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 17, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
TEXAS 76-0289495
(State of other 1-9580 (IRS Employer Identification
jurisdiction of incorporation) (Commission File Number) No.)
</TABLE>
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
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Acquired Companies
Independent Auditors' Report............................................ 3
Balance Sheets at December 31, 1996 and 1997 and
June 30, 1998 (Unaudited)....................................... 4
Statements of Income for the Years Ended December 31, 1995,
1996 and 1997 and the Six Months Ended June 30, 1997
and 1998 (Unaudited)............................................ 5
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and the Six Months
Ended June 30, 1998 (Unaudited)................................. 6
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Six Months Ended
June 30, 1997 and 1998 (Unaudited).............................. 7
Notes to Financial Statements........................................... 8
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial Statements (Unaudited).......13
Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998 (Unaudited).......................................15
Notes to Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998 (Unaudited).......................................17
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1997 (Unaudited)........................18
Pro Forma Condensed Consolidated Statement of Operations for the
Six Months Ended June 30, 1998 (Unaudited)......................19
Notes to Pro Forma Condensed Consolidated Statements of
Operations (Unaudited)..........................................20
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
A & B Bolt & Supply, Inc.
Lafayette, Louisiana
We have audited the accompanying balance sheets of A & B Bolt & Supply, Inc. (an
S Corporation) as of December 31, 1997 and 1996, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. 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.
Except as discussed in the following paragraph, we conducted our audits 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
audits provide a reasonable basis for our opinion.
We did not observe the taking of the physical inventories as of December 31,
1996, 1995 and January 1, 1995, since those dates were prior to our engagement
as auditors. We observed the taking of physical inventories subsequent to
December 31, 1997, however, the Company's records do not permit adequate
retroactive tests of inventory quantities and costs and we were unable to
satisfy ourselves about inventory quantities and costs, stated at $5,896,080 and
$2,472,915 at December 31, 1997 and 1996, respectively, by means of other
auditing procedures.
In our opinion, except for the effects of such adjustment, if any, as might have
been determined to be necessary had we been able to perform the procedures
necessary for us to satisfy ourselves about the inventory recorded in the
financial statements, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of A
& B Bolt & Supply, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arsement, Redd & Morella, L.L.C.
April 30, 1998
Lafayette, Louisiana
3
<PAGE>
A & B BOLT & SUPPLY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
-------------------------------- June 30,
1996 1997 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents ............................... $ 70,605 $ 73,613 $ 1,449
Accounts receivable, net ................................ 4,705,370 5,016,379 4,199,036
Employee loans and advances ............................. 7,431 18,704 18,988
Inventory ............................................... 2,472,915 5,896,080 5,716,819
Prepaid expenses and other current assets ............... 59,189 85,257 49,564
Total Current Assets ............................... 7,315,510 11,090,033 9,985,856
------------ ------------ ------------
Property, Plant and Equipment: ................................ 1,248,402 1,917,805 2,167,445
Less: accumulated depreciation ............................... (614,580) (862,799) (1,013,240)
------------ ------------ ------------
633,822 1,055,006 1,154,205
------------ ------------ ------------
Other Assets: ................................................. 8,555 7,930 18,452
------------ ------------ ------------
$ 7,957,887 $ 12,152,969 $ 11,158,513
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft .......................................... $ 348,975 $ 709,454 $ 571,395
Current maturities of long-term debt .................... 183,303 322,918 344,050
Short-term bank borrowings .............................. 986,928 1,111,737 1,383,614
Notes payable ........................................... 93,478 77,178 31,596
Accounts payable ........................................ 2,883,474 2,128,113 1,538,077
Payable to profit sharing plan .......................... 141,244 72,521 9,049
Due to stockholders ..................................... 36,201 21,201 21,201
Other accrued liabilities ............................... 42,202 86,555 105,946
------------ ------------ ------------
Total Current Liabilities .......................... 4,715,805 4,529,677 4,004,928
------------ ------------ ------------
Stockholders' Equity:
Common stock; no par value, 100 shares
authorized, issued and outstanding ...................... 1,000 1,000 1,000
Retained earnings ....................................... 3,241,082 7,622,292 7,152,585
------------ ------------ ------------
3,242,082 7,623,292 7,153,585
------------ ------------ ------------
$ 7,957,887 $ 12,152,969 $ 11,158,513
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
A & B BOLT & SUPPLY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue ....................................... $ 19,591,197 $ 29,810,675 $ 36,605,427 $ 18,719,270 $ 13,332,695
Cost of Goods Sold ............................ 14,603,171 22,784,028 24,942,283 12,723,130 9,028,019
------------ ------------ ------------ ------------ ------------
Gross Profit ............................ 4,988,026 7,026,647 11,663,144 5,996,140 4,304,676
------------ ------------ ------------ ------------ ------------
General and Administrative Expenses ........... 3,474,991 4,192,915 4,859,674 2,181,425 2,469,808
Depreciation .................................. 121,641 152,763 248,219 95,511 150,441
------------ ------------ ------------ ------------ ------------
3,596,632 4,345,678 5,107,893 2,276,936 2,620,249
------------ ------------ ------------ ------------ ------------
Income From Operations .................. 1,391,394 2,680,969 6,555,251 3,719,204 1,684,427
------------ ------------ ------------ ------------ ------------
Other Income (Expenses)
Interest expense ........................ (90,871) (140,898) (200,533) (104,166) (75,451)
Other income ............................ 36,428 19,239 118,084 104,042 14,317
------------ ------------ ------------ ------------ ------------
(54,443) (121,659) (82,449) (124) (61,134)
------------ ------------ ------------ ------------ ------------
Net Income .................................... $ 1,336,951 $ 2,559,310 $ 6,472,802 $ 3,719,080 $ 1,623,293
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
A & B BOLT & SUPPLY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ...................... 100 $ 1,000 $ 2,186,887 $ 2,187,887
Net income .................................. -- -- 1,336,951 1,336,951
Distributions to stockholders ............... -- -- (866,971) (866,971)
----------- ----------- ----------- -----------
Balance at December 31, 1995 ...................... 100 1,000 2,656,867 2,657,867
Net income .................................. -- -- 2,559,310 2,559,310
Distributions to stockholders ............... -- -- (1,975,095) (1,975,095)
----------- ----------- ----------- -----------
Balance at December 31, 1996 ...................... 100 1,000 3,241,082 3,242,082
Net income .................................. -- -- 6,472,802 6,472,802
Distributions to stockholders ............... -- -- (2,091,592) (2,091,592)
----------- ----------- ----------- -----------
Balance at December 31, 1997 ...................... 100 1,000 7,622,292 7,623,292
Net income (Unaudited) ...................... -- -- 1,623,293 1,623,293
Distributions to stockholders (Unaudited) ... -- -- (2,093,000) (2,093,000)
----------- ----------- ----------- -----------
Balance at June 30, 1998 (Unaudited) .............. 100 $ 1,000 $ 7,152,585 $ 7,153,585
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
A & B BOLT AND SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ......................................... $ 1,336,951 $ 2,559,310 $ 6,472,802 $ 3,719,080 $ 1,623,293
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation ..................................... 121,641 152,763 248,219 95,511 150,441
(Increase) decrease in accounts receivable ....... (634,299) (756,040) (311,009) (2,848,631) 817,343
(Increase) decrease in inventories ............... (828,773) (731,449) (3,423,165) (1,425,206) 179,261
(Increase) decrease in prepaid expenses .......... (9,849) (4,010) (26,068) 28,476 35,693
(Increase) decrease in other assets .............. (475) (5,625) 625 (6,875) (10,522)
Increase (decrease) in accounts payable .......... 155,757 997,970 (755,361) (242,974) (590,036)
Increase (decrease) in payable to profit
sharing plan ................................. (23,832) 26,651 (68,723) 4,799 (63,472)
Increase (decrease) in other liabilities ......... 38,224 (38,917) 44,353 85,866 19,391
------------ ------------ ------------ ------------ ------------
Total adjustments ........................ (1,181,606) (358,657) (4,291,129) (4,309,034) 538,099
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) by Operating
Activities ................................... 155,345 2,200,653 2,181,673 (589,954) 2,161,392
------------ ------------ ------------ ------------ ------------
Cash Flows from Investing Activities:
Payment for the purchase of fixed assets ......... (225,917) (342,981) (669,403) (381,923) (249,640)
Other ............................................ (2,869) (1,825) (11,273) (2,148) (284)
------------ ------------ ------------ ------------ ------------
Net Cash Used by Investing Activities ......... (228,786) (344,806) (680,676) (384,071) (249,924)
------------ ------------ ------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from bank overdraft, net ................ 304,288 1,948 360,479 393,927 (138,059)
Draws on line of credit .......................... 17,505,714 28,970,030 36,289,951 17,496,841 14,464,213
Payments on line of credit ....................... (16,912,534) (28,773,819) (36,165,142) (15,826,057) (14,192,336)
Proceeds from long-term debt ..................... 231,746 89,447 472,199 376,096 96,282
Principal payments on long-term debt ............. (184,533) (96,952) (332,584) (248,736) (75,150)
Proceeds from issuance of notes payable .......... 49,353 120,373 84,569 -- --
Principal payments on notes payable .............. (44,652) (68,998) (100,869) (70,163) (45,582)
Loan repayment to stockholders ................... (8,770) (52,929) (15,000) (13,000) --
Distributions to stockholders .................... (866,971) (1,975,095) (2,091,592) (1,158,988) (2,093,000)
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) by Financing
Activities ................................... 73,641 (1,785,995) (1,497,989) 949,920 (1,983,632)
------------ ------------ ------------ ------------ ------------
Net Change in Cash and Cash Equivalents ............ 200 69,852 3,008 (24,105) (72,164)
Cash and Cash Equivalents, Beginning of Period ..... 553 753 70,605 70,605 73,613
------------ ------------ ------------ ------------ ------------
Cash and Cash Equivalents, End of Period ........... $ 753 $ 70,605 $ 73,613 $ 46,500 $ 1,449
============ ============ ============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest ............. $ 86,795 $ 153,123 $ 191,394 $ 101,570 $ 98,436
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
A & B BOLT & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
A & B Bolt & Supply, Inc. (the "Company") (a Louisiana corporation) is
primarily engaged in the distribution and sale of nuts, bolts, valves,
pipe and other supplies to companies affiliated with the oil and gas
and industrial fabrication industries along the gulf coast of
Louisiana. The Company is headquartered in Lafayette, Louisiana and
maintains offices in Houma and Harvey, Louisiana.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS AND NOTES
The unaudited financial statements as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and
results of operations for the respective periods. Operating results
for interim periods are not necessarily indicative of the results for
full years.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers
investments in money market accounts and certificates of deposits
purchased with an original maturity of three months or less to be cash
equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company uses the allowance method in accounting for losses on
accounts receivable. The allowance for doubtful accounts totaled
$41,436 and $27,053 at December 31, 1996 and 1997, respectively.
Bad debts charged to operations for the years ended December 31, 1995,
1996 and 1997 totaled $152,239, $205,960 and $55,140, respectively.
INVENTORY
The Company values inventories at the lower of cost or market, with
cost being determined by the use of the average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
provided principally using various straight line and accelerated
methods over the estimated useful lives of the individual assets,
which range from 5 to 39 years.
INCOME TAXES
The Company, with the consent of its stockholders, elected under the
Internal Revenue Code to be an S corporation. In lieu of corporate
income taxes, the shareholders of an S corporation are taxed
8
<PAGE>
A & B BOLT & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
individually on their share of the Company's taxable income.
Therefore, no provision or liability for Federal and state income
taxes have been included in the financial statements.
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 reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December
31, 1996 and 1997:
1996 1997
----------- -----------
Buildings and improvements ............... $ 339,559 $ 467,542
Machinery and equipment .................. 228,262 265,421
Furniture and fixtures ................... 146,504 319,411
Vehicles ................................. 534,077 865,431
----------- -----------
1,248,402 1,917,805
Less: accumulated depreciation ........... (614,580) (862,799)
----------- -----------
$ 633,822 $ 1,055,006
=========== ===========
NOTE D - SHORT-TERM BANK BORROWINGS
The Company had a line of credit with First National Bank of
Lafayette for working capital management purposes of $3,000,000 and
$4,000,000 at December 31, 1996 and 1997, respectively. The line of
credit bears interest based on the banks prime rate (8.75% and 8.50%
at December 31, 1996 and 1997, respectively) and extended through May
31, 1998. The line of credit was renewed in May 1998.
Amounts available for borrowings are based on the level and
composition of the Company's accounts receivable. Amounts borrowed
are repayable on demand, or if no demand is made, from lock box
collections of the Company's accounts receivable. The line of credit
is secured by a first security interest in accounts receivable,
inventory, and the continuing guaranty of the stockholders.
The line of credit agreement requires the maintenance of a lock box
account for collection of the Company's accounts receivable. In
addition, the line of credit agreement contains provisions that limit
the amount of distributions to stockholders and covenants that
require the maintenance of certain minimum financial ratios. As of
June 30, 1998, the Company was in compliance with these covenants.
9
<PAGE>
A & B BOLT & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - SHORT-TERM BANK BORROWINGS, continued
The outstanding balance under the line of credit was $986,928 and
$1,111,737 as of December 31, 1996 and 1997, respectively.
NOTE E - NOTES PAYABLE
Notes payable at December 31, 1996 and 1997 consisted of the
following:
1996 1997
--------------- ---------------
Note payable to First National Bank of
Lafayette, payable on demand, or if no
demand is made, in 12 monthly installments
of $5,240 including interest at a rate of
8.75%, due August 1997, and secured by
accounts receivable, inventory and the
continuing guaranty of the stockholders ... $ 40,467 $ --
Various notes payable to AFCO Credit
Corporation payable in monthly installments
ranging from $7,789 to $8,054, including
interest at rates ranging from 8.49% to
8.72% and due from August 1997 to October
1998 ..................................... 53,011 77,178
--------------- ---------------
Total notes payable ....................... $ 93,478 $ 77,178
=============== ===============
10
<PAGE>
A & B BOLT & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE F - LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consisted of the following:
1996 1997
--------- ---------
Note payable to First National Bank of
Lafayette, payable on demand, or if no
demand is made, in 36 monthly installments
of $4,654 including interest at a rate of
9.0%, due April 1998, and secured by
vehicles of the Company .......................... $ 70,002 $ 18,586
Note payable to First National Bank of
Lafayette, payable on demand, or if no
demand is made, in 26 monthly installments
of $8,312 including interest at a rate of
8.50%, due September 1999, and secured by
vehicles of the Company .......................... -- 159,960
Various notes payable to First National Bank
of Lafayette, payable on demand, or if no
demand is made, in monthly installments
totaling $4,577 including interest at rates
ranging from 8.00% to 8.75%, originally due
from July 1998 to October 1999, and secured
by vehicles of the Company. These notes were
repaid in full during 1997 ...................... 113,301 --
Various notes payable to First National Bank
of Lafayette, payable on demand, or if no
demand is made, in monthly installments
totaling $4,649 including interest at rates
ranging from 8.25% to 8.50%, due from June
2000 to June 2001, and secured by vehicles
of the Company ................................... -- 144,372
--------- ---------
Total long-term debt ............................ 183,303 322,918
Less: current maturities ........................ (183,303) (322,918)
--------- ---------
Net long-term debt .............................. $ -- $ --
========= =========
Notes payable with due on demand provisions have been classified as a
current liability in the accompanying balance sheet.
11
<PAGE>
A & B BOLT & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE G - EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution (401(k)) plan (the
"Plan") for all eligible employees who have completed one year of
service. Employees may elect to defer up to 15% of their salary,
subject to statutory limits. The Company matches employee
contributions up to 2% of compensation. Employer profit sharing
contributions are discretionary. The Company recognized $121,111,
$174,538 and $175,260 of profit sharing and matching expense in
connection with the Plan for the years ended December 31, 1995, 1996
and 1997, respectively.
NOTE H - RELATED PARTY TRANSACTIONS
The Company paid $75,600, $75,600 and $82,600 in rent during 1995,
1996 and 1997, respectively, to Jimmy Dawes, a 34% stockholder, for
the use of certain office facilities and other property. The Company
also paid $12,000 and $48,000 in rent during 1996 and 1997,
respectively, to a Company owned by two of the stockholders for use
of certain facilities at the Company's Houma location.
The Company has loans payable to certain stockholders, bearing
interest at rates ranging from 7.0% to 7.5%, which have no scheduled
repayment terms. The balance of the loans at December 31, 1996 and
1997 totaled $36,201 and $21,201, respectively, and is shown as a
current liability on the accompanying balance sheets. Interest
expense recognized in 1995, 1996 and 1997 on these loans totaled
$7,821, $5,444 and $1,624, respectively.
NOTE I - OPERATING LEASES
The Company leases office space and other property under cancelable
operating lease arrangements. Rental expenses charged to operations
totaled $93,479, $113,738 and $147,088 for the years ended December
31, 1995, 1996 and 1997, respectively. These amounts include amounts
paid to the related parties discussed in Note H.
NOTE J - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Substantially all of the Company's accounts receivable at December
31, 1996 and 1997, result from sales to third party companies
affiliated directly or indirectly with the oil and gas industry. This
concentration of customers may impact the Company's overall credit
risk, either positively or negatively, in that these entities may be
similarly affected by changes in economic or other conditions. The
Company believes that the risk is mitigated by the size, reputation
and nature of its customers. In addition, the Company generally does
not require collateral or other security to support customer
receivables.
During the years ended December 31, 1995, 1996 and 1997, sales to
individual customers accounted for approximately 10%, 12% and 12% of
the Company's revenues, respectively.
NOTE K - SUBSEQUENT EVENTS (UNAUDITED)
Effective August 1, 1998, the stockholders sold the Company to
Industrial Holdings, Inc. ("IHI") for $10,000,000 in cash and 808,081
shares of common stock of IHI.
12
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to
(i) the acquisitions of Manifold Valve Services, Inc. ("MVS"), WALKER BOLT
Manufacturing, Inc. ("WALKER"), Philform, Inc. ("Philform"), Beaird Industries,
Inc. ("Beaird"), and Ideal Products, Inc. ("Ideal") between March 1997 and
August 1998 (the "Prior Acquisitions") in transactions accounted for as
purchases, (ii) the merger of wholly-owned subsidiaries of the Company with Whir
Acquisition, Inc. ("Ameritech"), GHX, Incorporated ("GHX"), Moores Pump and
Supply, Inc. ("Moores") and United Wellhead Services, Inc. ("UWS") between March
1998 and July 1998 (the "1998 Mergers") in transactions accounted for as
poolings-of-interest, and (iii) the acquisition of A & B Bolt and Supply, Inc.
("A & B") (the "A & B Acquisition") in August 1998 in a transaction accounted
for as a purchase. The allocation of the purchase prices of the Prior
Acquisitions and A & B Acquisition are based on preliminary information
currently available and will be revised as necessary. The estimated purchase
price adjustments are subject to completion of asset appraisals, the final
determination of certain tax liabilities, differences between the estimated and
actual costs of professional fees and adjustments to certain other accruals and
completion of asset appraisals.
The unaudited condensed consolidated balance sheet as of June 30,
1998 is based on the balance sheets of Industrial Holdings, Inc. (the "Company")
included in its Report on Form 10-Q for the quarter ended June 30, 1998, UWS
(the "UWS Merger"), Beaird, and Ideal (the "1998 Acquisitions") (not presented
separately herein) and A & B included elsewhere in this Report on Form 8-K. The
MVS, WALKER and Philform acquisitions and the Ameritech, GHX and Moores mergers
were completed prior to June 30, 1998 and their balance sheets as of June 30,
1998 are included in that of the Company.
The unaudited pro forma condensed consolidated statements of
operations are based on the income statements of the Company, the Prior
Acquisitions and 1998 Mergers (not presented separately herein) and A & B
appearing elsewhere in this Report on Form 8-K as if the acquisitions and
mergers had occurred at the beginning of the period presented. Such unaudited
pro forma condensed consolidated financial statements combine (i) the audited
operating results for the Company for the year ended December 31, 1997 and
unaudited operating results for the six months ended June 30, 1998; (ii) the
unaudited operating results of MVS for the two-months ended February 28, 1997;
(iii) the unaudited operating results of WALKER for the ten months ended October
31, 1997; (iv) the audited operating results of Ameritech for the year ended
December 31, 1997; (v) the operating results of GHX for the twelve months ended
December 31, 1997; (vi) the operating results of Moores for the twelve months
ended December 31, 1997; (vii) the operating results of Beaird and Ideal for the
twelve months ended December 31, 1997 and the six months ended June 30, 1998;
and (viii) the audited operating results of A & B for the year ended December
31, 1997 and unaudited operating results for the six months ended June 30, 1998.
The results of operations for the one month ended January 31, 1997 for Lone Star
and the one month ended January 31, 1998 for Philform have not been presented
based upon management's belief that such would not be significant to the pro
forma statements of operations.
13
<PAGE>
The Company acquired WALKER effective November 1, 1997, MVS on March
1, 1997, Lone Star on February 1, 1997 and Philform on February 1, 1998 and the
operating results subsequent to the date of acquisition are reflected in the
Company's historical information for the periods presented. The Ameritech, GHX
and Moores mergers were accounted for as poolings-of-interests and because these
mergers occurred on or before June 30, 1998, their operating results for the six
months ended June 30, 1998 were included in the financial statements of the
Company for that same period. The UWS merger occurred July 1, 1998 and the
Company acquired Ideal on August 14, 1998.
The pro forma financial information does not purport to be indicative
either of the results of operations that would have occurred had the purchases
been made at the beginning of the periods presented or future results of
operations of the combined companies. These unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the Company included in its 1997 Annual Report
on Form 10-K and Report on Form 10-Q for the quarter ended June 30, 1998, the
financial statements of Lone Star filed with Form 8-K/A dated February 6, 1997,
MVS filed with Form 8-K/A dated June 12, 1997, WALKER filed with Form 8-K dated
December 1, 1997, Philform filed with Form 8-K/A dated March 31, 1998, Moores
filed with Form 8-K/A dated September 11, 1998, Beaird filed with Form 8-K/A
dated September 14, 1998, UWS filed with Form 8- K/A dated September 14, 1998
and A & B included elsewhere in this Form 8-K.
14
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
--------------------------------------------------------------------------- ------------------------
RECLASSI- IHI 1998 ADJUSTMENTS
IHI UWS FICATIONS RESTATED ACQUISITIONS A & B (NOTE 2) COMBINED
-------- -------- --------- -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............ $ 2,129 $ 264 $ 2,393 $ 7 $ 1 $ (1,862)(a) $ 539
Accounts receivable ............. 20,656 2,305 22,961 15,418 4,199 (7,500)(b) 35,078
Inventories ..................... 21,855 1,415 23,270 11,732 5,717 40,719
Employee advances ............... 59 59 19 78
Notes receivable, current ....... 4,507 4,507 4,507
Other current assets ............ 1,056 133 1,189 54 50 1,293
-------- -------- -------- -------- ---------- -------- --------
Total current assets ... 50,262 4,117 54,379 27,211 9,986 (9,362) 82,214
Property and equipment, net .......... 28,996 491 29,487 15,079 1,154 10,357 (c) 56,077
Notes receivable ..................... 2,569 2,569 2,569
Other assets ......................... 4,670 45 4,715 414 18 300 (c) 5,447
Goodwill, net ........................ 16,428 18 16,446 8,651 (d) 25,097
-------- -------- -------- -------- ---------- -------- --------
Total assets ............ $102,925 $ 4,671 $107,596 $ 42,704 $ 11,158 $ 9,946 $171,404
======== ======== ======== ======== ========== ======== ========
</TABLE>
15
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
------------------------------------------------------------------------- -----------------------
RECLASSI-
FICATIONS IHI 1998 ADJUSTMENTS
IHI UWS (NOTE 1) RESTATED ACQUISITIONS A & B (NOTE 2) COMBINED
--------- --------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
Current liabilities:
Notes payable ................... $ 15,201 $ 161 $ 15,362 $ 1,415 $13,800 (e) $ 30,577
Accounts payable-trade .......... 10,325 542 10,867 $ 3,253 2,109 (3,253)(b) 12,976
Accrued expenses and other ...... 4,466 833 5,299 1,031 136 (840)(b) 5,626
Long-term debt, current ......... 3,071 224 3,295 344 3,611 (e) 7,250
--------- --------- --------- --------- --------- ---------- -------- ---------
Total current liabilities ... 33,063 1,760 34,823 4,284 4,004 13,318 56,429
Long-term debt .................... 11,323 869 12,192 36,202 (e) 48,394
Deferred compensation payable ..... 229 229 229
Deferred income taxes payable ..... 2,834 (103) 2,731 2,731
Shareholders' equity
Common stock .................... 109 479 $ (466) 122 1 1 (2)(f) 130
8 (g)
Additional paid-in capital ...... 44,282 466 44,748 39,106 (39,106)(f) 50,740
5,992 (g)
Retained earnings ............... 11,085 1,666 12,751 (687) 7,153 (f) 12,751
--------- --------- --------- --------- --------- ---------- -------- ---------
(6,466)
Total shareholders' equity .. 55,476 2,145 57,621 38,420 7,154 (39,574) 63,621
--------- --------- --------- --------- --------- ---------- -------- ---------
Total liabilities and shareholders'
equity ....................... $ 102,925 $ 4,671 $ $ 107,596 $ 42,704 $ 11,158 $ 9,946 $ 171,404
========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
16
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
Note 1 - On July 1, 1998, Industrial Holdings, Inc. (the "Company")
acquired all of the outstanding common stock, no par value of United
Wellhead Services, Inc. ("UWS"), upon merger of a wholly owned
subsidiary of the Company with and into UWS, with UWS being the
surviving corporation (the "UWS Merger"). As a result, UWS became a
wholly owned subsidiary of the Company. The Company issued 1,247,158
shares of its Common Stock in connection with the UWS Merger.
(a) Amounts have been reclassified to additional paid in
capital from common stock to reflect the 1,247,158
shares of Company common stock issued in connection with
the UWS Merger.
Note 2 - The Company acquired Beaird for $33.3 million and Ideal for
$10.3 million (subject to certain post closing purchase price
adjustments) and A & B for $10 million cash and 808,081 shares of
Company common stock valued at $6 million. The allocation of
purchase prices are based on preliminary information and are subject
to change based on the final determination of post closing purchase
price adjustments, differences between estimated and actual costs of
professional fees, final determination of certain tax liabilities,
adjustments to certain other accruals and completion of asset
appraisals.
(a) Record payment of transaction expenses.
(b) Eliminate accounts receivable not acquired and
liabilities not assumed as part of purchase agreements.
(c) Adjust assets and liabilities to their fair market
values at date of acquisition.
(d) Record goodwill on the acquisition of A & B.
(e) Record issuance of (i) $12 million term note, (ii) $15
million Bridge note, (iii) $5.3 million convertible
debenture (conversion at $12.75 per share of common
stock) and (iv) $1 million increase in revolving line of
credit for the acquisition of Beaird; (v) $7.5 million
term note and (vi) $2.8 million increase in revolving
line of credit for the acquisition of Ideal; and (vii)
$10 million increase in revolving line of credit for the
acquisition of A & B.
(f) Eliminate shareholders' equity.
(g) Record issuance of shares to A & B shareholders.
17
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
-------------------------------------------------------------- ---------------------------
1998 RESTATED PRIOR ADJUSTMENTS
IHI MERGERS IHI ACQUISITIONS A & B (NOTE 3) COMBINED
--------- --------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales ............................... $ 83,564 $ 54,940 $ 138,504 $ 101,753 $ 36,605 (225)(a) $ 262,874
(13,763)(b)
Cost of sales ....................... 63,277 38,614 101,891 82,163 24,942 235 (c) 200,191
(225)(a)
(8,815)(b)
--------- --------- --------- --------- --------- --------- ---------
Gross profit ........................ 20,287 16,326 36,613 19,590 11,663 (5,183) 62,683
Selling, general and ................ 14,493 12,367 26,860 11,882 5,108 (876)(d) 40,720
administrative .................... (2,692)(b)
438 (c)
--------- --------- --------- --------- --------- --------- ---------
Income from operations .............. 5,794 3,959 9,753 7,708 6,555 (2,053) 21,963
Equity in earnings of limited
partnership .................... 1,026 (b) 1,026
Other income (expense):
Interest expense ................. (1,745) (708) (2,453) (475) (201) (5,157)(e) (8,286)
Interest income .................. 160 160 70 (6)(h) 224
Other income (expense) ........... 368 168 536 (592) 118 595 (h) 657
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense)..... (1,217) (540) (1,757) (997) (83) (4,568) (7,405)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes .......... 4,577 3,419 7,996 6,711 6,472 (5,595) 15,584
Income tax provision ................ 1,868 1,330 3,198 1,814 595 (f) 5,607
--------- --------- --------- --------- --------- --------- ---------
Net income .......................... $ 2,709 $ 2,089 $ 4,798 $ 4,897 $ 6,472 $ (6,190) $ 9,977
========= ========= ========= ========= ========= ========= =========
Earnings per share - basic (g) ...... $ .44 $ .49 $ .91
========= ========= =========
Earnings per share - diluted (g) .... $ .39 $ .45 $ .83
========= ========= =========
</TABLE>
18
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
---------------------------------------------------------------- ---------------------------
IHI 1998 ADJUSTMENTS
IHI UWS RESTATED ACQUISITIONS A & B (NOTE 3) COMBINED
--------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales .......................... $ 75,862 $ 5,838 $ 81,700 $ 38,697 $ 13,333 $ 133,730
Cost of sales .................. 56,674 3,362 60,036 32,222 9,028 $ 65 (c) 101,351
--------- --------- --------- --------- --------- --------- ---------
Gross profit ................... 19,188 2,476 21,664 6,475 4,305 (65) 32,379
Selling, general and ........... (130)(d)
administrative ............... 14,095 1,735 15,830 4,085 2,620 144 (c) 22,549
--------- --------- --------- --------- --------- --------- ---------
Income from operations ......... 5,093 741 5,834 2,390 1,685 (79) 9,830
Other income (expense):
Interest expense ............ (1,305) (55) (1,360) (75) (2,563)(e) (3,998)
Interest income ............. 205 205 3 208
Other income (expense) ...... 742 6 748 (1,362) 14 1,358 (h) 758
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense) (358) (49) (407) (1,359) (61) (1,205) (3,032)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes ..... 4,735 692 5,427 1,031 1,624 (1,284) 6,798
Income tax provision ........... 1,745 218 1,963 133 336 (f) 2,432
--------- --------- --------- --------- --------- --------- ---------
Net income ..................... $ 2,990 $ 474 $ 3,464 $ 898 $ 1,624 $ (1,620) $ 4,366
========= ========= ========= ========= ========= ========= =========
Earnings per share - basic(g)... $ .28 $ .29 $ .35
Earnings per share -
diluted(g) ................... $ .27 $ .28 $ .33
</TABLE>
19
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND JUNE 30, 1998
(UNAUDITED)
Note 3 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition of the Prior Acquisitions, the1998 Mergers,
the UWS Merger and the acquisition of A & B.
a. Eliminate intercompany sales.
b. Eliminate sales, cost of sales and selling, general and
administrative expenses of Philform and to record 49% of the pro
forma net income of the Partnership calculated as follows:
1997 income of Philform from operations $2,256
To eliminate 1997 directors' fees for Philform 300 (d)
Adjust depreciation expense (413)(c)
Adjust interest expense for $574,000 term note
assumed by the Partnership (49)
------
$2,093
*49%
------
$1,026
======
c. For Prior Acquisitions and A & B Acquisition, 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 depreciation of the fair
market value of the acquired property, plant and equipment over
their remaining useful lives of 3 to 30 years and (ii)
amortization of goodwill over 20 to 30 years.
d. For Prior Acquisitions and Moores merger, reduce cost of sales
and selling, general and administrative expenses for contractual
reduction as part of the acquisition in executive payrolls and
elimination of directors fees.
e. Adjust interest expense as a result of debt incurred in
connection with the Prior Acquisitions and A & B Acquisition.
f. Adjust income taxes as a result of the changes in the pro forma
pretax earnings of the Prior Acquisitions and to record an income
tax provision for Ameritech, Walker and A & B, Sub Chapter S
corporations.
20
<PAGE>
g. Change in earnings per share as a result of pro forma earnings of
the Prior Acquisitions, the 1998 Mergers and the A & B
Acquisition and increase in weighted average of common stock
equivalents for the effect of 1,103,984 shares of Company common
stock issued to the selling shareholders in connection with the
Prior Acquisitions, for the 3,665,036 shares of common stock
issued in connection with the 1998 Mergers, the convertible
debenture issued in connection with the Beaird acquisition and
the 808,081 shares issued to selling shareholders in connection
with the A & B Acquisition.
h. Eliminate corporate allocation from former parent of Beaird not
to be incurred in future periods.
21
<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
CHIEF FINANCIAL OFFICER
Date: October 28, 1998
22
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the incorporation by
reference of our report on A&B Bolt & Supply, Inc., dated April 30, 1998
included in this Form 8-K, into Industrial Holdings, Inc.'s previously filed
Registration Statements on Form S-3 File No. 333-53285 and Form S-8 File No.
333- 62653.
ARSEMENT, REDD & MORELLA, L.L.C.
October 27, 1998
Lafayette, Louisiana
23
