-----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, PHKHvKGbrLR8JM7FNS00U+kfy57m80hsie4pgvFFfGjzEZU7xawfRxgikP5ndnjD f29qbiK/2m6C7X3aPneBzw== 0000890566-97-001268.txt : 19970523 0000890566-97-001268.hdr.sgml : 19970523 ACCESSION NUMBER: 0000890566-97-001268 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970522 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: 1934 Act SEC FILE NUMBER: 000-22061 FILM NUMBER: 97613110 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 MARCH 31, 1997 [_] 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 76-0157248 (State or, other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 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 12,723,718 ----------------------------------------- (Shares outstanding as of March 31, 1997) 1 QUARTERLY REPORT ON FORM 10-QSB FOR THEPERIOD ENDED MARCH 31, 1997 TABLE OF CONTENTS PAGE NUMBER ------ PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 ............................ 3 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 1997 and Historical Condensed Consolidated Statements of Operations for the Three Months ended March 31, 1996 ............ 4 Condensed Consolidated Statements of Changes in Stockholders' Equity for the Year ended December 31, 1996 and the Three Months ended March 31, 1997 .................. 5 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1997 and Historical Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1996 ........................... 6 Notes to Financial Statements ..................................... 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 9 PART II. OTHER INFORMATION ITEM 2. Changes in Securities ............................................. 14 ITEM 6. Exhibits and Reports on Form 8-K .................................. 15 Signature ......................................................... 15 2 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS FOR YEAR ENDED DECEMBER 31, 1996 (AUDITED) AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) MARCH 31, 1997 DECEMBER 31, 1996 (historical) (audited) --------------- --------------- ASSETS CURRENT ASSETS: Cash and cash equivalents: ............. $ 351,146 $ 637,217 Mutual funds ........................... 183,055 337,883 --------------- --------------- 534,201 975,100 Marketable securities: Trading ................................ 696,716 400,348 Available-for-sale ..................... 27,451 56,781 --------------- --------------- 724,167 457,129 Accounts receivable - trade, less allowance for doubtful accounts of approximately 11,000 in 1996 and 1997, respectively ................. 1,097,703 593,739 Note receivable from an affiliate ........ 0 84,936 Inventory ................................ 681,530 221,096 Note receivable from sale of common stock 0 799,999 Note receivable from stockholder ......... 100,000 50,000 Advances to affiliate .................... 57,910 30,000 Prepaid assets and deferred costs ........ 36,678 48,858 --------------- --------------- Total current assets ............. $ 3,232,189 $ 3,260,857 --------------- --------------- PROPERTY AND EQUIPMENT, net .............. 967,981 122,578 OTHER ASSETS ............................. 200,917 2,000 --------------- --------------- Total assets ..................... $ 4,401,087 $ 3,385,435 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank ..................... 472,688 325,000 Accounts payable ......................... 479,036 57,698 Income taxes payable ..................... 116,399 128,065 Accrued expenses and other current liabilities .................... 169,599 170,523 --------------- --------------- Total current liabilities: ....... $ 1,237,722 $ 681,286 --------------- --------------- DEFERRED INCOME TAX ...................... 34,010 34,010 STOCKHOLDERS' EQUITY: Common stock, $.001 par value; 75,000,000 shares authorized; 12,723,718 shares issued in 1997, 13,129,999 shares issued in 1996 ......................... 12,724 13,130 Additional paid in capital ....... 2,239,074 1,829,684 Retained earnings ................ 896,788 842,395 Net unrealized gain on marketable securities .......... 1,068 1,068 --------------- --------------- 3,149,654 1,269,293 Treasury stock ................... (20,299) (16,138) --------------- --------------- Total stockholders' equity ....... $ 3,129,355 $ 2,670,139 --------------- --------------- Total liabilities and stockholders' equity ... $ 4,401,087 $ 3,385,435 =============== =============== 3 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) Three Months ended Three Months ended March 31, 1997 March 31, 1996 (historical) (historical) --------------- --------------- OPERATING REVENUES:: Product sales ....................... $ 310,249 $ 259,990 Consulting fees ...................... 909,407 901,256 Thermal sales ........................ 242,785 -- --------------- --------------- $ 1,462,441 $ 1,161,246 COST OF REVENUES: Product .............................. 233,856 212,660 Consulting ............................ 631,178 652,537 Thermal .............................. 162,690 -- --------------- --------------- $ 1,027,724 $ 865,197 GROSS PROFIT ........................... 434,717 296,049 --------------- --------------- Selling, general and administrative .... 305,900 245,834 Depreciation ........................... 22,794 6,320 OTHER INCOME (EXPENSE) Realized gains on marketable securities ........................ 55,497 84,536 Other income ......................... 15,460 -- Unrealized gain (loss) on marketable securities ............. (51,377) (9,574) Interest income, net ................. (20,152) 1,846 Thermal expense ...................... (22,723) -- --------------- --------------- INCOME BEFORE TAXES .................... $ 82,728 $ 120,703 TAX PROVISION .......................... 28,335 19,890 --------------- --------------- --------------- --------------- NET INCOME ............................. $ 54,393 $ 100,813 =============== =============== =============== =============== NET INCOME PER COMMON SHARE ............ $ 004 $ .009 =============== =============== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................... 12,926,858 10,630,000 =============== =============== 4 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY STATEMENTS OF STOCKHOLDERS' EQUITY FOR YEAR ENDED DECEMBER 31, 1996 (AUDITED) AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
NET UNREALIZED COMMON STOCK GAIN (LOSS) -------------------------- ADDITIONAL RETAINED ON MARKETABLE TREASURY SHARES AMOUNT PAID-IN CAPITAL EARNINGS SECURIITES STOCK TOTAL ----------- ----------- ------------ -------- ------------ -------- ---------- BALANCES, December 31, 1996 ..... 13,129,999 $ 13,130 $ 1,829,684 $842,395 $ 1,068 $(16,138) $2,670,139 =========== =========== ============ ======== ============ ======== ========== Activity in treasury stock .. -- -- 21,547 -- -- (4,161) 17,386 Cancellation of common shares (600,000) (600) 600 -- -- -- 0 Issuance of common shares ... 193,719 194 387,243 -- -- -- 387,437 Net income .................. -- -- -- 54,393 -- -- 54,393 ----------- ----------- ------------ -------- ------------ -------- ---------- BALANCES, March 31, 1997 ........ 12,723,718 $ 12,724 $ 2,239,074 $896,788 $ 1,068 $(20,299) $3,129,355 ----------- ----------- ------------ -------- ------------ -------- ----------
5 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, ------------------------------ (unaudited) 1997 1996 ------------ ------------ CAH FLOWS FROM OPERATING ACTIVITIES: Net income ................................ $ 54,393 $ 100,813 Changes in working capital, net of Thermal acquisition ............ (183,291) (305,488) ------------ ------------ Net cash used by operating activities ............................ (128,898) (204,675) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Thermal ....................... (212,000) -- Advances on note receivable from stockholder ...................... (50,000) -- Property acquired ......................... (500,000) -- Purchase of investments ................... (500,000) Other ..................................... -- 19,868 ------------ ------------ Net cash used by investing activities ............................ (1,262,000) 19,868 ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Repayments on notes payable, net .......... (300,000) -- Proceeds from issuance of common stock, net ............................ 799,999 -- Borrowings from bank ...................... 450,000 -- ------------ ------------ Net cash provided by financing activities ............................ 949,999 -- ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ (440,899) (184,807) ------------ ------------ CASH AND CASH EQUIVALENTS, at beginning of period .................. 975,100 573,832 ------------ ------------ CASH AND CASH EQUIVALENTS, at end of period ........................ $ 534,201 $ 389,025 ============ ============ * Non-Cash Transactoins: Issuance of common stock for Thermal acquisition 387,000 -- 6 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY 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 March 31, 1997 and 1996. 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 financial statements be read in conjunction with the Company's audited financial statements for the years ended December 31, 1996 and 1995, which are included in the Company's annual report on Form 10-KSB. The Company believes that the disclosures made herein are adequate to make the information presented not misleading. 2. NOTE RECEIVABLE FROM STOCKHOLDER: At March 31, 1997, The Company had an additional note receivable due from a stockholder in the amount of $50,000. The note receivable is unsecured, due on demand and bears interest at a rate of 9% per annum. Interest on the note is due annually. 3. STOCKHOLDERS' EQUITY: The Company issued 2,499,999 shares of common stock in exchange for five non-interest bearing notes totaling $999,999. During fiscal 1996, the Company received the payment on one of the notes totaling $200,000. On January 27, 1997, the four remaining notes were paid in full and the Company received the remaining $799,999. 4. ACQUISITION: In February 1997, the Company acquired Thermaire, Inc. dba Thermal Corporation (Thermal) in a stock purchase. The Company paid $600,000, consisting of $212,563 in cash and 193,719 shares of the Company's common stock, which may be put back to the Company for $2 per share at the option of the holder. Additionally, the Company purchased the facilities that Thermal had been leasing from an affiliate for $500,000. The Company obtained bank financing totaling $450,000 related to the acquisition of these facilities. The acquisition has been accounted for on the purchase method of accounting. Goodwill arising as a result of this transaction totaled approximately $125,000. Previously, in 1995, the Company had issued 600,000 shares of its common stock to Thermal on a contingent basis. These shares were held in an escrow account pending completion of the acquisition, at which time these shares were released from escrow and cancelled. The aforementioned 193,719 shares were issued under revised terms of the purchase agreement. The following is the computation of goodwill recorded in connection with Thermal and the related land and building previously leased by Thermal: Purchase price ................................... $ 1,100,000 Fair value of net assets of Thermal acquired ............................... (354,566) Appraised value of land and building acquired .... (695,000) ----------- Goodwill ......................................... $ 50,434 =========== The financial statements do not reflect the accounts of Thermal because the acquisition did not close until February 1997. The shares of common stock issued by the Company and held in escrow have not been reflected as issued and outstanding in the accompanying financial statements. 7 The following table reflects proforma 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 Three Months For the Three Months Ended March 31, 1997 Ended March 31, 1996 -------------------- -------------------- Total Revenue ...... $ 1,822 $ 1,556 Net Income ......... 94 18 Income per Share ... .004 .000 5. SUBSEQUENT EVENT: Since the acquisition of Thermal, a bank line of credit in the amount of $400,000 has been approved to provide working capital which was previously provided by the Company through the factoring of receivables. This line of credit is at a rate of prive plus 1% and has a maturity of one year. Additionally, the Company's bank line of credit in the amount of $350,000 has been renewed for an additional one year term at prime plus 1%. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS-OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 period ended December 31, 1996. OVERVIEW The Company was formed in 1985 to engage in the business of 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 the IED segment. In 1989, the Company introduced its IPD segment and has continued to introduce new products to the marketplace. The IPD segment has generated sales as a percent of total revenue of 21% and 22%, for the three months ended March 31, 1997 and 1996, respectively, while the IED segment has generated sales as a percent of total revenue of 62% and 78% for the same period. The Company's recent acquisition, Thermal Corp., has generated sales as a percent of total revenue of 17% for the three months ended March 31, 1997. The gross margin varies between each of its operating segments. Computer product sales have produced a gross margin ranging from 5.2% and 4.1% for the three months ended March 31, 1997 and 1996, respectively, due to the intense price competition characteristic of the computer products market. The gross margin for pipeline engineering services, which reflects direct labor costs, has ranged from 19.0% in 1997 to 21.4% in 1996. Thermal's gross margin for the three months ended March 31, 1997 was 5.5%. The variation is primarily attributable to the pricing and the mix of services provided, and to the level of direct labor as a component of cost during any given period. The overall gross margin for Industrial Data Systems Corporation, which includes product sales, pipeline consulting services, and Thermal's operations for the three months ended March 31, 1997 was 29.7%. The overall gross margin for the Company for the same period in 1996 (excluding Thermal's operations) was 25.5%. 9 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. Three Months Ended March 31, ----------------------------------------- 1997 1996 ------------------- ------------------ Amount % Amount % ---------- ----- ---------- ----- Revenue: Computer Products ................ 310,249 21.2 259,990 22.4 Consulting Services .............. 909,407 62.2 901,256 77.6 Thermal .......................... 242,785 16.6 0 0.0 ---------- ----- ---------- ----- Total revenue ................. 1,462,441 100.0 1,161,246 100.0 ---------- ----- ---------- ----- Gross Profit: Computer Products ................ 76,393 5.2 47,330 4.1 Consulting Services .............. 278,229 19.0 248,719 21.4 Thermal .......................... 80,095 5.5 0 0.0 ---------- ----- ---------- ----- Total gross profit ............ 434,717 29.7 296,049 25.5 ---------- ----- ---------- ----- Selling, general and administrative expenses Depreciation ....................... 305,900 20.9 245,834 21.2 Operating income ............... 22,794 1.6 6,320 0.5 106,023 7.2 43,895 3.8 ---------- ----- ---------- ----- Other income (expense) ............. (23,295) (1.6) 76,808 6.6 Income before provision for income taxes ........... 82,728 5.7 120,703 10.4 ---------- ----- ---------- ----- Provision for income taxes ......... 28,335 1.9 19,890 1.7 Net income after income taxes ...... 54,393 3.7 100,813 8.7 ---------- ----- ---------- ----- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 TOTAL REVENUE. Total revenue increased by $301,195 or 25.9% from $1,161,246 for the three months ended March 31, 1996, compared to $1,462,441 in 1997. Revenue from the IPD, which comprised 22.4% of total revenue for the three months ended March 31, 1996, increased by $50,259 or 19.3%. The increase in IPD revenue was generally attributable to increased sales to new and existing customers which resulted from the hiring of additional sales personnel, in addition to the introduction of new product lines. Revenue from the IED which comprised 62.2% of total revenue for the three months ended March 31, 1997 increased slightly by $8,151 or .9%. Revenue from Thermal was $242,785 for the first quarter of 1997, which was derived only during the month of March, following the recent acquisition. IED revenue is derived from engineering services provided to the pipeline division of major integrated oil companies. These services are performed on facilities that include cross-country pipelines, pipeline pump stations, compressor stations, metering facilities, underground storage facilities, tank storage facilities and product loading terminals. The IED has the capability of developing a project from the initial planning stages through detailed design and construction management. The services provided include project scoping, cost estimating, engineering design, 10 material procurement, mechanical fabrication, in addition to project and construction management. The IED has ten blanket service contracts currently in place to provide services on a time and materials reimbursable basis. The IED also performs services for its clients on a turnkey lump sum basis. The IED client base consists of major oil companies such as Exxon Pipeline Company, Arco Pipeline Company, Marathon Pipeline Company, Praxair, Inc., Sonsub, CNG Transmission and Texas Eastern Products Pipeline Company. New business relationships with other major oil companies are developed through in-house personnel. The slight increase in IED revenue for the three months ended March 31, 1997 was due to a slight increase in engineering consulting projects resulting from increased drilling and exploration activity in the oil and gas industry and from the recent industry trend to outsource more engineering projects to consulting firms such as IED. GROSS PROFIT. Gross profit increased by $138,668 or 46.8% from $296,049 for the three months ended March 31, 1996 to $434,717 for the same period in 1997. The gross margin for the IED decreased from 21.4% in the three months ended Marach 31, 1996 to 19.0% for the same period in 1997. The decrease was attributable to the inclusion of Thermal's gross profit during the 1997 period. The gross margin for the IPD increased from 4.1% for the period ended March 31, 1996 to 5.2% for the same period in 1997. This increase was primarily attributable to a sales blend of products that have higher gross margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $60,066 or 24.4% from $245,834 for the three months ended March 31, 1996 compared to $305,900 for the same period in 1997. As a percentage of total revenue, selling, general and administrative expenses decreased from 21.2% for the three months ended March 31, 1996 to 20.9% for the same period in 1997. The dollar decrease was primarily attributable to a decrease in general and administrative expenses. OPERATING INCOME. Operating income increased by $62,128 or 141.5% from $43,895 for the three months ended March 31, 1996, compared to $106,023 for the same period in 1997. Operating income increased as a percentage of total revenue from 3.8% for the three months ended March 31, 1996 to 7.2% for the same period in 1997. The increase in operating income was a result of slightly higher gross margins coupled with increased selling, general and administrative expenses. OTHER INCOME (EXPENSE). Other income decreased by $101,103 or 130.3% from $76,808 for the three months ended March 31, 1996 to $-23,295 for the same period in 1996. This decrease was due to unrealized losses in marketable secuities, additional interest expense due to higher utilization of the Company's line of credit, and expenses associated with the acquisition of Thermal. NET INCOME. Net income after taxes decreased by $46,420 or 46.1% from $100,813 for the three months ended March 31, 1996 to $54,393 for the same period in 1997. Net income after taxes decreased as a percentage of total revenue from 8.7% for the three months ended March 31, 1996 to 3.7% for the same period in 1997. 11 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 March 31, 1997, the Company's cash position, including marketable securities, was sufficient to meet its working capital requirements. The Company had, as of March 31, 1997, $25,000 in additional advances available under its line of credit with a bank. The Company's line of credit which provides for maximum borrowings of $350,000, which bears intersts at prime plus 1%, is for a term of one year and matures on June 11, 1998. 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 established an additional line of credit for Thermal, which will provide for maximum borrowings of $400,000, which bears interest at prime plus 1%, is for a term of one year and matures on June 11, 1998. The additional line of credit is secured by accounts receivable and inventory of Thermal, and a guaranty from the Company. The Company issued 2,499,999 shares of its common stock on August 2, 1996, in exchange for promissory notes due February 15, 1997, which totaled $999,999. These notes were subsequently paid in full on January 27, 1997. The Company believes that it has sufficient working capital and does not intend to sell shares of its common stock within the next twelve months. The Company's working capital was $2,579,571 and $1,994,467 at December 31, 1996 and March 31, 1997, respectively. CASH FLOW Operating activities used net cash totaling $204,675 and $128,898 for the three months ended March 31, 1996 and 1997 respectively. During the three months ended March 31, 1997, the Company received $799,999 in proceeds from the issuance of common stock, in addition to the repayment of $300,000 on notes payable. The Company did not generate significant cash flow from operating activities for the three months ended March 31, 1996, due to the working capital requirements resulting from the rapid growth of the Company. Trade accounts receivable increased $503,964 since December 31, 1996. Inventory increased by $460,434 for the same period. Investing activities provided cash totaling, $19,868 for the three months ended March 31, 1996 and used cash totaling $1,262,000 for the same period in 1997. The Company's investing activities that used cash during these periods was primarily related to the purchase of Thermal and its facilities and other investments. As of March 31, 1997, the Company had a portfolio of marketable securities which had a fair market value of $724,167 and consisted of common stocks, preferred stocks, bonds and mutual funds. The common stocks, preferred 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 Aim, Pioneer, and 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 provides additional cash for working capital requirements. 12 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. Financing activities provided cash totaling $949,999 for the three months ended March 31, 1997. Additionally, financing activities provided net cash of $150,000, which included repayment of $300,000 on the Comapny's line of credit and an increase in borrowings of $450,000 for the purchase of Thermal's facilities. The Company has additional financing amounts of $325,000.available on its line of credit at March 31, 1997. The line of credit has been used principally to finance accounts receivable and inventory purchases. Of the $999,999 proceeds received from the sale of securities, $200,000 was received in 1996 with the remaining balance being paid in full in January, 1997. Upon the consummation of the acquisition of Thermal on February 15, 1997 the Company immediately implemented a cost reduction program which reduced the operating costs during the first quarter of 1997. During this time, the Company also experienced a backlog of orders from its commercial and industrial customers which are currently being filled. The revenues generated from the sale of its products combined with its ongoing efforts in controlling costs will provide the Company with sufficient cash to meet working capital requirements during the next twelve months. The Company anticipates that the acquisition of Thermal will increase revenues by approximately 54% during the next twelve months. During the next nine months, the Company expects to incur an estimated $100,000 for capital expenditures, a majority of which is expected to be incurred for specialized computer production equipment. The actual amount and timing of such capital expenditures may vary substantially depending upon, among other things, the Company's level of growth. 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 $593,739 and $1,097,703 at March 31, 1996 and 1997, respectively. The number of days' sales outstanding in trade accounts receivable was 46 days and 67 days, respectively. Bad debt expenses have been insignificant (approximately .01%) for each of these periods. 13 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES On February 15, 1997, the Company issued 193,719 of its common stock, $.001 par value, in connection with the acquisition of Thermaire, Inc. The Company had issued 600,000 shares of its common stock to Thermal in 1995, on a contingent basis, which were cancelled on February 15, 1997. These shares were held in an escrow account pending completion of the acquisition. The number of shares outstanding as of March 31, 1997, was 12,723,718. ITEM 5. SUBSEQUENT EVENT On February 15, 1997, the Company acquired Thermaire, Inc., doing business as Thermal Corporation in a stock purchase. The Company paid $600,000 for Thermal, which consisted of $212,563 in cash and the issuance of 193,719 shares of the Company's common stock, which may be put back to the Company for $2 per share at the option of the holder. The Company also purchased the facilities that Thermal had been leasing from an affiliate for $500,000. The Company obtained bank financing totaling $450,000 to purchase the facilities. The acquisition has been accounted for on the purchase method of accounting. Goodwill arising as a result of this transaction totaled approximately $50,434. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. 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: May 21, 1997 By: /s/ HULDA L. COSKEY Hulda L. Coskey, Vice President and Chief Financial Officer 15 EX-27 2
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COPMANY'S ANNUAL REPORT ON FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 MAR-31-1997 534,201 724,167 1,108,703 (11,000) 1,097,703 3,232,189 1,224,083 (256,102) 4,401,086 1,237,722 0 0 0 12,724 3,116,631 4,401,087 1,462,441 1,462,441 1,027,724 1,356,418 3,143 (11,000) 20,152 82,728 28,335 54,393 0 0 0 54,393 0.004 0.004
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