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) FEBRUARY 6, 1997
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580 76-0289495
(State of other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
7135 ARDMORE HOUSTON, TEXAS 77054
(Address of principal executive office(Zip Code)
Registrant's telephone number, including area code(713) 747-1025
(Former name or former address, if changed since last report.)
1
<PAGE>
ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS
(a)FINANCIAL STATEMENTS OF ACQUIRED COMPANY.
1. Financial Statements of LSS-Lone Star-Houston, Inc.
Report of Independent Certified Public Accountants......... 4
Consolidated Balance Sheet at December 31, 1996............ 5
Consolidated Statement of Operations for the
Year Ended December 31, 1996........................... 7
Consolidated Statement of Stockholder's Equity..............8
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1996..................................... 9
Notes to Financial Statements............................. 10
(b)PRO FORMA FINANCIAL INFORMATION
1. Pro Forma Financial Statements:
Pro Forma Condensed Consolidated Financial
Statements (Unaudited)................................. 15
Pro Forma Condensed Consolidated Balance Sheet
at December 31, 1996 (Unaudited)....................... 16
Notes to Pro Forma Condensed Consolidated
Balance Sheet at December 31, 1996 (Unaudited)......... 17
Pro Forma Condensed Consolidated Statement
of Operations for the Year Ended December 31,
1996 (Unaudited)....................................... 18
Notes to Pro Forma Condensed Consolidated
Statements of Operations (Unaudited)................... 19
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
INDUSTRIAL HOLDINGS, INC.
By: /s/ CHRISTINE A. SMITH
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Date: April 18, 1997
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
January 31, 1997
The Board of Directors
LSS - Lone Star - Houston, Inc.
We have audited the accompanying consolidated balance sheets of LSS - Lone Star
- - Houston, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
year 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 audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit 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
audit provides a reasonable basis for our opinion.
We did not observe the physical inventory (stated at $684,455) taken as of
December 31, 1995, since that date was prior to our initial engagement as
auditors for the Company, and the Company's records do not permit adequate
retroactive tests of inventory quantities.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary in the statements of income, retained
earnings, and cash flows had we been able to observe the physical inventory
taken as of December 31, 1995, the financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of LSS - Lone Star - Houston, Inc. and Subsidiary at December 31, 1996,
and the consolidated results of its operations and its consolidated cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Simonton, Kutac & Barnidge, L.L.P.
4
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Current Assets:
Cash ................................................... $ 8,253
Accounts receivable - trade ............................ 1,713,434
Accounts receivable - employees ........................ 4,181
Inventories ............................................ 795,270
Prepaid expenses and other ............................. 13,870
-----------
Total Current Assets ............................. 2,535,008
Property and Equipment:
Land ................................................... 115,417
Building ............................................... 879,162
Machinery and equipment ................................ 1,227,854
Office furniture and equipment ......................... 214,697
-----------
2,437,130
Less: accumulated depreciation ........................ (921,285)
-----------
Total Property and Equipment ..................... 1,515,845
-----------
Other assets .............................................. 38,572
Total Assets ..................................... $ 4,089,425
===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $1,517,553
Accrued expenses ............................................ 290,478
Notes payable ............................................... 270,828
Current portion of long-term obligations .................... 278,049
----------
Total Current Liabilities ............................. 2,356,908
----------
Long-term obligations .......................................... 571,912
----------
Total Liabilities ..................................... 2,928,820
----------
Stockholders' Equity:
Common stock; $1.00 par value, 1,000
shares authorized, issued and outstanding ................... 1,000
Additional paid in capital .................................. 46,154
Retained earnings ........................................... 1,113,451
----------
Total Stockholders' Equity ............................ 1,160,605
----------
Total Liabilities and Stockholders' Equity ............ $4,089,425
==========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
Sales ...................................................... $ 15,473,896
Cost of sales .............................................. 9,497,757
------------
Gross Profit ...................................... 5,976,139
------------
Operating Expenses:
Warehouse and shop ...................................... 1,435,508
Selling expenses ........................................ 891,317
Delivery ................................................ 378,756
General and administrative .............................. 2,880,879
------------
Total Operating Expenses .......................... 5,586,460
------------
Net Operating Income ....................................... 389,679
------------
Other Income and (Expenses)
Other income ............................................ 1,518
Interest expense ........................................ (113,793)
Other expense ........................................... (922)
------------
Total Other Income and (Expenses) ................. (113,197)
------------
Net income before taxes .................................... 276,482
Provision for income taxes ................................. (90,000)
------------
Net income ................................................. $ 186,482
============
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ------- ---------- ----------
Balance, January 1, 1996 ....... $1,000 $46,154 $ 926,969 $ 974,123
Net income for the year ........ -- -- 186,482 186,482
------ ------- ---------- ----------
Balance, December 31, 1996 ..... $1,000 $46,154 $1,113,451 $1,160,605
====== ======= ========== ==========
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash Flows from Operating Activities:
Net income .................................................. $ 186,482
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation ............................................. 212,154
Investment write-off ..................................... 39,923
Increase in accounts receivable - trade .................. (152,669)
Increase in accounts receivable - employees .............. (3,433)
Decrease in prepaid expenses and other ................... 1,196
Increase in inventories .................................. (110,815)
Increase in other assets ................................. (11,137)
Increase in accounts payable ............................ 274,368
Decrease in accrued expenses ............................. (72,052)
---------
Total adjustments ..................................... 177,535
---------
Net Cash Provided from Operating Activities ........... 364,017
---------
Cash Flows from Investing Activities:
Capital expenditures ........................................ (415,324)
---------
Cash Flows from Financing Activities:
Principal payments on notes payable ......................... (27,500)
Borrowings on notes payable ................................. 141,347
Principal payments on long-term obligations ................. (564,912)
Borrowings on long-term obligations ......................... 504,559
---------
Net Cash Provided by Financing Activities ................ 53,494
---------
Net Increase in Cash & Cash Equivalents ........................ 2,187
Cash and cash equivalents at beginning of period ............... 6,066
---------
Cash and cash equivalents at end of period ..................... $ 8,253
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year .................................. $ 113,793
---------
Income tax paid during the year ................................ $ 85,000
=========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LSS-Lone Star-Houston, Inc. and subsidiary (the Company) is a manufacturer and
distributor of quality fasteners. The Company extends credit to customers
located in Harris and surrounding counties, Texas.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION -- The accompanying financial statements include the
accounts of LSS-Lone Star- Houston, Inc. and its wholly-owned subsidiary, Amflow
Master Environmental, Inc. All intercompany transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid short-term
investments with a maturity of ninety days or less from the purchase date to be
cash equivalents.
ACCOUNTS RECEIVABLE -- The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required. If
amounts become uncollectible, they will be charged to operations when that
determination is made.
INVENTORIES -- Inventories consist of raw materials and finished goods.
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Raw materials and finished goods amounted to $117,343 and $677,927 at
December 31, 1996.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at
cost. Depreciation is provided in amounts sufficient to relate to cost of
depreciable assets to operations over their estimated service lives on an
accelerated method.
INCOME TAXES -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. When management determines that its more likely than not
that a deferred tax asset will not be realized, a valuation allowance is
established. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
10
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES -- In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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 those estimates.
NOTE 2 - NOTES PAYABLE
The Company has a line of credit agreement with a bank with monthly interest at
prime plus 1% (9.25% at December 31, 1996) providing for maximum borrowings of
$325,000, collateralized by substantially all assets of the Company. Principal
advances are due at maturity. The line of credit matures on May 1, 1997.
NOTE 3 - LONG-TERM OBLIGATIONS
Long-term obligations consists of the following:
Note payable to a bank; due in monthly installments
of $5,480, plus interest at prime plus 1.5% (9.75%
at December 31, 1996) due April 25, 1997;
collateralized by substantially all assets of the Company ........ $ 21,920
Notes payable to a bank; due in monthly installments of
$8,333, plus interest at prime plus 1% (9.25% at
December 31, 1996) due May 1, 1998; collateralized
by substantially all assets of the Company ....................... 141,667
Notes payable to a bank; due in monthly installments of
$4,167, plus interest at 9.25%, due April 19, 2001;
collateralized by substantially all assets of the
Company .......................................................... 196,225
Note payable to a bank; due in monthly installments
of $5,000, plus interest at prime plus 1% (9.25%
at December 31, 1996), due January 16, 1997,
collateralized by substantially all assets of the
Company .......................................................... 5,000
11
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - LONG-TERM OBLIGATIONS (CONTINUED)
Note payable to a finance company; due in monthly
installments of $9,449, including interest at 10%,
due April 1, 2002; collateralized by land and building............ 439,774
Obligations under capital leases, due in monthly installments
ranging from $705 to $1,191, including interest at various
rates; collateralized by the related assets ...................... 45,375
--------
849,961
Less: current portion .............................................. 278,049
--------
$571,912
========
Approximate future maturities of long-term obligations as of
December 31, 1996 are as follows:
FOR THE YEAR ENDED
DECEMBER 31, AMOUNT
- ------------------ --------
1997 ............................................... $278,049
1998 ............................................... 182,833
1999 ............................................... 135,191
2000 ............................................... 140,336
2001 ............................................... 103,112
Thereafter ............................................ 10,440
--------
$849,961
========
NOTE 4 - CAPITAL LEASES
The Company is the leasee of certain equipment under capital leases expiring in
various years through November 20, 1998. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are depreciated over
the lower of the related lease terms or their estimated productive lives.
Depreciation of assets under capital lease is included in depreciation expense
for 1996.
12
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 4 - CAPITAL LEASES (CONTINUED)
Following is a summary of equipment held under capital leases:
Machinery and equipment $ 75,672
Office furniture and equipment 36,660
----------
112,332
Less: accumulated depreciation (56,250)
----------
$ 56,082
==========
Future minimum lease payments under capital leases as of December 31, 1996 are
as follows:
For the Year Ended
DECEMBER 31, AMOUNT
------------------ ----------
1997 $ 36,220
1998 14,614
---------
Total minimum lease payments 50,834
Less amount representing interest (5,459)
---------
Present value of net minimum lease payments $ 45,375
=========
Interest rates on capitalized leases vary and are imputed based on the lower of
the Company's incremental borrowing rate at the inception of each lease or the
lessor's implicit rate of return.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Outstanding letters of credit at December 31, 1996 are approximately $150,000.
NOTE 6 - INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
Currently payable $ 90,000
Deferred --
Total $ 90,000
========
13
<PAGE>
LSS - LONE STAR - HOUSTON, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - INCOME TAXES (CONTINUED)
A reconciliation of income taxes computed at the statutory Federal income tax
rate and income taxes reported in the statements of earnings follows:
Tax at statutory rate ..................................... $ 94,000
Graduated tax rates ....................................... (3,000)
Other ..................................................... (1,000)
--------
Total provision (benefit) ............................... $ 90,000
========
NOTE 7 - SIGNIFICANT CUSTOMERS
The Company had sales to one customer representing 11.5% of total sales in 1996.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company leases certain delivery trucks recorded as capital leases from the
sole stockholder of the Company. During the year ended December 31, 1996,
rentals under long-term lease obligations were $18,751.
The Company has an outstanding balance of $1,251 due from the sole stockholder
at December 31, 1996.
NOTE 9 - SAVINGS PLAN
The Company has an employee tax-deferred savings plan (under Section 401(k) of
the Internal Revenue Code) available to all full-time employees who have been
employed by the Company one year and are at least 21 years old. Employees may
contribute up to 10% of their earnings and the Company may make matching
discretionary contributions. The Company's contribution's paid or accrued to the
plan was approximately $87,000 for the year ended December 31, 1996.
14
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to the
acquisition by Industrial Holdings, Inc. ("IHI") of LSS-Lone Star-Houston, Inc.
("Lone Star") in a transaction accounted for as a purchase which closed January
1997. The allocation of purchase price is based on preliminary information
currently available and will be revised as necessary prior to the issuance of
the 1997 financial statements, although no material adjustments are anticipated.
The unaudited pro forma condensed consolidated balance sheet is based on
the December 31, 1996 balance sheets of IHI included in the financial statements
of IHI filed in the 1996 Annual Report filed on Form 10-K and the financial
statements of Lone Star appearing elsewhere in this Form 8-K, and has been
prepared to reflect the acquisition of Lone Star as if the acquisition had
occurred at December 31, 1996. The acquisition of American Rivet Company, Inc.
("American") was completed in November 1996 and its balance sheet as of December
31, 1996 is included in that of IHI.
The unaudited pro forma condensed consolidated statements of operations
are based on the income statements of IHI in the 1996 Annual Report filed on
Form 10-K, the statement of operations for Lone Star for the year ended December
31, 1996 appearing elsewhere in this Form 8-K and the income statement of
American for the 10-month period ended October 31, 1996 (not presented
separately herein). The unaudited pro forma condensed consolidated statements of
operations combine the results of operations of IHI, Lone Star and American for
the year ended December 31, 1996, as if the acquisitions had occurred on January
1, 1996.
These unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and notes thereto of IHI in
the 1996 Annual Report filed on Form 10-K and the financial statements of
American filed with Form 8-K/A dated November 18, 1996 and Lone Star included
elsewhere in this Form 8-K.
15
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ -------------------------
ADJUSTMENTS
IHI LONE STAR (NOTE 1) COMBINED
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............ $ 3,088 $ 8 $(1,818)(a) $ 1,278
Accounts receivable-trade ....... 6,756 1,713 (100)(b) 8,369
Inventories ..................... 9,970 795 -- 10,765
Advances to shareholders ........ 77 -- -- 77
Notes receivable, current portion 208 -- -- 208
Other current assets ............ 334 18 -- 352
------- ------- ------- -------
Total current assets ....... 20,433 2,534 (1,918) 21,049
Property and equipment, net ......... 15,580 1,516 1,038 (b) 18,134
Notes receivable .................... 1,464 -- -- 1,464
Other assets ........................ 715 39 -- 754
Goodwill, net ....................... 5,498 -- 3,158 (c) 8,656
------- ------- ------- -------
Total assets ............... $43,690 $ 4,089 $ 2,278 $50,057
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ................... $ 9,616 $ 271 $ (271)(d) $11,016
1,400 (a)
Accounts payable-trade .......... 4,601 1,518 -- 6,119
Accrued expenses and other ...... 1,722 290 28 (a) 2,040
Current portion of long-term
debt ..................... 1,394 278 (278)(d) 1,714
320 (a)
------- ------- ------- -------
Total current liabilities ....... 17,333 2,357 1,199 20,889
Long-term debt, less current
portion ......................... 7,326 572 (572)(d) 9,206
1,880 (a)
Deferred compensation payable ....... 286 -- -- 286
Deferred income taxes payable ....... 2,191 -- 325 (e) 2,516
------- ------- ------- -------
Total liabilities .......... 27,136 2,929 2,832 32,897
Shareholders' equity
Common stock .................... 48 1 (1)(f) 49
1 (g)
Additional paid-in capital ...... 15,361 46 (46)(f) 15,966
605 (g)
Retained earnings ............... 1,145 1,113 (1,113)(f) 1,145
------- ------- ------- -------
Total shareholders' equity . 16,554 1,160 (554) 17,160
------- ------- ------- -------
Total liabilities and shareholders .. s 43,690 $ 4,089 $ 2,278 $50,057
======= ======= ======= =======
</TABLE>
16
<PAGE>
Note 1 - The pro forma balance sheet reflects the acquisition of Lone Star for a
purchase price of $6,080,000 including estimated acquisition expenses of
$382,000. Pro forma adjustments are made to:
a. Record the payment of cash, the drawdown of $1,400,000 on the 8.25%
Comerica Bank demand note, the issuance of 8.25% term notes in the
amount of $900,000 and $800,000 secured by real estate and equipment,
respectively, the issuance of an 8% $500,000 term note payable to the
selling shareholder and accrual of unpaid transaction expenses.
b. Adjust the assets and liabilities of Lone Star to the estimated fair
market values at the acquisition date.
c. Record goodwill on the purchase of Lone Star.
d. Record the repayment of Lone Star debt.
e. Establish a net deferred income tax liability for deferred income taxes
applicable to differences in fair market values and book bases of assets
acquired and liabilities assumed in b. above.
f. Eliminate the common stock, additional paid-in capital and retained
earnings of Lone Star.
g. Record the payment of 84,211 shares of IHI common stock to the selling
shareholder.
17
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
HISTORICAL ACQUISITION ADJUSTMENTS (NOTE 1)
-------------------------------- ------------------------------------
IHI LONE STAR AMERICAN LONE STAR AMERICAN COMBINED
-------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales .................... $ 51,423 $ 15,474 $ 7,699 $ 74,596
Cost of sales ............ 40,849 9,498 5,930 $ 15 (c) (14)
2,163 (b) 58,298
(a) (142)
-------- -------- ------- ------- -------- --------
Gross profit ............. 10,574 5,976 1,769 (2,178) (156) 16,298
Operating expenses ....... 8,002 5,587 1,355 (392)(a) (479) 12,201
(2,163)(b)
161 (c) 132
-------- -------- ------- ------- -------- --------
Income from operations ... 2,572 389 414 217 504 4,096
Other income (expense):
Interest expense ...... (1,336) (114) (183)(d) (431) (1,881)
Interest income ....... 160 79 (e) (79) 160
Other income (expense) 139 1 (89) (1)(e) 89 140
-------- -------- ------- ------- -------- --------
Total other income
(expense) ........ (1,037) (113) (10) (184) (422) (1,582)
-------- -------- ------- ------- -------- --------
Income before income taxes 1,535 276 404 33 82 2,515
Income tax expense ....... 408 90 181 15 (f) 37 716
-------- -------- ------- ------- -------- --------
Net income ............... $ 1,127 $ 186 $ 223 $ 18 $ 45 $ 1,799
======== ======== ======= ======= ======== ========
Earnings per share (g) ... $ .26 $ .36
======== ========
</TABLE>
18
<PAGE>
Note 1 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition and the issuance of debt related to the
acquisition outlined in Note 1 to the pro forma balance sheet:
a. Reduce cost of sales and selling, general and administrative expenses
for reductions in executive payrolls, reductions in professional fees,
elimination of directors fees, reduction in executive benefits,
elimination of profit sharing plan contributions and elimination of
expenses related to Florida real estate.
b. Reclassify amounts from selling general and administrative expenses to
cost of sales.
c. Adjust depreciation and amortization expense for changes resulting from
(i) the increase in acquired property, plant and equipment as a result
of the allocation of the purchase price and (ii) amortization of
acquired goodwill over 20 years.
d. Adjust interest expense (i) for Lone Star on $1,700,000 of 8.25% term
debt, $1,400,000 8.25% Comerica Bank demand note and 8% $500,000 term
note payable to seller and (ii) for American on $1,800,000 of 8.25% term
debt, $3,712,000 8.25% Comerica Bank demand note, 12% $3,500,000 bridge
note and $3,600,000 reduction in short term borrowings as a result of
application of net proceeds from the exercise of 621,914 Class A
Warrants.
e. Eliminate interest income and other income.
f. Increase in income taxes as a result of the pro forma pretax earnings of
Lone Star and American.
g. Increase in earnings per share as a result of pro forma earnings of Lone
Star and American and increase in weighted average of common stock
equivalents (i) for Lone Star for the effect of 84,211 shares of IHI
common stock issued to selling shareholder, (ii) for American for the
effect of 540,000 warrants, and (iii) the issuance of 621,914 shares of
common stock and the related common stock equivalents for the additional
incentive warrants issued in connection with the exercise of Class A
Warrants.
19
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Current Report on Form 8-K of our report dated
January 31, 1997 relating to the consolidated balance sheet of LSS - Lone Star -
Houston, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
year then ended.
Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
April 18, 1997
