UNITED STATES
SECURITIES AND EXCHANGE COMMISION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
----------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from to
------------------------------------
Commission file number 1-14072
PEN INTERCONNECT, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 87-0430260
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
2961 W. MacArthur Blvd. Santa Ana, CA 92704
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(714) 436 9724
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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
--- -
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of December 31, 2000 the issuer had 31,016,966 shares of its common
stock, par value $0.01 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
- ---
1
FORM 10-QSB
PEN INTERCONNECT, INC.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Financial Information 3
Balance Sheets at December 31, 2000
(unaudited) and September 30, 2000 4-5
Statements of Operations for the three months
ended December 31, 2000 and 1999 (unaudited) 6
Statements of Cash Flows for the three months
ended December 31, 2000 and 1999 (unaudited) 7-8
Notes to Condensed Financial Statements (unaudited) 9-12
Item 2 Management's Discussion and Analysis or
Plan of Operation 13-15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in the Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6(a). Exhibits 18
Item 6(b). Reports on Form 8-K 18
Signatures 18
2
PEN INTERCONNECT, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS
Pen Interconnect, Inc. (the "Company"), has included the unaudited
condensed balance sheet of the Company as of December 31, 2000 and audited
balance sheet as of September 30, 2000 (the Company's most recent fiscal
year), unaudited condensed statements of operations for the three months
ended December 31, 2000 and 1999, and unaudited condensed statements of
cash flows for the three months ended December 31, 2000 and 1999, together
with unaudited condensed notes thereto. In the opinion of management of the
Company, the financial statements reflect all adjustments, all of which are
normal recurring adjustments, considered necessary to fairly present the
financial condition, results of operations and cash flows of the Company
for the interim periods presented. The financial statements included in
this report on Form 10-QSB should be read in conjunction with the audited
financial statements of the Company and the notes thereto included in the
annual report of the Company on Form 10-KSB for the year ended September
30, 2000. The results of operations for the three months ended December 31,
2000 may not be indicative of the results that may be expected for the year
ending September 30, 2001.
3
Pen Interconnect, Inc.
BALANCE SHEETS
ASSETS
December 31, September 30,
2000 2000
---------------- ------------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 6,244 $ 9,319
Other receivables 37,020 0
Assets from discontinued operations 0 9,605
---------------- ------------------
Total current assets 43,264 18,924
PROPERTY AND EQUIPMENT, AT COST
Computer equipment 1,028 1,028
Less accumulated depreciation (180) (154)
---------------- ------------------
Total property and equipment 848 874
---------------- ------------------
Total Assets $44,112 $19,798
================ ==================
The accompanying notes are an integral part of these statements.
4
Pen Interconnect, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, September 30,
2000 2000
---------------- ------------------
(unaudited)
CURRENT LIABILITIES
Accounts payable $ 248,689 $ 200,752
Accrued liabilities 768,513 724,647
Convertible debentures 150,000 150,000
Notes payable 131,648 56,648
Liabilities from discontinued operations 865,258 864,791
---------------- ------------------
Total current liabilities 2,164,108 1,996,838
STOCKHOLDERS' DEFICIT
Convertible Preferred stock, $0.01 par value
authorized 5,000,000 shares, Series A; issued
and outstanding 121 shares at December 31, 2000
and 130 shares at September 30, 2000. 1 1
Series B; issued and outstanding 926 shares at December 31,
2000 and September 30, 2000 9 9
Common stock, $0.01 par value,
authorized 50,000,000 shares, issued and
outstanding 31,016,966 shares at December 31,
2000 and 27,696,946 shares at September 30, 2000 310,170 275,969
Additional paid-in capital 19,399,234 19,282,402
Accumulated deficit (21,829,410) (21,535,421)
---------------- ------------------
Total stockholders' deficit (2,119,996) (1,977,040)
---------------- ------------------
$44,112 $19,798
================ ==================
The accompanying notes are an integral part of these statements.
5
Pen Interconnect, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
December 31,
2000 1999
---- ----
Net sales $ 0 $ 0
Cost of sales
0 0
---------------- ---------------
Gross profit 0
0
Operating expenses
General and administrative 202,778 206,134
Depreciation and amortization 26 26
---------------- ---------------
Total operating expenses 202,804 206,160
Other income (expense)
Loss on impairment (63,000) 0
---------------- ---------------
Loss from continuing operations (265,804) (206,160)
Loss from discontinued operations (39,323) (324,069)
---------------- ---------------
Net loss before extraordinary item (305,127) (530,227)
Extinguishment of debt (11,119) 0
-
---------------- ---------------
Net loss (294,008) $(530,227)
========= ==========
Loss per common share
Loss before discontinued items & extraordinary item: basic and diluted $ $ (0.02)
(0.01)
Loss from discontinued operations: basic and diluted - (0.03)
Loss before extraordinary item: basic and diluted (0.01) -
Extinguishment of debt: basic and diluted - -
Net loss per share: basic and diluted (0.01) (0.05)
Weighted average common shares outstanding - basic and diluted 29,075,237 9,668,670
The accompanying notes are an integral part of these statements.
6
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
December 31,
---------------------------------
2000 1999
--------------- ---------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (294,008) $ (530,227)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 26 54,455
Allowance for notes receivable 63,000
Warrant/option compensation expense 42513 45,650
Changes in asset and liabilities
Trade accounts receivable 0 (330,855)
Inventories 0 49,713
Prepaid expenses and other assets 9,605 116,399
Accounts payable 48,404 958,733
Accrued liabilities 43,866 9,518
--------------- ---------------
Total adjustments 207,414 903,613
--------------- ---------------
Net cash used in operating activities (86,594) 373,386
--------------- ---------------
Cash flows from investing activities
Purchase of property and equipment 0 (2,173)
Issuance of notes receivable (37,020) (10,475)
Advances to perFORMplace (63,000) 0
--------------- ---------------
Net cash used in investing activities (100,020) (12,648)
--------------- ---------------
(Continued)
7
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Three months ended
December 31,
---------------------------------
2000 1999
--------------- ---------------
Cash flows from financing activities
Principal payments on long-term obligations 0 (67,327)
Net change in line of credit 0 (296,402)
Accrued dividends on preferred shares (42,231) (112,000)
Proceeds from issuance of notes payable 75,000 0
Principal payments on capital lease obligations 0 (42,663)
Proceeds from sale of common stock 113,750 36,851
Exercise of warrants and options 37,020
--------------- ---------------
Net cash provided by financing activities 183,539 (435,893)
--------------- ---------------
Net decrease in cash and cash equivalents (3,075) (120,805)
Cash and cash equivalents at beginning of period 9,319 177,214
--------------- ---------------
Cash and cash equivalents at end of period $ 6,244 $ 56,409
=============== ===============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 0 $ 176,211
Income taxes $ 0 $ 0
The accompanying notes are an integral part of these statements.
Non-cash investing and financing activities
During the first quarter of FY2001 Series A preferred shareholders converted 9
preferred shares into 450,000 common shares at an average conversion price of
$0.02 per common share. Under the conversion terms of the convertible preferred
shares, a holder has the right to convert preferred shares into common shares at
eighty-five (85%) percent of the average of the two lowest closing bid prices
during the last twenty-two (22) consecutive trading days prior to conversion.
8
During the first three months of FY 2001, the Company has issued 300,000 common
shares to consultants who performed various services for the Company in lieu of
cash payments. The Company recognized $14,833 as warrant/option compensation
expense. Additionally, the Company issued 70,000 common shares in settlement of
a lawsuit with a former officer and recognized $9,842 as warrant/option
compensation expense. Also during the quarter, the Company re-priced exercise
price for certain options on 267,000 common shares from $0.65 to $0.06 per share
and recognized $17,355 as warrant/option compensation expense.
During the quarter debt and trade payables in the amount of $11,602 were
converted into 3,867 common shares and recognized gains of $11,119 as
extinguishments of debt.
NOTE A - GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has had
recurring losses, $294,008 for the quarter ended December 31, 2000, a
deficit of $2,199,996 in stockholders' equity and negative working
capital of $2,120,844 for the period ended December 31, 2000. The Company
has entered into a purchase agreement to acquire two divisions from
Imaging Technologies Corporation ("ITEC" /OTC BB) in exchange for
seventy-five percent of the outstanding common shares of the Company. The
Company intends to raise additional funds in the capital markets for
working capital purpose upon completion of the acquisitions. If the
Company does not complete the acquisition, the Company will have to raise
additional capital to fund its negative cash flow. These factors, among
others, raise substantial doubt about the Company's ability to continue
as a going concern.
NOTE B - ACQUISITIONS/DISPOSITIONS
PowerStream Division
On December 28, 1999 the Company signed a letter of intent with Mark W.
Lund of Lund Instrument Engineering, Inc. ("Lund") of Orem, UT. to sell
certain assets and to assume certain liabilities of PowerStream Division.
The transaction closed on January 21st, 2000. Lund remitted $74,324.00 to
the Company and received assets with a book value of approximately
$239,350, customer contracts and general intangibles; and assumed
liabilities and customer advances of approximately $411,000. The Company
is to receive for three years royalties of a) sixteen (16) percent of the
gross profits generated from sales generated from a contract with L3
Communications, less any customer advances and b) eight (8) percent of
gross profits on all other sales contracts in place at closing. The
royalty agreement has been seized by the Company's secured lender as part
of the lender's foreclosure in March 2000.
9
NOTE C - OPTIONS TO PURCHASE COMMON STOCK
Options representing 267,000 common shares were exercised in October 2000
at a price of $0.06 per share. The option shares were originally priced
at $.65 per share. Proceeds ($16,020) were utilized for corporate
operations.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
Warrants representing 2,329,201 common shares were exercised during the
quarter at a weighted average price of $0.06 per share. Proceeds
($134,758) were utilized for corporate operations and debt reduction.
NOTE E - OPTIONS/WARRANTS TO PURCHASE COMMON STOCK
During the first three months of FY 2001 the Company issued warrants to
purchase 3,714,201 shares of the Company's common stock. All warrants
were issued at an exercise price, which was equal to or above the market
price at the time of issuance. The following table outlines the features
of these warrants:
Number of Exercise Expiration
Warrants Price Date
---------------- ------------- -------------------
3,714,201 $0.04 November 2003
NOTE F - ACCRUED PREFERRED STOCK DIVIDENDS
The Company accrued $42,231 for dividends payable to preferred
shareholders during the quarter.
Note G - Preferred Stock
The Company has issued two series of Preferred Stock. Series A was
issued in February 1999 consisting of 1,800 shares, par value $0.01 per
share, for $1,000 per share. Series B was issued in April 1999 at the
same price and par value but only 1,000 shares were issued. Both series
of Preferred Stock carry a 16 percent dividend rate which is paid
quarterly. If and when the Company's stock is listed again on NASDAQ the
dividend rate will drop to 8 percent.
10
Both issuances of Preferred Stock are convertible into shares of the
Company's Common Stock. Each share of Series A Preferred Stock is
convertible into an amount of shares of Pen Common Stock equal to
$1,000 divided by the average of the two lowest closing bid prices for
Pen Common Stock during the period of 22 consecutive trading days
ending with the last trading day before the date of conversion, after
discounting that market price by 15 percent (the "Conversion Price").
The maximum Conversion Price for the Series A Preferred Stock is $1.17
per share. The shares of Series B Preferred Stock are convertible into
Common Stock at the same Conversion Price as the Series A Preferred
Stock except for a maximum Conversion Price of $0.79 per share.
Warrants to acquire 320,000 shares of Common Stock at prices ranging
from $0.86 to $1.28 per share were also issued to the purchasers of the
Series A and Series B Preferred Stock. The Warrants expire three years
from date the Preferred Stock and warrants were initially issued.
NOTE H - CONVERTIBLE DEBENTURE
In August 2000, the Company entered into a convertible debenture
agreement for $600,000 in exchange for 4,000,000 shares of the
Company's common stock. This agreement consists of three installments:
$150,000 upon the signing of the agreement; $150,000 upon the submittal
of the registration documents; and $300,000 upon the completion of the
registration of the debenture. The first installment was received prior
to September 30, 2000. The convertible debenture has an interest rate
of 7% per annum. The Company is currently preparing the necessary
documents to register the debenture. The debenture is convertible into
common stock at the lesser of $0.15 per share or 70% of the market
price on the conversion date.
NOTE I - CONVERIBLE PROMISSORY NOTE
In October 2000 the Company issued a convertible promissory note to
Imaging Technologies, Inc. (ITEC) for $75,000 at an interest rate of
ten (10) percent per annum. ITEC has the right to convert the note to
unregistered common stock of the company at a conversion rate of $0.10
per share. Upon conversion, the Company is required to register the
shares in the next appropriate registration statement filed by the
Company.
The note was due December 9, 2000. As the Company has signed a
definitive agreement with ITEC to acquire two divisions of ITEC, the
lender has agreed to extend the term of the note pending the closing of
the acquisition.
11
Note J - Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net
earnings (loss) available to common shareholders by the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share are similarly calculated, except that
the weighted average number of common shares outstanding includes
common shares that may be issued subject to existing rights with
dilutive potential except for periods when such calculations would be
anti-dilutive.
For the three ended December 31, 2000, net earnings (loss) attributable
to common shareholders includes accrued dividends at the stated
dividend rate from date of issuance and a non-cash imputed dividend to
the preferred shareholders related to the beneficial conversion feature
on the 1999 Series A and B Preferred Stock and related warrants. The
beneficial conversion feature is computed as the difference between the
market value of the common stock into which the Series A and B
Preferred Stock can be converted and the value assigned to the Series A
and B Preferred Stock in the private placement. The imputed dividend is
a one-time non-cash charge against the earnings (loss) per common
share. The calculation of earnings (loss) per share is included in
Exhibit 11.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS. This report contains certain forward-looking
statements within the meaning of section 27A of the Securities Act of 1933 as
amended, and section 21E of the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. In addition, the Company may from time to
time make oral forward-looking statements. Actual results are uncertain and may
be impacted by the following factors. In particular, certain risks and
uncertainties that may impact the accuracy of the forward-looking statements
with respect to revenues, expenses and operating results include without
limitation, cycles of customer orders, general economic and competitive
conditions and changing consumer trends, technological advances and the number
and timing of new product introductions, shipments of products and components
from foreign suppliers, and changes in the mix of products ordered by customers.
As a result, the actual results may differ materially from those projected in
the forward-looking statements.
Because of these and other factors that may affect the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
The following discussion and analysis provides certain information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for the three months
ended December 31, 2000 and 1999. This discussion should be read in conjunction
with the audited financial statements of the Company and notes thereto included
in the Annual Report of the Company on Form 10-KSB for the year ended September
30, 2000.
General
There were no sales from continuing operations for the quarter ended December
30, 2000. All operating divisions were disposed of during 1999 and 2000, and all
operating activity was reclassified as discontinued operations. Since March 2,
2000, the Company decided to maintain its' situation as a reporting public
company, and to reduce its' debt in order to make the Company attractive to
private companies that would want to use Pen to go public. This approach would
be a major step to possibly help to maintain some shareholder value in the
Company's stock price.
The Company did enter into a Letter of Intent to reverse merge with a small
private .com company, perFORMplace.com, in the entertainment services business.
A definitive agreement was signed in late August 2000 with the intent to obtain
shareholder ratification at the next shareholders' meeting. However, on November
8, 2000, before the meeting could be held, perFORMplace.com terminated the
merger. This caused a serious drop in the Company's stock price and the need to
go back out to seek a new merger partner or acquisition.
13
In December 2000, Pen entered into an agreement with Imaging Technologies Inc.
(ITEC) of San Diego, CA whereby Pen will acquire two divisions of ITEC and issue
to ITEC Pen's unregistered common stock such that upon closing ITEC would
receive seventy-five (75) percent of the outstanding shares of Pen. The two
divisions include Eduadvantage.com and Dealseekers.com turning Pen into an
e-commerce based company. Due diligence is ongoing. The acquisition will be
subject to shareholder ratification.
Since the disposition of the net assets and operations of our historical
operations, the Company has reduced its' staff to two employees and one
part-time financial consultant. The Company has subsequently moved to a new
smaller location a few miles from its former address, so as to further reduce
expenses.
Results of Operations
Net sales. With the sale of Powerstream Division and the voluntary foreclosure
and sale of assets of InCirT Division during the second quarter of FY2000, which
represent the only operating units of the Company, and the fact that each is
accounted for in the financial statements as discontinued operations and that
each division's operations have not been operational since March 2, 2000, a
comparative analysis against prior same quarter is inappropriate.
Cost of sales. With the sale of Powerstream Division and the voluntary
foreclosure and sale of assets of InCirT Division during the second quarter of
FY2000, which represent the only operating units of the Company, and the fact
that each is accounted for in the financial statements as discontinued
operations and that each division's operations have not been operational since
March 2, 2000, a comparative analysis against prior same quarter.
Operating expenses. Operating expenses decreased during the first quarter of
fiscal 2001 by approximately $3,356 as compared to same quarter FY 2000.
Other income and expenses. Other income and expenses increased by $63,000 for
the three months ended December 31, 2000 as compared to the same period in the
prior year. This increase is the Company's writng off $63,000 of notes
receivable due from perFORMplace.com as uncollectable; consistent with its write
off of previous advances to perFORMplace during the previous fiscal year. Other
income and expense (related to discontinued operations) incurred during the
first quarter of FY 2000 are reflected in the loss from discontinued operations
of $324,069.
Net earnings (loss) and earnings (loss) per share. Net loss for the first fiscal
quarter ended December 31, 2000 totaled ($294,008) or ($0.01) per share,
compared with losses of ($530,227) or ($0.05) per share for the first fiscal
quarter of FY 2000. The decrease in the loss per share of $0.04 is caused by a
($0.01) decrease in loss from discontinued operations; from an increase in
extinguishments of debt; and an increase in loss from impairments. Approximately
($0.03) of per share improvement is the result of a 201% increase in the number
of outstanding common shares.
14
Liquidity and Capital Resources
During the first three months of FY 2001 the Company sustained losses of
$294,008.
As a result of these losses, the Company has had to raise cash ($113,750)
through the exercise of options and warrants, representing 1,979,201 common
shares and the issuance of a promissory note for $75,000 during the quarter.
Inflation and Seasonality
The Company does not believe that it is significantly impacted by inflation.
Without operations the Company is not subject to seasonality.
15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
From time to time the Company has been a party to various legal
proceedings arising in the ordinary course of business
1. On October 28, 1999 Color Savvy Systems, Ltd., filed suit to
recover $165,750 in past due uncontested vendor obligations.
On February 16, 2000, Color Savvy obtained a judgment against
the Company for $165,750.
2. On February 15, 2000, Amistar Corporation filed suit against
the Company to recover $95,733 in uncontested past due vendor
obligations. As of this writing, Amistar has accepted the
Company's stock for debt offer.
3. On March 21, 2000, Interworks Computer Products, Inc., filed
suit to recover $35,771 in past due uncontested vendor
obligations. Settled in January 2001.
4. On July 22, 2000, Force Electronics filed suit to recover
$68,816 in past due uncontested vendor obligations, and
obtained a judgment on September 15, 2000. Settled in January
2001.
5. Control Design Supply/Nedco filed suit to recover $6,788 in
past due uncontested vendor obligations. Settled in January
2001.
6. On March 20, 2000, DHL Airways Inc. obtained a judgment in the
amount of $3,868 for past due uncontested vendor obligation.
7. In January 2001 Fidelity Leasing, Inc. filed suit to recover
$26,608.91 and obtained a judgment for uncontested past due
lease obligations. Settled in February 2001.
On November 15, 1999, Alan L. Weaver, former CEO of Pen Interconnect,
Inc., obtained a judgment against the Company in the amount of $135,300
for breach of a settlement agreement relative to Mr. Weavers' employment
agreement with the Company. The Company has reserved $135,300 as a
contingent liability as of September 30, 2000 for this agreement.
Item 2. Changes in the Securities and Use of Proceeds.
----------------------------------------------
During the quarter 2,979,068 common shares were issued: 3,867 shares
for debt conversion; 70,000 shares for settlement of lawsuit; 300,000 shares for
services; and 2,605,201 shares for option/warrant exercises. Additionally the
Company issued a convertible promissory note for $75,000. Cash proceeds
($188,750) were utilized for corporate operations.
In October 2000 the Company issued a convertible promissory note to
Imaging Technologies, Inc. (ITEC) for $75,000 at an interest rate of
ten (10) percent per annum. ITEC has the right to convert the note to
unregistered common stock of the company at a conversion rate of $0.10
per share. Upon conversion, the Company is required to register the
shares in the next appropriate registration statement filed by the
Company.
16
The note was due December 9, 2000. As the Company has signed a
definitive agreement with ITEC to acquire two divisions of ITEC, the
lender has agreed to extend the term of the note pending the closing of
the acquisition.
Item 3. Defaults Upon Senior Securities.
--------------------------------
The Company entered into a financing agreement with a bank for $6,300,000. The
agreement consisted of a $5,000,000 revolving credit line and two term loans for
$800,000 and $500,000. Under the loan agreements for these loans, the Company
was required to meet certain financial ratios and specific minimum levels of
earnings and net worth. The loan agreements also restricted employee advances,
capital expenditures, compensation, and additional indebtedness; and restricted
the payment of dividends. The Company had borrowed $4,436,562 under the line of
credit at September 30, 1999. At times, including at September 30, 1999, the
Company had been in violation of certain of the covenants of this credit
facility. The Company operated under a forbearance agreement during all of
fiscal 1999.
As of September 30, 1999, the Company had not received a waiver from the lender
and all obligations under this credit facility were payable on demand of the
lender and were classified as current liabilities in the balance sheet.
Subsequent to September 30, 1999, the lender declared the loan agreement in
default.
The Company continued operating under a default notice with its lender and began
seeking buyers for its two remaining divisions PowerStream and InCirT. The
Company solicited a competitor to purchase most of the assets and to negotiate a
supplier agreement with the Company's largest account as part of a voluntary
foreclosure of all the remaining assets of the InCirT division of the Company,
for which Finova had a perfected security interest. The Company's December 31,
2000 balance sheet reflects the transfer of all collateral assets to Finova, and
the Company has recognized an offset of the bank's line of credit balance and
term loans owed by the Company. The Company recorded a loss on transfer of
assets of $963,027.
The bank line of credit has a remaining balance due of approximately $1,400,000
that is not recorded in the financial statements, and remaining estimated assets
to collect of approximately $2,400,000, which are also not recorded in the
financial statements. The Company is currently negotiating an agreement with the
lender, which it expects will result in complete satisfaction of all the loans
with the lender in exchange for the assets the lender currently has in its
possession. The draft agreement also includes the repricing of certain warrants
that the Company has issued to the lender and the issuance of certain number of
additional warrants to the lender.
17
Item 4. Submission of Matters to a Vote of Security Holders.
None during the quarter.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. None
A. Exhibits
11 Calculation of earnings (loss) per share.
27 Financial Data Schedule.
B. Reports on Form 8-K. None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PEN INTERCONNECT, INC.
February 14, 2001 By: /s/ Stephen J. Fryer
----------------------
Stephen J. Fryer,
CEO,Chairman and
Principal Accounting Officer
18
Exhibit 11
Pen Interconnect, Inc.
CALCULATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2000 AND 1999
2000 1999
-------------- -------------
Loss available to
common shareholders $ (294,008) $(530,277)
============== =============
Basic EPS
- -------------------------------------------
Common shares outstanding entire period 27,596,946 9,638,114
Weighted average common shares issued
during period 1,478,291 30,556
-------------- -------------
Weighted average commons shares
outstanding during period 29,075,237 9,668,670
============== =============
Loss per common share - basic $(0.01 ) $ (0.05)
============== =============
Diluted EPS
- -------------------------------------------
Weighted average common shares
outstanding during period - basic 29,075,008 9,668,670
Dilutive effect of stock options and
warrants 0 0
-------------- -------------
Weighted average common shares
outstanding during period - diluted 29,075,008 9,668,670
============== =============
Loss per common share -
diluted $ (0.01 ) $ (0.05)
============== =============
19