SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 5, 1999
Pen Interconnect, Inc.
(Exact Name of Registrant as Specified in its Charter)
Utah 1-14072 87-0430260
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
1601 Alton Parkway, Irvine, California 92606
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including Area Code: (949) 261-3131
2351 South 2300 West, Salt Lake City, UT 84119
(Registrant's Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets
1. On January 29, 1999, Pen Interconnect, Inc., (the "Company") entered
into an Asset Purchase Agreement with Pen Cabling Technologies, LLC (the
"Purchaser"), a wholly-owned subsidiary of CTG, Inc. ("CTG"), whereby the
Purchaser acquired substantially all of the assets relating to the Company's
custom cable and harness interconnections business located in Salt Lake City,
Utah (the "Cable Division"). The transaction was closed on February 5, 1999. The
purchase price was $1,075,000 and the assumption by the Purchaser of certain
lease obligations of the Cable Division. The purchase price was based upon the
approximate book value of the assets and liabilities divested. Additional
payments may be made by the Purchaser based on a post-closing valuation of the
inventory transferred in the transaction. The Company, the Purchaser, and CTG
also entered into a Consulting Agreement whereby the Company will receive
royalties on future sales of the Cable Division business and products. Of the
purchase price, $847,823 was paid to the Company's principal lender, FINOVA, and
$227,177 was paid to satisfy certain outstanding liabilities relating to the
Cable Division which were not assumed by the Purchaser. Prior to the closing,
there were no material relationships between the Purchaser, CTG, and the Company
or any director or officer of the Company, or any associate or affiliate of the
Company or any of its directors or officers, other than that CTG was a
non-material supplier to the Company.
2. As of December 23, 1998, the Company entered into an Agreement and
Plan of Merger by and among the Company, Pen Laminating, Inc., a wholly-owned
subsidiary of the Company, and Laminating Technologies, Inc. ("LTI") (the "LTI
Agreement"). Under the LTI Agreement, LTI would merge into Pen Laminating, Inc.
in exchange for the issuance of shares of the Company's Common Stock to the
shareholders of LTI. Each share of LTI Common Stock will be converted into a
number of shares of the Company's Common Stock equal to $0.50 divided by the
closing price of the Company's Common Stock on the fifth business day following
the effectiveness of a registration statement to be filed to register the Common
Stock to be issued to LTI's shareholders. In no event will the denominator
exceed $1.50. LTI currently has outstanding 3,185,100 shares of Common Stock,
and convertible securities to receive an aggregate of up to 8,656,800 shares of
LTI's Common Stock, which convertible securities will be converted into
securities convertible into the Company's Common Stock at the same ratio. The
closing of the transaction is contingent, among other factors, on the
effectiveness of the afore-mentioned registration statement and the approval of
both the Company=s and LTI's shareholders. There are no material relationships
between LTI and the Company or any director or officer of the Company, or any
associate or affiliate of the Company or any of its directors or officers.
2
Item 5. Other Events.
On February 12, 1999, the Company issued 1,800 shares of a new Series A
Convertible Preferred Stock to various foreign investors (the "Series A
Preferred"). Each share of Series A Preferred has a Stated Value of $1,000. The
aggregate consideration for the issuance of the Series A Preferred was
$1,300,000 in cash and the cancellation of promissory notes for $500,000.
Dividends are payable quarterly on the Series A Preferred of $80.00 per share
per annum. Dividends increase to $160.00 per share per annum if the Company's
Common Stock is not listed on any national securities exchange. Each share of
Series A Preferred is convertible into an amount of shares of the Company's
Common Stock equal to the Stated Value of such share of Series A Preferred
divided by the average of the two lowest closing bid prices, as reported by
Bloomberg L.P., on the principal market for the Company's Common Stock based on
trading volume during the period of 22 consecutive trading days ending with the
last trading day prior to the date of conversion (the "Market Price") after
discounting the Market Price by 15% (the "Conversion Price"). In no event will
the Conversion Price be greater than a per share price equal to the closing bid
price of the Company's common stock on February 12, 1999 (the "Closing Price")
times 110%(the "Maximum Conversion Price"). The Series A Preferred is
convertible on the earlier of (i) June 14, 1999, (ii) the effectiveness of a
registration statement to be filed registering the shares of the Company's
Common Stock underlying the Series A Preferred, or (3) if the holder accepts the
Maximum Conversion Price, then it is convertible immediately. Until the issuance
of the Series A Preferred is approved by the Company's shareholders, Common
Stock issued on conversion cannot exceed 19.99% of the Company's outstanding
Common Stock. The Company is obligated to present the issuance of the Series A
Preferred for approval at its next meeting of shareholders. Until the Series A
Preferred becomes convertible, the Company has the right to redeem up to 50% of
the Series A Preferred for 140% of the Closing Price plus all accrued but unpaid
dividends, although the Series A Preferred holders then have a five-day right to
convert instead at the then applicable Conversion Price. The Series A Preferred
investors also received warrants to acquire an aggregate of 90,000 shares of the
Company's Common Stock exercisable at 120% of the Closing Price date and an
aggregate of 90,000 shares of the Company's Common Stock exercisable at 135% of
the Closing Price. A registration statement for the shares of Common Stock
underlying the Series A Preferred and warrants must be filed by March 29, 1999
and effective by June 1, 1999. If the registration dates are not met, the
penalty is 1.5% extra interest per month. The holders of the Series A Preferred
also received rights of first refusal with respect to certain future financings
by the Company. In connection with the issuance of the Series A Preferred, the
Company also paid a fee equal to 7% of the consideration received.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) Financial Statements of Business Acquired.
(1) Consolidated Financial Statements of LTI and subsidiary as
of and for the two years ended March 31, 1998 (incorporated by
reference from LTI's annual report on Form 10-KSB for the
fiscal year ended March 31, 1998).
(2) Consolidated Financial Statements of LTI and subsidiary as
of and for the quarterly periods ended September 30, 1998 and
1997 (incorporated by reference from LTI's quarterly report on
Form 10-QSB for the fiscal quarter ended September 30, 1998).
(b) Pro Forma Financial Information
Pro forma financial information incorporating all of the
transactions described in Item 2 above follows this Item. This
pro forma information does not include the transaction
described in Item 5.
(c) Exhibits
2.1. Asset Purchase Agreement by and between the Company and
Pen Cabling Technologies, LLC dated as of January 29, 1999.
2.2. Consulting Agreement by and between the Company, Pen
Cabling Technologies, LLC, and CTG, Inc. dated as of January
29, 1999.
2.3. Agreement and Plan of Merger by and among the Company,
Pen Laminating, Inc., and Laminating Technologies, Inc. dated
as of December 21, 1998
2.4. Convertible Preferred Stock and Warrant Purchase
Agreement between Pen Interconnect, Inc., RBB Bank AG, Austost
Anstalt Schaan, Balmore Funds, S.A., and AMRO International,
S.A. dated as of February 12, 1999.
3.1. Certificate of Amendment creating Series A Convertible
Preferred Stock as filed February 10, 1999.
3
Pen Interconnect, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 and 1997
4
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
--------------------
The unaudited pro forma data presented in the unaudited pro forma combined
financial statements are included in order to illustrate the effect on the
Company's financial statements of two transactions described below.
The unaudited pro forma combined balance sheet at September 30, 1998 presents
adjustments for two transactions. First, adjustments are presented as if, at
September 30, 1998, (Pen Interconnect, Inc. (Pen or the Company), had sold
substantially all of the assets relating to the Company's custom cable and
harness interconnections business located in Salt Lake City, Utah (the Cable
Division), which transaction closed on January 28, 1999. Second, adjustments are
presented as if, at September 30, 1998, the Agreement and Plan of Merger, dated
December 21, 1998, by and among the Company, Pen Laminating, Inc., a newly
created, wholly-owned subsidiary of the Company, and Laminating Technologies,
Inc. (LTI), of Atlanta Georgia, (which transaction is expected to close in the
second or third quarter of fiscal year 1999), had occurred. The Agreement and
Plan of Merger call for LTI to merge into Pen Laminating, Inc. in exchange for
the issuance of shares of the Company's common stock to the shareholders of LTI.
The unaudited pro forma combined statement of operations for the year ended
September 30, 1998 presents adjustments for the above two transactions to show
the effect of the pending sale transaction of the Cable Division and to show the
effect of the pending merger transaction with LTI. First, adjustments are
presented to show, as if at the beginning of the period, that the sales
transaction relating to the Cable Division had taken place. Second, adjustments
are presented as if, at the beginning of the period, that the LTI merger had
occurred.
The unaudited pro forma statements are derived from the respective historical
financial statements and notes thereto of Pen and LTI. The unaudited pro forma
combined balance sheet combines Pen's historical balance sheet as of September
30, 1998, after adjustments for the sale of the Cable Division, with the
historical balance sheet of LTI at September 30, 1998. The unaudited pro forma
combined statement of operations combines Pen's historical statement of
operations for the year ended September 30, 1998, after adjustments for the sale
of the Cable Division, with the statement of operations of LTI for the year
ended September 30, 1998 which is composed of the first six months of LTI's
fiscal year ending March 31, 1999 and the last six months of LTI's fiscal year
ended March 31, 1998.
The unaudited pro forma data is presented for informational purposes only and
may not be indicative of the future results of operations and financial position
of the Company or what the results of operations and financial position of the
Company would have been had the sale of the Cable Division and the merger with
LTI occurred on the dates indicated.
These unaudited pro forma statements should be read in conjunction with the
historical financial statements and the related notes thereto of Pen and of LTI.
5
PEN INTERCONNECT, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
Sale of Division (1) (2) Acquisition of LTI (3) (4) (5)
(6) (7)
------------------------- --------------------------------
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Pen Adjustments Pen LTI Adjustments Combined
----------- ------------ ---------- --------------- --------------- -----------
Cash and cash equivalents $ 657,777 $ - $ 657,777 $ 196,361 $ - $ 854,138
Investments 242,739 - 242,739 1,989,812 - 2,232,551
Receivables 3,495,220 (310,467) 3,184,753 188,153 - 3,372,906
Allowance for bad debts (108,575) - (108,575) (25,000) - (133,575)
Inventories 3,680,169 (361,880) 3,318,289 426,431 - 3,744,720
Prepaid expenses 261,375 (19,757) 241,618 - - 241,618
Deferred income taxes 41,324 - 41,324 - - 41,324
Other current assets - - - 91,310 - 91,310
----------- ------------ ---------- --------------- --------------- -----------
Total current assets 8,270,029 (692,104) 7,577,925 2,867,067 - 10,444,992
Property and equipment 4,158,877 (2,858,275) 1,300,602 485,322 (485,322) 1,300,602
Accumulated depreciation (1,680,266) 1,472,008 (208,258) (179,698) 179,698 (208,258)
----------- ------------ ---------- --------------- --------------- -----------
Total property and equipment 2,478,611 (1,386,267) 1,092,344 305,624 (305,624) 1,092,344
Notes receivable, less current maturities 3,989 - 3,989 - - 3,989
Deferred income taxes 725,667 - 725,667 - - 725,667
Intangible assets 2,359,044 - 2,359,044 - 200,000 2,559,044
Accumulated amortization of intangibles (327,359) - (327,359) - - (327,359)
Investments 482,220 - 482,220 - - 482,220
Other assets 98,455 (32,390) 66,065 - - 66,065
----------- ------------ ---------- --------------- --------------- -----------
Total other assets 3,342,016 (32,390) 3,309,626 - 200,000 3,509,626
=========== ============ ========== =============== =============== ===========
Total assets $14,090,656 $ (2,110,761) $11,979,895 $ 3,172,691 $ (105,624) $15,046,962
=========== ============ ========== =============== =============== ===========
Line of credit $ 4,064,361 $ (458,000) $3,606,361 $ - $ - $ 3,606,361
Subordinated debentures 1,401,429 - 1,401,429 - - 1,401,429
Current maturities of long-term
obligations 1,132,538 (390,000) 742,538 46,249 - 788,787
Current maturities of capital leases 69,621 (64,886) 4,735 - - 4,735
Accounts payable 2,926,797 (227,000) 2,699,797 193,822 - 2,893,619
Accrued liabilities 389,889 - 389,889 77,014 400,000 866,903
----------- ------------ ---------- --------------- --------------- -----------
Total current liabilities 9,984,635 (1,139,886) 8,844,749 317,085 400,000 9,561,834
Long-term obligations, less
current maturities 51,965 - 51,965 16,254 - 68,219
Capital lease obligations, less
current maturities 22,333 - 22,333 - - 22,333
Negative goodwill - - - - 1,046,802 741,178
(305,624)
Deferred income taxes 165,755 - 165,755 - - 165,755
----------- ------------ ---------- --------------- --------------- -----------
Total liabilities 10,224,688 (1,139,886) 9,084,802 333,339 1,141,178 10,559,319
Preferred stock - - - - - -
Common stock 50,184 - 50,184 31,851 15,926 66,110
(31,851)
Additional paid-in capital 10,890,022 - 10,890,022 11,709,254 1,576,624 12,466,646
(11,709,254)
Accumulated deficit (7,074,238) (970,875) (8,045,113) (8,901,753) 9,101,753 (8,045,113)
(200,000)
----------- ------------ ---------- --------------- --------------- -----------
Total stockholders' equity 3,865,968 (970,875) 2,895,093 2,839,352 (1,246,802) 4,487,643
=========== ============ ========== =============== =============== ===========
Total liabilities and
stockholders' equity $14,090,656 $ (2,110,761) $11,979,895 $ 3,172,691 $ (105,624) $15,046,962
=========== ============ ========== =============== =============== ===========
6
PEN INTERCONNECT, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
Sale of Division (1) Acquisition of LTI (3) (5)
(8) (9)
-------------------------- -----------------------------
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
Pen Adjustments Pen LTI Adjustments Combined
----------- ------------ ----------- ------------- -------------- ------------
Net sales $17,091,432 $ (3,833,312) $13,258,120 $ 932,191 $ - $14,190,311
Cost of sales 15,892,456 (3,950,345) 11,942,111 765,524 - 12,707,635
----------- ------------ ----------- ------------- -------------- ------------
Gross profit (loss) 1,198,976 117,033 1,316,009 166,667 - 1,482,676
----------- ------------ ----------- ------------- -------------- ------------
Operating expenses
Sales and marketing 565,185 (370,722) 194,463 427,127 - 621,590
Research and development 550,843 - 550,843 576,516 - 1,127,359
General and administrative 2,357,875 (934,026) 1,423,849 681,764 200,000 2,305,613
Abandoned lease fees 16,000 - 16,000 - - 16,000
Asset impairment charges 570,765 - 570,765 - - 570,765
Depreciation and amortization 675,753 (274,842) 400,911 94,538 (94,538) 400,911
----------- ------------ ----------- ------------- -------------- ------------
Total operating expenses 4,736,421 (1,579,590) 3,156,831 1,779,945 105,462 5,042,238
----------- ------------ ----------- ------------- -------------- ------------
Operating loss (3,537,445) (1,696,623) (1,840,822) (1,613,278) (105,462) (3,559,562)
----------- ------------ ----------- ------------- -------------- ------------
Other income (expense)
Interest expense (1,100,717) (77,100) (1,023,617) (6,874) - (1,030,491)
Investment income - - - 168,290 - 168,290
Amortization of negative goodwill - - - - 74,178 74,178
Other income (expense), net (39,361) - (39,361) - - (39,361)
----------- ------------ ----------- ------------- -------------- ------------
Total other income
(expense), net (1,140,078) (77,100) (1,062,978) 161,416 74,178 (827,384)
----------- ------------ ----------- ------------- -------------- ------------
Loss before income taxes (4,677,523) (1,773,723) (2,903,800) (1,451,862) (31,284) (4,386,946)
Income tax expense 767,860 - 767,860 - - 767,860
----------- ------------ ----------- ------------- -------------- ------------
=========== ============ =========== ============= ============== ============
NET LOSS $(5,445,383) $ (1,773,723) $(3,671,660) $ (1,451,862) $ (31,284) $(5,154,806)
=========== ============ =========== ============= ============== ============
Loss per common share
Basic $ (1.24) $ (0.86)
Diluted (1.24) (0.86)
Weighted-average common and
dilutive common equivalent
shares outstanding
Basic 4,397,490 5,990,040
Diluted 4,397,490 5,990,040
7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
----------------------------------------------------------
1. Reflects the Company's sale of Cable Division located in Salt Lake
City, Utah.
Effective January 29, 1999, the Company sold substantially all
of the assets and liabilities of its custom cable and harness
interconnections business to Pen Cabling Technologies, LLC, a
wholly-owned subsidiary of CTG, Inc. of Dayton, Ohio. The sales
price was $1,075,000 and the assumption of certain related lease
obligations. Additional payments may be made by the purchaser
based upon a post-closing valuation of certain assets
transferred in the transaction. In addition, the Company will
receive royalties on future sales of the Cable Divisions
products. Assets and liabilities sold were as follows:
Receivables, net $ 310,467
Inventories 361,880
Property and equipment, net 1,386,267
Prepaid expenses 19,757
Other assets 32,390
Capital leases (64,886)
-----------
Net assets sold 2,045,875
Cash received 1,075,000
===========
Loss on sale of Division $ (970,875)
===========
2. Reflects the use of the net proceeds from the sale of the Division as
follows:
Reduction of line of credit $ 458,000
Reduction of long-term obligations 390,000
Reduction of accounts payable 227,000
==========
$1,075,000
==========
3. Reflects the merger of the Company with Laminating Technologies, Inc.
(LTI) of Atlanta, Georgia under the Agreement and Plan of Merger (the
Agreement) dated December 21, 1998, which is expected to close in the
second or third quarter of fiscal year 1999. Under the Agreement, LTI
would merge into Pen Laminating, Inc., a newly created, wholly-owned
subsidiary of the Company in exchange for the issuance of shares of
the Company's common stock to the shareholders of LTI. Each share of
LTI common stock will be converted into a number of the Company's
common stock based upon a calculation which is equal to $0.50 divided
by the closing price of the Company's common stock on the fifth day
following the effective date of the registration statement covering
the merger transaction.
4. Reflects the recording of a non competition agreement with the
president of LTI in the amount of $200,000 to be paid over 36 months.
5. Reflects the recording of severance payments in the amount of
$200,000 to be paid to six key employees of LTI.
8
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------------
6. Reflects the issuance of the Company's common stock in exchange for
the common stock of LTI. This acquisition is to be accounted for by
the purchase method of accounting. Under purchase accounting, the
total purchase price was allocated to the tangible and intangible
assets and liabilities of LTI based upon their respective estimated
fair values, based upon preliminary valuations which are not yet
finalized. The actual allocation of the purchase price and the
resulting effect on income from operations may differ significantly
from the pro forma amounts included herein.
Also reflects the elimination of LTI's equity accounts and the
recording of negative goodwill as follows:
Common stock (LTI) $ 31,851
Additional paid-in-capital (LTI) 11,709,254
Accumulated deficit (LTI) (9,101,753)
------------
Net assets acquired 2,639,352
Common stock issued (Pen)
(1,592,550 shares at $1.00 per share) 1,592,550
============
Negative goodwill $ 1,046,802
============
The excess of fair value of net assets acquired over cost (negative
goodwill) is being amortized on a straight-line basis over ten years.
This amount represents the difference between the purchase price and
the fair value of the net assets acquired.
7. Reflects the reduction of negative goodwill and the reduction of net
property and equipment by the amount of the long-term assets acquired
in the amount of $305,624.
8. Reflects the amortization of negative goodwill for one year in the
amount of $74,178.
9. Reflects the reduction of depreciation and amortization expense of
$94,538 for LTI due to the fact that the cost of all property and
equipment of LTI has been eliminated and offset against the negative
goodwill.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pen Interconnect, Inc.
By: /s/ Stephen J. Fryer
--------------------------
Stephen J. Fryer
President and Chief Operating Officer
Date: February 16, 1999
10