UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 24, 2004
INTEGRATED PERFORMANCE SYSTEMS, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
New York 000-30794 11-3042779
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
901 Hensley Lane 75098
Wylie, Texas (Zip Code)
(Address of principal executive offices)
(214) 291-1452
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.1 4d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.1 3e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Best Circuit Boards, Inc. dba Lone Star Circuits
In November 2004, a wholly owned subsidiary of Integrated Performance
Systems, Inc. ("the Company" or "IPS") merged with Best Circuit Boards,
Inc., d/b/a Lone Star Circuits ("LSC"), resulting in LSC becoming a wholly
owned subsidiary of IPS. The owners of LSC acquired controlling interest
in IPS and we have therefore determined that the transaction should be
accounted for as a reverse merger. The transaction will be treated as if
LSC acquired IPS and, consequently, the historical financial statements of
LSC will become the historical financial statements of the Company.
IPS is a printed circuit board and electronics component manufacturer
located in Frisco, Texas; 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 Company's corporate headquarters have been
moved to Wylie, and the Company plans to consolidate its manufacturing
operations located in Frisco into LSC's state-of-the-art, 101,000 square
foot facility located at 901 Hensley Lane, Wylie, Texas.
The merger transaction requires the Company to issue approximately 194
million new common shares in acquisition of LSC, which shares will have the
same rights as all other common shares of the Company. (Issuance of these
common shares is contingent upon approval by the IPS shareholders of an
increase in the Company's authorized shares from 100 million to 400 million,
at a special shareholders' meeting, which is expected to be held in the near
future.) To evidence the right of LSC shareholders to receive the common
shares, 193,829 shares of Series F Convertible Preferred Stock (the
"Preferred Stock") were issued to LSC shareholders at closing.
The Preferred Stock has a $.01 par value, 300,000 shares are
authorized, and 193,829 shares are issued and outstanding. The terms of the
Preferred Stock contain no mandatory redemption provisions. The liquidation
value per share is equal to the value of Lone Star Circuits, Inc., divided
by the number of outstanding shares of Preferred Stock. Holders of the
Preferred Stock have the right to convert their preferred shares into common
shares at the rate of one thousand shares of Common Stock for each share of
preferred stock, and each holder of the Preferred Stock is entitled to one
thousand votes for each share of Preferred Stock held.
Other terms of the merger include the issuance to LSC shareholders of
$4.2 million in convertible debentures. The debentures are convertible into
Common Stock at any time at a per share conversion price of $.15 per share.
$3.2 million of the debentures is payable at a simple interest rate of 8%
per annum, with interest payable monthly and the principal balance due in
February 2005. $1 million of the debentures is payable at a simple interest
rate of 8% per annum, interest payable bi-annually and the principal balance
due in November 2007. All of the debentures are secured by all assets of
the Company and of LSC.
Prior to consummating the merger, the Company entered into a consulting
agreement with Mr. Jacoby, a major LSC shareholder, to manage the Company.
This arrangement was superseded by a three year employment agreement with
Mr. Jacoby effective December 1, 2004.
In connection with the merger, the former CEO of the Company,
D. Ronald Allen, delivered approximately 19.5 million shares of Common Stock
beneficially owned by him into escrow to secure certain advances made by LSC
on behalf of the Company. Mr. Jacoby was also granted the right to vote
these shares for the duration of the escrow agreement.
ITEM 5.03. CHANGE IN FISCAL YEAR
In connection with the merger, our Board of Directors changed our
fiscal year end from November 30 to July 31, to conform to the fiscal year
end of LSC. Hereafter, we will file quarterly and annual reports of the
combined entities based on the new fiscal year.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
-----------------------------------------
The financial statements filed as part of this report consist of
audited historical financial statements of LSC for the twelve
months ended July 31, 2004 and 2003 (beginning on page F-1 hereof)
and unaudited historical financial statements of LSC for the three
months ended October 31, 2004 and 2003 (beginning on page F-16
hereof).
(b) Pro Forma financial information.
-------------------------------
The Pro Forma financial information filed as part of this report
consists of Unaudited Combined Pro Forma Condensed Balance Sheets
of IPS and LSC as of October 31, 2004, and the related Unaudited
Combined Pro Forma Condensed Statements of Operations for the year
ended July 31, 2004, and the three months ended October 31, 2004
(beginning on page F-22 hereof).
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger dated October 22, 2004 between the
Company and Best Circuit Boards, Inc. (filed as Exhibit "2.1" to
the Company's Current Report on Form 8-K filed on October 28, 2004
and incorporated herein by reference.)
2.2 First Addendum to the Agreement and Plan of Merger between the
Company and Best Circuit Boards, Inc. (filed as Exhibit "2.2" to
the Company's Current Report on Form 8-K filed on December 1, 2004
and incorporated herein by reference.)
4.1* Series F Preferred Stock terms and conditions.
______________
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTEGRATED PERFORMANCE SYSTEMS, INC.
(Registrant)
By: /s/ BRAD J. PETERS
-----------------------------------------------
Brad J. Peters
Vice President and Chief Financial Officer
(On behalf of the registrant and as
principal financial and accounting officer)
Date: February 7, 2005
Financial Statements and
Report of Independent Certified Public Accountants
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
July 31, 2004 and 2003
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
TABLE OF CONTENTS
Page
----
Report of Independent Certified Public Accountants.......... F-3
Financial Statements
Balance Sheets. .......................................... F-4
Statements of Operations ................................. F-5
Statement of Stockholder's Equity ........................ F-6
Statements of Cash Flows ................................. F-7
Notes to Financial Statements ............................ F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Best Circuit Boards, Inc.
We have audited the accompanying balance sheets of Best Circuit Boards, Inc.
(the "Company"), as of July 31, 2004 and 2003 and the related statements
of operations, stockholder's equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Best Circuit Boards,
Inc. as of July 31, 2004 and 2003, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note K, on November 24, 2004, the Company merged with a
wholly owned subsidiary of Integrated Performance Systems, Inc., a publicly
traded company.
/s/ KBA Group LLP
KBA GROUP LLP
Dallas, Texas
October 1, 2004, except for Note E and Note K
as to which the date is November 24, 2004
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Balance Sheets
July 31, 2004 and 2003
ASSETS
2004 2003
---------- ----------
Current assets:
Cash and cash equivalents $ 218,000 $ 195,319
Accounts receivable, net of allowance for
doubtful accounts of $24,000 at July 31, 2004 3,070,875 1,965,511
Inventory 1,417,060 1,276,471
Income tax receivable 299,090 -
Deferred income tax asset 76,938 35,404
Due from related parties 37,972 550,167
---------- ----------
Total current assets 5,119,935 4,022,872
Property and equipment, net 1,766,312 2,347,237
Deferred income tax asset 48,687 204,182
Income tax receivable - 356,595
Other assets 53,866 79,044
---------- ----------
Total assets $ 6,988,800 $ 7,009,930
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit $ 910,000 $ 641,806
Accounts payable 1,755,133 1,709,774
Accrued expenses 303,349 310,369
Notes payable, current portion 261,957 479,290
---------- ----------
Total current liabilities 3,230,439 3,141,239
Notes payable, less current portion 52,990 262,755
Commitments (Note G)
Stockholder's Equity:
Common stock; $1.00 par value, 10,000 shares
authorized; 10,000 shares issued and outstanding 10,000 10,000
Additional paid-in capital 222,484 222,484
Retained earnings 3,472,887 3,373,452
---------- ----------
Total stockholder's equity 3,705,371 3,605,936
---------- ----------
Total liabilities and stockholder's equity $ 6,988,800 $ 7,009,930
========== ==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Statements of Operations
Years Ended July 31, 2004 and 2003
2004 2003
---------- ----------
Net sales $22,475,291 $19,794,422
Cost of good sold 18,885,311 18,494,055
---------- ----------
Gross profit 3,589,980 1,300,367
Selling, general and administrative expenses 3,438,285 2,735,463
---------- ----------
Operating income (loss) 151,695 (1,435,096)
Other income (expense)
Interest expense (68,974) (76,032)
Other 141,675 35,787
---------- ----------
Net income (loss) before provision
for income taxes 224,396 (1,475,341)
Provision for income taxes (124,961) 436,029
---------- ----------
Net income (loss) $ 99,435 $(1,039,312)
========== ==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Statement of Stockholder's Equity
Years Ended July 31, 2004 and 2003
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ -------- -------- ---------- ----------
Balance at July 31, 2002 10,000 $ 10,000 $ 52,484 $ 4,412,764 $ 4,475,248
Contribution from stockholder - - 170,000 - 170,000
Net loss - - - (1,039,312) (1,039,312)
------ -------- -------- ---------- ----------
Balance at July 31, 2003 10,000 10,000 222,484 3,373,452 3,605,936
Net income - - - 99,435 99,435
------ -------- -------- ---------- ----------
Balance at July 31, 2004 10,000 $ 10,000 $ 222,484 $ 3,472,887 $ 3,705,371
====== ======== ======== ========== ==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Statements of Cash Flows
Years Ended July 31, 2004 and 2003
2004 2003
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 99,435 $(1,039,312)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 810,668 861,792
Loss on disposal of property and equipment 2,500 304,325
Deferred tax expense 113,961 (153,335)
Changes in operating assets and liabilities:
Accounts receivable (1,105,364) 585,278
Inventories (140,589) (165,541)
Income tax receivable 57,505 (288,199)
Other assets 25,178 114,856
Accounts payable 45,359 (746,753)
Accrued expenses (7,020) 16,931
---------- ----------
Net cash used in operating activities (98,367) (509,958)
Cash flows from investing activities:
Purchases of property and equipment (88,292) (476,447)
---------- ----------
Cash flows from financing activities:
Net borrowings on line of credit 268,194 641,806
Proceeds from issuance of long-term debt - 575,000
Payments on long-term debt (571,049) (983,272)
Collections on advances to related party 512,195 216,000
Contribution from stockholder - 170,000
---------- ----------
Net cash provided by financing activities 209,340 619,534
---------- ----------
Net increase (decrease) in cash and cash equivalents 22,681 (366,871)
Cash and cash equivalents at beginning of year 195,319 562,190
---------- ----------
Cash and cash equivalents at end of year $ 218,000 $ 195,319
========== ==========
Supplementary disclosure of cash flow information:
Interest paid $ 68,974 $ 143,509
========== ==========
Income taxes paid (refunded) $ (57,505) $ -
========== ==========
Summary of non-cash items:
Property and equipment purchased with debt $ 143,951 $ 76,032
========== ==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Notes to Financial Statements
July 31, 2004 and 2003
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
----------------------------------
Best Circuit Boards, Inc. (the "Company") was incorporated in the State
of Texas on December 20, 1994. The Company provides electronic contract
manufacturing services to original equipment manufacturers ("OEM's") for
various industries and has customers located throughout the United States.
Use of Estimates and Assumptions
--------------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect 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. Actual results could
differ from these estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The Company does
not have any cash equivalents at December 31, 2003.
Accounts Receivable
-------------------
Trade accounts receivable are stated at the amount the Company expects
to collect. The Company maintains allowances for doubtful accounts
for estimated losses resulting from the inability of its customers to
make required payments. Management considers the following factors when
determining the collectibility of specific customer accounts: customer
credit-worthiness, past transaction history with the customer, current
economic industry trends, and changes in customer payment terms. If the
financial condition of the Company's customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances
would be required. Based on management's assessment, the Company provides
for estimated uncollectible amounts through a charge to earnings and a
credit to a valuation allowance. Balances that remain outstanding after the
Company has used reasonable collection efforts are written off through a
charge to the valuation allowance.
Inventories
-----------
Inventories are stated at the lower of cost or market (determined product by
product based on management's knowledge of current market conditions and
existing sales levels). Cost of raw materials is determined on a weighted
average basis; cost of work in process and finished goods is determined
using specific identification.
A provision for obsolete and slow-moving inventory is recorded based on
current inventory levels and historical and expected future sales levels.
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-
line method over the following estimated useful lives:
Plant machinery and equipment 5 - 7 years
Leasehold improvements 15 years
Computer software and equipment 5 years
Furniture and office equipment 5 - 7 years
Motor vehicles 5 years
Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.
Long-lived Assets
-----------------
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets might not be
recoverable. The Company does not perform a periodic assessment of assets
for impairment in the absence of such information or indicators. Conditions
that would necessitate an impairment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is
not recoverable. For long-lived assets to be held and used, the Company
recognizes an impairment loss only if an impairment is indicated by its
carrying value not being recoverable through undiscounted cash flows.
Impairment is recognized for the difference between the carrying amount and
the fair value of the asset, generally estimated using discounted cash
flows.
Revenue Recognition
-------------------
The Company recognizes revenue as products are shipped.
Shipping Costs
--------------
During the years ended July 31, 2004 and 2003, the Company incurred shipping
costs of approximately $105,000 and $154,000, respectively. These costs are
included in selling, general and administrative expenses in the statements
of operations.
Income Taxes
------------
Deferred income taxes are provided for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the asset and liability method, as prescribed by SFAS 109,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between financial statement carrying amounts and the
tax basis of existing assets and liabilities. Under the asset and liability
method, the effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date.
NOTE B - MAJOR CUSTOMERS, VENDORS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable
and cash and cash equivalents.
At July 31, 2004, four customers accounted for approximately 52% of the
Company's total accounts receivable and for the year ended July 31,
2004, one of these customers and an additional customer accounted for
approximately 40% of total net sales. At July 31, 2003, three customers
accounted for approximately 51% of the Company's total accounts receivable
and for the year ended July 31, 2003, one of these customers accounted for
approximately 36% of total net sales. The Company grants credit to its
customers without collateral. Management has evaluated accounts receivable
at July 31, 2004 and 2003 and has provided an allowance for estimated
uncollectible accounts. In the event of complete non-performance of accounts
receivable, the maximum exposure to the Company is the recorded amount on
the balance sheet.
Cash in bank accounts is at risk to the extent that it exceeds Federal
Deposit Insurance Corporation ("FDIC") insured amounts. To minimize risk,
the Company places its cash with high credit quality institutions.
For the year ended July 31, 2004, two vendors accounted for approximately
36% of the purchases of raw materials and one vendor accounted for
approximately 19% of the purchases of raw materials for the year ended July
31, 2003. Management believes there is not a concentration risk in that
other suppliers are capable of providing the needed materials if the current
vendors could not meet the Company's requirements.
NOTE C - INVENTORIES
Inventories consist of the following at July 31, 2004 and 2003:
2004 2003
---------- ----------
Raw materials $ 947,174 $ 630,168
Work in process 362,738 471,235
Finished goods 185,111 175,068
---------- ----------
1,495,023 1,276,471
Reserve for obsolete inventory (77,963) -
---------- ----------
$ 1,417,060 $ 1,276,471
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at July 31, 2004 and 2003:
2004 2003
---------- ----------
Plant machinery and equipment $ 5,371,334 $ 5,179,113
Leasehold improvements 470,707 470,707
Computer software and equipment 305,243 289,396
Furniture and office equipment 139,175 134,867
Motor vehicles 240,361 305,517
---------- ----------
6,526,820 6,379,600
Accumulated depreciation and amortization (4,760,508) (4,032,363)
---------- ----------
$ 1,766,312 $ 2,347,237
========== ==========
Depreciation and amortization expense totaled $810,668 and $861,792 for the
years ended July 31, 2004 and 2003, respectively.
NOTE E - LINE OF CREDIT
Effective August 26, 2003, the Company entered into a line of credit
agreement ("LOC") with a bank which provided for maximum borrowings of
$2,000,000, was due on demand, bore interest at the bank's prime rate plus
1% (5.5% at July 31, 2004) and matured October 15, 2004. At July 31, 2004,
$910,000 was outstanding under this LOC. As of November 24, 2004, the LOC
had not been renewed and remained due and payable. Interest on amounts
outstanding is payable monthly. The LOC is subject to certain financial and
other covenants, is collateralized by all of the Company's accounts
receivable and inventory, and is guaranteed by the majority stockholder.
At July 31, 2003, the Company had $641,806 outstanding under a line of
credit agreement with a bank. The balance and accrued interest was paid off
on August 29, 2003.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at July 31, 2004 and 2003:
2004 2003
---------- ----------
Note payable to bank, payable in monthly
installments of $17,450 including
interest at 5.75%, matures August 29,
2005, collateralized by equipment. $ 231,931 $ 422,356
Note payable to leasing company for
purchase of equipment, payable in
monthly installments of $10,268
including interest at 4.22%, matures
November 25, 2004, collateralized by
equipment. 50,183 -
Notes payable to vendors, payable in
monthly installments totaling $2,661
including interest from 4.22% to 9.25%,
maturing August 2004 through June 2008,
collateralized by equipment and a
vehicle. 32,833 41,657
Note payable to vendor for purchase of
equipment, payable in monthly
installments of $4,781 including
interest at 8%, paid off in advance of
maturity at June 30, 2005. - 115,185
Note payable to vendor for purchase of
equipment, payable in varying monthly
installments including interest at 8%,
matured in July 2004. - 110,800
Note payable to leasing company for
purchase of equipment, payable in
monthly installments of $8,884
including interest at 4.43%, matured
January 15, 2004. - 52,047
---------- ----------
314,947 742,045
Less current maturities of long-term debt 261,957 479,290
---------- ----------
Total long-term debt, less current maturities $ 52,990 $ 262,755
========== ==========
Future maturities of long-term debt are as follows:
2005 $ 261,957
2006 37,882
2007 7,883
2008 7,225
2009 -
--------
$ 314,947
========
NOTE G - COMMITMENTS
The Company leases certain office and warehouse facilities, vehicles and
office equipment under noncancellable operating lease agreements. The
office and warehouse facilities are leased from JACCO Investments, a related
party.
Future minimum lease commitments for the years ending July 31, are as
follows:
Related Party Other Total
------------- --------- ----------
2005 $ 900,000 $ 88,021 $ 988,021
2006 900,000 42,354 942,354
2007 900,000 26,055 926,055
2008 900,000 - 900,000
2009 900,000 - 900,000
Thereafter 6,085,000 - 6,085,000
---------- --------- ----------
$10,585,000 $ 156,430 $10,741,430
========== ========= ==========
For the years ended July 31, 2004 and 2003, vehicle lease expense was
$71,988 and $64,568, respectively. Equipment rental expense was $306,815
and $483,537 for the years ended July 31, 2004 and 2003, respectively. Rent
expense for facilities was $1,008,147 and $1,108,525 for the years ended
July 31, 2004 and 2003, respectively (see Note I - Related Party
Transactions).
The Company has guaranteed payment of mortgage notes owed by JACCO
Investments to financial institutions. At July 31, 2004, amounts owed by
JACCO Investments under mortgage note arrangements guaranteed by the Company
totaled $5,996,957. In the event that JACCO Investments defaults on any of
these respective loans, the Company would be required to make cash payments
equal to the unpaid principal portion of the mortgage notes plus all
accrued penalties and interest. The guarantees do not contain any recourse
provisions or collateral for the Company in the event that the guarantee
payments are made.
NOTE H - INCOME TAXES
The income tax provision for the years ended July 31, 2004 and 2003 consists
of the following:
2004 2003
-------- --------
Current expense (benefit) $ 11,000 $(282,694)
Deferred expense (benefit) 113,961 (153,335)
-------- --------
$ 124,961 $(436,029)
======== ========
Significant temporary differences used in the computation of deferred taxes
are as follows:
2004 2003
-------- --------
Deferred tax assets, current
Accrued vacation $ 39,172 $ 32,368
Allowance for bad debt 8,943 -
Inventory allowance 28,823 -
Contributions carryforward - 3,036
-------- --------
$ 76,938 $ 35,404
======== ========
Deferred tax assets
(liabilities), non-current
Depreciation $ (91,218) $(126,708)
Net operating loss carryforwards 139,905 330,890
-------- --------
$ 48,687 $ 204,182
======== ========
The following table provides a reconciliation of the difference between the
statutory federal income tax rate and the Company's effective income tax
rate for the years ended July 31, 2004 and 2003:
2004 2003
-------- --------
Statutory federal tax rate 34% (34%)
Items permanently not deductible 19% 7%
State income taxes,
net of federal tax benefit 3% (3%)
-------- --------
56% (30%)
======== ========
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the existence of, or generation of, taxable income
in the periods during which those temporary differences are deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon historical taxable income and projections of future
taxable income over the periods which the deferred tax assets are
deductible, management does not believe a valuation allowance is necessary
as of July 31, 2004.
At July 31, 2004, the Company has available approximately $406,000 of net
operating loss carryforwards that expire in 2024.
NOTE I - RELATED PARTY TRANSACTIONS
At July 31, 2004, the general partner of the Family Limited Partnership
("FLP"), which owns 100% of the outstanding shares of the stock of the
Company, owes the Company $37,972.
At July 31, 2003, JACCO Investments, a company owned by the general partner
of the FLP, owed the Company $550,167. During the fiscal year ended July
31, 2004, the receivable was paid off by cash receipts of approximately
$200,000 and through an offset to professional fees approximating $350,000
for management services provided by JACCO Investments.
For the years ended July 31, 2004 and 2003, the Company incurred fees
totaling $1,168,167 and $569,000, respectively, to JACCO Investments for
management services. At July 31, 2004 and 2003, the Company did not owe
JACCO Investments any fees related to these management services.
The Company leases both of its operating facilities from JACCO Investments.
For the years ended July 31, 2004 and 2003, the Company incurred lease
expense totaling $1,008,147 and $1,108,525, respectively, related to these
operating leases (See Note G - Commitments).
The general partner of the FLP and an employee of the Company each own a 50%
interest in Dowtech, Inc. The employee developed an automated process to
test circuit boards, and the Company has incurred approximately $43,000 in
legal expenses on behalf of Dowtech related to the procurement of a patent
on the process. The Company has billed Dowtech for these expenses, and
has entered into an agreement dated April 6, 2004 which makes Dowtech
responsible for the repayment of these legal expenses. The agreement also
provides the Company with certain rights to use the automated testing
process in exchange for the payment of royalties to Dowtech. Terms of the
agreement permit the Company to offset royalty payments against the amounts
billed for legal fees. During 2004, the Company had incurred approximately
$15,000 for royalty expenses which have been offset against the receivable
from Dowtech. At July 31, 2004, Dowtech owed the Company $28,805.
NOTE J - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") with a 401(k)
provision. Eligible employees can make contributions to the Plan; Company
contributions are discretionary. During the years ended July 31, 2004 and
2003, the Company contributed $13,268 and $19,016, respectively.
NOTE K - SUBSEQUENT EVENTS
On November 24, 2004, the Company merged into a wholly owned subsidiary of
Integrated Performance Systems, Inc. ("IPS"), a publicly-traded company. As
a result of the merger, the Company's sole shareholder controls IPS through
a majority voting interest.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Financial Statements
October 31, 2004
(Unaudited)
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Balance Sheet
October 31, 2004
(Unaudited)
Assets
Current assets
Cash and equivalents $ 309,230
Accounts receivable, net 3,771,287
Other receivables 6,996
Inventories 1,337,507
Due from Integrated Performance Systems, Inc. 100,000
Deferred income tax asset 211,749
Income tax receivable 299,090
----------
Total current assets 6,035,859
Property and equipment
Fixed assets 6,567,838
Accumulated depreciation (4,946,261)
----------
Total property and equipment 1,621,577
Other assets
Cash surrender value of officers life insurance 65,117
Deferred acquisition costs 148,869
Other 2,982
----------
Total other assets 216,968
----------
Total assets $ 7,874,404
==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Balance Sheet
October 31, 2004
(Unaudited)
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 2,138,331
Accrued expenses 482,258
Line of credit 1,010,000
Notes payable, current portion 190,669
----------
Total current liabilities 3,821,258
Long-term liabilities
Notes payable 18,396
Deferred income taxes 178,760
----------
Total long-term liabilities 197,156
----------
Total liabilities 4,018,414
----------
Stockholder's equity
Common stock; $1.00 par value, 10,000 shares
authorized, issued and outstanding 10,000
Additional paid-in capital 222,484
Retained earnings 3,623,506
----------
Total stockholder's equity 3,855,990
----------
Total liabilities and stockholder's equity $ 7,874,404
==========
The accompanying notes are an integral part of this financial statement.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Statements of Income
(Unaudited)
Three Months Ended
-------------------------
October 31, October 31,
2004 2003
---------- ----------
Net sales $ 6,752,286 $ 4,615,382
Cost of goods sold 5,651,399 3,878,305
---------- ----------
Gross profit 1,100,887 737,077
Selling, general and administrative expenses 854,716 777,757
---------- ----------
Operating income (loss) 246,171 (40,680)
Other income (expense):
Other income 14,315 15,361
Interest expense (17,231) (23,492)
---------- ----------
Total other income (expense) (2,916) (8,131)
---------- ----------
Income (loss) before provision for income taxes 243,255 (48,811)
Provision for income taxes 92,636 (4,612)
---------- ----------
Net income (loss) $ 150,619 $ (44,199)
========== ==========
The accompanying notes are an integral part of these financial statements.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Statements of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
October 31, October 31,
2004 2003
---------- ----------
Cash flow from operating activities:
Net income (loss) $ 150,619 $ (44,199)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 185,753 202,121
Deferred income tax expense (benefit) 92,636 (4,612)
(Increase) decrease in cash surrender (14,233) 8,007
value of officers life insurance
Changes in operating assets and liabilities:
Increase in accounts receivable (706,485) (173,558)
Increase in other receivable (923) -
Decrease (increase) in inventory 79,553 (194,364)
Increase in accounts payable 383,198 41,401
Increase (decrease) in accrued expenses 178,909 (19,362)
---------- ----------
Total adjustments to reconcile net income 198,408 (140,367)
---------- ----------
Net cash provided by (used in) operating
activities 349,027 (184,566)
Cash flows from investing activities:
Capitalized merger and acquisition costs (148,869) -
Advances to Integrated Performance Systems, Inc. (100,000) -
Purchases of property and equipment (41,018) (26,868)
---------- ----------
Net cash used in investing activities (289,887) (26,868)
Cash flows from financing activities:
Collections on advances to related party 37,972 200,000
Increase in line of credit 100,000 58,194
Payments on notes payable (105,882) (171,612)
---------- ----------
Net cash provided by financing activities 32,090 86,582
---------- ----------
Net increase (decrease) in cash 91,230 (124,852)
Cash at the beginning of the year 218,000 195,319
---------- ----------
Cash at the end of the year $ 309,230 $ 70,467
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for the following:
Interest $ 17,231 $ 23,492
========== ==========
The accompanying notes are an integral part of these financial statements.
BEST CIRCUIT BOARDS, INC.
(dba Lone Star Circuits)
Notes to Financial Statements
NOTE 1 - BASIS OF PRESENTATION
UNAUDITED FINANCIAL INFORMATION
The unaudited financial statements have been prepared by Best Circuit
Boards, Inc., dba Lone Star Circuits ("the Company"), 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 of America,
although the Company believes that the accompanying disclosures are adequate
to make the information presented not misleading. Results of operations
for the three-month period ended October 31, 2004, are not necessarily
indicative of the results that may be expected for the year ending July 31,
2005.
These financial statements should be read in conjunction with the financial
statements and notes thereto contained in the audited financial statements
for the years ended July 31, 2004 and 2003, respectively.
NOTE 2 - DUE FROM INTEGRATED PERFORMANCE SYSTEMS, INC.
The amount due from Integrated Performance Systems, Inc. represents an
advance made to a subsidiary of Integrated Performance Systems, Inc. during
the three months ended October 31, 2004.
NOTE 3 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
At October 31, 2004, four customers accounted for approximately 57% of the
total accounts receivable and for the three months ended October 31, 2004
these four customers accounted for approximately 50% of total net revenue.
NOTE 4 - SUBSEQUENT EVENTS
On November 24, 2004, the Company merged into a wholly owned subsidiary of
Integrated Performance Systems, Inc., (IPS), a publicly-traded company. As
a result of the merger, the Company's sole shareholder controls IPS through
a majority voting interest.
As of January 31, 2005 the Company had increased borrowings under its line
of credit by approximately $845,000. The line of credit has been extended
until March 1, 2005.
Integrated Performance Systems, Inc
Unaudited Combined Pro Forma Condensed Financial Statements
Basis of presentation
The unaudited combined pro forma condensed financial information set forth
below gives effect to the merger of Integrated Performance Systems, Inc.
(IPS) and Best Circuits Boards, Inc. dba Lone Star Circuits (LSC) as if it
had been completed on August 1, 2003, for the purposes of the statements of
operations, and as if it had been completed on October 31, 2004, for balance
sheet purposes. The unaudited combined pro forma condensed financial
statements are derived from the historical financial statements of IPS and
LSC.
The acquisition will be accounted for under the purchase method of
accounting and LSC has been determined to be the accounting acquirer.
Accordingly, a new basis will be established for IPS's assets and
liabilities based upon the fair values thereof and the IPS's purchase price,
including costs of the acquisition. The purchase accounting adjustments
made in connection with the development of the unaudited combined pro forma
condensed financial statements are preliminary and have been made solely for
the purposes of developing such pro forma financial information and are
based upon the assumptions described in the notes hereto. The pro forma
adjustments do not reflect any operating efficiencies and cost savings that
may be achieved with respect to the combined companies nor any adjustments
to expenses for any future operating changes. IPS may incur integration-
related expenses not reflected in the pro forma financial statements such
as the elimination of duplicate facilities, operational realignment and
workforce reductions. The following unaudited combined pro forma condensed
financial information is not necessarily indicative of the financial
position or operating results that would have occurred had the acquisition
been completed on the dates discussed above.
IPS is unaware of events, other than those disclosed in the accompanying
notes, that would require a material change to the preliminary purchase
price allocation. However, a final determination of the required purchase
accounting adjustments will be made within periods prescribed in accordance
with generally accepted accounting principles. The actual financial
position and results of operations will differ, perhaps significantly, from
the pro forma amounts reflected herein because of a variety of factors,
including access to additional information, changes in value not currently
identified and changes in operating results between the dates of the pro
forma financial information and the date on which the acquisition took
place.
Integrated Performance Systems, Inc
Unaudited Combined Pro Forma Condensed Balance Sheets
October 31, 2004
Note 1
Historical
----------------------------
Best Circuit
Integrated Boards, Inc.
Performance (dba Lone Pro Forma
Systems, Inc. Star Circuits) Adjustments Notes Total
Assets ---------- ---------- ---------- ----- ----------
Current assets
Cash $ 65,919 $ 309,230 $ - $ 375,149
Restricted cash 40,000 - - 40,000
Accounts receivable 796,796 3,771,287 - 4,568,083
Inventory 480,272 1,337,507 - 1,817,779
Other receivables 25,357 306,086 - 331,443
Other current assets 29,114 100,000 - 129,114
Deferred income taxes - 211,749 - 211,749
---------- ---------- ---------- ----------
Total Current Assets 1,437,458 6,035,859 - 7,473,317
Property and equipment, net 885,391 1,621,577 - 2,506,968
Other assets
Customer base - - 5,237,755 4 5,237,755
Goodwill - - 7,163,982 4 7,163,982
Other 46,427 216,968 (148,869) 4 114,526
---------- ---------- ---------- ----------
Total other assets 46,427 216,968 12,252,868 12,516,263
---------- ---------- ---------- ----------
Total assets $ 2,369,276 $ 7,874,404 $12,252,868 $22,496,548
========== ========== ========== ==========
See accompanying notes to unaudited combined pro forma condensed financial statements.
Integrated Performance Systems, Inc.
Unaudited Combined Pro Forma Condensed Balance Sheets (Continued)
October 31, 2004
Note 1
Historical
----------------------------
Best Circuit
Integrated Boards, Inc.
Performance (dba Lone Pro Forma
Liabilities and Systems, Inc. Star Circuits) Adjustments Notes Total
stockholder's equity ---------- ---------- ---------- ----- ----------
Current liabilities
Accounts payable $ 843,959 $ 2,138,331 $ (464,638) 2 $ 2,517,652
Accrued expenses 2,142,890 482,258 (1,094,471) 2, 3 1,530,677
Short-term debt 1,880,181 1,010,000 (712,393) 3 2,177,788
Due to related party 901,173 - (901,173) 3 -
Notes payable to related party - - 3,200,000 5 3,200,000
Current maturities of
long-term debt - 190,669 - 190,669
---------- ---------- ---------- ----------
Total current liabilities 5,768,203 3,821,258 27,325 9,616,786
Long-term liabilities
Long-term debt 50,000 18,396 (50,000) 3 18,396
Deferred taxes - 178,760 1,704,150 4 1,882,910
Note payable to related party - - 1,000,000 5 1,000,000
---------- ---------- ---------- ----------
Total long-term liabilities 50,000 197,156 2,654,150 2,901,306
---------- ---------- ---------- ----------
Total liabilities 5,818,203 4,018,414 2,681,475 12,518,092
Stockholders' equity
Preferred stock Series A 39 - (39) 3 -
Preferred stock Series B 10 - (10) 3 -
Preferred stock Series C 91 - (91) 3 -
Preferred stock Series D 7 - (7) 3 -
Preferred stock Series F - - 1,930 4 1,930
Common stock 182,662 10,000 472,710 3 665,372
2, 3, -
Additional paid-in capital 14,595,489 222,484 (9,130,325) 4, 5, 5,687,648
Retained earnings (18,227,225) 3,623,506 18,227,225 3,623,506
---------- ---------- ---------- ----------
Total stockholders' equity (3,448,927) 3,855,990 9,571,393 9,978,456
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $ 2,369,276 $ 7,874,404 $12,252,868 $22,496,548
========== ========== ========== ==========
See accompanying notes to unaudited combined pro forma condensed financial statements.
Integrated Performance Systems, Inc.
Unaudited Combined Pro Forma Condensed Statements of Operations
Three Months ended October 31, 2004
Note 1
Historical
----------------------------
Best Circuit
Integrated Boards, Inc.
Performance (dba Lone Pro Forma
Systems, Inc. Star Circuits) Adjustments Notes Total
---------- ---------- ---------- ----- ----------
Net revenue $ 1,857,914 $ 6,752,286 $ - $ 8,610,200
Cost of goods sold 1,493,235 5,651,399 - 7,144,634
---------- ---------- ---------- ----------
Gross profit 364,679 1,100,887 - 1,465,566
Selling, general and
administrative expenses
Selling, general and
administrative 495,339 854,716 - 1,350,055
Amortization of intangibles - - 163,680 4 163,680
---------- ---------- ---------- ----------
Total selling, general and
administrative expenses 495,339 854,716 163,680 1,513,735
---------- ---------- ---------- ----------
Operating income (loss) (130,660) 246,171 (163,680) (48,169)
Other income (expense): (105,885) (2,916) (15,814) 3, 5 (124,615)
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes (236,545) 243,255 (179,494) (172,784)
Provision for income taxes - 92,636 - 92,636
---------- ---------- ---------- ----------
Net income (loss) $ (236,545) $ 150,619 $ (179,494) $ (265,420)
========== ========== ========== ==========
Preferred stock dividends (416,400) - 416,400 -
---------- ---------- ---------- ----------
Net income (loss) available
to common stockholders $ (652,945) $ 150,619 $ 236,906 $ (265,420)
========== ========== ========== ==========
Net income (loss) per share:
Basic $ (0.04) - - $ (0.00)
Fully diluted $ (0.04) - - $ (0.00)
Weighted average shares
outstanding
Basic 18,006,660 - 48,530,540 3 66,537,200
Fully diluted 18,006,660 - 241,530,540 6 259,537,200
See accompanying notes to unaudited combined pro forma condensed financial statements.
Integrated Performance Systems, Inc.
Unaudited Combined Pro Forma Condensed Statements of Operations
Year Ended July 31, 2004
Note 1
Historical
----------------------------
Best Circuit
Integrated Boards, Inc.
Performance (dba Lone Pro Forma
Systems, Inc. Star Circuits) Adjustments Notes Total
---------- ---------- ---------- ----- ----------
Net revenue $ 5,844,438 $22,475,291 $ - $28,319,729
Cost of goods sold 5,969,835 18,885,311 - 24,855,146
---------- ---------- ---------- ----------
Gross profit (125,397) 3,589,980 - 3,464,583
Selling, general and
administrative expenses
Selling, general and
administrative 2,824,719 3,438,285 - 6,263,004
Impairment expense 1,710,472 - - 1,710,472
Amortization of intangibles - - 654,719 4 654,719
---------- ---------- ---------- ----------
Total selling, general and
administrative expenses 4,535,191 3,438,285 654,719 8,628,195
---------- ---------- ---------- ----------
Operating income (loss) (4,660,588) 151,695 (654,719) (5,163,612)
Other income (expense): 479,442 72,701 (63,256) 3, 5 488,887
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes (4,181,146) 224,396 (717,975) (4,674,725)
Provision for income taxes - 124,961 - 124,961
---------- ---------- ---------- ----------
Net income (loss) $(4,181,146) $ 99,435 $ (717,975) $(4,799,686)
========== ========== ========== ==========
Preferred stock dividends (1,733,528) - 1,733,528 -
---------- ---------- ---------- ----------
Net income (loss) available
to common shareholders $(5,914,674) $ 99,435 $ 1,015,553 $(4,799,686)
========== ========== ========== ==========
Net income (loss) per share:
Basic $ (0.36) - - $ (0.07)
Fully diluted $ (0.36) - - $ (0.02)
Weighted average shares
outstanding
Basic 16,479,755 - 48,530,540 3 65,010,295
Fully diluted 16,479,755 - 241,530,540 6 258,010,295
See accompanying notes to unaudited combined pro forma condensed financial statements.
Integrated Performance Systems, Inc.
Notes to Unaudited Combined Pro Forma Condensed financial Statements
Note (1) Basis of presentation. On November 24, 2004 Integrated Performance
Systems, Inc. ("IPS") consummated a merger transaction with Best Circuit
Boards, Inc. dba Lone Star Circuits ("LSC"). The unaudited combined pro
forma condensed financial statements give effect to the merger of IPS and
LSC as if it had been completed on August 1, 2003, for the purposes of
the statements of operations, and as if it had been completed on October
31, 2004, for balance sheet purposes. The unaudited combined pro forma
condensed financial statements are derived from the historical financial
statements of IPS and LSC. The balance sheets included in the unaudited
combined pro forma condensed financial statements are as of August 31, 2004
for IPS and as of July 31, 2004 for LSC. Further, for comparative pro forma
presentation, the IPS results of operations for the year ended August 31,
2004 has been combined with the LSC results of operations for the year ended
July 31, 2004 and the IPS results of operations for the three months ended
August 31, 2004 have been combined with the LSC results of operations for
the three months ended October 31, 2004. The IPS results of operations for
the three months ended August 31, 2004 has been used, for comparative
purposes, in the unaudited combined pro forma condensed financial statements
for both the year and the three months ended October 31, 2004.
The acquisition will be accounted for under the purchase method of
accounting. As a result of the more than 50% change in IPS voting control,
LSC has been determined to be the accounting acquirer. Accordingly, a new
basis will be established for IPS's assets and liabilities based upon their
fair values. The purchase accounting adjustments made in connection with
the development of the unaudited combined pro forma condensed financial
statements are preliminary and have been made solely for the purposes of
developing such pro forma financial information and are based upon the
assumptions described in the notes hereto.
Note (2) In connection with the merger, Integrated Performance Business
Services Corp., an entity controlled by D. Ronald Allen, agreed to assume
certain liabilities of the Company. These liabilities consisted of accounts
payable totaling $464,638, and accrued expenses totaling $284,071. The
unaudited pro forma condensed financial statements give effect to the
assumption of liabilities by Integrated Performance Business Services Corp.
as part of the merger transaction.
Note (3) As a condition of the merger, prior to November 24, 2004, certain
related party and other debt and all Series A, B, C, and D Preferred Shares
were converted into 48,530,540 common shares of the Company. The unaudited
combined pro forma condensed financial statements give effect to this
reduction in debt and the accompanying interest expense.
Note (4) For accounting purposes, LSC has been determined to be the
acquirer, with IPS being the acquiree. Under the rules of accounting for
reverse acquisitions, the purchase price has been determined based upon the
fair value of IPS, the legal parent, on or around the date of the
transaction. The measurement date for the transaction has been determined
to be October 22, 2004, the date a substantially revised merger agreement
was signed and announced.
The purchase price is calculated as follows:
Number of common shares outstanding on October 22, 2004 30,229,959
Market price per share on or about October 22, 2004 $ 0.34
----------
10,278,186
Merger costs 148,869
----------
Total purchase price $10,427,055
==========
The pro forma purchase price is allocated to the fair value of the IPS
assets and liabilities as follows:
Fair value of tangible assets acquired $ 1,887,927
Customer base 5,237,755
Goodwill 7,163,982
Liabilities assumed (3,862,609)
----------
Total purchase price $10,427,055
==========
The merger was effected through the issuance of 193,000 shares of Series F
convertible, preferred stock, par value $0.01, in exchange for 100% of
the outstanding stock of LSC. On a pro forma basis goodwill and other
intangibles increased by $13,017,630 as a result of the merger. The
increase in intangibles of $5,237,755 was attributed to the value of
IPS's customer base. The customer base is being amortized over 8 years.
Amortization expense of $163,680 and $654,719 for the three months ended
October 31, 2004 and the year ended July 31, 2004, respectively, has been
included in the Unaudited Combined Pro Forma Condensed Statements of
Operations. Additionally, deferred income taxes have been provided for the
increase in customer base.
Pro forma adjustment to goodwill $ 7,163,982
==========
Pro forma adjustment to customer base $ 5,237,755
==========
Pro forma adjustment to Series F convertible preferred stock $ 1,930
==========
Pro forma adjustment to additional paid-in capital $10,276,256
==========
Deferred income tax liability $ 1,704,150
==========
Note (5) In connection with the merger transaction, IPS issued notes
payable in the amount of $4,200,000 to the former shareholder of LSC. One
of the notes has a face amount of $1,000,000 and matures on November 30,
2007 with the remainder maturing on February 28, 2005. The Unaudited
Combined Pro Forma Condensed Balance Sheets have been adjusted to reflect
the increased debt and reduced equity resulting from the issuance of the
notes. The notes bear interest at 8% per annum. The Unaudited Combined Pro
Forma Condensed Statements of Operations have been adjusted to reflect the
additional interest expense resulting from the notes, of $84,000 and
$336,000 for the quarter ended October 31, 2004 and the year ended July 31,
2004, respectively.
Note (6) In connection with the issuance of the preferred stock mentioned
in note 4 above, conversion was assumed on a pro forma basis and the
resulting 193,000,000 shares have been used in fully diluted earnings per
share calculations in the Unaudited Combined Pro Forma Condensed Financial
Statements.