EXHIBIT 99.1
ESPO's, INC.
Consolidated Financial Statements
For the Three Months Ended
February 28, 2001
ESPO's, INC.
Table of Contents
Page
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Stockholders' Equity (Deficit) 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ESPO's, Inc.
Frisco, Texas
We have audited the accompanying consolidated balance sheet of ESPO's, Inc.
(the "Company") as of February 28, 2001 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the three
months ended February 28, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of ESPO's, Inc. as of February 28, 2001 and the results of its
operations and cash flows for the three months then ended, in conformity
with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $866,162 for the three months
ended February 28, 2001, and has an accumulated deficit of $6,991,914
at February 28, 2001. The Company continues to experience cash flow
difficulties and has negative working capital as of February 28, 2001.
These factors and others discussed in Note 14 raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue
in existence.
/s/ Travis, Wolff and Company, LLP
July 5, 2001
Dallas, Texas
ESPO's, INC.
Consolidated Balance Sheet
============================================================================
February 28,
2001
ASSETS -----------
Current assets:
Cash $ 25,462
Trade accounts receivable, net 908,313
Other receivables 7,201
Inventory 1,256,459
Prepaid expenses 44,625
-----------
Total current assets 2,242,060
-----------
Property and equipment, net of depreciation 2,302,655
-----------
Other assets:
Goodwill, net of amortization 494,832
Loan origination fees, net of amortization 19,344
Deposits 9,086
-----------
523,262
-----------
Total assets $ 5,067,977
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and short-term borrowings $ 1,308,715
Accounts payable 1,010,698
Accrued expenses 728,791
Royalty payable 375,000
Current maturities of long-term debt 1,010,002
Line of credit - related party 732,202
Note payable - related party 226,362
-----------
Total current liabilities 5,391,770
-----------
Noncurrent liabilities:
Long-term debt, net of current maturities 249,967
-----------
Commitments - Note 11 0
ESPO's, INC.
Consolidated Balance Sheet (Continued)
============================================================================
February 28,
2001
-----------
Stockholders' deficit:
Preferred stock; par value $0.01; 1,000,000 shares authorized:
Series A - 10% cumulative dividends; $1,000 per share
redemption value; 5,000 shares authorized,
3,000 shares issued and outstanding 30
Series B - convertible 6%; $1,000 per share redemption
value; 900 shares authorized, 810 shares issued and
outstanding 8
Series C - 12% cumulative dividends; $1,000 per share
redemption value; 10,000 shares authorized,
7,300 shares issued and outstanding 73
Series D - 4% cumulative dividends; $2,000 per share
redemption value; 5,000 shares authorized,
350 shares issued and outstanding 4
Additional paid-in capital, preferred stock 6,098,813
Common stock; par value $0.01, 25,000,000 shares
authorized, 5,971,030 shares issued and outstanding 59,710
Additional paid-in capital, common stock 259,516
Accumulated deficit (6,991,914)
-----------
Total stockholders' deficit (573,760)
-----------
Total liabilities and stockholders' deficit $ 5,067,977
===========
The accompanying notes are an integral part of the consolidated financial
statements.
ESPO's, INC.
Consolidated Statements of Operations
============================================================================
Three
Months Ended
02/28/01
----------
Net sales $ 1,388,242
Cost of sales 1,658,036
----------
Excess of cost over sales (269,794)
----------
Expenses:
General and administrative 499,905
Depreciation and amortization 7,420
----------
507,325
----------
Loss from operations (777,119)
----------
Other expense:
Interest expense (89,043)
----------
Loss before provision for
income taxes (866,162)
Provision for income taxes 0
----------
Net loss $ (866,162)
==========
Loss available to common stock $(1,098,662)
==========
Loss per share - basic $ (0.18)
==========
Loss per share - diluted $ (0.18)
==========
The accompanying notes are an integral part of the consolidated
financial statements.
ESPO's, INC.
Consolidated Statement of Stockholders' Equity (Deficit)
=================================================================================================================================
Preferred Stock Common Stock
-------------------------------- ------------------------------------
Additional Additional Accumulated
Shares Amount Paid-in Capital Shares Amount Paid-in Capital Deficit Total
-------------------------------------------------------------------------------------------------
Balance at November 30, 2000 11,110 $ 111 $ 5,981,317 5,971,030 $ 59,710 $ 259,516 $ (6,125,752) $ 174,902
Net loss 0 0 0 0 0 0 (866,162) (866,162)
Issuance of preferred stock,
Series D 350 4 349,996 0 0 0 0 350,000
Dividends declared and paid
on preferred stock (return
of capital) 0 0 (232,500) 0 0 0 0 (232,500)
------ ----- ---------- --------- ------- -------- ----------- ---------
Balance at February 28, 2001 11,460 $ 115 $ 6,098,813 5,971,030 $ 59,710 $ 259,516 $ (6,991,914) $ (573,760)
====== ===== ========== ========= ======= ======== =========== =========
The accompanying notes are an integral part of the consolidated financial statements.
ESPO's, INC.
Consolidated Statement of Cash Flows
============================================================================
Three
Months Ended
February 28, 2001
-----------
Cash flows used in operating activities:
Net loss $ (866,162)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 138,836
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 89,838
Decrease in other receivables 14,288
Increase in inventory (216,360)
Decrease in prepaid expenses 17,866
Increase in deposits (1,806)
Decrease in accounts payable (167,938)
Increase in accrued expenses 36,613
-----------
Total adjustments (88,663)
-----------
Net cash used in operating activities (954,825)
-----------
Cash flows used in investing activities:
Acquisition of property and equipment (8,483)
Cash flows from financing activities:
Proceeds from sale of stock 350,000
Return of capital (232,500)
Proceeds from notes payable and short-term borrowings 1,421,090
Payments on notes payable and short-term borrowings (1,538,619)
Proceeds from long-term debt 25,000
Payments on long-term debt (847)
Proceeds from line of credit - related party 724,603
Proceeds from note payable - related party 226,362
-----------
Net cash provided by financing activities 975,089
-----------
Increase in cash 11,781
Cash, beginning of period 13,681
-----------
Cash, end of period $ 25,462
===========
See note 8 for supplemental information.
The accompanying notes are an integral part of the consolidated
financial statements.
ESPO'S, INC.
Notes to Consolidated Financial
============================================================================
Note 1 - Summary of Significant Accounting Policies
History and organization
The consolidated financial statements presented herein include the financial
statements of ESPO's, Inc. ("ESPO's") and its wholly owned subsidiaries,
PERFORMANCE INTERCONNECT CORP. ("PI"), Varga Investments, Inc. ("VII"), PC
DYNAMICS OF TEXAS INC. ("PCD"), CADSOUTH INC. (CSI) and FIBERCONNEX CORP.
(FCC) (collectively referred to as the "Company"). ESPO's, Inc. is
incorporated in New York. All operations are currently located in North
Texas. The Company is involved in the design and manufacture of multi-wire,
fiber optic and rf/microwave circuit boards for sale and distribution
throughout the United States.
Business combinations
In March 1999, PI formed a wholly owned subsidiary PC DYNAMICS OF TEXAS INC.
(PCD) to acquire certain assets of the manufacturing company PC Dynamics,
Inc. (PCDI) which was involved in the manufacture of rf/microwave circuit
boards. PCD agreed to a purchase price of $1,066,554 of debt financing,
royalty payments of $500,000 payable in installments over a twenty-month
period and assumption of a $28,000 debt associated with a vehicle. The
seller's debt is to be subordinate to the Company's factoring arrangements.
The acquisition was accounted for as a purchase. The purchase created
approximately $528,000 of goodwill. Management estimates the life of this
to be long lived as it is associated with the technology and customer base
acquired; therefore, amortization is estimated at 40 years.
Principles of consolidation
The consolidated statement of operations of ESPO's for the three months
ended February 28, 2001 contains three months of operations for all
subsidiaries. All significant inter-company accounts and transactions have
been eliminated in consolidation. The Company adopted November 30, the
fiscal year end of ESPO's, as its year-end.
Revenue recognition
Revenue is recognized upon shipment of finished goods from an approved
purchase order.
Inventory
The Company's inventory is valued at the lower of cost, determined on a
first-in, first-out basis, or market.
Property and equipment
The majority of the Company's property and equipment was acquired through
the purchase of the subsidiaries. These assets are shown at their
acquisition value (approximate fair market value) less accumulated
depreciation. Subsequent acquisitions of property and equipment are stated
at cost, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives, ranging from 3 to 10
years, of the underlying assets. The cost of normal maintenance and repairs
is charged to operating expenses as incurred. Material expenditures which
increase the life of an asset are capitalized and depreciated over the
estimated remaining useful life of the asset. The cost of items sold, or
otherwise disposed of, and the related accumulated depreciation or
amortization, are removed from the accounts and any gains or losses are
reflected in current operations.
In addition, the Company periodically reviews all long-lived assets and
associated goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the estimated future undiscounted cash flows
expected to result from the use and eventual disposition of an asset is less
than the carrying value, the asset is reduced to its fair value. It is the
Company's estimate that the net future cash flows from the use or disposal
of all long-lived assets are greater than their carrying value and,
therefore, there is no impairment in the consolidated financial statements
presented herein.
Other assets
Included in other assets are loan origination fees and goodwill. Loan
origination fees are being amortized using the interest method over the
expected life of the loan.
Goodwill is the excess cost over fair value of net assets acquired. It
originated from the Company's 1999 acquisition as discussed above and is
being amortized over 40 years using the straight-line method.
Deferred income taxes
Deferred taxes are calculated on temporary differences resulting from
different financial and income tax reporting methods used to recognize
income and expenses. These differences result primarily from the methods
used to calculate depreciation, amortization, accrued vacation and the
allowance for doubtful accounts. See Note 7.
Concentration of risk
The Company may, on occasion, have cash balances in bank accounts in excess
of the federally insured limits. The Company has not experienced any losses
from these accounts and management does not believe it has any significant
risk related to these accounts.
The following table represents the concentration of risk associated with
major customers that individually account for 10% or more of revenues for
the three months ended:
February 28, 2001
-----------
Customer A $ 0
Customer B 234,000
Customer C 453,000
Customer D 0
Customer E 269,000
-----------
$ 956,000
===========
In addition, the Company uses a factor for a select group of receivables.
Due to the nature of the receivables factored, the Company accounts for
these transactions as short-term borrowings. See Note 3.
Loss per share
The loss available to common stock is the net loss plus the preferred
dividends. Basic loss per share is calculated by dividing the 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 the weighted average number of shares outstanding was
5,971,030.
Diluted earnings per share adds to the denominator those securities that, if
converted, would cause a dilutive effect to the calculation. At February 28,
2001, the weighted average number of shares outstanding was 6,567,129.
Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that effect the financial statements at, and
during, the reporting periods. Actual results could differ from these
estimates.
Cash equivalents
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Accrued liabilities
The Company accrues expenses that are known to be liabilities at the end of
a period. These expenses primarily relate to sales commissions, payroll
taxes, ad valorem property taxes, professional fees, royalty payments and
interest. There are no individually significant items.
Note 2 - Inventory
Inventories consist of the following at:
February 28,
2001
----------
Finished goods $ 0
Work in progress 762,265
Raw materials 494,194
----------
Total inventory $ 1,256,459
==========
The Company utilizes batch processing for orders from clients that are part
of an existing purchase and delivery contract. The Company only produces an
amount sufficient to complete the order and provide for quality control
inspections. Once a batch is complete, it is immediately shipped to the
customer, thus eliminating the need to warehouse finished goods.
Note 3 - Trade Accounts Receivable
Through two of the Company's subsidiaries, the Company maintains an
agreement to factor select accounts receivable with a financing company and
accounts for the factored receivables as secured short-term borrowings. The
Company receives 85% of the face amount of qualifying invoices and the
remaining 15% is held by the factor as a reserve until the invoice is
collected, whereby the reserve is then refunded to the Company less
applicable fees. All invoices are factored with recourse to the Company. In
addition, the Company believes the historic value of the accounts receivable
presented below approximates their fair value.
Accounts receivable consist of the following at:
February 28,
2001
----------
Accounts receivable - trade $ 933,703
Allowance for bad debts (25,390)
----------
Trade accounts receivable, net $ 908,313
==========
Note 4 - Property and Equipment
Property and equipment consist of the following at:
February 28,
2001
----------
Furniture and fixtures $ 62,635
Computers 269,591
Vehicles 48,136
Production equipment 3,039,875
Leasehold improvements 95,388
----------
3,515,625
Less accumulated depreciation
and amortization (1,212,970)
----------
$ 2,302,655
==========
Depreciation expense for the three months ended February 28, 2001 totaled
$133,471 which was included in cost of sales for depreciation on production
equipment. Amortization expense of intangible assets totaled $5,365.
Note 5 - Short Term Borrowings, Lines of Credit and Notes Payable
During the year ended November 30, 2000, the Company restructured the
majority of its external financing with a new financing company. The
financing company acquired its position from its predecessor and
subsequently funded additional debt to the Company. At February 28, 2001,
the financing company provided the following debt instruments to the Company
and its subsidiaries:
An accounts receivable factoring arrangement with two subsidiaries
whereby eligible accounts receivable are sold with recourse to the
financing company. The Company receives 85% of the invoiced amount.
Upon receipt of payment, the Company receives the remaining 15% less
interest and fees. Interest accrues at the prime rate (8.5% at
February 28, 2001) plus 2% with the agreement maturing in October
2003. All accounts are considered current liabilities and
classified as short-term borrowings on the February 28, 2001 balance
sheet. The outstanding balances at February 28, 2001 totaled
$657,386.
Equipment financing for the production equipment of a subsidiary. On
October 4, 2000, the financing company loaned the Company $533,000
due in three years with payments computed on a five-year
amortization. Payments are approximately $13,000 per month including
interest which accrues at the greater of 13.5% or the prime rate
plus 5%. The note has a demand feature; therefore, the entire
balance is considered a current liability and is classified as a
note payable on the February 28, 2001 balance sheet. The outstand-
ing balance at February 28, 2001 was $488,583.
A revolving inventory facility whereby a subsidiary of the Company can
borrow against a percentage of eligible inventory value. Interest
accrues at the greater of 13.5% or prime plus 5%, payable monthly.
The agreement matures in October 2003 but, due to the nature of the
facility, is considered a current liability and is classified as
short term borrowings on the balance sheet. The outstanding balance
at February 28, 2001 was $62,746.
The collateral for these financing arrangements consists of all of the
assets of the Company, and guarantees by ESPO's and all of its subsidiaries,
the majority stockholder, and other corporate related parties which are
related through common management or ownership.
In addition, the Company has a note payable to an individual and, at
February 28, 2001, the balance due was $100,000. The note accrues interest
at 10%, was due January 3, 2001 and was extended to May 30, 2001 at which
time it was paid in full. The note was unsecured but the lender was awarded
a stock purchase warrant whereby the lender could purchase up to 66,667
shares of ESPO's common stock at $1.50 per share. The warrant expires July
3, 2003.
In accordance with APB 14, Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants, the proceeds should be allocated between the
debt and the warrant. However, using the Black Scholes pricing model, it was
determined that the value of the warrant was immaterial. Therefore, no
value has been allocated to the warrant.
On February 8, 2001, the Company assumed the debt of an entity related by
common ownership and received funds in the amount of debt assumed
($226,362). The note is unsecured and accrues interest at the prime rate
(8.5% at February 28, 2001) plus 9% and matures May 8, 2001. The
outstanding balance at February 28, 2001 is $226,362.
In addition, the Company has an uncollateralized line of credit with its
major stockholder whereby the stockholder has agreed to provide funding in
the event outstanding checks are presented to the bank and the Company has
inadequate funds in its account. These advances are to be repaid upon the
Company receiving adequate cash, an equity offering, or will be subsequently
exchanged for preferred stock. The funds accrue interest at approximately
18% and at February 28, 2001, the outstanding balance was $732,202.
Note 6 - Long-Term Debt
Long-term debt consists of the following at:
February 28,
2001
----------
Note payable to a shareholder due August 2002. Interest
accrues at 24% and is due at maturity. The note is
collateralized by a partial second lien on certain
assets of the Company. $ 50,000
Notes payable to an individual due May and June 2001.
Interest accrues at 24% and is payable monthly. The
note is collateralized by a subordinated lien on the
Company's assets. 300,000
Note payable to the seller originating from purchase
of assets, originally maturing in March 2000. Interest
accrues at the prime rate (8.5% at February 28, 2001)
plus 1%. In July 1999, the note was restructured whereby
the monthly payments were $26,610 plus accrued interest
payable through September 15, 2002. The note is
collateralized by a subordinated lien on specific
corporate assets and is guaranteed by the Company and
a stockholder of the Company. The note is sub-ordinate
to the financing company discussed in Note 5. 640,429
Note payable to a bank maturing March 2004. The note is
payable in monthly installments of $586, including interest
accrued at 9.74%. The note is collateralized by a Company
vehicle. 19,540
Note payable to a third party originally maturing September
30, 2000. The note is currently on a month to month status
and is being renewed. Interest accrues at 17% and is payable
monthly. The note is collateralized by a second lien on
various corporate assets. 250,000
----------
1,259,969
Less amounts classified as current 1,010,002
----------
Long-term debt, net of current maturities $ 249,967
==========
The minimum annual principal payments on long-term debt are as follows for
the years ending February 28:
2002 $ 1,010,002
2003 242,236
2004 6,573
2005 1,158
----------
$ 1,259,969
==========
Note 7 - Income Taxes
Due to losses generated during prior periods and the three months ending
February 28, 2001, the Company has available a net operating loss
carryforward of approximately $7,341,000. In view of this loss and the
uncertainty of the Company's near-term profitability, management has
estimated the Company's current tax liability to be zero. The current
estimated net operating losses will expire in the years 2013 through 2016.
The estimated net deferred taxes consist of the following:
February 28,
2001
-------------
Deferred tax asset $ 2 ,513,000
Deferred tax asset valuation allowance (2,513,000)
Deferred tax liability $ 0
-------------
$ 0
=============
Note 8 - Cash Flow Information
Supplemental information
Interest paid for the three months ended February 28, 2001 totaled
approximately $93,000. The Company was not required to, and did not, pay
any federal incomes.
Note 9 - Related Party Transactions
As disclosed in Notes 5 and 6, there are amounts due to related parties.
Interest expense related to these liabilities totaled approximately $27,000
for three months ended February 28, 2001. See Notes 5 and 6.
Note 10 - Stock Compensation
On February 28, 1998, the Board of Directors and management of the Company
approved a stock-based compensation plan (the "Plan") for all individuals
employed as of March 31, 1998. The Company accounts for the fair value of
its grants under the Plan in accordance with FAS 123, Accounting for Stock-
Based Compensation. The original number of shares to be issued was
approximately 1,145,000; however, through reverse stock splits, this has
been decreased to approximately 114,500 shares. With the November 30,1999
recapitalization and merger, the eligible employees participating in the
Plan became fully vested; however, as of February 28, 2001 no shares have
been issued.
With the recapitalization and merger, each of the exercisable shares above
can be converted into 2.25641 shares of ESPO's common stock. The total
ESPO's common stock to be issued is 229,432 shares.
Note 11 - Commitments
The Company rents office space, equipment and warehouse facilities under
non-cancelable operating leases. Total rent expense was approximately
$130,000 for the three months ended February 28, 2001. Future minimum lease
payments are as follows for the years ending February 28:
2002 $ 359,484
2003 146,753
2004 107,878
2005 99,467
2006 13,456
Thereafter 0
--------
$ 727,038
========
Under a royalty agreement the Company was to pay $375,000 by March 2001. The
agreement is subordinated to the debt owed the financing company discussed
in Note 5 and, therefore, no payments were made during 2000 or through
February 28, 2001. The balance is classified as a current liability on the
balance sheet.
The Company has certain royalty agreements with a third party for sales of
multi-wire boards. Total royalty expense was approximately $4,000 for the
three months ended February 28, 2001. The royalty agreement is for a ten-
year period ending December 31, 2003 and is automatically extended for
subsequent five-year periods. Either party may terminate at the end of the
ten-year or five-year periods.
Note 12 - Options and Warrants
In conjunction with a financing agreement executed in October 1997, PI
issued warrants for the purchase of 10% of the authorized number of shares
of common stock for $2,000,000. The warrants are exercisable through
October 22, 2002. Using the Black-Scholes option-pricing model, the
estimated fair value of the warrants is immaterial.
On November 2, 2000, the Company granted 100,000 options to each of three
employees to purchase Company stock for $1.00 per share. The options are
fully vested and expire in November 2005 or the last day of employment if
prior to that date. In accordance with FAS 123, Accounting for Stock Based
Compensation, the Company used the Black-Scholes option-pricing models to
estimate a fair value of approximately $100,000 for the options.
Note 13 - Preferred Stock
As discussed in Note 1, the Company completed a recapitalization through a
reverse acquisition merger with ESPO's. The board of directors authorized
preferred stock by amendment to the Company's Articles of Incorporation. The
preferred stock consists of 1,000,000 authorized shares with a par value of
$0.01 and a redemption value of $1,000 per share for Series A, B and C and
$2,000 per share for Series D. The redemption value is used solely for the
calculation and payment of dividends as there is no mandatory redemption
feature associated with this stock. Preferred stock consists of the
following:
Series A, 3,000 shares (non-voting) authorized, issued and outstanding
with cumulative dividends paying 10%. Series A was issued in exchange for
all of the existing preferred stock of PI.
Series B, 900 shares (non-voting) authorized, 6% convertible stock with
dividends payable quarterly in cash. The stock may be converted into
300,000 shares of common stock through 2004 at a conversion rate of $3.00
per share. The stock was issued in exchange for 300,000 shares in
another publicly traded company valued at approximately $3.00 per share.
During the year ended November 30, 2000, ninety shares were converted
into 30,000 shares of common stock; therefore, there are 810 shares of
Series B issued and outstanding at February 28, 2001.
Series C, 10,000 shares (non-voting) authorized, 7,300 shares issued and
outstanding. The dividends are cumulative, accrue at 12% and are payable
monthly. The dividends and liquidation preferences are superior to all
other classes of capital stock. The stock was issued to a related party
in exchange for the assumption of approximately $3,560,000 of debt.
Series D, 5,000 shares (non-voting) authorized, 350 shares issued and
outstanding. The stock will pay 4% dividends computed on the liquidation
value of $2,000 per share. Dividends will accrue on the first day of the
fourth year after the date any shares of the Series D Preferred are first
issued. The Series D shares are subordinate in liquidation to Series A,
B, and C Preferred.
The accompanying financial statements were prepared as if the Company would
continue as a going concern and, therefore, contemplate the realization of
assets and the liquidation of liabilities in the normal course of business.
If the Company is unable to continue to generate increased sales, increased
profitability, or obtain additional equity participation to cover negative
cash flows, a director and several related party stockholders have agreed to
fund the capital requirements of the Company through November 30, 2001.
For the three months ended February 28, 2001, the Company continued to
experience significant losses, had negative cash flow from operations, and
had negative working capital. At February 28, 2001 the accumulated deficit
was $6,991,914 and there was a stockholders' deficit of $573, 760.
Note 15 - Subsequent Event
On April 4, 2001 the Company's name was changed to INTEGRATED PERFORMANCE
SYSTEMS, INC. On April 27, 2001 the Company filed a form 8k with the
Securities and Exchange Commission giving notice of this change.