-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ld0ZpI/Va4L9KIFayAdw53ZM32KICpmT65tmp66l6AHTL/0YXrHE/0mZV8S4uTxa qNgyU7CETK0DKMZ7zGd7eQ== 0000890566-98-001476.txt : 19980818 0000890566-98-001476.hdr.sgml : 19980818 ACCESSION NUMBER: 0000890566-98-001476 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDUSTRIAL DATA SYSTEMS CORP CENTRAL INDEX KEY: 0000933738 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 760157248 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-14217 FILM NUMBER: 98691785 BUSINESS ADDRESS: STREET 1: 600 CENTURY PLZ STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6016 BUSINESS PHONE: 2818213200 MAIL ADDRESS: STREET 1: 600 CENTURY PLAZA DR STREET 2: BLDG 140 CITY: HOUSTON STATE: TX ZIP: 77073-6016 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 TRANSITION REPORT --- PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ___________ COMMISSION FILE NUMBER: 000-22061 INDUSTRIAL DATA SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) NEVADA 88-0322261 --------------------- ----------------------- (State or, other (I.R.S.Employer Jurisdiction of Identification Number) corporation or organization) 600 CENTURY PLAZA DRIVE, BUILDING 140, HOUSTON, TEXAS 77073-6013 ------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-3200 Check whether the issuer (1) has filed all reports required to be filed by Section 1.3 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 (2) has been subject to such filing requirements for the past 90 days. YES X NO __ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, $.001 Par Value 13,023,718 -------------------------- (Shares outstanding as of June 30, 1998) QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED JUNE 30, 1998 TABLE OF CONTENTS PAGE NUMBER ------ PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets at June 30, 1998 and December 31, 1997...............................................3 Condensed Consolidated Statements of Operations for the Three Months ended June 30, 1998 and June 30, 1997 ................4 Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 1998 and June 30, 1997 ................5 Notes to Condensed Consolidated Financial Statements...............6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................7 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES.............................................11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................13 Signature ........................................................14 2 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS FOR YEAR ENDED DECEMBER 31, 1997 AND FOR SIX MONTHS ENDED JUNE 30, 1998
June 30, 1998 December 31, 1997 ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents ...................... $ 578,964 $ 77,684 Mutual funds ................................... 184,432 380,017 ----------- ----------- 763,396 457,701 Marketable securities: Trading ........................................ 590,087 375,045 Accounts receivable - trade, less allowance for doubtful accounts of Approximately $11,000 and $16,000 in 1997 and 1998, respectively ..... 2,066,328 2,268,864 Inventory .......................................... 1,310,274 884,342 Note receivable from stockholder ................... 200,000 200,000 Advances to affiliate .............................. 0 5,546 Prepaid assets and deferred costs .................. 493,689 66,152 ----------- ----------- ----------- ----------- Total current assets ...................... $ 5,423,773 $ 4,257,650 ----------- ----------- Property and Equipment, net ........................ 1,049,997 1,044,381 Other Assets ....................................... 8,349 6,228 Goodwill ........................................... 59,841 59,841 ----------- ----------- =========== =========== Total assets .............................. $ 6,541,960 $ 5,368,100 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank ............................... $ 475,000 $ 425,000 Current portion - Note payable to bank, term ....... 17,121 34,242 Accounts payable ................................... 444,012 697,255 Income taxes payable ............................... 266,667 79,698 Accrued expenses and other current liabilities ..... 259,135 230,896 ----------- ----------- ----------- ----------- Total current liabilities ................. $ 1,461,935 $ 1,467,091 ----------- ----------- Note payable to bank, term ......................... 420,671 420,671 DEFERRED INCOME TAX ................................ 34,010 41,334 STOCKHOLDERS' EQUITY: Common stock, $.001 par value; 75,000,000 shares authorized; 13,023,718 shares issued in 1998, .. 13,024 12,724 12,723,718 shares issued in 1997 Additional paid-in capital ......................... 2,879,682 2,216,713 Retained earnings .................................. 1,747,961 1,224,890 ----------- ----------- 4,640,667 3,454,327 Treasury stock ..................................... (15,323) (15,323) ----------- ----------- Total stockholders' equity ................ $ 4,625,344 $ 3,439,004 ----------- ----------- Total liabilities and stockholders' equity $ 6,541,960 $ 5,368,100 =========== ===========
3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1998 (UNAUDITED)
Six Months ended Six Months ended June 30, 1998 June 30, 1997 (unaudited) (unaudited) ------------ ------------ OPERATING REVENUES: Product sales ................................. $ 959,704 $ 310,249 Consulting sales .............................. 2,060,900 909,407 Thermal sales ................................. 2,055,438 242,785 Constant Power sales .......................... 764,108 0 ------------ ------------ $ 5,840,150 $ 1,462,441 COST OF REVENUES: Product ....................................... 745,445 233,856 Consulting .................................... 1,470,609 631,178 Thermal ....................................... 1,487,387 162,690 Constant Power ................................ 508,002 0 ------------ ------------ $ 4,211,443 $ 1,027,724 ------------ ------------ GROSS PROFIT .................................. 1,628,707 434,717 Selling, general and administrative ............... 915,100 305,900 Depreciation ...................................... 54,881 22,794 OTHER INCOME (EXPENSE) Realized gains on marketable securities ....... 43,151 55,497 Other income .................................. 37 15,460 Unrealized gain (loss) on marketable securities (21,741) (51,377) Interest income, net .......................... (37,615) (20,152) Thermal expense ............................... 0 (22,723) ------------ ------------ INCOME BEFORE TAXES ............................... $ 642,558 $ 82,728 TAX PROVISION ..................................... 237,985 28,335 ------------ ------------ NET INCOME ........................................ $ 404,573 $ 54,393 ============ ============ BASIC EARNINGS PER COMMON SHARE ................... $ 0.031 $ 0.004 ============ ============ DILUTED EARNINGS PER COMMON SHARE ................. $ 0.031 $ 0.004 ============ ============ BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .. 13,023,718 12,926,858 ============ ============ DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,023,718 12,926,858 ============ ============
4 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, -------------------------- (unaudited) 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................. $ 404,573 $ 241,559 Changes in working capital, net of Thermal and Constant Power Manufacturing acquisitions ............................... 144,058 (796,462) ----------- ----------- Net cash provided (used) by operating activities: ........... $ 548,631 $ (554,903) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Thermal ......................................... 0 (212,000) Advances on note receivable from stockholder ................ 0 (50,000) Property and equipment acquired ............................. (60,773) (547,181) Purchase of investments ..................................... (215,042) (500,000) Other assets acquired ....................................... 0 (12,040) ----------- ----------- Net cash used by investing activities ....................... $ (275,815) $(1,321,221) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Long term mortgage on land and buildings .................... (17,121) 429,661 Repayment on notes payable, net ............................. 0 (300,000) Proceeds from issuance of common stock, net ................. 0 799,999 Sale of Treasury Stock ...................................... 0 29,000 Borrowings from bank ........................................ 50,000 450,000 ----------- ----------- Net cash provided by financing activities ................... $ 32,879 $ 1,408,660 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... $ 305,695 $ (467,464) CASH AND CASH EQUIVALENTS, at beginning of period ........... $ 457,701 $ 975,100 ----------- ----------- CASH AND CASH EQUIVALENTS, at end of period ................. $ 763,396 $ 507,636 =========== =========== * Non-cash Transactions: Issuance of common stock for acquisitions .............. $ 663,269 $ 387,000
5 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements of Industrial Data Systems Corporation (the "Company"), included herein, are unaudited for all periods ended June 30, 1998 and 1997. They reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to fairly depict the results for the periods presented. Certain information and note disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles', have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. It is suggested these condensed financial statements be read in conjunction with the Company's audited financial statements for the years ended December 31, 1997 and 1996, which are included in the Company's annual report on Form 10-KSB/A. The Company believes that the disclosures made herein are adequate to make the information presented not misleading. 2. NOTE RECEIVABLE FROM STOCKHOLDER: At June 30, 1998, The Company had notes receivable due from a stockholder in the amount of $200,000. The notes are unsecured, due on demand and bear interest at a rate of 9% per annum. Interest on the note is due annually. 3. STOCKHOLDERS' EQUITY: There was no issuance or retirement of the Company's Common stock during the quarter ended June 30, 1998. 4. ACQUISITION: In March 1998, the Company acquired Constant Power Manufacturing Incorporated, (CPM) in a stock purchase. The Company issued 300,000 shares of the Company's common stock, which may be put back to the Company for $1 per share at the option of the holder. The following is the computation recorded in connection with the acquisition of CPM: Purchase price $ 663,269 Fair value of net assets of CPM acquired (663,269) --------- $ - The accounts of CPM are reflected in the condensed consolidated balance sheets as of June 30, 1998. The shares of common stock issued by the Company have been reflected as issued and outstanding. 6 The following table reflects pro forma information as if this transaction had occurred at the beginning of each of the periods presented, (in 000's except per share data): FOR THE SIX MONTHS FOR THE SIX MONTHS ------------------ ------------------ ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 1998 1997 ---- ---- Total Revenue .................... $6,758 $6,699 Net Income ....................... 523 635 Income per Share ................. .04 .05 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's Consolidated Financial Statements including the notes thereto, included elsewhere in the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1997. OVERVIEW The Company has been in business since 1985 engaging in providing engineering consulting services to the pipeline divisions of major integrated oil and gas companies. For the period 1985 through 1989, most of its revenues were derived from this segment. In October 1997, the engineering consulting segment, which had previously operated as Industrial Data Systems, Inc. dba IDS Engineering, was incorporated as a Texas corporation under the name of IDS Engineering, Inc. (IED). The Company introduced its computer product segment in 1989 to provide industrial grade portable and rack mounted computers for commercial use. This segment operated as a Texas corporation under the name of Industrial Data Systems, Inc. (IPD). The IPD segment has generated sales as a percent of total revenue of 14.2% and 19.2%, for the six months ended June 30, 1998 and 1997, respectively, while the IED segment has generated sales as a percent of total revenue of 30.5% and 46.7% for the same periods. In 1997, the Company acquired the Thermal segment, which fabricates air handling equipment for commercial heating ventilation and cooling systems. The Thermal segment has generated sales as a percent of total revenue of 30.4% and 34.1% for the six months ended June 30, 1998 and 1997, respectively. In March 1998, the Company acquired the Constant Power Manufacturing, Inc. (CPM) segment, which manufactures industrial grade battery backup systems and battery chargers. The CPM segment has generated sales as a percent of total revenue of 24.9% for the three months ended June 30, 1998. The gross margin varies between each of its operating segments. Computer product sales have produced a gross margin ranging from 22.3% and 24.4% for the six months ended June 30, 1998 and 1997, respectively. This decrease is attributable to the overall decline in IPD sales coupled with a relative fixed production overhead. The gross margin for pipeline engineering services, which reflects direct labor costs, has decreased slightly to 28.6% in 1998 from 29.0% for the same period in 1997. Thermal's gross margin was 27.6% and 25.5% for the six months ended June 30, 1998 and 1997, respectively. This increase was attributable to the overall increase in sales volume from 1997 to 1998. Constant Power generated a gross margin of 33.5% for the three months ended June 30, 1998. The overall gross margin for Industrial Data Systems Corporation, which includes product sales, pipeline consulting services and Thermal for the six months ended June 30, 1998 and for Constant Power for three months ended June 30, 1998 was 27.9%. The overall gross margin for the Company for the same period in 1997 was 26.9%. Gross margin for 1997 does not include any contribution from Constant Power. 7 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data derived from the Company's consolidated statements of operations and indicates percentage of total revenue for each item.
Quarter Ended June 30 Six Months Ended June 30 1998 1997 1998 1997 Amount % Amount % Amount % Amount % ---------------------- --------------------- ---------------------- --------------------- REVENUE: Computer Products ............ $ 309,023 $ 9.63 515,095 18.10 $ 959,704 16.43 $ 825,344 19.16 Consulting Services .......... 1,012,285 31.55 1,103,671 38.79 2,060,900 35.29 2,013,078 46.73 Thermal ...................... 1,123,146 35.00 1,226,659 43.11 2,055,438 35.19 1,469,444 34.11 Constant Power ............... 764,108 23.81 0 0.00 764,108 13.08 0 0.00 Total Revenue ...... $ 3,208,562 100.00 $ 2,845,425 100.00 $ 5,840,150 100.00 $ 4,307,866 100.00 Gross Profit: Computer Porducts ............ $ 24,939 0.78 $ 125,345 4.41 $ 214,259 3.67 $ 201,738 4.68 Consulting Services .......... 344,006 10.72 305,750 10.75 590,291 10.11 583,979 13.56 Thermal ...................... 375,308 11.70 294,024 10.33 568,051 9.73 374,119 8.68 Constant Power ............... 256,106 7.98 0 0.00 256,106 4.39 0 0.00 Total Gross Profit ... $ 1,000,360 31.18 $ 725,119 25.48 $ 1,628,707 27.89 $ 1,159,836 26.92 Selling, General and Administrative Expense ............. 487,982 15.21 413,685 14.54 915,100 15.67 719,585 16.70 Depreciation ....................... 25,029 0.78 33,425 1.17 54,881 0.94 56,219 1.31 Operating Income ................... $ 487,348 15.19 $ 278,009 9.77 $ 658,726 11.28 $ 384,032 8.91 Other Income (Expense) ............. (16,336) -0.51 12,856 0.45 (16,168) -0.28 (10,439) -0.24 Income Before Provision for Income Taxes ................... $ 471,012 14.68 $ 290,865 10.22 $ 642,558 11.00 $ 373,593 8.67 Provision for Income Taxes ......... 255,973 7.98 103,699 3.64 237,985 4.07 132,034 3.06 Net Income After Income Taxes .............................. $ 215,039 6.70 $ 187,166 6.58 $ 404,573 6.93 $ 241,559 5.61
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 TOTAL REVENUE. Total revenue increased by $363,137 or 12.8% from $2,845,425 for the three months ended June 30, 1997, compared to $3,208,562 in 1998. Revenue from the IPD, which comprised 9.6% of total revenue for the three months ended June 30, 1998, decreased by $206,072 or 40.0%. The decrease in IPD revenue was attributable to a reduction in sales due to the timing of orders between the periods. Revenue from the IED, which comprised 31.6% of total revenue for the three months ended June 30, 1998, decreased by $91,387 or 8.3%. Revenue from Thermal, which comprised 35.0% of total revenue for the three months ended June 30, 1998, decreased by $103,513 or 8.4%. Revenue from CPM which accounted for 23.8% of total revenue for the three months ended June 30, 1998, was $764,108. 8 GROSS PROFIT. Gross profit increased by $275,241 or 38.0% from $725,119 for the three months ended June 30, 1997 to $1,000,360 for the same period in 1998. The gross margin as a percentage of total revenues increased from 25.5% for the period ended June 30, 1997 to 31.2% for the same period in 1998. The increase was attributable to an increase in gross margin for the IED and Thermal segments and the addition of CPM during the three months ended June 30, 1998. The gross margin for the IPD decreased from 24.3% for the period ended June 30, 1997 to 8.1% for the same period in 1998. This decrease was attributable to a reduction in sales revenue coupled with relative fixed production costs. The gross margin for the IED increased from 27.7% for the period ended June 30, 1997 to 34.0% for the same period in 1998. This increase was due to securing jobs that generate higher billing rates. The gross margin for Thermal increased from 24.0% for the period ended June 30, 1997 to 33.4% for the same period in 1998. This increase was attributable to cost reduction measures implemented during the 1998 period. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $74,297 or 18.0% from $413,685 for the three months ended June 30, 1997 compared to $487,982 for the same period in 1998. As a percentage of total revenue, selling, general and administrative expenses increased from 14.5% for the three months ended June 30, 1997 to 15.2% for the same period in 1998. The increase was primarily attributable to the acquisition of Constant Power and the consolidation of its personnel and operations into existing office and production facilities. OPERATING INCOME. Operating income increased by $209,339 or 75.3% from $278,009 for the three months ended June 30, 1997, compared to $487,348 for the same period in 1998. Operating income increased as a percentage of total revenue from 9.8% for the three months ended June 30, 1997 to 15.2% for the same period in 1998. The increase in operating income was a result of an increase in overall gross margin. OTHER INCOME (EXPENSE). Other expense increased by $29,192 or 227.1% from $12,856 for the three months ended June 30, 1997 to ($16,336) for the same period in 1998. This increase was due to a reduction in gains from marketable securities and an increase in interest expense generated from utilization of line of credit funds. NET INCOME. Net income after taxes increased by $27,873 or 14.9% from $187,166 for the three months ended June 30, 1997 to $215,039 for the same period in 1998. Net income after taxes increased as a percentage of total revenue from 6.6% for the three months ended June 30, 1997 to 6.7% for the same period in 1998. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 FINANCIAL DATA REFLECTED FOR THE SIX MONTHS ENDED JUNE 30, 1997 INCLUDES ONLY THE FOUR MONTHS (MARCH - JUNE) FOR THERMAL'S OPERATIONS SINCE THE ACQUISITION IN LATE FEBRUARY, 1997 AND DOES NOT REFLECT ANY CONTRIBUTION FROM CONSTANT POWER FOR THE SAME PERIOD. FINANCIAL DATA REFLECTED FOR THE SIX MONTHS ENDED JUNE 30, 1998 INCLUDES ONLY THREE MONTHS (APRIL - JUNE) FOR CONSTANT POWER'S OPERATIONS. TOTAL REVENUE. Total revenue increased by $1,532,284 or 35.6% from $4,307,866 for the six months ended June 30, 1997, compared to $5,840,150 in 1998. Revenue from the IPD, which comprised 19.2% of total revenue for the six months ended June 30, 1997, increased by $134,360 or 16.3%. The increase in IPD revenue was generated because the revenue generated in the 1997 period was abnormally low. 9 Revenue from the IED which comprised 46.7% of total revenue for the six months ended June 30, 1997 increased by $47,822 or 2.4% from $2,013,078 in 1997 to $2,060,900 for the same period in 1998. The slight increase in IED revenue was due to an expansion in the scope of work performed for established clients. Revenue from Thermal was $1,469,444 or 34.1 % of total revenue for the four months (March - June), following the recent acquisition. Revenue from Thermal was $2,055,438 or 35.2% of total revenue for the six months ended June 30, 1998. This increase is primarily attributable to the 1998 numbers including a full six months. GROSS PROFIT. Gross profit increased by $468,871 or 40.4% from $1,159,837 for the six months ended June 30, 1997 to $1,628,708 for the same period in 1998. The gross margin for the IPD decreased from 24.4 % in the six months ended June 30, 1997 to 22.3% for the same period in 1998. This decrease in IPD gross margins was primarily due to an increase in production costs coupled with relatively stable sales prices. The gross margin for the IED decreased from 29.0% for the period ended June 30, 1997 to 28.6% for the same period in 1998. Thermal's gross margin increased from 25.5% for the four month period (March - -June) 1997 to 27.6% for the six months ended June 30, 1998. This is attributable to the difference in the length of the period. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $195,515 or 27.2% from $719,585 for the six months ended June 30, 1997 compared to $915,100 for the same period in 1998. As a percentage of total revenue, selling, general and administrative expenses decreased from 16.7% for the six months ended June 30, 1997 to 15.7% for the same period in 1998. This percentage decrease was primarily attributable to overall increases in selling, general and administrative expenses which were offset by greater increases in revenue. OPERATING INCOME. Operating income increased by $274,694 or 71.5% from $384,032 for the six months ended June 30, 1997, compared to $658,727 for the same period in 1998. Operating income increased as a percentage of total revenue from 8.9% for the six months ended June 30, 1997 to 11.3% for the same period in 1998. The increase in operating income was a result of increased revenues, improved gross profit and reduced selling, general and administrative expenses as a percent of total revenue. OTHER INCOME (EXPENSE). Other expense increased by $5,729 or 54.9% from $10,439 for the six months ended June 30, 1997 to $16,168 for the same period in 1998. This increase was due to additional interest expense due to higher utilization of the Company's line of credit and expenses associated with the acquisition of Thermal and Constant Power. This increase was also due in part to the Company having less realized gains on its marketable securities in the 1998 period as compared to the 1997 period to offset other expense. NET INCOME. Net income before taxes increased by $268,965 or 72.0% from $373,594 for the six months ended June 30, 1997 to $642,559 for the same period in 1998. Net income after taxes increased by $163,014 or 67.5% from $241,560 for the six months ended June 30, 1997 to $404,573 for the same period in 1998. Net income after taxes increased as a percentage of total revenue from 5.6% for the six months ended June 30, 1997 to 6.9% for the same period in 1998 due to higher margins and reduced selling, general and administrative expenses as a percent of total revenue. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has satisfied its cash requirements principally through borrowings under its line of credit and through operations. As of June 30, 1998, the Company's cash position, including marketable securities, was sufficient to meet its working capital requirements. The 10 Company had, as of June 30, 1998, $675,000 in additional advances available under its line of credit with a bank. The Company's line of credit which provides for maximum borrowings of $1,150,000, which bears interest at prime plus 1%, is for a term of one year and matures on June 30, 1999. The line of credit is secured by accounts receivable, inventory and the personal guarantees of certain stockholders and officers of the Company. The Company has consolidated its line of credit into one line for all subsidiaries. This consolidation and renewal of its line of credit was effective June 30, 1998. The Company's working capital was $1,994,467 and $3,487,506 at December 31, 1997 and June 30, 1998, respectively. CASH FLOW Operating activities used net cash totaling $554,903 for the six months ended June 30, 1997 and generated $531,510 for the six months ended June 30, 1998. The Company did not generate significant cash flow from operating activities for the six months ended June 30, 1997, due to the working capital requirements resulting from the rapid growth of the Company. Trade accounts receivable decreased $202,536 since December 31, 1997. Inventory increased by $425,932 for the same period. Investing activities used cash totaling, $1,321,221 for the three months ended June 30, 1997 and used cash totaling $275,815 for the same period in 1998. The Company's investing activities that used cash during the period ended June 30, 1997 was primarily related to the purchase of Thermal and its facilities. As of June 30, 1998, the Company had a portfolio of marketable securities which had a fair market value of $590,087 and consisted of common stocks, bonds and mutual funds. The common stocks, and bonds that the Company holds consists of securities which are traded on three national exchanges - the New York Stock Exchange, the American Stock Exchange and the NASDAQ National Market System. These securities are frequently traded by the Company. The mutual funds that the Company has available for sale are open-end stock funds which are managed by Smith Barney & Co. These mutual fund investments are generally held for longer than a one-year period. These securities are traded by the Company as part of its plan to provide additional cash for working capital requirements. The marketable securities to be held to maturity are stated at amortized cost. Marketable securities classified as available-for-sale are stated at market value, with unrealized gains and losses reported as a separate component of stockholder's equity, net of deferred income taxes. If a decline in market value is determined to be other than temporary, any such loss is charged to earnings. Marketable securities accounted for as trading securities are stated at market value, with unrealized gains and losses charged to income. William A. Coskey, the Company's President and Chief Executive Officer, is responsible for managing the Company's portfolio of marketable securities. The funds used in this portfolio were from generally available from cash reserves. The Company has implemented a policy that restricts it from purchasing any securities on margin, and also limits the investment of any one security or mutual fund to represent no more than 10% of the Company's investment portfolio. The Company believes that the risks associated with its investment portfolio are slightly higher than the risk of loss in a Standard & Poor's 500 Index Fund. This higher risk is due to the less diverse distribution of the Company's portfolio as compared to the broadly based Standard & Poor's 500 Stock Index. 11 Financing activities provided cash totaling $32,879 for the six months ended June 30, 1998, which was utilization of line of credit and repayment on the term note for Thermal's facilities. The Company has additional financing amounts of $675,000 available on its line of credit at June 30, 1998. The line of credit has been used principally to finance accounts receivable and inventory purchases. ASSET MANAGEMENT The Company's cash flow from operations has been affected primarily by the timing of its collection of trade accounts receivable. The Company typically sells its products and services on short-term credit terms and seeks to minimize its credit risk by performing credit checks and conducting its own collection efforts. The Company had net trade accounts receivable of $1,717,951and $2,066,328 at June 30, 1997 and 1998, respectively. The number of days' sales outstanding in trade accounts receivable was 85 days and 64 days, respectively. Bad debt expenses have been insignificant for each of these periods. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of the Shareholders of the Company was held on June 8, 1998 at 2:00 p.m. at the corporate offices of the Company in Houston, Texas. A total of 12,302,357 shares of common stock, which is 94.5% of the shares outstanding on April 20, 1998 were represented at the meeting, either in person or by proxy. Three proposals were approved by the shareholders with the vote tabulations noted as follows: 1. The following directors were elected to serve until the next Annual Meeting of Shareholders and until their successors have been elected and qualified. DIRECTORS: FOR AGAINST ABSTAIN --- ------- ------- William A. Coskey, 12,301,857 0 500 P.E. Hulda L. Coskey 12,301,857 0 500 David W. Gent, P.E. 12,297,857 0 4,500 Rex S. Zerger 12,297,857 0 4,500 Gordon R. Wingate 12,297,857 0 4,500 12 2. Ratification of the appointment of Hein + Associates, LLP as the Company's independent auditors. FOR AGAINST ABSTAIN --- ------- ------- 12,297,847 1,000 3,510 3. The Industrial Data Systems Corporation 1998 Incentive Plan, adopted by the Board of Directors on April 30, 1998 was approved. FOR AGAINST ABSTAIN --- ------- ------- 10,267,577 6,600 510 These were all the matters submitted to the Shareholders at the Annual Meeting of the Shareholders. ITEM 5. OTHER INFORMATION On May 7, 1998, the Company filed an application for the listing of its securities with the American Stock Exchange. The application was approved by the American Stock Exchange on June 8, 1998. Trading of the Company's stock on the American Stock Exchange commenced on June 16, 1998 under the symbol IDS. Prior to this time, the Company's stock had been traded under the ticker symbol IDDS on the OTC Electronic Bulletin Board. In conjunction with this transaction, a Form 8-A for registration of certain classes of securities pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 was filed with the SEC on June 11, 1998. In compliance with Rule 891 Qualified Transfer Agents of the American Stock Exchange requirements, the Company terminated its Transfer Agent, Pacific Stock Transfer Company and appointed Harris Trust and Savings Bank, to serve as its Transfer Agent and Registrar effective June 1, 1998. In conjunction with this transaction, a Form 8-A for registration of certain classes of securities pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 was filed with the SEC on June 11, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit 27 Financial Data Schedule b. Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1998. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL DATA SYSTEMS CORPORATION Dated: August 14, 1998 By: /s/ HULDA L. COSKEY -------------------------- Hulda L. Coskey, Chief Financial Officer, Secretary and Treasurer 14 EX-27 2
5 The financial data schedule contains summary financial information extracted from the Company's Quarterly Report on Form 10-QSB for the six months ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1997 JUN-30-1997 763,396 590,087 2,266,328 16,000 1,310,274 5,423,773 1,270,100 (220,103) 6,541,960 1,461,935 420,671 0 0 13,024 4,627,643 4,625,344 5,840,150 5,840,150 4,211,443 969,981 21,448 0 (37,615) 642,558 237,985 404,573 0 0 0 404,573 0.031 0.031
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