SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA/2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) FEBRUARY 9, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
7135 ARDMORE HOUSTON, TEXAS 77054 (Address of
principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for Acquired Companies
Report of Certified Public Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Income and Retained Earnings for the Years
Ended December 31, 1997 and 1996
Statements of Cash Flows
for the Years Ended December 31, 1997 and 1996
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet at
December 31, 1997 (Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet at
December 31, 1997
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1997 (Unaudited)
Notes to Pro Forma Condensed Consolidated Statement of Operation
2
<PAGE>
To the Board of Directors and Shareholders
Philform, Inc.
Jackson, Michigan
We have audited the accompanying balance sheets of Philform, Inc. as of December
31, 1997 and 1996, and the related statements of income and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Philform, Inc. as of December
31, 1997 and 1996, and the results of operations and cash flows for the years
then ended in conformity with generally accepted accounting principles.
KUHL & SCHULTZ, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
February 11, 1998
3
<PAGE>
PHILFORM, INC.
BALANCE SHEETS
DECEMBER 31
1997 1996
----- ----
ASSETS
CURRENT ASSETS
Cash ..................................... $ 781,426.60 $ 965,060.20
Accounts receivable - net of
reserve for bad debts .............. 1,964,462.33 1,716,457.54
Prepaid insurance ........................ 19,089.00 15,504.00
Inventory ................................ 2,559,895.00 2,526,220.00
Notes receivable ......................... 257,148.96 250,535.07
------------- -------------
Total current assets .................. 5,582,021.89 5,473,776.81
------------- -------------
MACHINERY AND EQUIPMENT - at cost ................ 564,302.72 455,970.13
Less accumulated depreciation ............ 380,829.57 311,983.84
------------- -------------
Net machinery and equipment ........... 183,473.15 143,986.29
------------- -------------
OTHER ASSETS
Cash value - officers life insurance ..... 82,190.00 36,199.00
Intangible assets - net of amortization .. 32,000.00 40,000.00
------------- -------------
Total other assets .................... 114,190.00 76,199.00
------------- -------------
$5,879,685.04 $5,693,962.10
============= =============
See accompanying notes to financial statements.
4
<PAGE>
PHILFORM, INC.
BALANCE SHEETS
DECEMBER 31
1997 1996
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................... $ 749,571.61 $1,197,909.02
Accrued expenses and withholdings:
Interest .............................. -- 3,737.50
Commissions ........................... 302,342.87 253,200.31
Payroll ............................... 203,396.26 301,504.04
Corporate Income tax .................. 149,459.64 348,452.32
Michigan Single Business tax .......... 53,416.00 60,000.00
Pension plan .......................... 31,148.06 24,152.46
Property tax .......................... 2,075.34 1,777.73
Rent .................................. 145,108.15 272,108.15
Customer deposits - deferred income ...... -- 266,687.00
Current portion of long-term debt ........ 126,315.84 126,315.84
Notes payable - shareholders ............. -- 55,000.00
------------- -------------
Total current liabilities ......... 1,762,833.77 2,910,844.37
------------- -------------
LONG-TERM DEBT - Net of current
portion .................................. 772,131.44 918,447.28
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value; 100,000
shares authorized, 55,000 shares
issued and outstanding ................ 55,000.00 55,000.00
Retained earnings ........................ 3,289,719.83 1,809,670.45
------------- -------------
Total stockholders' equity ........ 3,344,719.83 1,864,670.45
------------- -------------
$5,879,685.04 $5,693,962.10
============= =============
See accompanying notes to financial statements.
5
<PAGE>
PHILFORM, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31
1997 1996
-------------- --------------
NET SALES .................................... $13,762,826.51 $11,256,296.89
-------------- --------------
COST OF SALES
Materials ............................ 4,959,849.76 4,454,200.53
Production labor ..................... 1,402,521.71 1,313,768.80
Plant expenses ....................... 2,452,980.45 1,794,078.42
-------------- --------------
Total cost of goods sold .......... 8,815,351.92 7,562,047.75
-------------- --------------
GROSS PROFIT ................................. 4,947,474.59 3,694,249.14
SELLING, GENERAL & ADMINISTRATIVE EXPENSES ... 2,692,376.88 2,161,176,33
INCOME FROM OPERATIONS ....................... 2,255,097.71 1,533,072.81
-------------- --------------
OTHER INCOME (EXPENSES)
Interest income ...................... 59,752.45 27,846.16
Rent income .......................... 18,660.00 --
Interest expense ..................... (95,997.80) (113,632.23)
Miscellaneous expense ................ (21,616.66) (5,066.56)
-------------- --------------
(39,202.01) (90,852.63)
INCOME BEFORE INCOME TAXES ................... 2,215,895.70 1,442,220.18
PROVISION FOR INCOME TAXES ................... 735,846.32 586,552.00
-------------- --------------
NET INCOME ................................... 1,480,049.38 855,668.18
RETAINED EARNINGS
Beginning of year .................... 1,809,670.45 954,002.27
-------------- --------------
End of year .......................... $ 3,289,719.83 $ 1,809,670.45
============== ==============
See accompanying notes to financial statements.
6
<PAGE>
PHILFORM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
------------- -------------
<S> <C> <C>
Net income .................................. $1,480,049.38 $ 855,668.18
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............ 96,433.08 60,277.98
Decrease (Increase) in:
Accounts receivable ................... (248,004.79) (295,314.08)
Note receivable ....................... (6,613.89) (120,785.07)
Prepaid insurance ..................... (3,585.00) (4,640.00)
Inventory ............................. (33,675.00) (364,507.00)
Increase (Decrease) in:
Accounts payable ...................... (448,337.41) 343,668.15
Accrued expenses ...................... (377,986.19) 598,483.23
Customer deposits ..................... (266,687.00) 134,437.00
Bank line of credit ................... -- (22,825.75)
Notes payable - shareholders .......... (55,000.00) 5,000.00
------------- -------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ............ 136,593.18 1,189,462.64
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets .................... (150,874.46) (81,366.34)
Loss on disposal of fixed assets ............ 22,954.52
Increase in life insurance cash value ....... (45,991.00) (20,088.00)
------------- -------------
NET CASH USED BY INVESTING
ACTIVITIES ..................... (173,910.94) (101,454.34)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in long-term debt .................. (146,315.84) (155,236.88)
------------- -------------
NET CASH USED BY FINANCING
ACTIVITIES .................... (146,315.84) (155,236.88)
------------- -------------
NET INCREASE (DECREASE) IN CASH ................... (183,633.60) 932,771.42
CASH AT BEGINNING OF YEAR ......................... 965,060.20 32,288.78
------------- -------------
CASH AT END OF YEAR ............................... $ 781,426.60 $ 965,060.20
============= =============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PHILFORM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Company is a manufacturer of orbital riveting machines. Machines
sold are from stock specifications or custom built to customer
specifications. The Company operates out of one plant in Jackson,
Michigan.
Inventories are valued at the lower of cost (first-in, first-out
basis) or market. Market is considered as the net realizable value.
Machinery and equipment are stated at cost. Depreciation is computed
on the accelerated cost recovery method. Shop equipment has a
depreciable life of five to seven years, transportation equipment has
a depreciable life of five years and leasehold improvements have a
depreciable life of 31-1/2 years.
The Company has elected to amortize certain other assets over various
periods of time. These assets are amortized using the straight-line
method as follows:
Pattern - Amortized over 5 years Product drawings - Amortized
over lesser of 5 years or as the drawings become obsolete.
Patent - Amortized over 5 years. Non-compete agreement -
Amortized over 5 years.
Goodwill - Amortized over 5 years.
The reserve method is used to account for bad debts. The bad debt
reserve account had a balance of $25,000.00 at December 31, 1997 and
1996 respectively.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
1997 1996
------------- -------------
Raw materials and supplies ................. $ 123,636.00 $ 26,000.00
Work in process and finished goods ......... 987,265.00 1,305,028.00
Component parts ............................ 1,448,994.00 1,195,192.00
------------- -------------
$2,559,895.00 $2,526,220.00
8
<PAGE>
PHILFORM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - MACHINERY AND EQUIPMENT
The following components of machinery and equipment are stated at
historical costs.
1997 1996
----------- -----------
Machinery and equipment .................. $246,987.39 $190,610.07
Office equipment ......................... 254,612.72 163,780.46
Vehicles ................................. 59,037.73 59,037.73
Leasehold improvements ................... 3,664.88 42,541.87
----------- -----------
564,302.72 455,970.13
Accumulated depreciation ................. 380,829.57 311,983.84
----------- -----------
$183,473.15 $143,986.29
=========== ===========
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
1997 1996
----- ----
Trademarks ............................... $ 5,000.00 $ 5,000.00
Goodwill - Orbitform ..................... 5,000.00 5,000.00
Goodwill - Adtech ........................ 40,000.00 40,000.00
Patent ................................... 50,000.00 50,000.00
Patterns & product drawings .............. 209,250.00 209,250.00
Non-compete .............................. 2,000.00 2,000.00
----------- -----------
311,250.00 311,250.00
Reserve for amortization ................. 279,250.00 271,250.00
----------- -----------
$ 32,000.00 $ 40,000.00
=========== ===========
NOTE 5 - NOTE RECEIVABLE
Demand notes receivable from an entity controlled by shareholders of
the corporation bearing interest of 10% per year.
1997 1996
$257,148.96 $250,535.07
=========== ===========
9
<PAGE>
PHILFORM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 6 -LONG-TERM DEBT
Note payable - City bank, dated October 10, 1995, interest
payments only for 6 months beginning November 10, 1995,
principle payments of $10,526.32 for 114 months plus
interest of 8.47% beginning May 10, 1996. Note secured
by inventory ....................................... $898,447.28
Less current portion ......................... 126,315.84
-----------
Long-term debt ............................... $772,131.44
===========
Principal maturities of long-term debt in each of the next five years
and thereafter are as follows:
1998 $126,315.84
1999 126,315.84
2000 126,315.84
2001 126,315.84
2002 126,315.84
Thereafter 266,868.08
------------
$898,447.28
============
NOTE 7 - PENSION PLAN
The Company sponsors a salary reduction 401(K) pension plan covering
substantially all employees. Company contributions to this plan
amounted to $29,158.63 and $34,418.28 in 1997 and 1996 respectively.
NOTE 8 - INCOME TAXES
Federal income tax provisions are provided on income as stated in the
financial statements. Deferred income taxes are provided for any
differences in tax and book income. At December 31, 1997 no material
differences exist.
10
<PAGE>
PHILFORM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 9 - RELATED PARTY TRANSACTIONS
1997 1996
------------- -------------
Notes payable to shareholders .............. $ -- $ 55,000.00
============= =============
Rent paid to entity controlled by
shareholders ............................. $ 552,000.00 $ 541,800.00
============= =============
Interest paid shareholders ................. $ 10,954.98 $ 13,632.50
============= =============
Note receivable from entity
controlled by shareholders ............... $ 257,184.96 $ 250,535.07
============= =============
Interest received from entity
controlled by shareholders ................ $ 23,343.44 $ 13,723.05
============= =============
NOTE 10 - CASH FLOWS INFORMATION
Cash paid for interest and income taxes for the years ending December
31, 1997 and 1996 are as follows:
1997 1996
------------ ------------
Interest $ 99,735.30 $ 111,619.73
============ ============
Income taxes $934,839.00 $ 378,807.00
============ ============
NOTE 11- CREDIT RISK
The Company is required by SFAS No. 105 to disclose significant
concentrations of credit risk regardless of the degree of such risk.
Financial instruments which potentially subject the company to
concentration of credit risk consist principally of temporary cash
investments and trade receivables.
The Company places its temporary cash investments with
high-credit-quality financial institutions. Although, such cash
balances exceed the federally insured limits at certain times during
the year they are, in the opinion of management, subject to minimal
risk.
The Company has established policies for extending credit and
assessing bad debts based upon factors surrounding the credit risk of
specific customers, historical trends and other information. In the
opinion of management, concentrations of credit risk with respect to
trade receivables are limited due to the credit worthiness of
customers.
11
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to
the February 1998 acquisition by Industrial Holdings, Inc. (the "Company") of
Philform, Inc. ("Philform") in a transaction accounted for as a purchase. The
allocation of purchase price 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 pro forma condensed consolidated balance sheet is based
on the December 31, 1997 balance sheets of the Company included in the 1997
Annual Report on Form 10-K and of Philform included in the financial statements
of Philform appearing elsewhere in this Report on Form 8-K, and has been
prepared to reflect the acquisition of Philform as if the acquisition had been
consummated at December 31, 1997. The acquisitions of Lone Star, MVS and WALKER
were completed in 1997 and their balance sheets as of December 31, 1997 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, American, Lone
Star, MVS and WALKER (not presented separately herein) and Orbitform appearing
elsewhere in this Report on Form 8-K as if the acquisitions 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; (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; and (iv)
the audited operating results of Philform for the year ended December 31, 1997.
The results of operations for the one month ended January 31, 1997 for Lone Star
have not been presented based upon management's belief that such would not be
significant to the pro forma statements of operations.
The Company acquired WALKER effective November 1, 1997, MVS on March
1, 1997 and Lone Star on February 1, 1997 and the operating results subsequent
to the date of acquisition are reflected in the Company's historical information
for the periods presented.
The pro forma financial information does not purport to be indicative
either of the results of operations that would have occurred had the purchase
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, 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 and Philform included elsewhere in this
Form 8-K.
12
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(000'S OMITTED)
HISTORICAL PRO FORMA
--------------- -------------------
ADJUSTMENTS
IHI PHILFORM (NOTE 1) COMBINED
ASSETS
Current assets:
Cash and equivalents ............. $ 636 $ 782 $ $ 1,418
Accounts receivable-trade ........ 12,574 1,964 14,538
Inventories ...................... 13,346 2,560 15,906
Advances to shareholders ......... 59 59
Notes receivable, current portion 1,304 257 1,561
Other current assets ............. 646 19 665
------- ------ ------- -------
Total current assets ....... 28,565 5,582 34,147
Investment in limited partnership ..... 450(a) 450
Property and equipment, net ........... 23,639 183 132(b) 23,954
Notes receivable ...................... 1,634 -- -- 1,634
Other assets .......................... 1,399 83 -- 1,482
Goodwill, net ......................... 11,852 32 630(c) 12,514
------ ------- -------
Total assets ............... $67,089 $5,880 $ 1,212 $74,181
======= ====== ======= =======
13
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------- --------------------------
ADJUSTMENTS
IHI PHILFORM (NOTE 1) COMBINED
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ............................ $10,496 $ -- $ $10,496
Accounts payable-trade ................... 6,413 750 7,163
Accrued expenses and other ............... 3,309 887 4,196
Current portion of long-term debt ........ 2,456 126 2,582
------- ------ ---------- -------
Total current liabilities ............ 22,674 1,763 24,437
Long-term debt, less current portion .......... 10,553 772 11,325
Deferred compensation payable ................. 242 242
Deferred income taxes payable ................. 3,283 37 (b) 3,320
Shareholders' equity
Common stock ............................. 66 55 (55)(d) 70
4 (e)
Additional paid-in capital ............... 26,416 4,516(e) 30,932
Retained earnings ........................ 3,855 3,290 (3,290)(d) 3,855
------- ------ -------- -------
Total shareholders' equity ......... 30,337 3,345 1,175 34,857
------- ------ -------- -------
Total liabilities and shareholders' equity .... $67,089 $5,880 $ 1,212 $74,181
======= ====== ======== =======
</TABLE>
14
<PAGE>
Note 1 - The Company acquired all the capital stock of Philform, Inc.
("Philform") and certain leased equipment (the "Equipment") used in the
operations of Philform for 419,773 shares of the Company's common stock valued
at $4,520,000. Simultaneously, Philform contributed the Equipment and Philform's
activities to OF Acquisition L.P., a limited partnership (the "Partnership"), in
exchange for a 49% limited partnership interest. The allocation of purchase
price is based on preliminary information and is subject to change based on the
final determination of certain tax liabilities, differences between the
estimated and actual costs of professional fees, completion of asset appraisals
and adjustments to certain other accruals:
a. Record investment in the Partnership.
b. Adjust the assets and liabilities of Philform to their estimated fair
market values at the acquisition date.
c. Record goodwill on the purchase of Philform.
d. Eliminate the shareholders' equity of Philform.
e. Record issuance of 419,773 shares of the Company's common stock in
exchange for outstanding capital stock of Philform and Equipment.
15
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 1)
----------------------------------- --------------------------------
IHI MVS WALKER PHILFORM MVS WALKER PHILFORM COMBINED
--- --- ------ -------- --- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales ............................................$ 83,564 $ 1,762 $ 6,229 $ 13,762 $ (184) (a) $91,370
(13,763)(b)
Cost of sales .................................... 63,277 1,293 3,990 8,815 149 (c) 68,525
(184) (a)
(8,815)(b)
-------- ------- ------- -------- ----- ------- -------- --------
Gross profit ..................................... 20,287 469 2,239 4,947 (149) (4,948) 22,845
Selling, general and
administrative ................................. 14,493 152 1,488 2,692 (274) (d) 15,961
(2,692)(b)
17 52 33 (c)
-------- ------- ------- -------- ----- ------- -------- --------
Income from operations ........................... 5,794 317 751 2,255 (17) 73 (2,289) 6,884
Equity in earnings of limited
partnership ................................. 1,026 (b) 1,026
Other income (expense):
Interest expense .............................. (1,745) (42) (96) (389) 20 (c) (2,252)
Interest income ............................... 160 3 1 60 224
Other income (expense) ........................ 368 6 (3) 371
-------- ------- ------- -------- ----- ------- -------- --------
Total other income (expense)................... (1,217) 3 (35) (39) (389) 20 (1,657)
-------- ------- ------- -------- ----- ------- -------- --------
Income before income taxes ....................... 4,577 320 716 2,216 (17) (316) (1,243) 6,253
Income tax provision ............................. 1,868 82 736 (4) 136 (423)(f) 2,395
-------- ------- ------- -------- ----- ------- -------- --------
Net income .......................................$ 2,709 $ 238 $ 716 $ 1,480 $ (13) $ (452) $ (820) $ 3,858
======== ======= ======= ======== ===== ======= ======== ========
Earnings per share - basic (g)..$ ................ .44 $ .59
======== ========
Earnings per share - diluted ($g) ................ .39 $ .50
======== ========
</TABLE>
16
<PAGE>
Note 2 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition of Philform outlined in Note 1 to the pro
forma balance sheet:
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. 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. 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 for WALKER on $309,000 demand note,
$5,880,000 8.1% term note and for Philform on $898,000, 8.4% term
note assumed in connection with the acquisition.
f. Adjust income taxes as a result of the changes in the pro forma
pretax earnings of the acquired subsidiaries.
g. Increase in earnings per share as a result of pro forma earnings of
the acquired subsidiaries and increase in weighted average of common
stock equivalents (i) for MVS for the effect of 600,000 shares of IHI
common stock issued to the selling shareholders, (ii) for Lone Star
for the effect of 84,211 shares of IHI common stock issued to selling
shareholder, and (iii) for Philform for the effect of 419,773 shares
of IHI common stock issued.
17
<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: March 27, 1998
18
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated February 11, 1998, on the financial
statements of Philform, Inc. as of December 31, 1997 and 1996, and for each of
the years then ended included herein in the Industrial Holdings, Inc. Current
Report to the Securities and Exchange Commission, Form 8-K.
KUHL & SCHULTZ, P.C.
Jackson, Michigan
March 26, 1998
19
