SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-19580
INDUSTRIAL HOLDINGS, INC.
(exact name of registrant as specified in its charter)
TEXAS
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
76-0289495
(IRS EMPLOYER
IDENTIFICATION NO.)
7135 ARDMORE, HOUSTON, TEXAS 77054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 747-1025
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
At May 13, 1997, there were 6,009,273 shares of Common Stock
outstanding.
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INDUSTRIAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at March 31, 1997 and 1
December 31, 1996
Consolidated Statement of Income for the Quarters ended 2
March 31, 1997 and 1996
Consolidated Statement of Cash Flows for the Quarters 3
ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities (no response required)
Item 3. Defaults upon Senior Securities
(no response required)
Item 4. Submission of Matters to a Vote of
Security Holders (no response required)
Item 5. Other Information (no response required)
Item 6. Exhibits and reports on Form 8-K 7
</TABLE>
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INDUSTRIAL HOLDING, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 835,009 $3,087,925
Accounts receivable - trade, net 10,128,472 6,756,218
Inventories 11,784,138 9,970,337
Advances to shareholders 77,809 77,086
Notes receivable, current portion 208,493 207,549
Other current assets 598,981 333,839
------------ -------------
Total current assets 23,632,902 20,432,954
Property and equipment, net 19,352,856 15,579,410
Notes receivable, less current portion 1,448,806 1,464,393
Other assets 714,896 714,495
Goodwill and other, net 12,703,235 5,498,271
----------- -----------
Total assets $57,852,695 $43,689,523
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $10,679,387 $ 9,615,917
Accounts payable - trade 6,749,123 4,601,082
Accrued expenses and other 2,382,884 1,721,487
Current portion of long-term debt 3,176,053 1,393,712
------------ ------------
Total current liabilities 22,987,447 17,332,198
Long-term debt, less current portion 7,210,227 7,326,444
Deferred compensation payable,
less current portion 259,730 285,532
Deferred income taxes payable 2,669,134 2,190,902
----------- ------------
Total liabilities 33,126,538 27,135,076
---------- -----------
Shareholders' equity:
Common stock $.01 par value, 20,000,000
shares authorized, 5,848,689 and 4,851,494
shares issued and outstanding 58,487 48,515
Additional paid-in capital 23,004,527 15,360,801
Retained earnings 1,663,143 1,145,131
------------ -------------
Total shareholders' equity 24,726,157 16,554,447
----------- ------------
Total liabilities and shareholders' equity $57,852,695 $43,689,523
=========== ===========
</TABLE>
See notes to consolidated financial statements
1
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INDUSTRIAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1997 1996
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<S> <C> <C>
Sales $17,304,348 $12,015,008
Cost of sales 12,754,674 9,456,076
----------- -----------
Gross profit 4,549,674 2,558,932
Selling, general and administrative 3,327,479 1,876,054
------------ -----------
Income from operations 1,222,195 682,878
------------ ------------
Other income (expense):
Interest expense (434,378) (348,341)
Interest income 53,488 26,740
Other income (expense) 10,007 (2,537)
-------------- ---------------
Total other income (expense) 370,883 (324,138)
------------- -------------
Income before income taxes 851,312 358,740
Income tax expense 333,300 121,972
------------ ------------
Net income $ 518,012 $ 236,768
=========== ===========
Earnings per share $ .09 $ .07
=========== ===========
</TABLE>
See notes to consolidated financial statements
2
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INDUSTRIAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 518,012 $ 236,768
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 527,772 315,994
Deferred income tax provision 31,154 36,972
Deferred compensation paid (25,802)
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable and advances to
shareholders (302,035) (1,505,803)
Inventories (151,524) (688,380)
Notes receivable 14,643 26,735
Other assets (241,489) (216,158)
Accounts payable (14,885) 975,661
Accrued expenses 983 (169,278)
-------------- -------------
Net cash provided (used)
by operating activities 356,829 (987,489)
Cash flows from investing activities:
Purchase of property and equipment (624,287) (170,350)
Purchase of subsidiaries, net of cash (1,734,841)
Additional consideration paid to former
shareholders of Landreth and PVS (55,930)
----------------- ------------
Net cash used by investing activities (2,359,128) (226,280)
----------------- ------------
Cash flows from operating activities:
Net borrowing under revolving line of credit 33,046 845,054
Proceeds from long-term debt 407,115
Principal payments on notes payable,
long-term debt and capital lease obligations (1,418,462) (826,629)
Proceeds from issuance of common stock 727,684 981,472
----------------- ------------
Net cash provided (used) by financing activities (250,617) 999,897
----------------- ------------
Net decrease in cash and equivalents (2,252,916) (213,872)
Cash and equivalents, beginning of period 3,087,925 428,430
----------------- ------------
Cash and equivalents, end of period $ 835,009 $ 214,558
================= ============
Non-cash financing activities:
Debt converted to equity $ 360,000
</TABLE>
See notes to consolidated financial statements
3
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INDUSTRIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
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. Operating
results for the quarter ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December
31, 1996.
NOTE B INVENTORY
Inventory consists of the following:
March 31 December 31
1997 1996
----------- -----------
Raw materials $ 1,827,746 $ 1,477,051
Finished goods 8,574,875 7,130,702
Other 1,381,517 1,362,584
----------- -----------
$11,784,138 $9,970,337
NOTE C RECLASSIFICATION
Reclassifications of amounts have been made from selling, general
and administrative expenses to cost of sales for the quarter ended
March 31, 1996 to conform to the classification in the quarter ended
March 31, 1997. Certain reclassifications have been made to the
statement of cash flows for the quarter ended March 31, 1996 to
conform to the classification used for the current quarter.
4
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PART I
FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The financial information in the following discussion of Industrial
Holdings, Inc. (including its subsidiaries, the "Company"),
includes the operating results of Industrial Holdings, Inc. ("IHI")
and its subsidiaries. The Company's business is organized into two
divisions: the Fastener Manufacturing and Sales Division, comprised
of Landreth Engineering Company ("LEC"), Connecticut Rivet
("CRivet"), American Rivet Company ("American"), acquired November
1996, and LSS-Lone Star - Houston, Inc. ("Lone Star"), acquired
February 1997, and the Energy Products and Services Division
comprised of the Valve and Supplies Sales Group which includes
Pipeline Valve Specialty ("PVS"), Industrial Municipal Supply
Company ("IMSCO") and Manifold Valve Service ("MVS"), acquired March
1997; the New Machine Sales and Services Group which includes Regal
Machine Tools ("Regal") and Rex Machinery Movers ("RMM"); the Export
Crating Group which includes U.S. Crating ("USC"); and the Used
Machine Sales Group which includes Rex/Paul's Machine Sales
("RPMS"). Regal, RMM, USC and RPMS comprise the Rex Group ("Rex").
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED WITH QUARTER ENDED MARCH 31,
1996.
SALES. On a consolidated basis, sales increased $5,289,340 or 44%
for the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996. This increase was primarily the result of the
acquisitions of Lone Star in February 1997 and American in November
1996.
COST OF SALES. Cost of sales increased $3,298,598 or 35% for the
quarter ended March 31, 1997 compared to the quarter ended March 31,
1996, primarily as a result of the increase in sales described in
the preceding paragraph.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1,451,425 or 77% for the quarter
ended March 31, 1997 compared to the quarter ended March 31, 1996.
This increase was primarily attributable to the acquisitions of Lone
Star and American. Selling, general and administrative expenses
increased a greater percentage than sales primarily as a result of
amortization of goodwill related to the acquisitions of Lone Star
and American.
INTEREST EXPENSE. Interest expense increased $86,037 or 25% for the
quarter ended March 31, 1997 compared to the quarter ended March 31,
1996 primarily as a result of debt incurred in the acquisitions of
Lone Star and American.
INCOME TAXES. The Company's effective tax rate was 39% for the
quarter ended March 31, 1997 compared to 34% for the quarter ended
March 31, 1996.
TOTAL ASSETS. Total assets were $57,852,695 at March 31, 1997
compared to $43,689,523 at December 31, 1996. This increase was
primarily attributable to an increase in goodwill, accounts
receivable, and property and equipment as a result of the
acquisitions of Lone Star and MVS.
5
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TOTAL LIABILITIES. Total liabilities were $33,126,538 at March 31,
1997 compared to $27,135,076 at December 31, 1996. This increase was
primarily attributable to an increase in trade accounts payable,
notes payable, and long term debt as a result of the acquisitions of
Lone Star and MVS.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1997, the Company had
cash of $835,009 and additional borrowing capacity under its line of
credit of $1,538,425. The Company's operations provided cash of
$356,829 during the quarter ended March 31, 1997 compared to using
cash of $987,489 during the quarter ended March 31, 1996. This
change is due to a significant increase in accounts receivable for
the quarter ended March 31, 1996 as a result of the acquisition of
CRivet. CRivet was acquired in December 1995. Accounts receivable
were not purchased by the Company as part of the acquisition. At
March 31, 1996, CRivet's accounts receivables balance was
$1,602,009, a $970,152 increase from December 31, 1995.
Investing activities used cash of $2,359,128 for the quarter ended
March 31, 1997 compared to $226,280 for the quarter ended March 31,
1996. This increased use of cash was attributable to the acquisition
of Lone Star and increased capital expenditures in the first quarter
of 1997 compared to the first quarter of 1996. Capital expenditures
for property and equipment increased 266% for the quarter ended
March 31, 1997 compared to the quarter ended March 31, 1996
primarily as a result of the purchase of new equipment and leasehold
improvements for the Company's fastener manufacturing operations.
Financing activities used cash of $250,617 for the quarter ended
March 31, 1997 compared to providing cash of $999,897 for the
quarter ended March 31, 1996. This change is due to a decrease in
net borrowings in the current quarter.
At March 31, 1997, the Company had working capital of $645,455,
long-term debt of $7,210,227 and shareholders' equity of
$24,726,157. The Company anticipates that its operating cash needs
for fiscal 1997 can be met with cash generated from operations,
borrowings under its credit facilities with Comerica Bank-Texas, and
private placements of debt securities. However, any acquisition of
companies in connection with the Company's acquisition strategy will
require additional financing, which likely would include a
combination of debt and equity financing.
6
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in litigation arising in the ordinary
course of its business. In the opinion of management, the
ultimate liability, if any, as a result of these matters will not
have a material adverse effect on the Company's consolidated
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Earnings per Share
(b) Reports on Form 8-K
On February 18, 1997, the Company filed a Report on Form 8-K
disclosing the execution of a Stock Purchase Agreement by and
among the Company and Judith Jandl to purchase all the
outstanding capital stock of LSS-Lone Star - Houston, Inc. for
approximately $5.9 million including estimated transaction
expenses.
On January 24, 1997, the Company filed a Report on Form 8-K which
included the audited financial statements of American Rivet, Inc.
for the fiscal years ended August 31, 1996 and 1995 and the pro
forma combined financial statements of IHI and American as of and
for the nine months ended September 30, 1996 and the year ended
December 31, 1995.
7
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant, Industrial Holdings, Inc., has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INDUSTRIAL HOLDINGS, INC.
Date: May 15, 1997 By: /S/CHRISTINE A. SMITH
Christine A. Smith
Chief Financial Officer and
Vice President
8
INDUSTRIAL HOLDINGS, INC.
EARNINGS PER SHARE
MARCH 31, 1997
Earnings per share is based upon the weighted average number of common and
common equivalent shares outstanding during the period as follows:
QUARTER ENDED MARCH 31
1997 1996
------------- -------------
Average common shares outstanding 5,135,025 3,137,316
Net effect of dilutive stock options
and warrants, based on the treasury
stock method using average
market price 920,949 453,762
------------- -------------
6,055,974 3,591,077
Net income $ 518,012 $ 236,768
============= =============
Earnings per share $ .09 $ .07
============= =============
The above table represents primary earnings per share. Fully diluted earnings
per share for the quarter ended March 31, 1997 and 1996 were the same as primary
earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1996
<CASH> 835,009
<SECURITIES> 0
<RECEIVABLES> 11,785,771
<ALLOWANCES> 0
<INVENTORY> 11,784,138
<CURRENT-ASSETS> 23,632,902
<PP&E> 19,352,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,852,695
<CURRENT-LIABILITIES> 22,987,447
<BONDS> 0
0
0
<COMMON> 58,487
<OTHER-SE> 24,667,670
<TOTAL-LIABILITY-AND-EQUITY> 57,852,695
<SALES> 17,304,348
<TOTAL-REVENUES> 17,304,348
<CGS> 12,754,674
<TOTAL-COSTS> 16,082,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,378
<INCOME-PRETAX> 851,312
<INCOME-TAX> 333,300
<INCOME-CONTINUING> 518,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518,012
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
