SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA/3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) APRIL 3, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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TEXAS 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification
incorporation) No.)
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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 Public Accountants................. 3
Balance Sheet at April 30, 1997.......................... 4
Statement of Income for the Year
Ended April 30, 1997............................. 6
Statement of Retained Earnings for the Year Ended
April 30, 1997................................... 7
Statement of Cash Flows for the Year Ended
April 30, 1997................................... 8
Notes to Financial Statements............................ 9
Balance Sheet at March 31, 1998 (Unaudited)..............14
Statements of Income for the Eleven Months Ended
March 31, 1998 and 1997 (Unaudited).............16
Statements of Cash Flows for the Eleven Months
Ended March 31, 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
December 31, 1997 (Unaudited)....................21
Notes to Pro Forma Condensed Consolidated Balance
Sheet ..........................................23
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997 (Unaudited).24
Notes to Pro Forma Condensed Consolidated Statement of
Operation........................................25
2
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Moores Pump and Supply, Inc.:
We have audited the accompanying balance sheets of Moores Pump and Supply, Inc.
(a Louisiana corporation) as of April 30, 1997, and the related statements of
income, retained earnings 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 financial statements referred to above present fairly, in
all material respects, the financial position of Moores Pump and Supply, Inc. as
of April 30, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
New Orleans, Louisiana,
June 17, 1997
3
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MOORES PUMP AND SUPPLY, INC.
BALANCE SHEETS
AS OF APRIL 30, 1997
ASSETS
CURRENT ASSETS:
Cash ........................................................ $ 170,045
Trade accounts receivable, net of allowance for
doubtful accounts of $75,000 ............................. 2,768,846
Unbilled receivables ........................................ 244,573
Other receivables ........................................... 44,493
Inventory ................................................... 657,670
Other ....................................................... 72,891
----------
Total current assets ................................. 3,958,518
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation of $2,406,892 (Note 6) ............. 858,615
----------
OTHER ASSETS:
Insurance loss fund ......................................... 100,709
Notes receivable from stockholder ........................... 198,715
Goodwill, net of amortization ............................... 76,070
----------
Total other assets ................................... 375,494
Total assets ......................................... $5,192,627
==========
The accompanying notes are an integral part of these statements.
4
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MOORES PUMP AND SUPPLY, INC.
BALANCE SHEETS
AS OF APRIL 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $1,475,665
Notes and leases payable .................................... 737,030
Accrued expenses and other current liabilities .............. 302,006
Due to affiliates ........................................... 77,900
Income taxes payable ........................................ 29,432
----------
Total current liabilities ............................ 2,622,033
LONG-TERM LIABILITIES:
Notes and leases payable .................................... 326,142
Due to officers ............................................. 28,750
Deferred income taxes payable ............................... 28,199
----------
Total long-term liabilities .......................... 383,091
Total liabilities .................................... 3,005,124
STOCKHOLDERS' EQUITY:
Common stock; authorized 2,000 shares of no par
value 1,198 shares issued and outstanding ................ 74,600
Retained earnings ........................................... 2,112,903
Total stockholders' equity ........................... 2,187,503
Total liabilities and stockholders' equity ........... $5,192,627
==========
The accompanying notes are an integral part of these statements.
5
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MOORES PUMP AND SUPPLY, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1997
SALES ....................................................... $ 13,418,852
COST OF SALES ............................................... 10,320,993
------------
Gross profit ....................................... 3,097,859
OPERATING EXPENSES .......................................... 2,813,183
------------
Operating income ................................... 284,676
INTEREST EXPENSE ............................................ (125,169)
OTHER INCOME ................................................ 74,454
------------
Income before provision for income taxes ........... 233,961
PROVISION FOR INCOME TAXES .................................. 151,030
Net income ......................................... $ 82,931
============
The accompanying notes are an integral part of these statements.
6
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MOORES PUMP AND SUPPLY, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED APRIL 30, 1997
BALANCE, beginning ..... $2,029,972
Additions:
Net income ..... 82,931
----------
BALANCE, ending ........ $2,112,903
==========
The accompanying notes are an integral part of these statements.
7
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MOORES PUMP AND SUPPLY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ................................................. $ 82,931
Adjustments to reconcile net income to operating cash flows
Depreciation .......................................... 253,957
Provision for deferred taxes .......................... 27,195
Amortization of intangible assets ..................... 25,356
Distribution of investment in stock ................... 512,870
Gain on disposal of assets ............................ (331,628)
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Accounts receivable ............................ (1,052,452)
Other receivables .............................. 12,183
Inventories .................................... (39,215)
Insurance loss fund ............................ 98,708
Other current assets ........................... 23,206
Increase (decrease) in liabilities-
Accounts payable ............................... 397,402
Accrued expenses and other current liabilities . 9,274
Due to officers and affiliates ................. (12,100)
-----------
Net cash provided by operating activities ...... 7,687
-----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment ......................... (375,744)
Proceeds from sale of property and equipment ............... 347,686
Net proceeds from note receivable .......................... (54,859)
Other ...................................................... --
-----------
Net cash used in investing activities .......... (82,917)
-----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings from long-term debt ............................. 412,120
Principal payments on long-term debt ....................... (318,099)
Net payments on line of credit ............................. (274,032)
-----------
Net cash used in financing activities .......... (180,011)
-----------
NET DECREASE IN CASH ............................................ (255,241)
CASH AT BEGINNING OF YEAR ....................................... 425,286
CASH AT END OF YEAR ............................................. $ 170,045
===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for-
Interest expense ....................................... $ 125,169
===========
Income taxes ............................................ $ 69,030
===========
The accompanying notes are an integral part of these statements.
8
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MOORES PUMP AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF THE BUSINESS
Moores Pump and Supply, Inc. (the Company) is engaged in sales, service, rental
and repairs of oilwell pumping equipment. The Company's customers include major
and independent oil and gas companies and oilfield service companies.
CASH EQUIVALENTS
Cash equivalents are defined by the Company as holdings of highly liquid
investments with original maturities of three months or less.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation,
computed on the straight-line method based on the estimated useful life of the
individual assets. Maintenance and repairs are expensed as incurred; betterments
and improvements are capitalized. The costs and related reserves of assets sold
or disposed of are removed from the accounts and the resultant gains or losses
included in income or expense.
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this statement, deferred income taxes are
provided for by the asset and liability method.
ACCOUNTS RECEIVABLE
The allowance method is used to recognize bad debts. This method maintains the
allowance for doubtful accounts at a level that is considered adequate by
management to absorb potential losses. The adequacy of the allowance is
determined by management's evaluation of accounts receivable, prior loss
experience and current economic conditions.
9
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INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) cost method.
GOODWILL
Goodwill arose from the acquisition of Romero Machine Shop, Inc. Goodwill is
being amortized on a straight-line basis over ten years.
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 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 those estimates.
REVENUE RECOGNITION
The Company recognizes revenues at the time product is delivered or work is
performed in accordance with the accrual basis of accounting.
2. LONG-TERM DEBT:
Long-term debt consists of the following at April 30, 1997:
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Various notes and leases payable to banks and financing corporations,
interest rates ranging from 7.6% to 17.60%, payable in monthly
installments of principal plus interest ranging from $89 to $2,325,
maturities up to August 16, 2001, secured by
vehicles and equipment of the Company.......................................... $209,177
Two notes payable to bank, 8.75% to 9% interest rate, one note payable in
monthly principal payments of $11,333 plus accrued interest, maturing
on June 10,1998; second note payable in monthly principal payments of
$4,585 plus interest maturing in September, 1999............................... 490,597
Line of credit due on demand; secured by invoices and equipment..................... 363,398
----------
1,063,172
Less current portion................................................................ 737,030
----------
Long-term debt...................................................................... $326,142
==========
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Maturities of long-term debt are as follows:
Years Ending
APRIL 30,
--------------------
1998 $737,030
1999 235,791
2000 79,993
2001 12,459
2002 6,180
------------
1,071,453
Amounts representing interest (8,281)
------------
$1,063,172
============
3. INCOME TAXES
Income tax expense for the year ended April 30, 1997 is as follows:
Current income tax provision................................ $123,835
Deferred income tax provision............................... 27,195
-----------
Provision for income taxes.................................. $151,030
===========
Differences between actual and statutory tax rates relate primarily to
nondeductible expenses and state taxes. Deferred income tax liabilities related
to property and equipment are reflected in long-term liabilities as deferred
income taxes of $28,199.
4. RELATED PARTY TRANSACTIONS:
During the year ended April 30, 1997, the following transactions with related
parties occurred:
Sales to entities with common ownership:
Moores Engineering Services, Inc...................... $ 1,783
Moores Wireline, Inc.................................. 2,936
H.B. Rentals, L.C..................................... 127,329
Houston Oil Equipment, Inc............................ 33,042
Purchases from entities with common ownership:
Houston Oil Equipment, Inc............................ $ 1,861
Rent payments to related parties as follows:
11
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C&M Land, Inc. ................................. $372,450
Relative of major stockholder .................. 60,000
Loans to officers and affiliates are as follows:
Stockholder .................................... $198,715
Moores Engineering Service, Inc. ............... $ --
H.B. Rentals, L.C .............................. 4,172
Moores Wireline, Inc. .......................... 900
--------
$ 5,072
The Company owned a life insurance policy on a major stockholder. In 1997 the
policy was transferred from the Company to a relative of the stockholder. In
exchange, the stockholder granted the company a note in the amount of $143,857,
which is included in notes receivable from related parties.
5. INVESTMENT IN RESTRICTED STOCK:
As of April 30, 1996 and 1995, the Company held an investment in Delta Omega
Technologies, Inc. (Delta). Delta is publicly traded, but these shares are
unregistered and thus restricted from trading. Due to the restricted nature of
the shares, the Company records the shares at cost. During 1997, the Company
distributed these shares to various officers and former officers of the Company.
As a result of this distribution, the Company recognized $232,071 in
compensation and consulting expense and a capital loss of $280,799, all of which
is reflect in operating expenses.
6. PROPERTY, PLANT AND EQUIPMENT:
As of April 30, 1997, the Company's property, plant and equipment were as
follows:
USEFUL LIVES
Land - $ 7,000
Buildings 10-35 years 192,654
Rental equipment 7-10 years 357,649
Furniture and fixtures 5-7 years 206,260
Machinery and equipment 5-7 years 1,685,063
Trucks and automobiles 5 years 613,389
Leasehold improvements 7-10 years 203,491
----------
Total 3,265,506
Less: Accumulated depreciation (2,406,891)
----------
Total, net $ 858,615
==========
Depreciation expense was $253,957 for 1997.
12
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7. EMPLOYEE BENEFITS:
The Company adopted a 401(k) plan in fiscal 1996, which is available to all
qualified employees. The Company will match 25% of employee contributions up to
10% of the employee's salary. The Company incurred expense of $30,626 in 1997
relating to the 401(k) plan. The Company offers no postretirement or
postemployment benefits.
13
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MOORES PUMP AND SUPPLY, INC.
BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1998
ASSETS
CURRENT ASSETS:
Cash ................................................... $ 271,350
Trade accounts receivable .............................. 4,145,158
Notes receivables, current ............................. 58,236
Inventory .............................................. 589,041
Other .................................................. 125,020
----------
Total current assets .............................. 5,188,805
PROPERTY, PLANT, AND EQUIPMENT ........................... 1,069,876
OTHER ASSETS:
Notes receivable ....................................... 98,355
Goodwill, net of amortization .......................... 52,826
Other .................................................. 46,874
----------
Total other assets ................................ 198,055
Total assets ...................................... $6,456,736
See notes to financial statements.
14
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MOORES PUMP AND SUPPLY, INC.
BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $2,443,150
Notes and leases payable .................................... 382,470
Accrued expenses and other current liabilities .............. 445,431
Current portion of long-term debt ........................... 267,265
----------
Total current liabilities .............................. 3,538,316
LONG-TERM LIABILITIES:
Notes and leases payable .................................... 400,305
Deferred income taxes payable ............................... 53,699
Total long-term liabilities ............................ 454,004
Total liabilities ...................................... 3,992,320
STOCKHOLDERS' EQUITY:
Common stock ................................................ 74,600
Retained earnings ........................................... 2,389,816
Total stockholders' equity ............................. 2,464,416
Total liabilities and stockholders' equity ............. $6,456,736
See notes to financial statements.
15
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MOORES PUMP AND SUPPLY, INC.
STATEMENT OF INCOME (UNAUDITED)
FOR THE ELEVEN MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
SALES .......................................... $ 18,314,855 $ 12,639,827
COST OF SALES .................................. 13,820,314 9,802,440
------------ ------------
Gross profit ............................ 4,494,541 2,837,387
OPERATING EXPENSES ............................. 3,803,452 2,261,740
------------ ------------
Operating income ........................ 691,089 575,647
INTEREST EXPENSE ............................... (127,695) (111,299)
OTHER INCOME (EXPENSE) ......................... (25,644) 30,637
------------ ------------
Income before provision for income taxes 537,750 494,985
PROVISION FOR INCOME TAXES ..................... 260,840 319,389
------------ ------------
Net income .............................. $ 276,910 $ 175,596
============ ============
See notes to financial statements.
16
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MOORES PUMP AND SUPPLY, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE ELEVEN MONTHS ENDED MARCH 31, 1998 AND 1997
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1998 1997
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income ................................................ $ 276,913 $ 175,597
Adjustments to reconcile net income to operating cash flows
Depreciation and amortization ........................ 305,984 223,549
Provision for deferred taxes ......................... 25,500 7,466
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Accounts receivable ........................... (1,131,739) (748,815)
Inventories ................................... 68,629 (50,686)
Prepaid expenses and other assets ............. 46,199 113,578
Increase in liabilities-
Accounts payable and accrued expenses ......... 974,828 591,591
----------- -----------
Net cash provided by operating activities ..... 566,314 312,280
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (494,001) (336,256)
Net proceeds from note receivable ......................... 42,124
-----------
Net cash used in investing activities ......... (451,877) (336,256)
CASH FLOW FROM FINANCING ACTIVITIES:
Net payments on line of credit and long-term debt ......... (13,132) (71,631)
----------- -----------
Net cash used in financing activities ......... (13,132) (71,631)
----------- -----------
NET INCREASE (DECREASE) IN CASH ................................ 101,305 (95,607)
CASH AT BEGINNING OF YEAR ...................................... 170,045 425,286
----------- -----------
CASH AT END OF YEAR ............................................ $ 271,350 $ 329,679
=========== ===========
</TABLE>
See notes to financial statements.
17
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MOORES PUMP AND SUPPLY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 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 Moores Pump and Supply,
Inc. ("Moores"). Operating results for the eleven months ended March
31, 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 Moores audited financial statements for
the year ended April 30, 1997 included herein.
18
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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") and Philform, Inc. ("Philform") between March
1997 and February 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") and GHX, Incorporated ("GHX"), (the "March
1998 Mergers") in transactions accounted for as poolings-of-interest, and (iii)
the merger of a wholly-owned subsidiary of the Company with Moores Pump and
Supply, Inc. ("Moores") (the "Moores Merger") on April 3, 1998 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 Prior Acquisitions, the March 1998 Mergers and the Moores Merger 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 balance sheet as of December 31, 1997 is based on the December 31,
1997 balance sheets of the Company included in its 1997 Report on Form 10- K,
Philform, Ameritech, GHX and Moores (not presented separately herein).
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1997 are based on the income statements of the
Company, the Prior Acquisitions, March 1998 Mergers and Moores (not presented
separately herein) 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; (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 and Philform for the year ended December
31, 1997; (v) the operating results of GHX for the twelve months ended December
31, 1997; and (vi) the operating results of Moores for the twelve months ended
December 31, 1997. 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. The March 1998 Mergers
and the Moores Merger 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.
19
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Pro forma income statement information for periods subsequent to December
31, 1997 has not been presented herein as the results of operations of the Prior
Acquisitions, the March 1998 Mergers, and the Moores Merger have been reflected
in the historical financial statements for the six month period ended June 30,
1998 as included in the Company's Form 10-Q for the period then ended.
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 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 and Moores
included elsewhere in this Form 8-K.
20
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INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(000'S OMITTED)
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HISTORICAL
(AS REPORTED) PRO FORMA
------------------------------------------------------------- -------------------
RECLASSI-
MARCH '98 FICATIONS IHI ADJUSTMENTS
IHI MERGERS MOORES (NOTE 1) RESTATED PHILFORM (NOTE 2) COMBINED
--- ------- ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents .............. $ 636 $ 46 $ 283 $ 965 $ 782 $ 1,747
Accounts receivable-trade ......... 12,574 2,945 3,755 19,274 1,964 21,238
Inventories ....................... 13,346 4,885 589 18,820 2,560 21,380
Employee advances ................. 59 55 114 114
Notes receivable, current ......... 1,304 58 1,362 257 1,619
Other current assets .............. 646 282 132 1,060 19 1,079
------- ------- ------- ------- ------- -------
Total current assets ..... 28,565 8,158 4,872 41,595 5,582 47,177
Property and equipment, net ............ 23,639 1,199 1,020 25,858 183 $ 132(b) 26,173
Notes receivable ....................... 1,634 44 1,678 1,678
Other assets ........................... 1,399 45 1,444 83 450(a) 1,977
Goodwill, net .......................... 11,852 433 59 12,344 32 630(c) 13,006
------- ------- ------- ------- ------- ------- -------
Total assets .............. $67,089 $ 9,790 $ 6,040 $82,919 $ 5,880 $ 1,212 $90,011
======= ======= ======= ======= ======= ======= =======
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INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
(000'S OMITTED)
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<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
----------------------------------------------------------- -------------------
RECLASSI-
MARCH '98 FICATIONS IHI ADJUSTMENTS
IHI MERGERS MOORES (NOTE 1) RESTATED PHILFORM (NOTE 2) COMBINED
------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Current liabilities:
Notes payable .......................... $10,496 $ 3,998 $ 229 $14,723 $14,723
Accounts payable-trade ................. 6,413 1,948 1,747 10,108 $ 750 10,858
Accrued expenses and other ............. 3,309 507 880 4,696 887 5,583
Long-term debt, current ................ 2,456 474 311 3,241 126 3,367
------- ------- ------- ------- ------- -------
Total current liabilities .......... 22,674 6,927 3,167 32,768 1,763 34,531
Long-term debt, less current portion ......... 10,553 1,103 389 12,045 772 12,817
Deferred compensation payable ................ 242 242 242
Deferred income taxes payable ................ 3,283 (259) 54 3,078 $ 36 (b) 3,114
Shareholders' equity
Common stock ........................... 66 2 75 $(52)(a) 91 55 (51)(d) 95
Additional paid-in capital ............. 26,416 318 -- 248 (a) 26,982 4,516(d) 31,498
Retained earnings ...................... 3,855 1,700 2,355 (196)(b) 7,714 3,290 (3,290)(d) 7,714
------- ------- ------- ------- ------- ------- ------- -------
Total shareholders' equity ......... 30,337 2,020 2,430 _--- 34,787 3,345 1,175 39,307
------- ------- ------- ------- ------- ------- ------- -------
Total liabilities and shareholders' equity ... $67,089 $ 9,791 $ 6,040 $ -- $82,920 $ 5,880 $ 1,211 $90,011
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
Note 1 - On April 3, 1998, Industrial Holdings, Inc. (the "Company") acquired
all of the outstanding common stock, no par value of Moores Pump and Supply,
Inc. ("Moores"), upon merger of a wholly owned subsidiary of the Company with
and into Moores, with Moores being the surviving corporation (the "Moores
Merger"). As a result, Moores became a wholly owned subsidiary of the Company.
Moores, located in Lafayette, Louisiana, supplies and services pumps and packers
for the energy industry, as well as provides fabrication, repair and machine
shop services to its customers. The Company issued 1,600,000 shares of its
common stock in connection with the Merger.
(a) Amounts have been reclassified from common stock to additional
paid in capital to reflect the 1,600,000 shares of Company common
stock issued in connection with the Moores Merger and the 817,878
shares of Company common stock issued in connection with the March
98 Mergers.
(b) Retained earnings for Ameritech, a Sub S corporation prior to the
merger with the Company, have been reclassified to additional paid
in capital.
Note 2 - 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 and record issuance
of 419,773 shares of the Company's common stock in exchange for
outstanding capital stock of Philform and Equipment.
23
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR
THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL
(AS REPORTED) PRO FORMA
------------------------------------------------------------------ ------------------------
MARCH '98 IHI PRIOR ADJUSTMENTS
IHI MERGERS MOORES RESTATED ACQUISITIONS (NOTE 2) COMBINED
--------- --------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales .......................... $ 83,564 $ 26,028 $ 17,675 $ 127,267 $ 21,753 (225)(a) $ 135,032
(13,763)(b)
COST OF SALES .................. 63,277 18,815 13,362 95,454 14,098 149 (c) 100,661
(225)(a)
(8,815)(b)
GROSS PROFIT ................... 20,287 7,213 4,313 31,813 7,655 (5,097) 34,371
SELLING, GENERAL AND
ADMINISTRATIVE ............... 14,493 5,577 3,796 23,866 4,332 (874)(d) 24,734
(2,692)(b)
102 (c)
INCOME FROM OPERATIONS ......... 5,794 1,636 517 7,947 3,323 (1,633) 9,637
EQUITY IN EARNINGS OF LIMITED
PARTNERSHIP ............... 1,026 (b) 1,026
OTHER INCOME (EXPENSE):
INTEREST EXPENSE ............ (1,745) (521) (121) (2,387) (138) (370)(e) (2,895)
INTEREST INCOME ............. 160 160 64 224
---------
OTHER INCOME (EXPENSE) ...... 368 82 66 516 3 519
--------- --------
TOTAL OTHER INCOME (EXPENSE) (1,217) (439) (55) (1,711) (71) (370) (2,152)
INCOME BEFORE INCOME TAXES ..... 4,577 1,197 462 6,236 3,252 (977) 8,511
INCOME TAX PROVISION ........... 1,868 406 234 2,508 818 (10)(f) 3,316
NET INCOME ..................... $ 2,709 $ 791 $ 228 $ 3,728 $ 2,434 $ (967) $ 5,195
========= ========= ========= ========= ========= ========= =========
EARNINGS PER SHARE - BASIC (G) . $ .44 $ .44 $ .58
========= ========= =========
EARNINGS PER SHARE - DILUTED (G) $ .39 $ .39 $ .52
========= ========= =========
</TABLE>
24
<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 Moores Merger 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 March 1998 Mergers and the Moores
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 and for the 2,417,878 shares of common stock
issued in connection with the March 1998 Mergers and the Moores
Merger.
25
<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
Christine A. Smith
CHIEF FINANCIAL OFFICER
Date: September __, 1998
26
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report on Moores Pump and Supply, Inc., dated June 17, 1997
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.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
September 10, 1998
27
