 1996:
The Company filed a report on Form 8-K dated June 25, 1996, related to the
reverse acquisition with PenWare, Inc.
<PAGE> 26
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, hereunto duly authorized.
MOBINETIX SYSTEMS, INC.
Date: September 30, 1996 By: \s\ AZIZ VALLIANI
Aziz Valliani
President, Chief Executive Officer
and Director
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.
Date: September 30, 1996 By: \s\ AZIZ VALLIANI
Aziz Valliani
President, Chief Executive Officer
and Director (principal executive
officer)
Date:_____ By: __ ___________
Paul Dali
Chairman of the Board
Date: September 30, 1996 By: __\s\ NAZIM KAREEMI
Nazim Kareemi
Executive Vice President and Director
Date: September 30, 1996 By: __\s\ DAVID M. LICURSE, SR.
David M. Licurse, Sr.
Chief Financial Officer and Vice
President Operations (principal
accounting officer)
<PAGE> 1
EXHIBIT 10.16
SUBLEASE AGREEMENT
1. PARTIES.
This Sublease dated June 3, 1996, is made by and between Metrika
Laboratories, Inc. a California corporation (hereinafter "Sublandlord")
and PenWare, Inc., a Delaware corporation (hereinafter "Subtenant"). This
Sublease shall be effective on the date on which Guzik Investments, L.P.
(hereinafter "Master Landlord") consents in writing to the fully executed
Sublease (the "Effective Date").
2. PREMISES.
Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases
from Sublandlord for the term, at the rental rate, and upon all of the
conditions set forth herein, the Sublease Premises situated in the City of
Sunnyvale, Santa Clara County, State of California, commonly known as 510
Oakmead Parkway, Sunnyvale, California 94086, and described as
approximately 7,800 square feet of research & development/office space; as
identified in Exhibit A (the "Sublease Premises").
3. TERM.
3.1 The term of this Sublease shall commence on July 1, 1996 or the date
on which Sublandlord has delivered legal possession of the Sublease
Premises to Subtenant in the condition required by this Sublease
(the "Commencement Date") and shall expire on June 30, 1999.
3.2 Sublandlord shall deliver possession of the Sublease Premises in the
condition required by this Sublease on or before July 1, 1996. If
for any reason whatsoever, possession is not so delivered by such
date, Subtenant shall have the right to terminate the Sublease at
any time thereafter, until such possession is delivered, by written
notice to Sublandlord, whereupon any monies previously paid by
Subtenant hereunder shall promptly be reimbursed to Subtenant.
3.3 In the event Subtenant, with Sublandlord's consent, takes possession
prior to the Commencement Date, such occupancy shall be subject to
all of the provisions of this Sublease and shall not advance the
termination date of this Sublease, and Subtenant shall pay pro-rated
rent for the period ending with the Commencement Date, based upon
the rental rates set forth herein (calculated on the basis of a
30-day month).
4. RENT.
4.1 Commencing on the Commencement Date, the rental rate to be paid by
Subtenant to Sublandlord on a Gross basis (Subtenant shall pay for
their own janitorial and utility charges) shall be as follows:
Month 01 $0.00
Months 02 - 12 $1.05/Gross/SF/Month
Months 13 - 24 $1.15/Gross/SF/Month
Months 25 - 36 $1.20/Gross/SF/Month
4.2 Sublease rent shall be payable on or before the first day of each
and every calendar month. If any rent payment or any other sum due
from Subtenant is not received by Sublandlord within five (5) days
after Subtenant's receipt of a notice of delinquency, Subtenant
shall pay a late charge equal to six (6) percent of such overdue
amount.
<PAGE> 2
5. USE.
5.1 The Sublease Premises shall be used and occupied by Subtenant for
sales, marketing, hardware and software development, light
industrial research & development, general office, and all other
related legal uses subject to Sublandlord's, and Master Landlord's
approval which shall not be unreasonably withheld as well as any and
all applicable government approvals. But for no other use without
the prior written consent of the Sublandlord and Master Landlord,
which Sublandlord and Master Landlord may withhold in its sole
discretion.
5.2 Subtenant, at Subtenant's expense, shall comply promptly with all
applicable statutes, ordinances, rules, regulations, orders,
restrictions of record and requirements in effect during the
sublease term hereof regulating the use of the Sublease Premises.
5.3 Subject to the terms and conditions of this Sublease, Subtenant
hereby accepts the Sublease Premises in its existing condition,
subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the
Sublease Premises, and accepts this Sublease subject thereto,
provided, however, Sublandlord upon the Commencement Date shall
deliver the Sublease Premises with the roof, plumbing, electrical,
heating and air conditioning systems all in good working order and
repair.
6. MASTER LEASE.
6.1 This Sublease is subject and subordinate to that certain Standard
Industrial/Commercial Single-Tenant Lease-Net dated August 30, 1995
and Addendum to Standard Industrial/Commercial Single-Tenant
Lease-Net dated August 30, 1995 and Second Addendum to Lease dated
August 30, 1995 between Guizik Investments, L.P. ("Landlord"), and
Metrika Laboratories, Inc., a California corporation ("Tenant'), a
copy of which is attached hereto as Exhibit "B" (collectively, the
"Master Lease"). The Master Premises as identified in the Master
Lease consists of approximately 35,737 rentable square feet (the
"Master Premises"), as identified in Exhibit A, constitutes the
Master Premises. Subtenant shall not commit nor permit to be
committed on the Sublease Premises any act or omission which shall
violate any term or condition of the Master Lease.
6.2 Subtenant shall assume and perform the obligations of Tenant
(Sublandlord) in said Master Lease, to the extent said terms and
conditions are applicable to the Sublease Premises, except for those
provisions of the Master Lease which are directly contradicted by
this Sublease, in which event the terms of this Sublease shall
control over the Master Lease. Therefore, for the purpose of this
Sublease, wherever the term "Landlord" or "Lessor" is employed in
the Master Lease, it shall be deemed to mean the Sublandlord herein,
and wherever the term "Tenant" or "Lessee" is employed in the Master
Lease, it shall be deemed to mean the Subtenant herein;
additionally, the term "Premises" shall be deemed to refer to the
Sublease Premises. The foregoing notwithstanding, Sublandlord shall
not have any obligation to perform the obligations of Master
Landlord under the Master Lease which require Master Landlord to
incur any cost or expense, such as, by way of example and not
limitation, the obligation to repair or rebuild all or any part of
the Sublease Premises. Sublandlord shall, however, use diligent
efforts to enforce any such obligations of Master Landlord under the
Master Lease. Any consent of Sublandlord required hereunder, whether
specified herein or through incorporation of the Master Lease, shall
include to the extent required by the Master Lease, the consent Of
Master Landlord.
6.3 All of the terms and conditions contained in the Master Lease are
incorporated herein except for the following sections as outlined
below:
6.3.1 Standard Industrial/Commercial Single-Tenant Lease-Net:
Sections 1.3, 1.5, 1.6, 1.7, 1.10, 1.11, 3, 4, 7, 12, 13.4,
15, 19, 26, & 39.
<PAGE> 3
6.3.2 Addendum to Standard Industrial/Commercial Single-Tenant
Lease-Net: 49, 50, 52, 53, 55, 56, 58.
6.4 Sublandlord shall indemnify and hold Subtenant harmless of and
from all liability, judgements, costs, penalties and expenses,
damages, claims, or demands, including reasonable attorney's
fees, to the extent the same are caused by or arise in
connection with (i) the negligence or willful misconduct of
Sublandlord or its employees, agents, contractors or invitees
occurring on or about the Master Premises or Sublease
Premises; and (ii) the failure by Sublandlord to comply with
or perform its obligations under the Master Lease and/or this
Sublease. Likewise, Subtenant shall indemnify and hold
Sublandlord and Master Landlord harmless of and from all
liability, judgements, costs, penalties and expenses, damages,
claims, or demands, including reasonable attorney's fees, to
the extent the same are caused by or arise in connection with
the i) failure by Subtenant to comply with or perform its
obligations under the Master Lease (assumed by Subtenant
hereunder) and/or this Sublease or Subtenant's use or
occupancy of the Sublease Premises, or iii) Subtenant's
negligent or willful acts or omissions, or Subtenant's failure
to vacate the Sublease Premises strictly in accordance with
the terms of the Sublease.
7. CONDITION OF PREMISES UPON DELIVERY.
Sublandlord, in a good and workmanlike manner and at Sublandlord's sole
cost and expense, shall pay for the following:
7.1 Clean the Sublease Premises throughout.
7.2 Paint the Sublease Premises throughout.
7.3 Replace the ceiling tiles where necessary.
7.4 Replace burnt out lights.
7.5 Remove the wall that is currently covering the door to the front
entrance of the Sublease Premises.
7.6 Subtenant shall have sixty (60) days from the Commencement Date of
the Sublease to report any defects or problems with the following
building operating systems that serve the Sublease Premises:
7.6.1 Air conditioning systems.
7.6.2 Heating Systems.
7.6.3 Electrical systems.
Upon the expiration of the sixty (60) day period, Subtenant shall be
responsible for the maintenance and repair of items 7.6.1, 7.6.2 and
7.6.3 should any problems occur due to Subtenant's occupancy of the
Sublease Premises.
S. WAIVER OF SUBROGATION.
Unless this waiver shall invalidate their insurance policies or make it
impossible to obtain insurance, Sublandlord and Subtenant release each other
from all liability for injury to any person or damage to any property that is
caused by or results in a risk which is actually insured against, or which is
required to be insured against under this Sublease. Each party shall use its
best efforts to cause each insurance policy it obtains to provide that the
insurer there under waives all right of recovery by way of subrogation as
required herein in connection with any injury or damage covered by the policy.
If such insurance policy cannot be obtained with such waiver of subrogation then
the party obtaining such insurance shall immediately notify the other party of
the fact. If such waiver of subrogation is only available at additional cost,
then the party for whose benefit the waiver would be obtained shall pay such
additional cost or waive the benefits of this section. The insurance that the
Subtenant is required to carry under Section 8 of the Master Lease shall name
both Sublandlord and Master Landlord as additional insured thereunder.
<PAGE> 4
9. TENANT IMPROVEMENTS.
9.1 Upon mutual agreement between Subtenant and Sublandlord and Master
Landlord. Subtenant will have the right to hire a contractor and/or
subcontractors of its choice to complete its tenant work rather than
use the Sublandlord's and/or Master Landlord's contractor and/or
subcontractor, subject to Master Landlord's approval.
9.2 Sublandlord agrees that Subtenant may, following written consent by
the Sublandlord, which shall not be unreasonably withheld, and
Master Landlord, in its discretion and at Subtenant's expense, from
time to time during the term of this Sublease, make alterations and
additions in and to the Sublease Premises. No such alterations or
additions may diminish the value of the Sublease Premises. All work
with respect to any alterations or additions shall be done in a good
and workmanlike manner, and diligently prosecuted to completion.
Subtenant shall remove alterations or additions upon termination of
this Sublease, and shall repair any damage caused by such removal.
10. SECURITY DEPOSIT AND PRE-PAY RENT.
10.1 Subtenant shall pay a security deposit to Sublandlord equal to
Sixteen Thousand Three Hundred Eighty Dollars and no/100
($16,380.00) upon execution of this Sublease Agreement. Said
security deposit shall be refunded to Subtenant at the expiration of
earlier termination of the Sublease term.
10.2 Subtenant shall pre-pay to Sublandlord the second month's rent which
is equal to Eight Thousand One Hundred Ninety Dollars and no/1 00
($8,190.00) upon execution of this Sublease Agreement.
11. BROKERS.
11.1 Sublandlord warrants and represents that they have dealt with no
real estate broker in connection with this Sublease other than CB
Commercial Real Estate Group, Inc., a California Corporation
(hereinafter, "CB Commercial").
11.2 Sublandlord has authorized CB Commercial to be its representative,
and Subtenant has authorized Randy Scott of Cornish & Carey
(hereinafter, "Cornish & Carey") to be its representative in this
real estate transaction.
11.3 All commissions shall be payable in full upon execution of the
Sublease by Sublandlord to CB Commercial in accordance with to a
separate agreement ("Schedule of Sale and Lease Commissions").
Accordingly, CB Commercial shall split such commissions with Cornish
& Carey on a 50/50 percentage basis.
11.4 Broker Disclaimer. Sublandlord and Subtenant agree and accept that,
except as otherwise expressly stated herein, broker has not made any
investigation, determination, warranty or representation with
respect to any of the following: (a) the legality of the present or
any possible future use of the Sublease Premises under any federal,
state or local law; (b) the physical condition or square footage of
the Sublease Premises; (c) the terms of the Master Lease or any
other relevant legal document or agreement; or (d) the presence or
location of any hazardous materials on or about the property in
which the Sublease Premises are located (including, but not limited
to, asbestos, PCB's, other toxic, hazardous or contaminated
substances, and underground storage tanks).
12. EARLY ACCESS.
Prior to the Commencement Date, Subtenant shall be permitted access to the
Sublease Premises in order to install equipment and furniture, lay
telephone cable and conduct similar activities. Such access shall be free
of rent so long as Subtenant does not conducts its business in the
Sublease Premises prior to the
<PAGE> 5
Commencement Date. During this period, Subtenant shall be responsible for
their own janitorial and utilities. In the event, Subtenant substantially
conduct its business prior to the Commencement Date of the Sublease, then
rent shall commerce effectively on that date.
13. HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS.
In addition to Sublandlord's other indemnity obligations hereunder,
Sublandlord shall indemnify, protect, defend and hold Subtenant harmless
of and from all liability, judgements, costs, penalties and expenses,
damages, claims or demands, including reasonable attorney's fees, arising
from or in any way relating to any release, disposal, storage or use by
Sublandlord or its employees, contractors or agents, or licensees of any
chemicals or any toxic or Hazardous Materials in or about the Premises
(including the Sublease Premises) before, on or after the Commencement
Date, except to the extent that any of the foregoing results from the
willful misconduct or negligent acts or omissions of the Subtenant or
Subtenant's employees or agents. Likewise, Subtenant shall indemnify and
hold Sublandlord and Master Landlord harmless of and from all liability,
judgements, costs, penalties and expenses, damages, claims or demands,
including reasonable attorney's fees, court costs and fees of experts and
consultants arising from or in any way relating to any release, disposal,
storage or use by Subtenant or its contractors or agents, or licensees of
any chemicals or any toxic or hazardous materials in or about the Sublease
Premises, except to the extent that any of the foregoing results from the
willful misconduct or negligent acts or omissions of Sublandlord, Master
Landlord, or any of their agents, employees, contractors or licensees.
13.1 Subtenant Indemnity: Subtenant shall indemnify, defend and hold
harmless Sublandlord and Master Landlord from and against all
claims, suits, judgments, losses, costs, personal injuries, damages,
and expenses of every type and nature ("Claims"), to the extent
caused by the storage, use, release or disposal of Hazardous
Materials on or about the Sublease Premises during the term of this
Sublease by Subtenant or Subtenant's employees or agents.
Notwithstanding anything to the contrary in this Sublease, Subtenant
shall have no obligation to clean up or to comply with any law
regarding, or to reimburse, indemnify, defend or hold harmless
Sublandlord with respect to, any Hazardous Materials discovered on
the Sublease Premises which were not introduced onto the Premises by
Subtenant or Subtenant's employees or agents.
13.2 Sublandlord Indemnity: Sublandlord shall indemnify, defend and hold
harmless Subtenant from and against all claims, suits, judgments,
losses, costs, personal injuries, damages, and expenses of every
type and nature ("Claims"), directly or indirectly arising out of or
in connection with any Hazardous Material present at any time on or
about the Sublease Premises, or the violation of any environmental
law relating to any such Hazardous Material except to the extent
that any such claim resulting from the willful or negligent acts or
omissions of Subtenant or Subtenant's employees or agents.
13.3 Sublandlord and Subtenant Indemnity: Sublandlord and Subtenant shall
indemnify, defend and hold harmless Master Landlord from and against
all claims, suits, judgments, losses, costs, personal injuries,
damages and expenses of every type and nature ("claims"), to the
extent caused by the storage, use, release or disposal of Hazardous
Materials on or about the Premises during the term of, in the case
of Sublandlord, the Master Lease and, in the case of Subtenant, the
term of this Sublease, by Sublandlord and Subtenant, as the case may
be, or either of their employees or agents. Notwithstanding anything
to the contrary in this Sublease, neither Sublandlord or Subtenant
shall have no obligation to clean up or to comply with any law
regarding or to reimburse, indemnify, defend or hold harmless Master
Landlord with respect to, any Hazardous Materials discovered on the
Sublease Premises which were not introduced onto the Sublease
Premises by Sublandlord or Sublandlord's employees or agents, or by
Subtenant or Subtenant's employees or agents, respectively.
13.4 Sublandlord's Representations: To the best knowledge of Sublandlord,
there are no Hazardous Materials present on or about the Sublease
Premises and no action, proceeding, or claim is pending
<PAGE> 6
or threatened concerning the Sublease Premises or the building
concerning any Hazardous Material or pursuant to any environmental
law, and Sublandlord is in full compliance with all environmental
laws with respect to the Sublease Premises.
13.5 Definition of Hazardous Materials: As used in this paragraph, the
term "Hazardous Materials" shall mean any material or substance that
is now or thereafter prohibited or regulated by any statute, law,
rule, regulation, or ordinance or that is now or hereafter
designated by any governmental authority to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the
environment.
13.6 Indemnity Survival: The provisions and obligations of the foregoing
Paragraphs and other Indemnity provisions shall survive the
termination of this Sublease.
13.7 Consent of Hazardous Materials: Storages, use and disposal (in
compliance with applicable laws) of hazardous materials reasonably
required for the operation of Subtenant's business, is subject to
approval by Sublandlord and Master Landlord.
14. INTERPRETATION.
In the event of any inconsistency between this written Sublease and the
terms of the Master Lease incorporated herein by reference, the terms of
this written Sublease shall control as between Sublandlord and Subtenant.
15. QUIET ENJOYMENT.
Sublandlord covenants that so long as Subtenant keeps and substantially
performs each and every term, provision and condition herein contained on
the part of Subtenant to be kept and performed, Subtenant shall peacefully
and quietly enjoy the Sublease Premises without hindrance or molestation
by Sublandlord or any other person claiming by, through or under
Sublandlord.
16. NOTICES.
All communications, notices and demands of any kind which either party may
be required or desires to give to or serve upon the other party shall be
in writing and shall be personally delivered or sent by prepaid, first
class mail, registered with return receipt requested. Any such notice
shall be addressed to the parties as follows:
If to Sublandlord If to Subtenant
Michael Allen Aziz Valliani
President & CEO President & CEO
Metrika Laboratories, Inc. PenWare, Inc.
510 Oakmead Parkway 510 Oakmead Parkway
Sunnvyale, CA 94086 Sunnyvale, CA 94086
17. CONDITION PRECEDENT.
This Sublease will not take effect unless and until it is approved by the
Master Landlord. Should the Master Lease terminate for any reason, this
Sublease shall also terminate simultaneously with Master Lease
termination. Subtenant shall have no right to holdover.
IN WITNESS WHEREOF, Master Landlord, Sublandlord and Subtenant have signed this
Sublease to evidence their acceptance of and intent to be bound by the terms
hereof as of the Effective Date.
<PAGE> 7
SUBTENANT: SUBLANDLORD:
PenWare, Inc. Metrika Laboratories, Inc.
By :___________________________ By :___________________________________
Aziz Valliani Michael Allen
Title :President & CEO Title :President & CEO
Dated :________________________ Dated :________________________________
MASTER LANDLORD:
Guizik Investments, L.P.
By :________________________
Title :________________________
Dated :________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,438,368
<SECURITIES> 0
<RECEIVABLES> 155,075
<ALLOWANCES> 20,313
<INVENTORY> 155,508
<CURRENT-ASSETS> 2,829,323
<PP&E> 235,433
<DEPRECIATION> 97,926
<TOTAL-ASSETS> 2,966,830
<CURRENT-LIABILITIES> 714,114
<BONDS> 0
0
1,368
<COMMON> 1,336
<OTHER-SE> 2,231,512
<TOTAL-LIABILITY-AND-EQUITY> 2,966,830
<SALES> 799,344
<TOTAL-REVENUES> 799,344
<CGS> 349,345
<TOTAL-COSTS> 349,345
<OTHER-EXPENSES> 908,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,742
<INCOME-PRETAX> (1,545,565)
<INCOME-TAX> 800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,649,205)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> 0
</TABLE>
