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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
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.
----------------------------------------------
Exact Name of small business issuer as specified 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
October 21, 1998: 1,920,124
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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MOBINETIX SYSTEMS, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet at September 30, 1998 3
Consolidated Condensed Statements of Operations for the
Three Months Ended September 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET (unaudited)
as of September 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 5,757,356
Accounts receivable, net 57,112
Inventories 1,908,039
Prepaid expenses and other current assets 186,706
------------
Total current assets 7,909,213
------------
Property and equipment 720,897
Less: Accumulated depreciation (386,237)
------------
Property and equipment, net 334,660
------------
Total assets $ 8,243,873
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 908,214
Accrued liabilities and other 545,434
Deferred revenues 270,169
------------
Total current liabilities 1,723,817
------------
Stockholders' equity:
Series B convertible Preferred Stock 711
Series C convertible Preferred Stock 28
Series D convertible Preferred Stock 1,273
Common stock 1,920
Additional paid-in capital 15,088,839
Accumulated deficit (8,572,715)
------------
Total stockholders' equity 6,520,056
------------
Total liabilities and stockholders' equity $ 8,243,873
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 6,046,779 $ 1,618,282
Cost of revenues 3,541,410 961,284
------------ ------------
Gross margin 2,505,369 656,998
------------ ------------
Operating expenses:
Selling, general and administrative 1,142,774 672,219
Research and development 961,005 671,054
------------ ------------
Total operating expenses 2,103,779 1,343,273
------------ ------------
Operating income/(loss) 401,590 (686,275)
Interest expenses (20,412) (265)
Interest income 58,223 30,695
------------ ------------
Income/(loss) before income taxes 439,401 (655,845)
Income taxes -- --
------------ ------------
Net income/(loss) $ 439,401 $ (655,845)
============ ============
Net income/(loss) per share (note 2)
Basic $ 0.23 $ (0.49)
Diluted $ 0.07 $ (0.49)
Weighted average shares outstanding
Basic 1,906,450 1,341,051
Diluted 6,437,988 1,341,051
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MOBINETIX SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (362,930) $ (1,980,534)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (55,417) (21,205)
------------ ------------
Net cash used in investing activities (55,417) (21,205)
------------ ------------
Cash flows from financing activities:
Repayment of debt under a line of
credit (290,195) --
------------ ------------
Net cash used in financing activities (290,195) --
------------ ------------
Net decrease in cash and cash equivalents (708,542) (2,001,739)
Cash and cash equivalents at beginning
of period 6,465,898 3,421,489
------------ ------------
Cash and cash equivalents at end
of period $ 5,757,356 $ 1,419,750
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes -- --
Cash paid for interest 3,423 265
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MOBINETIX SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein for the three month period ended
September 30, 1998 and 1997 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, 1998.
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 INCOME/(LOSS) PER SHARE
Basic net income per share is computed by dividing net income/(loss) available
to common stockholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period and excludes the dilutive
effect of stock options and convertible securities. Diluted net income per share
gives effect to all dilutive common shares and other dilutive securities
outstanding during the period, including the assumed conversion of the Preferred
Stock into Common Stock using the if converted method. In computing diluted net
income per share, the average stock price for the period is used in determining
the number of shares assumed to be purchased from exercise of stock options.
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The following table sets forth the computation of basic and diluted earnings per
share for the three months ended September 30, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Numerator for basic and diluted earnings per
share - net income/(loss) $ 439,401 $ (655,845)
------------ ------------
Denominator for basic earnings per share -
weighted average Common shares 1,906,450 1,341,051
Effect of dilutive securities
Series B Preferred Stock 1,456,550 --
Series C Preferred Stock 1,150,307 --
Series D Preferred Stock 1,273,149 --
Employee stock options and warrants 651,532 --
------------ ------------
Denominator for diluted earnings per share
adjusted weighted average shares 6,437,988 1,341,051
------------ ------------
Income/(loss) per share
Basic $ 0.23 $ (0.49)
Diluted $ 0.07 $ (0.49)
Potentially dilutive securities excluded from
computations as the effect would be
antidilutive -- 2,909,810
</TABLE>
3. INVENTORIES
Classification of inventories is as follows:
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Finished goods $ 260,478
Work in process 758,266
Raw materials 889,295
-------------
Total $ 1,908,039
-------------
</TABLE>
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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 quarterly report on Form 10-QSB ("Form 10-QSB") for MobiNetix Systems, Inc.
(the "Company") contains forward-looking statements made within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended. Words such as "anticipates," "expects,"
"intends," "plans," "seeks," "estimates," and similar expressions identify such
forward looking statement. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed or forecasted. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Business," "Operating Results," "Liquidity
and Capital Resources," and "Outlook" on pages 3-5 and 7-9 in the annual report
on Form 10-KSB ("Annual Report") filed with the Securities and Exchange
Commission("Commission") on September 29, 1998. Readers should not rely unduly
on forward-looking statements, which reflect only the opinion of the Company's
management as of the date hereof. Unless required by law, the Company undertakes
no obligation to revise forward-looking statements. Readers should also
carefully review the risk factors set forth in other reports or documents the
Company files from time to time with the Commission, particularly the quarterly
reports on Form 10-QSB, and any current reports on Form 8-K.
RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 1998 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 1997)
The 274% increase in revenues from the first quarter of fiscal 1998 (three
months ended September 30, 1997) to the first quarter of fiscal 1999 (three
months ended September 30, 1998) is largely due to increased sales of the
Company's advanced PenWare 3100 inter-active electronic transaction terminal,
including significant shipments to Federated Department Stores,
Inc.("Federated"). The Company continues to fill the orders under a supplier
contract with Federated reached in the fourth quarter of fiscal 1998.
Cost of sales increased significantly in the first quarter of fiscal 1999,
mainly due to higher unit volumes shipped and startup costs associated with the
Company's manufacturing ramp for new and existing products.
Selling, general and administrative expenses increased by 70% from first quarter
of fiscal 1998 to the first quarter of fiscal 1999. The increase is largely the
result of higher personnel expenses to support business growth, including
targeted new hiring of employees in such areas as field sales, purchasing and
production control.
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The 43% increase in research and development expense in the first quarter of
fiscal 1999 is also largely attributable to the increase in number of Company
personnel. The Company expanded its engineering staff during the first quarter
of fiscal 1999 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 the
first quarter of fiscal 1999 compared to the first quarter in the previous year
in connection with the Company's hardware development and design efforts.
CASH AND SOURCES OF LIQUIDITY
The Company's operating activities consumed $362,930 in cash during the first
quarter of fiscal 1999, compared to $1,980,534 during the first quarter of
fiscal 1998. The decreased cash usage in the first quarter of 1999 is due
largely to collection of the Company's accounts receivable that offset increased
expenses in the period.
The Company's financing activities consumed $290,195 in the first quarter of
first 1999 compared to no cash outlay in the first quarter of fiscal 1998. The
increase in cash usage is due to the Company payment of $290,195 indebtedness
under a line of credit with a commercial bank in July 1998. As of September 30,
1998, the Company's principal sources of liquidity include cash of $5.8 million
and 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
15, 1999.
OUTLOOK
With the cash on hand and the existing credit facilities, the Company believes
that it will not require additional financing for fiscal 1999. However, the
Company may pursue other debt or equity transactions which upon completion,
would provide additional financing for future expansion. There is no assurance
that additional funding will be available.
MobiNetix believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to sustain
consistent profitability and sales trends are inherently difficult to predict at
this stage of development. Sales forecast shortfalls, delayed product
introductions, and manufacturing and financing constraints, together with other
risk factors, could lead to adverse fluctuations in revenues and profits in any
particular quarter.
IMPACT OF CURRENCY AND INFLATION.
The Company purchases the majority of its materials and services in U.S.
dollars, and most of its foreign sales are transacted in U.S. dollars. The
Company did not hold or purchase any foreign exchange contracts for the purchase
or sale of foreign currencies. The Company may choose to enter into such
contracts from time to time should conditions appear
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favorable. Effects of inflation on Company's financial results have not been
significant.
FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION
In addition to other information in this Form 10-QSB and the risk factors
discussed in the Company's latest Annual Report filed with the Commission,
investors evaluating the Company and its business should carefully consider the
following risk factors, which may have a significant impact on the Company's
business, operating results and financial condition. The risk factors set forth
below and elsewhere in this Form 10-QSB and in the Company's Annual Report could
cause actual results to differ materially from those projected in any
forward-looking statements. These risk factors include but are not limited to
the unpredictable and fluctuating operating results; highly competitive markets
for the Company's products; rapidly developing and changing technologies and
market condition; dependence on intellectual property, large customers, single
component manufacturer/suppliers and key personnel; and reliance on the
company's limited product line.
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software programs
have been written using two digits rather than four to represent a specific
year. Any computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. During the first quarter of
fiscal 1999, the Company began a Year 2000 assessment of its management
information system, other information technology systems, non-information
technology systems, products and key suppliers. Items identified and under
review include manufacturing and test equipment, telecommunications systems and
equipment and computer systems and equipment. In addition, the Company is
assessing the Year 2000 compliance of its products. The Company intends to have
its Year 2000 assessment, testing, remediation efforts and development of
necessary contingency plans complete by the year 2000, the total cost of which
has not yet been determined. To date, however, costs incurred to address Year
2000 compliance issues have not been material. Costs related to Year 2000
compliance issues continue to be funded through operating cash flows. The
Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. There can be no assurance that the Company will be able to complete its
Year 2000 compliance assessment, testing, remediation efforts and development of
necessary contingency plans by the Year 2000. Any failure to complete the Year
2000 assessment, testing, remediation efforts and development of necessary
contingency plans prior to the January 2000 could have a material adverse effect
on the Company's business, financial condition and results of operations.
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NEW ACCOUNTING REQUIREMENTS
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income"("SFAS 130"). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS 130 had no impact on the Company's net income or stockholders' equity.
FUTURE ACCOUNTING REQUIREMENT
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, 1999. Adoption of SFAS 131 is expected to have no
material impact on the Company's consolidated financial position, results of
operations or cash flow.
Also in June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which the Company will be required to adopt for fiscal year 2000.
This statement establishes a new model for accounting for derivatives and
hedging activities. Under FAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company has not determined the
impact of the adoption of this new accounting standard on its consolidated
financial position or results of operations.
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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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MOBINETIX SYSTEMS, INC.
Date: November 13, 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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INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,757,356
<SECURITIES> 0
<RECEIVABLES> 181,150
<ALLOWANCES> 124,038
<INVENTORY> 1,908,039
<CURRENT-ASSETS> 7,909,213
<PP&E> 720,897
<DEPRECIATION> 386,237
<TOTAL-ASSETS> 8,243,873
<CURRENT-LIABILITIES> 1,723,817
<BONDS> 0
0
2,012
<COMMON> 1,920
<OTHER-SE> 6,516,124
<TOTAL-LIABILITY-AND-EQUITY> 8,243,873
<SALES> 6,046,779
<TOTAL-REVENUES> 6,046,779
<CGS> 3,541,410
<TOTAL-COSTS> 3,541,410
<OTHER-EXPENSES> 2,042,104
<LOSS-PROVISION> 61,675
<INTEREST-EXPENSE> 20,412
<INCOME-PRETAX> 439,401
<INCOME-TAX> 0
<INCOME-CONTINUING> 439,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,401
<EPS-PRIMARY> .23
<EPS-DILUTED> .07
</TABLE>
