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 May 31, 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 August 1, 2004 there were 18,017,071 shares of the issuer's common
shares outstanding.
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..................................... 9
ITEM 3. CONTROLS AND PROCEDURES............................... 12
PART II.
OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS....................................... 12
ITEM 5. OTHER INFORMATION..................................... 13
ITEM 6. EXHIBITS.............................................. 14
SIGNATURES...................................................... 15
EXHIBIT INDEX................................................... 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Performance Systems, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
============================================================================
May 31,
2004
------------
ASSETS
Current assets
Cash $ 31,952
Restricted Cash 40,000
Trade accounts receivable, net of allowance for
doubtful accounts of $13,059 561,829
Other receivables 21,273
Inventory 433,823
Prepaid expenses 24,420
------------
Total current assets 1,113,297
------------
Property and equipment, net 965,688
------------
Other assets
Other 46,387
------------
Total assets $ 2,125,372
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank Overdraft $ 105,326
Short-term borrowings (including related party
amounts of $321,000) 1,667,528
Payable to shareholder 878,299
Accounts payable 823,522
Accrued expenses 1,472,523
------------
Total current liabilities 4,947,198
------------
Long-term debt, net of current maturities 50,000
Commitments and contingencies (Note 7) -
Stockholders' deficit
Preferred stock; par value $0.01; $1,000 per
share redemption value for Series A, B and
C; $2.000 per share redemption 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, 9,171 issued and
outstanding; $9,171,000 liquidation value 91
Series D - 4% cumulative dividends; 10,000
convertible shares authorized, 745 issued
and outstanding; $745,000 liquidation value 7
Common stock; par value $0.01; 100,000,000 shares
authorized, 17,922,892 shares issued and
outstanding 179,229
Additional paid-in capital 14,939,476
Accumulated deficit (17,990,678)
------------
Total stockholders' deficit (2,871,826)
------------
Total liabilities and stockholders' deficit $ 2,125,372
============
The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
============================================================================
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
May 31, 2004 May 31, 2003 May 31, 2004 May 31, 2003
------------ ------------ ------------ ------------
Net sales $ 1,445,068 $ 1,026,968 $ 2,656,281 $ 2,864,496
Cost of sales 1,666,803 1,180,375 3,068,340 2,825,479
---------- ---------- ---------- ----------
Gross (loss) income (221,735) (153,407) (412,059) 39,017
---------- ---------- ---------- ----------
Selling, general and
administrative 353,810 397,391 800,716 810,204
---------- ---------- ---------- ----------
Loss from operations (575,545) (550,798) (1,212,775) (771,187)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (149,200) (52,661) (239,298) (168,764)
Equity in loss of VoIUM - (55,879) - (55,879)
Impairment of investment
in VoIUM - - (465,000) -
Gain on disposition
of subsidiaries 935,442 - 935,442 -
Miscellaneous
income (expense) (1,600) - (1,600) 1,000
---------- ---------- ---------- ----------
784,642 (108,540) 229,544 (223,643)
---------- ---------- ---------- ----------
Net income (loss) $ 209,097 $ (659,338) $ (983,231) $ (994,830)
========== ========== ========== ==========
Preferred stock dividends $ (394,000) $ - $ (878,080) $ -
Loss available to
common shareholders $ (184,903) $(1,085,788) $(1,861,311) $(1,908,930)
========== ========== ========== ==========
Loss per share - basic $ (0.01) $ (0.11) $ (0.11) $ (0.19)
========== ========== ========== ==========
Loss per share - diluted $ (0.01) $ (0.11) $ (0.11) $ (0.19)
========== ========== ========== ==========
Weighted average common
shares oustanding -
Basic and diluted 17,197,000 9,871,000 16,696,000 10,047,000
The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
============================================================================
Six Six
Months Ended Months Ended
May 31, 2004 May 31, 2003
------------ ------------
Cash flows from operating activities:
Net loss $ (983,231) $ (994,830)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 182,626 190,159
Issuance of common stock for services 29,700 74,250
Amortization of debt discount 50,246 -
Impairment of investment in VoIUM 465,000 -
Gain on disposition of subsidiaries (935,442) -
Changes in operating assets and liabilities:
Trade accounts receivable 214,921 1,018,834
Other receivables (11,062) 16,888
Inventory (52,965) 76,623
Prepaid expenses 3,802 11,362
Other assets 698 (55,281)
Accounts payable 73,199 178,809
Other 224,436 28,914
------------ ------------
Net cash (used in) provided by
operating activities (738,072) 545,728
------------ ------------
Cash flows from investing activities:
Investment in VoIUM (40,000) -
Acquisition of property and equipment (77,461) (27,098)
------------ ------------
Net cash used in investing activities (117,461) (27,098)
------------ ------------
Cash flows from financing activities:
Bank overdraft 105,326 -
Proceeds from sale of stock 476,200 572,368
Capital contribution 232,588 (184,303)
Payments on short term borrowings,
line of credit and notes payable (191,412) (851,617)
Proceeds from long-term debt 226,977 -
Payments on long-term debt - (47,380)
Line of credit - related party - (16,895)
------------ ------------
Net cash provided by (used in)
financing activities 849,679 (527,827)
------------ ------------
Net change in cash (5,854) (9,197)
Cash, beginning of period 37,806 9,257
------------ ------------
Cash, end of period $ 31,952 $ 60
============ ============
Supplemental cashflow information:
Interest paid $ 161,138 $ 165,221
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc.
Notes to Interim Consolidated Financial Statements
May 31, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
UNAUDITED FINANCIAL INFORMATION
The unaudited condensed consolidated financial statements have been prepared
by Integrated Performance Systems, Inc. and its subsidiaries (the "Company"
or "IPS"), pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments consisting of normal
recurring entries, which, in the opinion of the Company, are necessary to
present fairly the results for the interim periods. The interim financial
statements do not include all disclosures provided in fiscal year end
financial statements prepared in accordance with accounting principles
generally accepted in the United States, although the Company believes that
the accompanying disclosures are adequate to make the information presented
not misleading. Results of operations for the six-month period ended May 31,
2004, are not necessarily indicative of the results that may be expected for
the year ending November 30, 2004.
These financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report on
Form 10-KSB for the year ended November 30, 2003.
NOTE 2 - GOING CONCERN
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 3 - COMMON STOCK AND PREFERRED STOCK
During the three months ended May 31, 2004, IPS issued 30,000 shares of its
common stock, valued at 29,700, to a broker in payment for services.
During the three months ended May 31, 2004, IPS issued 678,000 shares of its
common stock, valued at approximately $542,000, in connection with the sale
of subsidiaries.
During the three months ended May 31, 2004, IPS sold 657,200 shares of
common stock pursuant to Regulation S for gross proceeds of approximately
$816,000 of which IPS received approximately $281,000 and brokers in the
United States and overseas received approximately $535,000 as commissions
on the sales. 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.
During the three months ended May 31, 2004, approximately $394,000 in
dividends accrued on IPS' Nonconvertible Preferred Stock ($116,000 for
Series A, $14,000 for Series B, and $264,000 for Series C). During the three
months ended February 29, 2004, approximately $480,000 in dividends accrued
on IPS' Nonconvertible Preferred Stock. Additional shares of Nonconvertible
Preferred Stock will be issued to entities over which our Chief Executive
Officer exercises voting control, at a face value of $1,000 per share, in
satisfaction of these dividends.
NOTE 4 - CONCENTRATIONS OF RISK
The following table represents the concentration of risk associated with
major customers that individually account for 10% or more of revenues for
the three and six month periods ended May 31, 2004 and the corresponding
revenues from that customer:
Three Six
Months Months
----------- -----------
Customer A $ 328,835 $ 696,357
Customer B 215,923 253,823
Customer C 188,649 459,455
Customer D 143,150 306,361
----------- -----------
$ 876,557 $ 1,715,996
=========== ===========
NOTE 5 - INVESTMENT IN VOIUM TECHNOLOGIES, LTD
IPS acquired a 48% ownership interest in VoIUM Technologies LTD ("VoIUM")
on March 31, 2003 and accounted for the investment under the equity method.
Management subsequently determined that the expected future cash flows were
less than the carrying value of VoIUM and recognized an impairment of the
asset value at November 30, 2003. During the three months ended February
29, 2004, the Company advanced $40,000 cash to VoIUM as well as common
stock having a fair value of $465,000. On February 29, 2004, an additional
impairment charge equal to the value of the common stock ($465,000) was
recorded based upon an analysis of VoIUM's expected future cash flows.
On April 21, 2004, IPS sold its 48% ownership interest in VoIUM, as well as
its 84% ownership interest in China Voice Corp ("China Voice"), to a company
affiliated with the president of IPS. The consideration received for the
sale was the redemption of Twenty-five Hundred (2,500) shares of IPS Series
C Preferred Stock, having a face value of Two and One-half Million Dollars
($2,500,000), which shares of preferred stock were cancelled.
Loss per share
As part of the acquisition of VoIUM on March 31, 2003, IPS issued to VoIUM
1,000,000 shares of its Common Stock that were to be sold offshore under
SEC Regulation S to raise working capital for VoIUM. Because VoIUM never
sold the 1,000,000 shares, they were never shown by IPS to be issued and
outstanding. However, with the sale and transfer of VoIUM on April 21,
2004, IPS has included the 1,000,000 shares in the total number of shares
of our Common Stock reported to be issued and outstanding. Loss per share
for the three and six month periods ended May 31, 2004 has been calculated
to consider the 1,000,000 shares as issued and outstanding for the entire
period.
NOTE 6 - 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, tract A was sold 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. 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.
On April 21, 2004, IPS sold its entire 84% ownership interest in China Voice
and its entire 48% ownership interest in VoIUM to Associates Funding Group,
Inc., an affiliated company controlled by IPS' president. The consideration
received for the sale was the redemption of Two Thousand Five Hundred
(2,500) shares of IPS' Series C Preferred Stock, having a face value of Two
and One-half Million Dollars ($2,500,000), which stock was cancelled. (See
Note 5.)
NOTE 7 - DISPOSITION OF ASSETS AND CONTINGENCIES
On April 23, 2004, IPS sold to an unaffiliated company its entire ownership
interest in subsidiaries Cadsouth Inc., PC Dynamics Corporation, PC Dynamics
of Texas, Inc., and Integrated Performance Business Services Corp.,
including its wholly owned subsidiary, Power Development, Inc. At the time
of the sale these subsidiaries owned no assets and maintained liabilities
with an aggregate carrying value of approximately $1,477,000. In exchange
for the sale, IPS issued to the buyer 678,000 shares of common stock of IPS,
valued at approximately $542,000 as of the sale date. As a result, IPS
recorded a gain on the disposition of subsidiaries in the amount of $935,000
based upon the difference between the carrying amount of the liabilities
sold and the fair value of the common stock issued in the sale.
The debts transferred with the sale of the subsidiaries continue to be
contingent liabilities of IPS, although management believes that collection
against IPS is improbable. Future enforcement of these debts against the
Company could have a material adverse impact on the cash flow and liquidity
of the Company.
NOTE 8 - INVENTORY
Inventory consists primarily of finished goods and raw materials and
is priced at lower of cost or market, cost being determined using the
first-in, first out (FIFO) method. At May 31, 2004, inventory consisted
of approximately $153,000 in raw materials and approximately $281,000 in
work in progress.
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 three and six months periods ended May 31, 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. Total revenues for the three months ended May 31, 2004 were
approximately $1,445,000. Total revenues for the same period in 2003 were
$1,027,000. The 41% increase is attributable to sales of approximately
$300,000 to a new customer and a slight increase in sales to existing
customers.
Total revenues for the six months ended May 31, 2004 were approximately
$2,656,000. Total revenues for the same period in 2003 were $2,864,000. The
7% decrease is attributable to sales of approximately $800,000 to one of our
largest customers during the period in 2003, which were not duplicated in
the current period.
Gross Profit (Loss). Gross loss for the three months ended May 31,
2004 was approximately $222,000, versus a gross loss of $153,000 in the
same period in 2003. Gross loss for the six months ended May 31, 2004 was
approximately $412,000, versus a gross profit of $39,000 for the same period
in 2003. The decrease in gross margin in both periods is attributable to
the loss of orders for higher margin products during the period from one
significant customer. It is also related to a large order from one of our
largest customers for product shipped during the first quarter of 2003.
This order alone resulted in gross margin of approximately $370,000 during
the first quarter of 2003, which was not duplicated in the current period.
Operating Expenses. Operating expenses for the three months ended May
31, 2004, were approximately $354,000, compared to $397,000 for the same
period in 2003. Operating expenses for the six months ended May 31, 2004,
were approximately $801,000, compared to $810,000 for the same period in
2003. The decrease in operating expenses in both periods is attributable
to controlling certain costs such as selling expense, supplies, and
professional fees.
Other Income and Expenses. Net other income was approximately $785,000
for the three months ended May 31, 2004, compared to net other expense of
$109,000 for the same period in 2003. For the six months ended May 31,
2004, net other income was approximately $230,000, compared to net other
expense of $224,000 for the same period in 2003. The difference in both
periods is attributable to a one-time gain reported in connection with the
disposition of several subsidiaries during the period ended May 31, 2004.
During the six months ended May 31, 2004, an impairment charge related to
our investment in VoIUM was recorded in the amount of $465,000. No such
charge was recorded during the first six months of fiscal 2003. In April
2004, we sold VoIUM to a company owned by our president.
Liquidity and Cash Resources
Net Loss. For the six months ended May 31, 2004, we reported a
net loss of approximately $983,000, compared to a net loss of $995,000
reported for the same period in 2003. The slight decrease in net loss is
attributable to a one-time gain reported in connection with the disposition
of several subsidiaries during the period ended May 31, 2004, which was
counterbalanced by the sale of higher margin products during the first
quarter 2003 versus 2004.
Cash Flows from Operations. Net cash used in operations during the six
months ended May 31, 2004 was approximately $778,000, compared to $546,000
being provided by operations during the same period in 2003. This
significant change in our cash flows from operations relates to the
collection of accounts receivable in 2003. Due to our significant reduction
in revenue in 2003, our accounts receivable balances decreased, which
created a source of cash. During the six months ended May 31, 2004, our
accounts receivable balances continued to decrease, but by smaller amounts,
yielding less cash collections.
Cash Flows from Investing Activities. Cash used for investing
activities during the six months ended May 31, 2004 and 2003 was
approximately $117,000 and $27,000, respectively, consisting generally of
investments in property and equipment. During the current period, we
invested approximately $77,000 in computer software and related hardware.
Cash Flows from Financing Activities. Net cash provided by financing
activities during the six months ended May 31, 2004 was approximately
$850,000, consisting primarily of proceeds of $476,000 from the offshore
sale of common stock and proceeds of $227,000 from long term debt. Net cash
used in financing activities during the six months ended May 31, 2003 was
approximately $528,000, consisting primarily of proceeds of $572,000 from
the sale of common and preferred stock and payments of $852,000 on short
term borrowings, line of credit and notes payable.
Contingent Liabilities. The sale of certain subsidiaries of the
Company (see Item 5 below) relieved the Company of approximately $1,477,000
in debt, which was transferred with the subsidiaries sold. These debts
continue to be contingent liabilities of the Company, although we believe
that collection against the Company is improbable. However, future
collection of these debts against the Company could have a material
adverse effect on the cash flow and liquidity of the Company.
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 the first-in, first out (FIFO) method.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer has reviewed and evaluated the
effectiveness of the design and operation 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. In addition, there were no changes in our internal control or in other
factors which could significantly affect internal controls subsequent to the
date we carried out our evaluation.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuances of equity securities during the fiscal quarter ended May 31,
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 657,200 shares of our Common Stock for gross
proceeds of approximately $816,000 of which we received $281,000 and brokers
in the United States and overseas received approximately $535,000 as
commissions.
During the period we issued 30,000 shares of our Common Stock to
Capital Bankers as an annual consulting fee.
In connection with the original acquisition of VoIUM, we issued to
VoIUM 1,000,000 shares of our Common Stock to be sold outside the United
States under SEC Regulation S to raise working capital for VoIUM. None of
the 1,000,000 shares originally issued to VoIUM were sold and these shares
were not previously included in the total number of shares of our Common
Stock reported as being issued and outstanding. With the consummation of
the sale of VoIUM in April 2004, these shares were deemed to be issued and
outstanding and are now included in the total number of shares of our
Common Stock reported as issued and outstanding. (See Item 5: Other
Information, below, for more information relating to the sale of VoIUM.)
During the period, approximately $394,000 in dividends accrued on our
Nonconvertible Preferred Stock ($116,000 for Series A, $14,000 for Series B,
and $264,000 for Series C). Additional shares of Nonconvertible Preferred
Stock will be issued to entities over which our Chief Executive Officer
exercises voting control, at a face value of $1,000 per share, in
satisfaction of these dividends.
The foregoing issuances were, and will be, 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
Sale of VoIUM Technologies LTD and China Voice Corp
We previously reported that we had agreed to contribute our 48%
ownership interest in VoIUM Technologies LTD ("VoIUM") to a newly formed
entity, China Voice Corp ("China Voice") and then planned to distribute
shares of China Voice to our common and preferred shareholders in a spin-off
transaction. This transaction was not consummated and was cancelled.
On April 21, 2004, pursuant to a Stock Purchase Agreement, we sold our
entire 84% ownership interest in China Voice and our entire 48% ownership
interest in VoIUM to Associates Funding Group, Inc., an affiliated company
controlled by our president. The consideration received for the sale was
the redemption of Two Thousand Five Hundred (2,500) shares of the Company's
Series C Preferred Stock, having a face value of Two and One-half Million
Dollars ($2,500,000), which shares of preferred stock have been cancelled.
The sale price was established considering the total amount or our
investment into VoIUM and China Voice.
Loss per share calculations
In connection with the acquisition of VoIUM on March 31, 2003, we
issued to VoIUM 1,000,000 shares of our Common Stock to be sold outside the
United States under SEC Regulation S to raise working capital for VoIUM.
Although additional shares of Common Stock were issued to VoIUM from time to
time and were sold by VoIUM to meet its working capital needs, none of the
1,000,000 shares originally issued to VoIUM were sold. These shares were
therefore excluded from the total number of shares of our Common Stock that
were considered and reported to be issued and outstanding.
However, with the sale and transfer of VoIUM on April 21, 2004, we have
included the 1,000,000 shares in the total number of shares of our Common
Stock reported to be issued and outstanding. The loss per share ("EPS") for
the six-month period ended May 31, 2004 has been calculated to consider the
1,000,000 shares as issued and outstanding for the entire period.
We are currently in discussion with our former auditors regarding the
accounting for the 1,000,000 shares held by VoIUM. These discussions are
ongoing and could give rise to an amendment of our Annual Report on Form
10-KSB for the period ended November 30, 2003 and our Quarterly Report on
Form 10-QSB for the period ended February 29, 2004. We are not certain
what effect, if any, our conclusions might have on these prior periods.
Sale of other Subsidiaries
On April 23, 2004, pursuant to a Stock Purchase Agreement, we sold
to an unaffiliated company our entire ownership interest in subsidiaries
Cadsouth Inc., PC Dynamics Corporation, PC Dynamics of Texas, Inc., and
Integrated Performance Business Services Corp., including its wholly
owned subsidiary, Power Development, Inc. At the time of the sale these
subsidiaries owned no assets and maintained liabilities with an aggregate
carrying value of approximately $1,477,000. In exchange for the sale,
we issued to the buyer 678,000 shares of our common stock, valued at
approximately $542,000 as of the sale date. As a result, we recorded a gain
on the disposition of subsidiaries in the amount of $935,000 based upon the
difference between the carrying amount of the liabilities sold and the fair
value of the common stock issued in the sale. The sale price was
established through arms length negotiations between the parties,
considering the book value of the subsidiaries and the market price
of our Common Stock.
The subsidiaries were sold to SSTV, Inc., 17708 Cedar Creek Dr.,
Dallas, Texas 75248. The buyer owns the property where our executive
offices and manufacturing facilities are located and is also one of our
creditors.
ITEM 6. EXHIBITS
Reference is made to the Exhibit Index located on page 16 of this Form
10-QSB for a list of all exhibits filed with and incorporated by reference
in this report.
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
--------------------------
D. Ronald Allen
Chief Executive Officer
and Principal Financial Officer
August 24, 2004
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 ** Stock Purchase Agreement dated as of April 21, 2004 between the
Company and Associates Funding Group, Inc. concerning the sale of
China Voice Corp and VoIUM Technologies Ltd.
2.2 ** Stock Purchase Agreement dated as of April 23, 2004 between the
Company and SSTV, Inc. concerning the sale of Cadsouth Inc., PC
Dynamics Corporation, PC Dynamics of Texas, Inc., and Integrated
Performance Business Services Corp., including its wholly owned
subsidiary, Power Development, Inc.
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.
** Filed herewith.