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 December 1, 2000 to February 28, 2001
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.
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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:
5,971,030 shares (There is only one class of common.)
Transitional Small Business Disclosure Format (Check one):
Yes [ X ] No [ ]
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Espo's Inc.
Consolidated Balance Sheets
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February 28, November 30,
2001 2000
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ASSETS (Unaudited)
Current assets:
Cash $ 25,462 $ 13,681
Trade accounts receivable, net 908,313 998,151
Other receivables 7,201 21,489
Inventory 1,256,459 1,040,099
Prepaid expenses 44,625 62,491
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Total current assets 2,242,060 2,135,911
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Property and equipment, net of depreciation 2,302,655 2,427,643
Other assets:
Goodwill, net of amortization 494,832 498,038
Loan origination fees, net of amortization 19,344 21,504
Deposits 9,086 7,280
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523,262 526,822
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Total Assets $ 5,067,977 $ 5,090,376
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 100,000 $ 811,011
Current maturities of long-term debt 874,648 530,243
Lines of credit and note payable 2,167,279 622,833
Current portion of royalty payable 375,000 375,000
Accounts payable 1,010,699 1,178,637
Accrued expenses 728,791 692,178
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Total current liabilities 5,256,417 4,209,902
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Noncurrent liabilities:
Long-term debt 385,321 705,572
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; 5,000 shares authorized, 3,000
issued and outstanding 30 30
Series B - convertible 6%; 900 shares authorized,
810 shares issued and outstanding 8 8
Series C - 12% cumulative dividends; 10,000 shares
authorized, 7,300 shares issued and outstanding 73 73
Series D - 4% cumulative dividends; 5,000 shares
authorized, 350 shares issued and outstanding 4 -
Additional paid-in capital, preferred stock 6,947,110 6,597,114
Common stock; par value $0.01, 25,000,000 shares
authorized, 5,971,030 shares issued and outstanding 59,710 59,710
Additional paid-in capital, common stock 259,516 259,516
Accumulated deficit (7,840,211) (6,741,549)
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Total stockholders' equity (deficit) (573,761) 174,902
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Total Liabilities and Stockholders' Equity $ 5,067,977 $ 5,090,376
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
Espo's Inc.
Consolidated Statements of Operations
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Three Three
Months Ended Months Ended
February 28, February 28,
2001 2000
(Unaudited) (Unaudited)
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Net sales $ 1,388,242 $ 1,998,840
Cost of sales 1,658,036 2,008,752
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Gross profit (loss) (269,794) (9,912)
Expenses:
General and administrative 499,905 490,510
Depreciation and amortization 7,420 5,427
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507,325 495,937
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Loss from operations (777,119) (505,849)
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Other income (expense):
Interest expense (89,043) (180,214)
Miscellaneous income (expense) - 80,351
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(89,043) (99,863)
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Income (loss) before provision
for income taxes (866,162) (605,712)
Provision for income taxes - -
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Net loss $ (866,162) $ (605,712)
========== ==========
Loss available to common stock $(1,098,662) $ (670,512)
========== ==========
Loss per share - basic $ (0.18) $ (0.11)
========== ==========
Loss per share - diluted $ (0.18) $ (0.11)
========== ==========
The accompanying notes are an integral part
of the consolidated financial statements.
Espo's Inc.
Consolidated Statements of Cash Flows
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Three Three
Months Ended Months Ended
February 28, February 29,
2001 2000
(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (866,162) $ (605,712)
--------- ---------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 138,837 100,755
Loss on disposal of assets - 312
Changes in operating assets and liabilities:
Decrease in marketable security - 320,000
(Increase) decrease in trade accounts receivable 89,838 222,948
(Increase) decrease in other receivables 14,288 105,339
(Increase) decrease in inventory (216,360) 7,262
(Increase) decrease in prepaid expenses 17,866 (8,923)
(Increase) decrease in other assets (1,806) -
Increase in accounts payable (167,938) (116,411)
Increase (decrease) in accrued expenses 36,613 (23,221)
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Total adjustments (88,662) 608,061
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Net cash provided by (used in) operating activities (954,824) 2,349
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Cash flows from investing activities:
Acquisition of property and equipment (8,483) (16,145)
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Cash flows from financing activities:
Dividends paid (232,500) (64,800)
Net proceeds from short-term borrowing 833,435 (479,812)
Proceeds from long-term debt 24,154 565,159
Proceeds from sale of stock 350,000 -
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Net cash provided by financing activities 975,089 20,547
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Increase (decrease) in cash 11,781 6,751
Cash, beginning of period 13,681 -
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Cash, end of period $ 25,462 $ 6,751
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
ESPO's, Inc.
Notes to Consolidated Financial Statements
February 28, 2001 (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 10KSB40 filed March
15, 2001. These interim financial statements and notes hereto reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. Such financial
results should not be construed as necessarily indicative of future results.
INVENTORY
Inventories consist primarily of the following:
February 28, November 30,
2001 2000
(Unaudited)
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Finished goods $ - $ -
Work in progress 759,265 490,636
Raw materials 497,194 549,463
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Total inventory $ 1,256,459 $ 1,040,099
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EARNINGS (LOSS) PER SHARE
Basic earnings per share is calculated by dividing the income (loss)
available to common stock (the numerator) by the weighted average number of
shares of common stock outstanding during the period (the denominator). At
February 28, 2001 and February 29, 2000 the weighted average number of
shares outstanding was 5,971,030 and 5,886,727, respectively.
Diluted earnings per share adds to the denominator those securities that if
converted would cause a dilutive effect to the calculation. To compute the
weighted average number of shares outstanding for the calculation of the
diluted earnings per share, the number of shares vested in the employee
stock option plan must be included in the denominator on a weighted average
basis. At February 28, 2001 and February 29, 2000, the weighted average
number of shares outstanding were 6,167,093 and 5,913,352, respectively.
Item 2. Management's Discussion and Analysis
Forward Looking Statements
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 on
computers, communication equipments, 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 February 28, 2001. It should
be read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing in this Form 10-QSB for the three
months ended February 28, 2001.
Results of Operations
Revenue Sales for the quarter ended February 28, 2001 were
$1,388,242, a decrease of 30.55% over sales of $1,998,840 for the
comparable period in 2000. The quarter ended February 28, 2001
reflects the general weakness in the economy during this period.
In addition, this also reflects significant reduction in orders by
one customer due to over stocking and weak demand. It is believed
that demand for the company's products will resume its growth,
generating future revenue growth for the Company above the levels
attained in the year ended November 30, 2000.
Gross Profit Gross loss for the quarter ended February 28,
2001 was $269,794, versus a gross loss of $9,912 in the same
period last year. This reflects the unabsorbed factory overhead
due to lower sales volume.
Operating Expenses For the quarter ended February 28, 2001
operating expenses were $507,325 compared to $495,937 for the
comparable quarter of 2000. These expenses should remain
relatively constant for the remainder of the year.
Other Income and Expenses At the February 28, 2001 quarter
net other expense was $89,043, compared to $99,863 for the prior
year. This reflects the reduced interest expense as debt was
converted to equity during the previous year and the effect of the
gain on marketable securities in the previous year.
Liquidity and Cash Resources For the quarter ended February
28, 2001 The Company reported a net loss of $866,162, as compared
to the loss of $605,712 reported for the comparable period in
2000. The Company expects to become profitable in the third or
fourth quarter of this year ended November 30, 2001 based upon
anticipated increases in sales.
Cash resources of $954,825 were used for operations for the
three months ended February 28, 2001, with investment in property
and equipment using $8,483, for a total usage of $963,308. The
prior year amounts were $2,349 cash from operations, and $16,145
for investment, totaling $13,796. During the current fiscal year
these needs were met primarily through debt financing and issuance
of preferred stock, while needs for the prior year were provided
primarily by debt financing.
Other Matters
Cash Flow
During the three months ended February 28, 2001, 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 it is believed 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 2. Changes in Securities and Use of Proceeds
During the period December 1, 2000, through February 28, 2001, the
Company sold Series D Preferred Stock at a total purchase price of $350,000
in a limited offering to eight individual accredited investors. This Series
D Preferred Stock was issued at $1,000 per share, with a redemption value of
$2,000 per share. The stock pays no dividends during the first three years
after issue. After the first three years the stock pays dividends at the
rate of 4% based on the redemption value. It can be converted to common
stock at any time at the option of the holder at a price of $3 per share of
common, based on the redemption value of the preferred. (Thus, since each
share of Series D Preferred has a redemption value of $2,000, it can be
converted into 666 2/3 shares of the Company's common stock.)
The proceeds were used for working capital.
If the Series D Preferred Stock is converted into Common Stock, it will
have an effect on the existing Common Stock equivalent to the issuance of
new stock at a price of $3 per share. If the Series D Preferred Stock is
not converted into Common Stock, then, beginning three years from the date
of issue of the Series D Preferred the Common Stock's right to participate
in dividends will be deferred until after the payment of all dividends due
on the Series D Preferred (as well as all dividends due on the other
Preferred previously issued).
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. 4.30 *Description of Series D Preferred Stock
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
* Filed herewith.
All other Exhibits incorporated by reference to the Company's
Registration Statement on Form 10-SB (File No. 1-158211) filed on
April 12, 2000, except if noted otherwise.
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: April 13, 2001 By: /s/ D. Ronald Allen
--------------------------
D. Ronald Allen, President