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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ TO _______
Commission File Number 0-23152
MOBINETIX SYSTEMS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 33-0253408
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 OAKMEAD PARKWAY, SUNNYVALE, CALIFORNIA 94086
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (408) 524-4200
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of
December 31, 1997: 1,537,946
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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MOBINETIX SYSTEMS, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet at December 31, 1997 3
Consolidated Condensed Statements of Operations for the
Three Months Ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of Operations for the
Six Months Ended December 31, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended December 31, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET (unaudited)
as of December 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,547,888
Accounts receivable, net 273,861
Inventories 1,892,838
Prepaid expenses and other current assets 202,587
-----------
Total current assets 4,917,174
-----------
Property and equipment 545,078
Less: Accumulated depreciation (273,678)
-----------
Property and equipment, net 271,400
-----------
Total assets $ 5,188,574
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 946,892
Accrued liabilities and other 550,170
Notes payable 2,320,195
Deferred revenues 1,660,209
-----------
Total current liabilities 5,477,466
-----------
Stockholders' deficit:
Series B convertible preferred stock 885
Series C convertible preferred stock 28
Common stock 1,538
Additional paid-in capital 7,904,518
Accumulated deficit (8,195,861)
-----------
Total stockholders' deficit (288,892)
-----------
Total liabilities and stockholders' deficit $ 5,188,574
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues $ 2,281,001 $ 396,093
Cost of revenues 1,339,367 191,111
----------- -----------
Gross margin 941,634 204,982
----------- -----------
Operating expenses:
Selling, general and administrative 819,885 569,890
Research and development 762,521 446,575
----------- -----------
Total operating expenses 1,582,406 1,016,465
----------- -----------
Operating loss (640,772) (811,483)
Interest expense and other (22,433) (1,151)
Interest income 12,975 36,603
----------- -----------
Loss before income taxes (650,230) (776,031)
Income taxes -- (1,600)
----------- -----------
Net loss $ (650,230) $ (777,631)
=========== ===========
Net loss per share (Note 2):
Basic $ (0.42) $ (0.58)
Diluted $ (0.42) $ (0.58)
Weighted average shares outstanding:
Basic 1,537,120 1,336,538
Diluted 1,537,120 1,336,538
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues $ 3,899,283 $ 647,167
Cost of revenues 2,300,651 334,639
----------- -----------
Gross margin 1,598,632 312,528
----------- -----------
Operating expenses:
Selling, general and administrative 1,492,104 1,038,661
Research and development 1,433,575 827,383
----------- -----------
Total operating expenses 2,925,679 1,866,044
----------- -----------
Operating loss (1,327,047) (1,553,516)
Interest expense and other (22,698) (2,139)
Interest income 43,670 78,444
----------- -----------
Loss before income taxes (1,306,075) (1,477,211)
Income taxes -- (2,400)
----------- -----------
Net loss $(1,306,075) $(1,479,611)
=========== ===========
Net loss per share (Note 2):
Basic $ (0.91) $ (1.11)
Diluted $ (0.91) $ (1.11)
Weighted average shares outstanding:
Basic 1,439,086 1,336,448
Diluted 1,439,086 1,336,448
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net cash used in operating activities $(3,676,896) $(1,905,128)
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Cash flows from investing activities:
Purchase of property and equipment (82,473) (121,702)
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Net cash used in investing activities (82,473) (121,702)
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Cash flows from financing activities:
Issuance of Series B Preferred Stock, net -- 1,377,519
Proceeds from exercise of stock options 565,573 107
Borrowings - notes payable 2,320,195 --
----------- -----------
Net cash provided by financing
activities 2,885,768 1,377,626
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Net (decrease) in cash (873,601) (649,204)
Cash at beginning of period 3,421,489 2,438,368
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Cash at end of period $ 2,547,888 $ 1,789,164
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ 2,400
Cash paid for interest $ 22,698 $ 2,394
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial information included herein for the three- and six month periods
ended December 31, 1997 and 1996 is unaudited; however, such information
reflects all adjustments consisting only of normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods.
The interim consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Form 10-KSB of
MobiNetix Systems, Inc. (the "Company") for the year ended June 30, 1997.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. NET LOSS PER SHARE
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share,"
simplifies the standards for computing earnings per share previously found in
ABP No. 15. SFAS 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes dilution. SFAS
128 also requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures and a reconciliation of the two earnings bases. Diluted earnings per
share is computed similarly to fully diluted earnings per share pursuant to ABP
No. 15. The Company was required to adopt SFAS 128 effective for the quarter
ended December 31, 1997. Basic earnings per share has been computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. Because of the net losses incurred for all periods presented,
there is no dilutive effect from stock options outstanding in the accompanying
consolidated condensed statements of operations.
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3. RECLASSIFICATIONS
Certain amounts for fiscal 1997 have been reclassified to conform to the current
presentation.
4. INVENTORIES
Classification of inventories is as follows:
<TABLE>
<CAPTION>
Dec. 31,
1997
----------
<S> <C>
Finished goods $ 610,856
Work in process 770,772
Raw materials 511,210
----------
Total $1,892,838
==========
</TABLE>
5. NOTES PAYABLE
At December 31, 1997, the Company's notes payable consisted of a bridge loan in
the amount of $1,500,000 and borrowings under a line of credit in the amount of
$820,195. The bridge loan matures in April 1998 and bears an interest rate of
11%. Borrowings under the Company's $3.0 million line of credit bear an
interest of prime plus 1.5%. The line of credit is subject to certain borrowing
base formulas and other conditions and expires in July 1998.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements of MobiNetix Systems, Inc. and its
wholly owned subsidiary PenWare, Inc., including the notes thereto (see Part I,
Item 1). This analysis contains certain forward-looking statements which are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected.
RESULTS OF OPERATIONS (THREE MONTHS ENDED DECEMBER 1997 COMPARED TO THREE
MONTHS ENDED DECEMBER 1996)
The 476% increase in revenues from the second quarter of fiscal 1997 (three
months ended December 31, 1996) to the second quarter of fiscal 1998 (three
months ended December 31, 1997) is largely due to increased sales of the
Company's advanced PenWare 3000 transaction terminal, including significant
shipments to IBM Corp. under a U.S. Postal Service subcontract. Higher sales of
signature capture components to other major OEM customers also contributed to
the overall increase in revenues.
Cost of sales increased significantly over this period, mainly due to higher
unit volumes and startup costs associated with the Company's manufacturing ramp
for new and existing products.
Selling, general and administrative expenses increased by 44% from fiscal 1997
to fiscal 1998. The increase is largely the result of higher personnel expenses
to support business growth, including targeted new hires in such areas as field
sales, purchasing and production control.
The 71% year-to-year increase in research and development expense is also
largely attributable to personnel. The Company expanded its engineering staff
during fiscal 1998 to enable the design, development and production ramp of
interactive transaction terminal products and software solutions. Expenses for
technical consulting and engineering tools and materials also increased in
fiscal 1998 compared to the previous year in connection with the Company's
hardware development and design efforts.
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RESULTS OF OPERATIONS (SIX MONTHS ENDED DECEMBER 1997 COMPARED TO SIX MONTHS
ENDED DECEMBER 1996)
Changes in revenues, costs and expenses from the first half of fiscal 1997 to
the first half of fiscal 1998 are the result of the same factors and trends as
those outlined above for the three-month comparison period. Interest expense
increased during the second quarter of fiscal 1998 due to new borrowings.
CASH AND SOURCES OF LIQUIDITY
During the first half of fiscal 1997, financing activities, consisting mainly of
private placements of preferred stock, generated $1,377,627 in cash. These
proceeds were used to finance operations through fiscal 1997 and part of fiscal
1998.
During the first half of fiscal 1998, the Company obtained additional financing
through a stock option exercise. The optionee, a consultant for the Company's
board of directors, exercised 175,000 options in October 1997, resulting in
proceeds to the Company of $559,375.
The Company also borrowed $820,195 during the second quarter of fiscal 1998
under its $3.0 million line of credit. An additional $1,500,000 was borrowed
under a bridge loan with a commercial bank and a private investor. As part of
the bridge loan, the Company issued 225,000 warrants to purchase common stock at
a price of $3.50 per share, expiring in 2004.
The Company's operating activities consumed $3,676,896 in cash during the first
six months of fiscal 1998, compared to $1,905,128 during the same period in
fiscal 1997. The increased cash usage is due largely to higher operating
expenses and working capital requirements, particularly for inventory, offset in
part by a customer prepayment of $3.8 million in February 1997.
As of December 31, 1997, the Company's principal sources of liquidity include
cash of $2.5 million and remaining funds available under its $3.0 million
line of credit, which is subject to borrowing base formulas and other
conditions. The line of credit expires July 1, 1998. The $1,500,000 bridge loan
matures in April 1998.
OUTLOOK
The Company is currently pursuing a private sale of preferred stock, the
proceeds of which would be used to repay the bridge loan and finance future
operations. There is no assurance, however, that this or other equity funding
will be available or if available, that it will be on terms favorable to the
Company. However, the Company has other sources of liquidity, including
additional borrowings from the existing credit line. Also, cost controls could
be employed to preserve liquidity if needed.
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In connection with the Company's contract with IBM, MobiNetix received a $3.8
million prepayment in February 1997. The funds are being used to help finance
operations, including significant commitments for inventory, and have been
recorded as deferred revenue. The Company has subsequently recognized a portion
this revenue; additional revenue recognition in future periods will depend on
the Company's continued ability to perform under the contract.
MobiNetix believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to be
profitable and sales trends are inherently difficult to predict at this stage of
development. Price and product competition, design acceptance by customers,
financing constraints, the ability to manufacture new products in sufficient
volume, and general economic conditions, together with other risk factors, could
lead to adverse fluctuations in revenues and profitability in any particular
quarter.
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PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MOBINETIX SYSTEMS, INC.
Date: February 17, 1998 By: /s/ DAVID M. LICURSE, SR.
------------------------------------
David M. Licurse, Sr.
Chief Financial Officer and
Vice President of Operations
(principal accounting officer)
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EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,547,888
<SECURITIES> 0
<RECEIVABLES> 273,861
<ALLOWANCES> 0
<INVENTORY> 1,892,838
<CURRENT-ASSETS> 202,587
<PP&E> 545,078
<DEPRECIATION> 273,678
<TOTAL-ASSETS> 5,188,574
<CURRENT-LIABILITIES> 5,477,466
<BONDS> 0
0
913
<COMMON> 1,538
<OTHER-SE> (291,343)
<TOTAL-LIABILITY-AND-EQUITY> 5,188,574
<SALES> 3,899,283
<TOTAL-REVENUES> 3,899,283
<CGS> 2,300,651
<TOTAL-COSTS> 2,300,651
<OTHER-EXPENSES> 1,433,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,698
<INCOME-PRETAX> (1,306,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,306,975)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
