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) MARCH 29, 1997
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer
incorporation) 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.)
<PAGE>
ITEM 5. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF ACQUIRED COMPANY.
1. Financial Statements of Manifold Valve Service, Inc.
Independent Auditor's Report.............................. 4
Balance Sheets at December 31, 1995 and 1996 and
February 28, 1997 (Unaudited)............................ 5
Statements of Income and Retained Earnings for the
Years Ended December 31, 1995 and 1996 and
Unaudited for Each of the Two Months Ended
February 28, 1996 and 1997............................... 7
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1996 and Unaudited for Each
of the Two Months Ended February 28, 1996 and 1997....... 8
Notes to Financial Statements............................. 9
(b) PRO FORMA FINANCIAL INFORMATION
1. Pro Forma Financial Statements:
Pro Forma Condensed Consolidated Financial
Statements (Unaudited)................................... 13
Pro Forma Condensed Consolidated Statement of Income
for the Three Months Ended March 31, 1997 (Unaudited).... 14
Pro Forma Condensed Consolidated Statement of Income
for the Year Ended December 31, 1996 (Unaudited)......... 15
Notes to Pro Forma Condensed Consolidated Statements
of Income (Unaudited).................................... 16
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: June 12, 1997
3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Manifold Valve Service, Inc.
We have audited the accompanying balance sheets of Manifold Valve Service, Inc.
as of December 31, 1995 and 1996, and the related statements of income and
retained earnings, 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 generally accepted auditing
standards. 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 Manifold Valve Service, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Houston, Texas
February 21, 1997, except as to Note 10,
which is as of March 29, 1997
4
<PAGE>
MANIFOLD VALVE SERVICE, INC.
BALANCE SHEETS
DECEMBER 31,
----------------------- FEBRUARY 28,
1995 1996 1997
---------- ---------- ----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........... $ 75,024 $ 366,367 $ 185,399
Accounts receivable:
Trade, net of allowance for
doubtful accounts of $15,000 836,293 1,020,287 1,363,332
Other .......................... 8,369 3,544 500
Inventory ........................... 640,335 870,844 881,293
Income taxes recoverable from parent -- 29,632 --
Other current assets ................ 26,256 29,014 30,007
---------- ---------- ----------
Total current assets ...... 1,586,277 2,319,688 2,460,531
Property and Equipment, net ............. 575,459 739,976 821,066
Other Assets, net ....................... 24,200 -- --
---------- ---------- ----------
Total assets .............. $2,185,936 $3,059,664 $3,281,597
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable .................... $ 175,523 $ 258,582 $ 581,030
Accrued expenses .................... 73,219 144,944 67,254
Income taxes payable to parent ...... 39,937 -- 101,295
---------- ---------- ----------
Total current liabilities . 288,679 403,526 749,579
Deferred Income Taxes Payable ........... 36,556 54,337 58,672
Commitments and Contingencies (Note 5)
Stockholder's Equity
Common stock, $.01 par value; 10,000
shares authorized, issued and
outstanding ....................... 100 100 100
Additional paid-in capital .......... 1,106,172 1,106,172 1,106,172
Retained earnings ................... 754,429 1,495,529 1,367,074
---------- ---------- ----------
Total stockholder's equity ..... 1,860,701 2,601,801 2,473,346
---------- ---------- ----------
Total liabilities and
stockholder's equity ........ $2,185,936 $3,059,664 $3,281,597
========== ========== ==========
See accompanying notes to these financial statements.
5
<PAGE>
MANIFOLD VALVE SERVICE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWO MONTHS ENDED FEBRUARY 28,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues ............................. $ 5,860,346 $ 6,373,825 $ 880,162 $ 1,761,888
Costs and Expenses:
Cost of sales .................... 3,974,670 4,207,230 657,152 1,276,339
Depreciation and amortization .... 128,149 159,105 21,783 16,216
General and administrative ....... 774,322 842,935 115,219 152,461
------------ ------------ ------------ ------------
Total costs and expenses 4,877,141 5,209,270 794,154 1,445,016
------------ ------------ ------------ ------------
Income From Operations ............... 983,205 1,164,555 86,008 316,872
Other Income (Expense):
Interest income (expense), net ... (9,749) 7,538 380 2,982
Other, net ....................... 26,320 8,234 (332) 165
------------ ------------ ------------ ------------
Total other income ..... 16,571 15,772 48 3,147
------------ ------------ ------------ ------------
Income Before Income Tax Expense ..... 999,776 1,180,327 86,056 320,019
Income Tax Expense:
Federal:
Current ..................... 323,000 364,068 27,900 66,990
Deferred .................... -- 17,781 -- 4,335
State ............................ 50,500 57,378 4,100 10,630
------------ ------------ ------------ ------------
373,500 439,227 32,000 81,955
------------ ------------ ------------ ------------
Net Income ........................... 626,276 741,100 54,056 238,064
Distributions to Parent .............. -- -- -- (366,519)
Retained Earnings, beginning of period 128,153 754,429 754,429 1,495,529
------------ ------------ ------------ ------------
Retained Earnings, end of period ..... $ 754,429 $ 1,495,529 $ 808,485 $ 1,367,074
============ ============ ============ ============
</TABLE>
See accompanying notes to these financial statements.
6
<PAGE>
MANIFOLD VALVE SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWO MONTHS ENDED FEBRUARY 28,
------------------------ -----------------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income ................................. $ 626,276 $ 741,100 $ 54,056 $ 238,064
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ......... 128,149 159,105 21,783 16,216
Deferred income tax expense ........... -- 17,781 -- 4,335
Changes in assets and liabilities:
Receivables ...................... 4,799 (179,169) (7,752) (340,001)
Inventory ........................ (99,419) (230,509) 10,497 (10,449)
Income taxes recoverable/
payable ...................... 19,700 (69,569) 29,738 130,927
Other current assets ............. (244) (2,758) (10,616) (993)
Accounts payable ................. 2,834 83,059 18,940 322,448
Accrued expenses ................. (312,726) 71,725 70,682 (77,690)
Other ............................ -- -- (57,736) 8,851
--------- --------- --------- ---------
Net cash provided by operating
activities ....................... 369,369 590,765 129,592 291,708
Cash Flows From Investing Activities:
Purchases of property and equipment ........ (79,809) (317,153) (3,625) (106,157)
Proceeds from sale of property and equipment -- 17,731 -- --
--------- --------- --------- ---------
Net cash used in investing activities . (79,809) (299,422) (3,625) (106,157)
Cash Flows From Financing Activities:
Repayments of long-term debt ............... (401,884) -- -- --
Distributions to parent .................... -- -- -- (366,519)
--------- --------- --------- ---------
Net cash used in financing
activities ............................ (401,884) -- -- (366,519)
--------- --------- --------- ---------
(Decrease) Increase in Cash and Cash
Equivalents ................................ (112,324) 291,343 125,967 (180,968)
Cash and Cash Equivalents, beginning
of period .................................. 187,348 75,024 75,024 366,367
--------- --------- --------- ---------
Cash and Cash Equivalents, end of
period ..................................... $ 75,024 $ 366,367 $ 200,991 $ 185,399
========= ========= ========= =========
Supplemental Cash Flow Disclosures:
Interest paid .............................. $ 23,073 $ -- $ -- $ --
Income taxes paid .......................... $ 349,500 $ 393,700 $ -- $ --
========= ========= ========= =========
</TABLE>
See accompanying notes to these financial statements.
7
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - Manifold Valve Service, Inc. (the Company) primarily
repairs and remanufactures high pressure valves that are principally
used in oil and gas drilling applications, primarily along the U.S. Gulf
Coast and worldwide. The Company is wholly-owned by Catalyst Energy
Services, Inc. (CESI).
REVENUE RECOGNITION - Revenue on valve repair and remanufacture services
is recognized upon the delivery of the equipment to the customer.
INVENTORY - Inventories are stated at the lower of cost or market with
cost determined using the first-in, first-out method for the valve parts
and specific identification for valve finished goods.
USE OF ESTIMATES - The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is recorded using the straight-line method over a range of
estimated useful lives of the assets as follows:
Building 10 years
Machinery and equipment 5-10 years
Vehicles 5 years
Furniture and fixtures 3-10 years
INCOME TAXES - The accounts of the Company are included in the
consolidated federal income tax return of CESI. The income taxes
recognized in the accompanying financial statements were determined on a
separate return basis. Deferred income taxes are accounted for under the
liability method, whereby deferred tax assets and liabilities are
recognized for the expected tax effect of current differences between the
tax and financial reporting bases of the Company's assets and liabilities.
The Company's deferred tax liability represents the difference between tax
and financial reporting methods for determining the depreciation on
property and equipment.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK - The Company maintains deposits in banks
which may exceed the amount of federal deposit insurance available.
Management believes that the risk of any possible deposit loss is minimal.
8
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
NEW ACCOUNTING STANDARDS - The Financial Accounting Standards Board (the
FASB) issued SFAS No. 121 entitled IMPAIRMENT OF LONG-LIVED ASSETS which
is effective beginning in 1996. SFAS No. 121 specifies certain events and
circumstances which indicate the cost of an asset or assets may be
impaired, the method by which the evaluation should be performed and the
method by which writedowns, if any, of the asset or assets are to be
determined and recognized. SFAS No. 121 did not have a material impact on
the Company's financial condition or operating results upon
implementation.
The FASB also issued SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, effective for fiscal years beginning after December 15,
1995. This statement allows companies to choose to adopt the statement's
new rules for accounting for employee stock-based compensation plans. For
those companies which choose not to adopt the new rules, the statement
required disclosures as to what earnings and earnings per share would have
been if the new rules had been adopted. SFAS No. 123 did not have a
material impact on the Company's financial condition or operating results
upon implementation.
UNAUDITED INTERIM INFORMATION: The balance sheet as of February 28, 1997
and the statements of income and retained earnings for the two months
ended February 28, 1996 and 1997 (February 29 for 1996, but is presented
herein as February 28), were taken from the Company's books and records
without audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring accruals),
which are necessary to properly reflect the financial position of the
Company as of February 28, 1997, and the results of its operations and its
cash flows for the two months ended February 28, 1996 and 1997. The
results of operation for the interim periods presented are not necessarily
indicative of the results to be expected for the year.
2. INVENTORY:
Inventory consisted of the following categories at December 31, 1995 and
1996:
DECEMBER 31,
----------------------------- FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
(Unaudited)
Valve parts ................. $ 274,714 $ 377,616 $ 355,196
Valve finished goods ........ 365,621 493,228 526,097
------------ ------------ ------------
$ 640,335 $ 870,844 $ 881,293
============ ============ ============
9
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
DECEMBER 31,
---------------------------- FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
(Unaudited)
Building ........................ $ 4,919 $ 4,919 $ 4,919
Transportation equipment ........ 144,917 144,917 247,818
Office equipment and machinery .. 726,805 1,017,869 1,021,125
------------ ------------ ------------
876,641 1,167,705 1,273,862
Less accumulated depreciation and
amortization ............... (301,182) (427,729) (452,796)
------------ ------------ ------------
$ 575,459 $ 739,976 $ 821,066
============ ============ ============
4. INCOME TAXES:
The following is a reconciliation of expected to actual income tax
expense:
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996
------------ ------------
Federal income tax expense at 34% .......... $ 339,924 $ 401,311
State income taxes and
nondeductible expenses ............... 33,576 37,916
------------ ------------
$ 373,500 $ 439,227
============ ============
5. RELATED PARTY TRANSACTIONS:
In January 1992, the Company entered into a five-year lease agreement with
the president of the Company for the lease of real property located in
Jennings, Louisiana. In December 1996, the Company signed a three-year
renewal extending the lease term through December 31, 1999, at a lease
rate of $5,000 per month. Rent expense was $60,000 for the years ended
December 31, 1995 and 1996.
Effective January 1992, the Company entered into separate five-year
employment agreements with three of its officers. As part of the
agreement, the Company agreed to pay an annual performance bonus equal to
30% of annual adjusted earnings before interest and taxes in excess of
$500,000. The bonus was not to exceed an aggregate of $800,000 during the
term of the agreements, which aggregate was met during 1996. In addition,
the officers agreed not to compete with the Company for the three years
subsequent to the expiration of the agreement. Effective November 1996,
the Company entered into new two-year employment agreements with the same
three officers. As part of these agreements, the Company has agreed to pay
the three officers collectively, an annual performance bonus equal to 2%
of the Company's adjusted earnings before interest and taxes, as defined.
10
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS:
For the years ended December 31, 1995 and 1996, the Company recognized
expenses of approximately $240,000 and $208,000, respectively, related to
these bonus agreements.
6. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers generated approximately 84% and 80% of
its revenues for the years ended December 31, 1995 and 1996, respectively.
The largest customer represented 18% and 17% of the Company's revenues for
the years ended December 31, 1995 and 1996, respectively.
Three customers (representing in excess of 10% individually) had balances
that approximated 60% and 44% of the outstanding accounts receivable at
December 31, 1995 and 1996, respectively, and two customers approximated
51% at February 28, 1997. The Company performs ongoing evaluations of its
customers and generally does not require collateral. The Company assesses
its credit risk and provides an allowance for doubtful accounts which it
deems doubtful of collection.
7. BENEFIT PLAN:
The Company participates in CESI's defined contribution 401(k) plan
covering substantially all of its employees who have completed one year of
service. The Company makes contributions to the Plan at its discretion and
such contributions vest to the participants over a five-year period. The
Company made contributions to the Plan during the years ended December 31,
1995 and 1996, of approximately $32,000 and $28,000, respectively.
8. CREDIT FACILITY:
In September 1995, the Company entered into a revolving credit facility
with a bank. This facility allowed the Company to borrow an amount
relative to certain current assets, up to a maximum of $500,000. The
interest rate charged was the bank's prime rate plus 3/4% and was payable
monthly. The Company had no outstanding amounts at December 31, 1995 under
this facility, which was canceled in December 1996.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of trade receivables and
payables. The Company believes the carrying value of these financial
instruments approximate their estimated fair value.
11
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
10. SUBSEQUENT EVENT:
Effective March 1, 1997, CESI contracted to sell 100% of the outstanding
common stock of the Company to a third party for consideration valued at
approximately $6,450,000.
12
<PAGE>
MANIFOLD VALVE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
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 Manifold Valve Service, Inc.
("MVS") in a transaction accounted for as a purchase which closed March 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 statements of income are
based on the income statements of IHI in the 1996 Annual Report filed on Form
10-K and in the Report on Form 10-Q for the quarter ended March 31, 1997, the
statements of income for LSS-Lone Star Houston, Inc. ("Lone Star") for the year
ended December 31, 1996 and the month ended January 31, 1997 (not presented
separately herein), the income statement of American Rivet Company, Inc.
("American") for the ten months ended October 31, 1996 (not presented separately
herein) and the income statement of MVS for the year-ended December 31, 1996 and
the two month period ended February 28, 1997. The unaudited pro forma condensed
consolidated statements of income combine the results of operations of IHI, Lone
Star, American and MVS for the year ended December 31, 1996 as if the
acquisitions had occurred on January 1, 1996 and combine the results of
operations of IHI, Lone Star and MVS for the three months ended March 31, 1997
as if the acquisitions had occurred on January 1, 1997.
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 in the Report on Form 10-Q for the
quarter ended March 31, 1997 and the financial statements of American filed with
Form 8-K/A dated November 18, 1996, Lone Star filed with Form 8-K/A dated
February 6, 1997 and MVS included elsewhere in this Form 8-K.
13
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 1)
------------------------------- --------------------
IHI MVS LONE STAR MVS LONE STAR COMBINED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales .......................... $ 17,304 $ 1,762 $ 1,268 $ -- $ -- $ 20,334
Cost of sales .................. 12,755 1,293 982 -- 6(c) 15,036
-------- -------- -------- -------- -------- --------
Gross profit ................... 4,549 469 286 -- (6) 5,298
Operating expenses ............. 3,327 152 371 -- (48)(a) 3,832
-- -- -- 17 13(c) --
-------- -------- -------- -------- -------- --------
Income from operations ......... 1,222 317 (85) (17) 29 1,466
Other income (expense):
Interest expense ............ (434) -- (26) -- 1(d) (459)
Interest income ............. 53 3 -- (3) -- 53
Other income (expense) ...... 10 -- (8) -- 8(e) 10
-------- -------- -------- -------- -------- --------
Total other income (expense) (371) 3 (34) (3) 9 (396)
-------- -------- -------- -------- -------- --------
Income before income taxes ..... 851 320 (119) (20) 38 1,070
Income tax expense ............. 333 82 (37) (5) 8(f) 381
-------- -------- -------- -------- -------- --------
Net income ..................... $ 518 $ 238 $ (82) $ (15) $ 30 $ 689
======== ======== ======== ======== ======== ========
Earnings per share (g) $ .09 $ .10
======== ========
</TABLE>
14
<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
---------------------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 1)
---------------------------------------- ----------------------------------
IHI MVS LONE STAR AMERICAN MVS LONE STAR AMERICAN COMBINED
-------- ------ -------- ------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ....................... $ 51,423 $6,374 $ 15,474 $ 7,699 -- -- -- $ 80,970
Cost of sales ............... 40,849 4,366 9,498 5,930 -- $ 26 (14)(c) --
-- -- -- -- 2,163 (b) 62,676
-- -- -- -- -- -- (142)(a) --
-------- ------ -------- ------- ------- ------- ------------ --------
Gross profit ................ 10,574 2,008 5,976 1,769 -- (2,189) 156 18,294
Operating expenses .......... 8,002 843 5,587 1,355 -- (392) (479)(a) 13,250
-- -- -- -- -- (2,163) -- (b) --
-- -- -- -- 205 160 132 (c) --
-------- ------ -------- ------- ------- ------- ------------ --------
Income from operations ...... 2,572 1,165 389 414 (205) 206 503 5,044
Other income (expense):
Interest expense ........... (1,336) -- (114) -- -- (183) (431)(d) (2,064)
Interest income ............ 160 8 -- 79 (8) -- (79)(e) 160
Other income (expense) ..... 139 8 1 (89) (8) (1) 89 (e) 139
-------- ------ -------- ------- ------- ------- ------------ --------
Total other income (expense) (1,037) 16 (113) (10) (16) (184) (421) (1,765)
-------- ------ -------- ------- ------- ------- ------------ --------
Income before income taxes .. 1,535 1,181 276 404 (221) 22 82 3,279
Income tax expense .......... 408 439 90 181 (13) 7 37 (f) 1,149
-------- ------ -------- ------- ------- ------- ------------ --------
Net income .................. $ 1,127 $ 742 $ 186 $ 223 $ (208) $ 15 $ 45 $ 2,130
======== ====== ======== ======= ======= ======= ============ ========
Earnings per share (g) $ .26 $ .38
======== ========
</TABLE>
15
<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 the acquired subsidiary.
g. Increase in earnings per share as a result of pro forma earnings of
the acquired subsidiary and increase in weighted average of common
stock equivalents (i) for MVS for the effect of 600,000 shares of
IHI common stock issued to the selling shareholder (ii) for Lone
Star for the effect of 84,211 shares of IHI common stock issued to
selling shareholder, (iii) for American for the effect of 540,000
warrants, and (iv) 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.
16
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion of our report dated February 21, 1997, with
respect to the balance sheets of Manifold Valve Service, Inc. as of December 31,
1995 and 1996, and the related statements of income and retained earnings, and
cash flows for the year then ended, which report appears in the Form 8-K of
Industrial Holdings, Inc. dated June 12, 1997.
HEIN + ASSOCIATES LLP
Houston, Texas
June 12, 1997
