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, 1997
[ ] 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
incorporation or organization) Identification No)
2351 South 2300 West, Salt Lake City, UT 84119
(Address of Principal Executive Offices) (Zip Code)
(801) 973-6090
(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 February 13, 1998, the issuer had 4,147,863 shares of its common
stock, par value $0.01 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
FORM 10-QSB
PEN INTERCONNECT, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Financial Information 3
Balance Sheets at December 31, 1997
(unaudited) and September 30, 1997 4-5
Statements of Operations for the three months
ended December 31, 1997 and 1996 (unaudited) 6
Statements of Cash Flows for the three months
ended December 31, 1997 and 1996 (unaudited) 7-9
Notes to Condensed Financial Statements (unaudited) 10-13
Item 2 Management's Discussion and Analysis or
---------------------------------------
Plan of Operation 14-16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in the Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6(a). Exhibits
Item 6(b). Reports on Form 8-K 17
Signatures 18
2
<PAGE>
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, 1997 and
audited balance sheet as of September 30, 1997 (the Company's most
recent fiscal year), unaudited condensed statements of operations for
the three months ended December 31, 1997 and 1996, and unaudited
condensed statements of cash flows for the three months ended December
31, 1997 and 1996, 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, 1997. The results of operations for the three months
ended December 31, 1997 may not be indicative of the results that may
be expected for the year ending September 30, 1998.
3
<PAGE>
Pen Interconnect, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 September 30,
1997 1997
------------- -------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 50,175 $ 272,148
Receivables
Trade accounts, less allowance for doubtful accounts of $151,094
and $137,058 at December 31, and September 30, 1997,
respectively. 2,936,026 2,093,056
Current maturities of notes receivable (Note A) 27,978 357,006
Investments in common stock (Note A) 740,000 400,000
Inventories (Notes B) 3,554,536 3,355,871
Prepaid expenses and other current assets 287,313 289,991
Deferred tax asset 141,324 141,324
------------- -------------
Total current assets 7,737,352 6,909,396
PROPERTY AND EQUIPMENT, AT COST
Production equipment 2,471,122 2,418,368
Furniture and fixtures 841,673 834,971
Transportation equipment 71,522 69,217
Leasehold improvements 368,137 368,137
----------- --------------
3,752,454 3,690,693
Less accumulated depreciation 1,373,082 1,303,063
----------- ------------
2,379,372 2,387,630
OTHER ASSETS
Notes receivable, less current maturities (Note A) 76,294 607,524
Investments in common stock (Note A) 684,000 -
Deferred income taxes 1,412,501 1,392,658
Goodwill and other intangibles (net) 2,246,197 2,287,146
Other 502,720 322,630
------------ -------------
4,921,712 4,609,958
----------- ------------
$15,038,436 $13,906,984
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Pen Interconnect, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- -------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Notes payable $ 117,093 $ 641,505
Bridge loan - 100,000
Line of credit 2,640,343 2,237,690
Current maturities of long-term obligations 277,671 263,255
Current maturities of capital leases 61,471 66,464
Accounts payable 1,919,846 2,053,348
Accrued liabilities 331,932 481,356
------- -------
Total current liabilities 5,348,356 5,843,618
LONG-TERM OBLIGATIONS, less current
maturities (Note C) 1,120,482 681,722
CAPITAL LEASE OBLIGATIONS, less current
maturities 43,009 70,889
SUBORDINATED DEBENTURES (Note D) 1,100,000 -
DEFERRED INCOME TAXES 165,755 165,755
------------ -----------
Total liabilities 7,777,602 6,761,984
STOCKHOLDERS' EQUITY (Notes A and E)
Preferred stock, $0.01 par value, authorized
5,000,000 shares, none issued - -
Common stock, $0.01 par value, authorized
50,000,000 shares, issued and outstanding
4,147,863 shares at December 31, 1997 and
4,072,863 shares at September 30, 1997 41,479 40,729
Additional paid-in capital 8,882,376 8,733,126
Accumulated deficit (1,663,021) (1,628,855)
-------------- ---------------
Total stockholders' equity 7,260,834 7,145,000
------------- -----------
$15,038,436 $13,906,984
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Pen Interconnect, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31,
1997 1996
------------ -----------
<S> <C> <C>
Net sales $ 3,904,717 $ 5,258,386
Cost of sales 3,055,373 4,357,136
------------- -----------
Gross profit 849,344 901,250
Operating expenses
Sales and marketing 218,381 202,319
Research and development 88,387 45,308
General and administrative 435,463 334,358
Depreciation and amortization 114,275 92,289
------------- ------------
Total operating expenses 856,506 674,274
------------- -----------
Operating income (loss) (7,162) 226,976
Other income (expense)
Interest expense (79,037) (140,163)
Gain on sale of division (Note A) - 611,912
Other income, net 30,233 16,258
-------------- ------------
Total other income (expense) (48,804) 488,007
--------------- -----------
Earning loss before income taxes (55,966) 714,983
Provision (benefit) for income taxes (21,800) 285,551
-------------- ------------
Net earnings (loss) $ (34,166) $ 429,432
============== ==========
Earnings (loss) per common share - basic (Note E) $ (0.01) $ 0.14
=============== ============
Weighted average common
shares outstanding 4,122,863 3,033,407
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS
For three months ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------ --------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
<S> <C> <C>
Net earnings (loss) $ (34,166) $ 429,432
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 114,275 92,289
Bad debts 14,036 (4,230)
Gain on sale of division - (611,912)
Contingent stock San Jose agreement (40,000) -
Loss on disposal of equipment 16,537 -
Changes in assets and liabilities
Trade accounts receivable (857,006) 799,863
Inventories (198,665) (214,430)
Prepaid expenses and other assets (161,412) (174,803)
Accounts payable (133,502) (285,665)
Accrued liabilities (149,424) (159,523)
Income taxes (19,843) 272,823
---------------- -------------
Total adjustments (1,415,004) (285,588)
------------- --------------
Net cash (used in)
provided by operating activities (1,449,170) 143,844
------------- ------------
Cash flows from investing activities
Purchase of property and equipment (81,605) (112,949)
Proceeds from sale of division - 2,000,000
Issuance of notes receivable (39,742) -
Collections on notes receivable - 13,612
------------------- --------------
Net cash (used in) provided
by investing activities (121,347) 1,900,663
-------------- -----------
</TABLE>
(Continued)
7
<PAGE>
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the three months ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------- -----------
Cash flows from financing activities
<S> <C>
Principal payments on notes payable (524,412) -
Net change in line of credit 402,653 (2,178,487)
Principal payments on bridge loan (100,000) -
Principal payments on long-term obligations (79,697) (14,244)
Proceeds from issuance of term loan 500,000 -
Proceeds from issuance of subordinated debentures 1,000,000 -
Proceeds from sale of common stock 150,000 -
------------ -----------------
Net cash (used in) provided
by financing activities 1,348,544 (2,192,731)
------------- ---------------
Net decrease in cash
and cash equivalents (221,973) (148,224)
Cash and cash equivalents at beginning of period 272,148 169,445
---------------- ---------------
Cash and cash equivalents at end of period $ 50,175 $ 21,221
============= ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 63,188 $ 129,294
Income taxes 100 -
</TABLE>
(Continued)
8
<PAGE>
Pen Interconnect, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the three months ended December 31, 1997 and 1996
(Unaudited)
Noncash investing and financing activities
During the first quarter of fiscal year 1998, notes receivable totaling $900,000
plus accrued interest of $84,000 were converted by the issuer to investments in
common stock.
Effective November 1, 1996, the Company sold substantially all assets and
certain liabilities of the San Jose Division for $2 million cash and other
consideration.
Assets and liabilities sold were as follows:
Accounts receivable $680,420
Inventories 1,644,336
Prepaid expenses 34,177
Other assets 26,099
Property and equipment 638,373
Accounts payable (277,429)
Accrued liabilities (35,373)
Capital leases (22,515)
--------------
Net assets sold 2,688,088
Less non cash consideration received
Notes $ 900,000
Stock 400,000
-----------
1,300,000
Cash consideration 2,000,000
-----------
Gain on sale of division $ 611,912
=========
The accompanying notes are an integral part of these statements.
9
<PAGE>
PEN INTERCONNECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - ACQUISITIONS/DISPOSITIONS
PowerStream Technology
Effective April 1, 1997, the Company acquired substantially all of the
assets, and assumed certain liabilities and the operations, of
PowerStream Technology, Inc. ("PowerStream") by issuing 150,000 shares of
common stock valued at $1.50 per share. PowerStream is a research and
development company specializing in power recharging devices and power
supply products. In addition the Company entered into a 5 year Employment
Agreement with Danielli Reni, the President of PowerStream. The Company
believes that Mr. Reni is an expert in the area of power recharging
devices and power supply products. This transaction was accounted for
using the purchase method of accounting. Accordingly the purchased assets
and liabilities have been recorded at their fair value at the date of
acquisition and the excess purchase price over fair value of net tangible
assets acquired of $749,114 is being amortized over 15 years. The results
of operations of the acquired business have been included in the
financial statements since the effective date of acquisition.
SALE OF SAN JOSE DIVISION
Effective November 1, 1996, the Company sold substantially all of the net
assets used by the San Jose Division ("Division") to Touche Electronics,
Inc. ("Touche"), a subsidiary of TMCI Electronics, Inc. ("TMCI"). 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, the Company had the right to receive $700,000 in contingent
earnouts for a potential total sale price of $4,000,000. The Company
originally purchased the Division in March 1995 for approximately
$2,100,000. As part of the transaction, Touche and TMCI also assumed
certain liabilities associated with the operations of the Division.
In February 1997, TMCI filed a notice of demand for rescission of the
purchase and sale of the Division. The Company filed a counterclaim
against TMCI in May, 1997, alleging that TMCI had defaulted in its
obligations under the promissory notes. The disputes were subsequently
submitted to arbitration in August, 1997.
(Continued)
10
<PAGE>
Pen Interconnect, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - ACQUISITIONS/DISPOSALS - CONTINUED
In December 1997, the Company and TMCI entered into a Settlement and
Release Agreement (the "Settlement Agreement"), releasing each other of
any and all respective claims the parties may have had against each
other. The Settlement Agreement provided, in part, that TMCI issue to the
Company, 137,390 shares of TMCI's common stock to replace the $900,000 of
promissory notes and related accrued interest payable by TMCI to the
Company. The Settlement Stock is guaranteed to have a minimum value of
$7.4532 per share. In the event the Settlement Stock is sold by the
Company at less than that amount, TMCI is obligated to pay the Company
the difference between the sales price and the guaranteed value. The
conclusion of the disputes, will allow the Company and TMCI to continue
their joint sales and marketing arrangements.
The results of operations include one month of operations for the three
month period ended December 31, 1996. The balance sheet excludes the
Division as of December 31, 1997 and September 30, 1997.
Pro forma data. The following unaudited pro forma summary represents
the combined results of operations as if the disposition of the San Jose
Division had occurred on October 1, 1996, and do not purport to be
indicative of what would have occurred had the transactions been made as
of October 1, 1996, or of results which may occur in the future. The pro
forma weighted shares is reported as if outstanding at the beginning of
the period.
Three months ended December 31,
(amounts in thousands,
except share data)
1997 1996
----------- ------------
Net sales $ 3,905 $ 4,972
Operating income (loss) (7) 210
Net earnings (loss) (34) 61
Earnings (loss) per share (0.01) 0.02
Weighted shares outstanding 3,033,407 3,033,407
11
<PAGE>
Pen Interconnect, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE B - INVENTORIES
Inventories consist of the following:
December 31, September 30,
1997 1997
-------------- -------------
Raw materials (net of allowance) $ 2,457,305 $ 2,531,235
Work-in-process 980,405 736,928
Finished goods 116,826 87,708
-------------- -------------
$ 3,554,536 $ 3,355,871
-------------- -------------
NOTE C - LOAN FROM CREDIT FACILITY
On December 8, 1997, the Company obtained the second term loan in the
principal amount of $500,000, which bears interest at a fixed rate of
10.32% per annum. The loan is payable in 36 monthly installments of
$10,417, including interest, with payments to begin in September 1998.
NOTE D - SUBORDINATED DEBENTURES
On October 22, 1997, the Board of Directors of the Company approved the
issuance of up to $1,500,000 of 3% convertible debentures (the
"Debentures") with a maximum term of 24 months. The Debentures will
mature, unless earlier converted by the holders, into shares of common
stock of the Company. The Company has agreed to file a registration
statement with the United States Securities and Exchange Commission with
respect to the Common Stock of the Company into which the Debentures may
be converted.
The Debentures are convertible by the holders thereof into the number of
shares of common stock equal to the face amount of the Debentures being
converted divided by the lesser of (i) eighty percent (80%) of the
closing bid price of the Company's common stock as reported on the NASDAQ
Small Cap market on the day of conversion, or (ii) $2.75. The Debentures
may be converted in three equal installments beginning on the earlier of
(i) the 75th day of their issuance, and continuing through the 135th day
of their issuance, or (ii) the day following the effective date of the
Registration Statement, through the 60th day following the effective date
of the Registration Statement. The Company may cause the Debentures to be
converted into shares of common stock after the 110th day following the
effective date of the Registration Statement, if the common stock has
traded at or above $5.50 per share for twenty consecutive days.
12
<PAGE>
Pen Interconnect, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE E - STOCK TRANSACTIONS
1. Stock issued for exercised warrants
In December 1997, the Company issued 75,000 shares of common stock
associated with the exercise of certain warrants.
Earnings (loss) per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share."
SFAS No. 128 is effective for financial statements for periods ending after
December 15, 1997, and requires companies to report both "basic" and "diluted"
earnings per share. A "Basic" earnings per share does note include the addition
of common stock equivalents to the shares outstanding. "Diluted" earnings per
share requires the addition of common stock equivalents to the shares
outstanding. Average shares outstanding is the denominator used in "basic"
earnings per share calculations. Accordingly, "basic" earnings per share will be
higher than "diluted" earnings per share. This statement replaces Accounting
Principles Board ("APB") Opinion No. 15, "Earnings per Share." The following
table illustrates the effect on the Company of presenting EPS in accordance with
SFAS No. 128.
<TABLE>
<CAPTION>
For the Quarter Ended December 31, 1997
Loss Shares Per-Share
<S> <C> <C> <C>
Basic EPS Loss available to
common shareholders ($34,166) 4,122,863 ($0.01)
=======
Effect of Dilutive Securities
Stock options and warrants - -
------------ ------------
Diluted EPS Earnings available
to common shareholders ($34,166) 4,122,863 ($0.01)
============ ============ =======
</TABLE>
Due to the above loss all outstanding common stock warrants and options
were excluded as they would decrease the loss per share (anti-dilutive).
<TABLE>
<CAPTION>
For the Quarter Ended December 31, 1996
Earnings Shares Per-Share
<S> <C> <C> <C>
Basic EPS Loss available to
common shareholders $429,432 3,033,407 $0.14
=====
Effect of Dilutive Securities
Stock options and warrants - -
-------------- ------------
Diluted EPS Earnings available
to common shareholders $429,432 3,033,407 $0.14
============= ============ =====
</TABLE>
Warrants to purchase 2,850,000 shares of common stock at $6.50 a share
were outstanding during the quarter. They were not included in the
computation of EPS because their exercise price was greater than the
average market price of the common shares.
13
<PAGE>
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 the timing of operating 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, 1997 and 1996. 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, 1997.
General
Pen Interconnect, Inc. (the "Company" or "Pen") is a total interconnection
solution provider offering internal and external custom cable and harness
interconnections, mobile satellite equipment, EMSI (Electronic Manufacturing
Service Industry) manufacturing (circuit board assembly) and custom design and
manufacturing of battery chargers, power supplies and Uninterruptible Power
Supply UPS systems for original equipment manufactures ("OEMs") in the computer,
peripheral, telecommunications, instrumentation, medical and testing equipment
industries. The Company was incorporated under the laws of the State of Utah on
September 30, 1985. The Company maintains divisions located in Salt Lake City,
and Orem, Utah and Tustin, California.
14
<PAGE>
Results of Operations
Effective March 24, 1995, the Company acquired the net assets of the San Jose
Division which has been accounted for as a purchase. This division was sold on
November 1, 1996 (see Note A of Notes to Condensed Financial Statements).
Therefore, the statement of operations data include the results of operations
for only one month in the quarter ended December 31, 1996.
Net sales. Net sales for the Company decreased approximately 26% for the three
month period ended December 31, 1997 as compared to the same period in the prior
year. This decrease resulted from the sale of the San Jose Division in the prior
year and a general decrease in revenue resulting from price discounts offered to
customers, and the loss of a significant customer in the Salt Lake Division.
Cost of sales. Cost of sales as a percentage of net sales have decreased to
approximately 78% for the three months ended December 31, 1997, as compared to
83% for the same period in the prior year. This decrease in costs resulted from
reduced material costs due to discounts obtained from vendors on several new
contracts, and an improvement in labor efficiency during the last quarter. In
addition, the Company has reduced support costs during the last quarter to
correspond with the reduced sales levels.
Operating expenses. Operating expenses increased during the first quarter of
fiscal 1998 by approximately $182,000. This increase resulted in the following
areas: (1) Research and development of $43,000 associated with new product
development costs in the MotoSat and PowerStream Divisions to provide products
with increased margins; (2) General and Administrative costs increased by
$101,000 primarily due to legal fees to support the TMCI dispute, debenture
agreement, and Far East operations and additional insurance costs increased
during this last quarter; and (3) depreciation and amortization increased due to
machinery and equipment purchases and the recording of goodwill associated with
recent acquisitions.
Other income and expenses. Other income and expenses (not including the gain on
the sale of the San Jose Division) have decreased by about $75,000 for the three
months ended December 31, 1997 as compared to the same period in the prior year.
This decrease is the result of decreased interest expense of $61,000 due to a
reduction in the average line of credit outstanding during the quarter. The
current years average was approximately $2.4 million as compared to the prior
years average of approximately $3.6 million. In addition, the Company received
an additional $40,000 of non-operating income from the TMCI settlement.
Net earnings (loss) and earnings (loss) per share. Net loss for the first fiscal
quarter ended December 31, 1997 totaled ($34,166) or ($0.01) per share, compared
with earnings of $429,432 or $0.14 per share for the first fiscal quarter of
1997. The prior years earnings (as tax effected) resulted from income from
operations of approximately $62,000 or $0.02 per share and a gain on the sale of
a division of approximately $367,000 of $0.12 per share.
15
<PAGE>
Liquidity and Capital Resources
Working capital increased to $2,388,996 on December 31, 1997 from $1,065,778 on
September 30, 1997. The increase is principally due to the proceeds received
from the sale of debentures and from the additional term loan.
Management believes that existing cash balances, borrowings available under the
line of credit and the additional $400,000 of debentures when placed together
with cash generated from operations will be adequate to meet the Company's
anticipated cash requirements during the next twelve months. However, in the
event the Company experiences adverse operating performance or above anticipated
capital expenditure requirements, additional financing may be required. There
can be no assurance that such additional financing, if required, would be
available on favorable terms.
Inflation and Seasonality
The Company does not believe that it is significantly impacted by inflation.
Historically, the computer industry sales tend to decline in December, January,
July and August when activity in the personal computer industry as a whole is
reduced. However, the Company has recently diversified into the medical and
telecommunications products in an effort to offset the seasonality in the
computer industry.
16
<PAGE>
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. The Company is
not currently a party to any material litigation and is not aware of
any litigation threatened against it that could have a materially
adverse effect on its business.
Item 2. Changes in the Securities and Use of Proceeds.
On October 22, 1997, the Board of Directors of the Company approved the
issuance of up to $1,500,000 of 3% convertible debentures. As of December
31, 1997, the Company had issued $1,100,000 in Debentures.
The Debentures are convertible by the holders thereof into the number of
shares of common stock equal to the face amount of the Debentures being
converted divided by the lesser of (i) eighty percent (80%) of the
closing bid price of the Company's common stock as reported on the NASDAQ
Small Cap market on the day of conversion, or (ii) $2.75. A placement
commission of $100,000 was paid from the $1,100,000 issued prior to
December 31, 1997. The Debentures were issued as a private placement
exempt from registration pursuant to section 4(2) of the Securities Act
of 1933 since they were all issued to a single institutional investor.
See Note D of Notes to Financial Statements.
Item 3. Defaults Upon Senior Securities. None.
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.
A. Exhibits
11 Calculation of earnings (loss) per share.
27 Financial Data Schedule.
B. Reports on Form 8-K.. None
17
<PAGE>
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.
By: /s/ James S. Pendleton
James S. Pendleton,
CEO and Director
By: /s/ Wayne R. Wright
Wayne R. Wright,
CFO, Principal Accounting
Officer and Director
18
<PAGE>
EXHIBIT 11
PEN INTERCONNECT, INC.
CALCULATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings (loss) available to
common shareholders ($34,166) $429,432
-------------------- -------------------
Basic EPS
Shares
Common shares outstanding entire period 4,072,863 3,033,407
Weighted average common shares issued
during period 50,000 -
-------------------- -------------------
Weighted average commons shares
outstanding during period 4,122,863 3,033,407
==================== ====================
Earnings (loss) per common share ($0.01) $0.14
==================== ====================
Diluted EPS
Shares
Weighted average common shares
outstanding during period - basic 4,122,863 3,033,407
Dilutive effect of stock options and warrants - -
-------------------- --------------------
Weighted average commons shares
outstanding during period - diluted 4,122,863 3,033,407
==================== ====================
Earnings (loss) per common share -
assuming dilution ($0.01) $0.14
==================== ====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from Pen Interconnect, Inc. December 31, 1997
financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001000266
<NAME> Pen Interconnect, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 50,175
<SECURITIES> 0
<RECEIVABLES> 3,087,120
<ALLOWANCES> (151,094)
<INVENTORY> 3,554,536
<CURRENT-ASSETS> 7,737,352
<PP&E> 3,752,454
<DEPRECIATION> (1,373,082)
<TOTAL-ASSETS> 15,038,436
<CURRENT-LIABILITIES> 5,348,356
<BONDS> 0
0
0
<COMMON> 41,479
<OTHER-SE> 7,219,355
<TOTAL-LIABILITY-AND-EQUITY> 15,038,436
<SALES> 3,904,717
<TOTAL-REVENUES> 3,904,717
<CGS> 3,055,373
<TOTAL-COSTS> 3,911,879
<OTHER-EXPENSES> 30,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,037
<INCOME-PRETAX> (55,966)
<INCOME-TAX> (21,800)
<INCOME-CONTINUING> (34,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,166)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
