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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 SEPTEMBER 30, 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.
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(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
September 30, 1997: 1,343,656
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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MOBINETIX SYSTEMS, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet at September 30, 1997 3
Consolidated Condensed Statements of Operations for the Three
Months Ended September 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MOBINETIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
as of September 30, 1997
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash and equivalents $ 1,419,750
Accounts receivable, net 630,440
Inventories 1,835,013
Prepaid expenses and other current assets 97,627
-----------
Total current assets 3,982,830
-----------
Property and equipment 483,810
Less: Accumulated depreciation (236,362)
-----------
Property and equipment, net 247,448
-----------
Total assets $ 4,230,278
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 968,426
Accrued liabilities and other 429,458
Deferred revenues 3,036,629
-----------
Total current liabilities 4,434,513
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Stockholders' deficit:
Series B convertible preferred stock 892
Series C convertible preferred stock 28
Common stock 1,344
Additional paid-in capital 7,339,132
Accumulated deficit (7,545,631)
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Total stockholders' deficit (204,235)
-----------
Total liabilities and stockholders' deficit $ 4,230,278
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $ 1,618,282 $ 251,074
Cost of revenues 961,284 143,528
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Gross margin 656,998 107,546
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Operating expenses:
Selling, general and administrative 672,219 468,771
Research and development 671,054 380,808
----------- ---------
Total operating expenses 1,343,273 849,579
----------- ---------
Operating loss (686,275) (742,033)
Interest expense and other (265) (988)
Interest income 30,695 41,841
----------- ---------
Loss before income taxes (655,845) (701,180)
Income taxes -- (800)
----------- ---------
Net loss $ (655,845) $ (701,980)
=========== =========
Net loss per share $ (0.49) $ (0.53)
Weighted average shares outstanding 1,341,051 1,336,358
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash used in operating activities $(1,980,534) $ (711,518)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (21,205) (77,336)
----------- ---------
Net cash used in investing activities (21,205) (77,336)
----------- ---------
Cash flows from financing activities:
Issuance of Series B Preferred Stock, net -- 1,377,519
Proceeds from exercise of employee stock
options -- 108
----------- ---------
Net cash provided by financing
activities -- 1,377,627
----------- ---------
Net increase (decrease) in cash (2,001,739) 588,773
Cash at beginning of period 3,421,489 2,438,368
----------- ---------
Cash at end of period $ 1,419,750 $ 3,027,141
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ 800
Cash paid for interest $ 265 $ 988
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial information included herein for the three month periods ended
September 30, 1997 and 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.
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 Systems, Inc. (the "Company") for the year ended June 30, 1997.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. NET LOSS PER SHARE
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share,"
simplifies the standards for computing earnings per share previously found in
ABP No. 15. SFAS 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes dilution. SFAS
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 a reconciliation of the two earnings bases. Diluted earnings per
share is computed similarly to fully diluted earnings per share pursuant to ABP
No. 15. SFAS 128 must be adopted for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. SFAS 128 requires restatement of all prior-period earnings per
share data presented. For the three month periods ended September 30, 1997 and
1996, basic and diluted loss per share would be equivalent to the loss per share
presented in the accompanying condensed consolidated statements of operations.
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3. RECLASSIFICATIONS
Certain amounts for fiscal 1997 have been reclassified to conform to the current
presentation.
4. INVENTORIES
Classification of inventories is as follows:
Sept. 30,
1997
-------
Finished goods $ 51,380
Work in process 805,571
Raw materials 978,062
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Total $1,835,013
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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 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.
RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 1996)
The 545% increase in revenues from the first quarter of fiscal 1997 (three
months ended September 30, 1996) to the first quarter of fiscal 1998 (three
months ended September 30, 1997) is largely due to increased sales of the
Company's advanced PenWare 3000 transaction terminal, including significant
shipments to IBM Corporation under a U.S. Postal Service subcontract. Higher
sales of signature capture pad components to another major customer also
contributed to the overall increase in revenues.
Cost of sales increased by 570% over this period, reflecting higher unit
volumes, a decrease in the proportion of software solutions in the product mix,
and startup costs associated with the Company's production ramp.
Selling, general and administrative expenses increased by 43% from fiscal 1997
to fiscal 1998. The increase is largely the result of higher personnel expenses
to support business growth, including targeted new hires in such areas as field
sales and purchasing and production control. Other areas of increased spending
included sales-related travel and public relations.
The 76% percent year-to-year increase in research and development expense is
also largely attributable to personnel. The Company expanded its engineering
staff during fiscal 1998 to enable the design, development and production ramp
of interactive transaction terminal products. Expenses for consulting and
engineering tools and materials also increased from fiscal 1997 to 1998 as part
of the Company's hardware development and design efforts.
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CASH AND SOURCES OF LIQUIDITY
During the first quarter of fiscal 1997, financing activities, consisting mainly
of private placements of preferred stock, generated $1,377,627 in cash. The
Company financed operations and operating expenditures during the first quarter
of fiscal 1998 primarily with the proceeds from these private placements.
The Company's operating activities used $1,980,534 in cash during the first
quarter of fiscal 1998, compared to $711,518 during the first quarter of fiscal
1997. The increased cash consumption is due largely to higher operating expenses
and working capital requirements, particularly for inventory, offset in part by
a customer prepayment of $3.8 million in February 1997.
As of September 30, 1997, the Company's principal sources of liquidity include
cash of $1.4 million and a line of credit of up to $3.0 million. The Company had
no long- or short-term debt and no significant capital commitments other than
those under capital leases.
OUTLOOK
The Company is currently pursuing a debt transaction which, if completed and in
conjunction with existing cash and other financing resources, would provide
adequate financing for 1998. The Company expects to raise approximately $2
million from the issuance of subordinated notes. The Company has received a
commitment letter from the placement agent/purchaser of the notes and expects to
complete this transaction no later than the end of calendar 1997. Working
capital requirements for inventory and receivables are expected to continue to
grow in fiscal 1998 as the Company ramps up production and sales volumes of
interactive terminal devices. Management has also arranged a $3 million bank
line of credit which is subject to borrowing base formulas and other conditions.
Additional sales of equity are being considered, but there is no assurance that
additional funding will be available or if available, that it will be on terms
favorable to the Company.
In October 1997, the Company borrowed $640,000 under its line of credit
agreement. The Company also granted 150,000 options to purchase common stock at
an exercise price of $3.50 per share. The optionee, a consultant to the
Company's Board of Directors, exercised these options at an aggregate price of
$525,000. The optionee also exercised 25,000 previously granted options at an
aggregate price of $34,375. The Company plans to use these additional funds for
working capital.
In connection with the Company's contract with IBM, MobiNetix received a $3.8
million prepayment in February 1997. The funds are being used to help finance
operations, including significant commitments for inventory, and have been
recorded as deferred revenue; recognition in future periods will depend on the
Company's ability to perform under the contract.
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. Price and product competition, design acceptance by customers,
financing constraints, the ability to manufacture new products in sufficient
volume, and general economic conditions, together with other risk factors, could
lead to adverse fluctuations in revenues and profitability in any particular
quarter.
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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
None.
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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: November 13, 1997 By: /s/ DAVID M. LICURSE, SR.
------------------------------------
David M. Licurse, Sr.
Chief Financial Officer and
Vice President of Operations
(principal accounting officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Unaudited Financial Statements for the Period Ended September 30, 1997
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,419,750
<SECURITIES> 0
<RECEIVABLES> 630,440
<ALLOWANCES> 0
<INVENTORY> 1,835,013
<CURRENT-ASSETS> 97,627
<PP&E> 483,810
<DEPRECIATION> 236,362
<TOTAL-ASSETS> 4,230,278
<CURRENT-LIABILITIES> 4,434,513
<BONDS> 0
0
920
<COMMON> 1,344
<OTHER-SE> 206,499
<TOTAL-LIABILITY-AND-EQUITY> 4,230,278
<SALES> 1,618,282
<TOTAL-REVENUES> 1,618,282
<CGS> 961,284
<TOTAL-COSTS> 961,284
<OTHER-EXPENSES> 671,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> (655,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (655,845)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> 0
</TABLE>
