UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 000-30794
INTEGRATED PERFORMANCE SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
New York 11-3042779
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(State of incorporation) (IRS Employer Identification No.)
10501 FM 720 East
Frisco, Texas 75035
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 381-1212
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 [ ]
At February 29, 2004 there were 15,557,692 shares of the issuer's
common shares outstanding. (1,000,000 common shares currently held by
subsidiary VoIUM Technologies, LTD are not included in the total. See
Part II, Item 5.)
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
GENERAL INDEX
Page
Number
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION..................................... 8
ITEM 3. CONTROLS AND PROCEDURES............................... 10
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES................................. 11
ITEM 5. OTHER INFORMATION..................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 13
SIGNATURES...................................................... 13
EXHIBIT INDEX................................................... 14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Performance Systems, Inc.
Consolidated Balance Sheet
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February 29,
2004
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ASSETS (Unaudited)
Current assets:
Cash $ 6,174
Restricted cash 40,000
Trade accounts receivable, net 596,293
Other receivables 11,724
Inventory 473,395
Prepaid expenses 24,591
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Total current assets 1,152,177
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Property and equipment, net of depreciation 1,016,404
Other assets 45,415
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Total assets $ 2,213,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,712,374
Current maturities of long-term debt 570,737
Payable to shareholder 792,322
Accounts payable 1,189,035
Accrued expenses 1,345,811
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Total current liabilities 5,610,279
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Noncurrent liabilities:
Long-term debt, net of current maturities 103,941
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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;
10,000 shares authorized, 3,864 issued and
outstanding; $3,864,000 liquidation value 39
Series B - convertible 6%; 10,000 shares
authorized, 923 issued and outstanding;
$923,000 liquidation value 10
Series C - 12% cumulative dividends; 20,000
shares authorized, 11,671 issued and
outstanding; $11,671,000 liquidation value 116
Series D - 4% cumulative dividends; 10,000
convertible shares authorized, 745 issued
and outstanding; $1,490,000 liquidation value 7
Common stock; par value $0.01; 100,000,000
shares authorized, 15,557,692 shares issued
and outstanding 155,577
Additional paid-in capital 14,543,803
Accumulated deficit (18,199,776)
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Total stockholders' equity (deficit) (3,500,224)
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Total liabilities and stockholders' equity $ 2,213,996
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc.
Consolidated Statements of Operations
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Three Three
Months Ended Months Ended
February 29, February 28,
2004 2003
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(Unaudited) (Unaudited)
Net sales $ 1,211,213 $ 1,837,528
Cost of sales 1,401,537 1,645,104
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Gross profit (loss) (190,324) 192,424
General and administrative 446,906 412,813
Impairment expense 465,000 -
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911,906 412,813
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Loss from operations (1,102,230) (220,389)
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Other expense:
Interest expense (90,098) (115,103)
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Net loss (1,192,328) (335,492)
Preferred stock dividends (484,080) (487,650)
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Net loss available to common stockholders $ (1,676,408) $ (823,142)
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Loss per share - basic and diluted $ (0.11) $ (0.10)
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Weigted average shares outstanding 15,151,233 8,042,947
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc.
Consolidated Statements of Cash Flows
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Three Three
Months Ended Months Ended
February 29, February 28,
2004 2003
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (1,192,328) $ (335,492)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 91,941 94,300
Impairment VoIum 465,000 -
Changes in operating assets and liabilities:
Trade accounts receivable 180,457 521,377
Other receivables (1,513) (114,035)
Inventory (92,537) 172,137
Prepaid expenses 3,631 (10,453)
Other assets 1,670 2,796
Accounts payable 102,410 (18,511)
Accrued expenses 155,591 11,916
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Total adjustments 906,650 659,527
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Net cash provided by (used in)
operating activities (285,678) 324,035
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Cash flows from investing activities:
Capital expenditures (37,492) -
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Cash flows from financing activities:
Proceeds from sale of stock 195,000 155,000
Return of capital - (99,815)
Net proceeds (payments) from short-term
borrowings, line-of-credit and note payable (26,333) (374,020)
Payments on long-term debt (22,551) (23,380)
Capital contribution 232,588 -
Advances from shareholder, net (87,166) 8,987
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Net cash provided by financing activities 291,538 (333,228)
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Decrease in cash (31,632) (9,193)
Cash, beginning of period 37,806 9,257
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Cash, end of period $ 6,174 $ 64
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The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc.
Notes to Consolidated Financial Statements
February 29, 2004
(Unaudited)
NOTE 1 - 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 IPS' Report 10KSB filed April 19, 2004.
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.
CASH FLOW INFORMATION
Non cash transactions
During the three months ended February 29, 2004, IPS converted accrued
dividends totaling approximately $480,000 into 474 shares of preferred
stock.
CONTINUED OPERATIONS
IPS has continued to experience significant losses and cash flow
difficulties and there is doubt about its ability to continue as a going
concern. Management continues to look for ways to improve operational
performance and is actively seeking additional sources of capital.
NOTE 2 - COMMON STOCK
During the three months ended February 29, 2004, IPS sold 462,773 shares of
common stock pursuant to Regulation S for gross proceeds of approximately
$667,000 of which IPS received $240,000 and brokers in the United States and
overseas received approximately $427,000 as commissions on the sales.
NOTE 3 - INVESTMENT IN VOIUM TECHNOLOGIES, LTD
IPS accounted for the investment in VoIUM Technologies, LTD under the equity
method. VoIUM has minimal operations, minimal assets and in the process of
completing their business plan; however, due to the lack of progress in
completing their business plan, IPS determined the expected future cash
flows were less than the carrying value of VoIUM and recognized a full non-
cash impairment of the asset value at November 30, 2003.
During the three months ended February 29, 2004, IPS issued an additional
310,000 shares of common stock to VoIum which were sold by VoIum to raise
working capital. The 310,000 shares were valued using the stock price on
the date issued and resulted in an additional investment of $465,000. This
investment was impaired during the three months ended February 29, 2004.
On February 27, 2004, IPS agreed to contribute IPS' 48% ownership interest
in VoIUM to a newly formed entity, China Voice Corp ("China Voice"). Shares
of China Voice will then be distributed to IPS common and preferred
shareholders in a spin off.
NOTE 4 - RELATED PARTY TRANSACTIONS
On December 1, 2003, IPS issued a $3,248,000 promissory note for the
purchase of 100% of the stock of Power Development, Inc. ("PDI"), a real
estate management company, whose sole assets were as follows:
* 50% interest in the proceeds from the sale of a tract land in Fort
Worth which is owned by the president of IPS (Tract A).
* 100% interest in the proceeds from the sale of two tracts of land
located in Fort Worth, Texas which are owned by the president of IPS
(Tracts B & C).
While PDI was a subsidiary of IPS, it sold tract A on December 16, 2003 and
PDI received net proceeds totaling approximately $232,000. The cash proceeds
were used to pay expenses of IPS or were transferred to IPS. In April 2004,
IPS sold PDI to a related party resulting in no gain or loss. Because title
to the land did not transfer to IPS and PDI was subsequently sold,
the $232,000 cash received was recorded as contributed capital in the
accompanying financial statements.
NOTE 5 - SUBSEQUENT EVENT
Subsequent to February 29, 2004, IPS sold approximately 301,000 shares of
common stock pursuant to Regulation S for gross proceeds of approximately
$469,000 of which IPS received $168,750 and brokers in the United States and
overseas received approximately $300,000 as commissions on the sales.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Forward Looking Statements
This report may contain "Forward Looking Statements," which are our
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 our sources
of cash to finance current and future operations. When used in this
report, the words "plans," "believes," "expects," "projects," "targets,"
"anticipates," "estimates" and similar expressions are intended to identify
forward-looking statements. Factors which could cause actual results to
materially differ from our expectations include the following: general
economic conditions and growth in the high tech industry; competitive
factors and pricing pressures; changes in product mix; the timely
development and acceptance of new products; and the risks described
from time to time in our other filings with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date of
this report. We expressly disclaim any obligation or undertaking to release
publicly any updates or change in our 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
We are a contract manufacturer of quality, high performance circuit
boards and our principal office is located in Frisco, Texas, just north of
Dallas. Our 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 our financial condition and results of operations for the
fiscal quarter ended February 29, 2004. It should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing in
our Annual Report on Form 10-KSB for fiscal year ended November 30, 2003.
Results of Operations
Revenues. Sales for the quarter ended February 29, 2004 were
$1,211,213, a decrease of 34% from sales of $1,837,528 for the comparable
period in 2003. The decrease in sales for the quarter can be attributed to
revenues totaling approximately $800,000 from one of our largest customers
for product shipped during the first quarter of 2003. We did not receive
a comparable order in 2004. We believe that demand for our products will
begin to grow as confidence levels in the economy grow and inventory levels
held by our customers are depleted.
Gross Profit / (Loss). Gross loss for the quarter ended February 29,
2004 was $190,324, versus a gross profit of $192,424 in the same quarter of
2003. The decrease in gross profit is attributable to the sale of higher
margin products during the first quarter 2003 versus 2004, and is related
to the large order from one of our largest customers for product shipped
during the first quarter of 2003. This order resulted in gross profit of
approximately $370,000 during the first quarter 2003 and we did not receive
a comparable order in 2004.
Operating Expenses. For the quarter ended February 29, 2004, operating
expenses were $911,906 compared to $412,813 for the comparable quarter of
2003. The increase in expense is attributable primarily to an impairment
expense relating to an additional write-off of a non-consolidating
subsidiary.
Other Income and Expenses. For the quarter ended February 29, 2004,
net other expense was $90,098 compared to $115,103 for the same period of
the prior year. These amounts reflect changes in debt levels and other
miscellaneous and expense items during the respective periods.
Liquidity and Cash Resources
Net Loss. For the quarter ended February 29, 2004, we report a net
loss of $1,676,408, as compared to a net loss of $823,142 for the same
period in 2003. The increase in net loss is primarily the result of
increases in operating expense and a reduction in orders as discussed
above.
Cash Flows from Operations. Cash decreased by $31,632 and $9,193
in the first quarter ended February 29, 2004 and February 28, 2003,
respectively. Cash resources of $285,678 were used in operations during the
first quarter of 2004 as compared to $324,035 being provided by operations
in the same period in 2003.
Cash Flows from Investing Activities. Cash used in investing
activities was $37,492 and $0 during the first quarter of 2004 and 2003,
respectively.
Cash Flows from Financing Activities. Cash provided by financing
activities was $291,538 during the first quarter of 2004, compared to cash
used in financing activities of $333,228 during the same period in 2003.
Our principal sources of cash during the first quarter of 2004 consisted of
proceeds from the offshore sale of common stock and funding by the majority
stockholder.
Going Concern
Although we continue to incur significant losses from operations, we
believe that we will be able to generate sufficient cash to support our
operations for at least the next twelve months. Our plan for reaching
profitability generally includes continuing to generate revenue from ongoing
operations, coupled with a reduction of general and administrative expenses.
We continue to seek joint venture arrangements to help reduce our overhead.
We also plan to implement additional employee and operational efficiencies
to further reduce our fixed overhead.
However, if we are unable to achieve a positive cash flow from the
foregoing, additional financing or equity placements may be necessary to
supplement our cash requirements. Although we believe that sufficient
financial resources are available, such resources may not continue to be
available to us or may not be available upon favorable terms.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP)
requires us to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The significant
estimates made by us in the accompanying financial statements relate to
reserves for accounts receivable collectibility and inventory valuations.
Actual results could differ from those estimates.
Critical accounting policies are those that are both most important to
the portrayal of a company's financial position and results of operations,
and require management's subjective or complex judgments. Below is a
discussion of what we believe are our critical accounting policies.
Revenue Recognition. We recognize revenues when products are shipped.
At that time an agreement is in place, price is fixed, title for product
passes to the customer, and collectibility is reasonably assured.
Allowance for Doubtful Accounts. Provisions for the allowance for
doubtful accounts are made monthly and adjustments are made periodically (as
circumstances warrant) based upon the expected collectibility of all such
accounts.
Inventory. Inventory consists primarily of finished goods and raw
materials and is priced at lower of cost or market, cost being determined
using both the first-in and first out (FIFO) method. Reserves are provided
against inventory for estimated obsolescence based upon the aging of the
inventory and market trends.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer has reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 240.13a-15(e) or 15d-15(e)) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive
Officer has concluded that our current disclosure controls and procedures
provide him with reasonable assurance that they are effective to provide him
with timely material information relating to us required to be disclosed in
the reports we file or submit under the Exchange Act.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Issuances of equity securities during the fiscal quarter ended February
29, 2004 that were not registered under the Securities Act of 1933 consisted
of the following:
During the period we issued to various offshore investors pursuant to
Regulation S an aggregate of 462,773 shares of our Common Stock for gross
proceeds of approximately $667,000 of which we received $240,000 and brokers
in the United States and overseas received approximately $427,000 as
commissions.
During the period we issued 310,000 shares of our Common Stock to our
subsidiary, VoIUM Technologies, LTD, which sold the shares to raise working
capital of approximately $465,000.
During the period we issued an aggregate of 131 shares of our Series A
Nonconvertible Preferred Stock to entities over which our Chief Executive
Officer exercises voting control. The stock was issued for accrued
dividends on preferred stock and was valued at $131,000.
During the period we issued an aggregate of 14 shares of our Series B
Convertible Preferred Stock. The stock was issued to the holders of Series
B for accrued dividends on preferred stock and was valued at $14,000.
During the period we issued an aggregate of 329 shares of our Series C
Nonconvertible Preferred Stock to entities over which our Chief Executive
Officer exercises voting control. The stock was issued for accrued
dividends on preferred stock and was valued at $329,000.
The foregoing issuances were made pursuant to the exemption from
registration provided by Rule 506 of Regulation D, Rule 903 of Regulation S
and/or Section 4(2) of the Securities Act of 1933, in that (a) the investor
or its purchaser representative is reasonably believed to have such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment, (b) the
investor or its purchaser representative were provided with required
information and an opportunity to obtain additional information a reasonable
period of time prior to the transaction, (c) the investor or its purchaser
representative were advised of the limitations on resale of the Common
Stock, (d) the investor represented its intention to acquire the securities
for investment only and not with view to or for sale in connection with
any distribution thereof, (e) the offer or sale was made in an offshore
transaction, (f) no directed selling efforts were made in the United States
by the issuer, a distributor, any of their respective affiliates, or any
person acting on behalf of any of the foregoing, (g) offering restrictions
were implemented, and/or (h) appropriate legends were affixed to the
instruments issued in the transactions.
ITEM 5. OTHER INFORMATION
Power Development, Inc.
On December 1, 2003, we issued a $3,248,000 promissory note for the
purchase of 100% of the stock of Power Development, Inc. ("PDI"), a real
estate management company, whose sole assets consisted of (a) 50% interest
in the proceeds from the sale of a tract land in Fort Worth owned by our
Chief Executive Officer (Tract A), and (b) 100% interest in the proceeds
from the sale of two tracts of land located in Fort Worth, Texas owned by
our Chief Executive Officer (Tracts B & C).
PDI sold tract A on December 16, 2003 and received net proceeds
totaling approximately $232,000. In April 2004, we sold PDI to a related
party resulting in no gain or loss. Because we did not receive title to the
land in the transaction and because PDI was subsequently sold, the $232,000
cash received during the period ended February 29, 2004 was recorded as a
capital contribution in our financial statements.
VoIUM Technologies, LTD
We previously on March 31, 2003 acquired 48% of VoIUM Technologies,
LTD ("VoIUM"), a Cayman Islands corporation. In consideration, we issued
700,000 shares of our Common Stock to the VoIUM shareholders, 82,500 shares
of Common Stock to creditors of VoIUM and converted a $115,000 receivable
from VoIUM into an investment in the entity.
We also issued to VoIUM, in connection with the acquisition, 1,000,000
shares of our Common Stock to be sold outside the United Sates under SEC
Regulation S to raise working capital for VoIUM. Although additional shares
of Common Stock have been issued to VoIUM from time to time and have been
sold by VoIUM to meet its working capital needs, none of the 1,000,000
shares originally issued to VoIUM have been sold. These shares are
therefore not included in the total number of shares of our Common Stock
reported as currently issued and outstanding.
Due to minimal operations, minimal assets and lack of progress in
completing their business plan, we determined the expected future cash flows
of VoIUM were less than its carrying value and recognized a full non-cash
impairment of its asset value at November 30, 2003.
During the three months ended February 29, 2004, we issued an
additional 310,000 shares of our Common Stock to VoIUM, which VoIUM sold
during the period to raise working capital. The shares were valued at our
stock price on the date issued and resulted in an additional investment into
VoIUM of $465,000. This investment was impaired during the three months
ended February 29, 2004.
As of February 27, 2004, we agreed to contribute our 48% ownership
interest in VoIUM to a newly formed entity, China Voice Corp ("China
Voice"). Under the agreement, shares of China Voice would eventually be
distributed to our common and preferred shareholders in a spin off. This
transaction has not yet been consummated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Reference is made to the Exhibit Index located on page 14 of this
Form 10-QSB for a list of all exhibits filed with and incorporated
by reference in this report.
(b) Reports on Form 8-K:
During the three months ended February 29, 2004 the Company filed
no Current Reports on Form 8-K.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTEGRATED PERFORMANCE SYSTEMS, INC.
By: /s/ D. RONALD ALLEN
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D. Ronald Allen
Chief Executive Officer
and Principal Financial Officer
May 12, 2004
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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2.4 * Agreement dated as of February 27, 2004 between the Company,
Hughes Corporation, Nations Corp Limited, Nations Investment Corp,
China Voice Corp and VoIUM Technologies Ltd concerning the spinoff
of VoIUM Technologies Ltd.
31 ** Certification of Chief Executive Officer and Principal Financial
Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
and Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32 ** Certification of Chief Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* Exhibit incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended November 30, 2003, filed
on April 19, 2004.
** Filed herewith.