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) AUGUST 25, 2000
------------------
INDUSTRIAL HOLDINGS, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 000-19580 76-0289495
----------------------- --------------------- ----------------------
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation) Identification No.)
7135 ARDMORE HOUSTON, TEXAS 77054
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(Address of principle executive offices) (Zip code)
Registrant's telephone number, including area code (713) 747-1025
---------------
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(Former name or former address, if changed since last report.)
A-1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Acquired Companies
Report of Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998 and at June 30,
2000 (unaudited)
Statements of Income and Partners' Capital for the Year Ended
December 31, 1999 and Initial Period from Date of
Inception, February 9, 1998 to December 31, 1998 and for
the Six Months Ended June 30, 2000 and 1999 (unaudited)
Statements of Cash Flow for the Year Ended December 31, 1999 and
Initial Period from Date of Inception, February 9, 1998
to December 31, 1998 and for the Six Months Ended June
30, 2000 and 1999 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Combined Condensed Balance Sheet at
June 30, 2000 (Unaudited)
Notes to Pro Forma Combined Condensed Balance Sheet at
June 30, 2000 (Unaudited)
Pro Forma Combined Condensed Statement of Operations for the
Six Months Ended June 30, 2000 (Unaudited)
Pro Forma Combined Condensed Statement of Operations for the
Year Ended December 31, 1999
Notes to Pro Forma Combined Condensed Statement of Operations
A-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
------------------------
EXECUTIVE VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
Date: October 25, 2000
A-3
<PAGE>
OF ACQUISITION, L.P.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
INITIAL PERIOD FROM DATE OF INCEPTION, FEBRUARY 9, 1998,
TO DECEMBER 31, 1998
WITH
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
A-4
<PAGE>
TABLE OF CONTENTS
PAGE
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS.................................. A-6
FINANCIAL STATEMENTS
Balance Sheets.................................................... A-7
Statements of Income and Partners' Capital........................ A-8
Statements of Cash Flows.......................................... A-9
Notes to Financial Statements..................................... A-10
A-5
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
OF Acquisition, L.P.
Houston, Texas
We have audited the accompanying balance sheets of OF Acquisition, L.P. (a
limited partnership) as of December 31, 1999 and 1998, and the related
statements of income and partners' capital and cash flows for the year ended
December 31, 1999 and the initial period from date of inception, February 9,
1998, to December 31, 1998. These financial statements are the responsibility of
the management of OF Acquisition, L.P. Our responsibility is to express an
opinion on these financial statements based on our audit.
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OF Acquisition, L.P. as of
December 31, 1999 and 1998, and the results of operations and cash flows for the
year ended December 31, 1999 and the initial period from date of inception,
February 9, 1998, to December 31, 1998 in conformity with generally accepted
accounting principles.
KUHL & SCHULTZ, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
February 24, 2000
A-6
<PAGE>
OF ACQUISITION, L.P.
BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
ASSETS
JUNE 30,
1999 1998 2000
----------- ----------- -----------
(Unaudited)
CURRENT ASSETS
<S> <C> <C> <C>
Cash .................................. $ 407,493 $ 808,752 $ 567,909
Accounts receivable ................... 2,506,170 1,901,002 1,657,910
Notes receivable ...................... 0 0 200,575
Prepaid expenses ...................... 45,681 37,772 32,446
Inventory ............................. 2,779,079 2,348,051 2,722,362
----------- ----------- -----------
Total Current Assets ................. 5,738,423 5,095,577 5,181,202
----------- ----------- -----------
MACHINERY AND EQUIPMENT - AT COST ....... 1,720,768 1,297,730 1,987,121
Less accumulated depreciation ......... 200,372 81,043 270,105
----------- ----------- -----------
Net Machinery and Equipment ........ 1,520,396 1,216,687 1,717,016
----------- ----------- -----------
OTHER ASSETS
Intangible assets - net of amortization 4,750,469 5,013,168 4,622,017
----------- ----------- -----------
$12,009,288 $11,325,432 $11,520,235
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable ...................... $ 713,689 $ 509,734 $ 1,196,597
Accrued expenses ...................... 641,365 307,814 79,924
Customer deposits - deferred income ... 115,958 100,540 145,175
Bank line of credit ................... 500,000 0 57,313
Current portion of long - term debt ... 74,200 74,808 74,200
Note payable - partner ................ 2,957,567 2,591,358 2,882,530
----------- ----------- -----------
Total Current Liabilities .......... 5,002,779 3,584,254 4,435,739
----------- ----------- -----------
LONG-TERM DEBT - NET OF CURRENT
PORTION .............................. 340,274 410,718 304,748
----------- ----------- -----------
PARTNERS' CAPITAL ....................... 6,666,235 7,330,460 6,779,748
----------- ----------- -----------
$12,009,288 $11,325,432 $11,520,235
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
A-7
<PAGE>
OF ACQUISITION, L.P.
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1999 AND
INITIAL PERIOD FROM DATE OF INCEPTION,
FEBRUARY 9, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1999 1998 2000 1999
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES ................... $ 12,023,460 $ 10,914,775 $ 6,483,570 $ 4,961,026
COST OF SALES ............... 7,983,840 7,453,772 4,495,183 3,151,384
------------ ------------ ------------ ------------
GROSS PROFIT ................ 4,039,620 3,461,003 1,988,387 1,809,642
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES . 3,505,186 1,524,135 1,809,801 1,047,573
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS ...... 534,434 1,936,868 178,586 762,069
OTHER INCOME (EXPENSES)
Interest income ........... 9,578 30,162 12,131 6,777
Interest expense .......... (216,082) (261,730) (81,796) (109,304)
Other ..................... 345 11,160 6,692 5,657
------------ ------------ ------------ ------------
(206,159) (220,408) (62,973) (96,870)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES .. 328,275 1,716,460 115,613 665,199
PROVISION FOR CITY INCOME TAX 6,500 (12,000) 2,100 4,500
------------ ------------ ------------ ------------
NET INCOME .................. 334,775 1,704,460 113,513 660,699
PARTNERS' CAPITAL
Beginning of period ....... 7,330,460 0 6,666,235 7,330,460
Capital contributed ....... 1,000 5,626,000 0 1,000
Distribution to partner ... (1,000,000) 0 0 (1,000,000)
------------ ------------ ------------ ------------
End of period ............. $ 6,666,235 $ 7,330,460 $ 6,779,748 $ 6,992,159
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
A-8
<PAGE>
OF ACQUISITION, L.P.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND
INITIAL PERIOD FROM DATE OF INCEPTION
FEBRUARY 9, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1999 1998 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income ........................... $ 334,775 $ 1,704,460 $ 113,513 $ 660,699
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ..... 382,028 321,850 200,452 192,071
Gain on asset sale ................ 0 (11,183) 0 0
Change in operating assets
and liabilities:
Accounts receivable .......... (605,168) (1,901,002) 848,260 685,522
Prepaid expenses ............. (7,910) (37,772) (187,340) (4,053)
Inventory .................... (431,028) (2,348,051) 56,717 (445,528)
Accounts payable ............. 203,955 509,734 482,908 416,045
Accrued expenses ............. 1,801,261 307,814 (629,150) (218,636)
Customer deposits ............ 15,418 100,540 29,217 (27,221)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities ................. 1,693,331 (1,353,610) 914,577 1,258,899
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets ............. (423,037) (1,300,017) (268,621) (94,930)
Proceeds from asset sale ............. 0 13,470 0 0
Acquired goodwill .................... 0 (5,200,000) 0 0
Capitalized organization costs ....... 0 (53,975) 0 0
----------- ----------- ----------- -----------
Net cash used in investing
activities ........................... (423,037) (6,540,522) (268,621) (94,930)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Partners capital contribution -
(distribution), net ............... (999,000) 5,626,000 0 (999,000)
Proceeds from bank borrowing-
net of current year payments ........ 428,947 485,526 (478,213) 262,474
Proceeds from partner borrowing-
net of current year payments ........ (1,101,500) 2,591,358 (7,327) (1,103,253)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities ................. (1,671,553) 8,702,884 (485,540) (1,839,779)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH .............................. (401,259) 808,752 160,416 (675,810)
CASH AT BEGINNING OF PERIOD ............ 808,752 0 407,493 808,752
----------- ----------- ----------- -----------
CASH AT END OF PERIOD .................. $ 407,493 $ 808,752 $ 567,909 $ 132,942
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
A-9
<PAGE>
OF ACQUISITION, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
OF Acquisition, L.P. (the "Company") is a manufacturer of orbital
riveting machines. Machines sold are from stock specifications or
custom built to customer specifications. The Company operates out of
one plant in Jackson, Michigan.
Inventories are valued at the lower of cost (first-in, first-out basis)
or market. Market is considered as the net realizable value.
Machinery and equipment are stated at cost. Depreciation is computed on
the straight-line method. Estimated useful lives are as follows:
Machinery 15 years
Computer equipment 5 years
Office furniture 7 years
Vehicles 5 years
The Company has elected to amortize intangible assets of goodwill and
organization costs over 20 years on the straight-line method.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
JUNE 30,
1999 1998 2000
---------- ---------- ----------
(Unaudited)
Raw material and supplies ........ $ 105,775 $ 77,704 $ 410,362
Work in process and finished goods 1,355,047 979,576 1,014,000
Component parts .................. 1,318,257 1,290,771 1,298,000
---------- ---------- ----------
$2,779,079 $2,348,051 $2,722,362
========== ========== ==========
NOTE 3 - MACHINERY AND EQUIPMENT
The following components of machinery and equipment are stated at
historical costs.
JUNE 30,
1999 1998 2000
---------- ---------- ----------
(Unaudited)
Machinery and equipment $1,459,229 $1,189,342 $1,742,182
Office equipment ....... 206,541 70,000 196,941
Vehicles ............... 38,388 38,388 31,388
Leasehold improvements . 16,610 0 16,610
---------- ---------- ----------
1,720,768 1,297,730 1,987,121
Accumulated depreciation 200,372 81,043 270,105
---------- ---------- ----------
$1,520,396 $1,216,687 $1,717,016
========== ========== ==========
A-10
<PAGE>
OF ACQUISITION, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 30,
1999 1998 2000
---------- ---------- ----------
(Unaudited)
Goodwill ................. $5,200,000 $5,200,000 $5,200,000
Organization costs ....... 53,975 53,975 53,975
---------- ---------- ----------
5,253,975 5,253,975 5,253,975
Allowance for amortization 503,506 240,807 631,958
---------- ---------- ----------
$4,750,469 $5,013,168 $4,622,017
========== ========== ==========
NOTE 5 - NOTE PAYABLE - PARTNER
Demand note payable to partner dated February 7, 1998 bearing interest of
8.5% per year.
JUNE 30,
1999 1998 2000
---------- ---------- ----------
(Unaudited)
$2,889,857 $2,591,358 $2,882,530
========== ========== ==========
NOTE 6 - LONG-TERM DEBT
Note payable to Citizens Bank payable in monthly installments of $8,717
including interest at 7.98%. Note is secured by equipment.
JUNE 30,
1999 1998 2000
-------- -------- --------
(Unaudited)
Balance due ........ $414,474 $485,526 $378,948
Less current portion 74,200 74,808 74,200
-------- -------- --------
Long-term debt ..... $340,274 $410,718 $304,748
======== ======== ========
Principal maturities of long-term debt in each of the next five years and
thereafter are as follows:
2000 $ 74,200
2001 80,343
2002 86,994
2003 94,196
2004 78,741
Thereafter 0
-----------
$ 414,474
===========
NOTE 7 - PENSION PLAN
The Company sponsors a salary reduction 401(k) pension plan covering
substantially all employees. Company contributions to this plan amounted
to $39,980 and $34,636 in 1999 and 1998, respectively.
A-11
<PAGE>
OF ACQUISITION, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - RELATED PARTY TRANSACTIONS
JUNE 30,
1999 1998 2000
---------- ---------- ----------
(Unaudited)
Demand note payable to partner $2,957,567 $2,591,359 $2,882,530
---------- ---------- ----------
Interest payable to partner .. $ 0 $ 17,781 $ 0
---------- ---------- ----------
Equipment rent paid to partner $ 96,000 $ 88,000 $ 24,000
---------- ---------- ----------
Building rent paid to partner $ 240,000 $ 180,000 $ 60,000
---------- ---------- ----------
NOTE 9 - CASH FLOW INFORMATION
Cash paid for interest and income taxes:
JUNE 30,
1999 1998 2000
-------- -------- --------
(Unaudited)
Interest ........... $166,154 $243,949 $ 22,800
======== ======== ========
Income taxes ....... $ 5,062 $ 0 $ 0
======== ======== ========
NOTE 10 - CREDIT RISK
The Company is required by SFAS No. 105 to disclose significant
concentrations of credit risk regardless of the degree of such risk.
Financial instruments which potentially subject the company to
concentration of credit risk consist principally of temporary cash
investments and trade receivables.
The Company places its temporary cash investments with
high-credit-quality financial institutions. Although, such cash balances
exceed the federally insured limits at certain times during the year they
are, in the opinion of management, subject to minimal risk.
The Company has established policies for extending credit and assessing
bad debts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. In the opinion of
management, concentrations of credit risk with respect to trade
receivables are limited due to the credit worthiness of customers.
NOTE 11 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results are likely to differ from those estimates, but management
does not believe such differences will materially affect the
Company's financial position, results of operations or cash flows.
A-12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Effective April 1, 2000, we sold Blastco Services Company ("Blastco"), our
subsidiary engaged in refinery demolition, to two of its former shareholders. In
this transaction, we received $2 million in cash, $0.8 million in notes
receivable and 1.5 million shares of our common stock that the purchasers had
received in the original acquisition of Blastco on January 1, 1999.
Additionally, we retained inventory and equipment with a book value of $0.3
million. This transaction is referred to as the Disposition in the accompanying
unaudited pro forma combined condensed financial statements.
In August 2000, we acquired the general partnership interest and the 51%
of limited partnership interests of OF Acquisition, L.P. ("Orbitform") that we
do not already own from St. James Management, L.L.C. and SJMB, L.P. (together
"St. James"). This transaction is referred to as the Acquisition in the
accompanying unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed statement of operations gives
effect to the Acquisition and the Disposition as if they had occurred on January
1, 1999. The unaudited pro forma combined condensed balance sheet gives effect
to the Acquisition as if it had occurred on June 30, 2000. The unaudited pro
forma combined condensed financial statements have been prepared from: (i) the
audited historical consolidated financial statements of Industrial Holdings,
Inc. ("IHI") as reported in its annual report on Form 10-K for the year ended
December 31, 1999 and the unaudited historical financial statements of IHI as
reported in its quarterly report on Form 10-Q for the six months ended June 30,
2000; and (ii) the audited historical financial statements of Orbitform for the
year ended December 31, 1999 and the unaudited historical financial statements
of Orbitform for the six months ended June 30, 2000.
We based the pro forma adjustments that give effect to the events
described above on currently available information and upon certain assumptions
that we believe are reasonable. We have accounted for the Acquisition using the
purchase method and the resulting assets acquired and liabilities assumed are
recorded at their estimated fair market values at the date of acquisition. The
adjustments included in the unaudited pro forma combined condensed financial
statements reflect our preliminary assumptions and estimates based on available
information. We cannot assure you that the actual adjustments will not vary from
the estimated adjustments reflected in the unaudited pro forma combined
condensed financial statements.
The unaudited pro forma combined condensed financial statements may not be
indicative of the results of operations that would have occurred or that may be
obtained in the future if the transactions described above had occurred as
presented in such financial statements. In addition, our future results may vary
form the results reflected in these statements because of general economic
conditions, fluctuations in oil and gas prices, labor costs, competition and
other factors, many of which are beyond our control.
A-13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
IHI ORBITFORM ACQUISITION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ......... $ 1,009 $ 568 $ (568)(d) $ 1,009
Accounts receivable - trade, net .. 36,351 1,658 38,009
Cost and estimated earnings in
excess of billings .............. 2,099 2,099
Inventories ....................... 35,676 2,722 38,398
Employee advances ................. 59 59
Notes receivable, current portion . 2,974 201 168
(835)(c)
(2,758)(a)
586 (b)
Other current assets .............. 1,914 32 (125) 1,821
-------- -------- -------- --------
Total current assets............ 80,082 5,181 (3,700) 81,563
Property and equipment, net ....... 55,964 1,717 (446)(c) 57,235
Notes receivable, less
current portion .................. 551 551
Investment in unconsolidated
Affiliates ...................... 1,656 (1,656)(b)
Other assets ...................... 7,594 7,594
Goodwill and other intangible
assets, net ..................... 25,224 4,622 2,600 (c) 32,446
-------- -------- -------- --------
Total assets ...................... $171,071 $ 11,520 $ (3,202) $179,389
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
A-14
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
IHI ORBITFORM ACQUISITION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable .................. $ 43,867 $ 57 $ (568)(d) $ 43,356
Note payable to IHI ............ 2,883 (2,883)(a)
Accounts payable - trade ....... 25,785 1,197 26,982
Billings in excess of
costs and estimated earnings . 849 145 994
Accrued expenses ............... 11,784 80 50 (c) 11,914
Current portion of
long-term obligations ........ 28,377 74 28,451
--------- --------- --------- ---------
Total current
liabilities ............... 110,662 4,436 (3,401) 111,697
Long-term obligations,
less current portion ......... 15,178 305 15,483
Convertible notes .............. 6,900 (c) 6,900
Other long-term liabilities .... 2,513 2,513
Deferred income tax
liability .................... 306 14 (c) 320
--------- --------- --------- ---------
Total liabilities ........... 128,659 4,741 3,513 136,913
Shareholders' equity
Common stock ................. 153 153
Additional paid-in capital ... 54,865 4,626 64 (c) 54,929
(450)(b)
(4,176)(c)
Retained earnings (deficit) .. (8,654) 2,153 (1,070)(b) (8,654)
(1,083)(c)
Treasury stock ............... (3,272) (3,272)
Notes receivable from
officers ................... (680) (680)
--------- --------- --------- ---------
Total shareholders'
equity .................... 42,412 6,779 (6,715) 42,476
--------- --------- --------- ---------
Total liabilities and
shareholders' equity ......... $ 171,071 $ 11,520 $ (3,202) $ 179,389
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
A-15
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
IHI DISPOSITION ORBITFORM ACQUISITION PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS COMBINED
--------- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales .............................. $ 106,071 $ (3,450)(f) $ 102,621 $ 6,484 $ $ 109,105
Cost of sales ...................... 84,731 (3,365)(f) 81,366 4,495 (131)(b) 85,514
(168)(a)
(48)(c)
--------- --------- --------- --------- --------- ---------
Gross profit ....................... 21,340 (85) 21,255 1,989 347 23,591
Selling, general and administrative
expenses ......................... 23,508 (805)(f) 22,703 1,810 131 (b) 24,340
72 (d)
(376)(a)
--------- --------- --------- --------- --------- ---------
Income (loss) from operations ...... (2,168) 720 (1,448) 179 520 (749)
Earnings from equity investments in
unconsolidated affiliates ........ 40 40 (40)(a)
Other income (expense):
Interest expense ................... (5,886) 233 (e) (5,653) (82) 58 (a) (6,046)
11 (e)
(380)(e)
Interest income .................... 100 100 12 (58)(a) 54
Other income (expense), net ........ 3,179 372 (f) 3,551 7 (376)(a) 3,014
(168)(a)
--------- --------- --------- --------- --------- ---------
Total other income (expense) .. (2,607) 605 (2,002) (63) (913) (2,978)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes .. (4,735) 1,325 (3,410) 116 (433) (3,727)
Income tax expense ................. 50 50 2 52
--------- --------- --------- --------- --------- ---------
Net income (loss) available to
common shareholders .............. $ (4,785) $ 1,325 $ (3,460) $ 114 $ (433) $ (3,779)
========= ========= ========= ========= ========= =========
Basic earnings (loss) per share .... $ (0.33) $ (0.26) $ (0.28)
Diluted earnings (loss) per share .. $ (0.33) $ (0.26) $ (0.28)
Weighted average number of
common shares outstanding-basic .. 14,334 13,541 13,541
Weighted average number of
common shares outstanding-dilutive 14,334 13,541 13,541
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
A-16
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
IHI DISPOSITION ORBITFORM ACQUISITION PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales ............................... $ 242,170 $ (12,108)(f) $ 230,062 $ 12,023 $ $ 242,085
Cost of sales ....................... 202,235 (7,969)(f) 194,266 7,984 (263)(b) 201,555
(96)(c)
(336)(a)
--------- --------- --------- --------- --------- ---------
Gross profit ........................ 39,935 (4,139) 35,796 4,039 695 40,530
Selling, general and administrative
expenses ......................... 53,479 (4,097)(f) 49,382 3,505 263 (b) 51,894
(1,400)(a)
144 (d)
--------- --------- --------- --------- --------- ---------
Income (loss) from operations ....... (13,544) (42) (13,586) 534 1,688 (11,364)
Earnings (losses) from equity invest-
ments in unconsolidated affiliates (5,952) 6,008(f) 56 (56)(a)
Other income (expense):
Interest expense .................... (9,723) 604(e) (9,119) (216) 160 (a) (9,878)
56 (e)
(759)(e)
Interest income ..................... 378 378 10 (160)(a) 228
Other income, net ................... 2,532 (1,012)(f) 1,520 (1,186)(a) 334
--------- --------- --------- --------- --------- ---------
Total other income (expense) ........ (6,813) (408) (7,221) (206) (1,889) (9,316)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes ... (26,309) 5,558 (20,751) 328 (257) (20,680)
Income tax expense (benefit) ........ (7,276) -- (7,276) (6) (7,282)
--------- --------- --------- --------- --------- ---------
Net income (loss) available to
common shareholders .............. $ (19,033) $ 5,558 $ (13,475) $ 334 $ (257) $ (13,398)
========= ========= ========= ========= ========= =========
Basic earnings (loss) per share ..... $ (1.27) $ (1.01) $ (1.00)
Diluted earnings (loss) per share ... $ (1.27) $ (1.01) $ (1.00)
Weighted average number of
common shares outstanding-basic ... 14,956 13,370 13,370
Weighted average number of
common shares outstanding-dilutive 14,956 13,370 13,370
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
A-17
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) To eliminate the intercompany receivable/payable balances between IHI and
Orbitform.
(b) To eliminate our 49% investment in Orbitform included in the historical
balance sheet of IHI.
(c) To record the Acquisition. The excess of the total purchase price over the
allocation of fair value to the net assets will be recorded as goodwill,
which is calculated based on the following assumptions:
Issuance of convertible notes to St. James(1) .............. $6,900
Value of warrants issued to St. James(2) ................... 64
Forgiveness of note receivable from St. James .............. 835
Estimated expenses attributable to the Acquisition ......... 50
------
Total purchase price ....................................... 7,849
Fair market value of net assets acquired ................... 5,249
------
Goodwill(3) ................................................ $2,600
======
(1) The convertible notes consist of (i) one note that is convertible into
3,000,000 shares of IHI Common stock ($1.15 per share) and (ii) a second
note that is convertible into 1,725,000 shares of IHI Common stock
($2.00 per share). IHI estimates that the current fair value of the
underlying common stock is $1.09 per share.
(2) Warrants to purchase 300,000 shares of IHI Common stock at $1.25 per
share, valued at an estimated fair market value of approximately $.21 a
share.
(3) The goodwill recorded will be amortized over an estimated remaining
useful life of 18 years.
(d) The cash acquired from the Acquisition will be used to repay existing
indebtedness of Orbitform of $57,000 and to reduce IHI's outstanding balance
on its line of credit of $511,000.
(e) To record the Disposition, including the elimination of the assets and
liabilities sold and to reflect the application of the sales proceeds.
Cash(1) ............................................. $ 2,000
Notes receivable .................................... 800
Less: valuation allowance ........................... (500)
Common stock(2) ..................................... 3,272
-------
Sales proceeds ...................................... 5,572
=======
Net book value of assets sold ....................... 3,021
-------
Gain on sale of Blastco(3) .......................... $ 2,551
=======
(1) Pursuant to an agreement with IHI's lender, the cash proceeds of
$2,000,000 were delivered directly to the lender to reduce the
outstanding balance on IHI's line of credit.
(2) As part of the Disposition transaction, IHI will receive 1,586,265
shares of its common stock. Such common stock will be recorded as
treasury stock valued at an assumed market price of $2.06 per share.
(3) IHI recorded a gain on the Disposition during the quarter ended June 30,
2000.
A-18
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) To eliminate transactions with Orbitform included in the historical
financial statements of IHI with respect to (i) the lease agreement and the
management agreement between IHI and Orbitform, (ii) interest receivable on
a note between IHI and Orbitform, and (iii) the equity in earnings of IHI's
49% ownership interest in Orbitform.
(b) To reclassify amortization expense of Orbitform to conform with IHI's
classification.
(c) To record depreciation expense adjustments to the historical amounts related
to the application of purchase accounting applied to the Acquisition and the
corresponding change in fair value of property and equipment.
(d) To record amortization expense adjustments to the historical amounts related
to the goodwill recorded in connection with the Acquisition over its
estimated remaining useful life of 18 years.
(e) To adjust historical interest expense for obligations incurred and retired
as a result of the Acquisition and for the reduction in IHI's obligations
attributable to the proceeds from the Disposition. Interest expense
adjustments are as follows:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1999 2000
----------- ----------
Orbitform acquisition:
Convertible note ............. $ 6,900 $ 6,900
Interest rate ................ 11% 11%
------- -------
Total ..................... $ (759) $ (380)
======= =======
Blastco sale:
Proceeds received used to
repay debt ................. $ 2,000 $ 2,000
Interest rate ................ 9% 11%
------- -------
Subtotal ..................... 180 55
Historical interest expense
on debt assumed by purchaser 423 178
------- -------
Reduction in interest as a
result of the Blastco sale . $ 603 $ 233
======= =======
(f) To eliminate the historical results of operations of Blastco in connection
with the Disposition.
A-19
