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) JULY 1, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State of other 76-0289495
jurisdiction of 1-9580 (IRS Employer
incorporation) (Commission 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
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ITEM 5. OTHER EVENTS
(a) Financial Statements of Acquired Companies
Report of Independent Auditor's Report.................... 3
Consolidated Balance Sheet at December 31, 1997........... 4
Consolidated Statement of Operations for the Year
Ended December 31, 1998 .............................. 5
Consolidated Statement of Stockholder's Euity for the Year
Ended December 31, 1997 .............................. 6
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1997 .................................... 7
Notes to Consolidated Financial Statements................ 8
Balance Sheet at June 30, 1998 (Unaudited)..................15
Statements of Income for the Six Months Ended
June 30, 1998 and 1997 (Unaudited)...................16
Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (Unaudited)...............17
Notes to Unaudited Financial Statements.....................18
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial Statements
(Unaudited)............................................19
Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998 (Unaudited)............................ 21
Notes to Pro Forma Condensed Consolidated Balance
Sheet at June 30, 1998 .............................. 23
Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1998 (Unaudited)... 24
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997 (Unaudited)..... 25
Notes to Pro Forma Condensed Consolidated Statement of
Operations.......................................... 26
2
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Independent Auditor's Report
To the Stockholders and Directors of
UNITED WELLHEAD SERVICES, INC.
Corpus Christi, Texas
We have audited the accompanying consolidated balance sheet of UNITED WELLHEAD
SERVICES, INC. and subsidiary as of December 31, 1997 and the related
consolidated statements of results of operations, stockholders' equity, and cash
flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the financial position of UNITED WELLHEAD
SERVICES, INC. and subsidiary at December 31, 1997 and the results of their
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
The Woodlands, Texas
February 12, 1998
3
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Current Assets
Cash ............................................ $ 711,528
Accounts receivable - trade, net of
allowance of $25,000 ........................... 2,118,431
Inventory ....................................... 1,200,047
Prepaid expenses ................................ 147,904
Deferred income taxes ........................... 16,613
-----------
Total current assets ......................... 4,194,523
-----------
Property, Plant and Equipment, at cost ................ 1,624,863
Less accumulated depreciation and
amortization ................................... 1,082,935
-----------
541,928
-----------
Other Assets
Investments ..................................... 45,177
Intangible assets, net .......................... 28,470
Deferred income tax ............................. 86,500
-----------
160,147
-----------
$ 4,896,598
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................................... $ 270,934
Current portion of long-term debt ............... 314,224
Accounts payable, trade ......................... 728,928
Accrued liabilities ............................. 614,704
Income tax payable .............................. 388,309
-----------
Total Current Liabilities .................... 2,317,099
-----------
Long Term Debt ........................................ 908,521
Commitments and Contingencies
Stockholders' Equity:
Common stock .................................... 479,210
Retained earnings ............................... 1,191,968
Treasury stock, at cost ......................... (200)
-----------
1,670,978
$ 4,896,598
===========
4
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues ........................................... $ 11,237,173
Cost of goods sold ................................. 6,437,576
------------
Gross Profit ....................................... 4,799,597
------------
Selling, general and administrative expenses ....... 2,963,918
Depreciation and amortization expenses ............. 149,276
------------
3,113,194
------------
Income from operations ............................. 1,686,403
------------
Other income (expense), net ........................ 19,046
Interest expense ................................... (65,367)
------------
(46,321)
------------
Income before income tax provision ................. 1,640,082
Income tax provision ............................... (570,000)
------------
Net income before preferred stock dividends ........ 1,070,082
Preferred stock dividends .......................... 32,000
------------
Net Income ......................................... $ 1,038,082
============
5
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED COMMON RETAINED TREASURY
STOCK STOCK EARNINGS STOCK TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ....... $ 960,000 $ 479,210 $ 124,285 $ (200) $ 1,563,295
Issuance of long-term debt
to redeem preferred stock ...... (960,000) (960,000)
Preferred stock dividends
rescinded ..................... 29,601 29,601
Net income ....................... 1,038,082 1,038,082
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ....... $ $ 479,210 $ 1,191,968 $ (200) $ 1,670,978
=========== =========== =========== =========== ===========
</TABLE>
6
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 1,038,082
Preferred stock dividends ...................... 32,000
-----------
Net income before preferred stock dividends ....... 1,070,082
-----------
Adjustments to obtain net cash provided by
(used in) operating activities:
Depreciation and amortization .................. 149,611
Change in deferred income tax .................. 42,832
(Gain) loss on disposition of assets ........... (1,222)
Change in accounts receivable .................. (29,122)
Change in inventory ............................ (461,355)
Change in prepaid expenses ..................... 98,709
Change in accounts payable ..................... (248,331)
Change in accrued liabilities .................. 82,326
Change in income tax payable ................... 213,309
-----------
Total adjustments ....................... (153,243)
-----------
Net cash provided by operating
activities: .......................... 916,839
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................. (66,057)
Proceeds from sale of assets ...................... 6,000
Purchase of investments ........................... (1,008)
-----------
Net cash used in investing activities ... (61,065)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ....................... 237,754
Principal payments under notes payable ............ (307,259)
Proceeds from long-term debt ...................... 95,830
Principal payments under long-term debt ........... (508,061)
Preferred stock dividends paid .................... (32,000)
-----------
Net cash used in financing activities ... (513,736)
NET INCREASE IN CASH .................................. 342,038
CASH AT BEGINNING OF YEAR ............................. 369,490
-----------
CASH AT END OF YEAR ................................... $ 711,528
===========
7
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND LINES OF BUSINESS - The consolidated
financial statements include the accounts of United Wellhead
Services, Inc. (Wellhead) and its wholly owned subsidiary, Wellhead
Recycling, Inc. (WRI). Wellhead is engaged principally in the
business of sales and service of new and used wellhead equipment.
All significant intercompany accounts have been eliminated.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. Depreciation of plant and equipment is provided over
the estimated useful lives of the respective assets using the
straight-line method, generally from five to ten years.
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged
to earnings as incurred.
When machinery and equipment are retired or otherwise disposed of,
the cost thereof and the applicable accumulated depreciation are
removed from the respective accounts and the resulting gain or loss
is reflected in earnings.
INVENTORY - Inventory consisting of finished goods is valued at the
lower of cost or market, by the specific identification method.
USES OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles require
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash,
cash equivalents, accounts receivable, inventory, accounts payable
and accrued liabilities approximate fair value because of the short
maturity of these items. The carrying amounts of long-term debt
approximate fair value because the interest rates on these
instruments change with market interest rates.
INCOME TAXES - Wellhead utilizes SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. The difference between
the financial statement and tax basis of assets and liabilities is
determined annually. Deferred income tax assets and liabilities are
computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or
refundable for the period plus or minus the net change in the
deferred tax assets and liabilities.
8
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income tax expense includes federal and state taxes currently
payable and the change in deferred taxes arising from temporary
differences between income for financial reporting and income tax
purposes.
REVENUE RECOGNITION - Revenues from the sale of equipment and
services are recognized upon shipping the equipment or providing the
service to the customer.
INTANGIBLE ASSETS - Intangible assets consist of a covenant not to
compete and organizational costs which have been capitalized at cost
and are being amortized using the straight-line method over 5 years.
CHANGES IN ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed of" is applicable to Wellhead
beginning in fiscal 1996. This statement requires that long-lived
assets and certain intangibles to be held and used by Wellhead be
reviewed for impairment. This pronouncement did not have a material
impact on the financial statements of Wellhead.
STATEMENT OF CASH FLOWS - For purposes of the Statement of Cash
Flows, Wellhead considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. As of December 31, 1997, balances of cash and cash
equivalents at three financial banking institutions exceeded the
federally insured limit of $100,000 by $103,678, $36,797 and
$14,463.
Supplemental disclosures of cash flows information: Interest paid
amounted to $65,367 for the year ended December 31, 1997. Federal
income taxes paid amounted to $313,860 for the year ended December
31, 1997.
Noncash investing and financing activities consisted of the
following:
Long-term debt obligations in the amount of $183,455 were incurred
for the acquisition of transportation equipment for the year ended
December 31, 1997. Notes payable in the amount of $199,880 were
incurred to finance insurance premiums for the year ended December
31, 1997. Preferred stock was redeemed by issuance of a promissory
note (See Note G).
MAJOR CUSTOMERS - Wellhead had sales to five customers that
represented 20% of total revenue for the year ended December 31,
1997.
9
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B PROPERTY, PLANT AND EQUIPMENT
The major asset categories, together with the related costs and
accumulated depreciation and amortization, are as follows:
Land ...................................................... $ 16,298
Machinery and equipment ................................... 867,850
Furniture and fixtures .................................... 138,924
Transportation equipment .................................. 452,595
Leasehold improvements .................................... 149,196
----------
1,624,863
Less accumulated depreciation and
amortization ............................................. 1,082,935
----------
$ 541,928
==========
At December 31, 1997 plant and equipment which cost $622,355 has
been fully depreciated but continues to be used in current
operations.
NOTE C NOTES PAYABLE
Note payable to finance company for
insurance premiums - payable $16,657
monthly including interest at 6.42%,
secured by insurance premiums ......................... $ 33,180
Notes payable to stockholders -
payable on December 31, 1998
including interest at 9.00%; unsecured ................ 237,754
--------
$270,934
========
Subsequent to December 31, 1997, a note payable in the amount of
$36,315 to a stockholder of Wellhead was paid in full.
10
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D LONG-TERM DEBT
Note payable, bank - payable $12,500
quarterly beginning on April 1, 1996,
with interest at prime plus 2.00%,
maturing January 16, 1998; secured
by accounts receivable and inventory ........................ $ 12,500
Note payable to individual - payable $19,465
monthly beginning February 1, 1998 with
interest at 8%, maturing January 1,
2003, unsecured ............................................. 960,000
Note payable to stockholder - payable $5,625
monthly with interest at prime plus 1.25%,
maturing June 1, 1998; secured by the
personal guarantee of another stockholder ................... 33,750
Notes payable to finance companies - payable
$9,828 monthly with interest from 8.25% - 8.75%,
maturing at various times in 1999 and 2000;
secured by transportation equipment ......................... 216,495
----------
1,222,745
Current portion .............................................. 314,224
----------
Long-term portion ............................................ $ 908,521
==========
The aggregate principal payments on long-term debt during the years subsequent
to December 31, 1997 are: 1998 - $314,224; 1999 - $251,784; 2000 - $207,052;
2001 - $205,251 and 2002 - $244,434.
11
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E LEASES
Wellhead leases transportation equipment and office and warehouse space
under operating leases that expire at various times through July, 1999.
Total rent expense for all operating leases for the year ended
December 31, 1997 amounted to $123,389.
Future minimum payments, by year and in aggregate, related to the
operating leases at December 31, 1997 are as follows:
1998 ...................................... $143,713
1999 ...................................... 67,077
2000 ...................................... 29,555
--------
$240,345
The operating leases include office and warehouse space leased from a
stockholder (See Note H).
NOTE F PROVISION FOR INCOME TAXES
The components of income tax provisions are as follows:
Current ..................................... $527,169
Deferred .................................... 42,831
--------
$570,000
========
The significant components of the net deferred tax asset (liabiilty) are as
follows:
Depreciation of plant and equipment ....................... $ (72,283)
Allowance for doubtful accounts ........................... (8,500)
Net operating losses ...................................... 184,896
---------
Net deferred tax asset (liability) ........................ $ 103,113
=========
The provisions (benefits) for income taxes differs from an amount computed at
the statutory rates as follows:
Federal income tax statutory rates ........................ $ 428,194
State income .............................................. 119,312
Nondeductible expenses .................................... 48,021
Net operating loss deduction .............................. (25,527)
---------
$ 570,000
=========
12
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F PROVISION FOR INCOME TAXES (CONTINUED)
Under the asset and liability method, deferred tax assets and
liabilities are determined based on the differences between the
financial statement and tax basis of assets and liabilities and are
measured using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities. As of
December 31, 1997 Wellhead has net operating loss carryforwards of
approximately $544,000 for federal income tax purposes available to
offset future financial income, expiring, if not used, periodically
through the year 2009.
NOTE G STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following:
In August, 1997, the preferred stock was redeemed by issuance of a
promissory note in the amount of $960,000, with interest only at 8%
monthly from September 30, 1997 through January 1, 1998. Beginning
February 1, 1998, principal and interest are payable in monthly
installments in the amount of $19,465.
Common stock - The common stock is no par stock, 1,000,000 shares are
authorized, 526,133 are issued and outstanding.
NOTE H RELATED PARTY TRANSACTIONS
Related party transactions and related balances with Wellhead's
stockholders and companies owned by stockholders are as follows:
Accounts payable ......................................... $ 4,000
Notes payable ............................................ $237,754
Long-term debt ........................................... $ 33,750
Rent expense ............................................. $ 54,269
Interest expense ......................................... $ 7,452
Management fee expense ................................... $ 57,000
13
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UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I CONCENTRATION OF CREDIT RISK
Wellhead sells and services new and used wellhead equipment for the oil
and gas industry in Texas and Louisiana. Wellhead grants credit to
customers, substantially all of whom are commercial establishments
located in the vicinity of Wellhead's operating locations.
NOTE J PROFIT SHARING AND 401(K) PLAN
Wellhead maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees
may elect to defer up to 15% of their salary, subject to the Internal
Revenue Service limits. Wellhead may make a discretionary match as well
as a discretionary contribution. Wellhead's contributions totaled
$47,453 for the year ended December 31, 1997.
14
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS JUNE 30, DECEMBER 31,
1998 1997
----------- -------------
Current Assets
Cash ....................................... $ 263,934 $ 711,528
Accounts receivable ........................ 2,304,929 2,118,431
Inventory .................................. 1,415,085 1,200,047
Prepaid expenses ........................... 133,030 147,904
Deferred income taxes ...................... 16,613 16,613
----------- -----------
Total current assets .................... 4,133,591 4,194,523
----------- -----------
----------- -----------
Property, Plant and Equipment, net ............... 491,150 541,928
----------- -----------
Other Assets
Investments ................................ 45,178 45,177
Intangible assets, net ..................... 17,985 28,470
Deferred income tax ........................ 86,500 86,500
----------- -----------
149,663 160,147
----------- -----------
$ 4,774,404 $ 4,896,598
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable .............................. $ 161,003 $ 270,934
Current portion of long-term debt .......... 223,886 314,224
Accounts payable, trade .................... 542,047 728,928
Accrued liabilities ........................ 832,774 1,003,013
----------- -----------
Total Current Liabilities ............... 1,759,710 2,317,099
----------- -----------
Long Term Debt ................................... 869,933 908,521
----------- -----------
Stockholders' Equity:
Common stock ............................... 479,210 479,210
Retained earnings .......................... 1,665,751 1,191,968
Treasury stock, at cost .................... (200) (200)
----------- -----------
2,144,761 1,670,978
----------- -----------
$ 4,774,404 $ 4,896,598
=========== ===========
See notes to unaudited financial statements.
15
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30
1998 1997
-------- --------
Revenues ....................................... $ 5,837,637 $ 5,023,861
Cost of goods sold ............................. 3,361,548 2,850,218
----------- -----------
Gross Profit ................................... 2,476,089 2,173,643
Selling, general and administrative expenses ... 1,735,541 1,154,660
----------- -----------
Income from operations ......................... 740,548 1,018,983
----------- -----------
Other income, net .............................. 5,467 16,441
Interest expense ............................... (54,632) (20,438)
----------- -----------
(49,165) (3,997)
----------- -----------
Income before income tax provision ............. 691,383 1,014,986
Income tax provision ........................... (217,600) (319,283)
----------- -----------
Net income ..................................... $ 473,783 $ 695,703
=========== ===========
See notes to unaudited financial statements.
16
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UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 473,783 $ 695,703
Adjustments to obtain net cash provided by
(used in) operating activities:
Depreciation and amortization ................. 122,522 63,680
Change in accounts receivable ................. (186,498) 253,501
Change in inventory ........................... (215,038) (300,428)
Change in prepaid expenses and other assets ... 14,874 (218,244)
Change in accounts payable .................... (186,881) (418,903)
Change in accrued liabilities ................. (170,239) 162,925
--------- ---------
Net cash provided (used) by operating
activities: ............................ (147,477) 238,234
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................. (61,259) (119,100)
--------- ---------
Net cash used in investing activities .. (61,259) (119,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under debt .................... (238,858) (129,444)
Dividends paid ................................... -- (25,999)
--------- ---------
Net cash used in financing activities .. (238,858) (155,443)
--------- ---------
NET DECREASE IN CASH ................................. (447,594) (36,309)
CASH AT BEGINNING OF PERIOD........................... 711,528 369,490
--------- ---------
CASH AT END OF PERIOD................................. $ 263,934 $ 333,181
========= =========
See notes to unaudited financial statements.
17
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30 1998
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. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been
included. These financial statements include the accounts of United
Wellhead Services ("UWS"). Operating results for the six months
ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the twelve months ended December 31, 1998.
For further information, refer to the consolidated financial
statements and footnotes thereto included in UWS' audited financial
statements for the year ended December 31, 1997 included herein.
18
<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"), and Beaird
Industries, Inc. ("Beaird") (collectively the "Prior Acquisitions") between
March 1997 and July 1998 in transactions accounted for as purchases, (ii) the
merger of wholly-owned subsidiaries of the Company with Whir Acquisition, Inc.
("Ameritech"), GHX, Incorporated ("GHX"), and Moores Pump and Supply, Inc.
("Moores") (the "1998 Mergers") in transactions accounted for as
poolings-of-interest, and (iii) the merger on July 1, 1998 of a wholly-owned
subsidiary of the Company with United Wellhead Services, Inc. ("UWS") in a
transaction accounted for as a pooling-of-interest. The allocation of the
purchase price of the Prior Acquisitions is 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.
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 and
Beaird (not presented separately herein) and UWS included elsewhere in this
Report on Form 8-K. The acquisitions of MVS, WALKER and Philform and the 1998
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, the
1998 Mergers (not presented separately herein), Beaird (not presented separately
herein) and UWS 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 the 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 for
the twelve months ended December 31, 1997 and the operating results for the six
months ended June 30, 1998; and (viii) the audited operating results of UWS 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.
19
<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 1998 Mergers
were accounted for as poolings-of-interests and as such 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 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 and UWS included elsewhere in this Form 8-K.
20
<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 ADJUSTMENTS
IHI UWS NOTE 1 RESTATED BEAIRD (NOTE 2) COMBINED
-------- ------ --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ... $ 2,129 $ 264 $ 2,393 $ 6 $(1,112) (a) $ 1,287
Accounts receivable-
trade.................. 20,656 2,305 22,961 13,896 (7,000) (b) 29,857
Inventories ............ 21,855 1,415 23,270 9,511 32,781
Employee advances ...... 59 59 59
Notes receivable,
current................ 4,507 4,507 4,507
Other current assets.... 1,056 133 1,189 18 1,207
-------- ------- -------- ------- -------- --------
Total current assets . 50,262 4,117 54,379 23,431 (8,112) 69,698
Property and equipment, net 28,996 491 29,487 11,117 6,163 (c) 46,767
Notes receivable .......... 2,569 2,569 2,569
Other assets .............. 4,670 45 4,715 414 300 (c) 5,429
Goodwill, net ............. 16,428 18 16,446 16,446
-------- ------- -------- ------- -------- --------
Total assets ........ $102,925 $ 4,671 $107,596 $ 34,962 $(1,649) $140,909
======== ======== ======== ======== ======== ========
</TABLE>
21
<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 ADJUSTMENTS
IHI UWS NOTE 1 RESTATED BEAIRD (NOTE 2) COMBINED
-------- ------- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Current liabilities:
Notes payable ............................... $ 15,201 $ 161 $ 15,362 $ 1,000 (d) $ 16,362
Accounts payable-trade ...................... 10,325 542 10,867 $ 2,869 (2,869)(b) 10,867
Accrued expenses and other .................. 4,466 833 5,299 635 (635)(b) 5,299
Long-term debt, current ..................... 3,071 224 3,295 3,845 (d) 7,140
-------- ------- ----- -------- -------- -------- --------
Total current liabilities ............... 33,063 1,760 34,823 3,504 1,341 39,668
Long-term debt .................................. 11,323 869 12,192 28,468 (d) 40,660
Deferred compensation payable ................... 229 229 229
Deferred income taxes payable ................... 2,834 (103) 2,731 2,731
Shareholders' equity
Common stock ................................ 109 479 $(466)(a) 122 1 (1)(e) 122
Additional paid-in capital .................. 44,282 466 (a) 44,748 32,329 (32,329)(e) 44,748
Retained earnings ........................... 11,085 1,666 12,751 (872) 872 (e) 12,751
-------- ------- ----- -------- -------- -------- --------
Total shareholders' equity .............. 55,476 2,145 57,621 31,458 (31,458) 57,621
Total liabilities and
shareholders' equity ........................ $102,925 $ 4,671 $107,596 $ 34,962 $ (1,649) $140,909
======== ======= ===== ======== ======== ======== ========
</TABLE>
22
<PAGE>
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 all the capital stock of Beaird for $33.3 million
(subject to certain post closing purchase price adjustments). The allocation of
purchase price is based on preliminary information and is subject to change
based on the final determination of post closing purchase price adjustments,
differences between estimated and actual costs of professional fees, 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 agreement.
(c) Adjust assets and liabilities to their fair market values at date of
acquisition.
(d) Record issuance of (i) $12 million term note, (ii) $15 Bridge note,
(iii) $5.3 million convertible debenture (conversion at $12.75 per
share of common stock).
(e) Eliminate shareholders equity.
23
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
----------------------------------------------------------- -------------------------
1998 IHI PRIOR ADJUSTMENTS
IHI MERGERS UWS RESTATED ACQUISITIONS (NOTE 3) COMBINED
-------- -------- -------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales ................................ $ 83,564 $ 43,703 $ 11,237 $ 138,504 $ 87,025 (225)(a) $ 211,541
(13,763)(b)
Cost of sales ........................ 63,277 32,177 6,437 101,891 69,666 279 (c) 162,796
(225)(a)
(8,815)(b)
-------- -------- -------- --------- -------- ------- ---------
Gross profit ......................... 20,287 11,526 4,800 36,613 17,359 (5,227) 48,745
Selling, general and
administrative ..................... 14,493 9,373 3,114 26,980 10,932 (876) (d) 34,447
(2,692) (b)
103 (c)
-------- -------- -------- --------- -------- ------- ---------
Income from operations ............... 5,794 2,153 1,686 9,633 6,427 (1,762) 14,298
Equity in earnings of
limited partnership ................ 1,026 (b) 1,026
Other income (expense):
Interest expense .................. (1,745) (643) (65) (2,453) (475) (3,080)(e) (6,008)
Interest income ................... 160 160 70 (6) 224
Other income (expense) ............ 368 149 19 536 (592) 595 (h) 539
-------- -------- -------- --------- -------- ------- ---------
Total other income (exp) ......... (1,217) (494) (46) (1,757) (997) (2,491) (5,245)
-------- -------- -------- --------- -------- ------- ---------
Income before income taxes ........... 4,577 1,659 1,640 7,876 5,430 (3,227) 10,079
Income tax provision ................. 1,868 640 570 3,078 1,814 (1,259)(f) 3,633
-------- -------- -------- --------- -------- ------- ---------
Net income ........................... $ 2,709 $ 1,019 $ 1,070 $ 4,798 $ 3,616 $(1,968) $ 6,446
======== ======== ======== ========= ======== ======= =========
Earnings per share - basic (g) ....... $ .44 $ .49 $ .63
======== ========= =========
Earnings per share-diluted (g) ....... $ .39 $ .45 $ .57
======== ========= =========
</TABLE>
24
<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 ADJUSTMENTS
IHI UWS RESTATED BEAIRD (NOTE 2) COMBINED
-------- ------- -------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Sales .......................................... $ 75,862 $ 5,838 $ 81,700 $ 31,554 $ 113,254
Cost of sales .................................. 56,674 3,362 60,036 26,499 $ 65 (c) 86,600
-------- ------- -------- -------- ----- ---------
Gross profit ................................... 19,188 2,476 21,664 5,055 (65) 26,654
Selling, general and administrative ............ 14,095 1,735 15,830 3,482 (130)(d) 19,182
-------- ------- -------- -------- ----- ---------
Income from operations ......................... 5,093 741 5,834 1,573 65 7,472
Other income (expense):
Interest expense ............................ (1,305) (55) (1,360) (1,524)(e) (2,884)
Interest income ............................. 205 205 3 208
Other income (expense) ...................... 742 6 748 (1,358) 1,358 (h) 748
-------- ------- -------- -------- ----- ---------
Total other income (expense) ............... (358) (49) (407) (1,355) (166) (1,928)
-------- ------- -------- -------- ----- ---------
Income before income taxes ..................... 4,735 692 5,427 218 (101) 5,544
Income tax provision ........................... 1,745 218 1,963 133 (90)(f) 2,006
-------- ------- -------- -------- ----- ---------
Net income ..................................... $ 2,990 474 3,464 $ 85 $ (11) $ 3,538
======== ======= ======== ======== ===== =========
Earnings per share - basic (g) ................. $ .28 $ .29 $ .30
Earnings per share - diluted (g) ............... $ .27 $ .28 $ .28
</TABLE>
25
<PAGE>
Note 3 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition of the Prior Acquisitions, the March 1998
Mergers and the Moores Merger:
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 ........................ $ 2,255
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, 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 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.
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 and Walker, Sub S corporations.
g. Change in earnings per share as a result of pro forma earnings of the
Prior Acquisitions, the 1998 Mergers and the UWS Merger 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 and the UWS Merger and the convertible debenture issued in
connection with the Beaird acquisition.
h. Eliminate corporate allocation from former parent not to be incurred in
future periods.
26
<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: September 14, 1998
27
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report on United Wellhead Services, Inc. dated February 12,
1998 included in this Form 8-K, into Industrial Holdings, Inc.'s previously
filed S-3 registration statement No. 333-53285 and S-8 registration statement
No. 333-62653.
KARLINS, FULLER, ARNOLD & KLODOSKY, P.C.
The Woodlands, Texas
September 11, 1998
28
