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 August 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 October 15, 2004 there were 30,229,959 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................................................... 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Performance Systems, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
August 31,
2004
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ASSETS
Current assets
Cash $ 65,919
Restricted cash 40,000
Trade accounts receivable, net of allowance
for doubtful accounts of $13,059 796,796
Other receivables 25,357
Inventory 480,272
Prepaid expenses 29,114
------------
Total current assets 1,437,458
------------
Property and equipment, net 885,391
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Other assets 46,427
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Total assets $ 2,369,276
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft 104,990
Short-term borrowings 1,880,181
Accounts payable 843,959
Payable to shareholder 901,173
Accrued expenses 2,037,900
------------
Total current liabilities 5,768,203
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Noncurrent liabilities
Long-term debt, net of current maturities 50,000
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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, 18,266,145 shares issued and
outstanding 182,662
Additional paid-in capital 14,595,489
Accumulated deficit (18,227,225)
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Total stockholders' deficit (3,448,927)
------------
Total liabilities and stockholders' deficit $ 2,369,276
============
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 Nine Nine
Months Ended Months Ended Months Ended Months Ended
August 31, August 31, August 31, August 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 1,857,914 $ 1,270,852 $ 4,514,195 $ 4,135,348
Cost of sales 1,493,235 1,579,395 4,561,575 4,425,895
---------- ---------- ---------- ----------
Gross (loss) income 364,679 (308,543) (47,380) (290,547)
Selling, general and
administrative 495,339 386,905 1,296,056 1,176,089
---------- ---------- ---------- ----------
Loss from operations (130,660) (695,448) (1,343,436) (1,466,636)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (105,885) (103,980) (345,183) (272,744)
Equity in loss of VoIUM - (57,000) - (112,879)
Impairment of investment
in VoIUM - - (465,000) -
Gain on disposition of
subsidiaries - - 935,442 -
Miscellaneous income
(expense) - 55,879 (1,600) 1,000
---------- ---------- ---------- ----------
(105,885) (105,101) 123,659 (384,623)
---------- ---------- ---------- ----------
Net income (loss) $ (236,545) $ (800,549) $(1,219,777) $(1,851,259)
========== ========== ========== ==========
Preferred stock dividends $ (416,400) $ (439,048) $(1,294,480) $(1,353,148)
Loss available to
common shareholders $ (652,945) $(1,239,597) $(2,514,257) $(3,204,407)
========== ========== ========== ==========
Loss per share - basic
and diluted $ (0.04) $ (0.11) $ (0.15) $ (0.27)
========== ========== ========== ==========
Weighted average common
shares outstanding -
Basic and diluted 18,006,660 11,654,981 17,134,360 11,654,981
The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Nine
Months Ended Months Ended
August 31, August 31,
2004 2003
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Cash flows from operating activities:
Net loss $ (1,219,777) $ (1,851,259)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 262,923 265,724
Issuance of common stock for services 29,700 74,250
Equity loss in earnings of VoIUM - 112,879
Impairment of investment in VoIUM 465,000 -
Gain on disposition of subsidiaries (935,442) -
Amortization of debt discount 91,179 -
Changes in operating assets and liabilities:
Trade accounts receivable (20,046) 930,243
Inventory (99,414) 220,439
Other current assets (16,038) (6,461)
Other assets 658 4,581
Accounts payable 93,639 363,955
Accrued Expenses 373,413 139,762
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Net cash (used in) provided by
operating activities (974,205) 254,113
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Cash flows from investing activities:
Investment in VoIUM (40,000) (115,000)
Acquisition of property and equipment (77,461) (27,098)
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Net cash used in investing activities (117,461) (142,098)
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Cash flows from financing activities:
Bank overdraft 104,990 -
Advance from shareholder 22,874 -
Proceeds from sale of stock 552,042 718,750
Capital contribution 232,588 (213,811)
Proceeds from (payments on) short term
borrowings, line of credit and notes
payable 207,285 (927,100)
Proceeds from long-term debt - 384,182
Payments on long-term debt - (70,726)
Line of credit - related party - (12,048)
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Net cash provided by (used in)
financing activities 1,119,779 (120,753)
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Net change in cash 28,113 (8,738)
Cash, beginning of period 37,806 9,257
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Cash, end of period $ 65,919 $ 519
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
Integrated Performance Systems, Inc.
Notes to Interim Consolidated Financial Statements
August 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 nine-month period ended
August 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 August 31, 2004, IPS sold 343,253 shares of
common stock pursuant to Regulation S for gross proceeds of approximately
$169,000 of which IPS received approximately $61,000 and brokers in the
United States and overseas received approximately $108,000 as commissions
on the sales.
During the three months ended August 31, 2004, approximately $416,400 in
dividends accrued on IPS' Nonconvertible Preferred Stock ($119,400 for
Series A, $14,000 for Series B, and $283,000 for Series C).
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 nine month periods ended August 31, 2004 and the corresponding
revenues from that customer:
Three Months Nine Months
----------- -----------
Customer A $ 464,311 $ 1,160,671
Customer B 189,037 497,878
Customer C 156,240 616,289
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$ 809,588 $ 2,274,838
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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
Common Stock reported to be issued and outstanding. Loss per share for the
three and nine month periods ended August 31, 2004 has been calculated to
consider the 1,000,000 shares as issued and outstanding for the entire
period.
NOTE 6 - 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 7 - 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 August 31, 2004, inventory consisted of
approximately $131,000 in raw materials and approximately $349,000 in work
in progress.
NOTE 8 - SUBSEQUENT EVENTS
On September 28, 2004, the Company issued 11,676,000 shares of common stock
as follows:
* 447,000 shares issued to Varga Investments, Inc., a wholly owned
subsidiary of the Company, in satisfaction of debt in the amount
of $134,000; (the shares issued to Varga will be accounted for as
treasury shares);
* 250,000 shares of common stock for settlement of employment obligation
with former Chief Executive Officer and cancellation of option to
purchase 231,200 shares of common stock at an exercise price of $1.50
per share;
* 246,667 shares of common stock were issued in satisfaction of accrued
but unpaid Series D Preferred Stock dividends totaling $74,000;
* 784,000 shares of common stock were issued in satisfaction of accrued
but unpaid Series A Preferred Stock dividends totaling $235,000;
* 94,000 shares of common stock were issued in satisfaction of accrued
but unpaid Series B Preferred Stock dividends totaling $28,000;
* 1,786,667 shares of common stock were issued in satisfaction of accrued
but unpaid Series C Preferred Stock dividends totaling $536,000;
* 1,580,000 shares of common stock were issued to SMI Chips, Inc. in
satisfaction of debt in the amount of $474,000;
* 2,000,000 shares were issued to Southern Cross Realty Corporation (sole
shareholder of C-Gate Construction, Inc.) in return for an option to
convey the ownership of C-Gate Construction, Inc. to the Company at
the Company's request. C-Gate Construction, Inc. owns the building
in Frisco, Texas that is leased and occupied by the Company. In
April, 2004 the Company's Chief Executive Officer was appointed as
an officer of C-Gate Construction, Inc.;
* 820,333 shares were issued to an entity, in which the Company's Chief
Executive Officer is on the board of directors, in satisfaction of
amounts owed the entity totaling $246,000;
* 3,387,333 shares of common stock issued in satisfaction of debt owed
Associates Funding Group, Inc. (an entity controlled by the Company's
Executive Officer) in the amount of $1,016,000;
* 250,000 shares issued in satisfaction of debt in the amount of
$75,000
* 30,000 shares issued to a consultant for professional services
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 nine months periods ended August 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 August 31, 2004
were approximately $1,858,000. Total revenues for the same period in 2003
were $1,271,000. The 46% 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 nine months ended August 31, 2004 were
approximately $4,514,000. Total revenues for the same period in 2003 were
$4,135,000. The 9% increase is attributable to the increase of overall
sales during the current fiscal period.
Gross Profit (Loss). Gross profit for the three months ended August
31, 2004 was approximately $365,000, versus a gross loss of $309,000 in the
same period in 2003. Gross loss for the nine months ended August 31, 2004
was approximately $47,000, versus a gross loss of $291,000 for the
same period in 2003. The increase in gross margin in both periods is
attributable to the increase of orders for higher margin products during
the period from our customers.
Operating Expenses. Operating expenses for the three months ended
August 31, 2004, were approximately $495,000, compared to $387,000 for the
same period in 2003. Operating expenses for the nine months ended August
31, 2004, were approximately $1,296,000, compared to $1,176,000 for the
same period in 2003. The increase in operating expenses in both periods is
attributable to maintaining certain costs such as selling expense, supplies,
and professional fees, while allowing for expected increases in other areas
as sales increase.
Other Income and Expenses. For the nine months ended August 31, 2004,
net other income was approximately $124,000, compared to net other expense
of $385,000 for the same period in 2003. The difference in the year to date
amounts 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 nine months ended August 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 nine 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 nine months ended May 31, 2004, we reported a net
loss of approximately $1,219,000, compared to a net loss of $1,851,000
reported for the same period in 2003. The 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
nine months ended August 31, 2004 was approximately $974,000, compared to
$254,000 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 nine months ended August 31, 2004,
our accounts receivable balances began to increase, as sales have increased,
yielding less cash collections.
Cash Flows from Investing Activities. Cash used for investing
activities during the nine months ended August 31, 2004 and 2003 was
approximately $117,000 and $142,000, respectively, consisting generally
of investments in property and equipment. In addition, during the period
ended August 31, 2003, the Company recorded a $115,000 investment in the
VoIUM Subsidiary. 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 nine months ended August 31, 2004 was approximately
$1,120,000, consisting primarily of proceeds of $552,000 from the offshore
sale of common stock, $233,000 in a capital contribution and $207,000
from short term borrowings, line of credit and notes payable. Net
cash used in financing activities during the nine months ended August
31, 2003 was approximately $129,000, consisting primarily of proceeds
of $719,000 from the sale of common and preferred stock and proceeds of
$384,000 from long term debt, offset by payments of $1,224,000 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.
Further debt reduction. The issuance in September 2004 of common
stock in consideration of forgiveness of certain debt and other financial
obligations of the Company relieved us of significant financial obligations
and liabilities. Service of these debts has had a negative impact upon our
liquidity in the past, which is expected to improve in future periods as
a result of these transactions.
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 August
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 343,253 shares of our Common Stock for gross
proceeds of approximately $169,000 of which we received $61,000 and brokers
in the United States and overseas received approximately $108,000 as
commissions.
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
Agreement of intent to merge with Lone Star Circuits
In April 2004, we executed an agreement of intent to merge with Best
Circuit Boards, Inc. d/b/a Lone Star Circuits ("LSC") in exchange for
consideration consisting of cash and stock. LSC is a privately owned
fabrication services company located in Wylie, Texas, which is engaged in
time sensitive, high technology prototypes, and is a manufacturer of high
margin, complex electronic circuit boards. The transaction is subject to
the satisfaction of significant contingencies before consummation, among
which include agreement on final terms and the Company arranging financing
to fund the transaction.
Management agreement for Company operations
In July 2004, in an effort to improve performance of the Company, we
entered into a two-year management consulting agreement with Brad Jacoby,
President and CEO of LSC. Under the terms of the agreement, Mr. Jacoby
immediately assumed overall management responsibility for the operations
of the Company. Although Mr. Jacoby was not appointed an officer of the
Company, the agreement delegated to him the authority customarily exercised
by the Chief Executive Officer, except in those matters requiring the
approval by the Company's Board of Directors.
We believe that Mr. Jacoby's capable leadership has been a contributing
factor in the overall improvement in our financials for the current period.
He has implemented cost containment programs and has tapped into new revenue
generating opportunities with some of LSC's accounts which meet our customer
profiles. We believe that we will see continued improvements in our results
of operations under his direction.
Since he assumed management responsibility for the operations of the
Company, Mr. Jacoby has additionally advanced funding to the Company
in excess of $100,000 for expenses of operation. These advances are secured
by the escrow of common stock held by our Chief Executive Officer and
affiliated companies, and a second lien on all assets of the Company which
are pledged as collateral for the financing agreement with USA Funding.
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 nine-month period ended August 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 AND REPORTS ON FORM 8-K
(a) Exhibits:
Reference is made to the Exhibit Index to 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 August 31, 2004 the Company filed
one Current Report on Form 8-K on June 24, 2004 reporting a change
in its certifying accountant.
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
October 20, 2004
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 ** Agreement for Management Consulting Services between the Company
and Brad Jacoby.
10.2 ** Stock Escrow and Security Agreement between Ron Allen, the Company
and Brad Jacoby.
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.