SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 7, 1995
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580 76-0289495
(State of other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification (No.)
7135 ARDMORE HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
(Former name or former address, if changed since last report.)
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF ACQUIRED COMPANY
1. Financial Statements of MRMC, Inc. Fastener Division:............4
o Statement of Assets Sold and Liabilities Assumed at
June 30, 1995..............................................7
o Statement of Direct Revenues and Direct Expenses
for the three years ended June 30, 1995....................8
o Notes to Statement of Assets Sold and Liabilities Assumed
and Statement of Direct Revenues and Direct Expenses.......9
o Unaudited Statement of Assets Sold and Liabilities Assumed at
September 30, 1995........................................13
o Unaudited Statements of Direct Revenues and Direct Expenses
for the three months ended September 30, 1995 and 1994....14
o Notes to Statements (Unaudited)...........................15
(B) PRO FORMA FINANCIAL INFORMATION
1. Proforma Financial Statements:
o Pro Forma Condensed Consolidated Financial
Statements (Unaudited)....................................17
o Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1995 (Unaudited)............................18
o Notes to Pro Forma Condensed Consolidated
Balance Sheet at September 30, 1995 (Unaudited)...........20
o Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1995 (Unaudited)..21
o Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1994 (Unaudited)..........22
o Notes to Pro Forma Condensed Consolidated Statements of
Operations (Unaudited)....................................23
2
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
Christine A. Smith
CHIEF FINANCIAL OFFICER
Date: July 5, 1996
3
MRMC, INC. FASTENER DIVISION
FINANCIAL STATEMENTS
JUNE 30, 1995, 1994, 1993
4
TABLE OF CONTENTS
Accountant's Letter....................................................6
Statement of Assets Sold and Liabilities Assumed.......................7
Statement of Direct Revenues and Direct Expenses.......................8
Notes to Statement of Assets Sold and Liabilities Assumed
and Statement of Direct Revenues and Direct Expenses.................9
5
December 27, 1995
MRMC, Inc.
857 Bridgeport Ave.
Milford, CT 06460
Gentlemen:
We have audited the accompanying statement of assets sold and liabilities
assumed of MRMC, Inc.'s Fastener Division as of June 30, 1995, and the related
statements of direct revenues and direct expenses for the three years then
ended. These statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets sold and liabilities assumed and
the related statement of direct revenues and direct expenses are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall presentation of these
statements. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statements were prepared for inclusion in the Securities and
Exchange Commission Current Report on Form 8-K of Industrial Holdings, Inc.
(IHI) as described in Note 2 and are not intended to be a complete presentation
of MRMC, Inc.'s financial position or results of operations.
In our opinion, the statements referred to above present fairly, in all material
respects the assets sold and liabilities assumed as of June 30, 1995 and the
direct revenues and direct expenses of MRMC, Inc.'s Fastener Division for the
three years then ended in conformity with generally accepted accounting
principles.
Respectfully submitted,
GOLDBERG and ZUFFELATO, P.C.
6
MRMC, INC.'S FASTENER DIVISION
STATEMENT OF ASSETS SOLD AND LIABILITIES ASSUMED
JUNE 30, 1995
(000'S OMITTED)
Assets sold:
Inventory (Note 5) $ 1,537
Machinery and equipment 4,138
Less: Accumulated depreciation (1,542)
2,596
Total assets sold $ 4,133
==========
Liabilities assumed by IHI
Accounts payable $ 1,217
Vacation accrual 107
----------
Total liabilities assumed $ 1,324
==========
See Accountant's Letter and Notes to Statement
of Assets Sold and Liabilities Assumed and
Statement of Direct Revenues and Direct Expenses
7
MRMC, INC.'S FASTENER DIVISION
STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
(000'S OMITTED)
FOR THE YEAR ENDED
JUNE 30
1995 1994 1993
-------- ------- ------
Sales $ 12,530 $ 10,550 $ 10,665
Direct expenses:
Cost of products sold-(Note 3) 10,244 9,000 7,893
Engineering costs 177 216 207
Selling expenses 896 1,051 954
-------- ------- ------
Total direct expenses 11,317 10,267 9,054
-------- ------- ------
Excess of direct revenues
over direct expenses $ 1,213 $ 283 $ 1,611
======== ======= =======
See Accountant's Letter and Notes to Statement
of Assets Sold and Liabilities Assumed and
Statement of Direct Revenues and Direct Expenses
8
MRMC, INC.'S FASTENER DIVISION
NOTES TO STATEMENT OF ASSETS SOLD AND LIABILITIES ASSUMED
AND STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
NOTE 1 DESCRIPTION OF BUSINESS AND ASSET PURCHASE
The MRMC, Inc. Connecticut Fastener Division (the
"Division") manufactures, sells and distributes cold
formed rivets and other fastening devices. On December
7, 1995, Landreth Engineering Company, Inc. ("LEC"), a
wholly owned subsidiary of IHI, acquired certain assets
and assumed certain liabilities of the Division. The
assets acquired included inventory and machinery and
equipment.
NOTE 2 BASIS OF PRESENTATION
The accompanying statements of assets sold and liabilities assumed
as of June 30, 1995 and direct revenues and direct expenses for the
three years then ended have been prepared for the purpose of
complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K
of IHI.
The statement of assets sold and liabilities assumed includes the
amounts of certain assets and certain liabilities of the Division at
June 30, 1995. Assets sold and liabilities assumed are specifically
identified in Schedules of the Purchase Agreement by and among IHI,
LEC and MRMC, Inc. dated November 9, 1995.
The statement of direct revenues and direct expenses includes only
those revenues and expenses directly related to the manufacture and
sale of fasteners by the Division as well as an allocation of
certain expenses directly related to the manufacture of fasteners
(See Note 3). This statement does not include depreciation and
amortization, general and administrative costs, interest expense or
any other indirect expense.
9
NOTE 3 ALLOCATION OF EXPENSES
MRMC, Inc.'s Connecticut facility was shared by two divisions, the
Fastener Division and the Assembly Systems Division. Historically,
MRMC, Inc. has allocated certain shared expenses relating to the
facility to each of the divisions. These allocated expenses which
are included in the cost of products sold are as follows for the
year ended June 30.
1995 1994 1993
----- ---- ----
Utilities $ 328 $ 307 $ 270
Plant insurance 54 32 96
Property taxes 72 108 92
----- ---- ----
$ 454 $447 $ 458
===== ==== ====
NOTE 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Inventories are valued
at the lower of cost or market determined by the first-in, first-out
method.
Machinery and Equipment are recorded at cost. Depreciation is
provided using the straight-line method over the extimated useful
lives of the assets or five to twelve years.
NOTE 5 INVENTORIES
Inventories consist of the following at June 30, 1995.
Raw Materials $ 792
Work in Process 133
Finished Goods 612
-------
$ 1,537
10
MRMC, INC. FASTENER DIVISION
FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1995
11
MRMC, INC. FASTENER DIVISION
INDEX
PAGE
NO
----
Financial Statements
Statement of Assets Sold and Liabilities Assumed
at September 30, 1995 13
Statements of Direct Revenues and Direct Expenses for
the Quarters ended September 30, 1995 and 1994 14
Notes to Statements 15
12
MRMC, INC.'S FASTENER DIVISION
STATEMENT OF ASSETS SOLD AND LIABILITIES ASSUMED
SEPTEMBER 30, 1995
(000'S OMITTED)
September 30
1995
------------
Assets sold:
Inventory , net (Note B) $ 948
Prepaid expenses 28
Machinery and equipment 4,138
Less: Accumulated depreciation (2,202)
------------
1,936
------------
Total assets sold $ 2,912
============
Liabilities assumed by IHI
Accounts payable $ 1,217
Vacation accrual 107
------------
Total liabilities assumed $ 1,324
============
See notes to statements.
13
MRMC, INC. FASTENER DIVISION
STATEMENTS OF DIRECT REVENUES AND DIRECT EXPENSES (UNAUDITED)
(000'S OMITTED)
Quarter ended September 30
1995 1994
------ ------
Sales ............................................. $2,467 $3,623
Direct expenses:
Cost of products sold - (Notes B and C) ........ 2,331 3,088
Engineering costs .............................. 27 61
Selling expenses ............................... 102 280
------ ------
Total direct expenses ....................... 2,460 3,429
Excess of direct revenues
over direct expenses ........................... $ 7 $ 194
====== ======
See notes to statements.
14
MRMC, INC. FASTENER DIVISION
NOTES TO STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
NOTE A BASIS OF PRESENTATION
The MRMC, Inc. Connecticut Fastener Division (the "Division")
manufactures, sells and distributes cold formed rivets and other
fastening devices. On December 7, 1995, Landreth Engineering Company,
Inc. ("LEC"), a wholly owned subsidiary of Industrial Holdings, Inc.
("IHI"), acquired certain assets and assumed certain liabilities of
the Division. The assets acquired included inventory and machinery and
equipment.
The accompanying statements of assets sold and liabilities assumed and
direct revenues and direct expenses have been prepared for the purpose
of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of
IHI. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Results for the
three month period ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year ended June
30, 1995 or the twelve months ended December 31, 1995. For further
information, refer to the financial statements and footnotes thereto
included in MRMC, Inc.'s Fastener Division Statements for the year
ended June 30, 1995 included in Form 8-K.
The statement of direct revenues and direct expenses includes only
those revenues and expenses directly related to the manufacture and
sale of fasteners by the Division as well as an allocation of certain
expenses directly related to the manufacture of fasteners. This
statement does not include depreciation and amortization, general and
administrative costs, interest expense or any other indirect expense.
NOTE B INVENTORY
Inventory consists of the following:
September 30
1995
-------------
Raw materials $ 421
Finished goods 394
Work in process 133
-------------
$ 948
=============
The September 30, 1995 inventory amounts include a $389,000 reserve
for nonmerchantible inventory. Accordingly, a $389,000 charge is
included in cost of products sold for the quarter ended September 30,
1995.
15
NOTE C ALLOCATION OF EXPENSES
MRMC, Inc.'s Connecticut facility was shared by two divisions, the
Fastener Division and the Assembly Systems Division. Historically,
MRMC, Inc. has allocated certain shared expenses relating to the
facility to each of the divisions. These allocated expenses which are
included in the cost of products sold are as follows for the quarter
ended September 30.
1995 1994
------ ------
Utilities $ 97 $ 102
Plant insurance 15 18
Property taxes 15 18
------ ------
$ 127 $ 138
====== ======
16
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to
the acquisition by Industrial Holdings, Inc.'s subsidiary, Landreth Engineering
Company ("LEC"), of MRMC, Inc.'s ("MRMC") fastener division ("Milford Rivet") in
a transaction accounted for as a purchase. The allocation of purchase price is
based on information currently available and will be revised as necessary prior
to the issuance of the 1995 financial statements, although no material
adjustments are anticipated.
The unaudited pro forma balance sheet is based on the balance sheet of
Industrial Holdings, Inc. ("IHI"), included in the financial statements of IHI
filed with Form 10-Q for the quarter ended September 30, 1995 and the September
30, 1995 Statement of Assets Sold and Liabilities Assumed of Milford Rivet
appearing elsewhere in this Form 8-K, and has been prepared to reflect the
acquisition by LEC of Milford Rivet as if the acquisition had been consummated
at September 30, 1995.
The unaudited pro forma statements of operations are based on the
individual statements of IHI included in the financial statements filed with
Form 10-Q for the quarter ended September 30, 1995 and in the IHI 1994 Annual
Report filed on Form 10-K and of the Statements of Direct Revenues and Direct
Expenses of Milford Rivet appearing elsewhere in this Form 8-K, and combine the
results of operations of IHI and of Milford Rivet (acquired by LEC as of
December 7, 1995) for the nine months ended September 30, 1995 and the year
ended December 31, 1994, as if the acquisition had occurred on January 1, 1994.
These unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and notes thereto of
Industrial Holdings, Inc. included in the financial statements of IHI filed with
Form 10-Q for the quarter ended September 30, 1995 and in the IHI 1994 Annual
Report on Form 10-K and of Milford Rivet included elsewhere in this Form 8-K.
17
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
ACQUISITION
MILFORD ADJUSTMENTS
IHI RIVET (NOTE 1) COMBINED
--- ----- -------- --------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents ............ $ 79 $ $ 282 (f) $ 361
Accounts receivable-trade ....... 4658 4658
Inventories ..................... 6727 948 7675
Advances to shareholders ........ 219 219
Notes receivable, current portion 405 405
Other current assets ............ 1031 28 29 (a) 444
(586)(c)
(77)(e)
19 (g)
Total current assets .... 13119 976 (333) 13762
Property and equipment, net ........ 5390 1936 2682 (a) 10008
Notes receivable ................... 1379 1379
Goodwill and other assets, net ..... 1971 1971
------- -------
Total assets ........... $ 21859 $ 2912 $ 2349 $ 27120
======= ======= ====== =======
</TABLE>
18
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
------------------------
ACQUISITION
MILFORD ADJUSTMENTS
IHI RIVET (NOTE 1) COMBINED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
-----------------------------
Current liabilities:
Bank overdrafts payable $ 756 $ 756
Notes payable 4996 $ 1408 (b) 6404
Accounts payable-trade 3327 $ 1217 (586)(c) 3974
16 (d)
Accrued expenses and other 482 107 299 (h) 888
Current portion of long-term debt 888 296 (b) 1184
-------- -------- -------- --------
Total current liabilities 10449 1324 1433 13206
Long-term debt, less current portion 3097 2504 (b) 5601
Deferred income taxes payable 717 717
-------- -------- -------- --------
Total liabilities 14263 1324 3937 19524
Shareholders' equity:
Common stock 31 31
Additional paid-in capital 7608 7608
Accumulated deficit (43) 1588 (1588)(i) (43)
-------- -------- -------- --------
Total shareholders' equity 7596 1588 (1588) 7596
-------- -------- -------- --------
Total liabilities and shareholders' equity $ 21859 $ 2912 $ 2349 $ 27120
======== ======== ======== ========
</TABLE>
19
Note 1 - The pro forma balance sheet reflects the acquisition of the MRMC, Inc.
Connecticut fastener division for an aggregate purchase price of $5,624,000. Pro
forma adjustments are made to:
a. Adjust the assets of MRMC fastener division to the estimated fair market
values at the acquisition date.
b. Record the issuance of a 12% convertible promissory note in the amount of
$1,000,000, the drawdown of $300,000 on the Comerica Bank line of credit,
the issuance of a $108,000 note payable to MRMC, Inc. and the issuance of
a 9.85%, $2,800,000 term note to complete the purchase acquisition.
c. Reflect the offset of the Milford Rivet payable to LEC against the LEC
receivable from Milford Rivet.
d. Record accounts payable to MRMC for the purchase of supplies.
e. Record the reclassification of out of pocket costs to acquisition cost.
f. Record the undisbursed portion of the proceeds of the $1,000,000
convertible promissory note.
g. Record financing fees.
h. Record estimated accrued expenses.
i. Eliminate the retained deficit of the MRMC fastener division.
20
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
ACQUISITION
MILFORD ADJUSTMENTS
IHI RIVET (NOTE 1) COMBINED
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 28795 $ 8173 $ (1,036)(h) $ 35932
(389)(b)
Cost of sales 135 (c)
22046 6558 234 (d) 27092
-------- ---------- (456)(a) --------
(1036)(h)
--------
Gross profit 6749 1615 476 8840
Operating expenses:
Selling, general and administrative 5010 665 216 (i) 5973
82 (j)
Depreciation and amortization 621 621
-------- ---------- -------- --------
Total operating expenses 5631 665 298 6594
-------- ---------- -------- --------
Income from operations 1118 950 178 2246
Other income (expense)
Interest expense (727) (386)(e) (1113)
Other income 166 166
-------- -------- --------
Total other income (expense) (561) (386) (947)
-------- ---------- -------- --------
Income before income taxes 557 950 (208) 1299
Income tax expense 73 293 (f) 366
-------- ---------- -------- --------
Net income $ 484 $ 950 $ (501) $ 933
======== ========== ======== ========
Earnings per share (g) $ .16 $ .30
======== ========
</TABLE>
21
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1994
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
ACQUISITION
MILFORD ADJUSTMENTS
IHI RIVET (NOTE 1) COMBINED
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Sales $ 34730 $ 11998 $ (182)(h) $ 46546
Cost of sales 26933 10676 312 (d) 36102
------- ------- ---------
180 (c)
(1817)(a)
(182)(h)
--------
Gross profit 7797 1322 1325 10444
Operating expenses: (253)(a)
Selling, general and administrative 6689 1280 288 (i) 8004
Depreciation and amortization 485 485
------- ------- -------- ---------
Total operating expenses 7174 1280 35 8489
------- ------- -------- ---------
Income from operations 623 42 1290 1955
Other income (expense):
Interest expense (889) (523)(e) (1412)
Other income 314 314
------- ------- -------- ---------
Total other income (expense) (575) (523) (1098)
Income before income taxes 48 42 767 857
Income tax expense 16 0 319 (f) 335
------- ------- -------- ---------
Net income $ 32 $ 42 $ 448 $ 522
======= ======= ======== =========
Earnings per share (g) $ .01 $ .17
======= =========
</TABLE>
22
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 payroll expense for employees not hired upon acquisition of the
division and which are not needed to operate at historical levels of
operations when the operations of MRMC are combined with those of IHI.
Proforma production staffing levels are comparable to those at LEC and
include 65 employees compared to 71 production employees at LEC. Proforma
sales and engineering staffing levels include 8 employees at Milford
Rivet compared to 8 employees at LEC. Substantially all other
administrative functions will be performed by LEC. These staffing
reductions are as a result of LEC's more efficient operating and
management techniques.
Proforma adjustments to 1994 additionally reflect an approximately $1.175
million staff reduction made by MRMC, Inc. in December 1994 and January
1995 which reduced production employees by 33.
Proforma adjustments for 1994 and nine months ended September 30, 1995
include the elimination of an additional 32 production employees not
hired by LEC at acquisition.
b. Reverse the effect of the obsolescence reserve recorded in the quarter
ended September 30, 1995.
c. Increase expense for the rental of plant facility at $15,000 per month.
d. Record annual depreciation expense based on the basis after purchase
price adjustment, of machinery and equipment acquired depreciated over
the 15 year lives of machinery and equipment.
e. Reflect annual interest charges on $1,000,000 of 12% convertible notes,
$2,800,000 of 9.85% term note and $1,400,000 line of credit secured to
finance the acquisition.
f. Increase in income taxes as a result of the pro forma pretax earnings of
the division.
g. Increase in earnings per share as a result of pro forma earnings of the
division acquired and increase in weighted average of common stock
equivalents for the effect of 400,000 warrants sold in connection with
$1,000,000 convertible note.
h. Eliminate intercompany sales and cost of goods sold.
i. Increase general and administrative expenses for office supplies, data
processing, telephone, professional fees and travel and entertainment.
Proforma amounts based on LEC's historical usage, data processing system
to be implemented, number of telephones, estimated additional audit and
legal fees and travel anticipated between Houston and Connecticut.
j. Increase commission expense by 1% to percentage expected to be paid by
LEC and to a percentage comparable with Milford Rivet in 1994.
23
