As filed with the Securities and Exchange Commission on February 14, 2000
Registration Statement No. 333-79631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 2
to
FORM SB-2/A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
PEN INTERCONNECT, INC.
(Exact name of registrant as specified in its charter)
Utah
(State or other jurisdiction of
31incorporation)
3357
(Primary Standard Industrial
Classification Code Number)
87-0430260
(I.R.S. Employer Identification
No.)
Pen Interconnect, Inc.
1601 Alton Parkway
Irvine, CA 92606
(949) 798-5800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices) Stephen J. Fryer, President Pen
Interconnect, Inc. 1601 Alton Parkway Irvine, CA 92606 (949) 798-5800 (Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies To:
Oscar D. Folger, Esq.
James W. Lucas, Esq.
521 Fifth Avenue
New York, New York 10175
(212) 697-6464
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of this registration statement depending on market
conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /__/
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. / X/
--
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Amount Being Maximum Maximum Amount of
of Securities Being Registered Offering Price Aggregate Registration
Registered per Share (1) Offering Price Fee
<S> <C> <C> <C> <C>
Common Stock 11,841,781 $0.37 $4,381,459 $1,156.71(2)
======================= ============= ====================== ===================== ======================
</TABLE>
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457(c) at $0.37 per share based upon the average of the high and low prices of
$0.41 and $0.32 on February 11, 2000, respectively.
(2) $2,762.06 previously paid.
-----------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
----------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
PROSPECTUS
PEN INTERCONNECT, INC.
11,841,781 Shares of Common Stock
--------------------------------
The stockholders of Pen Interconnect, Inc. listed under "Selling
Stockholders" starting on pages 28-29 are offering and selling shares of Pen
common stock under this prospectus. Up to 3,600,000 of these shares may be
issued on conversion of our Series A preferred stock and up to 5,000,000 shares
may be issued on conversion of our Series B preferred stock. Of the remaining
shares, 2,541,781 are issuable on conversion of various warrants and options,
and 700,000 are currently outstanding and owned by some of the selling
stockholders. All net proceeds from the sale of the shares will go to the
stockholders who sell their shares.
Pen's common stock is traded on the OTC Bulletin Board under the symbol
PENC. The last sale price for Pen's common stock reported by the OTC Bulletin
Board for February 11, 2000 was $0.35.
---------------------
These securities involve a high degree of risk. See "Risk Factors" beginning on
page 5.
---------------------
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
---------------------
The date of this prospectus is February __, 2000.
<PAGE>
THE FOLLOWING LEGEND WILL APPEAR IN RED INK ON THE FRONT PAGE OF THE PROSPECTUS
IF THE PROSPECTUS IS CIRCULATED PRIOR TO BEING DECLARED EFFECTIVE BY THE
COMMISSION:
"The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities in any state where the offer or sale is not permitted."
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY 3
RISK FACTORS 5
USE OF PROCEEDS 9
DILUTION 9
CAPITALIZATION 10
PRICE RANGE OF COMMON STOCK 10
DIVIDEND POLICY 11
SELECTED FINANCIAL DATA 11
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION 15
BUSINESS 20
LEGAL PROCEEDINGS 24
MANAGEMENT 24
EXECUTIVE COMPENSATION 25
PRINCIPAL STOCKHOLDERS 27
CERTAIN TRANSACTIONS 28
SELLING STOCKHOLDERS 28
PLAN OF DISTRIBUTION 30
DESCRIPTION OF CAPITAL STOCK 31
SHARES ELIGIBLE FOR FUTURE SALE 34
LEGAL MATTERS 35
EXPERTS 35
INDEMNIFICATION 35
WHERE YOU CAN FIND ADDITIONAL INFORMATION 35
INDEX TO FINANCIAL STATEMENTS F-1
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors and financial statements.
Pen Interconnect, Inc.
Our offices are located at 1601 Alton Parkway, Irvine, California 92606
and our telephone number is (949) 798-5800.
We develop and produce electronic products for original equipment
manufacturers, or OEMs, in the computer, telecommunications, electronic
instrument, medical and testing equipment industries. We currently operate two
divisions:
1) the InCirT division, located in Irvine, California, provides
assembly and testing services for electronic circuit boards;
2) the PowerStream division, located in Orem, Utah, designs and
manufactures custom power supplies, battery chargers and
uninterruptible power supply, or UPS, systems.
In December 1999, we entered into letters of intent to sell both the
InCirT and PowerStream divisions. The potential buyer of the InCirT division has
recently indicated that it is not interested in pursing the purchase at this
time. However, we are actively engaged in discussion with other potential buyers
for the InCirT division. The sale of the PowerStream division is currently
pending the completion of due diligence investigation by the potential buyer.
Common Stock offered by the selling stockholders 11,841,781 shares
Shares outstanding prior to offering 9,663,114 shares
Shares to be outstanding after the offering 21,504,895 shares. This does not
include approximately 12,299,000 shares of common stock issuable upon the
exercise of outstanding stock options and warrants.
OTC Bulletin Board Symbols PENC, PENCW
We will not receive any proceeds from the sale of common stock in this
offering. We will receive proceeds from the exercise of warrants and options
which will be used for general corporate working capital. These warrants and
options have been issued to many individuals and companies on numerous
occasions, primarily as compensation for services. The Series A and Series B
preferred stock is convertible without any further payment to us. See pages
33-34 for more information on the preferred stock financings. Also see "Use of
Proceeds."
For a discussion of the risks you should consider before investing in
the common stock, see "Risk Factors."
3
<PAGE>
Summary Financial Information:
The following financial information has been derived from our financial
statements included elsewhere in this prospectus. This data should be read in
conjunction with those financial statements and the related notes. See
"Financial Statements".
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 17,651,838 $17,091,432
Net loss (12,014,791) (5,445,383)
Loss per share (1.82) (1.24)
Weighted average common shares
outstanding
7,133,344 4,397,490
Balance Sheet Data:
As of September 30, 1999 As of September 30, 1998
------------------------ ------------------------
Cash and cash equivalents $ 177,214 $ 657,777
Net working capital(deficit) (3,197,941) (1,714,606)
Total assets 9,529,395 14,090,656
Total liabilities 11,339,523 10,224,688
Stockholders' equity(deficit) (1,810,128) 3,865,968
</TABLE>
4
<PAGE>
RISK FACTORS
In addition to the other information in this prospectus, the following factors
should be considered carefully in evaluating an investment in the securities
offered by this prospectus.
If we continue to suffer losses we may not be able to continue in business.
We have had losses from operations in recent fiscal periods. Losses
were $12,014,791 in the fiscal year ended September 30, 1999 ("fiscal 1999") and
$5,445,383 in the fiscal year ended September 30, 1998 ("fiscal 1998"). This
financial condition is partially the result of delays in getting contracts with
new customers, low margins on a contract that represented a significant part of
fiscal 1998's sales, and disappointing sales performance for the Cable and
Moto-Sat divisions. These factors, among others, led our auditors, Grant
Thornton LLP, to state in their opinion on our financial statements for both
fiscal 1999 and fiscal 1998 that there is substantial doubt about our ability to
continue as a going concern. We may continue to experience losses and may not be
able to generate revenues at levels sufficient to support profitable operations.
If we sell our remaining divisions and do not find a new business to acquire, we
will not have future revenues or earnings.
In December 1999, we entered into letters of intent to sell both the
InCirT and PowerStream divisions. The potential buyer of the InCirT division has
recently indicated that it is not interested in pursing the purchase at this
time. However, we are actively engaged in discussion with other potential buyers
for the InCirT division. The sale of the PowerStream division is currently
pending the completion of due diligence investigation by the potential buyer. We
are currently negotiating to buy an electronics product business. If the InCirT
and PowerStream divisions are sold and we are not successful in acquiring that
electronics product or any other business, we will no longer have any business
operations and will not be able to continue in business after spending any
proceeds from the sale of the InCirT and PowerStream divisions.
If we are unable to obtain additional funds, we will not be able to meet future
operating costs, replace our primary lender, or expand our business.
Even if we are able to continue as an operating business, we will need
additional working capital to meet our future operating costs, to replace our
primary lender, and to fund business expansion opportunities and acquisitions.
The amount of additional working capital needed is greater than our existing
cash balances and cash generated from current or potential new operations. Our
primary lender has requested that we find a new source of debt financing by
February 28, 2000. In the past we have issued debentures, preferred stock, and
borrowed other funds to provide working capital to meet current obligations.
However, we currently are having difficulty in generating enough cash to fund
operations, and our opportunities to obtain more cash from capital markets are
diminishing. Even if we can obtain additional financing, it may not be available
on favorable terms. If we can not obtain additional working capital, we will not
be able to fund ongoing operations, potential mergers, acquisitions, or other
growth opportunities.
Shares currently eligible for future sale will result in substantial dilution of
the equity interests of existing stockholders and could reduce the price of our
common stock.
The market price of our common stock could be reduced if substantial
amounts of our common stock are sold in a short time. All of the 9,937,705
shares of common stock outstanding as of February 1, 2000 can be resold in the
public market either currently or when this registration statement is made
effective by the SEC. In addition, currently approximately 20,899,000 shares of
common stock may be issued upon exercise or conversion of our preferred stock,
warrants, and stock options. The conversion and sale of these shares of common
stock may also depress the price of our common stock. The following table sets
forth potential additional shares of common stock which may be issued due to
5
<PAGE>
convertible securities:
Series A preferred stock 3,600,000 shares
Series B preferred stock 5,000,000 shares
Warrants 8,117,333 shares
Stock Options 4,181,667 shares
Our outstanding warrants and stock options were issued on many
different occasions to many individuals and companies, primarily as compensation
for services. The warrants and options have many different terms, exercise
prices, and conditions. The number of shares of common stock given in the table
as issuable on conversion of the preferred stock are the numbers of shares
included in this prospectus. More stock may be issued on conversion of the
preferred stock than shown in the table above. See pages 33-34 for more
information on the terms, conversion prices, and conditions of the preferred
stock.
Additional financing, if available, may result in substantial dilution of the
equity interests of existing stockholders and reduce the price of our common
stock.
For most of fiscal 1999 and fiscal 1998, we had to raise additional
cash from the capital markets to support the negative cash flow from operations.
If we must issue more warrants, debentures, or preferred stock in order to
obtain these funds, the common stock issuable upon their exercise or conversion
will dilute the equity interests of existing stockholders and may tend to reduce
the price of the common stock. In addition to the issuance of new debentures,
preferred stock, and other convertible securities, the exercise price of our
outstanding warrants can be reduced upon notice to the warrant holders. We have
no current plans to reduce the exercise price of the warrants and holders of
warrants should not anticipate such a reduction. If the exercise price is
reduced, warrant holders may be able to purchase common stock for a price less
than the then market value of the common stock which could result in a material
dilution to the then current holders of common stock.
In addition to dilution to current stockholders, issuance of preferred stock
could impede a takeover attempt.
Our certificate of incorporation allows us to issue preferred stock
with voting, liquidation and dividend rights senior to those of the common stock
without the approval of our stockholders. The issuance of preferred stock could
make it more difficult for a third party to acquire a majority of our
outstanding stock and could also result in the dilution of the value of the then
current stockholders' common stock.
Our sales could be reduced if our customers choose to manufacture internally or
in East Asia.
Our products are purchased by original equipment manufacturers for a
wide variety of computer, medical, telecommunications, and industrial control
products. In addition to competition from companies similar to ours in the
United States, we could lose sales if our customers increase their own
manufacture of circuit boards, or if manufacturing is moved to East Asian
suppliers.
More than 50% of our recent sales have been to one customer and if we do not
expand our customer base the loss of sales to that customer could significantly
harm our business.
Our sales have historically been concentrated with several large
customers. Although we have tried to reduce our dependence on a few large
customers, sales to only one customer accounted for approximately 59% of total
sales for fiscal 1998 and approximately 44% of total sales for fiscal 1999. Our
business could be harmed if we lost any major customer.
Our sales to a particular customer can vary significantly depending on
the life cycles of the customer's products. As a result of the rapid pace of
technological development in the computer and
6
<PAGE>
related industries, products frequently have life cycles of less than a year.
Demand for our products and services can diminish significantly as a customer's
products reach the end of their useful sales lives or become so standardized as
to be appropriate for high volume, low cost foreign production. We must expand
our customer base to consistently have customers that have products at the
beginning of their life cycles when demand for our production services is
greatest. Therefore, our future prospects depend significantly on our ability to
establish and maintain long-term customer relationships over the sales lives of
multiple products and to add new customers in rapidly changing markets.
If we are unable to stay current with new technologies our business could be
harmed by technological obsolescence.
The industries that we serve are marked by rapid technological change.
Technologies developed by others may render our customers' products
noncompetitive or obsolete. We may not be able to adapt new technological
developments quickly enough to remain competitive. The success of our customers'
new product introductions depends on various factors, including proper new
product selection, timely completion and introduction of new product designs,
and the market acceptance. Some of our products also require compatibility with
products manufactured by third-party vendors. We may not be able to maintain
compatibility if vendors modify their products.
Because our products have limited proprietary protection other companies can
imitate our products and harm our business by competing with us.
In 1997 we acquired the PowerStream division, which included the rights
to several patent applications. We have not yet determined if it would be
economically worthwhile to pursue these patent applications. Our other divisions
do not have any patented technology. We consider some aspects of our
manufacturing processes as trade secrets and seek to protect this know-how with
secrecy agreements. However, these agreements may not be enforceable in the
event of a breach. Therefore, even if we are able to develop profitable new
products, we may not be able to prevent competitors from copying these products.
In addition, we have no registered trademarks, and our products typically do not
refer to our company by name or mark. If we are unable to prevent competitors
from copying our products, we will be subject to increased competition and our
business may be harmed.
Many of our supplies come from foreign sources or only a few sources which
increases the chances that our ability to get supplies could be limited and our
business harmed.
Some of our suppliers are located outside the United States. Political
and economic conditions abroad may interfere with the purchase of materials from
these foreign suppliers. Protectionist trade legislation in either the United
States or foreign countries, such as a change in the current tariff structures,
could also interfere with our ability to purchase materials from our foreign
suppliers. Some key component parts used in our products are available from only
one or a limited number of suppliers, and we currently do not have long-term
agreements with all suppliers of components. A reduction or interruption in
supply from third-party contractors would reduce our production unless or until
alternative sources are established. Other potential problems with suppliers
include defective components, an increase in prices from suppliers, or our
inability to obtain lower prices when our competitors reduce prices.
Because we get many supplies from other countries, our business may be harmed by
exchange rate fluctuations.
We may be exposed to exchange rate fluctuations if foreign transactions
with our suppliers are in currencies other than the U.S. dollar. To date we have
not entered into non-U.S. dollar transactions and have not incurred any material
exchange gains or losses. However, we may enter into these transactions in the
future and fluctuations in the currency exchange rates could then cause us to
experience unexpected financial losses.
7
<PAGE>
Our business will be harmed if we are unable to match prices and production with
the many strong competitors who have more resources than we do.
Many of the markets for our products are highly competitive. We compete
directly with numerous other contract manufacturers that, like us, obtain raw
material from suppliers and in turn manufacture for customers. Generally, these
other contract manufacturers and OEMs are substantially larger than us and have
more resources than we do. As new products become standardized and are produced
in large quantities, foreign producers in countries with lower labor costs than
the United States compete with us for production of those products since they
generally can offer lower prices than ours. We also compete with other companies
to obtain supplies. A number of the companies from which we buy material
maintain proprietary control of their newly designed products, which can make it
difficult to replace them with other supplies.
If we can not recover increased prices of raw materials our business will be
harmed.
The raw materials that go into the components of the circuit boards we
make are a significant component of our cost of sales. The prices of materials
such as petroleum that are used to make plastics can vary substantially based
upon many factors, including world economic and political conditions. Sometimes
we can pass on these increases in raw material costs to our customers. However,
we generally bid on projects in advance and may not be able to pass on all of
the increased costs if raw material costs increase more than anticipated.
If we can not retain and hire qualified personnel our business will be harmed.
If we are unable to sell the InCirT and PowerStream divisions, in order
to expand our business we will depend upon the continued services of Stephen J.
Fryer, our Chief Executive Officer; Mehrdad Mobesarri, President of the InCirT
Division; and Daniele Reni, President of the PowerStream Division. We have
employment agreements with Mr. Reni expiring in April 2000 and with Mr. Fryer
expiring in October 2002. We have obtained $1,500,000 key person life insurance
on Mr. Fryer and $500,000 on Mr. Reni. We will continue to depend on other
members of our senior staff as well as on our ability to attract, retain, and
motivate additional qualified personnel. The competition for experienced
personnel is intense, and the loss of the services of one or more of our key
employees could harm our business. We may not be able to retain our existing key
employees or attract and retain any additional personnel we may require.
Trading in our common stock and warrants is more difficult because we have been
delisted from Nasdaq and are now subject to the SEC's "penny stock" rules.
As of March 30, 1999, our common stock and warrants were delisted from
the Nasdaq National Market System because Nasdaq claimed that we did not have
sufficient net tangible assets. The market value of our common stock and
warrants has declined since the Nasdaq delisting and our stockholders may find
it more difficult both to sell our securities and to obtain accurate quotations
as to their market value.
In addition, any broker engaging in a transaction in our securities are
subject to compliance with "penny stock" rules. These rules require that the
broker provide any customer with a risk disclosure document, disclosure of
market quotations, disclosure of the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market values of our securities held in the customer's accounts. The market
quotation and compensation information must be provided before effecting the
transaction and must be contained on the customer's confirmation. These
requirements may make brokers less willing to engage in transactions in our
securities. This may make it more difficult for our stockholders to sell their
securities.
8
<PAGE>
It is unlikely that we will pay dividends.
We have never paid dividends on our common stock and do not anticipate
that we will pay dividends in the foreseeable future. Any earnings that may be
generated will be used to finance the growth of our business. In addition, our
revolving credit facility prohibits the payment of cash dividends without the
lender's consent.
USE OF PROCEEDS
We would receive approximately $1,502,000 in cash from the sale of
2,541,781 shares of common stock included in this prospectus issuable upon
exercise of the warrants and options after taking into account estimated
offering expenses of approximately $100,000. We will receive no proceeds from
the sale of securities by any selling stockholders. None or few of the warrants
and options may be exercised and accordingly, we may receive no or only minimal
proceeds from this offering. Any proceeds received from the exercise of the
warrants and options would be added to working capital. We have no definite
plans for the use of any proceeds from the exercise of the warrants and options
nor have we made specific allocations as to the use of any proceeds. The
proceeds could be used for:
o current manufacturing, administrative, marketing or research
and development expenses,
o the acquisition of inventory or related businesses,
o the repurchase of some of our outstanding securities, or
o the repayment of debt.
Future events may make shifts in the allocation of funds amongst these
categories necessary or desirable. These events may include changes in the
economic climate and our planned business operations or the success or failure
of our intended business activities Any shifts in the use of proceeds will be at
the discretion of our Board of Directors. We have not assumed the receipt of any
funds from the exercise of the warrants or options in our financial planning.
Prior to expenditure, any net proceeds will be invested in short-term interest
bearing securities or money market funds.
DILUTION
Our negative net tangible book value as of September 30, 1999 was
approximately $1,810,128 or $0.19 per share. Our negative net tangible book
value per share is determined by subtracting the total amount of our liabilities
from the total amount of our tangible assets and dividing the remainder by the
number of shares of our common stock outstanding. Purchasers of shares of common
stock in this offering will realize immediate and substantial dilution in the
net tangible book value of their shares. The following table, based upon our
negative net tangible book value as of September 30, 1999, illustrates the
dilution to purchasers of shares of our common stock in this offering assuming
the receipt of $1,502,000 from the exercise of warrants and options, based on
the closing bid price of $0.28 per share on January 6, 2000:
Assumed public offering price per share $0.28
Net tangible book value (deficit)per share at 9/30/99 $(0.19)
Increase per share attributable to this offering 0.18
------
Pro forma net tangible book value (deficit) per share
after this offering (0.03)
------
Dilution per share to new investors $(0.31)
=======
The table above does not include approximately 12,299,000 shares of
common stock issuable upon the exercise of currently outstanding stock options
and warrants. Because the exercise prices of these stock options and warrants
are all over $0.28 per share, the effect of their exercise would be
anti-dilutive. We do not anticipate the exercise of any of these options or
warrants.
9
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999 and as adjusted to reflect the receipt of $1,502,000 in cash upon exercise
of warrants and options for which the underlying common stock is registered in
this prospectus and the conversion and issuance of all of the warrants, options,
and preferred stock for which the underlying common stock is registered in this
prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
Actual As adjusted
<S> <C> <C>
Long-term obligations less
current maturities $ 229,051 $ 229,051
Stockholders' equity (1)
Preferred stock, $0.01 par value,
authorized 5,000,000 shares, 2,800
issued at September 30, 1999 28 28
Common stock,$0.01 par value,
authorized 50,000,000 shares; issued
and outstanding 9,638,114 shares at
September 30, 1999 before the offering and
21,479,895 shares as adjusted 96,381 214,799
Additional paid-in capital 17,447,876 18,821,486
Accumulated deficit (19,354,413) (19,354,413)
------------ ------------
Total stockholders' equity (deficit) (1,810,128) (308,128)
----------- ------------
Total capitalization (deficit) $(1,581,077) $ (79,077)
============ ============
</TABLE>
(1) Does not include approximately 12,299,000 shares of common stock
issuable upon the exercise of stock options and warrants.
PRICE RANGE OF COMMON STOCK
Our common stock and warrants have been traded on the OTC Bulletin
Board since they were delisted from the National Association of Securities
Dealers Automated Quotation system as of March 30, 1999. They are traded under
the symbol "PENC" for the common stock and "PENCW" for the warrants. The common
stock and warrants were first publicly traded on November 17, 1995. The
following table sets forth the range of high and low bids for our common stock
for the last two years.
High Low
Fiscal Year 1999 Quarter Ended
September 30, 1999 $0.81 $0.52
June 30, 1999 1.19 0.78
March 31, 1999 2.00 0.72
December 31, 1998 2.50 0.77
10
<PAGE>
Fiscal Year 1998 Quarter Ended
September 30, 1998 $2.22 $0.81
June 30, 1998 3.09 1.88
March 31, 1998 3.19 2.50
December 31, 1997 3.13 1.88
Fiscal Year 1997 Quarter Ended
September 30, 1997 $2.50 $1.13
June 30, 1997 1.88 1.38
March 31, 1997 2.75 0.88
December 31, 1996 3.38 1.94
On February 11, 2000, the closing quotation for the common stock on the
OTC Bulletin Board was $0.35 per share. As of February 1, 2000, there were
9,937,705 shares of common stock issued and outstanding, held by approximately
1,100 shareholders, including several holders who are nominees for an
undetermined number of beneficial owners.
DIVIDEND POLICY
Pen has not paid any dividends with respect to its common stock and
does not anticipate paying any dividends in the near future. Pen's credit
facility with its bank prohibits the payment of dividends without the consent of
the bank.
SELECTED FINANCIAL DATA
The following selected financial information concerning Pen has been
derived from the financial statements included elsewhere in this prospectus and
should be read in conjunction with the financial statements and the notes
thereto. See "Financial Statements." The selected financial data should be read
in conjunction with and is qualified in its entirety by, Pen's financial
statements, related notes and other financial information included elsewhere in
this prospectus.
11
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $17,651,838 $ 17,091,432
Cost of sales 16,668,290 15,892,456
---------- ----------
Gross profit 983,548 1,198,976
Operating expenses
Sales and marketing 206,014 565,185
Research and development 350,047 550,843
General and administrative 6,558,557 2,373,875
Asset impairment charges 2,598,894 570,765
Depreciation and amortization 503,397 675,753
------- -------
Total operating expenses 10,216,909 4,736,421
---------- ---------
Operating loss (9,233,361) (3,537,445)
Interest expense (678,933) (1,100,717)
Loss on sale of division (1,575,497) --
Other income (expense), net 74,236 (39,361)
------- --------
(2,180,194) (1,140,078)
----------- -----------
Loss before income taxes (11,413,555) (4,677,523)
Income tax expense 601,236 767,860
------- --------
Net Loss $( 12,014,791 ) $(5,445,383)
============ ============
Loss per common share - basic $(1.82) $(1.24)
- diluted $(1.82) $(1.24)
Weighted-average common shares outstanding - basic 7,133,344 4,397,490
- diluted 7,133,344 4,397,490
</TABLE>
12
<PAGE>
Balance Sheet Data
Assets
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 177,214 $ 657,777
Receivables
Trade accounts, less allowance for doubtful
accounts of $1,890,576 and $108,575 at
September 30, 1999 and September 30, 1998,
respectively 2,708,567 3,350,970
Current maturities of notes receivable 575,112 35,675
Inventories 4,250,661 3,680,169
Investments -- 242,739
Prepaid expenses and other current assets 130,977 261,375
Deferred tax asset -- 41,324
--------- ------
Total current assets 7,842,531 8,270,029
------------ ---------
PROPERTY AND EQUIPMENT, AT COST
Production equipment 1,450,494 2,624,513
Furniture and fixtures 167,169 837,594
Transportation equipment 22,149 83,522
Leasehold improvements 273,733 613,248
-------- -------
1,913,545 4,158,877
Less accumulated depreciation (376,681) 1,680,266
------------- ---------
1,536,864 2,478,611
OTHER ASSETS
Notes receivable, less current maturities 150,000 3,989
Deferred income taxes -- 725,667
Goodwill and other intangibles (net) -- 2,031,685
Investments -- 482,220
Other -- 98,455
-------------- -----------
150,000 3,342,016
-------------- -----------
$ 9,529,395 $14,090,656
============== ===========
</TABLE>
13
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 4,436,562 $ 4,064,361
Subordinated debentures -- 1,401,429
Current maturities of long-term obligations 1,682,478 1,132,538
Current maturities of capital leases 122,759 69,621
Accounts payable 3,961,412 2,926,797
Accrued liabilities 837,261 389,889
--------- -------
Total current liabilities 11,040,472 9,984,635
LONG-TERM OBLIGATIONS, less
current maturities -- 51,965
CAPITAL LEASE OBLIGATIONS,
less current maturities 299,051 22,333
DEFERRED INCOME TAXES -- 165,755
------- -------
Total liabilities 11,339,523 10,224,688
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.01 par value,
authorized 5,000,000 shares, none issued at September
30, 1998 and 2,800 issued at September 30, 1999 28 --
Common stock,$0.01 par value,
authorized 50,000,000 shares; issued
and outstanding 9,638,114 shares at
September 30, 1999 and 5,018,437 shares
at September 30, 1998 96,381 50,184
Additional paid-in capital 17,447,876 10,890,022
Accumulated deficit (19,354,413) (7,074,238)
------------ -----------
Total stockholders' equity (deficit) (1,810,128) 3,865,968
============ ============
$ 9,529,395 $ 14,090,656
============ ============
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
This report contains forward-looking statements intended to come within
the meaning of section 27A of the Securities Act of 1933, and section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties. In
addition, Pen may from time to time make oral forward-looking statements. Actual
results are uncertain and may be impacted by the following factors. In
particular, some 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 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 Pen'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 information which Pen's
management believes is relevant to an assessment and understanding of Pen's
results of operations and financial condition for the fiscal years ended
September 30, 1999 and 1998. This discussion should be read in conjunction with
the financial statements and notes of Pen included in this prospectus.
Results of Operations - Fiscal Years Ended September 30, 1999 and 1998
Net sales. Net sales increased 3.3% by $560,406 from $17,091,432 for
fiscal 1998 to $17,651,838 for fiscal 1999. The increase is primarily the result
of $2,935,839 in sales to two new customers of the InCirT division beginning in
the fiscal quarter ended June 30, 1999. These new sales were offset by the loss
of sales from the Cable and MotoSat divisions which were sold beginning in
February 1999. Sales to the new customers were less than originally anticipated
because the customers' own financial problems. As a result, Pen suspended
shipments to one customer and reduced shipments to the other customer to what it
could pay on a cash-on-delivery basis.
Cost of sales. Cost of sales as a percentage of net sales remained
relatively constant at 94% in fiscal 1999 compared to 93% in fiscal 1998. The
slight increase was not the result of any distinct material factors.
Operating expenses. Operating expenses increased from $4,736,421 in
fiscal 1998 to $10,216,909 in fiscal 1999 for a total increase of $5,480,488.
This increase resulted primarily from the following areas:
o $2,028,129 in impaired asset charges arising from the sale of the Cable
division and writing off goodwill associated with the InCirT and
PowerStream divisions.
o $4,184,682 in general and administrative expenses resulting from an
increase in legal and accounting fees associated with potential merger
and acquisition negotiations as well as writing off accounts receivable
of $2,030,833.
The increases were partially offset by:
o A decline in sales and marketing expenses of $359,171.
o A decline in depreciation and amortization expense of $172,356
resulting from the sale of the Cable and PowerStream divisions.
15
<PAGE>
Other income and expenses. Pen's other expenses increased by $1,040,116
from $1,140,078 in fiscal 1998 to $2,180,194 in fiscal 1999. This increase stems
primarily from two sources:
o The combined loss on the sale of the Cable and MotoSat divisions of
$1,575,497.
o Fees of $249,722 primarily associated with the issuance of preferred stock.
The increase was offset by a decline in interest expense of $421,784
primarily due to reduced borrowing to support the sold Cable and MotoSat
divisions.
Net loss and loss per share. Net losses increased to $12,014,791 or
$1.82 per share in fiscal 1999 from $5,445,383, or $1.24 per share, in fiscal
1998, representing an increase of $6,569,408, or $0.58 per share. This increased
loss resulted primarily from the following:
o $0.95 per share from the increase in general and administrative expenses, o
$0.22 per share from accrued preferred stock dividends, o $0.46 per share from
the write off of impaired assets, and o $0.36 per share from losses on sale of
the Cable and MotoSat divisions.
The increase in losses per share was offset by $1.13 per share due to
the increase in weighted average number of outstanding shares during fiscal
1999.
Backlog of orders
Pen currently has a backlog of orders in the InCirT division due to its
inability to fund the purchase of materials to fulfill orders from its major
customer, Alaris. The PowerStream division has also developed a backlog with its
principal customer. Pen anticipates that these backlogs will continue until Pen
obtains more financing or the divisions are sold.
Inflation and Seasonality
Pen does not believe that it is significantly impacted by inflation.
The InCirT division has incurred a drop in sales of approximately 30% during the
fiscal quarter ending March 31 as a result of a decline in orders from its
largest customer, Alaris. Sales increased again in April. This seasonal decline
in sales creates cash flow problems in funding expenses of higher sales volumes
in the prior months. However, in fiscal 2000 a significant decrease in sales is
not expected because of Pen's order backlog.
Year 2000 Readiness
In general, the Year 2000 issue relates to computers and other systems
being unable to distinguish between the years 1900 and 2000 because they use two
digits, rather than four, to define the applicable year. Systems that fail to
properly recognize this information will likely generate erroneous data or cause
a system to fail possibly resulting in a disruption of operations. Pen's
products do not incorporate this date coding so Pen's efforts to address the
Year 2000 issue fall in the following three areas:
o Pen's information technology, or IT, systems;
o Pen's non-IT systems (i.e., machinery, equipment and devices which
utilize technology which is "built-in" such as embedded
mirocontrollers); and
o third-party suppliers.
Pen's management has completed its evaluation of its IT systems and
believes that those systems are Year 2000 compliant. Pen's non-IT systems are
not date-sensitive and therefore should not pose material risk in relation to
Year 2000. Costs were expensed as incurred and do not appear to have been
material.
16
<PAGE>
Third party suppliers and customers present a different problem in that
Pen cannot control the efforts of these third parties. Pen has completed its
review of its critical customers and believes that they are Year 2000 compliant.
Pen has requested confirmations from third party suppliers that they are Year
2000 compliant to avoid disruptions of services and supplies. To date Pen has
not completed its review of responses from its critical vendors. However, any
failure on the part of companies with whom Pen transacts business to be Year
2000 compliant on a timely basis may harm Pen's operations.
Liquidity and Capital Resources
Pen had negative working capital of $3,197,941 at September 30, 1999
compared to a negative working capital of $1,714,606 at September 30, 1998, for
an increase in negative working capital of $1,483,335. The increase primarily
resulted from increases in accounts payable of $1,034,615, in the current
portion of long-term obligations of $549,940, and in accrued liabilities of
$447,372. These were offset by a non-cash conversion of $1,401,429 of
subordinated debentures. In addition, Pen's failure to comply with loan
covenants with its primary lender, FINOVA, resulted in the entire loan being
classified as a current liability.
Over the course of fiscal 1999, Pen continued to experience cash flow
problems. For most of fiscal 1998, the market price of Pen's stock was
sufficient to raise additional cash to support the negative cash flow from
operations. Pen's stock price has since declined and Pen's securities have been
delisted from the Nasdaq National Market.
In September 1999, Pen completed the sale of the MotoSat division to a
company controlled by James Pendleton, Pen's former Chairman and CEO. The sale
did not generate cash proceeds but eliminates monthly operating losses
associated with MotoSat. All assets and liabilities of the MotoSat division were
transferred to Mr. Pendleton's company in exchange for the cancellation of
future obligations to make payments of deferred compensation in Mr. Pendleton's
employment contract. The transfer of the MotoSat division to Mr. Pendleton
resulted in a loss of approximately $68,000.
In February 1999, Pen sold substantially all of the assets of the Cable
division to Pen Cabling Technologies, LLC, a wholly-owned subsidiary of CTG,
Inc. The purchase price was $1,075,000 and the assumption by CTG of lease
obligations of the Cable division. The purchase price was based upon the
approximate book value of the assets and liabilities divested. Pen, CTG, and its
subsidiary also entered into a Consulting Agreement under which Pen will receive
royalties on future sales of the Cable division business and products. Of the
purchase price, $847,823 was paid to Pen's principal lender, FINOVA, and
$227,177 was paid to satisfy many outstanding liabilities relating to the Cable
division which were not assumed by CTG. The transaction resulted in a loss for
financial reporting purposes of approximately $1.5 million.
In June 1999, Pen entered into an agreement to merge with Transdigital
Communications Corporation, which is commonly known as TCC. This agreement was
terminated by mutual agreement of Pen and TCC on September 1, 1999. Before the
agreement was terminated Pen loaned approximately $500,000 to TCC to help with
operations in anticipation of the merger closing. TCC signed a note for the loan
which calls for repayment as they secure additional financing from other
sources. As of the date of this prospectus TCC has not obtained other financing.
With the sale of the MotoSat and Cable divisions, the InCirT and
PowerStream divisions are the only divisions remaining that generate revenue.
The InCirT division produced 95% of the total revenues generated by these two
divisions in fiscal 1999. Pen is actively pursuing the sale of both remaining
divisions. As a result of Pen's liquidity difficulties and the anticipated sale
of these divisions, Pen has written off the unamortized balance of goodwill
associated with those two divisions.
Two new customers were secured by the InCirT division during the fiscal
quarter ended June 30, 1999. However, both new customers developed cash flow
problems. The InCirT division has suspended sales or is selling on a COD basis
with these new customers. As a result, sales for the InCirT division
17
<PAGE>
have declined and Pen has had to write off $1,878,846 of receivables related to
these customers. Pen has outstanding short-term notes of $1,611,557 for raw
material inventory purchased from both customers.
The InCirT division acquired two additional production lines totaling
$617,955. One line was acquired through a lease for $417,955 and the other was
purchased from InCirT's major customer, Alaris, on a note for $200,000 to be
applied against receivables owed InCirT at a rate of $40,000 per month.
In October 1999 Pen received notice from its primary lender (FINOVA)
that because of an over- advance from the uncollected receivables from the two
new customers and because of continued losses from operations FINOVA was placing
Pen's loan in default status. Pen was requested to pay off the outstanding loan
balance by December 18, 1999. FINOVA has since extended the deadline to February
28, 2000. No other lending or financing arrangements have been made at this
time. Pen anticipates being able to satisfy the FINOVA loan from the proceeds of
the sale of the InCirT division. In December 1999, Pen signed a letter of intent
for this sale but the potential buyer has recently indicated that it is not
interested in pursuing the acquisition at this time. Pen is actively engaged in
discussions with other potential buyers but no agreements or commitments have
been entered into as of the date of this prospectus.
Pen is negotiating to purchase an electronics products business.
However, no agreements or commitments have been entered into as of the date of
this prospectus.
FINOVA has withheld advances to reduce the over-advance situation with
Pen's line of credit. This has restricted Pen's ability to pay vendors and
obtain raw materials to meet shipping schedules. The InCirT division has had to
contract with a competitor to purchase raw materials for Alaris, Pen's major
customer. If the competitor replaces Pen as the supplier to Alaris, Pen would
lose 50% of its sales.
Pen continues to face tight cash constraints due to vendors' requiring
advanced payments or low credit limits. Cash from operations has not been
sufficient to cover expenses. Pen has had to raise cash in fiscal 1998 and 1999
through two bridge loans, the exercise of warrants from a reduction in exercise
price, and issuing two series of convertible preferred stock. The bridge loans
raised a total of $900,000. In addition to raising approximately $883,000 from
the exercise of stock warrants, Pen completed private placements of debentures
totaling $2.5 million. Debentures totaling $1,100,000 were issued during
December 1997, $400,000 were issued in April 1998 and the remaining $1,000,000
were issued in June 1998. Of these debentures, $1,000,000 were converted into
shares of common stock in fiscal 1998 and another $1,175,000 have been converted
in fiscal 1999.
Funds have been realized from the issuance of Series A preferred stock
and Series B preferred stock in the second and third fiscal quarters of fiscal
1999. 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% in the case of the Series
A preferred stock and 20% in the case of the Series B preferred stock. The
shares of Series B preferred stock are convertible into common stock at the same
conversion price as the Series A preferred stock. The maximum conversion price
for both the Series A and Series B preferred stock is $0.53 per share. Warrants
to acquire approximately 340,000 shares of common stock at conversion prices
ranging from $0.86 to $1.434 per share were also issued to the purchasers of the
Series A and Series B preferred stock. These two private placements resulted in
total net proceeds to Pen of $1,650,000 in addition to paying approximately
$800,000 of outstanding notes payable.
Pen's management estimates that approximately $1 million may have to be
raised to sustain operations if the InCirT and PowerStream divisions can not be
sold. An additional undetermined amount will have to be raised because Pen's
primary lender has requested that Pen find a new source of debt financing by
February 28, 2000. As of the date of this prospectus, Pen has no prospects for
new sources of debt or equity financing. Pen is seeking to relieve the liquidity
difficulties by pursuing the sale of its remaining divisions. Pen's management
believes that these sales may raise sufficient funds to acquire
18
<PAGE>
new business operations or place Pen in a position to raise new capital to do
so. However, additional capital would still be necessary to fund the operations
of a new business. If Pen cannot raise the additional capital, Pen will continue
to incur losses from its operations and may have to seek bankruptcy protection.
19
<PAGE>
BUSINESS
General
We develop and produce on a turnkey basis, contract manufacturing
solutions for original equipment manufacturers in the computer,
telecommunications, electronic instrument, medical and testing equipment
industries. Original equipment manufacturers are generally referred to by the
initials OEM. We currently operate two divisions: 1) the InCirT division,
located in Irvine, California, provides assembly and testing services for
electronic circuit boards; and 2) the PowerStream division, located in Orem,
Utah, designs and manufactures custom power supplies, battery chargers and UPS
systems. In September 1999, we closed the sale of our MotoSat division, located
in Salt Lake City, Utah, to a company controlled by our former Chairman. On
February 5, 1999, we closed the sale of our Pen Cable division, located in Salt
Lake City, Utah, to a subsidiary of CTG, Inc. In December 1999, we entered into
letters of intent to sell both the InCirT and PowerStream divisions. The
potential buyer of the InCirT division has recently indicated that it is not
interested in pursing the purchase at this time. However, we are actively
engaged in discussion with other potential buyers for the InCirT division. The
sale of the PowerStream division is currently pending the completion of due
diligence investigation by the potential buyer.
Summary of Current Year Events and Subsequent Events
Since the end of fiscal 1998, Pen has entered into several agreements
which have had, or will have, a material impact on Pen. Over the course of
fiscal 1998, Pen experienced a lower level of profitability than was anticipated
at the beginning of the year and Pen has consequently experienced continued cash
flow problems. The lower than expected level of profitability has been the
result of several delays in expected contracts with new customers and lower
margins realized on a new contract that yielded significantly higher sales. For
most of fiscal 1998, the market price of Pen's stock was sufficient to raise
additional cash to support the negative cash flow from operations. Pen's stock
price has since declined and Pen's securities have been delisted from the Nasdaq
National Market.
In September 1998 Pen entered into discussions with a prospective buyer
for the MotoSat and the Pen Technology Cable divisions because of continued
losses generated by these divisions and the lack of capital to adequately fund
and grow the business of these two divisions. Moreover, new management
determined that the MotoSat business and products did not strategically fit the
goals and directions established by Pen. In September 1999, Pen completed the
sale of the MotoSat division to a company controlled by James Pendleton, Pen's
former CEO. The sale did not generate cash proceeds but eliminated monthly
operating losses associated with MotoSat. All assets and liabilities of the
MotoSat division were transferred to Mr. Pendleton's company in exchange for the
cancellation of future obligations to pay deferred compensation under Mr.
Pendleton's employment contract. The transfer of the MotoSat division to Mr.
Pendleton's company resulted in a loss to Pen of approximately $68,000.
In February 1999, Pen closed an Asset Purchase Agreement with Pen
Cabling Technologies, LLC, a wholly-owned subsidiary of CTG, Inc. CTG acquired
substantially all of the assets relating to the Cable division. The purchase
price was $1,075,000 and the assumption by CTG of lease obligations of the Cable
division. The purchase price was based upon the approximate book value of the
assets and liabilities divested. Pen, CTG, and its subsidiary also entered into
a Consulting Agreement under which Pen will receive royalties on future sales of
the Cable division business and products. Of the purchase price, $847,823 was
paid to Pen's principal lender, FINOVA, and $227,177 was paid to satisfy many
outstanding liabilities relating to the Cable division which were not assumed by
CTG. The transaction resulted in a loss for financial reporting purposes of
approximately $1.5 million.
In December 1998, Pen entered into a purchase agreement with Laminating
Technologies, Inc. Under the agreement, a newly formed subsidiary of Pen would
merge into Laminating Technologies and Laminating Technologies would become a
wholly-owned subsidiary of Pen. This agreement was terminated by mutual
agreement of the parties in April 1999.
20
<PAGE>
In June 1999, Pen entered into an agreement to merge with Transdigital
Communications Corporation, which is commonly known as TCC. TCC is a privately
held developer of entertainment and database systems for the transportation
markets which includes narrow bodied commercial aircraft and cruise ships. This
agreement was terminated by mutual agreement of Pen and TCC on September 1,
1999.
In October 1999 Pen received notice from its primary lender, FINOVA,
that it was placing Pen's loan in default. Pen was originally asked to pay off
the loan by December 18, 1999. FINOVA has since extended the deadline to
February 28, 2000. No other lending or financing arrangements have been made at
this time. Pen anticipates being able to satisfy the FINOVA loan from the
proceeds of the sale of the InCirT division. In December 1999, Pen signed a
letter of intent for this sale but the potential buyer has recently indicated
that it is not interested in pursuing the acquisition at this time. Pen is
actively engaged in discussions with other potential buyers but no agreements or
commitments have been entered into as of the date of this prospectus.
Pen is also negotiating to purchase an electronic products business.
However, no agreements or commitments have been entered into as of the date of
this prospectus.
On December 28, 1999 Pen signed a letter of intent to sell the
PowerStream division to a private investor. Due diligence is currently being
performed under the terms of the letter of intent.
Principal Products and Services
Pen focuses on providing services to OEMs interested in utilizing
contract manufacturing for some or all components incorporated in OEM products.
OEMs have been increasing their use of contract manufacturers to provide
components and expertise in order to reduce the capital investment necessary to
manufacture subassemblies thereby enabling the OEMs to focus their resources on
their end products.
Advances in technology of electronic products and increased unit volume
would require OEMs to invest more heavily in internal manufacturing through
increased working capital, capital equipment, labor, systems and infrastructure.
Use of contract manufacturers such as Pen allow OEMs to maintain advanced
manufacturing capabilities while minimizing overall resource requirements.
Contract manufacturers also allow OEMs to focus more sharply on their own core
competencies where they add the greatest value such as product development and
marketing.
Pen markets its products and services to its customers through in-house
salesmen and independent sales representatives. Pen's OEM customers are located
throughout the continental U.S.
The following is a summary of the products and markets of Pen's
divisions.
InCirT Division
Pen's InCirT division is engaged in the electronic manufacturing
services industry and provides certified assembly and testing services for
electronic circuit boards. Pen can assemble circuit boards using both commonly
accepted methods. These are surface mount, where the parts are assembled on the
surface of the circuit board, and through-hole, where the parts are assembled
through holes in the circuit board. These products are used primarily in
computer, testing, and medical equipment. Pen's services are certified by the
International Standards Organization.
The InCirT division has experienced a significant increase in sales as
a result of a contract with Alaris Medical Systems (See "Dependence on Major
Customers"). The Alaris contract, while providing a significant increase in
revenue for the InCirT division, provides for lower margins than most contracts
secured by the InCirT division. (See "Management's Discussion and Analysis or
Plan of Operation"). In March and April 1999, Pen began to secure business with
new customers for the InCirT division,
21
<PAGE>
including ongoing contracts with Imaging Technologies Corporation, TCC, and
Xtend Micro Products. However, these customers subsequently have developed cash
flow problems which have severely reduced or ended their orders to InCirT.
In December 1999, Pen signed a letter of intent for the sale of the
InCirT division but the potential buyer has recently indicated that it is not
interested in pursuing the acquisition at this time. Pen is actively engaged in
discussions with other potential buyers but no agreements or commitments have
been entered into as of the date of this prospectus.
PowerStream Division
The PowerStream division designs custom power supplies, battery
chargers and UPS systems for OEMs and has been able to produce several of those
designs for sale to other companies. Production is contracted out to contract
manufacturers. Larger orders are manufactured at a facility in China to take
advantage of lower labor rates and component costs while production runs of
smaller amounts are manufactured by domestic contract manufacturers.
PowerStream has a major contract with L3 Corporation. Delays in
shipping resulted in lower sales than anticipated. Other customers have been
inadequate to make the PowerStream division a cash contributor to Pen.
PowerStream has used $452,360 in its operations during fiscal 1999 and $533,124
in fiscal 1998.
On December 28, 1999 Pen signed a letter of intent to sell the
PowerStream division to a private investor. Due diligence is currently being
performed under the terms of the letter of intent.
Distribution Methods
Pen receives orders directly from OEM's and ships the product directly
to them. No other distribution method is employed.
Competition
Pen's primary products and services are sold to OEM's in high
technology industries. The computer industry in particular has been under
intense pressure to provide faster and more powerful products at a lower cost.
Consequently, many contracts calling for large production runs are now being
processed in the Pacific Rim countries due to favorable labor rates. As a result
of this sales declined significantly in the Cable division prior to its sale.
The InCirT division provides services producing products for which the
OEMs do not require large enough quantities to make production in Asia
economical. The InCirT division competes on the basis of price, quality, and
speed of production and delivery. Its principal competitors include Superior
Manufacturing, Comtel, and Qtron, among others.
PowerStream has only a small number of competitors. Furthermore, Pen
has a policy of flexibility in working with customers on product modifications
and the PowerStream products are competitively priced.
Sources and Availability of Raw Material
There are a large number of vendors for many of the raw materials used
by all of Pen's divisions. Some key component parts used in Pen's products are
available from only one or a limited number of suppliers, and Pen currently does
not have long-term agreements with all suppliers of components. A reduction or
interruption in supply from third-party contractors would reduce Pen's
production unless or until alternative sources are established.
22
<PAGE>
The availability of raw materials has been hampered by the lack of cash
flow and the corresponding inability to pay vendors in a timely manner. Some
vendors from time to time have withheld necessary raw materials until payments
have been brought current. The impact of this is potential delays in meeting
customer shipping deadlines, incurring overtime expenses to comply with customer
shipping schedules and more expensive freight costs to have materials arrive in
a timely manner, all of which negatively impact profitability.
Dependence on Major Customers
Pen sells its products and services principally to OEMs. Because the
products are not sold at retail to the public, Pen is always dependent on having
supply contracts with OEMs. Consequently, at any given time Pen can be dependent
on one or a few major customers.
Sales of the InCirT division's medical instrument business grew
substantially with the short-term expansion of a contract with Alaris Medical
Systems. The increase in sales to Alaris have decreased to levels existing
before the contract expansion since its expiration at the end of 1998. Total
sales to Alaris Medical Systems comprised approximately 59% of Pen's sales in
fiscal 1998 and approximately 44% of Pen's sales in fiscal 1999. Triconix
comprised approximately 19% of Pen's sales in fiscal 1999. The loss of either of
these customers would impair Pen's ability to continue operating. In March and
April 1999, Pen began to secure business with new customers for the InCirT
division, including ongoing contracts with Imaging Technologies Corporation,
TCC, and Xtend Micro Products. However, these customers subsequently have
developed cash flow problems which have severely reduced their orders to InCirT.
Intellectual Property
Pen, through its PowerStream division, has submitted applications for
patents on various technologies developed by PowerStream. These applications are
pending and are in various stages of evaluation. Pen does not have any other
intellectual property.
Effect of Governmental Regulation on Business
Pen is not aware of any existing governmental regulation and does not
anticipate any governmental regulation which materially affects its ability to
conduct its business operations.
Research and Development
Pen had a decrease in research and development costs in fiscal 1999
compared to fiscal 1998. Because PowerStream's operations focus on the
development of new products for customers, Pen treats all of PowerStream's
overhead expenses as research and development costs.
Compliance with Environmental Laws
Pen has not incurred, and does not presently anticipate incurring, any
material costs in complying with all federal and state environmental laws.
Employees
As of September 30, 1999, Pen employed approximately 212 full and
part-time employees. Five employees were executive personnel, nine were
technical and engineering personnel, 11 were in marketing, sales,
administrative, accounting, information systems, and clerical, and 187 were
manufacturing personnel.
Properties
In July 1998, the InCirT division moved into a new manufacturing and
office facility in Irvine,
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<PAGE>
California. This new facility consists of 51,400 square feet of which 46,400 is
currently being used; 35,000 square feet of manufacturing space and 11,400 of
office space. The expansion capacity can be converted into both office and
manufacturing space as the need arises. The lease on the property runs until
July of 2005.
The PowerStream division's sales and engineering facilities are located
in Orem, Utah. The premises contain approximately 5,200 square feet of space,
all of which is utilized for sales, research, development, prototype production
and administration.
Management believes that the above properties and their contents are
adequately covered by insurance and that the square footage is sufficient to
meet Pen's needs.
LEGAL PROCEEDINGS
Pen and its CEO, Stephen Fryer, are defendants in a lawsuit brought by
a former officer of Pen in November 1999 alleging breach of an employment
contract and fraud. The case is "Alan Weaver vs. Pen Interconnect, Inc. and
Stephen Fryer," #817158 in the Superior Court, County of Orange, State of
California.
MANAGEMENT
Directors and Executive Officers.
Pen's directors and executive officers, and their respective ages and
positions with Pen, are set forth below in tabular form. Biographical
information on each person is set forth following the tabular information. There
are no family relationships between any of Pen's directors or executive
officers. Pen's board of directors is currently comprised of six members, each
of whom is elected for a term of one year. Executive officers are chosen by and
serve at the discretion of the Board of Directors.
Name and Age Position
Stephen J. Fryer, 61 President, Chief Executive Officer and Director
Mehrdad Mobasserri, 47 President, InCirT Division
Daniele Reni, 48 Vice President of Engineering;
President, PowerStream Division
Brian Bonar, 52 Director
James E. Harward, 47 Director
Milton Haber, 76 Director
Wayne R. Wright, 61 Director
Stephen J. Fryer has served as President and Chief Operating Officer of
Pen since February 1999, as a director of Pen since 1997, and as Senior Vice
President of Sales and Marketing from October 1996 to October 1997. He has also
been Chief Executive Officer since February 1999. From 1989 to 1996, Mr. Fryer
was a principal in Ventana International, Ltd., an Irvine, California based
venture capital and private investment banking firm. Mr. Fryer graduated from
the University of Southern California in 1960 with a Bachelors Degree in
Mechanical Engineering and has spent over 28 years in the computer business in
the United States, Asia and Europe.
24
<PAGE>
Mehrdad Mobasserri has been President of the InCirT division since
October 1998. Prior to that he was the Vice President/General Manager for eight
years while InCirT Technology was owned by The Cerplex Group, Inc. Before
joining InCirT Technology, Mr. Mobasserri served in other management positions
in the high technology market place, with responsibility for production,
engineering and sales of contract manufacturing services. He holds a BSME from
the State University of New York.
Daniele Reni joined Pen in April of 1997 as President of the
PowerStream Technology Division and was appointed the Vice President of
Engineering in 1998. From 1978 to 1980 he was self-employed as an electronic
engineer consultant. From 1980 to 1981, he was a Design Engineer for General
Dynamics and from 1981 to 1984, he was Design Engineer for Teledyne Systems. He
was Project Engineer from 1984 to 1987 in the R&D Department at Quoltron Systems
and from 1987 to 1991, he was the Project Engineer for Power Products for Apple
Computer. He became President and owner of PowerStream Technology, Inc. in 1991
and operated that company until his employment with Pen in 1997.
Brian Bonar was appointed a director of Pen on November 30, 1999. Mr.
Bonar currently serves as CEO and President of Imaging Technologies Corporation,
which is also known as Itec, and has held this position since April 1998. Prior
to his appointment as CEO of Itec, Mr. Bonar served in other capacities with
Itec since August 1992. From 1991 to 1992 Mr. Bonar was Vice President of
Worldwide Sales and Marketing for Bezsier Systems, Inc. From 1990 to 1991 he was
Worldwide Sales Manager for Adaptec, Inc. From 1988 to 1990 Mr. Bonar was Vice
President of Sales and Marketing for Rastek Corporation. From 1984 to 1988 Mr.
Bonar was employed as Executive Director of Engineering at QMS, Inc. Prior to
these appointments, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
James E. Harward received his B.A. from Brigham Young University and
his J.D. from the University of California, Hastings School of Law. He was in
private practice for the following six years. For five years he was an
Administrative Law Judge for the Utah State Tax Commission after which he became
Director of Legal Affairs for the Utah State Industrial Commission. For the two
years following that, he was corporate attorney for Sinclair Oil, and from 1997
to 1998 he was President of ELM Management and Leasing. He has been a director
of Pen since February 1997.
Milton Haber has been the CFO of Airline Management Corporation since
1996 and is a private investor. From 1949 through 1983 Mr. Haber was a business
consultant, small business owner and a private investor. He attended Brooklyn
College from 1946 through 1948 after serving in the United States Air Force
during World War II. He has been a director of Pen since February 1998.
Wayne R. Wright has served on the Board of Directors since 1985. From
1985 to 1998, he was Chief Financial Officer of Pen. From 1984 to 1985, he was
Vice President and Chief Financial Officer of PenTec Enterprises. From 1968 to
1984, he was Controller, Vice President of Operations and Division General
Manager for Beehive International, a computer products company. Mr. Wright
received his Bachelor of Science Degree in Accounting and Finance from the
University of Utah.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Pen to its Chairman
and Chief Executive Officer during the three fiscal years ended September 30,
1999, and Pen's other most highly paid executive officer in those fiscal years.
None of the other executive officer's total annual salary and bonus exceeded
$100,000 for the years presented.
25
<PAGE>
Summary Compensation Table
Annual Compensation
Name and Fiscal
Principal Position Year Salary Bonus
James S. Pendleton 1999 $139,666 0
Chairman 1998 $139,000 0
1997 $144,236 $6,000
Stephen J. Fryer 1999 $156,304 0
President 1998 $108,000 0
1997 $ 67,053 $45,000
Mr. Fryer replaced Mr. Pendleton as CEO in February 1999. The table
above does not include insurance, the use of a car, and other personal benefits,
the total value of which does not exceed $50,000 or 10% of each person's salary
and bonus.
<TABLE>
<CAPTION>
Option/SAR Grants in Fiscal Year 1999
Number of Percent of Total
Securities Options Granted Exercise
Underlying to Employees in Price per Expiration
Name Options Granted Fiscal Year 1999 Share Date
<S> <C> <C> <C> <C>
Stephen J. Fryer 250,000 57 $0.65 Apr 2004
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Fiscal
Year 1999 and Fiscal Year End Option Values
Shares Number of Value of
Name Acquired Value Securities Unexercised
on Exercise Realized Underlying In-the-Money
Unexercised Options at
Options Fiscal Year
End
Exercisable / Exercisable /
Unexercised Unexercised
<S> <C> <C> <C> <C>
James S. Pendleton -0- None 450,000/450,000 $0.00
Stephen J. Fryer -0- None 278,500/278,500 $0.00
</TABLE>
26
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Pen's common stock
beneficially owned as of January 6, 2000 by
o each person who is known by Pen to own beneficially more than 5% of Pen's
common stock, o each director, o each of Pen's named executive officers, and o
by all directors, director nominees and executive officers, as a group, as
reported by each person.
The table also gives the amount of these shares which are issuable within
60 days on exercise or conversion of options, warrants, or preferred stock and
the percentage of Pen's common stock held by each person including shares
issuable upon exercise or conversion of the options, warrants, or preferred
stock. Unless otherwise indicated, each stockholder's address is c/o Pen, 1601
Alton Parkway, Irvine, California 92606. Except as noted otherwise, all shares
are owned beneficially and of record.
<TABLE>
<CAPTION>
Name and Address Total Amount Amount Percentage of
of Beneficial Owner Beneficially Issuable on Outstanding
Owned Exercise of Common Stock
Options, etc.
<S> <C> <C> <C>
James S. Pendleton (1) (2) 1,376,703 1,015,408 12.9%
James S. Pendleton Family Trust 256,441 0 2.7
Stephen J. Fryer 580,500 492,500 5.7
Wayne R. Wright (3) 1,441,029 1,243,920 13.2
Milton Haber 47,222 35,000 *
James E. Harward 10,000 10,000 *
AMRO International, S.A. (4) 3,905,727 3,905,727 28.8
Grossmunster Platz 26
Zurich, Switzerland
Austost Anstalt Schaan (4) 1,952,863 1,952,863 16.8
Landstrasse 163
Vaduz, Liechenstein
Balmore Funds, S.A. (4) 1,952,863 1,952,863 16.8
Trident Chambers
Road Town, Tortola
British Virgin Islands
RBB Bank AG (4) 3,168,200 3,168,200 24.7
Burgring 16
Graz, Austria
Peter Benz 1,326,667 906,667 12.6
543 Virginia Avenue
San Mateo, CA
All Officers and Directors as a Group
(4 persons) 2,078,751 1,781,420 18.2
* Less than 1%.
</TABLE>
(1) Includes 256,441 shares held by the James S. Pendleton Family Trust of
which Mr. Pendleton is a trustee and beneficiary and 15,144 shares in
Mr. Pendleton's account in Pen's ESOP.
(2) Includes 89,710 shares held by the Virginia C. G. Pendleton Family
Trust. Mr. Pendleton has voting control of these shares but disclaims
beneficial ownership.
(3) Includes 100,000 shares held by the Wayne R. Wright Family Trust,
50,000 shares held by the LaRae Wright Family Trust, of which Mr.
Wright is a trustee and beneficiary, and 7,109 shares in Mr. Wright's
27
<PAGE>
account in Pen's ESOP.
(4) In addition to shares issuable on exercise of warrants, consists of shares
issuable upon conversion of shares of Series A preferred stock and Series
B preferred stock based on a market price equal to $0.34 per share. See
"Description of Capital Stock -- Preferred Stock" for the formulae for
calculating the conversion price of the preferred stock. The terms of the
Series A and Series B preferred stock prevent the holders from converting
their shares of preferred stock if the conversion would cause the holder
to be deemed the beneficial owner of more than 9.9% of Pen's common stock,
except with the prior consent of the holder.
Except as set forth above, Pen knows of no beneficial owner of five
percent or more of Pen's common stock, and does not know of any arrangement
which may at a subsequent date result in a change of control of Pen. See
"Business - Summary of Current Year Events and Subsequent Events."
CERTAIN TRANSACTIONS
In 1989, Pen loaned Mr. James Pendleton, its former Chairman, $370,335,
bearing interest at 10% per annum. The note was satisfied in full as of
September 30, 1996. Interest income received was $5,006 during fiscal 1996.
During fiscal 1995, Pen guaranteed personal indebtedness of Mr. Pendleton
in the maximum amount of $180,000. This indebtedness was paid in full during
fiscal 1996, and the guarantee has been released.
During fiscal 1997, Pen paid to ELM Management and Leasing, of which Mr.
Harward was the president, approximately $55,000 for payroll processing and
employee benefit services.
During the first fiscal quarter of fiscal 1999, Pen entered into a letter
of intent with a company controlled by Mr. Pendleton for the sale of the MotoSat
division. This sale was completed in September 1999. In the sale Pen transferred
net assets of $68,437 in exchange for the cancellation of retirement payments
owed to Mr. Pendleton. This sale resulted in a loss to Pen of approximately
$68,000.
During fiscal 1999, Pen had sales of $1,719,093 to Imaging Technologies
Corporation, which is also known as Itec, of which $949,328 have been written
off as uncollectible. Pen discontinued sales to Itec in July 1999. In November
1999 Mr. Brian Bonar became a director of Pen. Mr. Bonar is the President and
CEO of Itec. Pen has explored acquiring certain assets and operations of Itec
but no agreements or commitments have been made as of the date of this
prospectus.
SELLING STOCKHOLDERS
An aggregate of up to 11,841,781 shares of common stock are being offered
for sale by selling stockholders. The following table sets forth some
information with respect to the selling stockholders. Pen will not receive any
of the proceeds from the sale of the shares of common stock, although it will
receive proceeds from the exercise of the warrants or stock options, if
exercised.
<TABLE>
<CAPTION>
Securities Owned Securities Securities to be Owned
Name Before Offering(1) to be Sold after Offering(2)
------------------- ----------- -----------------
<S> <C> <C> <C>
Amro International, S.A.(3) 3,622,727 3,622,727 0
Robert Albrecht 60,000 13,000 47,000
Atlas Trust 200,000 200,000 0
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Austost Anstalt Schaan(3) 1,811,363 1,811,363 0
Balmore Funds, S.A.(3) 1,811,363 1,811,363 0
BNC Bach International Ltd. 210,000 210,000 0
C. Reed Brown 60,000 20,000 40,000
Richard S. Carpenter 178,000 153,000 25,000
Robert "Duke" DeForrest 81,000 25,000 56,000
FINOVA Capital Corporation 500,000 125,000 375,000
Stephen J. Fryer(4) 580,500 80,000 500,500
James E. Harward 10,000 3,000 7,000
Jeffery M. Lamberson 147,000 147,000 0
Liviakis Financial
Communications, Inc. 281,250 281,250 0
Paul T. Mannion, Jr. 50,000 50,000 0
Mehrdad Mobaserri 65,000 8,000 57,000
Gordon Mundy 125,000 125,000 0
James S. Pendleton(5) 1,376,703 515,408 861,295
Max Povolotsky 50,000 50,000 0
Robert B. Prag 93,750 93,750 0
Carl Rasmussen 155,000 8,000 147,000
RBB Bank AG(3)(6) 1,705,000 1,705,000 0
Andrew S. Reckles 50,000 50,000 0
Redstone Securities, Inc. 450,000 50,000 400,000
Alan Weaver 145,000 40,000 105,000
Wayne R. Wright(7) 1,441,029 643,920 797,109
</TABLE>
- --------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
as of the date of this prospectus and generally includes voting or
investment power with respect to securities and includes any securities
which the person has the right to acquire within 60 days of the date of
this prospectus through the conversion or exercise of any security or
right. See also note 3 below.
(2) Assumes that all of the offered shares held by the selling stockholders
are sold, and that the selling stockholders acquire no additional shares
of common stock before the completion of this offering.
(3) Includes common stock issuable upon conversion of Series A preferred stock
determined based upon a conversion price of the Series A preferred stock
equal to $0.50 per share and of Series B preferred stock based on a
conversion price equal to $0.20 per share. These assumed conversion prices
were provided in the purchase agreements for the preferred stock. See
"Description of Capital Stock -- Preferred Stock"
29
<PAGE>
for the actual conversion formulas for the Series A and Series B preferred
stock. Accordingly, the numbers shown are only estimates of the number of
shares beneficially owned by these selling shareholders. The actual number
of shares of common stock beneficially owned by these selling stockholders
may be higher or lower than the number of shares shown in this table, and
will change based upon the actual market price of Pen's common stock. Pen
will file another registration statement in the event that the number of
converted common shares exceeds the amount of shares whose offer and sale
is covered by this registration statement. The terms of the Series A and
Series B preferred stock prevent the holders from converting their shares
of preferred stock if the conversion would cause the holder to be deemed
the beneficial owner of more than 9.9% of Pen's common stock, except with
the prior consent of the holder. Also includes common stock issuable upon
the exercise of warrants.
(4) After the sale of all of the common stock listed above, Mr. Fryer would
own, control, or have the right to acquire approximately 5.1% of Pen's
outstanding common stock.
(5) After the sale of all of the common stock listed above, Mr. Pendleton
would own, control, or have the right to acquire approximately 8.2% of
Pen's outstanding common stock.
(6) RBB Bank disclaims beneficial ownership of all of the shares of common
stock .
(7) After the sale of all of the common stock listed above, Mr. Wright would
own, control, or have the right to acquire approximately 8% of Pen's
outstanding common stock.
Stephen J. Fryer is currently the Chief Executive Officer and Chairman
of Pen. James E. Harward and Wayne R. Wright are currently members of the Board
of Directors and Mr. Wright was previously also an executive officer of Pen. C.
Reed Brown and James S. Pendleton are former directors and Mr. Pendleton was
previously also the Chief Executive Officer of Pen. Robert DeForrest, Carl
Rasmussen, and Alan Weaver are former officers of Pen.
PLAN OF DISTRIBUTION
The common stock offered by this registration statement is being offered
on behalf of the selling stockholders. This common stock may be sold or
distributed from time to time by the selling stockholders, or by others who
received the offered shares from selling stockholders. These sales may be
directly to one or more purchasers or through brokers, dealers or underwriters
who may act solely as agents or may acquire the common stock as principals, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the common stock offered by this prospectus may be effected in one
or more of the following methods:
o ordinary brokers' transactions;
o transactions involving cross or block trades or otherwise on the OTC
Bulletin Board;
o purchases by brokers, dealers or underwriters as principal and resale
by purchasers for their own accounts by this prospectus;
o "at the market" to or through market makers or into an existing market
for the common stock; o in other ways not involving market makers or
established trading markets, including direct sales to purchasers or
sales effected through agents;
o through transactions in options, swaps or other derivatives which may
or may not be listed on an exchange;
o in privately negotiated transactions;
o to cover short sales; or
o any combination of the foregoing.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the offered shares
owned by them, and the pledgees, secured parties or persons to whom the
securities have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be
30
<PAGE>
selling stockholders. The number of selling stockholder's offered shares
beneficially owned by those selling stockholders who so transfer, pledge, donate
or assign selling stockholders' offered shares will decrease as and when they
take these actions. The plan of distribution for selling stockholders' offered
shares sold will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be selling stockholders. In addition,
a selling stockholder may, from time to time, sell short Pen's common stock, and
then this prospectus may be delivered in connection with the short sales and the
offered shares may be used to cover the short sales.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with a selling
stockholder, including, without limitation, in connection with distributions of
the common stock by broker- dealers. A selling stockholder may also enter into
option or other transactions with broker-dealers that involve the delivery of
the offered shares to the broker-dealers, who may then resell or otherwise
transfer the offered shares. A selling stockholder may also loan or pledge the
offered shares to a broker-dealer and the broker-dealer may sell the offered
shares so loaned or upon a default may sell or otherwise transfer the pledged
offered shares.
Brokers, dealers, underwriters or agents participating in the distribution
of the offered shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders and/or
purchasers of the common stock for whom these broker-dealers may act as agent,
or to whom they may sell as principal, or both. Compensation as to a particular
broker-dealer may be less than or in excess of customary commissions. The
selling stockholders and any broker-dealers who act in connection with the sale
of the offered shares may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, or the Securities Act, and any commissions they
receive and proceeds of any sale of the offered shares may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither Pen nor
any selling stockholder can presently estimate the amount of this compensation.
Pen knows of no existing arrangements between any selling stockholders or any
other stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the offered shares. As registered broker-dealer or affiliates of
registered broker-dealers, Redstone Securities, Inc., and Messrs. Paul Mannion,
Max Povolotsky, and Andrew Reckles would be deemed to be underwriters although
they have represented that they are only selling securities for their own
accounts in this registration statement.
Pen will pay substantially all of the expenses incident to the
registration, offering and sale of the offered shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. Pen has also
agreed to indemnify some of the selling stockholders and related persons against
many liabilities, including liabilities under the Securities Act.
Pen has advised the selling stockholders that while they are engaged in a
distribution of the offered shares included in this prospectus they are required
to comply with Regulation M promulgated under the Exchange Act. With some
exceptions, Regulation M precludes any selling stockholder, any affiliated
purchasers, and any broker-dealer or other person who participates in a
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the offered shares.
DESCRIPTION OF CAPITAL STOCK
Pen is authorized to issue up to 50,000,000 shares of common stock, par
value $0.01 per share, and 5,000,000 shares of preferred stock, par value $.01
per share, of which 9,663,114 shares of common stock and 2,800 shares of
preferred stock currently are outstanding. The following is a summary of the
material terms of Pen's common stock, preferred stock and publicly-traded
warrants.
31
<PAGE>
Common Stock
Holders of the common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably dividends, if any, if they are declared by the Board
of Directors. See "Dividend Policy." Upon the liquidation, dissolution, or
winding up of Pen, the holders of common stock are entitled to share ratably in
all assets of Pen which are legally available for distribution, after payment of
all debts and other liabilities and the liquidation preference of any
outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares being sold by Pen in this offering will be, when
issued and delivered, validly issued, fully paid and nonassessable.
Warrants
Each warrant entitles the holder to purchase one share of Pen's common
stock originally at a price of $6.50 per share, subject to adjustment to protect
warrantholders from some forms of dilution, until November 17, 2000, at which
time the warrants will expire. The principal forms of dilution which would
result in an adjustment in the effective purchase price per share are:
o division, combination or reclassification of Pen's common stock,
o mergers or consolidations,
o dividends or other distributions to holders of common stock, or
o issuance of rights, options, warrants, or other convertible securities
which could be converted at prices less than the 10-day average price of
Pen's common stock.
In the first three cases referred to above, there is no specific formula
for the adjustment. The warrant is adjusted so that the warrantholder is in the
same position as if he had exercised his warrants immediately prior to the event
which gave rise to the adjustment. In the fourth case referred to above, the
adjustment consists of increasing the number of shares of Pen's common stock
which could be purchased upon exercise of a warrant. The increase is determined
by a complex formula which gives the warrantholder additional shares on exercise
of the warrant based upon the number of shares which the holder of the other
convertible security could receive at a price less than the 10-day average of
Pen's common stock.
It is likely that conversion of Pen's preferred stock would result in an
adjustment because the conversion price includes a discount from the lowest
price of Pen's common stock in a 22 day period. However, the extent of the
adjustment can not be estimated at the present time because the amount of common
stock issuable upon conversion of the preferred stock is highly variable. See
"Preferred Stock."
The warrants are redeemable in whole and not in part by Pen upon 30 days'
notice at a price of $.05 per warrant if the average closing bid price of Pen's
common stock equals or exceeds $9.00 for any 20 trading days ending on the third
day prior to the day on which Pen mails the notice of redemption to the warrant
holders. In the event Pen gives notice of its intention to redeem the warrants,
a holder would be forced to either exercise his warrant within 30 days of the
notice of redemption or accept the redemption price. The holders of warrants
will have exercise rights until the close of business on the date fixed for the
redemption thereof.
The publicly-traded warrants are subject to a Warrant Agreement between
Pen and American Stock Transfer & Trust Company, New York, New York, as "Warrant
Agent." The shares of Pen's common stock underlying the warrants, when issued
upon exercise thereof and payment of the purchase price, will be fully paid and
nonassessable, and Pen will pay any transfer tax incurred as a result of the
issuance of common stock to the holder upon exercise. Pen will not be required
to issue fractional shares upon the exercise of a warrant. The holder of a
warrant will not possess any rights as a stockholder of Pen until the holder
exercises the
32
<PAGE>
warrant. A copy of the form of Warrant Agreement has been filed as an exhibit to
the registration statement of which this prospectus forms a part.
Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by the laws of the State of Utah, but without further action by Pen's
stockholders, to provide for the issuance of preferred stock in one or more
series. The Board of Directors can establish the number of shares to be included
in each series, to fix the designations, powers, preferences and rights of the
shares of each series, any qualifications or restrictions on the series, and to
increase or decrease the number of shares of any series (but not below the
number of shares of the series then outstanding) without any further vote or
action by the stockholders.
The Board of Directors may authorize and issue preferred stock with voting
or conversion rights that could adversely affect the voting power or other
rights of the holders of common stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of Pen.
Pen has issued 1,800 shares of Series A preferred stock and 1,000 shares
of Series B preferred stock. Dividends are payable annually on both series of
preferred stock at $160 per share. The number of shares of common stock issuable
upon conversion of the Series A and Series B preferred stock is determined by
dividing $1,000 per share (plus stock dividends) by a number that is:
o the average of the two lowest closing bid prices for the common stock
during the 22 consecutive trading days prior to the date of conversion
o discounted by 15% in the case of Series A preferred stock and 20% in
the case of Series B preferred stock.
The maximum conversion prices were originally $1.17 per share for the
Series A preferred stock and $0.79 per share for the Series B preferred stock.
In September 1999 the maximum conversion price was reduced to $0.53 per share
for both the Series A and Series B preferred stock in consideration of the
consent by the preferred shareholders to the issuance of stock options by Pen.
No holder of the Series A or Series B preferred stock is entitled to convert or
exercise its preferred stock if the conversion or exercises would cause:
o the preferred stockholders in the aggregate to beneficially own more
than 19.9% of the outstanding common stock of Pen, or
o individually to beneficially own more than 9.9% of Pen's outstanding
common stock at any time.
These limitations will end when Pen's common stockholders have ratified
the issuance of the Series A and Series B preferred stock To date, the issuance
of the Series A and Series B preferred stock has not been ratified by Pen's
stockholders. Therefore, as described in the preceding paragraph, the preferred
stockholders are limited to owning no more than 19.9% of Pen's outstanding
common stock at any one time. Since the 19.9% limitation applies only to common
stock held at one time, it can be avoided by successive conversions and sales of
common stock. There are no other limits on the amount of Pen common stock which
is issuable under the conversion formula described above. The following table
illustrates the amount of Pen common stock which would be issuable on conversion
of the preferred stock assuming conversion prices based on 100%, 75%, 50%, and
25% of $0.25 which was Pen's lowest stock price in the 22 days ending January 6,
2000. It also shows what percentage of Pen's outstanding common stock would be
held by the preferred stockholders assuming all of the preferred stock was
converted at the prices shown.
33
<PAGE>
Stock Price Number of shares of common Percentage of common
- ----------- --------------------------- --------------------
stock issuable stock outstanding
-------------- -----------------
$0.25 14,806,333 61%
0.19 19,433,313 67%
0.13 28,266,637 75%
0.06 62,186,600 87%
As of February 1, 2000, Pen had 9,937,705 shares of common stock
outstanding. Since all of these amounts would exceed 19.9% of that number, the
conversion of this number of shares would have to occur over a period of time
during which the preferred shareholders sold some of their common stock.
The Series A preferred stock was issued in February 1999 to various
foreign investors. The investors paid $1,300,000 in cash and canceled promissory
notes for $500,000. The Series A preferred shareholders investors also received
warrants to acquire an aggregate of 90,000 shares of common stock exercisable at
$1.43 per share and an aggregate of 90,000 shares of common stock exercisable at
$1.28 per share. The holders of the Series A preferred stock also received
rights of first refusal with respect to future financings by Pen. In connection
with the issuance of the Series A preferred stock, Pen also paid a fee equal to
7% of the consideration received.
The Series B preferred stock was issued in April 1999 to various foreign
investors. The investors paid $1,000,000 in cash. The Series B preferred
shareholders investors also received warrants to acquire an aggregate of 160,000
shares of common stock exercisable at $0.86 per share. The holders of the Series
B preferred stock also received rights of first refusal with respect to future
financings by Pen subject to the rights of the holders of Series A preferred
stock. In connection with the issuance of the Series B preferred stock, Pen also
paid fees of $104,500.
There were no material relationships between Pen and any of the investors
in the Series A or Series B preferred stock prior to the issuance of the
preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our stock may fall as a result of sales of a large
number of shares of common stock in the market after this offering or the
perception that sales could occur.
There are 9,663,114 shares of common stock outstanding. All but 824,642 of
these shares are fully transferable without restriction or further registration
under the Securities Act or are eligible for sale in the public market in
compliance with Rule 144 under the Securities Act. The other 824,642 shares are
held by "affiliates" of Pen (in general, any person who has a control
relationship to Pen) and may be resold only if registered under the Securities
Act or if transferred pursuant to an exemption from registration, including
resales pursuant to Rule 144 and Regulation S under the Securities Act.
Generally, under Rule 144 as currently in effect, subject to the
satisfaction of conditions set forth in the rule, a person, including an
affiliate of Pen, after at least one year has elapsed from the sale by Pen of
the restricted securities may sell, within any three-month period, a number of
shares of restricted securities that does not exceed the greater of 1% of the
total number of outstanding shares of the same class, or, if the common stock is
quoted on Nasdaq or a stock exchange, the average weekly trading volume during
the four calendar weeks preceding the sale. After a period of two years have
elapsed from the date of sale of the restricted securities by Pen or an
affiliate thereof, any person who has not been an affiliate of Pen for at least
three months, will be entitled to sell restricted shares under Rule 144 without
regard to the volume limitations
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described above.
Up to 347,000 shares of common stock may be issued upon exercise of
outstanding employee stock options. An additional 163,000 shares of common stock
are reserved for issuance pursuant to options available for future grant under
our stock option plans. Up to another approximately 20,389,000 shares are
issuable under other options, warrants, and convertible preferred stock. We have
filed various registration statements on Forms S-8, S-3 and the registration
statement on Form SB-2 of which this prospectus is a part to register all of
these shares of common stock reserved for issuance under stock options,
warrants, and preferred stock. As a result, any shares issued upon exercise of
stock options, warrants, and convertible preferred stock are available for
resale in the public market, subject to special rules for affiliates.
LEGAL MATTERS
Some legal matters with respect to the shares of Common Stock included
in this prospectus have been passed upon for Pen by Oscar D. Folger, Esq., New
York, New York.
EXPERTS
The financial statements of Pen Interconnect, Inc., as of September 30,
1999 and 1998, and for the years then ended have been audited by Grant Thornton
LLP, independent certified public accountants, as set forth in their report
appearing therein, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
INDEMNIFICATION
The certificate of incorporation of Pen provides that all directors,
officers, employees and agents of Pen shall be entitled to be indemnified by Pen
to the fullest extent permitted by law. The certificate of incorporation also
provides as follows:
The corporation shall, to the fullest extent permitted by the Act, as the
same may be amended and supplemented, indemnify all directors, officers,
employees, and agents of the corporation whom it shall have power to indemnify
thereunder from and against any and all of the expenses, liabilities, or other
matters referred to therein or covered thereby. Such right to indemnification or
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee, or agent of the corporation, and shall inure to the
benefit of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any bylaw, agreement, vote of stockholders or
of disinterested directors or otherwise. The corporation shall have the right to
purchase and maintain insurance on behalf of its directors, officers, employees
or agents to the full extent permitted by the Act, as the same may be amended or
supplemented.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling Pen
pursuant to the foregoing provisions, or otherwise, Pen has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
WHERE YOU CAN FIND FURTHER INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the SEC's public reference rooms at Room 1024, 450
Fifth Street, N.W., Washington, D.C., and at the SEC's Regional Offices: Suite
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1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois; 7
World Trade Center, New York, New York, and Suite 500, 5757 Wilshire Boulevard,
Los Angeles, California, and with respect to registration statements, Suite 788,
1375 Peachtree Street, Atlanta, Georgia. Copies of these materials can be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and can also be accessed
electronically through the SEC's Web site at http://www.sec.gov. Pen's
securities are traded on the Nasdaq OTC Bulletin Board and reports and proxy
statements can also be obtained from The Nasdaq Stock Market, Inc. at 1735 K
Street NW, Washington, D. C. 20006.
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. This
prospectus also does not contain all the information in the registration
statement. For further information, you can obtain the complete registration
statement and the documents incorporated herein by reference from the SEC
offices listed above.
We have authorized no one to provide you with different information. We
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
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PEN INTERCONNECT, INC.
11,841,781 shares of Common Stock
-------------------------------
PROSPECTUS
-------------------------------
February __, 2000
37
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Pen has entered into agreements with each director and officer in which
Pen agrees to indemnify each director and officer to the maximum extent
permitted by law.
Pen's certificate of incorporation provides that all directors, officers,
employees and agents of the Registrant shall be entitled to be indemnified by
Pen to the fullest extent permitted by law. The certificate of incorporation
also provides as follows:
The corporation shall, to the fullest extent permitted by the Act, as the
same may be amended and supplemented, indemnify all directors, officers,
employees, and agents of the corporation whom it shall have power to indemnify
thereunder from and against any and all of the expenses, liabilities, or other
matters referred to therein or covered thereby. Such right to indemnification or
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee, or agent of the corporation, and shall inure to the
benefit of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any bylaw, agreement, vote of shareholders or
of disinterested directors or otherwise. The corporation shall have the right to
purchase and maintain insurance on behalf of its directors, officers, employees
or agents to the full extent permitted by the Act, as the same may be amended or
supplemented. Sections 16.10a-902 and 16.10a-903 of the Utah Revised Business
Corporation Act concerning indemnification of officers, directors, employees and
agents are set forth below.
16-10a-902 Authority to Indemnify Directors.
(1) Except as provided in Subsection (4), a corporation may indemnify an
individual made a party to a proceeding because he is or was a director, against
liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed to the
corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(2) A director's conduct with respect to any employee benefit plan for a purpose
he reasonably believed to be in or not opposed to the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contender or its equivalent is not, of itself,
determinative that the director did not meet the standard of conduct described
in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(b) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in his
official capacity, in which proceeding he was adjudged liable on the basis that
he derived an improper personal benefit.
(c) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
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16-10a-903 Mandatory Indemnification of Directors.
Unless limited by its articles of incorporation, a corporation shall indemnify a
director who was successful, on the merits or otherwise, in the defense of any
proceeding, or in the defense of any claim, issue or matter in the proceeding,
to which he was a party because he is or was a director of the corporation,
against reasonable expenses incurred by him in connection with the proceeding or
claim with respect to which he has been successful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, (the "Act") may be permitted to directors, officers,
and controlling persons of Pen pursuant to the foregoing provisions, or
otherwise, Pen has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Pen of
expenses incurred or paid by a director, officer or controlling person of Pen in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Pen will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 25. Other Expenses of Issuance and Distribution
Securities and Exchange Commission Registration Fee $2,762
Printing and Engraving 1,000
Transfer Agent's Fee and Expenses 1,000
Legal Fees and Expenses 65,000
Blue Sky Qualification Fees and Expenses 5,000
Accountants' Fees and Expenses 15,000
Miscellaneous Expenses 10,238
------
Total $100,000
========
Item 26. Recent Sales of Unregistered Securities
(1) In May 1996, Pen issued 316,737 shares of common stock to the Cerplex
Group Inc. in consideration for the acquisition of InCirT Technology.
(2) In May 1996, Pen issued 9,168 shares of common stock to Ventana
Financial Services in consideration of services rendered in Pen's
acquisition of InCirT Technology.
(3) In July 1997, Pen issued 2,789 shares of common stock to Stephanie
Fryer in consideration of services rendered in Pen's acquisition of
InCirT Technology.
(4) In August 1997, Pen issued 44,444 shares of common stock to Ira
Weingarten in consideration of payment of notes payable of $52,000.
(5) In August 1997, Pen issued 22,222 shares of common stock to Milton
Haber in consideration of payment of notes payable of $26,000.
(6) In August 1997, Pen issued 25,000 shares of common stock at $1.21 per
share to Target Capital upon exercise of warrants.
(7) In August 1997, Pen issued 22,222 shares of common stock to The Trading
Post Inc. in consideration of payment of notes payable of $26,000.
(8) In August 1997, Pen issued 150,000 shares of common stock at $1.21 per
share to Yitz Grossman upon exercise of warrants.
(9) In August 1997, Pen issued 52,779 shares of common stock to The Cerplex
Group Inc. in consideration for the acquisition of InCirT Technology.
(10) In August 1997, Pen issued 230,000 shares of common stock at $1.21 per
share to Lisa Grossman upon exercise of warrants.
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(11) In September 1997, Pen issued 200,000 shares of common stock at $1.21
per share to Paulette Marie Brodchandel upon exercise of warrants.
(12) In September 1997, Pen issued 40,000 shares of common stock at $1.21
per share to Lisa Grossman upon exercise of warrants.
(13) In September 1997, Pen issued 100,000 shares of common stock at $1.21
per share to National Financial Services Corp. upon exercise of
warrants.
(14) In December 1997, Pen issued 150,000 shares of common stock to
PowerStream Technology Inc. for the acquisition of PowerStream
Technology.
(15) In December 1997, Pen issued 75,000 shares of common stock to Bear
Stearns Securities Corp. upon conversion of subordinated debentures of
$150,000.
(16) In December 1997, Pen issued 7,500 shares of common stock to Alan L.
Weaver as compensation for services.
(17) In March 1998, Pen issued 147,092 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$213,383.
(18) In April 1998, Pen issued 162,162 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$235,245.
(19) In April 1998, Pen issued 90,000 shares of common stock at $2.00 per
share to Gordon Mundy upon exercise of warrants.
(20) In May 1998, Pen issued 30,000 shares of common stock at $2.00 per
share to Heracles Holdings Limited upon exercise of warrants.
(21) In May 1998, Pen issued 3,333 shares of common stock to Kostech Small
Cap Research as compensation for services.
(22) In May 1998, Pen issued 50,000 shares of common stock at $2.00 per
share to Louis F. Centofanti upon exercise of warrants.
(23) In June 1998, Pen issued 85,960 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$124,700.
(24) In July 1998, Pen issued 50,000 shares of common stock at $2.00 per
share to Louis F. Centofanti upon exercise of warrants.
(25) In September 1998, Pen issued 294,118 shares of common stock to RBB
Bank Aktiengrsellshaft. upon conversion of subordinated debentures of
$426,671.
(26) In October 1998, Pen issued 388,846 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of
$252,750.
(27) In October 1998, Pen issued 157,935 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$107,668.
(28) In November 1998, Pen issued 30,000 shares of common stock at $0.75 per
share to Heracles Holdings Limited upon exercise of warrants.
(29) In November 1998, Pen issued 20,000 shares of common stock at $0.75 per
share to Lawson Rollins upon exercise of warrants.
(30) In December 1998, Pen issued 50,000 shares of common stock at $0.75 per
share to Louis F. Centofanti upon exercise of warrants.
(31) In December 1998, Pen issued 20,000 shares of common stock at $0.75 per
share to Neyla Kizner upon exercise of warrants.
(32) In December 1998, Pen issued 10,000 shares of common stock at $0.75 per
share to Rahim Kaba upon exercise of warrants.
(33) In December 1998, Pen issued 307,692 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$200,000.
(34) In December 1998, Pen issued 90,000 shares of common stock at $0.75 per
share to Gordon Mundy upon exercise of warrants.
(35) In January 1999, Pen issued 46,014 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of
$50,846.
(36) In January 1999, Pen issued 103,956 shares of common stock to Dundee
Securities. upon conversion of subordinated debentures of $101,877.
(37) In March 1999, Pen issued 172,681 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of
$127,784.
(38) In March 1999, Pen issued 104,372 shares of common stock to BNC Bach
International Ltd.
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upon conversion of subordinated debentures of $102,285.
(39) In March 1999, Pen issued 135,135 shares of common stock to RBB Bank
Aktiengrsellshaft. upon conversion of subordinated debentures of
$100,000.
(40) In March 1999, Pen issued 154,199 shares of common stock to BNC Bach
International Ltd. upon conversion of subordinated debentures of
$153,428.
(41) In April 1999, Pen issued 147,000 shares of common stock to Jeffery M.
Lamberson as payment for services.
(42) In April 1999, Pen issued 281,250 shares of common stock to Liviakis
Financial Communications, Inc. as payment for services.
(43) In April 1999, Pen issued 153,000 shares of common stock to Richard S.
Carpenter as payment for services.
(44) In April 1999, Pen issued 93,750 shares of common stock to Robert B.
Prag as payment for services.
(45) In May 1999, Pen issued 15,000 shares of common stock to James
Pendleton as compensation.
(46) In May 1999, Pen issued 20,000 shares of common stock to Dave
Livingston as payment for services.
(47) In May 1999, Pen issued 10,000 shares of common stock to Corporate
Development Group as payment for services.
(48) In May 1999, Pen issued 7,000 shares of common stock to Network
Investor Communications as payment for services.
(49) In May 1999, Pen issued 1,500 shares of common stock to Robert Albrecht
as compensation.
(50) In May 1999, Pen issued 2,167 shares of common stock to Stephen Fryer
as compensation.
(51) In May 1999, Pen issued 2,500 shares of common stock to Mehrdad
Mobasseri as compensation.
(52) In May 1999, Pen issued 1,000 shares of common stock to Owen Marsh as
compensation.
(53) In May 1999, Pen issued 1,000 shares of common stock to Bill Day as
compensation.
(54) In May 1999, Pen issued 1,000 shares of common stock to Steve Ngo as
compensation.
(55) In May 1999, Pen issued 1,000 shares of common stock to Rafael Batista
as compensation.
(56) In May 1999, Pen issued 400 shares of common stock to Ronda Barboa as
compensation.
(57) In May 1999, Pen issued 400 shares of common stock to Heather Hungate
as compensation.
(58) In May 1999, Pen issued 400 shares of common stock to Irene Tafulu as
compensation.
(59) In May 1999, Pen issued 400 shares of common stock to Lien Hoang as
compensation.
(60) In May 1999, Pen issued 400 shares of common stock to Waldemar
Dziurzynski as compensation.
(61) In May 1999, Pen issued 171,195 shares of common stock to BNC Bach upon
conversion of $100,000 of subordinated debentures.
(62) In June 1999, Pen issued 200,889 shares of common stock to BNC Bach
upon conversion of $125,000 of subordinated debentures.
(63) In July 1999, Pen issued 247,500 shares of common stock to JWGenesis
Financial Corp. as compensation for services.
(64) In October 1999, Pen issued 25,000 shares of common stock to Redstone
Securities, Inc. as compensation for services.
(65) In December 1999, Pen issued 275,000 shares of common stock to Talisman
Management as compensation for services.
All of the foregoing issuances were exempt from registration either
pursuant to Section 4(2) of the Securities Act of 1933 because the stockholders
were either accredited investors, officers of Pen, or otherwise sophisticated,
fully informed investors or because the issuances were employee bonuses which
did not constitute sales.
Item 27. Exhibits.
3 Articles of incorporation and By-laws, incorporated by reference to
Pen's Registration Statement filed on Form SB-2, SEC File No. 33-96444.
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4.1 Certificate of Amendment creating Series A Convertible Preferred Stock
as filed February 10, 1999. See Exhibits to Report on Form 8-K filed on
February 17, 1999.
4.2 Certificate of Amendment creating Series B Convertible Preferred Stock
as amended.*
5.1 Opinion and Consent of Oscar D. Folger, Esq.
10.1 Asset Purchase Agreement for the purchase of InCirT Technology from the
Cerplex Group, Inc. See Exhibits to Report on Form 10-QSB for quarter
ended June 30, 1996.
10.2 Employment Agreement between James S. Pendleton and Pen. See Exhibits
to Report on Form 10-QSB for quarter ended June 30, 1996.
10.3 Employment Agreement between Wayne R. Wright and Pen. See Exhibits to
Report on Form 10-QSB for quarter ended June 30, 1996.
10.4 Form of 1995 Stock Option Plan. See Exhibits to Registration Statement
on Form SB-2, SEC File No.33-96444.
10.5 Asset Purchase Agreement dated November 12, 1996 for the sale of the
San Jose Division between Touche Electronics, Inc. a subsidiary of TMCI
Electronics, Inc. and Pen. See Exhibits to Report on Form 10-QSB for
quarter ended December 31, 1996.
10.6 Loan and Security Agreement between FINOVA and Pen dated September 4,
1997. See Exhibits to Report on Form 10-KSB for fiscal year ended
September 30, 1997.
10.7 Employment Agreement between Stephen J. Fryer and Pen. See Exhibits to
Report on Form 10-KSB for fiscal year ended September 30, 1997.
10.8 Employment Agreement between Daniele Reni and Pen. See Exhibits to
Report on Form 10-KSB for fiscal year ended September 30, 1997.
10.9 Agreement and Plan of Reorganization through Acquisition dated April 1,
1997 between PowerStream Technology, Inc. and Pen. See Exhibits to
Report on Form 10-KSB for fiscal year ended September 30, 1997.
10.10 Convertible Preferred Stock and Warrant Purchase Agreement between Pen,
RBB Bank AG, Austost Anstalt Schaan, Balmore Funds, S.A., and AMRO
International, S.A. dated as of February 12, 1999. See Exhibits to
Report on Form 8-K filed February 17, 1999.
10.11 Amendment in Total and Complete Restatement of the Deferred
Compensation Salary Continuation Plan and Employment Agreement between
Pen and James S. Pendleton dated as of July 23, 1999. See Exhibits to
Report on Form 10-KSB for the fiscal year ended September 30, 1999.
10.12 Amendment in Total and Complete Restatement of the Deferred
Compensation Salary Continuation Plan and Employment Agreement between
Pen, Wayne R. Wright, and RentAProfessional dated as of October 1,
1999. See Exhibits to Report on Form 10-KSB for the fiscal year ended
September 30, 1999.
23.1 Consent of Oscar D. Folger, Esq. (included in Exhibit 5.1)
23.2 Consent of Grant Thornton LLP
* Previously filed.
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Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the high and low and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That for purposes of determining any liability under the Securities
Act of 1933, each filing of Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned in Irvine,
California as of February 11, 2000.
PEN INTERCONNECT, INC.
By /s/ Stephen J. Fryer
Stephen J. Fryer, President/Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Stephen J. Fryer as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead in any and all capacities to sign any and all amendments
(including post-effective amendments) to this registration statement on Form
SB-2 and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933. Pursuant to the requirements of the Securities Act of
1933, this registration statement was signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Stephen J. Fryer Director, CEO, President January 10, 2000
Stephen J. Fryer and Principal Accounting
and Financial Officer
/s/ Brian Bonar
Brian Bonar Director January 10, 2000
/s/ James E. Harward
James E. Harward Director January 10, 2000
/s/ Milton Haber
Milton Haber Director January 10, 2000
/s/ Wayne R. Wright Director January 10, 2000
Wayne R. Wright
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Exhibits 5 and 23(a)
LAW OFFICES OF OSCAR D. FOLGER
521 Fifth Avenue
New York, New York 10175
February 14, 2000
Pen Interconnect, Inc.
1601 Alton Parkway
Irvine, California 92606
Re: Form SB-2 Registration Statement
Gentlemen:
We have acted as counsel for Pen Interconnect, Inc., a Utah corporation
("Pen"), in connection with the registration by Pen of 11,841,781 shares of
Common Stock, par value $0.01 per share (the "Securities"), which are the
subject of a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended. As counsel to Pen we have examined and relied upon the
original or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary in order to render the following opinion.
On the basis of and subject to the foregoing, it is our opinion that
the Securities to be issued and sold by the selling stockholders have been duly
authorized and, when issued and sold, will be duly issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Securities and Exchange Commission thereunder.
This opinion is to be used only in connection with the offer and sale
of the Securities as variously referred to herein while the Registration
Statement is in effect.
Very truly yours,
/s/ Oscar D. Folger
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated December 23, 1999 accompanying the financial
statements of Pen Interconnect, Inc. as of and for the years ended September 30,
1999 and 1998 contained in the registration statement and prospectus. We consent
to the use of the aforementioned report in the registration statement and
prospectus, and to the use of our name as it appears under the caption
"Experts."
\s\ Grant Thornton LLP
Salt Lake City, Utah
February 14, 2000
46
