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 November 30, 2001 to February 28, 2002
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
Not applicable
(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: 6,354,638 shares (There
is only one class of common.)
Transitional Small Business Disclosure Format (Check one):
Yes [ X ] No [ ]
PART 1 - FINANCIALINFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Performance Systems, Inc.
(Formerly ESPO's Inc.)
Consolidated Balance Sheets
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February 28, February 28,
2002 2001
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ASSETS (Unaudited) (Unaudited)
Current assets:
Cash $ 27,848 $ 25,462
Trade accounts receivable, net 799,246 908,313
Other receivables 38,186 7,201
Inventory 647,936 1,256,459
Prepaid expenses 23,053 44,625
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Total current assets 1,536,269 2,242,060
---------- ----------
Property and equipment, net of depreciation 1,729,481 2,302,655
Other assets:
Goodwill, net of amortization - 494,832
Loan origination fees, net 11,433 19,344
Deposits 44,674 9,086
56,107 523,262
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Total assets $ 3,321,857 $ 5,067,977
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 40,101 $ -
Short-term borrowings 609,884 100,000
Current maturities of long-term debt 83,534 874,648
Notes payable 1,535,576 1,208,715
Current portion of royalty payable - 375,000
Note payable - related party - 226,362
Line of credit - related party 420,840 732,202
Accounts payable 844,614 1,010,698
Accrued expenses 1,387,623 728,791
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Total current liabilities 4,922,172 5,256,416
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Noncurrent liabilities:
Long-term debt, net of current maturities 688,811 385,321
Stockholders' equity (deficit):
Preferred stock; par value $0.01; $1,000 per share
redemption value for Series A, B and C; $2.000
per share redemptive value for Series D;
1,000,000 shares authorized:
Series A - 12% cumulative dividends; 3,000 shares
authorized, issued and outstanding; $3,000,000
liquidation value 30 30
Series B - convertible 6%; 900 shares authorized,
810 issued and outstanding; $810,000 liquidation
value 8 8
Series C - 12% cumulative dividends; 15,000
shares authorized, 12,075 issued and outstanding;
$12,075,000 liquidation value 121 73
Series D - 4% cumulative dividends; 5,000 convertible
shares authorized, 611 issued and outstanding;
$1,222,000 liquidation value 6 4
Additional paid-in capital, preferred stock 8,182,094 6,947,110
Common stock; par value $0.01; 25,000,000 shares
authorized, 6,354,638 shares issued and outstanding 63,546 59,710
Additional paid-in capital, common stock 762,933 259,516
Accumulated deficit (11,297,864) (7,840,211)
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Total stockholders' equity (deficit) (2,289,126) (573,760)
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Total liabilities and stockholders' equity $ 3,321,857 $ 5,067,977
========== ==========
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
Months Ended Months Ended
February 28, 2002 February 28, 2001
(Unaudited) (Unaudited)
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Net sales $ 1,444,056 $ 1,388,242
Cost of sales 1,536,072 1,658,036
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Gross profit (loss) (92,016) (269,794)
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Expenses:
General and administrative 371,768 499,905
Depreciation and amortization 1,925 7,420
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373,693 507,325
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Loss from operations (465,709) (777,119)
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Other income (expense):
Interest expense (142,194) (89,043)
Miscellaneous income (expense) 27,730 -
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(114,464) (89,043)
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Income (loss) before provision
for income taxes (580,173) (866,162)
Provision for income taxes - -
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Net loss $ (580,173) $ (866,162)
========== ==========
Loss available to common stock $(1,044,573) $(1,098,662)
========== ==========
Loss per share - basic $ (0.16) $ (0.18)
========== ==========
Loss per share - diluted $ (0.16) $ (0.18)
========== ==========
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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Three Three
Months Ended Months Ended
February 28, February 28,
2002 2001
(Unaudited) (Unaudited)
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Cash flows from operating activities:
Net loss $ (580,173) $ (866,162)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 114,041 138,836
Accretion of debt discount 57,196 -
Gain on sale of property and equipment (2,730) -
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 419,587 89,838
Decrease in other receivables (30,347) 14,288
Decrease (increase) in inventory 203,349 (216,360)
(Increase) decrease in prepaid expenses (2,243) 17,866
Decrease (increase) in other assets 1,476 (1,806)
Decrease in accounts payable (101,593) (167,938)
Increase in accrued expenses 7,334 36,613
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Total adjustments 666,070 (88,663)
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Net cash used in operating activities 85,897 (954,825)
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Cash flows from investing activities:
Proceeds from sale of property and equipment 15,461 -
Acquisition of property and equipment - (8,483)
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Net cash provided by (used in) investing activities 15,461 (8,483)
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Cash flows from financing activities:
Proceeds from sale of stock 117,760 350,000
Return of capital (96,135) (232,500)
Increase in overdraft 40,101 -
Net proceeds (payments) from short-term
borrowings, line-of-credit and note payable (341,789) 833,435
Proceeds from long-term debt - 24,154
Payments on long-term debt (34,863) -
Net proceeds from line-of-credit with related party 188,022 -
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Net cash provided by financing activities (126,904) 975,089
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Increase (decrease) in cash (25,546) 11,781
Cash, beginning of period 53,394 13,681
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Cash, end of period $ 27,848 $ 25,462
========= =========
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
February 28, 2002 (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 10KSB filed March
15, 2002. These interim financial statements and notes hereto reflect all
adjustments that 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, February 28,
2002 2001
(Unaudited) (Unaudited)
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Finished goods $ - $ -
Work in progress 169,020 762,265
Raw materials 478,916 494,194
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Total inventory $ 647,936 $ 1,256,459
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CONTINGENCIES
Property tax for the years of 1999, 2000, and 2001 have been accrued but
have not been paid. Accrued property taxes as of February 28, 2002 and 2001
totaled $162,639 and $64,542, respectively.Property tax for the years of
1999, 2000, and 2001 have been accrued but have not been paid. Accrued
property taxes as of February 28, 2002 and 2001 totaled $162,639 and
$64,542, respectively.
CASH FLOW INFORMATION
Non cash transactions
At February 28, 2002, dividends of approximately $375,000 were included in
accrued expenses.
During the quarter ending February 28, 2002, the Company converted accounts
payable from two vendors for approximately $685,000 to notes payable due
within one year.
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
February 28, 2002 and February 28, 2001, the weighted average number of
shares outstanding was 6,407,640 and 5,971,030, respectively.
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 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, 2002 and February 28, 2001, the
weighted average number of shares outstanding were 6,407,640 and 6,567,129,
respectively. For the period ended February 28, 2001, the number of shares
vested in the employee stock option plan are not included in the diluted
loss per share calculation since their inclusion would be anti-dilutive.
These shares were subsequently issued in the fiscal year ending November 30,
2001.
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 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 February 28, 2002. It should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing in
this Form 10-QSB for the quarter ended February 28, 2002.
Results of Operations
Revenues Sales for the quarter ended February 28, 2002 were
$1,444,056, an increase of 4.02% from sales of $1,388,242 for the comparable
period in 2001. The increase in sales for the quarter can be attributed to
an increase in our customers' military related programs. It is believed
that demand for the company's products will continue to grow as confidence
levels in the economy grow and inventory levels held by our customers are
depleted.
Gross Profit/(Loss) The quarter ended February 28, 2002 had a gross
loss of $92,016 versus a gross loss of $269,794 in the same quarter of 2001.
The decrease in loss is attributed to the same factors as the increase in
revenue, and the fact that operating costs were greatly reduced in the
fourth quarter of 2001 and remained steady through the first quarter of
2002.
Operating Expenses For the quarter ended February 28, 2002 operating
expenses were $373,693 compared to $507,325 for the comparable quarter of
2001. The reduction in expense is attributable to a reduction in workforce
and a restructuring of operating expenses during the fourth quarter of 2001.
These expenses should remain relatively constant for the remainder of the
year.
Other Income and Expenses For the quarter ended February 28, 2002, net
other expense was $114,464 compared to $89,043 for the comparable quarter of
2001. These amounts reflect an increase in debt levels at the Company during
the respective periods and other miscellaneous income and expense items.
Liquidity and Cash Resources For the quarter ended February 28, 2002,
The Company reported a net loss of $580,173, as compared to the loss of
$866,162 reported for the comparable period in 2001. The decrease in net
loss is primarily the result of the increase in revenue and reductions of
operating expenses, as discussed above. The Company expects to show an
increase in profitability beginning in the second quarter of its year ended
November 30, 2002.
Cash resources of $599,650, were used for operations for the quarter
ended February 28, 2002, with proceeds from the sale of property and
equipment being $15,461, netting a total usage of $584,189. The prior year
amounts are $(954,825) from operations, and $(8,483) for investment,
totaling $(963,308). During the current fiscal year these needs were met
primarily through issuance of preferred stock and long term debt, while
needs for the prior year were provided primarily by debt financing. In
addition, the proceeds from the sale of property and equipment were the
result of selling certain impaired assets.
Other Matters
Cash Flow
During the quarter ended February 28, 2002, 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: April 22, 2002 By: /s/ D. Ronald Allen
--------------------------
D. Ronald Allen, President