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 February 28, 2001 to May 31, 2001
Commission file number 1-15821
Integrated Performance Systems 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
Former name: Espo's Inc.
(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:
6,013,530 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
Integrated Performance Systems, Inc. (Formerly ESPO's Inc.)
Consolidated Balance Sheets
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May 31 November 30,
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2001 2000
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ASSETS (Unaudited)
Current assets:
Cash $ 1,761 $ 13,681
Trade accounts receivable, net 1,001,907 998,151
Other receivables 5,623 21,489
Inventory 1,092,711 1,040,099
Prepaid expenses 55,489 62,491
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Total current assets 2,157,491 2,135,911
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Property and equipment, net of depreciation 2,207,971 2,427,643
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Other assets:
Goodwill, net of amortization 491,626 498,038
Loan origination fees, net of amortization 17,356 21,504
Deposits 9,969 7,280
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518,951 526,822
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Total assets $ 4,884,413 $ 5,090,376
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 1,575,204 $ 1,426,244
Accounts payable 1,205,080 1,178,637
Accrued expenses 1,019,246 692,178
Royalty payable 375,000 375,000
Current maturities of long-term debt 879,779 530,243
Line of credit - related party 946,195 7,600
Note payable - related party 229,272 -
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Total current liabilities 6,229,776 4,209,902
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Noncurrent liabilities:
Long-term debt, net of current maturities 383,897 705,572
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Stockholders' equity (deficit):
Preferred stock; par value $0.01; 1,000,000
shares authorized:
Series A - 8% cumulative dividends increasing
to 10% in 2000; $1,000 per share redemption
value; 5,000 shares authorized, 3,000
issued and outstanding 30 30
Series B - convertible 6%; $1,000 per share
redemption value; 900 shares authorized,
810 shares issued and outstanding 8 8
Series C - 12% cumulative dividends; $1,000
per share redemption value; 10,000 shares
authorized, 7,300 shares issued and
outstanding 73 73
Series D - 4% cumulative dividends; $2,000
per share redemption value; 5,000 shares
authorized, 550 shares issued and
outstanding 6 -
Additional paid-in capital, preferred stock 6,073,311 5,981,317
Common stock; par value $0.01; 25,000,000
shares authorized, 6,013,530 shares
issued and outstanding 60,135 59,710
Additional paid-in capital, common stock 444,091 359,516
Accumulated deficit (8,306,914) (6,225,752)
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Total stockholders' equity (deficit) (1,729,260) 174,902
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Total liabilities and stockholders'
equity (deficit) $ 4,884,413 $ 5,090,376
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. (Formerly ESPO's Inc.)
Consolidated Statements of Operations
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Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 1,989,340 $ 2,307,581 $ 3,377,582 $ 4,306,421
Cost of sales 2,324,659 2,266,287 3,982,695 4,275,039
---------- ---------- ---------- ----------
Gross profit (loss) (335,319) 41,294 (605,113) 31,382
---------- ---------- ---------- ----------
Expenses:
General and administrative 709,127 587,760 1,209,032 1,078,270
Depreciation and amortization 7,420 13,391 14,840 18,818
Loss on disposal of equipment - 451 - 451
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716,547 601,602 1,223,872 1,097,539
---------- ---------- ---------- ----------
Loss from operations (1,051,866) (560,308) (1,828,985) (1,066,157)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (163,209) (201,252) (252,252) (381,466)
Miscellaneous income (expense) 75 (388) 75 79,963
---------- ---------- ---------- ----------
(163,134) (201,640) (252,177) (301,503)
---------- ---------- ---------- ----------
Loss before provision
for income taxes (1,215,000) (761,948) (2,081,162) (1,367,660)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Net loss $(1,215,000) $ (761,948) $(2,081,162) $(1,367,660)
---------- ---------- ---------- ----------
Loss available to common stock $(1,447,500) $ (848,948) $(2,546,162) $(1,519,460)
---------- ---------- ---------- ----------
Loss per share - basic $ (0.24) $ (0.14) $ (0.43) $ (0.26)
---------- ---------- ---------- ----------
Loss per share - diluted $ (0.24) $ (0.14) $ (0.43) $ (0.26)
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. (Formerly ESPO's Inc.)
Consolidated Statements of Cash Flows
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Six Year Ended
Months Ended November 30,
May 31, 2001 2000
(Unaudited)
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Cash flows from operating activities:
Net loss $ (2,081,162) $ (2,675,890)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 265,044 645,486
Issuance of common stock for services 85,000 -
Impairment expense - 536,330
Gain on sale of securities - (81,695)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (3,756) 97,368
Decrease in other receivables 15,866 92,704
Increase in inventory (52,612) (143,657)
(Increase) decrease in prepaid expenses 7,002 (27,098)
(Increase) decrease in other assets (2,689) (21,123)
Increase (decrease) in accounts payable 26,443 (65,026)
Increase in accrued expenses 327,069 68,946
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Total adjustments 667,367 1,102,235
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Net cash used in operating activities (1,413,795) (1,573,655)
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Cash flows from investing activities:
Acquisition of property and equipment (34,812) (186,547)
Proceeds from sale of securities - 531,695
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Net cash provided by (used in) investing activities (34,812) 345,148
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Cash flows from financing activities:
Proceeds from sale of stock 557,000 25,000
Return of capital (465,000) (615,797)
Proceeds from notes payable and short-term borrowings 3,726,786 8,903,822
Payments on notes payable and short-term borrowings (3,577,825) (9,170,311)
Proceeds from long-term debt 30,000 2,097,048
Payments on long-term debt (2,140) (5,174)
Proceeds from line of credit - related party 1,175,197 7,600
Payments on line of credit - related party (236,602) -
Proceeds from note payable - related party 229,271 -
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Net cash provided by financing activities 1,436,687 1,242,188
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Increase (decrease) in cash (11,920) 13,681
Cash, beginning of period 13,681 -
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Cash, end of period $ 1,761 $ 13,681
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. (Formerly ESPO's, Inc.)
Notes to Consolidated Financial Statements
May 31, 2001 (Unaudited)
BASIS OF PRESENTATION
The interim financial statements and summarized notes included herein were
prepared in accordance with accounting principals generally accepted in the
United States of America 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 accounting principals generally
accepted in the United States of America 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:
May 31, November 30,
2001 2000
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(Unaudited)
Finished goods $ - $ -
Work in progress 690,557 490,636
Raw materials 402,154 549,463
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Total inventory $1,092,711 $ 1,040,099
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EARNINGS (LOSS) PER SHARE
Basic earnings (loss) 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
May 31, 2001 and 2000, the weighted average number of shares outstanding was
5,989,011 and 5,891,865, respectively, for the first half and 6,006,601 and
5,896,947, respectively, for the second quarter.
Diluted earnings (loss) 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 (loss) 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 May 31, 2001 and 2000, the weighted average
number of shares outstanding were 6,518,443 and 5,908,104, respectively, for
the six months.
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
Integrated Performance Systems, Inc. (formerly ESPO's Inc.) (the
"Company") is a contract manufacturer of quality, high performance circuit
boards and is 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 May 31, 2001. It should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing in this
Form 10-QSB for the six months ended May 31, 2001.
Results of Operations
Revenue Sales for the six months ended May 31, 2001 were $3,377,582, a
decrease of 21.57% over sales of $4,306,421 for the comparable period in
2000. Sales for the quarter ended May 31, 2001 were $1,989,340, a decrease
of 13.79% over sales of $2,307,581 for the comparable period in 2000. The
six months ended May 31, 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. The demand
for the Company's products resumed its growth during this quarter as
indicated by the backlog of unshipped orders. Backlog of unshipped orders
at May 31, 2001 was $3,181,613 versus $2,160,047 at May 31, 2000, or an
increase of 47.29%, indicating a stronger second half for the Company.
Gross Profit Cost in excess of sales for the six months ended May 31,
2001 was $605,113, versus a gross profit of $31,382 in the same period last
year. For the quarter ended May 31, 2001, the cost in excess of sales was
$335,319 compared to a gross profit of $41,294 for the quarter ended May 31,
2000. This reflects the unabsorbed factory overhead due to lower sales
volume.
Operating Expenses For the quarter ended May 31, 2001 operating
expenses were $716,547 compared to $601,602 for the comparable quarter of
2000. For the six-month periods, expenses were $1,223,872 and $1,097,539,
respectively. These expenses should remain relatively constant for the
remainder of the year.
Other Income and Expenses For the May 31, 2001 quarter, net other
expense was $163,134 compared to $201,640 for the prior year. For the six
month periods, net other expense was $252,177 for 2001 versus $301,503 for
2000. 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 six months ended May 31, 2001,
the Company reported a net loss of $2,081,162, as compared to the loss of
$1,367,660 reported for the comparable period in 2000. The Company expects
to become profitable in the third or fourth quarter of this year ending
November 30, 2001, based upon anticipated increases in sales.
Cash resources of $1,413,795 were used for operations for the six
months ended May 31, 2001, with investment in property and equipment using
$34,812, for a total usage of $1,448,607. The prior year amounts were
$1,573,655 cash used for operations, and $345,148 from investment, totaling
$1,228,507 used. 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 six months ended May 31, 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 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. 3.6 Certificate of Amendment of the Certificate of Incorporation
dated March 30, 2001, filed April 4, 2001. ***
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
* Exhibits incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 1- 158211) filed on April 12,
2000.
** Exhibit incorporated by reference to the Company's Quarterly
Report for Small Business Issuers Subject to the 1934 Act
Reporting Requirements filed on Form 10-QSB dated April 13, 2001.
*** Exhibit incorporated by reference to the Current Report for
Issuers Subject to the 1934 Act Reporting Requirements filed
on Form 8-K dated April 27, 2001.
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.
Integrated Performance Systems Inc.
Date: July 16, 2001 By: /s/ D. Ronald Allen
--------------------------
D. Ronald Allen, President