<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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
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 issuer was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of April 30, 1997:
1,337,209.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
================================================================================
<PAGE> 2
MOBINETIX SYSTEMS, INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet at March 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Operations for the
Nine Months Ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MOBINETIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
AS OF MARCH 31, 1997
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash $ 4,679,579
Trade accounts receivable, net 347,161
Inventory 399,056
Prepaid expenses and other current assets 88,187
-----------
Total current assets 5,513,983
-----------
Property and equipment 388,598
Less: Accumulated depreciation (169,878)
-----------
Property and equipment, net 218,720
-----------
Total assets $ 5,732,703
===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 139,062
Accrued liabilities 254,690
Deferred revenues 3,990,938
Current portion of capital lease obligations 19,321
-----------
Total current liabilities 4,404,011
-----------
Capital lease obligations, less current portion 3,343
-----------
Stockholders' equity:
Series B convertible preferred stock 894
Series C convertible preferred stock 28
Common stock 1,337
Additional paid-in capital 7,336,382
Accumulated deficit (6,013,292)
-----------
Total stockholders' equity 1,325,349
-----------
Total liabilities and stockholders' equity $ 5,732,703
===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE> 4
MOBINETIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Revenues $ 471,608 $ 270,649
Cost of revenues 231,272 121,872
----------- ---------
Gross margin 240,336 148,777
----------- ---------
Operating expenses:
Selling, general and administrative 541,375 415,602
Research and development 495,266 260,939
----------- ---------
Total operating expenses 1,036,641 676,541
----------- ---------
Operating loss (796,305) (527,764)
Interest expense and other (1,100) (25,944)
Interest income 15,521 360
----------- ---------
Loss before income taxes (781,884) (553,348)
Income taxes -- --
----------- ---------
Net loss $ (781,884) $(553,348)
=========== =========
Net loss per share $ (0.58) $ --
Pro forma net loss per share $ -- $ (0.41)
Weighted average shares outstanding 1,337,001 --
Pro forma weighted average shares outstanding -- 1,334,275
The accompanying notes are an integral part of these
condensed financialstatements.
</TABLE>
4
<PAGE> 5
MOBINETIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues $1,118,775 $ 473,772
Cost of revenues 565,911 163,394
----------- ---------
Gross margin 552,864 310,378
----------- ---------
Operating expenses:
Selling, general and administrative 1,580,036 610,626
Research and development 1,322,649 441,350
----------- ---------
Total operating expenses 2,902,685 1,051,976
----------- ---------
Operating loss (2,349,821) (741,598)
Interest expense and other (3,239) (65,066)
Interest income 93,965 806
----------- ---------
Loss before income taxes (2,259,095) (805,858)
Income taxes (2,400) (800)
----------- ---------
Net loss $(2,261,495) $(806,658)
=========== =========
Net loss per share $ (1.69) $ --
Pro forma net loss per share $ -- $ (0.60)
Weighted average shares outstanding 1,336,632 --
Pro forma weighted average shares outstanding -- 1,334,275
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
MOBINETIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Net cash provided by (used in) operating
activities 1,041,748 (832,947)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (153,165) (4,610)
---------- ---------
Net cash used in investing activities (153,165) (4,610)
---------- ---------
Cash flows from financing activities:
Borrowings - notes payable -- 914,000
Issuance of Series B convertible Preferred
Stock 1,634,469 --
Series B Preferred Stock issuance costs (281,950) --
Proceeds from sale of common stock 109 --
---------- ---------
Net cash provided by financing
activities 1,352,628 914,000
----------- ---------
Net increase in cash 2,241,211 76,443
Cash at beginning of period 2,438,368 76,814
----------- ---------
Cash at end of period $ 4,679,579 $ 153,257
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 2,400 $ 800
Cash paid for interest $ 3,239 --
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
6
<PAGE> 7
MOBINETIX SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
BASIS OF PRESENTATION
The financial information included herein for the three-month and nine-month
periods ended March 31, 1997 and March 31, 1996 is unaudited; however, such
information reflects all adjustments consisting only of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods.
As described in the Registrant's Form 10-KSB for the year ended June 30, 1996,
the Registrant in its present form is the result of an acquisition agreement
between PenUltimate, Inc. and PenWare, Inc. For accounting purposes, the
acquisition, which was effective June 10, 1996, was treated as a reverse
acquisition. The historical operations of PenWare, Inc. prior to the reverse
acquisition have been presented as the results of operations for the combined
companies.
On August 26, 1996, PenUltimate changed its corporate name. The name of the
Registrant is now MobiNetix Systems, Inc. ("MobiNetix," or the "Company.")
The interim consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Form 10-KSB of
MobiNetix for the year ended June 30, 1996.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NET LOSS PER SHARE
Due to the significant change in the Company's capital structure that occurred
in connection with the reverse acquisition of PenUltimate, Inc. by PenWare,
Inc., in June 1996, pro forma net loss per share for fiscal 1996 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.
Net loss per common and common equivalent share for fiscal 1997 is based on
the weighted average common shares outstanding and dilutive common equivalent
shares. Common equivalent shares result from the assumed exercise of outstanding
stock options. There was no dilutive effect from common equivalent shares for
the periods presented.
7
<PAGE> 8
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which simplifies the standards for computing earnings per share previously found
in Accounting Principles Board Opinion (ABPO) No. 15. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS No. 128 also requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires a reconciliation.
Diluted earnings per share is computed similarly to fully diluted earnings per
share pursuant to ABPO No. 15. SFAS No. 128 must be adopted for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. SFAS No. 128 requires restatement
of all prior-period earnings per share data presented. For the three months
ended March 31, 1997, basic and diluted loss per share would be equivalent to
the loss per share presented in the accompanying condensed consolidated
statement of operations.
INVENTORIES
Classification of inventories is as follows:
Mar. 31,
1996
-------
Finished goods $ 47,955
Work in process 23,655
Raw materials 327,446
-------
Total $ 399,056
=======
PREFERRED STOCK
In October 1996, the Company effected reverse stock splits of 1:2 and 1:4 for
the Series B and Series C Preferred Stock, respectively. The financial
statements have been adjusted to reflect the splits.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements of MobiNetix Systems, Inc.
and its wholly owned subsidiary PenWare, Inc., including the notes thereto (see
Part I, Item 1). This analysis contains certain forward-looking statements which
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected.
BACKGROUND
MobiNetix specializes in interactive transaction systems. The Company develops
and markets a line of PenWare(R) brand transaction terminals with integrated
signature capture capabilities to the retail, hospitality, financial services,
insurance and identification-security industries. Sales of hardware devices,
such as the PenWare 100 signature capture pad, commenced in the quarter ended
March 31, 1996; revenues in prior periods consisted of software consulting and
royalty revenues, mainly from manufacturers of personal digital assistants
(PDAs).
RESULTS OF OPERATIONS (THREE MONTHS ENDED MARCH 1997 COMPARED TO THREE MONTHS
ENDED MARCH 1996)
Higher sales from PDA software development were the main reason for the 74%
overall increase in revenues over this period. The Company had no such revenues
in the third quarter of fiscal 1996. Sales of hardware devices comprise an
increasing majority of the Company's revenues.
Cost of sales increased by 90% from the third quarter of fiscal 1996 to the same
quarter of fiscal 1997. In addition to the costs associated with higher software
revenues, the Company experienced increased product costs as a result of changes
in hardware product mix. In fiscal 1997, the Company launched new transaction
terminals, including the PenWare 3000. Hardware revenues in the third quarter of
fiscal 1996 were derived from more mature terminal products, which had
relatively high margins.
Selling, general and administrative expenses increased by 30% from 1996 to 1997.
The growth is largely the result of higher personnel expenses to support
business growth, including targeted new hires in such areas as field sales,
operations and finance. The Company also increased its sales and marketing
efforts, including travel and trade shows, and public relations.
The 90% percent year-to-year increase in research and development expense is
also largely attributable to personnel, specifically key engineering talent.
Expenses for consulting, materials and non-recurring engineering activities also
increased from the third quarter of fiscal 1996 to the third quarter of 1997 as
part of the Company's hardware development and design efforts.
The increase in interest income is the result of returns on invested proceeds
from the Company's private placements of preferred stock in May, June and July
1996. These proceeds are invested in money market instruments.
9
<PAGE> 10
Interest and other expense declined by $61,827 from fiscal 1996 to fiscal 1997,
due to the conversion of debt. In June 1996, the Company converted a $1 million
promissory note to preferred stock. Borrowings as of March 31, 1996 also
included an additional $800,000 in notes payable, which was repaid prior to June
1996. The Company had no borrowings during the third quarter of fiscal 1997.
RESULTS OF OPERATIONS (NINE MONTHS ENDED MARCH 1997 COMPARED TO NINE MONTHS
ENDED MARCH 1996)
Sales of interactive transaction terminals, which were not part of the Company's
product portfolio during the first half of fiscal 1996, were the major reason
for the 136% increase in nine-month revenues.
Changes in costs and expenses from the first nine months of fiscal 1996 to the
first nine months of fiscal 1997 result from essentially the same factors and
trends as those outlined above for the three-month comparison period. For the
nine-month comparison periods, selling, general and administrative expenses and
research and development expenses increased by 159% and 200%, respectively.
CASH AND SOURCES OF LIQUIDITY
The Company financed operations and operating expenditures during the first nine
months of fiscal 1997 primarily with proceeds from the private sale of preferred
stock in May, June and July 1996.
Financing activities, consisting mainly of the sale of preferred stock,
generated $1,352,628 in cash during the first nine months of fiscal 1997. The
Company's operating activities provided $1,041,748 in cash. A $4 million
contract prepayment in March 1997 from a major customer offset higher operating
expenses and working capital requirements, particularly for inventory.
Investing activities during the first nine months of fiscal 1997 consisted
mainly of expenditures for leasehold improvements at the Company's facility in
Sunnyvale, California; manufacturing and engineering test equipment; and a new
financial software system.
As of March 31, 1997, the Company's principal source of liquidity consisted of
cash of $4.7 million. The Company had no long- or short-term debt and no
significant capital commitments other than those under capital leases.
OUTLOOK
The Company's current forecasts indicate that existing cash resources are
sufficient to support operations into the second quarter of fiscal 1998. Working
capital requirements are expected to continue to grow significantly as the
Company ramps up production and sales volumes of signature transaction devices.
Management is in final negotiations for a $3 million bank line of credit and is
investigating additional sales of equity or debt financing, but there is no
assurance that additional equity or debt funding will be available.
MobiNetix believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has not yet
achieved profitability 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 margins in any
particular quarter.
The Company signed a subcontract with a supplier of terminal devices and
received a $3.8 million prepayment in the quarter ended March 31, 1997. The
funds are being used to help finance operations, including significant
commitments for inventory, and have been recorded as deferred revenue; revenue
recognition in future periods will depend on the Company's ability to perform
under the contract.
10
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31,
1997.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MOBINETIX SYSTEMS, INC.
Date: May 9, 1997 By: /s/ DAVID M. LICURSE, SR.
-----------------------------
David M. Licurse, Sr.
Chief Financial Officer and
Vice President of Operations
(principal accounting officer)
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
No. Description
------- ----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,679,579
<SECURITIES> 0
<RECEIVABLES> 347,161
<ALLOWANCES> 0
<INVENTORY> 399,056
<CURRENT-ASSETS> 5,513,983
<PP&E> 388,598
<DEPRECIATION> 169,878
<TOTAL-ASSETS> 5,732,703
<CURRENT-LIABILITIES> 4,404,011
<BONDS> 0
0
922
<COMMON> 1,337
<OTHER-SE> 1,323,090
<TOTAL-LIABILITY-AND-EQUITY> 5,732,703
<SALES> 1,118,775
<TOTAL-REVENUES> 1,118,775
<CGS> 565,911
<TOTAL-COSTS> 565,911
<OTHER-EXPENSES> 1,322,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,239
<INCOME-PRETAX> (2,259,095)
<INCOME-TAX> 2,400
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,261,495)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> 0
</TABLE>
