<PAGE>   1
================================================================================

                       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, 2001


                                       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 $22,792,469 at May 11, 2001. At that date, there were 13,690,165
shares of common stock outstanding.

================================================================================
<PAGE>   2
                            INDUSTRIAL HOLDINGS, INC.
                                      INDEX


                                                                        Page No.
                                                                        --------
PART  I     FINANCIAL INFORMATION

            Item 1.  Financial Statements (unaudited)

                     Consolidated Balance Sheets at March 31, 2001
                       and December 31, 2000............................    1

                     Consolidated Statements of Operations for the
                       Three Months ended March 31, 2001 and 2000 ......    2

                     Consolidated Statements of Cash Flows for the
                       Three Months Ended March 31, 2001 and 2000.......    3

                     Notes to Consolidated Financial Statements.........    5

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

            Item 3.  Qualitative and Quantitative Disclosures about
                       Market Risk......................................   20

PART  II    OTHER INFORMATION

            Item 1.  Legal Proceedings................................     20

            Item 2.  Changes in Securities (no response required)

            Item 3.  Defaults upon Senior Securities..................     21

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


            Item 5.  Other Information................................     21

            Item 6.  Exhibits and Reports on Form 8-K.................     21


                                       i
<PAGE>   3
                                     PART I
                              FINANCIAL INFORMATION

Item 1.  Financial Statements.

                            INDUSTRIAL HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           March 31,      December 31,
                                                             2001            2000
                                                             ----            ----
                                                          (unaudited)
<S>                                                       <C>             <C>
                                ASSETS
Current assets:
Cash and equivalents ................................      $   1,390       $     945
Accounts receivable - trade, net ....................         41,248          38,155
Cost and estimated earnings in excess of billings ...          2,936           2,986
Inventories .........................................         29,716          29,654
Notes receivable, current portion ...................            283             278
Net assets of discontinued operations ...............         25,780          26,651
Prepaid and other current assets ....................          1,017             759
                                                           ---------       ---------
  Total current assets ..............................        102,370          99,428

Property and equipment, net .........................         34,032          32,942
Notes receivable, less current portion ..............            159             162
Other assets ........................................             63              93
Intangible assets, net ..............................         16,848          17,057
                                                           ---------       ---------

  Total assets ......................................      $ 153,472       $ 149,682
                                                           =========       =========

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Notes payable .......................................      $  49,276       $  49,189
Accounts payable - trade ............................         27,748          24,195
Billings in excess of costs and estimated earnings ..          7,183           6,473
Accrued expenses and other ..........................         11,142          11,228
Current portion of long-term obligations ............         39,882          41,218
                                                           ---------       ---------
  Total current liabilities .........................        135,231         132,303

Long-term obligations, less current portion .........          6,134           6,391
Other long-term liabilities .........................          2,298           2,004
Deferred income tax liability .......................            302             302
                                                           ---------       ---------
  Total liabilities .................................        143,965         141,000
Commitments and contingencies
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, 15,276,430 and 13,690,165 shares
     issued and outstanding, respectively ...........            153             153
  Additional paid-in capital ........................         55,173          55,173
  Accumulated deficit ...............................        (42,547)        (43,372)
  Treasury stock, at cost, 1,586,265 shares .........         (3,272)         (3,272)
                                                           ---------       ---------
     Total shareholders' equity .....................          9,507           8,682
                                                           ---------       ---------

  Total liabilities and shareholders' equity ........      $ 153,472       $ 149,682
                                                           =========       =========
</TABLE>

           See notes to unaudited consolidated financial statements.


                                       1
<PAGE>   4
                            INDUSTRIAL HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                2001               2000
                                                                ----               ----
<S>                                                           <C>                <C>
Sales ..............................................          $ 60,714           $ 43,264
Cost of sales ......................................            47,265             34,774
                                                              --------           --------

Gross profit .......................................            13,449              8,490

Selling, general and administrative expenses .......             9,998             11,386
                                                              --------           --------

Operating income (loss) ............................             3,451             (2,896)

Other expense:
Interest expense ...................................            (2,467)            (2,647)
Interest income ....................................                 4                 34
Other expense, net .................................              (143)              (329)
                                                              --------           --------

Total other expense ................................            (2,606)            (2,942)
                                                              --------           --------

Income (loss) from continuing operations
    before income taxes ............................               845             (5,838)
Income tax expense, state ..........................                20
                                                                                 --------

Income (loss) from continuing operations ...........               825             (5,838)

Income from discontinued operations................                                   371
                                                              --------           --------

Net income (loss) ..................................          $    825           $ (5,467)
                                                              ========           ========

Basic earnings (loss) per share:
    Continuing operations ..........................          $    .06           $   (.38)
    Discontinued operations ........................                                  .02
                                                              --------           --------
    Net income (loss) ..............................          $    .06           $   (.36)
                                                              ========           ========
Diluted earnings (loss) per share:
    Continuing operations ..........................          $    .05           $   (.38)
    Discontinued operations ........................                                  .02
                                                              --------           --------
    Net income (loss) ..............................          $    .05           $   (.36)
                                                              ========           ========

Weighted average common shares outstanding - basic .            13,690             15,111
Weighted average common shares outstanding - diluted            19,730             15,111
</TABLE>

           See notes to unaudited consolidated financial statements.


                                       2
<PAGE>   5
                            INDUSTRIAL HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           Three Months ended March 31,
                                                              2001              2000
                                                              ----              ----
<S>                                                         <C>               <C>
Cash flows from operating activities:
Net income (loss) ................................          $   825           $(5,467)
Adjustments to reconcile income (loss) to net cash
  provided by (used in) operating activities:
     Income from discontinued operations .........                               (371)
     Depreciation and amortization ...............            1,314             1,384
     Deferred compensation paid ..................                                164
  Changes in assets and liabilities:
       Accounts receivable .......................           (3,093)            5,717
       Inventories ...............................           (1,093)           (1,299)
       Notes receivable ..........................               (2)              977
       Prepaid and other assets ..................             (177)            1,754
       Accounts payable ..........................            3,553             1,200
       Accrued expenses and other ................              918              (141)
                                                            -------           -------
Net cash provided by operating activities of
  continuing operations ..........................            2,245             3,918
Net cash provided by operating activities of
  discontinued operations ........................              925               938
                                                            -------           -------

Net cash provided by operating activities ........            3,170             4,856

Cash flows from investing activities:
Purchase of property and equipment ...............           (1,192)           (1,097)
Proceeds from disposals of property and equipment                28               528
Investments in unconsolidated affiliates .........                             (1,446)
                                                            -------           -------
Net cash used in investing activities of
  continuing operations ..........................           (1,164)           (2,015)
Net cash used in investing activities of
  discontinued operations ........................              (54)              (42)
                                                            -------           -------

Net cash used in investing activities ............           (1,218)           (2,057)
</TABLE>

           See notes to unaudited consolidated financial statements.


                                       3
<PAGE>   6
                            INDUSTRIAL HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
                                   (CONTINUED)


<TABLE>
<CAPTION>
                                                                   Three Months ended March 31,
                                                                      2001              2000
                                                                      ----              ----
<S>                                                                 <C>               <C>
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of credit               87            (3,004)
Proceeds from the issuance of long-term obligations ......               51             1,925
Principal payments on notes payable and
  long-term obligations ..................................           (1,645)           (2,290)
                                                                    -------           -------
Net cash used in financing activities
  of continuing operations ...............................           (1,507)           (3,369)
Net cash used in financing activities
  of discontinued operations
                                                                    -------           -------
Net cash used in financing activities ....................           (1,507)           (3,369)
                                                                    -------           -------
Net increase (decrease) in cash and cash equivalents .....              445              (570)
Cash and cash equivalents, beginning of period ...........              945             1,738
                                                                    -------           -------
Cash and cash equivalents, end of period .................          $ 1,390           $ 1,168
                                                                    =======           =======


Supplemental disclosure of non-cash investing
  and financing activities:
Issuance of warrants .....................................          $                 $   158
Property acquired with debt or capital leases ............               51             1,925

Supplemental disclosures of cash flow information:
  Cash paid for:
     Interest ............................................          $ 2,028           $   723
     Income taxes ........................................                5
</TABLE>

           See notes to unaudited consolidated financial statements.


                                       4
<PAGE>   7
                            INDUSTRIAL HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                 MARCH 31, 2001



1.   BASIS OF PRESENTATION AND MANAGEMENT PLANS

     The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 accounting principles generally accepted in the United
States of America 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 and transactions have been
eliminated in consolidation. Operating results for the three months ended March
31, 2001 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2001. 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, 2000.
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 contemplates 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 $32.9 million and $32.9 million and debt in default
at December 31, 2000 and March 31, 2001, respectively. In addition, the Company
incurred a net loss of $39.5 million for the year ended December 31, 2000. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.

     In December 2000, the Company made the decision to actively seek a
purchaser for the Engineered Products Group ("EPG") segment and adopted a plan
of disposal. The Company has accounted for the planned divestiture as
discontinued operations. EPG's customer base is comprised of various consumer
product industries, including automotive and home furnishings. The Company
believes that divesting of EPG will allow it to strategically focus on the
energy market. The Company believes the ability to concentrate both management
and financial resources on a single market will allow it to successfully
capitalize on the opportunities in that market. Additionally, the proceeds from
the sale of EPG will be used to reduce debt and provide working capital.

     On April 26, 2001, the Company reached the strategic decision to market the
Company's Heavy Fabrication Group segment subsidiary, Beaird Industries, Inc.
("Beaird") for sale. Beaird manufactures and distributes medium and thick-walled
pressure vessels, wind towers, gas turbine casings, heat exchangers, heat panels
and other large machined weldments. Much of Beaird's customer base is outside
the traditional oil and gas services industry and is more focused on alternative
energy industries, such as wind energy and cogeneration. As was the case with
the Company's decision with respect to EPG, the Company believes that divesting
of Beaird will allow it to strategically focus on the oil and gas services
market. The proceeds from the sale of Beaird will be used to reduce debt.

     Effective May 7, 2001, the Company executed an Agreement and Plan of Merger
(the "Merger Agreement") among the Company, T-3 Energy Services, Inc. ("T-3"),
and First Reserve Fund VIII, L.P. ("First Reserve") whereby IHI and T-3 will be
merged in a stock for stock transaction. Upon completion of the merger, the
Company will be the surviving entity and the current stockholders of T-3 will
own a majority of the combined company. As a part of the transaction, T-3's
largest shareholder, First Reserve, will contribute up to an estimated $9.6
million of equity to the business and will assist the Company to refinance the
combined company's debt into a long-term credit facility. Among other
conditions, the merger is contingent upon obtaining the approval of the
shareholders of the Company and T-3, and customary regulatory approvals. The
transaction is expected to close in the third quarter of this year.


                                       5
<PAGE>   8
     Effective May 7, 2001, in connection with the execution of the Merger
Agreement and to improve the liquidity of the Company during the approval
period, T-3 purchased the Company's subsidiary, A&B Bolt & Supply, Inc. ("A&B
Bolt"), for a cash purchase price of $15.0 million. The proceeds were used by
the Company to repay secured bank indebtedness of approximately $8.8 million and
for working capital purposes. The Company will recognize a loss of approximately
$4.3 million during the second quarter of 2001 in connection with this
disposition.

     The Company's revolving line of credit agreement was amended in June 2000
with Comerica Bank-Texas, National Bank of Canada and Hibernia Bank (the "Senior
Lenders"), which (i) accelerated the maturity date; (ii) reduced the revolving
credit line to $50 million; (iii) increased the interest rate to prime plus 3%,
payable weekly; and (iv) modified 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 to
require limitations on capital expenditures. In addition, the Senior Lenders
waived all prior covenant violations under the previous agreement. At December
31, 2000, the Company was in violation of these financial covenants. Effective
January 31, 2001, the Company entered into a fourth amendment to its credit
agreement. This amendment required that the outstanding borrowings under the
credit agreement be paid in full by August 31, 2001 and required the Company to
implement a plan to accomplish this repayment. The amendment further modified
the financial covenants to require maintenance of a minimum tangible net worth
and a limitation on capital expenditures. At March 31, 2001, the Company was in
violation of the financial covenants under the credit agreement in effect as of
that date. On May 4, 2001, the Company entered into a fifth amendment to its
credit agreement. This amendment accommodated the execution of the definitive
merger agreement between the Company and T-3 and the sale of the Company's
subsidiary, A&B Bolt, to T-3. The fifth amendment requires a permanent reduction
in the maximum borrowings under the revolving line of credit to the lesser of
$43 million or a defined borrowing base and further modifies the financial
covenants to require maintenance of minimum consolidated tangible net worth and
EBITDA-to-debt-service ratio. In addition, the Senior Lenders waived all prior
covenant violations under the previous agreement.

     The Company has a $15 million note payable to EnSerCo, L.L.C. ("EnSerCo")
that matured 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. On March 6,
2001, EnSerCo made demand for immediate payment of the outstanding principal and
interest totaling $18 million and initiated an arbitration proceeding as
required under the loan document. On April 12, 2001, EnSerCo and the Company
signed an agreement, so long as the definitive merger agreement between the
Company and T-3 is in effect, that: (i) suspended the arbitration proceeding
until October 31, 2001, extendable to December 31, 2001 under certain
circumstances; (ii) provided for a consent fee of $1 million payable to EnSerCo
at the time of the execution of the definitive merger agreement; and (iii)
obtained EnSerCo's consent to the Merger transaction, the disposition of the
Company's EPG and the disposition of the Company's subsidiaries, A&B Bolt and
Beaird.

     The Company has a $6.4 million term note with Heller Financial, Inc.
("Heller"), which matures 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, 2000 reporting period; however, it did not
seek waivers for either the reporting date of December 31, 2000 or March 31,
2001. 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's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis,
continued forbearance by certain of the Company's lenders pending modifications
to these obligations or the attainment of new financing.


                                       6
<PAGE>   9
2.   INVENTORY

Inventories consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
                       March 31,       December 31,
                         2001             2000
                         ----             ----
<S>                    <C>             <C>
Raw materials           $11,423          $13,189
Finished goods           15,219           14,506
Other ........            3,074            1,959
                        -------          -------

                        $29,716          $29,654
                        =======          =======
</TABLE>

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. Financial information for purchase transactions
is included in the segment disclosures only for periods subsequent to the dates
of acquisition.

     The Company has reclassified the results of operations of the Engineered
Products Group ("EPG") as discontinued operations. This business was previously
disclosed as a separate operating segment. The segment data included below has
been restated to exclude amounts related to discontinued operations. EPG and the
Stud Bolt and Gasket Group were previously combined in the fastener
manufacturing and distribution segment. The Energy Group also includes what was
formerly known as the machine tool distribution segment. Additionally, one of
our subsidiaries that was previously included in the fastener manufacturing and
distribution segment is now part of the Energy Group. 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>
                                                           (Dollars in Thousands)
                                                Stud Bolt        Heavy
                                    Energy      and Gasket    Fabrication      Corporate     Consolidated
                                    ------      ----------    -----------      ---------     ------------
<S>                                 <C>         <C>            <C>             <C>           <C>
For the Three Months Ended:

MARCH 31, 2001
--------------
Sales .....................       $ 27,405      $  14,756      $  18,553       $               $  60,714
Operating income (loss) ...          2,993          1,338           (145)           (735)          3,451

MARCH 31, 2000
--------------
Sales .....................       $ 22,606      $  12,694      $   7,964       $               $  43,264
Operating income (loss) ...             44            816         (1,482)         (2,274)         (2,896)

AS OF MARCH 31, 2001:
---------------------
Total assets ..............       $ 54,116      $  26,129      $  46,680       $     767       $ 127,692

AS OF DECEMBER 31, 2000:
------------------------
Total assets ..............       $ 52,193      $  24,784      $  44,821       $   1,233       $ 123,031
</TABLE>

                                       7
<PAGE>   10
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,
                                                                               2001          2000
                                                                               ----          ----
<S>                                                                          <C>           <C>
BASIC EARNINGS (LOSS) PER SHARE:
Numerator:
     Numerator for income (loss) from continuing operations per share .      $    825      $ (5,838)
     Numerator for income (loss) from discontinued operations per share                         371
                                                                             --------      --------
     Numerator for net income (loss) available to
          common shareholders per share ...............................      $    825      $ (5,467)
                                                                             ========      ========
Denominator:
     Weighted average common shares outstanding - Basic ...............        13,690        15,111
                                                                             ========      ========

Income (loss) from continuing operations per share - Basic ............      $    .06      $   (.38)
Income (loss) from discontinued operations per share - Basic ..........                         .02
                                                                             --------      --------
Net income (loss) available to common shareholders per share - Basic ..      $    .06      $   (.36)
                                                                             ========      ========

DILUTED EARNINGS (LOSS) PER SHARE:
Numerator:
     Numerator for income (loss) from continuing operations per share .      $    825      $ (5,838)
     Interest on convertible debt, net of tax .........................           190
                                                                             --------      --------
     Numerator for income (loss) from continuing operations
          available to common shareholders per share ..................      $  1,015      $ (5,838)
     Numerator for income (loss) from discontinued operations per share                         371
                                                                             --------      --------
     Numerator for net income (loss) available to
        common shareholders per share .................................      $  1,015      $ (5,467)
                                                                             ========      ========
Denominator:
     Weighted average common shares outstanding - Basic ...............        13,690        15,111
     Shares issuable from assumed conversion of common share options,
          warrants granted and debt conversion ........................         6,040
                                                                             --------      --------
     Weighted average common shares outstanding - Diluted .............        19,730        15,111
                                                                             ========      ========

Income (loss) from continuing operations per share - Diluted ..........      $    .05      $   (.38)
Income (loss) from discontinued operations per share - Diluted ........                         .02
                                                                             --------      --------
Net income (loss) available to common shareholders per share - Diluted       $    .05      $   (.36)
                                                                             ========      ========
</TABLE>

     There were 643,750 and 698,950 options, and 3,488,258 and 3,506,863
warrants for the three months ended March 31, 2001 and 2000, respectively, that
were not included in the computation of diluted earnings (loss) per share
because their inclusion would have been anti-dilutive.

5.   DEBT

     The Company's revolving line of credit agreement was amended in June 2000
with the Senior Lenders, which (i) accelerated the maturity date to January 31,
2001; (ii) reduced the revolving credit line to $50 million; (iii) increased the
interest rate to prime plus 3%, payable weekly; and (iv) modified the financial
covenants to require maintenance of minimum consolidated tangible net worth, and
EBITDA-to-debt-service ratio as well as to require limitations on capital
expenditures. In addition, the Senior Lenders waived all prior covenant
violations under the previous agreement. At December 31, 2000, the Company was
in violation of these financial covenants. Effective January 31, 2001, the
Company entered into a fourth amendment to its credit agreement. This amendment
required that the outstanding borrowings under the credit agreement be paid in
full by August 31, 2001 and required the Company to implement a plan to
accomplish this repayment. The amendment further modified the financial
covenants to require maintenance of a minimum tangible net worth and a
limitation on capital expenditures. At March 31, 2001, the Company was in
violation of the financial covenants under the credit agreement in effect as of


                                       8
<PAGE>   11
that date. On May 4, 2001, the Company entered into a fifth amendment to its
credit agreement. This amendment accommodated the execution of the definitive
merger agreement between the Company and T-3 and the sale of the Company's
subsidiary, A&B Bolt, to T-3. The fifth amendment requires a permanent reduction
in the maximum borrowings under the revolving line of credit to the lesser of
$43 million or a defined borrowing base and further modifies the financial
covenants to require maintenance of minimum consolidated tangible net worth and
EBITDA-to-debt-service ratio. In addition, the Senior Lenders waived all prior
covenant violations under the previous agreement.

     The Company has a $15 million note payable to EnSerCo that matured 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. On March 6, 2001, EnSerCo
made demand for immediate payment of the outstanding principal and interest
totaling $18 million and initiated an arbitration proceeding as required under
the loan document. On April 12, 2001, EnSerCo and the Company signed an
agreement, so long as the definitive merger agreement between the Company and
T-3 is in effect, that: (i) suspended the arbitration proceeding until October
31, 2001, extendable to December 31, 2001 under certain circumstances; (ii)
provided for a consent fee of $1 million payable to EnSerCo at the time of the
execution of the definitive merger agreement; and (iii) obtained EnSerCo's
consent to the Merger transaction, the disposition of the Company's EPG and the
disposition of the Company's subsidiaries, A&B Bolt and Beaird.

     The Company has a $6.4 million term note with Heller, which matures 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, 2000 reporting period; however, it did not seek waivers for either
the reporting date of December 31, 2000 or March 31, 2001. Additionally, the
Company does not anticipate being in compliance with these covenants any time
during 2001 absent modifications from Heller. 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.

6.   COMMITMENTS AND CONTINGENCIES

     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.

7.   SUBSEQUENT EVENTS

     On April 26, 2001, the Company reached the strategic decision to market the
Company's Heavy Fabrication Group segment subsidiary, Beaird, for sale. Beaird
manufactures and distributes medium and thick-walled pressure vessels, wind
towers, gas turbine casings, heat exchangers, heat panels and other large
machined weldments. Much of Beaird's customer base is outside the traditional
oil and gas services industry and is more focused on alternative energy
industries, such as wind energy and cogeneration. As was the case with the
Company's decision with respect to EPG, the Company believes that divesting of
Beaird will allow it to strategically focus on the oil and gas services market.
The Company believes the ability to concentrate both management and financial
resources on a single market will allow it to successfully capitalize on the
opportunities in that market. Additionally, the proceeds from the sale of Beaird
will be used to reduce debt.

     Effective May 7, 2001, the Company executed the Merger Agreement among the
Company, T-3, and First Reserve whereby the Company and T-3 will be merged in a
stock for stock transaction. Upon completion of the merger, the Company will be
the surviving entity and the current stockholders of T-3 will own a majority of
the combined company. As a part of the transaction, T-3's largest shareholder,
First Reserve, will contribute up to an estimated $9.6 million of equity to the
business and will assist the Company to refinance the combined company's debt
into a long-term credit facility. Among other conditions, the merger is
contingent upon obtaining the approval of the shareholders of the Company and
T-3, and customary regulatory approvals. The transaction is expected to close in
the third quarter of this year.

     In connection with the execution of the Merger Agreement and to improve the
liquidity of the Company during the approval period, T-3 purchased the Company's
subsidiary, A&B Bolt, for a cash purchase price of $15.0 million.


                                       9
<PAGE>   12
The proceeds were used by the Company to repay secured bank indebtedness of
approximately $8.8 million and for working capital purposes. The Company will
recognize a loss of approximately $4.3 million during the second quarter of 2001
in connection with this disposition. Sales for A&B Bolt were approximately $39.0
million, $10.3 million and $7.8 million for the year ended December 31, 2000,
the three months ended March 31, 2001 and the three months ended March 31, 2000,
respectively. Operating income for A&B Bolt was approximately $0.8 million, $0.7
million and $0 for the year ended December 31, 2000, the three months ended
March 31, 2001 and the three months ended March 31, 2000, respectively. A&B Bolt
was part of the Energy Group.

     On April 18, 2001, the Company received a notice of delisting of our Common
Stock and Class B, C, and D Warrants from the Nasdaq NMS because the Company's
consolidated financial statements contained in the 2000 Annual Report on Form
10-K, filed on April 12, 2001, reflected a potential lack of compliance with The
Nasdaq Stock Market, Inc.'s Marketplace Rules with respect to the net tangible
assets/market capitalization/total assets and total revenue requirement. The
notice also cited the transaction with T-3 and First Reserve as a potential
change of control transaction, which may require the Company to qualify for
listing under the initial listing requirements, in accordance with Marketplace
Rule 4330(f). The Company responded by letter on April 25, 2001 that the Company
believes that it complies with Marketplace Rules for continued listing under
Standard 2 as well as initial listing requirements under Standard 3, on a pro
forma basis for the merger transaction with T-3 and First Reserve. The Company
has a meeting scheduled on May 15, 2001 before the Nasdaq Listing Qualifications
Panel to further discuss the Company's listing status. The Company believes that
it will be able, at the hearing, to demonstrate its ability to sustain long-term
compliance with the listing requirement criteria for the Nasdaq NMS, although
the Company can not ensure that Nasdaq will not delist its securities. If that
happens, the Company's securities would be immediately eligible to trade on the
over-the-counter market.

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. Our operations are organized into four business
segments: (i) the Energy Group; (ii) the Stud Bolt and Gasket Group ("Stud
Bolt"); (iii) the Heavy Fabrication Group; and (iv) the Engineered Products
Group ("EPG").

     Our historical financial statements have been restated to include, for all
periods presented, the results of operations from each of the companies that
were acquired in acquisitions accounted for under the pooling-of-interests
method. The results of operations for companies acquired in acquisitions
accounted for under the purchase method are included in our historical financial
statements from the date of such acquisition. Since these "purchase"
acquisitions were consummated at various times, the financial information
contained herein with respect to each fiscal period does not fully reflect the
results of operations that would have been achieved had these acquisitions been
consummated at the beginning of the periods presented or which may be achieved
in the future. In connection with each "purchase" acquisition, we have recorded
goodwill to the extent the purchase price exceeded the fair market value of the
specific assets acquired.

     In December 2000, we made the decision to actively seek a purchaser for EPG
and adopted a plan of disposal. As a result, we have accounted for EPG as
discontinued operations in the consolidated financial statements. EPG's customer
base is comprised of various consumer product industries, including automotive
and home furnishings. We believe that divesting of EPG will allow us to
strategically focus on the energy market. We believe the ability to concentrate
both management and financial resources on a single market will allow us to
successfully capitalize on the opportunities in that market. Additionally, the
proceeds from the sale of EPG will be used to reduce debt and provide working
capital.

     On April 26, 2001, we reached the strategic decision to market our Heavy
Fabrication Group subsidiary, Beaird, for sale. Beaird manufactures and
distributes medium and thick-walled pressure vessels, wind towers, gas turbine
casings, heat exchangers, heat panels and other large machined weldments. Much
of Beaird's customer base is outside the traditional oil and gas services
industry and is more focused on alternative energy industries, such as wind
energy and cogeneration. As was the case with our decision with respect to EPG,
we believe that divesting of


                                       10
<PAGE>   13
Beaird will allow us to strategically focus on the oil and gas services market.
The proceeds from the sale of Beaird will be used to reduce debt.

     We believe our businesses are characterized by strong market positions in
niche markets, high value-added products and services, an established and
diversified customer base, experienced and committed management, cost-efficient
equipment and production facilities with a low sensitivity to technological
change. Our products and services are sold to a broad customer base in the
energy industry. Most of our products are manufactured to specific technical
requirements and for specific customer orders.

     In June 2000, we amended our revolving line of credit agreement with the
Senior Lenders, which (i) accelerated the maturity date; (ii) reduced the
revolving credit line to $50 million; (iii) increased the interest rate to prime
plus 3%, payable weekly; and (iv) modified the financial covenants to require
maintenance of minimum consolidated tangible net worth, and
EBITDA-to-debt-service ratio as well as to require limitations on capital
expenditures. In addition, the Senior Lenders waived all prior covenant
violations under the previous agreement. Effective January 31, 2001, we entered
into a fourth amendment to our credit agreement. This amendment required that
the outstanding borrowings under the credit agreement be paid in full by August
31, 2001 and required us to implement a plan to accomplish this repayment. The
amendment further modified the financial covenants to require maintenance of a
minimum tangible net worth and a limitation on capital expenditures. At December
31, 2000 and March 31, 2001, we are in violation of the financial covenants
under the credit agreement in effect as of that date. On May 4, 2001, we entered
into a fifth amendment to our credit agreement. This amendment accommodated the
execution of the definitive merger agreement between IHI and T-3 and the sale of
our subsidiary, A&B Bolt, to T-3. The fifth amendment requires a permanent
reduction in the maximum borrowings under the revolving line of credit to the
lesser of $43 million or a defined borrowing base and further modifies the
financial covenants to require maintenance of minimum consolidated tangible net
worth and EBITDA-to-debt-service ratio. In addition, the Senior Lenders waived
all prior covenant violations under the previous agreement.

     During 1999, our operating results were adversely affected by falling oil
and gas prices and depressed activity in the energy industry, a decline in
spending in the refining and processing industry, foreign competition in our
Heavy Fabrication Group and a strategic reorganization within EPG. During 1999
our operating losses were $13.5 million, including discontinued operations. We
found ourselves highly-leveraged in the midst of an economic downturn. Although
we spent $2.6 million along with much of management's time in the effort, we
were unable to complete any form of refinancing as oil and gas prices fell and
our operating results worsened. Our note payable to EnSerCo matured, which we
were unable to repay. Our poor operating results created financial covenant
defaults in our revolving line of credit and our term debt with Heller. In
response, our lenders increased our interest rates thus placing an additional
debt service burden on what was an already cash-strapped company.

     In 2000, we began to see the positive impact of the improved energy market.
Collectively, our Energy and Stud Bolt Groups' operating profits increased
approximately 500% over 1999. Additionally, our Heavy Fabrication Group's wind
tower contracts awarded in 2000 and estimated to be completed by November 2001
significantly improved that group's operating results. These improvements
continue in 2001.

     Although our operating results have improved in 2001 and 2000 over 1999 and
we believe that our results will continue to improve through the remainder of
2001, we remain cash constrained and highly-leveraged with $95.3 million in debt
at March 31, 2001, a significant amount of which is currently due or in default.

     Our most important task in 2001 is to reduce our debt service burden. We
plan to use the proceeds from the sale of EPG and Beaird to pay down our debt
and provide working capital. In May 2001, we executed a definitive merger
agreement to re-capitalize IHI through a merger with T-3 and an equity infusion
by a private equity fund managed by First Reserve. In connection with the
merger, an affiliate of First Reserve will contribute up to $9.6 million of
equity to the business and will assist us in refinancing the combined company's
debt into a long-term credit facility. The transaction is contingent upon
obtaining the approval of IHI and T-3 shareholders, and customary regulatory
approvals. The transaction, if approved, is expected to close in the third
quarter of this year.

     In connection with signing the definitive merger agreement, and to improve
our liquidity during the approval period, T-3 purchased our subsidiary, A&B
Bolt, for a cash purchase price of $15 million. Approximately $8.8


                                       11
<PAGE>   14
million of the proceeds were used to repay secured bank indebtedness with the
remaining proceeds used by us for working capital purposes.

     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 customers within our
continuing operations are the 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 2000 and continuing into the first quarter of 2001, oil and gas prices
increased significantly, resulting in an increase in the demand for our products
and services that are used in the exploration, production and refining of oil
and gas. Additionally, because of the extension of the tax credit for Renewable
Electricity Production through December 31, 2001, we were awarded a significant
contract for the fabrication of wind towers. Although we expect this credit to
be extended, should it expire without extension, we expect the level of wind
tower revenues to decrease in 2002.

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                            For the Three Months
                                               Ended March 31,
                                            2001            2000
                                            ----            ----
<S>                                       <C>             <C>
Sales:
     Energy ........................      $ 27,405        $ 22,606
     Stud Bolt and Gasket ..........        14,756          12,694
     Heavy Fabrication .............        18,553           7,964
                                          --------        --------

                                            60,714          43,264
                                          --------        --------
Cost of Sales:
     Energy ........................        19,390          17,483
     Stud Bolt and Gasket ..........        10,581           9,276
     Heavy Fabrication .............        17,294           8,015
                                          --------        --------

                                            47,265          34,774
                                          --------        --------
Gross Profit (Loss):
     Energy ........................         8,015           5,123
     Stud Bolt and Gasket ..........         4,175           3,418
     Heavy Fabrication .............         1,259             (51)
                                          --------        --------

                                            13,449           8,490
                                          --------        --------
Selling, General and Administrative:
     Energy ........................         5,022           5,079
     Stud Bolt and Gasket ..........         2,837           2,602
     Heavy Fabrication .............         1,404           1,431
     Corporate .....................           735           2,274
                                          --------        --------

                                             9,998          11,386
                                          --------        --------
Operating Income (Loss):
     Energy ........................         2,993              44
     Stud Bolt and Gasket ..........         1,338             816
     Heavy Fabrication .............          (145)         (1,482)
     Corporate .....................          (735)         (2,274)
                                          --------        --------

                                          $  3,451        $ (2,896)
                                          ========        ========
</TABLE>

                                       12
<PAGE>   15
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2000.

     Sales. On a consolidated basis, sales increased $17.5 million, or 40%, for
the three months ended March 31, 2001 compared to the three months ended March
31, 2000.

     Sales for the Energy Group increased $4.8 million, or 21%, for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
This sales increase was primarily attributable to increases in the worldwide rig
count, optimism regarding the long-term hydrocarbon price environment,
increasing worldwide demand for oil and gas coupled with declining production in
many areas all resulting in increased oil and gas prices, increased exploration
and production spending in the latter part of 2000 and early 2001 and an
improved demand for oilfield services. In April 2000, the Company sold Blastco,
its refinery demolition subsidiary. Blastco's sales were $3.4 million for 2000.
Excluding Blastco, sales in the Energy Group would have increased $8.2 million,
or 43%, for the three months ended March 31, 2001 compared to the three months
ended March 31, 2000. Additionally in the second half of 2000, the group began
providing temporary labor services to the oil and gas construction industry.
Sales of $1.3 million were recognized in the 2001 period related to this
activity. There were no significant sales related to this activity in the
comparable 2000 period.

     Sales for the Stud Bolt Group increased $2.1 million, or 16%, for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
Over half of this group's sales are to the refining and processing industry and
about one-fourth of its sales are to the upstream (or exploration and
production) energy industry. Sales increased due to improvements in the refining
and processing and energy industries.

     Sales for the Heavy Fabrication Group increased by $10.6 million, or 133%,
for the three months ended March 31, 2001 compared to the three months ended
March 31, 2000. Historically, a substantial percentage of this group's revenue
was derived from the fabrication of heavy pressure vessels for customers in the
hydrocarbon processing industry. Customers in the hydrocarbon processing
industry materially reduced their capital spending during 1999 and 2000, which
directly impacted sales in this group. Additionally, heavy competitive pressure
from overseas, particularly Korean competition, has negatively impacted sales in
the markets Beaird has traditionally served. As a result, Beaird actively
pursued sales in new markets and in August 2000, Beaird entered into a contract
with FPL to fabricate up to 800 wind turbine towers by November 2001 for a total
price in excess of $55 million, with the initial orders of 542 towers for
delivery to wind energy projects in West Texas and Oregon. Additionally, Beaird
has a significant contract to produce steam panels for use in cogeneration power
plants. As a result of these and other market diversification efforts, in the
first quarter of 2001, the manufacture of wind turbine towers and steam panels
made up 71% of Beaird's revenues in 2001. There were no revenues from these
sources in the first quarter of 2000. Backlog at Beaird as of March 31, 2001 has
increased 33% over March 31, 2000.

     Cost of Sales. On a consolidated basis, cost of sales increased $12.5
million, or 36%, for the three months ended March 31, 2001 compared to the three
months ended March 31, 2000. Gross margin was 22% in 2001 compared to 20% in
2000. Gross margins were higher on a consolidated basis in the 2001 period
compared to the 2000 period primarily as a result of improvements in margins at
all three segments.

     Cost of sales for the Energy Group increased $1.9 million, or 11%, for the
three months ended March 31, 2001 compared to the three months ended March 31,
2000, primarily as a result of the increase in sales described above. Gross
margin increased from 23% in the 2000 period to 29% in the 2001 period.
Excluding Blastco, the 2000 gross margin was 26%. The improvement in margins in
2001 compared to 2000 is attributable to increased sales that cover more fixed
costs resulting in higher margins and less competitive pressure on prices to
customers as manufacturers' shops became more fully utilized.

     Cost of sales for the Stud Bolt Group increased $1.3 million, or 14%, for
the three months ended March 31, 2001 compared to the three months ended March
31, 2000, primarily as a result of the increase in sales described above. Gross
margin increased from 27% in the 2000 period to 28% in the 2001 period. The
improvement in margins in the 2001 period compared to the 2000 period is
attributable to increased sales that cover more fixed costs resulting in higher
margins and increased turnaround activity at customer refineries and processing
plants.


                                       13
<PAGE>   16
     Cost of sales for the Heavy Fabrication Group increased $9.3 million, or
116%, for the three months ended March 31, 2001 compared to the three months
ended March 31, 2000. The gross margin was 7% in the 2001 period compared to a
negative 1% for the 2000 period. Gross margin was higher in the 2001 period than
the 2000 period as sales increased to levels that were sufficient to generate
enough gross profit to cover fixed costs. Additionally, Beaird experienced a
favorable sales mix as a significant portion of sales in the 2001 period were
made up of wind turbine tower work which has a higher margin than Beaird's other
product lines.

     Selling, General and Administrative Expenses. On a consolidated basis,
selling, general and administrative expenses decreased $1.4 million, or 12%, for
the three months ended March 31, 2001 compared to the three months ended March
31, 2000. The 2000 period includes approximately $1.0 million in expenses
associated with failed refinancing efforts, $0.3 million in officer loan
forgiveness expenses, and $0.3 million in additional professional fees.

     Selling, general and administrative expenses for the Energy Group decreased
$0.1 million, or 1%, for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000. Excluding the effect of Blastco, which was
sold in April 2000, selling, general and administrative expenses would have
increased $0.7 million or 18% for the 2001 period compared to the 2000 period as
a result of the increase in sales described above.

     Selling, general and administrative expenses for the Stud Bolt Group
increased $0.2 million, or 9%, for the three months ended March 31, 2001
compared to the three months ended March 31, 2000, primarily as a result of the
increase in sales described above.

     Selling, general and administrative expenses in the Heavy Fabrication Group
remained unchanged for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000.

     Selling, general and administrative expenses at corporate decreased $1.5
million, or 68%, for the three months ended March 31, 2001 compared to the three
months ended March 31, 2000. The 2000 period includes approximately $1.0 million
in expenses associated with failed refinancing efforts, $0.3 million in officer
loan forgiveness expenses, and $0.3 million in additional professional fees.

     Interest Expense. On a consolidated basis, interest expense decreased $0.2
million, or 7%, for the three months ended March 31, 2001 compared to the three
months ended March 31, 2000, primarily as a result of slightly lower interest
rates and average debt balances.

     Other Expense, Net. On a consolidated basis, other expense, net, was
approximately $0.1 million for the three months ended March 31, 2001 compared
with approximately $0.3 million for the three months ended March 31, 2000.

     Income Taxes. The Company recognized no federal tax benefit or expense for
the three months ended March 31, 2001 or March 31, 2000 as a result of
adjustments to its valuation allowance to offset the deferred tax asset
associated with net operating loss carry forwards.

     Income (Loss) From Continuing Operations. On a consolidated basis, the
Company generated income from continuing operations of $0.8 million for the
three months ended March 31, 2001 compared to a net loss from continuing
operations of $5.8 million for the three months ended March 31, 2000 as a result
of the foregoing factors.

     Loss From Discontinued Operations. In December 2000, the Company made the
decision to actively seek a purchaser for EPG and adopted a plan of disposal.
The Company recorded a $22.5 million loss from discontinued operations for 2000.
The net loss was comprised of a $1.0 million net loss from operations for 2000
and an estimated $21.5 million net loss on the disposal of EPG which included an
accrual for the estimated net loss of EPG between the measurement date of
December 29, 2000 and the estimated disposal date of July 31, 2001. The
operating results of EPG have been reflected as Discontinued Operations. Income
from discontinued operations was approximately $0.4 million for the three months
ended March 31, 2000.


                                       14
<PAGE>   17
     Net Income (Loss). On a consolidated basis, the Company generated net
income of $0.8 million for the three months ended March 31, 2001 compared to a
net loss of $5.5 million for the three months ended March 31, 2000 as a result
of the foregoing factors.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2001, we had an accumulated deficit of $42.5 million and
negative working capital of $32.9 million as a result of $89.2 million in notes
payable and long-term obligations classified as current liabilities.

     At March 31, 2001, we had short-term debt of $49.3 million, current
maturities of long-term obligations of $39.9 million, long-term obligations of
$6.1 million and shareholders' equity of $9.5 million. Historically, our
principal liquidity requirements and uses of cash have been for debt service,
capital expenditures, working capital and acquisition financing, and our
principal sources of liquidity and cash have been from cash flows from
operations, borrowings under long-term debt arrangements and issuances of equity
securities. We have financed acquisitions through bank borrowings, sales of
equity and internally generated funds.

     Principal Debt Instruments. As of March 31, 2001, we had an aggregate of
$95.3 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. Of the $95.3 million in debt, $21.4 is currently in
default.

     In June 2000, we amended our revolving line of credit agreement with
Comerica Bank-Texas, National Bank of Canada and Hibernia Bank (the "Senior
Lenders"), which (i) accelerated the maturity date; (ii) reduced the revolving
credit line to $50 million; (iii) increased the interest rate to prime plus 3%,
payable weekly; and (iv) modified 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 to
require limitations on capital expenditures. In addition, the Senior Lenders
waived all prior covenant violations under the previous agreement. Effective
January 31, 2001, we entered into a fourth amendment to our credit agreement.
This amendment required that the outstanding borrowings under the credit
agreement be paid in full by August 31, 2001 and required us to implement a plan
to accomplish this repayment. The amendment further modified the financial
covenants to require maintenance of a minimum tangible net worth and a
limitation on capital expenditures. At December 31, 2000 and March 31, 2001, we
are in violation of the financial covenants under the credit agreement in effect
as of that date. On May 4, 2001, we entered into a fifth amendment to its credit
agreement. This amendment accommodated the execution of the definitive merger
agreement between IHI and T-3 and the sale of our subsidiary, A&B Bolt, to T-3.
The fifth amendment requires a permanent reduction in the maximum borrowings
under the revolving line of credit to the lesser of $43 million or a defined
borrowing base and further modifies the financial covenants to require
maintenance of minimum consolidated tangible net worth and
EBITDA-to-debt-service ratio. In addition, the Senior Lenders waived all prior
covenant violations under the previous agreement.

     In connection with our revolving line of credit agreement, St. James
Capital Corp. or its affiliates (collectively, "St. James") agreed, under the
terms of a Limited Guaranty Agreement with the Senior Lenders (the "Guaranty"),
to guarantee up to $2.0 million of any amount that is advanced to us in excess
of the defined borrowing base amount under the credit agreement. As a condition
of providing this Guaranty, we entered into a Reimbursement Agreement with St.
James. Additionally, St. James has entered into a Credit Support Agreement under
which it has agreed to advance up to $1.5 million of funds to cure any future
financial covenant defaults under our credit agreement. No amounts have been
advanced under these agreements.

     We have a $15 million note payable to EnSerCo that matured 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. On March 6, 2001, EnSerCo made demand for immediate payment of
the outstanding principal and interest totaling $18 million and initiated an
arbitration proceeding as required under the loan document. On April 12, 2001,
we and EnSerCo signed an agreement, so long as the definitive merger agreement
between T-3 and us is in effect, that: (i) suspended the arbitration proceeding
until October 31, 2001, extendable to December 31, 2001 under certain
circumstances; (ii) provided for a consent fee of $1 million payable to EnSerCo
at the time of the execution of the definitive merger agreement; and (iii)
obtained EnSerCo's consent to the merger transaction, the disposition of our EPG
and the disposition of our subsidiaries, A&B Bolt and Beaird.


                                       15
<PAGE>   18
     We have a $6.4 million term note with Heller, which matures on September
30, 2004. We were not in compliance with certain financial covenants at each of
the required quarterly reporting dates during 1999 and 2000. We requested and
received waivers from Heller through the September 30, 2000 reporting period;
however, we did not seek waivers for either the reporting date of December 31,
2000 or March 31, 2001. 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 a $3.4 million note payable to Trinity arising from our purchase of
Beaird in 1998. This note was payable in equal quarterly installments over two
years beginning January 31, 2001. In January 2001, this note was amended and
extended. Under the terms of the amended agreement, interest accrues at prime
until May 31, 2001, at which time the accrued interest is due and payable.
Beginning August 2001, the note is payable in seven quarterly installments of
principal plus accrued interest through February 2003.

     In August 2000, we issued two convertible subordinated notes ("Acquisition
Note A" and "Acquisition Note B") to St. James in connection with our
acquisition of the general partnership interest and the 51% of limited
partnership interests of Orbitform that we did not already own. Acquisition Note
A is an 11% promissory note in the original principal amount of $3.45 million,
convertible at any time, together with accrued interest, into shares of our
common stock at a price of $1.15 per share. Acquisition Note B is an 11%
promissory note in the original principal amount of $3.45 million, convertible,
together with accrued interest, beginning one year after issuance into shares of
our common stock at a price of $2.00 per share.

     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 March 31, 2001 as compared to prior periods. A
significant portion of our debt is currently due or in default. Our most
important task in 2001 is to reduce our debt service burden. We plan to use the
proceeds from the sale of EPG and Beaird to pay down our debt and provide
working capital. In May, 2001, we executed a definitive merger agreement to
re-capitalize IHI through a merger with T-3 and an equity infusion by a private
equity fund managed by First Reserve. In connection with the merger, an
affiliate of First Reserve will contribute up to $9.6 million of equity to the
business and will assist us in refinancing the combined company's debt into a
long-term credit facility. The transaction is contingent upon obtaining the
approval of IHI and T-3 shareholders, and customary regulatory approvals. The
transaction, if approved, is expected to close in the third quarter of this
year.

     In connection with signing the definitive merger agreement, and to improve
our liquidity during the approval period, T-3 purchased our subsidiary, A&B
Bolt, for a cash purchase price of $15 million. Approximately $8.8 million of
the proceeds were used to repay secured bank indebtedness with the remaining
proceeds used by us for working capital purposes.

     We have reduced debt through the sale of A&B Bolt. We believe that the
dispositions of EPG and Beaird will further reduce our indebtedness.
Additionally, we believe that the merger transaction with T-3 and First Reserve
will allow us to refinance our remaining debt facilities. However, no assurances
can be given that we will be able to refinance our debt or that we will be able
to obtain the approval of our shareholders regarding the merger agreement with
T-3 and First Reserve.

     The Energy Group is closely tied to the price of oil and gas. Sales and
operating income within the Energy Group have improved in 2000 and the first
quarter of 2001. These improvements have been primarily attributable to
increases in the worldwide rig count, optimism regarding the long-term
hydrocarbon price environment, increasing worldwide demand for oil and gas
coupled with declining production in many areas all resulting in increased oil
and gas prices, increased exploration and production spending in 2000 and thus
far in 2001 and an improved demand for oilfield services. Within the Energy
Group, 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 for the rest of 2001 and an improved demand for oilfield
services.

     The Stud Bolt Group serves both the oil and gas exploration and production
industry and the hydrocarbon processing industry. The Stud Bolt Group has
experienced results similar to the Energy Group operations. Our expectation is
that with higher oil and gas prices, sales and profitability within these
operations will be sustained.


                                       16
<PAGE>   19
We have experienced such a trend for the first quarter of 2001.

     The Heavy Fabrication Group's sales and profitability have improved in the
first quarter of 2001 compared to the first quarter of 2000 as a result of a new
market focus, namely the alternative energy market. The composition of our
backlog both at the end of 2000 and at the end of the first quarter of 2001
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 Operating Activities. For the quarter ended March 31,
2001, net cash provided by operating activities was $3.2 million compared to the
quarter ended March 31, 2000, which provided cash of $4.9 million.

     Net Cash Used in Investing Activities. Principal uses of cash are for
capital expenditures. For the quarter ended March 31, 2001 and 2000, the Company
made capital expenditures of approximately $1.2 million and $1.1 million,
respectively. Additionally, the Company made investments in unconsolidated
affiliates of $1.4 million for the quarter ended March 31, 2000.

     Net Cash Used In Financing Activities. Sources of cash from financing
activities include proceeds from issuance of long-term obligations. Financing
activities used net cash of $1.5 million in the quarter ended March 31, 2001
compared with the quarter ended March 31, 2000 which used net cash of $3.4
million. During the quarter ended March 31, 2000, we had net repayments of $3.0
million under our credit facilities. During the quarter ended March 31, 2000, we
had proceeds from issuance of long-term obligations of $1.9 million. During the
quarter ended March 31, 2001, we made principal payments on long-term
obligations of $1.6 million compared to $2.3 million the quarter ended March 31,
2000.

     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," "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 us and about the
industries in which we operate 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 HELLER TERM LOANS AND HELLER HAS THE RIGHT TO
DECLARE ALL OUTSTANDING AMOUNTS IMMEDIATELY DUE AND PAYABLE.

     We have a $6.4 million term note with Heller that contains 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, all of which are
calculated on a trailing twelve month basis. We were not in compliance with
certain financial covenants at each of the required quarterly reporting dates
during 1999 and 2000. In October 2000, we requested and received waivers from
Heller through the September 30, 2000 reporting period; however, we did not seek
waivers for the either the reporting date of December 31, 2000 or March 31,
2001. 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.

EVEN IF WE SUCCESSFULLY REFINANCE 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


                                       17
<PAGE>   20
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 LENDER DOES NOT DECLARE AMOUNTS UNDER OUR 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 REFINANCE 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 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 repay in full that indebtedness or any other indebtedness.

EVEN IF WE ARE SUCCESSFUL IN ATTRACTING BUYERS FOR EPG AND BEAIRD, WE MAY
RECEIVE LESS SALES PROCEEDS FOR EITHER OR BOTH OF THEM THAN WE HAVE ANTICIPATED.

     Part of our strategic plan is the divestiture of EPG and Beaird, and the
use of the cash proceeds to pay down debt. The cash proceeds received for EPG
and Beaird may be less than we anticipate.

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

     For the 2000 fiscal year, we incurred a net after-tax loss of $39.5
million, as more fully discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations" in our
2000 Form 10-K. 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 and
2001 sales, most of which are attributable to our Energy Group and Stud Bolt
Group, are derived from the domestic oil and gas industry. Additionally, a
significant percentage of sales from our discontinued operations, EPG, are to
the automotive industry.


                                       18
<PAGE>   21
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 we have completed the
sale of EPG and Beaird, refinanced our debt 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 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 Energy Group, we believe that we are subject to
competition from less than ten similarly-sized remanufacturing businesses. Our
competitors within our Heavy Fabrication Group 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. 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.


                                       19
<PAGE>   22
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 divested refinery demolition business involved 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 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, 2001,
the revolving line of credit had a principal balance of $49.3 million and an
interest rate that floats with prime. We also have $6.4 million of long-term
debt bearing interest at Libor plus 2.5% and long-term debt of $12.1 million and
an interest rate that floats with prime. A 1.0% increase in interest rates could
result in a $0.7 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.

                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings.

     In November 2000, we filed suit in the 270th Judicial District Court in
Harris County, Texas for fraud and breach of contract against a number of the
former Blastco Services Company ("Blastco") shareholders in a suit styled
Industrial Holdings, Inc. and OF Acquisition, L.P. vs. Gary H. Martin and
William R. Massey for collection of amounts owed to us from the sale of Blastco.
We have received an interlocutory Summary Judgment against Messrs. Martin and
Massey in the amount of $500,000, and have been ordered to mediate the remaining
issues under dispute, which exceed $1,500,000. The Defendants have filed a
Motion to Reconsider, which has not been decided, alleging that they are
entitled to a credit of $50,000 against the judgment for amounts previously
paid.

     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.


                                       20
<PAGE>   23
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.

Item 5.  Other Information

     (a) Acquisition and Disposition of Assets

     On May 7, 2001, the Company sold to T-3 Energy Services, Inc. ("T-3") all
of the outstanding shares of the common stock of A&B Bolt & Supply, Inc., a
Louisiana corporation ("A&B Bolt") and a wholly-owned subsidiary of the
Company, pursuant to the terms of the Stock Purchase Agreement dated May 7,
2001 by and between the Company and T-3 (the "Stock Purchase Agreement").
Pursuant to the Stock Purchase Agreement, the Company transferred 100 shares of
common stock, no par value, of A&B Bolt (the "Shares") to T-3 in exchange for
$15,000,000 cash consideration plus or less, as the case may be, any Adjustment
Amount (as defined in Section 2.3 of the Stock Purchase Agreement). The amount
of consideration paid by T-3 to the Company for the acquisition of the Shares
was determined as a result of arms-length negotiations and agreement between
unrelated parties. The Stock Purchase Agreement is filed as Exhibit 2.1 to this
Quarterly Report on Form 10-Q and incorporated herein by reference. Pro Forma
financial information required by Item 7(b) of Form 8-K can be derived from the
information in Note 7 to the Consolidated Financial Statements (unaudited) in
this Quarterly Report on Form 10-Q, and such pro forma financial information is
incorporated into this Item 5 by reference.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

     The Stock Purchase Agreement by and between Industrial Holdings, Inc., the
shareholder of A&B Bolt & Supply, Inc., and T-3 Energy Services, Inc. dated May
7, 2001 is filed as an exhibit to this Quarterly Report on Form 10-Q as
Exhibit 2.1. Schedules to the Stock Purchase Agreement have not been filed in
accordance with Item 601 of Regulation S-K. The Stock Purchase Agreement
contains a list identifying the omitted schedules, and the Company agrees to
furnish supplementally a copy of any omitted schedule to the Commission upon
request.

     (b)  Reports on Form 8-K

     On April 12, 2001, the Company filed a current report on Form 8-K
disclosing in Item 5 the execution of a non-binding Letter of Intent with T-3
which proposed the following transactions: (i) Sale of the Company's subsidiary
A&B Bolt & Supply, Inc. to T-3 for $15 million; (ii) Merger of the Company with
T-3 in a tax-free stock-for-stock transaction resulting in T-3 shareholders
receiving at least 60% of the fully-diluted equity of the resulting entity; and
(iii) Granting to First Reserve Fund VIII, L.P. the right to invest up to $9.6
million in the equity of the combined entity at a price of $1.75 per share. The
Company filed the press release dated April 3, 2001 and the Letter of Intent
dated April 2, 2001 as exhibits to this current report on Form 8-K.

     On April 30, 2001, the Company filed a current report on Form 8-K
disclosing in Item 5 that the Company's Board of Directors reached the decision,
on April 26, 2001, to market the Company's subsidiary, Beaird Industries, Inc.
("Beaird") for sale. Beaird manufactures and distributes medium and thick-walled
pressure vessels, wind towers, gas turbine casings, heat exchangers, heat panels
and other large machined weldments.

     On May 9, 2001, the Company filed a current report on Form 8-K disclosing
in Item 1(b) the execution on May 7, 2001 of an Agreement and Plan of Merger
(the "Merger Agreement") among the Company, T-3 Energy Services, Inc. ("T-3"),
and First Reserve Fund VIII, L.P. ("First Reserve") that, if consummated, will
result in a change of control of the Company. The Merger Agreement, subject to
certain conditions, including approval by the shareholders of the Company,
provides for a business combination to be effected by a merger of T-3 into the
Company as a result of which the Company shall be the surviving corporation (the
"Merger"). Upon completion of the Merger, the current stockholders of T-3 will
own a majority of the outstanding stock of IHI. The Company filed the Merger
Agreement dated May 7, 2001 as an exhibit to this current report on Form 8-K.



                                       21
<PAGE>   24
                                    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: May 15, 2001                  By:  /s/Christine A. Smith
                                       -----------------------------------------
                                        Christine A. Smith,
                                        Chief Accounting Officer and Executive
                                        Vice President


                                       22
<PAGE>   25

                               INDEX TO EXHIBITS


Exhibit No.                       Description
----------                        -----------
   2.1         Stock Purchase Agreement by and between the Company and
               T-3 Energy Services, Inc.