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 March 31, 2001
-------------------------------
[ ] 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. Identification No)
incorporation or organization)
27121 Calle Arroyo, San Juan Capistrano, CA 92675
(Address of Principal Executive Offices) (Zip Code)
(949) 661-2660
(Issuer's telephone number)
2941 W. MacArthur Blvd, #121, Santa Ana, CA 92704
-------------------------------------------------
(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 March 31, 2001 the issuer had 39,166,916 shares of its common
stock, par value $0.01 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
FORM 10-QSB
PEN INTERCONNECT, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Financial Information 3
Balance Sheets at March 31, 2001
(unaudited) and September 30, 2000 4-5
Statements of Operations for the three months
ended March 31, 2001 and 2000 (unaudited) and 6
six month periods ended March 31, 2001 and
2000 (unaudited)
Statements of Cash Flows for the six months
ended March 31, 2001 and 2000 (unaudited) 7-8
Notes to Condensed Financial Statements (unaudited) 9-11
Item 2 Management's Discussion and Analysis or
Plan of Operation 12-14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in the Securities and Use of Proceeds 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6(a). Exhibits 16
Item 6(b). Reports on Form 8-K 16
Signatures 16
Exhibit 11 Calculation of Earnings 17
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 March 31, 2001 and audited balance sheet as
of September 30, 2000 (the Company's most recent fiscal year), unaudited
condensed statements of operations for the three and six months ended March 31,
2001 and 2000, and unaudited condensed statements of cash flows for the six
months ended March 31, 2001 and 2000, 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 six months ended
March 31, 2001 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
March 31, September 30,
2001 2000
---------------- ------------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 32,657 $ 9,319
Prepaid expenses 3,817 0
Assets from discontinued operations 0 9,605
---------------- ------------------
Total current assets $ 36,474 $ 18,924
---------------- ------------------
PROPERTY AND EQUIPMENT, AT COST
Computer Equipment 1,028 1,028
Less accumulated depreciation (206) (154)
---------------- ------------------
Total property and equipment $ 822 $ 874
---------------- ------------------
Total Assets $ 37,296 $ 19,798
================ ==================
The accompanying notes are an integral part of these statements.
4
Pen Interconnect, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
2001 2000
---------------- ------------------
(unaudited)
CURRENT LIABILITIES
Accounts payable $ 347,015 $ 200,752
Accrued liabilities 691,534 724,647
Convertible debentures 150,000 150,000
Notes payable 401,726 56,648
Liabilities from discontinued operations 744,022 864,791
---------------- ------------------
Total current liabilities $ 2,334,297 $ 1,996,838
================ ==================
STOCKHOLDERS' DEFICIT
Convertible preferred stock, $0.01 par value
Authorized 5,000,000 shares, Series A: 121
issued and outstanding at March 31, 2001;
130 issued and outstanding at September 30, 1 1
2000
Series B: issued and outstanding 926 shares at March 9 9
31, 2001 and September 30, 2000
Common stock, $0.01 par value,
authorized 50,000,000 shares, issued and
outstanding 39,166,916 shares at March 31,
2001 and 27,596,946 at September 30, 2000 391,669 275,969
Additional paid-in capital 19,355,712 19,282,402
Accumulated deficit (22,044,382) (21,535,421)
---------------- ------------------
Total stockholders' equity (deficit) (2,297,001) (1,977,040)
---------------- ------------------
$ 37,296 $ 19,798
================ ==================
The accompanying notes are an integral part of these statements.
5
Pen Interconnect, Inc.
STATEMENTS OF OPERATIONS
(Uaudited)
Three months ended Six months ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
---------------- --------------- -------------- --------------
Net sales $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0
Gross profit 0 0 0 0
---------------- --------------- -------------- --------------
Operating expenses
General and administrative 255,158 571,017 457,936 612,462
Depreciation and amortization 26 26 52 52
---------------- --------------- -------------- --------------
Total Operating Expenses 255,184 571,043 457,988 612,514
Loss on Impairment 0 0 (63,000) 0
---------------- --------------- -------------- --------------
Loss from continued operations (255,184) (571,043) (520,988) (612,514)
Loss from discontinued
operations 0 (881,263) (39,323) (1,205,332)
---------------- --------------- -------------- --------------
Other income (expense) 7,925 (209,499) 7,925 (374,138)
---------------- --------------- -------------- --------------
Net loss before income taxes (247,259) (1,661,755) (552,386) (2,191,984)
and extraordinary item
Extinguishment of debt 73,168 0 84,287 0
---------------- --------------- -------------- --------------
Net loss before income taxes (174,091) (1,661,755) (468,099) (2,191,984)
Income tax expense 0 900 0 900
---------------- --------------- -------------- --------------
Net loss $ (174,091) $ (1,662,655) $ (468,099) $ (2,192,884)
================ =============== ============== ==============
Loss per common share
Loss before discontinued items &
extraordinary item:
basic and diluted (0.01) (0.04) (0.01) (0.05)
Loss from discontinued operations:
basic and diluted (0.06) (0.00) (0.10)
Loss before extraordinary item: basic
and diluted (0.01) (0.12) (0.01) (0.19)
Extinguishment of debt: basic and diluted
Net loss per share: basic and diluted (0.01) (0.12) (0.01) (0.19)
Weighted average common shares
outstanding-basic and diluted 29,075,237 13,584,534 35,214,200 11,626,602
================ =============== ============== ==============
The accompanying notes are an integral part of these statements.
6
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS
(Uaudited)
Six months ended
March 31, March 31,
2001 2000
--------------- ---------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (468,099) $ (2,192,884)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amoritazation 52 90,463
Loss on disposal of divisions (Note A) 0 305,324
Loss on transfer of assets (Notes A & D) 0 900,008
Allowance for notes receivable 63,000 0
Warrant/option compensation expense 75,145 0
Changes in asset and liabilities
Accounts receivable offset to customers' accounts payable 0 2,439,266
Net assets transferred to lender 0 3,238,079
Prepaid expenses and other assets 5,788 (7,892)
Accounts payable (75,147) (725,109)
Accrued liabilities 67,528 (393,014)
--------------- ---------------
Net cash generated (used) in
operating activities (331,733) 3,654,241
--------------- ---------------
Cash flows from investing activities
Purchase of property and equipment (15,500)
Issuance of notes receivable 19,410
Proceeds from disposal of division (Note A) 74,324
Advances to perFORMplace (63,000) 0
--------------- ---------------
Net cash provided by (used in) investing activities (63,000) 78,234
Cash flows from financing activities:
Net change in line of credit (4,436,562)
Accrued dividends on preferred shares (56,512) 137,288
Principal payments on long-term obligations (167,786)
Principal payments on capital lease obligations (71,916)
Discount on exercised common shares options 294,171
Discount of warrants conversion to common stock 89,941
Proceeds from sale of common stock 129,505 340,341
Proceeds from issuance of short term note payable 345,078 54,450
--------------- ---------------
Net cash consumed in financing activities 418,071 (3,760,073)
Net increase (decrease) in cash and cash equivalents 23,338 26,698
Cash and cash equivalents at beginning of period 9,319 177,214
--------------- ---------------
Cash and cash equivalents at end of period 32,657 203,912
=============== ===============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest expense $ 308,102 $ 287,204
Income tax expense $ 900 $ 0
Noncash investing and financing activities
During the first six months of FY 2001 Series A preferred shareholders converted
9 preferred shares into 450,000 common shares at an average conversion price of
approximately $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. During the second three months of FY2001, the Company
issued 8,480,000 common shares to consultants who performed various services for
the Company in lieu of cash payments. Additionally, during the quarter, the
Company re-priced the exercise price for certain options on 617,000 common
shares from $0.06 to $0.01 and forgave $37,020 in conversion costs in exchange
for forgiveness on certain breach of contract occurrences.
During the quarter debt and trade payables in the amount of $13,788 were
converted into 6,311 common shares and recognized gains of $11,030 as
extinguishments of debt.
7
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, $174,091 for the quarter ended March 31, 2001, a
deficit of $2,297,001 in stockholders' equity and negative working
capital of $2,297,823 for the period ended March 31, 2001. The Company
has terminated its purchase agreement to acquire two divisions from
Imaging Technologies Corporation ("ITEC" /OTC BB) and has entered into
a definitive agreement to acquire all of the outstanding shares of a
private company, The Automatic Answer Company (tAA) in exchange for
sixty seven percent of the outstanding common shares of the Company.
The Company intends to raise additional funds in the capital markets
for working capital purposes 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.
NOTE C - OPTIONS TO PURCHASE COMMON STOCK
No options were exercised in the second quarter.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
Warrants representing 3,165,100 common shares were exercised during the
quarter at a weighted average price of $0.04 per share. Proceeds of
$129,503 were utilized for corporate operations and debt reduction.
NOTE E - OPTIONS/WARRANTS TO PURCHASE COMMON STOCK
During the second quarter of FY 2001 the Company issued warrants to
purchase 8,080,000 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
---------------- ------------- -------------------
8,080,000 $0.06 April 2002
8
NOTE F - ACCRUED PREFERRED STOCK DIVIDENDS
The Company accrued $56,512 for dividends payable to preferred
shareholders during the first six months.
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.
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 still anticipates that it will prepare 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 terminated its
definitive agreement with ITEC and has signed an agreement to acquire
tAA, ITEC, the lender has agreed to extend the term of the note pending
the closing of the acquisition.
9
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 six months ended March 31, 2001, 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.
10
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 six months
ended March 31, 2001 and 2000. 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 March 31,
2001. 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 is a
major step to help maintain 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.
In December 2000, Pen entered into an agreement with Imaging Technologies Inc.
(ITEC) of San Diego, CA whereby Pen would 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. However,
this agreement was terminated in January 2001 by mutual agreement by both
companies. Subsequently, Pen entered into a definitive agreement to acquire all
of the outstanding shares of tAA, a private company involved in the PC based PBX
systems and voice over IP. Due diligence is ongoing. The acquisition is 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.
11
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 six months of
fiscal 2001 by approximately $154,526 as compared to same period FY 2000. This
decrease was caused by a reduction in personnel, facilities and general
tightening of corporate expenses.
Other income and expenses. Other income and expenses increased by $63,000 for
the six months ended March 31, 2001 as compared to the same period in the prior
year. This increase is the Company's writing 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 six
months of FY 2001 are reflected in the loss from discontinued operations of
$39,323.
Net earnings (loss) and earnings (loss) per share. Net loss for the second
fiscal quarter ended March 31, 2001 totaled ($174,091) or ($0.01) per share,
compared with losses of ($1,662,655) or ($0.12) per share for the second fiscal
quarter of FY 2000. The decrease in the loss per share of $0.11 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
($0.06) of per share improvement is the result of an increase in the number of
outstanding common shares.
Liquidity and Capital Resources
During the first six months of FY 2001 the Company sustained losses of $468,099.
As a result of these losses, the Company has had to raise cash ($129,505)
through the exercise of warrants, representing 5,144,301 common shares and issue
a promissory note for $345,078.
Inflation and Seasonality
The Company does not believe that it is significantly impacted by inflation.
12
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. Settled in March
2001
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.
13
Item 2. Changes in the Securities and Use of Proceeds.
During the quarter 3,171,411 common shares were issued: 6,311 shares
for debt conversion; 575,000 shares for services; and 2,590,000 shares for
option/warrant exercises. Additionally the Company issued convertible promissory
notes for $250,000. Cash proceeds $196,325 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.
The note was due December 9, 2000. As the Company has mutually
terminated its definitive agreement with ITEC and has entered into an agreement
to purchase tAA, 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 in September
1997 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.
14
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.
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.
Date: May 14, 2001 By: /s/ Stephen J. Fryer
----------------------
Stephen J. Fryer, Chairman, CEO,
and Principal Accounting Officer
15
Exhibit 11
Pen Interconnect, Inc.
CALCULATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE MONTHS AND SIX MONTHS ENDED
MARCH 31, 2001 AND 2000
Three Months Ended March 31, Six Months Ended March 31,
2001 2000 2001 2000
----------- ------------ ------------- ------------
Loss attributable to
Common stockholders $ 174,091 $ (1,687,942) $ 468,099 $ (2,330,172)
----------- ------------ ------------- ------------
Basic EPS
Common shares outstanding entire
period 27,596,946 9,638,114 27,596,946 9,638,114
Weighted average common shares
issued 1,478,291 3,671,429 4,264,200 1,963,488
Weighted average common shares
outstanding during period 29,075,237 13,584,534 35,214,200 11,626,602
Loss per common share (.01) (.12) (.01) (.20)
Diluted EPS
Weighted average common shares
outstanding during period-basic 29,075,237 13,584,534 35,214,200 11,626,602
Dilutive effect of stock options
and Warrants 0 0 0 0
Weighted average common shares
outstanding during period-diluted 29,075,237 13,584,534 35,214,200 11,626,602
Loss per common share-diluted (.01) (.12) (.01) (.20)