================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

      [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                         FOR THE QUARTERLY PERIOD ENDED
                                 MARCH 31, 2000


                                       OR

      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934


                        COMMISSION FILE NUMBER: 000-19580

                            INDUSTRIAL HOLDINGS, INC.
             (exact name of registrant as specified in its charter)

                  TEXAS                                  76-0289495
         (State or other jurisdiction                   (IRS Employer
        of incorporation or organization)             Identification No.)


                       7135 ARDMORE, HOUSTON, TEXAS 77054
          (Address of principal executive offices, including zip code)

                                 (713) 747-1025
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                               TITLE OF EACH CLASS

                          COMMON STOCK, $.01 PAR VALUE
                           CLASS B REDEEMABLE WARRANT
                           CLASS C REDEEMABLE WARRANT
                           CLASS D REDEEMABLE WARRANT

   Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [ ] [X] No



   The aggregate market value of common stock held by non-affiliates of the
registrant was $16,224,926 at June 9, 2000. At that date, there were 15,111,097
shares of common stock outstanding.
================================================================================

<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
                                      INDEX


                                                                        PAGE NO.
PART  I     FINANCIAL INFORMATION

            Item 1   Financial Statements (unaudited)

                     Consolidated Balance Sheets at March 31, 2000
                       and December 31, 1999 ............................1
                     Consolidated Statements of Operations for the
                       Three Months ended March 31, 2000 and 1999 .......2
                     Consolidated Statements of Cash Flows for the
                       Three Months ended March 31, 2000 and 1999 .......3
                     Notes to Consolidated Financial Statements..........4

            Item 2   Management's Discussion and Analysis of
                       Financial Condition and Results of Operations....10

            Item 3   Quantitative and Qualitative Disclosures about
                       Market Risk......................................22

PART  II    OTHER INFORMATION
            Item 1.  Legal Proceedings..................................23

            Item 2.  Changes in Securities (no response required)

            Item 3.  Defaults upon Senior Securities....................23

            Item 4.  Submission of Matters to a Vote of
                       Security Holders (no response required)

            Item 5.  Other Information (no response required)

            Item 6.  Exhibits and reports on Form 8-K (None)............24

                                        i
<PAGE>
                                     PART I
                              FINANCIAL INFORMATION

                            INDUSTRIAL HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                    MARCH 31,      DECEMBER 31,
                                                      2000            1999
                                                  -------------   -------------
                     ASSETS                        (unaudited)
Current assets:
Cash and equivalents .........................    $   1,167,807   $   1,738,244
Accounts receivable - trade, net .............       32,794,283      38,510,825
Cost and estimated earnings in excess
  of billings ................................        4,161,587       3,704,496
Inventories ..................................       39,558,092      38,259,523
Employee advances ............................           59,397          59,397
Notes receivable, current portion ............        4,122,379       4,175,180
Other current assets .........................        2,233,959       4,701,563
                                                  -------------   -------------
    Total current assets .....................       84,097,504      91,149,228

Property and equipment, net ..................       63,666,447      64,706,601
Notes receivable, less current portion .......          324,651       1,119,778
Investment in unconsolidated affiliates ......          532,321      (1,005,120)
Other assets .................................        7,534,158       7,172,425
Goodwill and other intangible assets, net ....       25,774,970      26,099,794
                                                  -------------   -------------
  Total assets ...............................    $ 181,930,051   $ 189,242,706
                                                  =============   =============
     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ................................    $  43,188,560   $  46,192,562
Accounts payable - trade .....................       25,887,929      24,687,805
Billings in excess of costs and estimated
  earnings ...................................        1,067,935       2,170,095
Accrued expenses .............................       12,371,759      11,410,494
Current portion of long-term obligations .....       43,483,963      42,766,929
                                                  -------------   -------------
     Total current liabilities ...............      126,000,146     127,227,885

Long-term obligations, less current portion ..        8,821,360       9,902,936
Other long-term liabilities ..................        2,360,972       2,202,566
Deferred income tax liability ................          305,741         305,741
                                                  -------------   -------------
      Total liabilities ......................      137,488,219     139,639,128
                                                  -------------   -------------
Shareholders' equity:
    Preferred stock $.01 par value, 7,500,000
      shares authorized, no shares issued or
      outstanding
    Common stock $.01 par value,
      50,000,000 shares authorized, 15,111,097
      shares issued and outstanding ..........          151,110         151,110
   Additional paid-in capital ................       54,305,383      54,200,383
   Retained deficit ..........................       (9,334,903)     (3,868,157)
   Notes receivable from officers ............         (679,758)       (879,758)
                                                  -------------   -------------

        Total shareholders' equity ...........       44,441,832      49,603,578
                                                  -------------   -------------
        Total liabilities and shareholders'
          equity .............................    $ 181,930,051   $ 189,242,706
                                                  =============   =============

            See notes to unaudited consolidated financial statements

                                      -1-
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)




                                              THREE MONTHS ENDED MARCH 31,
                                                 2000             1999
                                             ------------     ------------

      Sales .............................    $ 53,566,249     $ 72,324,728
      Cost of sales .....................      43,181,794       57,458,031
                                             ------------     ------------
      Gross profit ......................      10,384,455       14,866,697

      Selling, general and administrative
         expenses .......................      12,759,739       10,493,392
                                             ------------     ------------

      Income (loss) from operations .....      (2,375,284)       4,373,305
                                             ------------     ------------
      Earnings from equity investments
        in unconsolidated affiliates.....          20,109          563,131
      Other income (expense):
         Interest expense ...............      (3,093,693)      (1,995,745)
         Interest income ................          66,152           74,682
         Other income (expense), net ....         (84,030)         529,280
                                             ------------     ------------

      Total other income (expense) ......      (3,111,571)      (1,391,783)
                                             ------------     ------------

      Income (loss) before income taxes .      (5,466,746)       3,544,653

      Income tax expense ................            --          1,411,518
                                             ------------     ------------

      Net income (loss) .................    ($ 5,466,746)    $  2,133,135
                                             ============     ============

      Basic earnings (loss) per share ...    $       (.36)    $        .14
      Diluted earnings (loss) per share .    $       (.36)    $        .14

      Weighted average number of common
        shares outstanding - basic ......      15,111,097       14,758,122

      Weighted average number of common
        shares outstanding - dilutive....      15,111,097       15,393,132


            See notes to unaudited consolidated financial statements

                                      -2-
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31,
                                                               2000            1999
                                                            -----------     -----------
<S>                                                     <C>             <C>
      Cash flows from operating activities:
         Net income (loss) .............................    ($5,466,746)    $ 2,133,135
         Adjustments to reconcile net income (loss)
           to net cash provided by operating activities:
               Depreciation and amortization ...........      1,976,004       1,821,958
               Equity in earnings of unconsolidated
                 affiliates ............................        (20,109)       (563,131)
               Deferred income tax benefit .............           --              (829)
               Deferred compensation expense ...........        158,406          19,665
               Deferred gain on demolition contract ....           --          (250,000)
         Changes in assets and liabilities:
               Accounts receivable .....................      5,716,542        (763,939)
               Employee advances .......................           --              (574)
               Inventories .............................     (1,298,569)     (1,278,567)
               Notes receivable ........................        976,928         543,357
               Other assets ............................      1,753,780      (3,125,540)
               Accounts payable ........................      1,200,124      (1,762,431)
               Accrued expenses and other ..............       (140,895)      4,255,665
                                                            -----------     -----------
                     Net cash provided by
                       operating activities ............      4,855,465       1,028,769
      Cash flows from investing activities:
         Purchase of property and equipment ............     (1,209,025)     (3,392,083)
         Proceeds from disposals of property and
           equipment, net ..............................        597,999          75,583
         Investment in unconsolidated affiliates .......     (1,446,332)       (500,051)
                                                            -----------     -----------
                      Net cash used in investing .......     (2,057,358)     (3,816,551)
      Cash flows from financing activities:
         Net borrowing (repayment) under
           revolving line of credit ....................     (3,004,002)      2,303,991
         Proceeds from the issuance of long-term
           obligations .................................      1,925,067         246,637
         Principal payments on long-term obligations ...     (2,289,609)     (1,776,436)
         Proceeds from issuance of common stock ........           --            85,717
                                                            -----------     -----------
            Net cash provided by (used in) by financing
              activities ...............................     (3,368,544)        859,909
                                                            -----------     -----------
      Net decrease in cash and cash equivalents ........       (570,437)     (1,927,873)
      Cash and cash equivalents, beginning of period ...      1,738,244       3,412,411
                                                            -----------     -----------
      Cash and cash equivalents, end of period .........    $ 1,167,807     $ 1,484,538
                                                            ===========     ===========
      Supplemental disclosures of cash flow information:
         Cash paid for:
            Interest ...................................    $   722,600     $ 1,803,683
            Income taxes ...............................           --              --
      Supplemental schedule of non-cash investing
        and financing activities:
            Issuance of warrants .......................        157,500            --
</TABLE>


            See notes to unaudited consolidated financial statements

                                      -3-
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                 MARCH 31, 2000



1.        BASIS OF PRESENTATION AND MANAGEMENT PLANS

          The accompanying unaudited financial statements have been prepared in
          accordance with generally accepted accounting principles for interim
          financial information and with the instructions to Form 10-Q and
          Regulation S-X. Accordingly, they do not include all of the
          information and footnotes required by generally accepted accounting
          principles for complete financial statements. In the opinion of
          management, all adjustments (consisting of normal recurring accruals)
          considered necessary for fair presentation have been included. These
          financial statements include the accounts of Industrial Holdings, Inc.
          and subsidiaries (the "Company"). All significant intercompany
          balances have been eliminated in consolidation. Operating results for
          the three months ended March 31, 2000 are not necessarily indicative
          of the results that may be expected for the year ended December 31,
          2000. For further information, refer to the consolidated financial
          statements and footnotes thereto included in the Company's annual
          report on Form 10-K for the year ended December 31, 1999. Certain
          amounts have been reclassified from previous periods to conform to the
          current presentation.

          The accompanying unaudited consolidated financial statements have been
          prepared on a going concern basis, which contemplated the realization
          of assets and the satisfaction of liabilities in the normal course of
          business. As disclosed in the financial statements, the Company had
          current liabilities in excess of current assets of $36,078,657 and
          $41,902,642 and debt in default at December 31, 1999 and March 31,
          2000, respectively. In addition, the Company incurred a net loss of
          $19,033,290 for the year ended December 31, 1999 and $5,466,746 for
          the three-month period ended March 31, 2000. These conditions raise
          substantial doubt about the Company's ability to continue as a going
          concern. The accompanying unaudited consolidated financial statements
          do not include any adjustments that may result from the outcome of
          this uncertainty.

          The Company has a $15 million note payable to EnSerCo, L.L.C.
          ("EnSerCo") that became due on November 15, 1999. The Company was
          granted an extension of the due date through January 31, 2000. On
          January 31, 2000, the Company was unable to repay the amounts borrowed
          and defaulted on the note payable. EnSerCo has not called this note
          due; however, it retains the right to do so. The Company has held
          preliminary discussions with EnSerCo to modify the terms of the
          original note agreement, which include extending the due date.
          Although the Company and EnSerCo have exchanged non-binding term
          sheets that outline certain concepts that might be included in an
          amendment to the credit agreement in the future, including (i)
          increasing the principal amount to reflect unpaid accrued interest to
          date, (ii) extending the maturity date to February 28, 2001, and (iii)
          increasing the interest rate to a 15% annual rate, payable at
          maturity; no agreement has been reached between the parties.
          Furthermore, no assurances can be given that the Company will be able
          to successfully conclude the arrangement being considered.

          The Company has a $55 million revolving line of credit with Comerica
          Bank-Texas, National Bank of Canada and Hibernia Bank (the "Senior
          Lenders"), which expires in June 2001. The Company was not in
          compliance with certain financial covenants at each of the required
          quarterly reporting dates during 1999 and 2000. The Company requested
          and received waivers from the Senior Lenders for the March 31, 1999
          and June 30, 1999 reporting periods; however, the Company did not seek
          waivers for the reporting dates of September 30, 1999, December 31,
          1999 or March 31, 2000. The Company is in violation of the credit
          agreement and although the Senior Lenders have not expressed the
          intent to call this obligation, the Senior Lenders retain the right to
          do so. The Company has held preliminary discussions with the Senior
          Lenders to modify the terms and covenants of the credit agreement. The
          Company has reached an agreement in principle with the Senior Lenders
          that would (i) accelerate maturity to January 31, 2001, (ii) reduce
          the revolving credit line to the lesser of $50 million or the defined
          borrowing base, (iii) increase the interest rate to prime plus 3%,
          payable weekly and (iv) modify the financial covenants to require
          maintenance of minimum consolidated tangible net worth,

                                      -4-
<PAGE>
          and earnings before interest, taxes, depreciation and amortization
          ("EBITDA")-to-debt-service ratio as well as require limitations on
          capital expenditures. In addition, the Senior Lenders would waive all
          prior violations under the credit agreement. However, no assurances
          can be given that the Company will be able to successfully conclude
          the arrangement being considered.

          In connection with the proposed credit agreement amendment, St. James
          Capital Corp. or its affiliates (collectively, "St. James") would be
          required to provide a $2 million guaranty to the Senior Lenders in
          order to secure any over-advances that may occur under the terms of
          the proposed credit agreement amendment. In exchange for providing
          this guaranty, the Company plans to (i) issue to St. James warrants to
          acquire 400,000 shares of the Company's common stock at $1.25 per
          share (valued at $84,000), and (ii) forgive a $0.35 million note
          receivable from St. James. In addition, if the guaranty is funded, the
          Company plans to issue to St. James up to 500,000 warrants to acquire
          its common stock at $1.25 per share (valued at up to $105,000),
          depending on the amount of the funding.

          The Company has a $9.5 million term note with Heller Financial, Inc.
          ("Heller"), which expires on September 30, 2004. The Company was not
          in compliance with certain financial covenants at each of the required
          quarterly reporting dates during 1999 and 2000. The Company requested
          and received waivers from Heller through the September 30, 1999
          reporting period; however, the Company did not seek waivers for the
          reporting dates of December 31, 1999 or March 31, 2000. The Company is
          in violation of the credit agreement and although Heller has not
          expressed the intent to call this obligation, it retains the right to
          do so. The Company has held preliminary discussions with Heller to
          obtain waivers for the events of non-compliance; however, no
          assurances can be given that the Company will be able to successfully
          obtain the required consents.

          In July 1998, the Company acquired Beaird Industries, Inc. ("Beaird")
          from Trinity Industries, Inc. (the "Seller") for $35.0 million in cash
          and receivables and a $5.0 million note to the Seller. Under the
          purchase agreement, the Seller assumed all liabilities and retained
          certain accounts receivable of Beaird. The Company believes that it is
          entitled to receive $2.2 million of excess purchase price paid to the
          Seller under the purchase agreement resulting from liabilities
          incurred by the Company in connection with the acquisition, and $1.84
          million in other claims arising from breaches of representation and
          warranties. On July 15, 1999, the first installment of $1.8 million
          was due on the Seller note. It is the Company's position that it has
          offset the amount owed under the purchase agreement against this
          principal and interest payment. Although the Seller agrees that the
          Company is owed an amount, in January 2000, the Seller filed suit
          against the Company in the 134th Judicial District in the District
          Court of Dallas County, Texas, in a suit styled TRINITY INDUSTRIES,
          INC. V. INDUSTRIAL HOLDINGS, INC. In the lawsuit, the Seller alleged
          that the Company defaulted on the $5 million note payment and asserted
          that the amount it owes is not sufficient to pay the first principal
          and interest payment and additionally cannot be offset against the $5
          million note payment. In response, in February 2000, the Company filed
          a counterclaim alleging the Seller's fraud in failing to disclose, and
          in misrepresenting, certain facts about Beaird. The Company and Seller
          are currently in discussions to resolve this disagreement. The
          principal is classified as current portion of long-term obligations at
          March 31, 2000.

          The Company's continuation as a going concern is dependent upon its
          ability to generate sufficient cash flow to meet its obligations on a
          timely basis, to obtain the refinancing discussed above or new
          financing as may be required.

                                      -5-
<PAGE>
2.        INVENTORY

          Inventory consists of the following:

                             MARCH 31      DECEMBER 31
                               2000           1999
                            -----------    -----------
          Raw materials     $11,397,195    $11,791,300
          Finished goods     23,467,273     22,087,638
          Other ........      4,693,624      4,380,585
                            -----------    -----------
                            $39,558,092    $38,259,523
                            ===========    ===========

3.        REPORTABLE SEGMENTS

          The Company's determination of reportable segments considers the
          strategic operating units under which the Company sells various types
          of products and services to various customers. The Company evaluates
          performance based on income from operations excluding certain
          corporate costs not allocated to the segments. Intersegment sales are
          not material. Substantially all sales are from domestic sources and
          all assets are held in the United States.

<TABLE>
<CAPTION>
                                        HEAVY
                      FASTENERS      FABRICATION         ENERGY          MACHINES        CORPORATE       CONSOLIDATED
                     ------------    ------------     ------------     ------------     ------------     ------------
<S>                  <C>             <C>              <C>              <C>              <C>              <C>
AS OF AND FOR THE
THREE MONTHS ENDED:
MARCH 31, 2000
Sales ...........    $ 30,644,222    $  7,964,062     $ 11,970,264     $  2,987,701                      $ 53,566,249
Income (loss)
 from operations        1,337,784      (1,482,269)         (13,207)          56,654     $ (2,274,246)      (2,375,284)
Total assets ....      99,498,296      35,866,261       35,355,815        3,261,771        7,947,908      181,930,051

MARCH 31, 1999
Sales ...........    $ 34,259,693    $ 25,594,204     $ 11,126,325     $  1,344,506                      $ 72,324,728
Income (loss)
 from operations        2,151,022         707,743        2,137,746          (97,889)    $   (525,317)       4,373,305

DECEMBER 31, 1999
Total assets ....      98,908,496      44,986,642       33,132,805        2,621,617       10,593,146      189,242,706
</TABLE>

                                      -6-
<PAGE>
4.        EARNINGS (LOSS) PER SHARE

          The following table presents information necessary to calculate basic
          and diluted earnings (loss) per share for the periods indicated:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,

                                                           2000              1999
                                                        ------------     ------------
<S>                                                     <C>              <C>
EARNINGS (LOSS) FOR BASIC AND DILUTED
  COMPUTATION:
Net income (loss) used for basic earnings per share     ($ 5,466,746)    $  2,133,135
Interest on convertible debt securities, net of tax                            43,828
                                                        ------------     ------------
Net income (loss) available to common shareholders .    ($ 5,466,746)    $  2,176,963
                                                        ============     ============


BASIC EARNINGS (LOSS) PER SHARE:
Weighted average common shares outstanding .........      15,111,097       14,758,122
                                                        ============     ============


Basic earnings (loss) per share ....................    $       (.36)    $        .14
                                                        ============     ============


DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average common shares outstanding .........      15,111,097       14,758,122
Shares issuable from assumed conversion of common
 share options, warrants granted and debt conversion            --            635,010
                                                        ------------     ------------

Weighted average common shares outstanding,
 as adjusted .......................................      15,111,097       15,393,132
                                                        ============     ============


Diluted earnings (loss) per share ..................    $       (.36)    $       0.14
                                                        ============     ============
</TABLE>


          Stock options and warrants were not included in the loss per share
          computation for 2000 as their effect was anti-dilutive due to the loss
          recorded.

5.        DEBT

          Certain of the Company's debt arrangements contain requirements as to
          the maintenance of minimum levels of working capital and net worth,
          minimum ratios of debt to cash flow, cash flow to certain fixed
          charges, liabilities to tangible net worth, current ratio, and capital
          expenditures. At December 31, 1999 and March 31, 2000, the Company was
          not in compliance with several of these covenants. Because of the
          losses incurred, the Company did not meet certain required levels of
          working capital and net worth, ratios of debt to cash flow, cash flow
          to certain fixed charges, liabilities to tangible net worth and
          current ratio required by the debt agreements. Additionally, the
          Company does not anticipate being in compliance with these covenants
          any time during 2000 absent modifications from the specific lenders.
          The Company has not received waivers for these covenant violations,
          and as a result, has classified these obligations as current in the
          accompanying consolidated balance sheets at December 31, 1999 and
          March 31, 2000. Although the lenders have not expressed the intent to
          do so, they have the ability to accelerate repayment of these
          obligations.

                                      -7-
<PAGE>
6.        COMMITMENTS AND CONTINGENCIES

          In July 1998, the Company entered into an option agreement that
          granted it the right to purchase approximately 95% of Belleli Energy
          S.r.L. ("Belleli") through 2003. Belleli is an Italian company that
          manufactures thick-walled pressure vessels and heat exchangers, as
          well as designs, engineers, constructs and erects components for
          desalination, electric power and petrochemical plants. Under the terms
          of the option agreement, the Company was obligated to provide certain
          interim funding to Belleli. Because of its financial condition in
          1999, the Company could no longer provide financial support to
          Belleli. In February 2000, SJMB, L.P. ("SJMB"), an affiliate of St.
          James Capital Partners, L.P. ("SJCP"), a large shareholder of IHI
          (SJMB, SJCP and its affiliates, collectively "St. James"), acquired a
          majority interest in Belleli from Belleli's shareholder, Impianti. As
          a result of this transaction, all of the Company's obligations with
          respect to Belleli have been released and discharged. The Company
          retains a 3.5% minority interest in Belleli.

          As a part of the Belleli transaction the Company will issue warrants
          to purchase 750,000 shares of its common stock to SJMB at an exercise
          price of $1.25 per share (valued at $157,500). Additionally, the
          Company is obligated to reimburse SJMB for satisfying its installment
          payment obligations under the option agreement of approximately
          $280,000.

          In May 2000, the Company filed suit against some of the former Blastco
          Services Company shareholders in Harris County District Court, in a
          suit styled INDUSTRIAL HOLDINGS, INC. AND INDUSTRIAL HOLDINGS
          ACQUISITION FOUR, INC. V. GARY H. MARTIN, WORLD WIDE LEASING,
          LUBRICATION SERVICES, INC. AND WILLIAM R. MASSEY. In the lawsuit, the
          Company alleged Messrs. Massey and Martin's fraud in failing to
          disclose, and in misrepresenting, certain facts about Blastco, as well
          as Mr. Martin's mismanagement and self-dealing as President of
          Blastco. The Company has not yet served the defendants.

          In addition to the above, the Company is involved in various claims
          and litigation arising in the ordinary course of its business. In the
          opinion of management, the ultimate liabilities, if any, as a result
          of these matters will not have a material adverse effect on the
          Company's consolidated financial position or results of operations or
          cash flows.

                                      -8-
<PAGE>
7.        DIVESTITURES

          In March 2000, the Company sold its U.S. Crating subsidiary to its
          general manager for $400,000 and recognized a gain of approximately
          $68,000. U.S. Crating provides crating, inspection, preparation and
          partial documentation services for domestic and international movement
          of goods. Revenues for U.S. Crating were $105,342 and $415,809 for the
          three month periods ended March 31, 2000 and 1999, respectively.

          In January 2000, Midland Recycle, L.L.C. ("Midland") in which the
          Company owned a 30% interest was liquidated for less than its net book
          value. As a result, the Company wrote off a $343,000 intercompany note
          receivable and recognized a $280,000 loss on the investment in 1999.

8.        SUBSEQUENT EVENTS

          PROPOSED ACQUISITION OF REMAINING 51% OF OF ACQUISITION, L.P.
          PARTNERSHIP INTEREST

          In June 2000, the Company reached an agreement in principle with St.
          James, subject to customary closing conditions and shareholder
          approval, to acquire from SJMB the general partnership interest and
          the 51% of limited partnership interests of OF Acquisition, L.P.
          ("Orbitform") that the Company does not already own (the "St. James
          Transaction"). In the St. James Transaction, the Company would issue
          secured subordinated debt that is convertible into a number of shares
          of Common Stock and warrants that are convertible into a number of
          shares of Common Stock that would exceed 20% of the Company's
          currently issued and outstanding shares. For that reason, and because
          the Company would be entering into a transaction with a
          greater-than-5% shareholder, The Nasdaq Stock Market (the "Nasdaq
          NMS") requires that the Company submit the St. James Transaction to
          its shareholders for their advance approval.

                                      -9-
<PAGE>
          PROPOSED SALE OF BLASTCO SERVICES COMPANY

          In June 2000, the Company reached an agreement in principle to sell
          Blastco back to its former shareholders, including its current
          President. The sales price of Blastco is $2.0 million in cash, $0.8
          million in notes receivable, and 1,586,265 shares of the Company's
          common stock that the former shareholders of Blastco received in the
          Company's acquisition of Blastco in a pooling-of-interests
          transaction. Also, the Company will retain inventory and equipment
          with a net book value of $0.3 million. Blastco's 1999 sales were $12.1
          million. Blastco will retain its minority ownership ownership in AWR.
          While this transaction is expected to close in the second quarter of
          2000, there can be no assurances that it will be successfully
          completed on the terms as described above.

Item 2.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.

          GENERAL

          We own and operate a diversified group of middle-market industrial
          manufacturing and distribution businesses whose products include metal
          fasteners, large and heavy pressure vessels, high-pressure industrial
          valves and related products and services. Operations are organized
          into four business segments: (i) fastener manufacturing and
          distribution; (ii) heavy fabrication; (iii) valve manufacturing and
          repair (now know as "energy"); and (iv) machine tool distribution.

          In addition to our current focus on refinancing our indebtedness (see
          Liquidity and Capital Resources), our business strategy is to increase
          the sales, cash flow and profitability of each business segment
          through a turnaround plan that was developed and implemented by the
          Company to address the operational difficulties that occurred during
          1999 and into 2000. This turnaround plan entails streamlining our
          operations and refocusing on our core competencies in the following
          three areas:

          ENHANCE REVENUE GROWTH. We believe that significant opportunities
          exist to enhance revenue growth in our business segments. We plan to
          achieve this growth by (i) promoting cross-selling opportunities
          across our customer base; (ii) identifying new applications and new
          markets for our existing products, production capabilities, and skill
          base; and (iii) acquiring companies that are strategic fits within our
          business segments. To date in the fastener segment, we have integrated
          the sales of certain product lines across each of the related
          companies within this segment. In the valve segment, rather than
          integrate the sales of our product lines across the companies within
          that segment, we have begun to integrate our customer base through the
          joint marketing of the individual companies' products and services to
          the entire valve segment customer base. Over the next year, we

                                      -10-
<PAGE>
          will continue to expand on these efforts. In the heavy fabrication
          segment, we have focused our efforts on developing and expanding our
          power generation customers in order to solidify our position in this
          burgeoning market. We believe that our strong market positions within
          the niche markets we serve enhance our ability to effectively
          implement this aspect of the turnaround plan. Although historically
          much of our growth has been through acquisition, acquisitions will not
          be an area of emphasis until our turnaround plan has been fully
          executed and our financial performance has returned to historical
          levels.

          ELIMINATE WASTE. We believe that significant opportunities exist to
          reduce or eliminate waste by: (i) reducing working capital levels
          company-wide through increased inventory turns and accelerated
          collection of receivables; (ii) selling non-strategic assets that are
          not part of our core competencies; (iii) consolidating selected
          facilities, (iv) converting our present manufacturing processes to
          "lean" or more efficient manufacturing techniques, and (v) fully
          implementing our ERP systems, which will allow our managers to obtain
          and use production information faster and more efficiently than
          before.

          During the past sixteen months, we have (i) consolidated three of our
          facilities into other existing facilities, (ii) sold two non-core
          business units, (iii) closed and liquidated four non-core and
          unprofitable business units, (iv) completed the installation of two
          ERP systems, (v) converted one plant from a traditional "batch and
          queue" operation to one that employs one-piece flow or cellular
          production, and (vi) reduced inventory and receivables. On a
          going-forward basis, we intend to (i) consolidate an additional plant
          into an existing facility, (ii) sell three parcels of excess real
          estate, (iii) convert the distribution operations of our fastener
          segment to a common ERP system, and (iv) continue the implementation
          of "lean" manufacturing techniques. We plan to continue to pursue
          similar measures when it is our best interest to do so.

          DEVELOP EMPLOYEES. We believe that employee development is an integral
          part of our turnaround plan. Across all of our businesses, our
          management, sales and operations teams have participated in numerous
          training and development programs that focus on management, sales,
          production, technical, safety and quality issues. We believe that this
          training is a valuable tool in the development and enhancement of our
          employees' skill sets and that we will continue to be rewarded for
          these efforts by a better trained, more knowledgeable and skilled
          workforce.

          Our results of operations are affected by the level of economic
          activity in the industries served by our customers, which in turn may
          be affected by other factors, including the level of economic activity
          in the U.S. and foreign markets they serve. The principal industries
          served by our clients are the automotive, home furnishings,
          petrochemical and oil and gas industries. An economic slowdown in
          these industries could result in a decrease in demand for our products
          and services, which could adversely affect our operating results.
          During 1998 and into 1999, oil and gas prices declined significantly,
          resulting in a decrease in the demand for our products and services
          that are used in the exploration and production of oil and gas.
          Exploration and production expenditures generally lag improvements in
          oil and gas prices; therefore, although oil and gas prices have
          improved during 1999 and into 2000, we did not experience significant
          sales increases through the end of 1999. We have experienced increased
          sales and backlog in the first quarter of 2000.

          This section should be read in conjunction with our consolidated
          financial statements included elsewhere.

                                      -11-
<PAGE>
          RESULTS OF OPERATIONS

          The following table sets forth certain operating statement data for
          each of our segments for each of the periods presented.

                                                   THREE MONTHS ENDED
                                                         MARCH 31,
                                                    2000         1999
                                                  --------     --------
          Sales:                                     (000's omitted)
            Fastener Manufacturing and
                Distribution .................    $ 30,703     $ 34,260
            Heavy Fabrication ................       7,964       25,594
            Energy ...........................      11,911       11,126
            Machine Tool Distribution ........       2,988        1,345
                                                  --------     --------
                                                    53,566       72,325
          Cost of Sales:
            Fastener Manufacturing and
                Distribution .................      23,421       26,236
            Heavy Fabrication ................       8,015       23,044
            Energy ...........................       9,408        7,191
            Machine Tool Distribution ........       2,337          987
                                                  --------     --------
                                                    43,181       57,458
          Selling, General and Administrative:
            Fastener Manufacturing and
                Distribution .................       5,945        5,872
            Heavy Fabrication ................       1,431        1,842
            Energy ...........................       2,516        1,798
            Machine Tool Distribution ........         594          456

            Corporate ........................       2,274          526
                                                  --------     --------
                                                    12,760       10,494

          Operating Income (Loss) ............    ($ 2,375)    $  4,373
                                                  ========     ========



          THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED
          MARCH 31, 1999.

          SALES. On a consolidated basis, sales decreased $18.8 million or 26%
          for the three months ended March 31, 2000 compared to the three months
          ended March 31, 1999.

          Fastener Segment sales decreased $3.6 million or 10% for the three
          months ended March 31, 2000 compared to the three months ended March
          31, 1999. Sales decreased due to the consolidation of one distribution
          facility and reduced sales into the upstream oil and gas market.

          Heavy Fabrication Segment sales decreased $17.6 million or 69% for the
          three months ended March 31, 2000 compared to the three months ended
          March 31, 1999. The decrease is attributable to the completion of a
          major contract for wind turbine towers in June 1999 that has not been
          replaced. A substantial percentage of this segment's revenues is
          derived from customers in the hydrocarbon processing industry.
          Customers in the processing industry materially reduced their capital
          spending during 1999 and into 2000, which directly impacted sales in
          this segment. Additionally, heavy competitive pressure from overseas,
          particularly Korean competition, has negatively impacted sales in the
          markets the Company has traditionally served. The Company actively
          pursued sales in new markets in the first quarter of 2000 and is
          beginning to see results from these efforts. Backlog at Beaird as of
          March 31, 2000 has increased 64% over December 31, 1999. However, due
          to the long-

                                      -12-
<PAGE>
          term nature of the contracts in this segment, sales in the second
          quarter are expected to approximate sales in the first quarter.
          However, sales in the second half of 2000 are expected to exceed sales
          in the first half of the year.

          Energy Segment sales increased $0.8 million or 7% for the three months
          ended March 31, 2000 compared to the three months ended March 31,
          1999. The increase is attributable to internal growth primarily as the
          result of improved economic conditions in the energy sector.
          Increasing worldwide demand for oil and gas coupled with declining
          production has resulted in more stable prices and the worldwide rig
          count has increased. Should oil and gas prices remain at or near
          current levels, we expect sales to continue to increase in this
          segment.

          Machine Segment sales increased $1.6 million or 122% for the three
          months ended March 31, 2000 compared to the three months ended March
          31, 1999, as demand for machine tools in our sales region has
          increased with the improvement in the energy sector. Sales in future
          periods will be negatively impacted in this segment due to the sale of
          our export crating business, which reported sales of $1.6 million for
          all of calendar 1999. However, we do not expect this transaction to
          have a material impact on operating results of this segment and the
          loss in sales due to this transaction is expected to be more than
          offset by increased sales of machine tools.

          COST OF SALES. Cost of sales decreased $14.3 million or 25% for the
          three months ended March 31, 2000 compared to the three months ended
          March 31, 1999.

          Fastener Segment cost of sales decreased $2.8 million or 11% for the
          three months ended March 31, 2000 compared to the three months ended
          March 31, 1999 primarily as a result of the decrease in sales
          described above as gross margin remained relatively constant.

          Heavy Fabrication Segment cost of sales decreased $15.0 million or 65%
          for the three months ended March 31, 2000 compared to the three months
          ended March 31, 1999. In response to the declining sales, Beaird
          attempted to reduce costs in all areas and substantially reduced its
          workforce. Gross margin decreased from 10% in the first quarter of
          1999 to 0% in the first quarter of 2000 as sales decreased to levels
          that were insufficient to generate enough gross profit to cover fixed
          costs.

          Energy Segment cost of sales increased $2.2 million or 31% for the
          three months ended March 31, 2000 compared to the three months ended
          March 31, 1999. Gross margin decreased from 35% for the first quarter
          of 1999 to 21% in the first quarter of 2000. The significant decrease
          in margin was primarily in the refinery demolition business. Costs of
          sales in the refinery demolition area were not reduced in response to
          declining refinery demolition sales, resulting in a significant
          decline in profitability in that market. We anticipate gross margins
          in the second quarter of 2000 to be comparable to the first quarter of
          2000; however, we anticipate gross margin in the second half of 2000
          to improve substantially as we expect to close the proposed sale of
          the company that operates in the refinery demolition market.

          Machine Segment cost of sales increased $1.4 million or 137% as a
          result of the increase in sales described above. Gross margins for the
          first quarter of 2000 were 22%, as compared with 27% for the first
          quarter of 1999 primarily as a result of a change in sales mix as
          export crating represented a higher percentage of total sales for this
          segment in 1999. Gross margins have historically been higher for
          export crating compared to machine sales.

          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
          administrative expenses increased $2.3 million or 22% for the three
          months ended March 31, 2000 compared to the three months ended March
          31, 1999.

          Fastener Segment selling, general and administrative expense was $5.9
          million in the first quarter of 2000 and 1999.

                                      -13-
<PAGE>
          Heavy Fabrication Segment selling, general and administrative expense
          decreased $0.4 million or 22% for the three months ended March 31,
          2000 compared to the three months ended March 31, 1999 due to a
          reduction in the workforce and cost reduction measures implemented as
          a result of the decrease in sales detailed above.

          Energy Segment selling, general and administrative expenses increased
          $0.7 million or 40% for the three months ended March 31, 2000 compared
          to the three months ended March 31, 1999 primarily as a result of an
          increase of $0.5 million at Blastco, the company's refinery demolition
          subsidiary. Of this increase, $0.2 million was associated with this
          subsidiary's private aircraft, which it did not lease in the first
          quarter of 1999, and $0.1 million was an increase in travel expenses.

          Machine Segment selling, general and administrative expenses increased
          $0.1 million or 30% for the three months ended March 31, 2000 compared
          to the three months ended March 31, 1999 primarily as a result of the
          increases in sales described above.

          Corporate selling, general and administrative expenses increased $1.7
          million or 332% for the three months ended March 31, 2000 compared to
          the three months ended March 31, 1999 due primarily to $1.0 million in
          professional fees and other expenses associated with the company's
          refinancing efforts.

          EARNINGS FROM EQUITY INVESTMENTS IN UNCONSOLIDATED AFFILIATES. On a
          consolidated basis, earnings from equity investments decreased $0.5
          million for the three months ended March 31, 2000 compared to the
          three months ended March 31, 1999 primarily as a result of the
          company's equity investee involved in demolition activities which had
          earnings in the first quarter of 1999 and had no earnings in 2000 as
          anticipated losses on its contracts were accrued as of December 31,
          1999.

          INTEREST EXPENSE. Interest expense increased $1.1 million or 55% for
          the three months ended March 31, 2000 compared to the three months
          ended March 31, 1999, primarily as a result of higher debt levels and
          interest rates.

          OTHER INCOME (EXPENSE), NET. Other income (expense) was an expense of
          $0.1 million for the three months ended March 31, 2000 compared to
          income of $0.5 million for the three months ended March 31, 1999
          primarily because of losses on equipment sales in 2000 in comparison
          to gain on equipment sales in 1999, and a $0.25 million deferred gain
          recognized on the sale of a demolition contract.

          INCOME TAXES. The Company recognized no tax benefit for the three
          months ended March 31, 2000 as a result of an increase in the
          valuation allowance to offset the deferred tax asset associated with
          its additional net operating loss carry forwards.

          LIQUIDITY AND CAPITAL RESOURCES

          At March 31, 2000, we had a deficit in retained earnings of $9,149,903
          and a working capital deficit of $41,902,642 as a result of
          $86,672,523 in debt maturing on or before March 31, 2001.

          PRINCIPAL DEBT INSTRUMENTS. As of March 31, 2000, we had an aggregate
          of $95.5 million borrowed under our principal bank credit facility and
          debt instruments entered into or assumed in connection with
          acquisitions as well as other bank financings. In June 2000, we
          reached an agreement in principle to amend our credit agreement with
          our senior lenders, which represents $54.5 million of debt, through
          January 2001.

          We are currently exploring various financing alternatives to meet our
          future liquidity needs. We anticipate refinancing certain of our debt
          facilities in 2000, although no assurances can be given that we will
          be able to refinance such facilities or that we will be able to obtain
          terms that are as favorable as those that currently exist.

          We have a $55 million revolving line of credit with Comerica
          Bank-Texas, National Bank of Canada and Hibernia Bank (the "Senior
          Lenders"), which expires in June 2001. We were not in compliance with
          certain financial covenants at each of the required quarterly
          reporting dates during 1999. We requested and received waivers from
          the Senior Lenders for the March 31, 1999 and June 30, 1999 reporting
          periods; however, we did not seek waivers for the reporting dates of
          September 30, 1999,

                                      -14-
<PAGE>
          December 31, 1999 or March 31, 2000. We were in violation of the
          credit agreement and although the Senior Lenders have not expressed
          the intent to call this obligation, the Senior Lenders retain the
          right to do so. The principal amount of the credit facility is the
          lesser of $55 million at March 31, 2000 or a defined borrowing base.
          The credit facility bore interest at the prime rate of Comerica plus
          2% at December 31, 1999 (which was 11% at March 31, 2000), and allows
          the borrowing of funds based on 80% of eligible accounts receivable
          and 50% of eligible inventory. At March 31, 2000, we had no
          availability under the credit facility. At June 9, 2000, we had
          availability under the credit facility of approximately $0.4 million.
          We have held preliminary discussions with the Senior Lenders to modify
          the terms and covenants of the credit agreement. We have reached an
          agreement in principle with the Senior Lenders that would (i)
          accelerate maturity to January 31, 2001, (ii) reduce the revolving
          credit line to the lesser of $50 million or the defined borrowing
          base, (iii) increase the interest rate to prime plus 3%, payable
          weekly and (iv) modify the financial covenants to require maintenance
          of minimum consolidated tangible net worth, and earnings before
          interest, taxes, depreciation and amortization
          ("EBITDA")-to-debt-service ratio as well as require limitations on
          capital expenditures. In addition, the Senior Lenders would waive all
          prior violations under the credit agreement. However, no assurances
          can be given that we will be able to successfully conclude the
          arrangement being considered.

          In connection with the proposed credit agreement amendment, St. James
          would be required to provide a $2 million guaranty to the Senior
          Lenders in order to secure any over-advances that may occur under the
          terms of the proposed credit agreement amendment. In exchange for
          providing this guaranty, the Company plans to (i) issue to St. James
          warrants to acquire 400,000 shares of the Company's common stock at
          $1.25 per share (valued at $84,000), and (ii) forgive a $0.35 million
          note receivable from St. James. In addition, if the guaranty is
          funded, the Company plans to issue to St. James up to 500,000 warrants
          to acquire its common stock at $1.25 per share (valued at up to
          $105,000), depending on the amount of the funding.

          We have a $15 million note payable to EnSerCo, L.L.C. ("EnSerCo") that
          became due on November 15, 1999. We were granted an extension of the
          due date through January 31, 2000. On January 31, 2000, we were unable
          to repay the amounts borrowed and defaulted on the note payable.
          EnSerCo has not called this note due; however, it retains the right to
          do so. We have held preliminary discussions with EnSerCo to modify the
          terms of the original note agreement, which include extending the due
          date. Although we have exchanged non-binding term sheets with EnSerCo
          that outline certain concepts that might be included in an amendment
          to the credit agreement in the future, including (i) increasing the
          principal amount to reflect unpaid accrued interest to date, (ii)
          extending the maturity date to February 28, 2001, and (iii) increasing
          the interest rate to a 15% annual rate, payable at maturity; no
          agreement has been reached between the parties. Furthermore, no
          assurances can be given that we will be able to successfully conclude
          the arrangement being considered.

          We have a $9.5 million term note with Heller Financial, Inc.
          ("Heller"), which expires on September 30, 2004. We were not in
          compliance with certain financial covenants at each of the required
          quarterly reporting dates during 1999. We requested and received
          waivers from Heller through the September 30, 1999 reporting period;
          however, we did not seek waivers for the reporting dates of December
          31, 1999 or March 31, 2000. We are in violation of the credit
          agreement and although Heller has not expressed the intent to call
          this obligation, it retains the right to do so. We have held
          preliminary discussions with Heller to obtain waivers for the events
          of non-compliance; however, no assurances can be given that we will be
          able to successfully obtain the required consents.

          We are in default of a $5 million note payable to Trinity Industries,
          Inc. ("Trinity"). We and Trinity have entered into litigation
          regarding the note payable. (See Part II Other Information Item 1.
          Legal Proceedings.)

                                      -15-
<PAGE>
          Our liquidity has been constrained by our borrowing base limitations
          and by our operating losses and, as a result, our financial position
          and cash flows have been adversely effected. We have experienced an
          increase in the level of our accounts payable at December 31, 1999 and
          March 31, 2000 as compared to prior periods. We continue to explore
          various alternative to improve our liquidity, including refinancing
          our indebtedness with other lenders. In addition, we have identified
          and are pursuing the sale of non-strategic assets as well as raising
          additional debt and equity capital. There can be no assurance that we
          will successfully refinance our indebtedness with other lenders, or
          successfully sell non-strategic assets.

          During the third quarter of 1999, we developed and implemented a
          turnaround plan to streamline our operations and refocus on our core
          competencies through enhanced revenue growth, elimination of waste and
          development of employees. As a part of this turnaround plan, we closed
          duplicate facilities, reduced personnel, eliminated certain products,
          wrote-off the related inventory, and adopted uniform information
          systems platforms in the fastener segment. On a going-forward basis,
          we intend to (i) consolidate an additional plant into an existing
          facility, (ii) sell three parcels of excess real estate, (iii) convert
          the distribution operations of our fastener segment to a common ERP
          system, and (iv) continue the implementation of "lean" manufacturing.
          We will continue to pursue other similar measures when it is our best
          interest to do so.

          The energy segment, excluding our refinery demolition operations, is
          closely tied to the price of oil and gas. Sales and operating income
          within the energy group have been adversely effected over the past
          twelve to fifteen months. This reduction in sales volume and
          profitability has been primarily attributable to reductions in the
          worldwide and gulf coast rig counts, continued caution regarding the
          long-term hydrocarbon price environment, consolidation within the oil
          and gas industry, and ongoing cost reduction efforts by oil and gas
          companies. Within the energy segment, we believe that sales reached
          their lowest levels during the second and third quarters of 1999.
          Increasing worldwide demand for oil and gas coupled with declining
          production in many areas should support a more stable and favorable
          level of oil and gas prices in the future, resulting in increased
          exploration and production spending in 2000 and an improved demand for
          oilfield services. We have experienced such a trend for the first
          quarter of 2000 in our energy group, with increasing backlog and sales
          in the first quarter of 2000 over the fourth quarter of 1999.

          Within the fastener segment, the stud bolt and gasket group serves
          both the oil and gas exploration and production industry and the
          hydrocarbon processing industry. The stud bolt and gasket operations
          have experienced results similar to the energy segment operations. As
          a result in 1999, we closed an unprofitable distribution location,
          eliminated the personnel at that location and wrote-off inventory. Our
          expectation is that with increasing oil and gas prices, sales and
          profitability within these operations will improve. We have
          experienced such a trend for the first quarter of 2000 in our stud
          bolt and gasket operations, with increasing backlog and sales in the
          first quarter of 2000 over the fourth quarter of 1999.

          Within the fastener segment, the engineered fasteners group's
          operating profits have been adversely effected by over capacity and
          resulting inefficient operations. As a result, we have closed two
          manufacturing facilities and have consolidated their operations into
          the three remaining facilities. Personnel reductions and inventory
          write-offs took place in connection with these facility
          consolidations. We expect the full benefit of the various overhead and
          cost reductions to occur in 2000.

          The heavy fabrication segment's sales and profitability have decreased
          significantly in the second half of 1999 compared to 1998. This
          segment's customers have seen a reduction in their margins because of
          the volatility of oil feedstock prices during 1999, and have
          significantly reduced their capital spending. In addition, it has
          experienced significant competitive pressures from overseas. Mainly
          because of these factors, revenues continued to decline in the fourth
          quarter of 1999 and the first quarter of 2000. However, in response to
          this revenue decline, we have continued to reduce overhead

                                      -16-
<PAGE>
          and make other operational improvements to increase the efficiency of
          our operations as well as seek new markets for our products. The
          composition of our backlog at the end of the first quarter of 2000
          reflects this approach since a significant portion consists of
          products for the power generation industry as opposed to our
          traditional products that serve the hydrocarbon processing industry.

          NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. For the quarter
          ended March 31, 2000, net cash provided by operating activities was
          $4.9 million compared to the quarter ended March 31, 1999, which
          provided cash of $1.0 million.

          NET CASH USED IN INVESTING ACTIVITIES. Principal uses of cash are for
          capital expenditures and acquisitions. For the quarter ended March 31,
          2000 and 1999, the Company made capital expenditures of approximately
          $1.2 million and $3.4 million, respectively. Additionally, the Company
          made investments in unconsolidated affiliates of $1.4 million and $0.5
          million, respectively.

          NET CASH PROVIDED BY FINANCING ACTIVITIES. Sources of cash from
          financing activities include borrowings under our credit facilities
          and sales of equity securities. Financing activities used net cash of
          $3.4 million in the quarter ended March 31, 2000 compared with
          providing $0.9 million in 1999. During the quarter ended March 31,
          2000, we had net borrowings of $3.0 million under our credit
          facilities compared to net repayments of $2.3 million during the same
          period in 1999. During the quarter ended March 31, 2000, we had
          proceeds from issuance of long-term obligations of $1.9 million,
          compared to proceeds of $0.2 million in the quarter ended March 31,
          1999. During the quarter ended March 31, 2000, we made principal
          payments on long-term obligations of $2.3 million compared to $1.8
          million the quarter ended March 31, 1999.

          FORWARD LOOKING INFORMATION AND RISK FACTORS

          Certain information in this Quarterly Report, including the
          information we incorporate by reference, includes forward-looking
          statements within the meaning of Section 27A of the Securities Act of
          1933 and Section 21E of the Securities Exchange Act of 1934. You can
          identify our forward-looking statements by the words "expects,"
          "projects," "estimates," "believes," "anticipates," "intends,"
          "plans," "budgets," "predicts," "estimates" and similar expressions.

          We have based the forward-looking statements relating to our
          operations on our current expectations, and estimates and projections
          about the oil and gas industry and us in general. We caution you that
          these statements are not guarantees of future performance and involve
          risks, uncertainties and assumptions that we cannot predict. In
          addition, we have based many of these forward-looking statements on
          assumptions about future events that may prove to be inaccurate. Our
          actual outcomes and results may differ materially from what we have
          expressed or forecast in the forward-looking statements.

          WE ARE IN DEFAULT UNDER OUR CREDIT FACILITY AND TERM LOANS AND OUR
          LENDERS HAVE THE RIGHT TO DECLARE ALL OUTSTANDING AMOUNTS IMMEDIATELY
          DUE AND PAYABLE.

          We have a $15 million note payable to EnSerCo that was due on November
          15, 1999 and extended to January 31, 2000. On January 31, 2000, we
          were unable to repay the amounts borrowed and defaulted on the note.
          EnSerCo has not called this note; however, they retain the right to do
          so. We have held preliminary discussions with EnSerCo to modify the
          terms of the original note agreement, which include extending the due
          date. Although we and EnSerCo have exchanged non-binding term sheets
          that outline certain concepts that might be included in an amendment
          to the credit agreement in the future, including (i) increasing the
          principal amount to reflect unpaid accrued interest to date, (ii)
          extending the maturity date to February 28, 2001, and (iii) increasing
          the interest rate to a 15% annual rate, payable at maturity; no
          agreement has been reached between us. Furthermore, no assurances can
          be given that we will be able to successfully conclude the arrangement
          being considered and we remain in default.

                                      -17-
<PAGE>
          We have a $55 million revolving line of credit with Comerica
          Bank-Texas, National Bank of Canada and Hibernia Bank (the "Senior
          Lenders"), which expires in June 2001. We were not in compliance with
          certain financial covenants at each of the required quarterly
          reporting dates during 1999. We requested and received waivers from
          the Senior Lenders for the March 31, 1999 and June 30, 1999 reporting
          periods; however, we did not seek waivers for the reporting dates of
          September 30, 1999, December 31, 1999 or March 31, 2000. We are in
          violation of the credit agreement and although the Senior Lenders have
          not expressed the intent to call this obligation, the Senior Lenders
          retain the right to do so. We have held preliminary discussions with
          the Senior Lenders to modify the terms and covenants of the credit
          agreement. We have reached an agreement in principle with the Senior
          Lenders that would (i) accelerate maturity to January 31, 2001, (ii)
          reduce the revolving credit line to the lesser of $50 million or the
          defined borrowing base, (iii) increase the interest rate to prime plus
          3%, payable weekly and (iv) modify the financial covenants to require
          maintenance of minimum consolidated tangible net worth, and earnings
          before interest, taxes, depreciation and amortization
          ("EBITDA")-to-debt-service ratio as well as require limitations on
          capital expenditures. In addition, the Senior Lenders would waive all
          prior violations under the credit agreement. However, no assurances
          can be given that we will be able to successfully conclude the
          arrangement being considered.

          In connection with the proposed credit agreement amendment, St. James
          would be required to provide a $2 million guaranty to the Senior
          Lenders in order to secure any over-advances that may occur under the
          terms of the proposed credit agreement amendment. In exchange for
          providing this guaranty, the Company plans to (i) issue to St. James
          warrants to acquire 400,000 shares of the Company's common stock at
          $1.25 per share (valued at $84,000), and (ii) forgive a $0.35 million
          note receivable from St. James. In addition, if the guaranty is
          funded, the Company plans to issue to St. James up to 500,000 warrants
          to acquire its common stock at $1.25 per share (valued at up to
          $105,000), depending on the amount of the funding.

          We have a $9.5 million term note with Heller Financial, Inc.
          ("Heller"), which expires on September 30, 2004. We were not in
          compliance with certain financial covenants at each of the required
          quarterly reporting dates during 1999. We requested and received
          waivers from Heller through the September 30, 1999 reporting period;
          however, we did not seek waivers for the reporting dates of December
          31, 1999 or March 31, 2000. We are in violation of the credit
          agreement and although Heller has not expressed the intent to call
          this obligation, it retains the right to do so. We have held
          preliminary discussions with Heller to obtain waivers for the events
          of non-compliance; however, no assurances can be given that we will be
          able to successfully obtain the required consents.

          In July 1998, we acquired Beaird Industries, Inc. ("Beaird") from
          Trinity Industries, Inc. (the "Seller") for $35.0 million in cash and
          receivables and a $5.0 million note to the Seller. Under the purchase
          agreement, the Seller assumed all liabilities and retained certain
          accounts receivable of Beaird. We believe that we are entitled to
          receive $2.2 million of excess purchase price paid to the Seller under
          the purchase agreement resulting from liabilities incurred by us in
          connection with the acquisition, and $1.84 million in other claims
          arising from breaches of representation and warranties. On July 15,
          1999, the first installment of $1.8 million was due on the Seller
          note. It is our position that we have offset the amount owed under the
          purchase agreement against this principal and interest payment.
          Although the Seller agrees that we are owed an amount, in January
          2000, the Seller filed suit against us in the 134th Judicial District
          in the District Court of Dallas County, Texas, in a suit styled
          TRINITY INDUSTRIES, INC. V. INDUSTRIAL HOLDINGS, INC. In the lawsuit,
          the Seller alleged that we defaulted on the $5 million note payment
          and asserted that the amount it owes us is not sufficient to pay the
          first principal and interest payment and additionally cannot be offset
          against the $5 million note payment. In response, in February 2000, we
          filed a counterclaim alleging the Seller's fraud in failing to
          disclose, and in misrepresenting, certain facts about Beaird. We are
          currently in discussions to resolve this disagreement.

                                      -18-
<PAGE>
          OUR SECURITIES MAY BE DELISTED FROM THE NASDAQ NMS, POSSIBLY ADVERSELY
          IMPACTING THEIR LIQUIDITY AND VALUE.

          We attended our scheduled hearing before the Nasdaq Listing
          Qualifications Panel on June 1, 2000. We indicated that we plan to
          file the 1999 Annual Report on Form 10-K and this Form 10-Q for the
          quarter ended March 31, 2000 shortly after June 10, 2000.
          Additionally, we believe that, at the hearing, we were able to
          demonstrate our ability to sustain long-term compliance with all of
          the maintenance criteria for continued listing on the Nasdaq NMS.
          While we expect to have met those filing requirements, we can't ensure
          that Nasdaq will not delist our securities. If that happens, our
          securities would be immediately eligible to trade on the
          over-the-counter market.

          As a result of delisting from the Nasdaq NMS, current information
          regarding bid and asked prices for our Common Stock may become less
          readily available to brokers, dealers and/or their customers, which
          may reduce the liquidity of the market for our Common Stock and which
          in turn may result in decreased demand, a decrease in the stock price,
          and an increase in the spread between the bid and asked prices for our
          Common Stock.

          EVEN IF WE SUCCESSFULLY RESTRUCTURE OUR CREDIT FACILITY AND TERM
          LOANS, OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR BUSINESS,
          FINANCIAL CONDITION, RESULTS OF OPERATIONS OR PROSPECTS.

          We have a significant amount of debt, which requires us to dedicate a
          substantial portion of our cash flow from operations to payments on
          our debt, thereby reducing the availability of our cash flow to fund
          current working capital, capital expenditures and other general
          corporate needs. In addition, it could:

          - increase our vulnerability to general adverse economic and industry
            conditions;

          - limit our ability to fund future working capital, acquisitions,
            capital expenditures and other general corporate requirements;

          - limit our flexibility in planning for, or reacting to, changes in
            our business and our industry; and

          - place us at a competitive disadvantage compared to our competitors
            that have less debt.

          EVEN IF OUR LENDERS DO NOT DECLARE ALL AMOUNTS UNDER OUR CREDIT
          FACILITY AND TERM LOANS IMMEDIATELY DUE AND PAYABLE, WE WILL REQUIRE A
          SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR DEBT.

          Our ability to service our debt and to fund capital expenditures will
          depend on our ability to generate cash in the future. Our ability to
          generate sufficient cash, to a large extent, is subject to general
          economic, financial, competitive, legislative, regulatory and other
          factors that are beyond our control. We cannot assure you that we will
          generate sufficient cash flow or be able to obtain sufficient funding
          to satisfy our debt service requirements.

          We also cannot assure you that our business will generate sufficient
          cash flow from operations or that future borrowings and financing
          alternatives will be available to us under our credit facility or from
          alternative sources in an amount sufficient to service our debts or to
          fund our other liquidity needs.

          EVEN IF WE SUCCESSFULLY RESTRUCTURE OUR CREDIT FACILITY AND TERM
          LOANS, OUR DEBT TERMS IMPOSE CONDITIONS AND RESTRICTIONS THAT COULD
          SIGNIFICANTLY ADVERSELY IMPACT OUR ABILITY TO OPERATE OUR BUSINESSES.

          Our proposed revised credit agreements contain restrictive covenants
          that, among other things, impose certain limitations on us and require
          us to maintain specified consolidated financial ratios and satisfy
          certain consolidated financial tests. Our ability to meet those
          financial ratios and financial tests may be affected by events beyond
          our control. If we fail to meet those tests or breach any of the
          covenants in the future, the lenders may still declare all amounts
          outstanding under the credit facility, together with accrued interest,
          to be immediately due and payable. If we are unable to repay those
          amounts, the lenders could proceed against the collateral granted to
          them. Our assets may not be sufficient to

                                      -19-
<PAGE>
          repay in full that indebtedness or any other indebtedness.

          EVEN IF WE ARE SUCCESSFUL IN ATTRACTING BUYERS FOR OUR NON-STRATEGIC
          ASSETS AND INVESTMENTS, WE MAY NOT BE ABLE TO RECOVER THE CARRYING
          VALUE OF SUCH AMOUNTS.

          We are in the process of selling a number of non-strategic assets and
          investments as a part of our turnaround plan. Due to the current
          carrying values of certain of our non-strategic assets and investments
          on our consolidated balance sheet, we may not be able to dispose of
          certain of these non-strategic assets and investments at a price that
          will allow us to recover the carrying value of such non-strategic
          assets and investments.

          THE MARKET VALUE OF OUR COMMON STOCK MAY DECLINE FURTHER IF WE
          CONTINUE TO INCUR NET LOSSES.

          For the 1999 fiscal year, we incurred a net after-tax loss of $19.0
          million, and a net after-tax loss of $5.5 million for the three months
          ended March 31, 2000. The price of our common stock, which has
          declined significantly in the past year, depends on many factors, most
          importantly our financial performance. If we continue to incur net
          losses, our stock price could decline further.

          SOME OF THE MARKETS FOR OUR PRODUCTS ARE CYCLICAL, WHICH MAY ADVERSELY
          IMPACT SALES OF THOSE PRODUCTS DURING A DECLINE IN THOSE MARKETS.

          Some of our products are sold in markets that are affected by the
          state of both the U.S. and worldwide economies and by conditions
          within the industries that purchase our products. Therefore, sales of
          these products may be reduced as a result of conditions in the markets
          in which they are sold. Even though the markets in which we sell our
          products are diversified, decreased sales in some of these markets may
          not be offset by sales in our other markets, which may result in a
          material adverse effect on our business, financial condition, results
          of operations or prospectus. A significant percentage of our 2000
          sales, most of which are attributable to our energy segment and stud
          bolt and gasket operations, are derived from the domestic oil and gas
          industry.

          OUR ACQUISITION STRATEGY MAY NOT ACHIEVE OUR OBJECTIVES AS A RESULT OF
          A NUMBER OF POTENTIAL FACTORS.

          Our acquisition strategy has been a significant component of our
          business plan, and we plan to resume our acquisition strategy after
          our turnaround plan has been accomplished and our financial
          performance has returned to historical levels. While we evaluate
          business opportunities on a regular basis, we may not be successful in
          identifying any additional acquisitions or we may not have sufficient
          financial resources to make additional acquisitions. In addition, as
          we complete acquisitions and expand our operations, we will be subject
          to all of the risks inherent in an expanding business, including
          integrating financial reporting, establishing satisfactory budgetary
          and other financial controls, funding increased capital needs and
          overhead expenses, obtaining management personnel required for
          expanded operations, and funding cash flow shortages that may occur if
          anticipated sales and revenues are not realized or are delayed,
          whether by general economic or market conditions or unforeseen
          internal difficulties. Our future performance will depend, in part, on
          our ability to manage expanding operations and to adapt our
          operational systems for these expansions. We may not succeed at
          effectively and profitably managing the integration of our current or
          any future acquisitions.

          We may fail or be unable to discover liabilities in the course of
          performing due diligence investigations on each business that we have
          acquired or will acquire in the future. Liabilities could include
          those arising from employee benefits contribution obligations of a
          prior owner or noncompliance with federal, state or local
          environmental requirements by prior owners for which we, as a
          successor owner, may be responsible. We try to minimize these risks by
          conducting due diligence as we deem appropriate under the
          circumstances. However, we may not have identified, or

                                      -20-
<PAGE>
          in the case of future acquisitions, identify, all existing or
          potential risks. We also generally require each seller of acquired
          businesses or properties to indemnify us against undisclosed
          liabilities. In some cases, this indemnification obligation may be
          supported by deferring payment of a portion of the purchase price or
          other appropriate security. However, we cannot assure you that the
          indemnification, even if obtained, will be enforceable, collectible or
          sufficient in amount, scope or duration to fully offset the possible
          liabilities associated with the business or property acquired. Any of
          these liabilities, individually or in the aggregate, could have a
          material adverse effect on our business, financial condition, results
          of operations or prospects.

          MANY OF THE INDUSTRIES IN WHICH WE PARTICIPATE ARE HIGHLY COMPETITIVE,
          WHICH MAY RESULT IN A LOSS OF MARKET SHARE OR A DECREASE IN REVENUE OR
          PROFIT MARGINS.

          Many of the industries in which we operate are highly competitive.
          Some of our competitors within each of our segments have greater
          financial and other resources than us. In our key fastener product
          areas of semi-tubular engineered fasteners and cold-formed specialty
          fasteners, safety and straight pins and threaded stud bolts, we face
          competition from very small manufacturers as well as from the
          operations of companies much larger than ourselves. Our competitors
          within our heavy fabrication segment vary based on the products
          fabricated. As the size and complexity of the products increase,
          competition is generally less. The market for each of our key heavy
          fabrication products is very competitive, and we face competition from
          a number of different manufacturers in each of our product areas. In
          our energy segment, we believe that we are subject to competition from
          less than ten similarly-sized remanufacturing businesses. Factors that
          affect competition within all of our segments include price, quality
          and customer service. Strong competition may result in a loss of
          market share in the segments in which we operate and a decrease in
          revenue and profit margins.

          THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
          RESULTS OR OPERATIONS.

          Our success depends largely upon the abilities and experience of
          certain key management personnel. If we lose the services of one or
          more of our key personnel, it could have a material adverse effect on
          our business and results of operations. We do not have non-compete
          agreements with all of our key personnel. In addition, we generally do
          not maintain key-man life insurance policies on our executives.

          OUR INSURANCE COVERAGE MAY BE INADEQUATE TO COVER CERTAIN CONTINGENT
          LIABILITIES.

          Our business exposes us to possible claims for personal injury or
          death resulting from the use of our products. We carry comprehensive
          insurance, subject to deductibles, at levels we believe are sufficient
          to cover existing and future claims. However, we could be subject to a
          claim or liability that exceeds our insurance coverage. In addition,
          we may not be able to maintain adequate insurance coverage at rates we
          believe are reasonable.

          OUR OPERATIONS ARE SUBJECT TO REGULATION BY FEDERAL, STATE AND LOCAL
          GOVERNMENTAL AUTHORITIES THAT MAY LIMIT OUR ABILITY TO OPERATE OUR
          BUSINESS.

          Our business is affected by governmental regulations relating to our
          industry segments in general, as well as environmental and safety
          regulations that have specific application to our business. While we
          are not aware of any proposed or pending legislation, future
          legislation may have an adverse effect on our business, financial
          condition, results of operations or prospects.

          We are subject to various federal, state and local environmental laws,
          including those governing air emissions, water discharges and the
          storage, handling, disposal and remediation of petroleum and hazardous
          substances. In particular, our refinery demolition business involves
          the removal of asbestos and other environmental contaminants for which
          we are responsible for handling and disposal. We have in the past and
          will likely in the future incur expenditures to ensure compliance with
          environmental laws. Due to the possibility of unanticipated factual or
          regulatory developments, the

                                      -21-
<PAGE>
          amount and timing of future environmental expenditures could vary
          substantially from those currently anticipated. Moreover, certain of
          our facilities have been in operation for many years and, over that
          time, we and other predecessor operators have generated and disposed
          of wastes that are or may be considered hazardous. Accordingly,
          although we have undertaken considerable efforts to comply with
          applicable laws, it is possible that environmental requirements or
          facts not currently known to us will require unanticipated efforts and
          expenditures that cannot be currently quantified.


Item 3.   Qualitative and Quantitative Disclosures About Market Risk.


          Market risk generally represents the risk that losses may occur in the
          value of financial instruments as a result of movements in interest
          rates, foreign currency exchange rates and commodity prices.

          We are exposed to some market risk due to the floating interest rate
          under our revolving line of credit and certain of our term debt. As of
          March 31, 2000, the revolving line of credit had a principal balance
          of $43.2 million and an interest rate that floats with prime. We also
          have $24.5 million of long-term debt bearing interest at Libor plus
          2.5% to 5% and long-term debt of $10.9 million and an interest rate
          that floats with prime. A 1.0% increase in interest rates could result
          in a $0.8 million annual increase in interest expense on the existing
          principal balance. We have determined that it is not necessary to
          participate in interest rate-related derivative financial instruments
          because we currently do not expect significant short-term increases in
          interest rates charged under the revolving line of credit.

                                      -22-
<PAGE>
                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings.

          In July 1998, the Company acquired Beaird Industries, Inc. ("Beaird")
          from Trinity Industries, Inc. (the "Seller") for $35.0 million in cash
          and receivables and a $5.0 million note to the Seller. Under the
          purchase agreement, the Seller assumed all liabilities and retained
          certain accounts receivable of Beaird. The Company believes that it is
          entitled to receive $2.2 million of excess purchase price paid to the
          Seller under the purchase agreement resulting from liabilities
          incurred by the Company in connection with the acquisition, and $1.84
          million in other claims arising from breaches of representation and
          warranties. On July 15, 1999, the first installment of $1.8 million
          was due on the Seller note. It is the Company's position that it has
          offset the amount owed under the purchase agreement against this
          principal and interest payment. Although the Seller agrees that the
          Company is owed an amount, in January 2000, the Seller filed suit
          against the Company in the 134th Judicial District in the District
          Court of Dallas County, Texas, in a suit styled TRINITY INDUSTRIES,
          INC. V. INDUSTRIAL HOLDINGS, INC. In the lawsuit, the Seller alleged
          that the Company defaulted on the $5 million note payment and asserted
          that the amount it owes the Company is not sufficient to pay the first
          principal and interest payment and additionally cannot be offset
          against the $5 million note payment. In response, in February 2000,
          the Company filed a counterclaim alleging the Seller's fraud in
          failing to disclose, and in misrepresenting, certain facts about
          Beaird. The Company and the Seller are currently in discussions to
          resolve this disagreement. The principle is classified as current
          portion of long-term obligations at March 31, 2000.

          In May 2000, the Company filed suit against some of the former Blastco
          shareholders in Harris County District Court, in a suit styled
          INDUSTRIAL HOLDINGS, INC. AND INDUSTRIAL HOLDINGS ACQUISITION FOUR,
          INC. V. GARY H. MARTIN, WORLD WIDE LEASING, LUBRICATION SERVICES, INC.
          AND WILLIAM R. MASSEY. In the lawsuit, the Company alleged Messrs.
          Massey and Martin's fraud in failing to disclose, and in
          misrepresenting, certain facts about Blastco, as well as Mr. Martin's
          mismanagement and self-dealing as President of Blastco. The Company
          has not yet served the defendants.

          In addition to the above, we are involved in various claims and
          litigation arising in the ordinary course of business. While there are
          uncertainties inherent in the ultimate outcome of such matters and it
          is impossible to currently determine the ultimate costs that may be
          incurred, we believe the resolution of such uncertainties and the
          incurrence of such costs should not have a material adverse effect on
          our consolidated financial condition or results of operations.

Item 3.   Defaults upon Senior Securities

          See Item 1. Financial Statements (unaudited) Note 1 Basis of
          Presentation and Management Plans and Item 2. Management's Discussion
          and Analysis of Financial Condition and Results of Operations -
          Liquidity and Capital Resources for a discussion of the Company's debt
          in default.

                                      -23-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K

        (a)   Reports on Form 8-K (None)




                                    SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Industrial Holdings, Inc., has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.


                            INDUSTRIAL HOLDINGS, INC.



Date: June 14, 2000                       By: /s/ CHRISTINE A. SMITH
                                             ------------------------
                                                  Christine A. Smith,
                                                  Chief Financial Officer and
                                                  Executive Vice President

                                      -24-