QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the quarterly period ended __________________
[ X ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from June 1, 2000 to August 31, 2000
Commission file number 1-15821
Espo's Inc.
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(Name of Small Business Issuer in its charter)
New York 11-3042779
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10501 FM 720 East, Frisco, Texas 75035
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(Address of principal executive offices)
(Issuer's telephone number) (972) 381-1212
No change
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d)of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes ___ No ___ Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date:
October 3, 2000 - 5,975,113 shares.
Transitional Small Business Disclosure Format (Check one):
Yes [ X ] No [ ]
PART 1 - FINANCIAL INFORMATION
Item. 2 Financial Statements
Espo's Inc.
Consolidated Balance Sheets
August 31, November 30,
2000 1999
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ASSETS (Unaudited)
Current assets:
Cash $ 17,341 $ -
Securities available for sale - 450,000
Trade accounts receivable, net 1,200,666 1,095,519
Other receivables 11,690 114,193
Inventory 1,174,880 896,442
Prepaid expenses 70,855 35,393
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Total current assets 2,475,432 2,591,547
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Property and equipment, net of depreciation 3,111,993 3,213,324
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Other assets:
Goodwill, net of amortization 498,038 507,657
Loan origination fees, net of amortization 46,727 63,107
Deposits 13,490 8,270
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558,255 579,034
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Total Assets $ 6,145,680 $ 6,383,905
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 332,689 $ 375,558
Current maturities of long-term debt 486,437 1,229,464
Lines of credit and note payable 752,207 915,461
Current portion of royalty payable 300,000 300,000
Accounts payable 1,542,282 1,243,663
Advances payable to related parties 15,000 15,000
Accrued expenses 641,518 623,232
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Total current liabilities 4,070,133 4,702,378
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Noncurrent liabilities:
Long-term debt 1,538,635 1,881,279
Royalty payable 75,000 75,000
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Total noncurrent liabilities 1,613,635 1,956,279
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Stockholders' equity (deficit):
Preferred stock; par value $0.01; $1,000 per
share redemption value; 1,000,000 shares
authorized:
Series A - 8% cumulative dividends increasing
to 10%, 12% and 14%, in successive years
and 16% thereafter; 3,000 shares authorized,
issued and outstanding 30 30
Series B - convertible 6%; 900 shares
authorized, issued and outstanding 9 9
Series C - 12% cumulative dividends;
10,000 shares authorized, 5,300 shares
issued and outstanding 53 -
Additional paid-in capital, preferred stock 5,661,345 3,125,696
Common stock; par value $0.01, 25,000,000
shares authorized, 5,866,947 shares issued
and outstanding 59,456 58,669
Additional paid-in capital, common stock 220,917 (9,294)
Accumulated deficit (5,479,898) (3,449,862)
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Total stockholders' equity (deficit) 461,912 (274,752)
---------- ----------
Total Liabilities and Stockholders' Equity $ 6,145,680 $ 6,383,905
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
Espo's Inc.
Consolidated Statements of Operations
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 2,562,632 $ 2,477,066 $ 6,869,053 $ 5,002,010
Cost of sales 2,121,236 2,479,120 6,396,275 4,989,773
---------- ---------- ---------- ----------
Gross profit (loss) 441,396 (2,054) 472,778 12,237
---------- ---------- ---------- ----------
Expenses:
General and administrative 578,106 593,503 1,656,376 1,271,802
Depreciation and amortization 10,882 14,460 29,700 28,536
Moving expense - - - 221,774
Loss on disposal of equipment 265 - 716 45,619
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589,253 607,963 1,686,792 1,567,731
---------- ---------- ---------- ----------
Loss from operations (147,857) (610,017) (1,214,014) (1,555,494)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (132,389) (151,954) (513,855) (314,453)
Interest income - - - -
Miscellaneous income (expense) 2,170 - 82,133 (50,785)
---------- ---------- ---------- ----------
(130,219) (151,954) (431,722) (365,238)
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes (278,076) (761,971) (1,645,736) (1,920,732)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Net loss $ (278,076) $ (761,971) $(1,645,736) $(1,920,732)
========== ========== ========== ==========
Loss available to common stock $ (510,576) $ (836,371) $(2,030,036) $(2,145,789)
========== ========== ========== ==========
Loss per share - basic $ (0.09) $ (0.14) $ (0.34) $ (0.37)
========== ========== ========== ==========
Loss per share - diluted $ (0.09) $ (0.14) $ (0.34) $ (0.37)
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
Espo's Inc.
Consolidated Statements of Cash Flows
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Nine Nine
Months Ended Months Ended
August 31, 2000 August 31, 1999
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(1,645,736) $(1,920,732)
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Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 422,933 307,175
Loss on disposal of assets 716 45,619
Inventory allowance - (60,956)
Changes in operating assets and liabilities:
Decrease in marketable security 450,000 -
(Increase) decrease in trade accounts receivable (105,147) (234,016)
(Increase) decrease in other receivables 102,503 38,360
(Increase) decrease in inventory (278,438) 288,224
(Increase) decrease in prepaid expenses (35,462) (4,543)
Increase in other assets (5,220) (55,407)
Increase in accounts payable 298,619 984,754
Increase (decrease) in accrued expenses 18,286 302,501
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Total adjustments 868,790 1,611,711
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Net cash provided by (used in)
operating activities (776,946) (309,021)
Cash flows from investing activities:
Acquisition of property and equipment (296,319) (889,063)
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Net cash used in investing activities (296,319) (889,063)
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Cash flows from financing activities:
Advances from related party - 15,000
Dividends paid (384,300) (225,057)
Net proceeds from short-term borrowing (42,869) 129,009
Payments on royalty payable - (75,000)
Proceeds from long-term debt - 1,206,614
Payments on long-term debt (1,085,671)
Net proceeds (payments) from line of
credit & notes payable (163,254) 172,585
Proceeds from sale of stock 2,766,700 46,875
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Net cash provided by financing activities 1,090,606 1,270,026
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Increase (decrease) in cash 17,341 71,942
Cash, beginning of period - 7,535
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Cash, end of period $ 17,341 $ 79,477
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
Espo's, Inc.
Notes to Consolidated Financial Statements
August 31, 2000 (Unaudited)
BASIS OF PRESENTATION
The interim financial statements and summarized notes included herein
were prepared in accordance with generally accepted accounting principals
for interim financial information, pursuant to rules and regulations of the
Securities and Exchange Commission. Because certain information and notes
normally included in complete financial statements prepared in accordance
with generally accepted accounting principals were condensed or omitted
pursuant to such rules and regulations, it is suggested that these financial
statements be read in conjunction with the Consolidated Financial Statements
and the Notes thereto, included in the Company's Report 10SB filed April 12,
2000. These interim financial statements and notes hereto reflect all
adjustments which are, in the opinion of management, necessary in order to
make interim financial statements not misleading. Such financial results
should not be construed as necessarily indicative of future results.
INVENTORY
Inventories consist primarily of the following:
August 31, November 30,
2000 1999
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(Unaudited)
Finished goods $ - $ -
Work in progress 797,079 573,562
Raw materials 377,801 322,880
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Total inventory $ 1,174,880 $ 896,442
========== ==========
LOSS PER SHARE
Weighted average shares outstanding was 5,945,600 for August 31, 2000
and 5,866,947 for August 31, 1999.
Item 2. Management's Discussion and Analysis
Forward Looking Statement
This filing may contain "Forward Looking Statements", which are the
Company's expectations, plans and projections, which may or may not
materialize and which are subject to various risks and uncertainties,
including statements concerning expected income and expenses, and the
adequacy of the Company's sources of cash to finance its current and
future operations. When used in this filing, the words "plans",
"believes", "expects", "projects", "targets', "anticipates" and similar
expressions are intended to identify forward-looking statements.
Factors which could cause actual results to materially differ from the
Company's expectations include the following: general economic
conditions and growth in the high tech industry; competitive factors
and pricing pressures; change in product mix; and the timely
development and acceptance of new products. These forward-looking
statements speak only as of the date of this filing. The Company
expressly disclaims any obligation or undertaking to release publicly
any updates or change in its expectations or any change in events,
conditions or circumstances on which any such statement may be based
except as may be otherwise required by the securities laws.
Overview
Espo's Inc. ("The Company") is a contract manufacturer of quality, high
performance circuit boards located in Frisco, Texas, just north of
Dallas. The Company's products are used in computers, communication
equipment, the aerospace industry, defense electronics and other
applications requiring high performance electrical capability.
The following discussion provides information to assist in the
understanding of the company's financial condition and results of
operations for the quarter ended August 31, 2000. It should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto appearing in this Form 10-QSB for the nine months ended August
31, 2000.
Results of Operations
Revenues Sales for the quarter ended August 31, 2000, were $2,562,632,
an increase of 3.45% over sales of $2,477,066 for the comparable period
in 1999. The quarter ended August 31, 2000, is the best sales quarter
in Company history, reflecting strong industry demand for the Company's
telecommunications products. Management believes that this demand will
continue to grow, generating future revenue growth for the Company.
For the nine months ended August 31, 2000, sales were $6,869,053, a
37.32% increase as compared to $5,002,010 for the nine months ended
August 31, 1999. The increase in sales for the nine-month period
principally reflects the addition of business from PC Dynamics
beginning in March of 1999.
Gross Profit Gross profit for the quarter ended August 31, 2000, was
$441,396, or 17.22% of sales. This is an improvement over the
comparable quarter in 1999, when a gross loss of $2,054 was shown. For
the nine months ended August 31, 2000, the gross profit is $472,778,
compared to $12,237 for the 1999 period. The improvement in gross
profit reflects the elimination of excessive scrap issues arising from
the PC Dynamics business and better absorption of fixed costs by higher
sales volumes. Management anticipates that there will be further
improvement in margins as sales volume increases.
Operating Expenses For the quarter ended August 31, 2000, operating
expenses were $589,253, compared to $607,963 for the comparable quarter
of 1999. Looking at the nine months ended August 31, 2000, expenses of
$1,687,792 exceeded the $1,567,731 reported for the 1999 period,
primarily because of larger administration costs needed for the growing
organization.
Other Income and Expenses At the August 31, 2000, quarter net other
expense was $130,219, compared to $151,954 for the prior year. The
nine-month net expense was $431,722, an increase over the $365,238 of
the prior year period. The amounts reflect changes in debt levels at
the Company during the respective periods.
Liquidity and Cash Resources For the quarter ended August 31, 2000,
the Company reported a net loss of $278,076, as compared to the loss of
$761,971 reported for the comparable period in 1999. The nine-month
numbers are losses of $1,645,736 for the current year and $1,920,732
for the prior year. The improvement in net loss is primarily the
result of the improvement in gross profit discussed above. The Company
expects to become profitable in the first or second quarter of its year
ended November 30, 2001, based on anticipated increases in sales.
Cash resources of $776,946 were used for operations for the nine months
ended August 31, 2000, with investment in property and equipment using
$296,319, for a total usage of $1,073,265. The prior year amounts are
$309,021 for operations, and $889,063 for investment, totaling
$1,198,084. During the current fiscal year these needs were met
primarily through issuance of preferred stock, while needs for the
prior year were provided primarily by debt financing.
Other Matters
Cash Flow During the nine months ended August 31, 2000, the Company
did not achieve a positive cash flow from operations. Accordingly, the
Company will rely on cash on hand, as well as available borrowing
arrangements and private placement of preferred stock to fund
operations until a positive cash flow from operations can be achieved.
The Company expects cash flow to improve as the result of anticipated
sales increases. However, it may be necessary to pursue additional
financing or placements until a positive cash flow can be achieved.
The Company will continually evaluate opportunities with various
investors to raise additional capital without which its growth and
profitability could be restricted. Although management believes that
sufficient financing resources are available, there can be no assurance
that such resources will continue to be available or that they will be
available upon favorable terms.
PART II - OTHER INFORMATION
Item 6. Exhibits
Ex. 2.1 Agreement and Plan of Reorganization by and between Performance
Interconnect Corp, its undersigned shareholders and Espo's Inc *
Ex. 3.1 Certificate of Incorporation filed in the Office of the Secretary
of State of the State of New York, November 29, 1990. *
Ex. 3.2 Certificate of Amendment of Certificate of Incorporation filed
in the Office of the Secretary of State of the State of New York,
July 17, 1998 *
Ex. 3.3 Certificate of Amendment of Certificate of Incorporation filed
in the Office of the Secretary of State of the State of New York,
October 27, 1998. *
Ex. 3.4 Certificate of Amendment of Certificate of Incorporation filed
in the Office of the Secretary of State of the State of New York,
March 20, 2000. *
Ex. 3.5 Bylaws. *
Ex. 4.1 Form of letter describing employee stock option plan. *
Ex. 4.2 Letter agreement dated November 29, 1999, providing for issuance
of preferred stock of Espo's to Nations Corp. in exchange for
common stock of uniView Technologies Corp. This preferred stock
has not yet actually been issued. *
Ex. 4.3 Letter agreement dated December 27, 1999, providing for issuance
of preferred stock of Espo's to CMLP Group Ltd. and Winterstone
Management Inc., in exchange for Series A preferred stock of
Performance Interconnect Corp. This preferred stock has not yet
actually been issued. *
Ex. 4.4 Letter Agreement dated October 9, 1998, providing for issuance
of preferred stock of Performance Interconnect Corporation in
exchange for its promissory notes. *
Ex. 4.5 Warrant dated as of October 22, 1997, authorizing the purchase
of 4,000,000 shares of common stock of Performance Interconnect
Corp. at $0.50 per share. *
Ex. 4.6 Letter dated February 24, 2000, addressed to Travis Wolff,
describing commitment to fund capital requirements of Performance
Interconnect Corp. through November 30, 2000. *
Ex. 4.7 Promissory Note dated June 7, 1999, in the principal sum of
$75,000.00, by Performance Interconnect Corp. in favor of Gay
Rowe. *
Ex. 4.8 Promissory Note dated May 1, 1999, in the principal sum of
$200,000.00, by Performance Interconnect Corp. in favor of Gay
Rowe. *
Ex. 4.9 Promissory Note dated August 31, 1997, in the principal sum of
$50,000.00, by Varga Investments, Inc., in favor of Ed Stefanko.
(Varga Investments was a limited partnership formed to acquire
I-Con Industries.) *
Ex. 4.10 Security Agreement dated August 31, 1997, by and between Ed
Stefanko, Secured Party, and Varga Investments, Inc., Debtor.
(Varga Investments was a limited partnership formed to acquire
I-Con Industries.) *
Ex. 4.11 Letter agreement dated October 15, 1999, by Winterstone
Management, Inc., and Performance Interconnect Corp, *
Ex. 4.12 Promissory Note dated October 15, 1999, in the principal sum
of $619,477.88, by Performance Interconnect Corp. in favor of
Nations Investment Corp., Ltd. *
Ex. 4.13 Promissory Note dated October 15, 1999, in the principal sum
of $594,777.69, by Performance Interconnect Corp. in favor of
Nations Investment Corp. *
Ex. 4.14 Security Agreement dated June 30, 1999, by Winterstone Management
Inc and Performance Interconnect Corp. *
Ex. 4.15 Note dated September 30, 1999, in the principal sum of
$250,000.00, by Winterstone Management, Inc., in favor of Zion
Capital, Inc. *
Ex. 4.16 Secured Promissory Note dated August 12, 1998, in the principal
sum of $131,570.00, by Performance Interconnect Corp. in favor
of FINOVA Capital Corporation. *
Ex. 4.17 Secured Promissory Note dated August 12, 1998, in the principal
sum of $318,430.00, by Performance Interconnect Corp. in favor
of FINOVA Capital Corporation. *
Ex. 4.18 Loan and Security Agreement dated as of August 12, 1998, by
Performance Interconnect Corp. in favor of FINOVA Capital
Corporation. *
Ex. 4.19 Loan and Security Agreement dated March 25, 1999, by and between
PC Dynamics of Texas, Inc., and FINOVA Capital Corporation. *
Ex. 4.20 Loan Schedule dated March 25, 1999, by PC Dynamics of Texas,
Inc., and FINOVA Capital Corporation. *
Ex. 4.21 Subordination and Standstill Agreement dated March 25, 1999,
among FINOVA Capital Corporation, M-Wave, Inc., and PC Dynamics
of Texas, Inc. *
Ex. 4.22 Environmental Certificate and Indemnity Agreement dated as of
March 25, 1999, by PC Dynamics of Texas, Inc., in favor of FINOVA
Capital Corporation. *
Ex. 4.23 Continuing Personal Guaranty dated March 25, 1999, by D. Ronald
Allen, guaranteeing obligations of PC Dynamics of Texas, Inc.,
Borrower, to FINOVA Capital Corporation, Lender. *
Ex. 4.24 Continuing Corporate Guaranty dated March 25, 1999, by Associates
Funding Group, Inc., guaranteeing obligations of PC Dynamics of
Texas, Inc., Borrower, to FINOVA Capital Corporation, Lender. *
Ex. 4.25 Continuing Limited Corporate Guaranty dated March 25, 1999, by
JH&BC, Inc., guaranteeing obligations of PC Dynamics of Texas,
Inc., Borrower, to FINOVA Capital Corporation, Lender.
Ex. 4.26 Continuing Corporate Guaranty dated March 25, 1999, by Performance
Interconnect Corporation, guaranteeing obligations of PC Dynamics
of Texas, Inc., Borrower, to FINOVA Capital Corporation, Lender. *
Ex. 4.27 Continuing Corporate Guaranty dated March 25, 1999, by Winterstone
Management, Inc., guaranteeing obligations of PC Dynamics of
Texas, Inc., Borrower, to FINOVA Capital Corporation, Lender. *
Ex. 4.28 Secured Promissory Note dated March 25, 1999, by PC Dynamics of
Texas, Inc., in favor of FINOVA Capital Corporation. *
Ex. 4.29 Amended and Restated Purchase & Sale Agreement dated March 31,
1998, by I-Con Industries, Inc., and Performance Interconnect
Corp., Sellers, in favor of USA Funding, Inc., Purchaser. This
is a sale of accounts receivable. *
Ex. 10.1 Letter dated June 2, 1999, by Performance Interconnect Inc. to
M-Wave Inc. *
Ex. 10.2 Lease of upgrade Mark V Bearing Spindle Drill, S/N 128, dated
11/12/97, by Excellon Automation Co. in favor of Winterstone
Management, Inc. and I-Con Industries, Inc. *
Ex. 10.3 Equipment Lease Agreement dated 5/15/98 by Excellon Automation
Co., in favor of Performance Interconnect, Inc. *
Ex. 10.4 Guaranty by D. Ronald Allen of amounts set forth in Excellon
Lease Agreement dated May 15, 1998. *
Ex. 10.5 Agreement dated as of March 15, 1999, between PC Dynamics,
Corporation, and PC Dynamics of Texas, Inc. *
Ex. 10.6 Guaranty dated as of March 15, 1999, by D. Ronald Allen in favor
of PC Dynamics Corporation. *
Ex. 10.7 Guaranty dated as of March 15, 1999, by Performance Interconnect
Corp. in favor of PC Dynamics Corporation. *
Ex. 10.8 Assumption of Liabilities dated March 15, 1999, by PC Dynamics
of Texas, Inc., in favor of PC Dynamics Corporation. *
Ex. 10.9 Royalty Agreement dated March 15, 1999, between PC Dynamics
Corporation and PC Dynamics of Texas, Inc. *
Ex. 10.10 Promissory Note dated March 15, 1999, in the principal sum of
$773,479.00 by PC Dynamics of Texas, Inc., in favor of PC
Dynamics Corporation. *
Ex. 10.11 Lease dated as of March 25, 1999, by PC Dynamics Corporation,
Landlord, and PC Dynamics of Texas, Inc., Tenant. *
Ex. 10.12 Promissory Note dated March 15, 1999, in the principal sum of
$293,025.00 by PC Dynamics of Texas, Inc., in favor of PC
Dynamics Corporation. *
Ex. 10.13 Letter dated May 27, 1999, by Joseph A. Turek on behalf of M-Wave
(parent company of PC Dynamics Corporation) on Poly Circuits
letterhead to Ron Allen (on behalf of Performance Interconnect. *
Ex. 21 Subsidiaries of the Company *
Ex. 27 Financial Data Schedule
* Exhibits incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 1-158211) filed on April 12,
2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ESPO'S INC.
Date: October 15, 2000 By: /s/ D. Ronald Allen
--------------------------
D. Ronald Allen, President