<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 (fee required)
For the fiscal year ended June 30, 1997
[ ] 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
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: $2,007,431
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 23, 1997 was approximately $860,000. As of September 23,
1997, there were approximately 1,340,000 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 4, 1997
(incorporated in Part III of this Form 10-K).
Transitional Small Business Disclosure Format [ ] Yes [x] No
<PAGE> 2
PART I
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT MOBINETIX'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY
MOBINETIX'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES
INCLUDE THOSE NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
PARTICULAR ATTENTION SHOULD BE PAID TO THE CAUTIONARY LANGUAGE IN THE SECTIONS
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." UNLESS REQUIRED BY LAW, THE COMPANY TAKES NO OBLIGATION
TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY
FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
PARTICULARLY THE QUARTERLY REPORTS ON FORM 10-Q AND ANY CURRENT REPORTS ON FORM
8-K.
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
The Company in its present form is the result of a fiscal 1996 acquisition
agreement between PenUltimate, Inc. ("PenUltimate") and PenWare Inc.
("PenWare"). The former operations of PenUltimate, which had been engaged in
developing and marketing application software products for sales and other
mobile professionals, were discontinued in January 1996. In June 1996, common
and preferred stockholders of PenWare exchanged their holdings in PenWare for
shares of PenUltimate common stock, and PenWare became a wholly owned
subsidiary of PenUltimate. In August 1996, PenUltimate changed its name to
MobiNetix Systems, Inc. ("MobiNetix").
PenWare was incorporated in 1983 and developed and sold several software
products, including the PenCell(R) spreadsheet for personal digital assistants
("PDAs"). In 1995, PenWare acquired the rights to certain technology from
Inforite Corporation ("Inforite") and 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 state-of-the-art interactive
transaction terminals and consumer-friendly applications to the retail,
hospitality, financial services,insurance and identification/security
industries.
Current products include the PenWare 100 signature transaction terminal and the
PenWare 3000 universal transaction terminal which can be used for signature
capture, pin input, advertising, customer surveys and applications.
<PAGE> 3
The PenWare 3000 includes an integrated magnetic stripe reader, a large backlit
data entry and display screen, and an open-platform, expandable design. Other
products include recently-released PenWare 1000 series signature transaction
terminals. Software products include the PenCell spreadsheet for various PDA
platforms.
CUSTOMER BASE. During fiscal 1995, PenWare derived over 85% of its revenues
from four 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 and 1997, due in large part to an increased
proportion of hardware items in the product mix, there was significantly less
dependence on these customers.
MARKETS AND STRATEGIES. During fiscal 1996 and 1997, PenWare provided
point-of-transaction systems and electronic signature capture capability to
companies seeking methods to eliminate paper based systems. PenWare has also
worked closely with a number of established System Integrators, Value Added
Resellers ("VARs") and Original Equipment Manufacturers ("OEMs").
Moving forward, the Company seeks to broaden its electronic signature capture
and paperless transactions solutions to participate in the growth and evolution
of the electronic commerce market. The Company currently considers itself a
solutions provider capable of providing available technology through
proprietary configurations to vertical markets. These markets are
characterized by numerous large-company customers who have an existing need to
improve cost efficiency, productivity and accuracy in the basic operating
functions of their businesses.
The Company possesses two primary core competencies: transaction devices and
expertise in the development of application software. The Company believes it
is well positioned to leverage its current strengths in software and systems
design to address and penetrate existing and evolving transaction markets.
The Company's primary strategy is to exploit its historical investment and
expertise in application software and cost effective hardware design through a
five point strategy focused on: (i) increasing sales and marketing activities
that target major 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
universal transaction devices to the growing market in point of sale,
identification/security, finance/banking, health care and electronic commerce.
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 universal
transaction products participate in the Card Authorization Terminal ("CAT")
market, and the Company's PenCell software is designed for the PDA market.
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
<PAGE> 4
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 and, in certain cases, exclusive
licensing agreements. 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 certain 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, 1997, the Company, through PenWare, had 3 part-time
and 42 full-time employees, including 9 in sales and marketing; 24 in research
and development; 9 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 $908,903 and $1,946,078 on research
and development in fiscal 1996 and 1997, respectively.
ITEM 2. PROPERTIES
The Company's operations, including engineering, administration and other
internal functions, are based in a 7,800 square foot leased facility in
Sunnyvale, California. The Company's lease expires in June 1999. Due to its
rapid growth during fiscal 1997, the Company is evaluating alternatives for
additional space for operations during fiscal 1998.
The Company outsources its manufacturing and repair work to independent
companies in Fremont and Sunnyvale, California. A portion of inventory costs
is governed by a manufacturing agreement assumed from Inforite, and the Fremont
company has a right of first refusal for PenWare manufacturing. The Company
conducts competitive bidding for its current and future outsourcing needs.
The Company does not currently own any real estate.
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any material legal proceedings during the
periods covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 6
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock and Common Stock Purchase Warrants of the Company's
predecessor, PenUltimate, traded on the OTC Bulletin Board under the symbols
PNLT and PNLTW, respectively, from August 1995 to January 1997. In January
1997, the Company's stock symbol was changed to NETX. The Common Stock
continues to be traded on the OTC Bulletin Board under the new symbol.
The following table sets forth split adjusted market prices for the Company's
Common Stock and Common Stock Purchase Warrants. The table reflects the
two-year high and low bid prices for these securities as reported by the Nasdaq
Small Cap Market through August 2, 1995 and on the OTC Bulletin Board for
subsequent periods.
<TABLE>
<CAPTION>
Common Stock
Year Period Bid prices ($)
High Low
<S> <C> <C> <C>
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
1997 First Quarter 8.00 4.00
Second Quarter 5.50 1.25
Third Quarter 7.25 2.25
Fourth Quarter 5.75 3.63
</TABLE>
<TABLE>
<CAPTION>
Warrants
Year Period Bid prices
High Low
<S> <C> <C> <C>
1996 First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
1997 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 23, 1997
were $3.25 and $3.63, respectively. The Company's Common Stock was held by
approximately 350 stockholders of record as of June 30, 1997.
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.
<PAGE> 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following 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. The discussion contains
certain forward-looking statements which 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 fiscal 1997 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 capture and interactive transaction
devices, which were not part of the Company's product portfolio during the
first half of fiscal 1996, were the major factor in the overall 151% increase
in net revenues from 1996 to 1997. Sales of such devices now represent an
increasing majority of the Company's overall revenues.
Gross margin for fiscal 1997 was 49%, compared to 56% in fiscal 1996. The
decrease in margin percentage is primarily attributable to the higher proportion
of hardware devices in the product mix and costs associated with ramping volume
production of new products.
Research and development expenses rose by 114% from fiscal 1996 to fiscal 1997.
This increase is primarily attributable to personnel, particularly key
engineering talent. Expenses for technology consulting, materials and
non-recurring engineering activities also rose significantly in connection with
the Company's terminal development and design efforts. Research and
development expenses are generally charged to operations as incurred. In
accordance with SFAS 86, the Company capitalizes software development costs
when technological feasibility has been established (see Note 1 to the
Consolidated Financial Statements). Costs eligible for capitalization during
1996 and 1997 were insignificant, and the Company charged all software
development costs to research and development expense.
Selling, general and administrative expense grew by 113% from fiscal 1996 to
fiscal 1997. The increase resulted largely from higher personnel expenses
incurred to support business growth, including targeted hires in such critical
areas as executive management, field sales, finance and manufacturing
operations. The Company also increased its spending on sales and marketing
efforts, including trade show participation and public relations activities.
Interest and other income was significantly higher in fiscal 1997 compared to
fiscal 1996, due mainly to investment returns on the proceeds from private
placements completed in late 1996 and early 1997. Interest expense declined
sharply in fiscal 1997 compared to 1996. In connection with its refinancing in
June 1996, the Company repaid or converted into preferred stock all of its
outstanding loans, including $140,000 in accrued interest (see "Liquidity and
capital resources," below). The Company had no borrowings during fiscal 1997;
interest expense during the year is related principally to capital leases.
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES. During fiscal 1996 and 1997, the Company
financed its operations and capital expenditures primarily from proceeds from
the private placements of Preferred Stock and, in 1996, from certain notes
payable.
The Company sold 894,358 shares of Preferred Stock in a series of private
placements in late fiscal 1996 and early fiscal 1997, receiving net proceeds of
approximately $4.1 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 28,125 shares of
the Company's Series C Preferred Stock, which is convertible into 1,125,000
shares of Common Stock.
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
remainder was converted into shares of the Company's Series B convertible
Preferred Stock.
At June 30, 1997, the Company's principal sources of liquidity include cash of
$3.4 million and a line of credit. At June 30, 1997, the Company had no long- or
short-term debt and no significant capital commitments other than those under
capital leases.
During the third quarter of fiscal 1996, the Company borrowed $469,000 under an
unsecured line of credit guaranteed by a major stockholder. This loan, together
with accrued interest, was repaid in full in June 1996 in connection with the
private placements.
The Company's financing activities generated $1.4 million and $3.9 million in
cash during fiscal 1997 and 1996, respectively, mainly from the sale of
preferred stock. Operating activities consumed $145,090 in cash during fiscal
1997, compared to $1.4 million in 1996. A contract prepayment from a major
customer offset the Company's growing working capital requirements and is being
accounted for as deferred revenue.
OUTLOOK. The Company is currently pursuing a debt transaction which, upon
completion and in conjunction with existing cash and other financing resources,
would provide adequate financing for 1998. The Company expects to raise
approximately $3 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 November 1997. Working
capital requirements for inventory and receivables, both of which were higher in
1997 than in 1996 due to the Company's transition toward hardware sales and
development, are expected to grow further in fiscal 1998 as the Company
continues to ramp 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.
The Company signed a subcontract with a supplier of terminal devices and
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. 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.
<PAGE> 9
ITEM 7. FINANCIAL STATEMENTS
The financial statements and schedules required by Item 7 are set forth in the
index on page F-1.
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
F1
MOBINETIX SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
<PAGE> 11
F2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of MobiNetix Systems, Inc.:
We have audited the accompanying consolidated balance sheet of MobiNetix
Systems, Inc. (a Delaware corporation) and subsidiary as of June 30, 1997, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the two years ended June 30, 1997 and 1996. 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, 1997, and the results of its operations and its cash
flows for the two years ended June 30, 1997 and 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
August 8, 1997
<PAGE> 12
F3
MOBINETIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
as of June 30, 1997
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash and equivalents $ 3,421,489
Accounts receivable, less allowance for
doubtful accounts of $58,889 296,934
Inventories 1,357,857
Prepaid expenses and other current assets 116,106
-----------
Total current assets 5,192,386
-----------
Property and equipment:
Computer equipment and software 320,151
Furniture and equipment 142,454
-----------
Total property and equipment 462,605
Less: Accumulated depreciation (201,367)
-----------
Property and equipment, net 261,238
-----------
Total assets $ 5,453,624
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 904,864
Accrued liabilities and other 404,890
Deferred revenues 3,692,260
-----------
Total current liabilities 5,002,014
-----------
Commitments (Note 9) --
Stockholders' equity:
Series B convertible preferred stock,
par value $0.001, 882,353 shares authorized;
liquidation preference of $7,500,000;
894,358 shares issued and outstanding 894
Series C convertible preferred stock,
par value $0.001, 28,125 shares authorized;
liquidation preference of $2,250,000;
28,125 shares issued and outstanding 28
Common stock, par value $.001; 20,000,000
shares authorized; 1,339,750 shares
issued and outstanding 1,340
Additional paid-in capital 7,339,134
Accumulated deficit (6,889,786)
-----------
Total stockholders' equity 451,610
-----------
Total liabilities and stockholders' equity $ 5,453,624
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 13
F4
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $ 2,007,431 $ 799,344
Cost of revenues 1,029,390 349,345
----------- -----------
Gross margin 978,041 449,999
----------- -----------
Operating expenses:
Selling, general and administrative 2,312,289 1,086,661
Research and development 1,946,078 908,903
----------- -----------
Total operating expenses 4,258,367 1,995,564
----------- -----------
Operating loss (3,280,326) (1,545,565)
Interest expense and other (4,062) (110,742)
Interest income 148,799 7,902
----------- -----------
Income before income taxes (3,135,589) (1,648,405)
Income taxes (2,400) (800)
----------- -----------
Net loss $(3,137,989) $(1,649,205)
=========== ===========
Net loss per share $ (2.35)
Pro forma net loss per share $ (1.23)
Weighted average shares outstanding 1,337,417
Pro forma weighted average shares outstanding 1,334,275
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 14
F5
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the fiscal years ended June 30, 1997 and 1996
<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, 1995 -- $ -- 12,500 $ 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 -- -- 15,625 (989,241) -- --
Shares issued to management -- -- -- -- 1,085,809 1,086
Shares issued to PenUltimate
stockholders -- -- -- -- 250,000 250
Shares issued by private placement 431,224 431 -- -- -- --
Shares issued through conversion
of bridge loans 196,287 196 -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balances as of June 30, 1996 627,511 627 28,125 28 1,335,809 1,336
Shares issued by private placement 266,847 267 -- -- -- --
Options exercised -- -- -- -- 3,941 4
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balances as of June 30, 1997 894,358 $ 894 28,125 $ 28 1,339,750 $ 1,340
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Additional
Paid in
Capital
<S> <C>
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 2,156,068
Shares issued to management --
Shares issued to PenUltimate
stockholders 23,563
Shares issued by private placement 2,724,197
Shares issued through conversion
of bridge loans 1,067,604
Net loss --
----------
Balances as of June 30, 1996 5,984,022
Shares issued by private placement 1,352,252
Options exercised 2,860
Net loss --
----------
Balances as of June 30, 1997 $7,339,134
==========
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
Accumulated Total
Deficit Stockholders'
Equity (deficit)
<S> <C> <C>
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
stockholders -- 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
Shares issued by private placement -- 1,352,519
Options exercised -- 2,864
Net loss (3,137,989) (3,137,989)
----------- -----------
Balances as of June 30, 1997 $(6,889,786) $ 451,610
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 17
F6
MOBINETIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,137,989) $(1,649,205)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 103,441 9,960
Provision for bad debts 38,576 20,313
Changes in operating assets and liabilities:
Accounts receivable (200,748) (153,031)
Inventories (1,202,349) (130,508)
Prepaid expenses and other current assets (15,420) 79,681
Other assets -- 5,382
Accounts payable 671,617 222,102
Accrued liabilities 113,711 127,168
Deferred revenues 3,484,071 32,276
----------- -----------
Net cash used in operating activities (145,090) (1,435,862)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (227,172) (68,097)
----------- -----------
Net cash used in investing activities (227,172) (68,097)
----------- -----------
Cash flows from financing activities:
Borrowings - credit line -- 469,000
Repayments - credit line -- (469,000)
Borrowings - notes payable -- 1,470,000
Repayments - notes payable -- (332,200)
Issuance of Series B Preferred Stock, net 1,352,519 2,724,628
Proceeds from issuance of common stock 2,864 3,085
----------- -----------
Net cash provided by financing activities 1,355,383 3,865,513
----------- -----------
Net increase in cash 983,121 2,361,554
Cash and equivalents at beginning of year 2,438,368 76,814
----------- -----------
Cash and equivalents at end of year $ 3,421,489 $ 2,438,368
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,200 $ 800
Cash paid for interest $ 4,062 $ 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> 18
F7
MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
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
the retail, hospitality, financial services,insurance and
identification/security industries, principally in the United States. The
Company is subject to a number of risks common to companies at a similar stage
of development, including the need to obtain adequate financing, competition
from firms that have greater financial resources than the Company, reliance on
contract manufacturers, a history of operating losses and dependence on key
personnel.
The Company in its present form is the result of an acquisition agreement
between PenUltimate, Inc. ("PenUltimate"), and PenWare Inc. ("PenWare"). In
June 1996, common and preferred stockholders of PenWare exchanged their
holdings in PenWare for shares of PenUltimate common stock, and PenWare became
a wholly owned subsidiary of PenUltimate. In August 1996, PenUltimate changed
its name to MobiNetix Systems, Inc.
After giving effect to a reverse stock split and exchange, wherein existing
PenUltimate stockholders received 250,000 common shares for their outstanding
16,740,934 common shares, PenUltimate issued to the PenWare stockholders
1,084,275 shares of common stock and 28,125 shares of Series C preferred stock
in consideration of the transaction. After completion of the transaction, the
former stockholders 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.
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 fiscal 1996.
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
<PAGE> 19
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, payment
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
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, 1997 and 1996, 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
<PAGE> 20
Inventory is carried at the lower of cost, as determined on a first-in,
first-out basis, or market. At June 30, 1997, the Company's inventories were
as follows:
<TABLE>
<S> <C>
Raw materials $1,132,795
Work in process 40,537
Finished goods 184,525
----------
Total $1,357,857
==========
</TABLE>
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.
NET LOSS PER SHARE
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.
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
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 fiscal 1996.
RECLASSIFICATIONS
Certain amounts for fiscal years prior to 1997 have been reclassified to
conform to the current presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
No adjustments were required pursuant to the Company's fiscal 1997 adoption of
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS 121 requires that impairment losses
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets carrying amount. SFAS 121
also addresses the accounting for long-lived assets to be disposed of.
SFAS 123, "Accounting for Stock-Based Compensation," which also became
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 (ABPO) No. 25, "Accounting
for Stock Issued to Employees" with disclosures of pro forma net income and
earnings per share under the new method. The Company has elected to continue
to measure compensation cost for its employee stock compensation plans using
the method of accounting prescribed by APBO No. 25 while providing the
additional disclosure requirements set forth in SFAS 123.
In February 1997, the Financial Accounting Standards Board (FASB) issued
<PAGE> 21
SFAS 128, Earnings Per Share, which simplifies the standards for computing
earnings per share previously found in ABPO 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 requires a reconciliation. Diluted
earnings per share is computed similarly to fully diluted earnings per share
pursuant to ABPO 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 years ended June 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.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income," which
becomes effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 is not expected to impact the Company's consolidated
financial position or results of operations.
Also in June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" which becomes effective for fiscal years
beginning after December 15, 1997. The Company has yet to determine the impact,
if any, of adoption of this new pronouncement.
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.
Significant components of the Company's deferred tax assets and liabilities are
as follows at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforward $ 2,755,318 $ 1,402,464
Tax credit carryforwards 13,795 13,795
Deferred revenue -- 85,462
Accrued expenses 25,497 14,214
------------ ------------
Gross deferred tax asset 2,794,610 1,515,935
Deferred tax liability:
Work in process - inventory (16,620) --
Deferred tax valuation allowance (2,777,990) (1,515,935)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
A valuation allowance has been established against the deferred tax asset
<PAGE> 22
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 40, 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 40 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 894,358 shares of Series B convertible Preferred
Stock in a series of private placements and bridge loan conversions during
fiscal 1996 and 1997. Each share of Series B Preferred Stock is convertible to
Common Stock at a rate of 1:2, 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.
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.
5. COMMON STOCK
In June 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, 1997, 338,836 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, 1997.
<PAGE> 23
6. NOTES PAYABLE
In fiscal 1994, the Company entered into an unsecured borrowing arrangement, as
amended, with a stockholder 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 stockholder. In June 1996, the balance of
the note and related accrued interest totaling $1,166,827 were converted into
15,625 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 stockholder 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.
In June 1997, MobiNetix entered into a line of credit agreement with a bank
under which the Company may borrow up to $3 million at a rate of prime plus
1.5%. The line of credit expires July 1, 1998 and is collateralized by inventory
and receivables. The credit agreement requires the Company to meet certain
financial ratios and covenants pertaining to net worth and liquidity and imposes
restrictions in such matters as changes in control. The Company granted to the
lender 46,154 warrants exercisable into Common Stock at a price of $6.50 through
April 2002. The Company had no borrowings under this credit facility during the
fiscal year ended June 30, 1997.
7. EMPLOYEE STOCK OPTIONS
Under the terms of the Company's 1992 and 1996 Stock Option Plans ("Plans"),
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. Options granted under the 1992 Plan generally vest
12.5% after six months with the remaining options vesting monthly on a pro rata
basis over the following 42 months. Options granted under the 1996 Plan
generally vest 25% after one year, with the remaining options vesting monthly
on a pro rata basis over the following 36 months. Options generally expire
after 10 years under both Plans. Activity relating to the plans is as follows:
<TABLE>
<CAPTION>
Shares Outstanding options
available Number Average Exercise
for grant of shares price
--------- --------- ----------------
<S> <C> <C> <C>
Balances, June 30, 1995 73,539 14,975 $0.200
Options granted (31,169) 31,169 $0.004
Options cancelled 12,500 (12,500) $0.200
---------- ----------
Balances, June 30, 1996 54,870 33,644 $0.055
Shares authorized 1,500,000 --
Options granted (848,400) 848,400 $1.769
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Options exercised -- (3,941) $0.726
Options cancelled 48,832 (48,293) $1,952
---------- ----------
Balances, June 30, 1997 755,302 829,810 $1.694
========== ==========
</TABLE>
AS of June 30, 1997, 194,414 options were exercisable at prices ranging from
$0.004 to $1.375 per share. All 1992 Plan options were granted by PenWare. In
connection with the reverse acquisition with PenUltimate, the options converted
into options to purchase shares of MobiNetix. All grants during fiscal 1997
were made by MobiNetix under the 1996 Plan.
The following table summarizes additional information with respect to stock
options outstanding as of June 30, 1997:
<PAGE> 25
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------------- --------------------
Range of exercise No. Outstanding Weighted average Weighted average No. exercisable Weighted
prices at 6/30/97 remaining exercise price at 6/30/97 average
contractual exercise price
life (years)
<S> <C> <C> <C> <C> <C>
$0.004 to $0.200 15,410 8.0 $0.1009 6,776 $0.147
$1.375 to $5.750 814,400 9.5 $1.7244 187,638 $1.141
------- -------
$0.004 to $5.75 829,810 9.5 $1.6942 194,414 $1.396
======== ========
</TABLE>
<PAGE> 26
The fair value of the grants has been estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996
------------ ------------
<S> <C> <C>
Risk-free interest rate 6.0% 6.0%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 105% 105%
</TABLE>
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and net loss per share for the
fiscal years ended June 30, 1997 and 1996 would approximate the pro forma
disclosures below:
<TABLE>
<CAPTION>
Year Ended June 30, 1997
------------
As Pro
reported forma
-------- -------
<S> <C> <C>
Net loss $ (3,137,989) $ (3,370,281)
Net loss per share $ (2.35) $ (2.52)
</TABLE>
There would have been no impact on net loss per share for the year ended June
30, 1996.
<PAGE> 27
8. SIGNIFICANT CUSTOMERS.
Customers representing more than 10% of total revenues are summarized below for
fiscal 1997 and 1996:
<TABLE>
<CAPTION>
Percent of revenues
1997 1996
<S> <C> <C>
Company A (Japan) 30% 34%
Company B (U.S.) n/a 12%
Company C (U.S.) 22% n/a
</TABLE>
9. COMMITMENTS
In 1996, the Company entered into a lease for office and operating facilities
in Sunnyvale, California which expires in June 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:
<TABLE>
<S> <C>
1998 $112,620
1999 112,620
2000 7,170
--------
Total $232,410
========
</TABLE>
Rent expense was approximately $106,000 and $90,000 for the years ended
June 30, 1997 and 1996, respectively.
<PAGE> 28
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, 1997, 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, 1997, 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, 1997, 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, 1997, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
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
stockholders of PenWare, Inc.
3.1 Restated Certificate of Incorporation of the Company.
3.2(a) By-laws of the Company.
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.
<PAGE> 29
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(j) Lease agreement for premises located at 500 Oakmead Parkway,
Sunnyvale, California, 94086.
10.17(k) 1996 Stock Option Plan of the Company and related agreements.
16(i) Letter re: change in certifying accountant
27 Financial Data Schedule.
(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.
<PAGE> 30
(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.
(j) Incorporated herein by reference to the Company's Report on Form 10-K dated
September 30, 1996 and filed with the Commission on September 30, 1996.
(k) Incorporated herein by reference to the Company's Report on Form 10-Q dated
February 13, 1997 and filed with the Commission on February 14, 1997.
<PAGE> 31
(2) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE 30, 1997
None.
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 29, 1997 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.
<TABLE>
<S> <C>
Date: September 29, 1997 By: \s\ AZIZ VALLIANI
Aziz Valliani
President, Chief Executive Officer
and Director (principal executive
officer)
Date: September 29, 1997 By: \s\ PAUL DALI
Paul Dali
Chairman of the Board
Date: September 29, 1997 By: __\s\ NAZIM KAREEMI
Nazim Kareemi
Executive Vice President and Director
Date: September 29, 1997 By: __\s\ DAVID M. LICURSE, SR.
David M. Licurse, Sr.
Chief Financial Officer and Vice
President Operations (principal
accounting officer)
Date: September __, 1997 By: __\s\ _____________
Vivian M. Stephenson
Director
Date: September __, 1997 By: __\s\ _____________
William L. Powar
Director
</TABLE>
<PAGE> 32
INDEX TO EXHIBITS
2.1(h) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
stockholders of PenWare, Inc.
3.1 Restated Certificate of Incorporation of the Company.
3.2(a) By-laws of the Company.
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.
<PAGE> 33
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(j) Lease agreement for premises located at 500 Oakmead Parkway,
Sunnyvale, California, 94086.
10.17(k) 1996 Stock Option Plan of the Company and related agreements.
16(i) Letter re: change in certifying accountant
27 Financial Data Schedule.
(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.
<PAGE> 34
(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.
(j) Incorporated herein by reference to the Company's Report on Form 10-K dated
September 30, 1996 and filed with the Commission on September 30, 1996.
(k) Incorporated herein by reference to the Company's Report on Form 10-Q dated
February 13, 1997 and filed with the Commission on February 14, 1997.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
MOBINETIX SYSTEMS, INC.
****
(Incorporated on March 17, 1992 under the name of
PENULTIMATE, INC.)
David M. Licurse hereby certifies that
1. He is the Chief Financial Officer and Vice President of
Operations of MobiNetix Systems, Inc., a Delaware corporation;
2. The Certificate of Incorporation of this corporation, filed with
the Secretary of State of Delaware on March 17, 1992, is hereby amended and
restated in its entirety to read as follows:
"FIRST: The name of the corporation is MobiNetix Systems, Inc, (the
"Corporation").
SECOND: The address of the registered office of the corporation in the
state of Delaware is The Prentice-Hall Corporation System, Inc., 32 Loockerman
Square, Suite L-100, in the City of Dover, County of Kent 19901. The name of its
registered agent at the address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes which the corporation
is authorized to have outstanding is Thirteen Million Seven Hundred Ninety Eight
Thousand One Hundred Twenty Five (13,798,125) shares of which stock Twelve
Million (12,000,000) shares, par value of $.001 each, shall be common stock and
of which One Million Seven Hundred Ninety Eight Thousand One Hundred Twenty Five
(1,798,125) shares, par value of $.001 each, shall be preferred stock. The
rights of the preferred stock shall be as follows:
1. Designation. One series of preferred stock shall be designated
Series C Preferred Stock, $0.001 par value ("Series C Preferred"), one series of
preferred stock shall be designated Series B Preferred Stock, $0.001 par value
("Series B Preferred") and one series of preferred stock shall be designated
Series A Non-Convertible Preferred Stock, $0.001 par value ("Series A
Preferred").
<PAGE> 2
2. Authorized Number. The number of shares constituting the Series
C Preferred shall be Twenty-Eight Thousand One Hundred Twenty Five (28,125)
shares. The number of shares constituting the Series B Preferred shall be One
Million Seven Hundred Thousand (1,700,000) shares. The number of shares
constituting the Series A Preferred shall be Seventy Thousand (70,000) shares.
3. Liquidation Preference.
In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, distributions to the stockholders
of the Corporation shall be made in the following manner:
(a) The holders of the Series C Preferred and Series B Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of the Series A
Preferred or the Common Stock by reason of their ownership thereof, the amount
of $20.00 per share for each share of Series C Preferred then held by them (as
adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to such shares) plus any declared but unpaid dividends on
the Series C Preferred then held by them, and the amount of $8.50 per share for
each share of Series B Preferred then held by them (as adjusted for any
combinations, consolidations, stock distributions or stock dividends with
respect to such shares) plus any declared but unpaid dividends on the Series B
Preferred then held by them. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series C Preferred and
Series B Preferred shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed among
the holders of the Series C Preferred and Series B Preferred in proportion to
full aforesaid preferential amounts to which each such holder is entitled.
(b) After payment to the holders of the Series C Preferred and
Series B Preferred of the amount set forth in subparagraph (a) above, the
holders of the Series A Preferred shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, the amount of $0.01 per share for each share of Series A Preferred then
held by them (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then the entire assets
and funds of the Corporation legally available for distribution pursuant to this
subparagraph (b) shall be distributed among the holders of the Series A
Preferred in proportion to the number of shares of Series A Preferred then held
by them.
(c) After payment to the holders of the Series C Preferred and
Series B Preferred and Series A Preferred of the amounts set forth in
subparagraphs (a) and (b) above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of the Common Stock and the Preferred Stock (other than the
Series A
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<PAGE> 3
Preferred ) in proportion to the number of shares of Common Stock (assuming full
conversion of the Preferred Stock (other than the Series A Preferred ) into
Common Stock) then held by them.
(d) A consolidation or merger of the Corporation with or into
any other corporation or corporations, a reorganization or a sale of all or
substantially all of the assets of the Corporation shall be deemed a
liquidation, dissolution or winding up within the meaning of this paragraph if
more than fifty percent (50%) of the surviving entity is not owned by persons
who were holders of capital stock or securities convertible into capital stock
of the Corporation immediately prior to such merger, consolidation,
reorganization or sale.
(e) To the extent applicable to the Corporation, as authorized
by Section 402.5(c) of the California Corporations Code, the provisions of
Sections 502 and 503 of the California Corporations Code shall not apply with
respect to distributions made by the Corporation in connection with the
repurchase of shares of Common Stock issued to or held by employees, directors
or consultants of or to the Corporation or any of its subsidiaries upon
termination of their employment or services pursuant to agreements providing for
the right of such repurchase between the Corporation and such persons.
4. Voting Rights. Except as otherwise provided by law, the holders
of Series A Preferred shall vote as a class with the holders of common stock,
and holders of the Series A Preferred shall be entitled to ten votes per share
(the "Series A Voting Rights") on any matter submitted to the holders of common
and Preferred Stock. Except as otherwise expressly provided herein or as
required by law, the holder of each share of the Series C Preferred and Series B
Preferred shall (i) be entitled to the number of votes equal to the number of
shares of Common Stock into which such share of Series C Preferred and Series B
Preferred could then be converted, (ii) have voting rights and powers equal to
the voting rights and powers of the Common Stock, (iii) vote together with the
Common Stock as a single class and (iv) be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights that might otherwise arise were it not for this sentence (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
5. Conversion of Preferred Stock. The Series A Preferred shall not
be convertible into any other class or series of shares of the Corporation. If
the Corporation shall at any time subdivide the outstanding shares of common
stock without an equivalent subdivision of the Series A Preferred, the Series A
Voting Rights then in effect immediately before that subdivision shall be
proportionately increased, and, if the Corporation shall at any time combine the
outstanding shares of common stock without an equivalent combination of the
Series A Preferred, the Series A Voting Rights then in effect immediately before
that combination shall be proportionately decreased. Any adjustment under this
subsection shall become effective at the close of business on the date the
subdivision or combination becomes effective. A dividend on any security of the
Corporation payable in common stock of the Corporation shall be considered a
subdivision of common stock for purposes of this Section 5 at the close of
business on the record date for the determination of holders of any security
entitled to receive such dividend.
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<PAGE> 4
The holders of the Series C Preferred and Series B Preferred
shall have conversion rights as follows:
(a) Right to Convert.
(i) Each share of Series C Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $200.00 plus all declared but unpaid
dividends on each share of Series C Preferred by the then applicable Conversion
Price, determined as hereinafter provided, in effect on the date the certificate
is surrendered for conversion. The price at which shares of Common Stock shall
be deliverable upon conversion (the "Series C Conversion Price") shall initially
be $5.00 per share of Common Stock. Such initial Series C Conversion Price shall
be adjusted as hereinafter provided.
(ii) Each share of Series B Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $8.50 plus all declared but unpaid
dividends on each share of Series B Preferred by the then applicable Conversion
Price, determined as hereinafter provided, in effect on the date the certificate
is surrendered for conversion. The price at which shares of Common Stock shall
be deliverable upon conversion (the "Series B Conversion Price") shall initially
be $4.25 per share of Common Stock. Such initial Series B Conversion Price shall
be adjusted as hereinafter provided.
The term "Conversion Price," when used herein, shall refer to the Series C
Conversion Price and the Series B Conversion Price, as appropriate in context.
(b) Automatic Conversion.
(i) Each share of Series C Preferred shall automatically
be converted into shares of Common Stock at the then effective Conversion Price
immediately upon (x) the closing of the sale of the Corporation's Common Stock
in a firm commitment, underwritten public offering registered under the
Securities Act of 1933, as amended (other than a registration relating solely to
a transaction under Rule 145 under such Act (or any successor thereto) or to an
employee benefit plan of the Company), with aggregate proceeds to the
Corporation (before deduction for underwriter commissions and expenses relating
to the issuance, including without limitation fees of the Corporation's counsel)
of which equal or exceed six million dollars ($6,000,000), or (y) written
elections of holders of a majority of Series C Preferred then outstanding.
(ii) Each share of Series B Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price immediately upon (x) the closing of the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act of 1933, as amended (other than a
registration relating solely to a
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<PAGE> 5
transaction under Rule 145 under such Act (or any successor thereto) or to an
employee benefit plan of the Company), with aggregate proceeds to the
Corporation (before deduction for underwriter commissions and expenses relating
to the issuance, including without limitation fees of the Corporation's counsel)
of which equal or exceed six million dollars ($6,000,000), or (y) written
elections of holders of a majority of Series B Preferred then outstanding.
(c) Mechanics of Conversion. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation at such office that he elects to convert
the same and shall state therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business of the date of surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this
paragraph 5(d), the following definitions shall apply:
(1) 'Options' shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) 'Original Issue Date' shall mean the date
on which a share of Series B Preferred was first issued.
(3) 'Convertible Securities' shall mean any
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock.
(4) 'Additional Shares of Common Stock' shall
mean all shares of Common Stock issued (or, pursuant to paragraph 5(d)(iii),
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of
Preferred Stock;
(B) to officers, directors of employees
of, or consultants to, the Corporation, on terms approved by the Board of
Directors;
(C) as a dividend or distribution of
Preferred Stock;
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<PAGE> 6
(D) for which adjustment of the
Conversion Price is made pursuant to paragraph 5(d)(vi); or
(E) in any transaction, other than a
transaction described in paragraph 5(d)(i)(4)(D) hereof, approved by the
Company's Board of Directors involving the acquisition of more than fifty
percent (50%) of the stock of another corporation or substantially all of the
assets of another corporation or business, whether by merger, exchange of
shares, purchase of assets, or otherwise.
(ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price of a particular share of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Preferred
Stock.
(iii) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to paragraph 5(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be and, provided, further, that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(1) no further adjustments in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Preferred Stock);
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<PAGE> 7
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or
Options for Common Stock the only Additional Shares of Common issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to paragraph 5(d)(v)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clauses (2) or (3)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (A) the Conversion Price on the original adjustment
date, or (B) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date;
(5) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made, except as to shares of
Preferred Stock converted in such period, until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same manner
provided in clause (3) above; and
(6) if any such record date shall have been fixed
and such Options or Convertible Securities are not issued on the date fixed
thereof, the adjustment previously made in the Conversion Price which became
effective on such record date shall be canceled as of the close of business on
such record date, and shall instead be made on the actual date of issuance, if
any.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to paragraph 5(d)(iii)) without consideration or
for a consideration per share less than the Series C Conversion Price or
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<PAGE> 8
Series B Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Series C Conversion Price or Series B
Conversion Price, as appropriate, shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding and the number of shares of
Common Stock issuable upon conversion of the shares of Preferred Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding and the number of shares of Common
Stock issuable upon conversion of the shares of Preferred Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued.
(v) Determination of Consideration. For purposes of this
paragraph 5(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to paragraph 5(d)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities by
-8-
<PAGE> 9
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution) issuable upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustments for Combinations or Subdivisions of
Common Stock. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, then the Series C Conversion Price and the Series B
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate.
(e) Other Distributions. In the event the Corporation shall
at any time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of its
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Preferred Stock shall
receive, upon the conversion thereof, the securities of the Corporation which
they would have received had their stock been converted into Common Stock on the
date of such event.
(f) No Impairment. Except as permitted by law and in
accordance with paragraph 6 below, the Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
paragraph 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
paragraph 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and cause
independent public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of the applicable series of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Preferred Stock.
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<PAGE> 10
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of
Preferred Stock at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right, and the amount and
character of such dividend, distribution, security or right.
(i) Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate or the
Certificate of Incorporation.
(k) Fractional Shares. No fractional share shall be issued upon
the conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors of the Corporation).
(l) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
-10-
<PAGE> 11
(m) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Preferred Stock shall thereafter by
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Preferred Stock would have been
entitled upon the record date of (or date of, if no record date is fixed) such
reorganization, reclassification, consolidation, merger or conveyance; and, in
any case, appropriate adjustment (as determined by the Board of Directors) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of such Preferred Stock, to
the end that the provisions set forth herein shall thereafter be applicable, as
nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
conversion of the shares of such Preferred Stock.
6. Restrictions and Limitations. So long as shares of Preferred
Stock remain outstanding, the Corporation shall not, by Board action,
stockholder action or otherwise, without the vote or written consent of the
holders of not less than two-thirds of the then outstanding shares of Series C
Preferred and Series B Preferred , voting separately by series on an
as-if-converted to Common Stock basis:
(i) Effect any sale or other conveyance of all or a substantial
portion of the assets of the Corporation or any of its subsidiaries (other than
in the ordinary course of business), or
(ii) Amend, repeal or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws, or
(iii) Authorize or issue any class or series of equity
securities having any right, including but not limited to, any preference or
priority as to voting, dividends, redemptions or distribution of assets upon
liquidation, merger or otherwise, which is superior to or on a parity with any
such preference or priority of the Series C Preferred or Series B Preferred , or
(iv) Declare or pay a dividend on any shares of Common Stock or
other shares of capital stock of the Corporation, or
(v) Effect a liquidation, dissolution, merger, consolidation,
recapitalization, reorganization or winding up of the Corporation or any other
transaction or related series of transactions pursuant to which the stockholders
of the Corporation immediately prior to such transaction shall own less than 50%
of the voting securities of the surviving corporation or entity or effect the
sale, transfer or lease of all or substantially all of the assets of the
Corporation, or
(vi) Apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, of any shares of any class or
series of Common Stock, except at cost from employees, advisors, officers,
directors and consultants of, and persons performing services for, this
-11-
<PAGE> 12
Corporation or its subsidiaries on terms approved by the Board of Directors upon
termination of employment or association; or
(vii) Issue any shares of Series A Preferred .
7. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
8. The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of the remaining authorized
shares of preferred stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof. The authority of the board
with respect to each series shall include, but not be limited to, determination
of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on
shares of that series;
(iii) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount may
vary under different conditions, and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares of that series;
-12-
<PAGE> 13
(viii) Any other relative rights, preferences and limitations of
that series, unless otherwise provided by the certificate of
determination.
FIFTH: Election of directors at an annual or special meeting of
shareholders need not be by written ballot unless the bylaws of the corporation
shall otherwise provide. The number of directors of the corporation which shall
constitute the whole board of directors shall be such as from time to time shall
be fixed by or in the manner provided in the bylaws.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, repeal, alter,
amend and rescind the bylaws of the corporation.
SEVENTH: A director of the corporation shall not be personally liable
for monetary damages to the corporation or its stockholders for breach of any
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derives an
improper personal benefit.
EIGHT: A director or officer of the corporation shall not be
disqualified by his or her office from dealing or contracting with the
corporation as a vendor, purchaser, employee, agent or otherwise. No
transaction, contract or act of the corporation shall be void or voidable or in
any way affected or invalidated by reason of the fact that any director or
officer of the corporation is a member of any firm, a stockholder, director or
officer of any corporation or trustee or beneficiary of any trusts that is in
any way interested in such transaction, contract or act. No director or officer
shall be accountable or responsible to the corporation for or in respect to any
transaction, contract or act of the corporation or for any gain or profit
directly or indirectly realized by him or her by reason of the fact that he or
she or any firm in which he or she is a member or any corporation of which he or
she is a stockholder, director. or officer, or any trust of which he or she is a
trustee, or beneficiary, is interested in such transaction, contract or act;
provided the fact that such director or officer or such firm, corporation,
trustee or beneficiary of such trust, is so interested shall have been disclosed
or shall have been known to the members of the board of directors as shall be
present at any meeting at which action upon such contract, transaction or act
shall have been taken. Any director may be counted in determining the existence
of a quorum at any meeting of the board of directors which shall authorize or
take action in respect to any such contract, transaction or act, and may vote
thereat to authorize, ratify or approve any such contract, transaction or act,
and any officer of the corporation may take any action within the scope of his
or her authority, respecting such contract, transaction or act with like force
and effect as if he or she or any firm of which he or she is a member, or any
corporation of which he or she is a stockholder, director or officer, or any
trust of which he or she is a trustee or beneficiary, were not interested in
such transaction, contract or act. Without limiting or qualifying the foregoing,
if in any judicial or other inquiry, suit, cause or proceeding, the question of
whether a director or officer of the corporation has acted in good faith is
material, and notwithstanding any statute or rule of law or equity to the
contrary (if any there be) his or her good faith shall be presumed in the
absence of proof to the contrary by clear and convincing evidence.
-13-
<PAGE> 14
NINTH: The corporation reserves the right to amend and repeal any
provision contained in this certificate of incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
-14-
<PAGE> 15
3. The foregoing Restated Certificate of Incorporation has been
duly approved by the required vote of the stockholders in accordance with the
Certificate of Incorporation and the provisions of Sections 242 and 245 of the
Delaware General Corporation Law.
The undersigned hereby acknowledge that the foregoing Restated
Certificate of Incorporation is his act and deed and that the facts stated
herein are true.
Executed at Sunnyvale, California, this 24th day of September, 1997.
- ------------------------------------
David M. Licurse
Chief Financial Officer and Vice President of Operations
-15-
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