SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) November 12, 1996
PEN INTERCONNECT, INC.
(Exact name of registrant as specified in its charter)
Utah 1-14072 87-0430260
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
2351 South 2300 West, Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 973-6090
<PAGE>
Item 2. Acquisition or Disposition of Assets
On November 12, 1996, the registrant sold all of the net assets used by it in
the operations of its San Jose Division ("Division") to Touche Electronics, Inc.
("Touche"), a subsidiary of TMCI Electronics, Inc. ("TMCI"). The sale was
effective as of November 1, 1996.
The sales price for the net assets of the Division was $3,300,000; consisting of
$2,000,000 in cash, $900,000 in promissory notes, and 53,669 shares of TMCI
common stock with an agreed upon guaranteed value of $400,000. In addition, Pen
has the rights to receive $700,000 in contingent earnout for a potential total
sale price of $4,000,000. Pen originally purchased the Division in March 1995
for approximately $2,200,000. As part of the transaction, Touche and TMCI also
assumed certain liabilities associated with the operations of the Division.
The $900,000 in promissory notes are comprised of two promissory notes in the
amounts of $400,000 and $500,000, respectively. The $400,000 promissory note
bears interest at one-half of one percent above the prime rate and is to be
fully amortized and paid monthly over a 24 month period. The $500,000 promissory
note bears interest at the rate of one-half of one percent above the prime rate,
is amortized over a 48 month period and is payable monthly with the entire
balance coming due on October 31, 1999.
In addition, Pen has the right to receive up to $700,000 of contingent earnouts.
These contingent earnouts are described as follows:
1. Accounts Receivable Over 120 Days. Pen is entitled to receive .13417 shares
of TMCI common stock for every $1 of past due over 120 days accounts
receivable of the Division as of October 31, 1996 collected within 180 days
of the closing date, up to a maximum of 13,417 shares of stock or $100,000.
2. Division Earnings. Pen has the right to receive up to 80,503 shares of TMCI
-------- ---------
common shares or cash equivalent at the option of TMCI contingent upon the
earnings of the Division. To the extent the earnings of the Division,
determined before interest, income taxes and corporate overhead
allocations, exceed $800,000 in any one year, Pen shall be entitled to
receive such excess on a dollar for dollar basis in the form of TMCI common
shares valued at $7.4532 per share until Pen has received up to $600,000 in
the aggregate worth of TMCI common stock or 80,503 shares or cash
equivalent at the option of TMCI. Pen has the right to earn these shares
during the calendar years 1997 through 2000. Based on the historical
earnings if the transaction had occurred in March 1995 (the date the
Division was purchased) the earnout amount would have been approximately
$600,000 at June 30, 1996. However, the actual earnout amount may vary
based on future earnings of the Division and the timing of such earnings.
The net assets sold by the registrant include all of the assets used by the
Division in its operations including, but not limited to, inventory, accounts
receivable, furniture, fixtures and equipment, customer lists, intellectual
property and the assumption of accounts payable and other liabilities.
2
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The sales price for the Division was determined on the basis of arms-length
negotiations between the registrant, Touche and TMCI and was based in a large
part on the earnings and net assets of the Division. There was no material
relationship between the registrant and TMCI prior to the acquisition however,
the registrant leased space and sold product to Touche in the normal course of
business.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information. The following pro forma condensed
financial information is included as part of this report:
Page
4 Explanation of Pro Forma Condensed Statements 5 Pro Forma Condensed Balance
Sheet as of June 30, 1996 (unaudited) 6-7 Pro Forma Condensed Statements of
Earnings for the nine months ended June
30, 1996 and for the year ended September 30, 1995 (unaudited) 8-9 Notes to
Pro Forma Condensed Financial Statements (unaudited)
(c) Exhibits. Any exhibits which pertain to the above-described transaction
shall be filed with the registrant's Form 10-KSB for the period ending
September 30, 1996.
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PEN INTERCONNECT, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On November 12, 1996, the registrant sold all of the net assets used by it in
the operations of its San Jose Division ("Division") to Touche Electronics, Inc.
("Touche"), a subsidiary of TMCI Electronics, Inc. ("TMCI"). The sale was
effective as of November 1, 1996.
The sales price for the net assets of the Division was $3,300,000; consisting of
$2,000,000 in cash, $900,000 in promissory notes, and 53,669 shares of TMCI
common stock with an agreed upon guaranteed value of $400,000. In addition, Pen
has the rights to receive $700,000 in contingent earnout for a potential total
sale price of $4,000,000. Pen originally purchased the Division in March 1995
for approximately $2,200,000. As part of the transaction, Touche and TMCI also
assumed certain liabilities associated with the operations of the Division. (See
additional detail in Item #2 above)
The objective of this unaudited pro forma condensed financial information is to
provide information about the continuing impact of the sales transaction by
showing how it might have affected historical financial statements if the
transaction had been consummated at an earlier time.
The following unaudited pro forma condensed statements of earnings for the year
ended September 30, 1995, and for the nine months ended June 30, 1996, are
presented as if the sale had occurred on March 24, 1995 ( the date the Division
was originally purchased by Pen).
The pro forma condensed statements are derived from respective historical
financial statements of Pen. The pro forma condensed statements of earnings
eliminate the Division's statement of earnings for the year ended September 30,
1995 and for the nine months ended June 30, 1996 from the Pen historical
statements of earnings for the year ended September 30, 1995 and for the nine
months ended June 30, 1996 as adjusted for the sale.
The pro forma condensed balance sheet eliminates the Division's assets sold and
liabilities assumed as of June 30, 1996 from the historical balance sheet of Pen
as of June 30, 1996 as adjusted for the sale.
The unaudited pro forma condensed data is presented for informational purposes
only and may not be indicative of what the results of operations and financial
position of the Company would have been had the sale occurred on the dates
specified, nor is it indicative of the Company's future results.
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PEN INTERCONNECT, INC.
PRO FORMA CONDENSED BALANCE SHEET
June 30, 1996
(UNAUDITED)
(amounts in thousands)
<TABLE>
<CAPTION>
Historical
Disposition Pro forma
Pen Division Adjustments Pro Forma
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $ 14,131 $ 2,810 $ 454 (F,E) $ 11,775
PROPERTY AND EQUIPMENT 3,057 696 0 2,361
OTHER ASSETS 1,733 70 918 (C,D,F) 2,581
-------------- ------------- ----------------- ---------------
TOTAL ASSETS $ 18,921 $ 3,576 $ 1,372 $ 16,717
============== ============= ================= ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 9,778 $ 2,837 $ 631 (A,B,K,I) $ 7,572
L-T OBLIGATIONS AND OTHER 541 38 0 503
-------------- ------------- ----------------- ---------------
TOTAL LIABILITIES 10,319 2,875 631 8,075
STOCKHOLDERS' EQUITY 8,602 701 741 (E,I,J,K) 8,642
-------------- ------------- ----------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,921 $ 3,576 $ 1,372 $ 16,717
============== ============= ================= ===============
</TABLE>
The accompanying notes to pro forma condensed financial statements are an
integral part of these statements.
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<PAGE>
PEN INTERCONNECT, INC.
PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(Amounts in thousands except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
Disposition Pro forma
Pen Division Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Net sales $ 15,022 $ 3,819 $ 0 $ 11,203
Cost of sales 11,843 2,723 0 9,120
-------------- ------------- ----------------- ---------------
Gross profit 3,179 1,096 0 2,083
Operating expenses
Sales and marketing 795 156 (10) (2) 629
General and administrative 925 136 (106) (2) 683
Depreciation and amortization 148 68 0 80
-------------- ------------- ----------------- ---------------
Total operating expenses 1,868 360 (116) 1,392
-------------- ------------- ----------------- ---------------
Operating income 1,311 736 116 691
Other income (expense)
Interest expense (333) (152) 0 (181)
Other, net 31 17 34 (1) 48
-------------- ------------- ----------------- ---------------
Total other income (expense) (302) (135) 34 (133)
-------------- ------------- ----------------- ---------------
Earnings before income taxes 1,009 601 150 558
Income taxes 391 235 60 (3) 216
-------------- ------------- ----------------- ---------------
NET EARNINGS $ 618 $ 366 $ 90 $ 342
============== ============= ================= ===============
Earnings per common share - Primary $ 0.20
---------------
Fully dilutive $ 0.20
---------------
Weighted average common shares
outstanding - Primary` 1,700,000
Fully dilutive 1,700,000
</TABLE>
The accompanying notes to pro forma condensed financial statements are an
integral part of these statements.
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<PAGE>
PEN INTERCONNECT, INC.
PRO FORMA CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(Amounts in thousands except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
Disposition Pro forma
Pen Division Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Net sales $ 18,595 $ 5,716 $ 0 $ 12,879
Cost of sales 15,606 4,458 0 11,148
-------------- ------------- ----------------- ---------------
Gross profit 2,989 1,258 0 1,731
Operating expenses
Sales and marketing 914 272 (15) (2) 627
General and administrative 1,128 180 (158) (2) 790
Depreciation and amortization 166 53 0 113
-------------- ------------- ----------------- ---------------
Total operating expenses 2,208 505 (173) 1,530
-------------- ------------- ----------------- ---------------
Operating income 781 753 173 201
Other income (expense)
Interest expense (297) (179) 0 (118)
Other, net 7 (24) 39 (1) 70
-------------- ------------- ----------------- ---------------
Total other income (expense) (290) (203) 39 (48)
-------------- ------------- ----------------- ---------------
Earnings before income taxes 491 550 212 153
Income taxes 193 215 85 (3) 63
-------------- ------------- ----------------- ---------------
NET EARNINGS $ 298 $ 335 $ 127 $ 90
============== ============= ================= ===============
Earnings per common share - Primary $ 0.04
---------------
Fully dilutive $ 0.03
---------------
Weighted average common shares
outstanding - Primary` 2,570,379
Fully dilutive 2,576,553
</TABLE>
The accompanying notes to pro forma condensed financial statements are an
integral part of these statements.
7
<PAGE>
PEN INTERCONNECT, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
(Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
The Pro Forma Balance Sheet gives effect to the following adjustments:
(A)
<S> <C>
Represents the amount owned to Pen for normal intercompany transactions not
assumed as part of the sale. $ 2,426
(B)
Represents the cash received associated with the sale of the Division.
This cash was used to reduce the line of credit as such borrowing may
not have been
necessary if the Division was sold at an earlier date. 2,000
(C)
Represents the Promissory Notes received as per the sales agreement. 900
(D)
Represents TMCI stock received as part of the sales agreement. 400
(E)
Represents interest income earned on Promissory Notes 72
(F)
Represents principal payments on the Promissory Notes assuming the transaction
occurred at an earlier date. 382
(G)
Not Used
(H)
Not Used
(I)
Accrual for income taxes on (E,J&K) 494
(J)
Represents the gain on the sale of the Division based on the net book value as of
June 30, 1996 (Proforma historical financial reporting data) 874
(K)
Estimated reduction in operating expenses 289
</TABLE>
8
<PAGE>
PEN INTERCONNECT, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
STATEMENTS OF EARNINGS
(Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
The Pro Forma Statements of Earnings gives effect to the following adjustments:
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER
June 30, 1996 30, 1995
------------------- ------------
(1)
<S> <C> <C>
Represents interest income earned on Promissory Note $ 39 $ 34
(2)
Represents estimated corporate savings for Marketing, Sales
and General & Administrative expenses 173 116
(3)
Accrue taxes for the above transactions 85 60
</TABLE>
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEN INTERCONNECT, INC.
(registrant)
November 27, 1996 /s/ James S. Pendleton
(Date) JAMES S. PENDLETON
CHIEF EXECUTIVE OFFICER
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