-----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, UseF2MfSvpTSAxxVO9NeETLey24bLuOuZ24IR3mkmQtfc5w9CmeT/0DQ7LU2Ke3S QGIAcUPz6CytueIEvY7wkA== 0000899243-00-000712.txt : 20000331 0000899243-00-000712.hdr.sgml : 20000331 ACCESSION NUMBER: 0000899243-00-000712 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-14217 FILM NUMBER: 588642 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 10KSB40 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1999 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _____________________ Commission File No. 001-14217 INDUSTRIAL DATA SYSTEMS CORPORATION (Name of Small Business Issuer in its Charter) NEVADA 88-0322261 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 600 Century Plaza Drive, Suite 140, Houston, Texas 77073-6013 Issuer's telephone number (281) 821-3200 Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common American Stock Exchange Securities registered pursuant to Section 12(g) of the Exchange Act: Not applicable Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months or for such shortened period that the issuer was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]. The issuer's revenues for fiscal year ended December 31, 1999 were $12,238,449. The aggregate market value of the voting stock held by non-affiliates of the registrant on March 24, 2000 was $8,014,355. The issuer has no authorized non- voting stock. The number of shares outstanding of each of the registrant's classes of stock on March 24, 2000 is as follows: $0.001 Par Value Common Stock........................12,964,918 shares DOCUMENTS INCORPORATED BY REFERENCE Responses to Items 9, 10, 11 and 12 of Part III of this report are incorporated herein by reference to certain information contained in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2000. Transitional Small Business Disclosure Format: Yes No [X] INDUSTRIAL DATA SYSTEMS CORPORATION 1999 FORM 10-KSB TABLE OF CONTENTS PART I Item 1. Description of Business........................................ 1 Item 2. Description of Property........................................ 13 Item 3. Legal Proceedings.............................................. 14 Item 4. Submission of Matters to a Vote of Security Holders............ 14 PART II Item 5. Market for Common Equity and Related Stockholder Matters....... 15 Item 6. Management's Discussion and Analysis or Plan of Operation...... 16 Item 7. Financial Statements........................................... 22 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................................... 36 PART III Item 9. Directors and Executive Officers; Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act............... 36 Item 10. Executive Compensation.......................................... 36 Item 11. Security Ownership of Certain Beneficial Owners and Management.. 36 Item 12. Certain Relationships and Related Transactions.................. 36 PART IV Item 13. Exhibits and Reports on Form 8-K................................ 37 Signatures................................................................ 43 i PART I The following summary is qualified in its entirety by, and should be read in connection with the more detailed information contained herein and in the Company's Consolidated Financial Statements, and the Notes thereto, included elsewhere in this Annual Report on Form 10-KSB. The discussion in this Annual Report on Form 10-KSB contains forward-looking statements which involve risks and other uncertainties. In particular, the Company's business and financial affairs could be adversely effected by decreases in oil prices, by inability to get parts from vendors and by its inability to renew its line of credit. References to the "Company" or to "IDSC" refer to Industrial Data Systems Corporation. References to "IDS" refer to the Company's wholly owned subsidiary, Industrial Data Systems, Inc. References to "IED" refer to the Company's wholly owned subsidiary, IDS Engineering, Inc. References to "Thermal" refer to the Company's wholly owned subsidiary, Thermaire, Inc. dba Thermal Corp. References to "CPM" refer to the Company's wholly owned subsidiary, Constant Power Manufacturing, Inc. References to "IDS FAB" refer to the Company's previously wholly owned subsidiary, IDS Fabricated Systems, Inc. dba Marine and Industrial Fire and Safety and dba Marine and Industrial Supply Company. The consolidated historical financial statements related to these subsidiaries are included in this Annual Report on Form 10-KSB. ITEM 1. DESCRIPTION OF BUSINESS GENERAL Industrial Data Systems Corporation (IDSC) was incorporated in the State of Nevada in June 1994. The Company's Common Stock trades on the American Stock Exchange under the symbol "IDS." Prior to June 16, 1998, the Company's Common Stock was traded on the NASDAQ Electronic Bulletin Board under the symbol "IDDS." The Company has never filed for protection under the bankruptcy protection act, nor has the Company or any of its assets been in receivership or any other similar proceedings. The Company's revenue is derived from its four wholly owned operating subsidiaries. Industrial Data Systems, Inc. (IDS) On October 15, 1997 the consulting engineering segment of the Company, formerly known as Industrial Data Systems, Inc. doing business as IDS Engineering, was split off from IDS, incorporated in the State of Texas, and began operating as IDS Engineering, Inc. (IED). For additional information on IED see following section of this Item 1 Description of Business. 1 IDS Engineering, Inc. (IED) On October 15, 1997 the consulting engineering segment of the Company, formerly known as Industrial Data Systems, Inc. doing business as IDS Engineering, was incorporated in the State of Texas and now operates as IDS Engineering, Inc. (IED). The Company issued all of its 1,000 shares of Common Stock to Industrial Data Systems Corporation. William A. Coskey was appointed Chairman of the Board, President and Treasurer of IED and Hulda L. Coskey was appointed the positions of Director, Vice President and Secretary of the newly formed corporation. The Company believes that the restructuring of IED has clearly distinguished it from the Company's other operating segments. Thermaire, Inc. dba Thermal Corp (THERMAL) The Company acquired Thermaire, Inc. dba Thermal Corp. (Thermal) on February 14, 1997. The Company issued 600,000 shares of Common Stock which were held in an escrow account pending completion of the acquisition by the Company exercising its option to pay $600,000 and obtain a release of the shares. The Company's option to acquire Thermal was later renegotiated and exercised on February 14, 1997 with the exchange of 193,719 shares of Common Stock and $212,563 in cash. Upon completion of the acquisition, the 600,000 shares of Common Stock previously included in the original Escrow Agreement were canceled. In connection with this transaction, Thermal purchased its previously leased facilities on February 28, 1997 for a cash consideration of $500,000, subject to the completion of the contingent purchase transaction. Bank financing in the amount of $450,000 was obtained for the purpose of purchasing these facilities. Constant Power Manufacturing, Inc. (CPM) On February 19, 1998, the Company signed a letter of intent to acquire CPM, a Texas corporation formed in June 1989. The acquisition was consummated on March 25, 1998 with the exchange of $200,000 cash and 300,000 shares of the Company's Common Stock for 100% of CPM's shares. CPM's previous owner, Jack Ripley, has remained with CPM as Vice President of Sales and Marketing under an employment contract. No other employment contracts exist between CPM and its employees. IDS Fabricated Systems, Inc. dba Marine and Industrial Fire and Safety and dba Marine and Industrial Supply Company (IDS FAB) In November 1998, the Company acquired MLC Enterprises, Inc. (MLC), a Texas corporation formed in August 1995, doing business as Marine and Industrial Fire & Safety (MIFS) and Marine and Industrial Supply Company (MISC). The Company issued 50,000 shares of the Company's Common Stock for 100% of MLC's shares. Cash consideration of $100,000 was paid to the previous principal as part of an employment contract. Goodwill in the amount of $593,000 was generated as a result of the acquisition. Subsequent to the acquisition, MLC's name was changed to IDS Fabricated Systems, Inc. (IDS FAB). This transaction was rescinded effective October 28, 1999 as the result of a final Settlement 2 Agreement entered into by the Company and the former principal of MLC which is incorporated by reference as Exhibit 10.31 on the Company's Form 10-QSB for the quarter ended September 30, 1999. As a result of the Settlement Agreement, all claims of the parties, including counter-claims and third-party claims made by the Company, have been dismissed. Terms of the settlement included rescission of the previously executed Stock Acquisition Agreement of MLC Enterprises, Inc. and rescission of the Company's Employment Agreement with the former principal. The settlement also called for the return of all stock issued and exchanged pursuant to the Stock Acquisition Agreement. As a result, MLC Enterprises, Inc. (which had been renamed IDS Fabricated Systems, Inc.) is no longer a subsidiary of the Company. The former principal has individually assumed all assets, inventory and liabilities of MLC pursuant to the terms of the Settlement Agreement. As a result of the settlement and due to the magnitude of previous write-offs associated with the MLC acquisition, the Company has recorded a one-time gain during the fourth quarter ended December 31, 1999, since liabilities exceeded assets at the date the rescission occurred. These amounts have all been netted and reflected as discontinued operations on the Company's Statement of Operations for 1999. See additional details in the MD&A section of this Report on Form 10-KSB. PRODUCTS AND SERVICES IDS IDS is a provider of specialized microcomputer systems that are targeted to be sold to the industrial market. IDS provides systems integration and resells industrial microcomputers and peripheral products. The microcomputer and peripheral products are designed to be used in industrial applications, which include manufacturing, process control, discrete manufacturing, data acquisition, telecommunications and man-machine interfaces. The systems that are provided by the Company are different from conventional, commercial desktop computers by their architecture, packaging, functionality, integration services and value-added software. The systems provided by IDS are "open systems" that support "off-the-shelf" software operated primarily under Windows. IDS derives revenue from the systems integration and resale of industrial computer products. IDS also seeks to add value by integrating and technically supporting advanced microcomputer systems. These systems are typically designed with enclosures that withstand tough environmental conditions or with enclosures that have a special form factor which are based on the customer's specific parameters. Industrial rackmount chassis are configured in several form factors with a standard of 19 inches in width and a variation in height of 1.75 inches to 12.5 inches to accommodate multiple drives and other various requirements. These industrial rackmount chassis are then configured to meet the customer's exact specifications with appropriate internal components such as hard drive, processor, and memory. IDS also offers industrial rackmount solutions in monitors and other peripherals such as industrial 3 keyboards and mouse products that are specifically designed to withstand demanding environments. IED IED offers engineering consulting services primarily to the pipeline and process industries for the development, management and turnkey execution of engineering projects. IED also performs the execution of capital projects for its clients on a full service, turnkey basis. IED's staff has the capability of developing a project from the initial planning stages through detailed design and construction management. IED has blanket service contracts in place with divisions of many energy- related concerns. These blanket service agreements typically provide that IED will furnish engineering, procurement and project management services for client companies on a time and materials basis. The services provided include conceptual studies, project definition, cost estimating, engineering design, and material procurement, in addition to project and construction management. These services are performed on facilities that include cross-country pipelines, pipeline pump stations, gas compressor stations, metering systems, product storage facilities, product loading terminals, gas processing facilities, chemical plants and crude oil refineries. IED offers its clients a wide range of services from a single source provider. Typical engineering projects involve modifications to existing facilities as well as new construction. IED develops new client business relationships utilizing in-house personnel. THERMAL Thermal has manufactured quality air handling equipment since 1945. Because Thermal stocks a large number of fans and manufactures coils, dampers, curbs and most other accessories, the Company believes that it can achieve one of the quickest deliveries available in the industry, usually six to eight weeks, depending on order size and scope. Thermal also reserves production capacity to accomplish premium, expedited deliveries of two to four weeks, when necessary. Thermal is well known for its design and manufacturing expertise and flexibility which is often required to meet the special needs for custom installations. Thermal's product lines consist of a variety of cooling, heating and ventilating equipment. The wide range of sizes and models in each product line coupled with Thermal's manufacturing flexibility provides vast freedom in air handling equipment choice. Thermal's quality air handling products include central plant air conditioners, multizone air conditioners, high pressure air conditioners, and air cooled condensers. Thermal also manufactures fan coil units, cooling and heating coils, and roof top air handlers. Popular custom unit features include special modular construction, custom cabinet dimensions, special insulation type and thickness, gas and electric heaters, humidifiers, all types of fans, non-standard arrangements, motor and unit controls, unique customer requirements, exotic materials of construction and severe service applications, etc. 4 Thermal distributes its products exclusively through its United States and international network of non-stocking sales representatives. CPM CPM is a thirteen-year-old company established in the industrial and commercial backup and conditioned power systems marketplace. CPM designs, manufactures and resells both standard and custom-designed products and systems in a wide array of power ranges which include: battery chargers, battery monitoring systems, DC power supplies, DC/AC inverters, uninterruptible power systems (UPS), power conditioners, power distribution systems and solar photo- voltaic systems. CPM provides field service support for installation and maintenance of these products. Most of the products manufactured by CPM are made pursuant to specifications required for a particular order. In mid 1999, CPM introduced a new product line of switch-mode battery chargers. These chargers have been readily accepted where physical size constraints and heat are design factors. Refineries, petrochemical plants, utilities, offshore platforms and other commercial, industrial and governmental facilities utilize the products sold by CPM. CPM sells to industrial and commercial accounts across the United States. PRODUCT DEVELOPMENT IDS IDS is currently not developing any new proprietary product designs. Being an integrator and re-seller of industrial microcomputer systems, IDS is continuously evaluating products in its marketplace in order to increase its range of offerings and enhance its ability to sell systems to its customers. In this activity, IDS evaluates microcomputer enclosures, CPU boards, components and peripheral products from a variety of manufacturers. IED IED continues to provide engineering services primarily to the energy industry as its base of business. IED currently has 23 blanket service contracts in place which provide that IED furnish clients with service on a time and materials basis. In February 1999, the Company opened an office in Tulsa, Oklahoma that has facilitated the expansion of its market area. IED plans to increase its range of engineering capabilities and begin marketing its services to new industries such as the refining, petrochemical and process industries. During 1999, IED began the development of a standard meter skid package with modular, interchangeable components which will help to reduce project cost and execution times. It is expected that this new design will be ready for sales implementation in the second quarter 2000. 5 THERMAL During 1999, Thermal concentrated its product development efforts toward the development of a double wall fan coil unit which will be targeted for sales to schools and hospitals. In addition, design of a triple deck multizone unit is currently being completed for use in the replacement market. During 2000, Thermal plans to add the in-house capability of manufacturing industry certified, 5/8" plate-fin coils. Thermal believes the addition of this plate-fin coil production line will improve its competitive position in the marketplace by reducing product costs and production time. Thermal currently purchases all plate-fin coils from outside sources. CPM CPM is in the final design phase of development of a proprietary battery monitoring product, the BMR-280. This product will continuously monitor parameters associated with battery systems, including current, voltage and temperature. The BMR-280 will provide status and historical information about the battery system to which it is connected, and will also have a feature to optimize recharging. It is expected that this product design will be completed and the new product introduced to the marketplace by the second quarter 2000. Also, in mid-2000, CPM plans to introduce a new product line of microprocessor controlled battery chargers which will bring to the marketplace state-of-the-art flexibility and features for the end user. The new line of chargers will give CPM substantial cost savings in the manufacturing process, thus giving CPM the opportunity to enter new markets that have historically been unavailable due to price competition. COMPETITION IDS IDS competes against various companies across its different product lines. IDS' industrial computer products which are mountable in a 19-inch equipment rack compete with products from Advantek, Contec and Industrial Computer Source. There is also competition from much larger suppliers of commercial grade computers, such as Compaq, Dell and IBM. This commercial competition effectively sets pricing for its product line, since IDS' customers are willing to pay a premium for industrial grade computers which is usually limited to approximately two times the equivalent of commercial grade products. Management believes that its industrial computer products compete effectively based on the Company's responsiveness to specific industrial market engineering requirements, the resulting functional specialization of its products, and its strategy of focusing on relatively "sheltered" market niches where major competitors have difficulty tailoring their offerings to specific application requirements. These strategies help offset the greater name recognition and broader service and support resources of IDS' major competitors. 6 IDS is engaged in business activities that are targeted to industrial markets which are less competitive and typically generate greater profit margins. Management believes that the principal competitive factors in the business in which it operates are price and performance, product availability, technical expertise, adherence to industry standards, financial stability, service support and reputation. Pricing competition for IDS' products is from large manufacturers of commercial grade computer products. IDS' pricing of its computer product line is governed by pricing in the commercial market. Some of the IDS' current and potential competitors have longer operating histories and financial, sales, marketing, manufacturing, distribution, technical and other competitive resources which are substantially greater than those of IDS. As a result, IDS' competitors may be able to adapt more quickly to changes in customer demands or to commit more resources to sales and service of their products than IDS has available. Such competitors could also seek to increase their presence in the markets where IDS is providing sales and services by creating strategic alliances with other competitors, by offering new or improved products and services to IDS' customers or by increasing their efforts to gain and retain market share through competitive pricing. IED IED operates in a highly competitive environment with many other organizations which are substantially larger and have greater financial and other resources. IED competes with other consulting engineering companies on the basis of price, performance, and its experience as a provider of quality personnel to perform projects. The pricing competition of IED has intensified as a result of an increase in temporary personnel contracting agencies who can perform services at a higher volume level and lower profit margin. Because the engineering business may require small amounts of capital, market entry can be rather effortless for a potential new competitor possessing acceptable professional qualifications. Therefore, IED competes with a wide array of both national and regional specialty firms. THERMAL Thermal operates in a highly competitive environment with many other organizations which are substantially larger and have greater financial resources. Management believes that the principal competitive factors in its market include delivery time, flexibility and product design, breadth of product features, product quality, customer service, and price. Thermal competes with other air handling equipment manufacturers on the basis of quality, quick delivery and capability to provide custom applications. Thermal is cost competitive with many well-established manufacturers, such as Temtrol, Governaire, Mammoth and Pace, and others. Thermal has distinguished itself by being responsive to customer requests for custom products and is able to expedite delivery of units faster than many other commercial manufacturers due to the flexibility of its engineering and manufacturing facility capabilities. 7 CPM CPM is engaged in a highly competitive business which is characterized by a small number of larger companies that dominate the bulk of the market, and a large number of similarly sized companies that compete for a limited share of the market. In the opinion of management, the competitive position of CPM will be greatly enhanced by the introduction of its new microprocessor controlled battery charger product line. This additional product line, due to the cost savings and the absence of a similarly priced product in the marketplace, should enable CPM to better compete in the future against its competitors and thus capture a larger market share. CPM has long been known for quality products and on-time deliveries in the custom packaged system markets. It is the opinion of management that CPM is now positioned to enter markets that are more standardized in nature and volume oriented. BUSINESS STRATEGY IDS intends to increase market penetration by focusing on systems integration and the resale of industrial microcomputer products that are manufactured by outside sources. IDS believes that it does not have the personnel or financial resources to broaden its line of proprietary industrial computer products. In addition, the Company believes that an effort to develop a broad line of proprietary industrial computer products cannot be financially justified, given the rapid pace of change and resulting short product lifetimes typical of the computer industry. IDS will seek to add value by integrating and technically supporting advanced microcomputer systems primarily comprised of components from outside sources. IDS has discontinued its efforts to develop and expand its market presence in the eastern and mid-western portion of the United States and has closed its remote sales office. IED's strategy is to increase revenues per employee by developing and marketing the capability of performing full service turnkey or EPC (Engineering, Procurement and Construction) projects. IED has traditionally only been responsible for the engineering portion of its projects, which is normally between five to fifteen percent of the project's total installed cost. On the majority of projects to date, IED has invoiced for its services on a time and materials basis with billing rates that are specified in client generated blanket services contracts. In order to execute its strategy with respect to EPC projects, IED has added staff during 1999 with expertise in project proposal and bidding. While executing this EPC strategy, IED plans to expand its area of engineering expertise beyond its traditional focus on the pipeline industry. IED plans to market its services and submit proposals outside of the pipeline industry, which over a period of time, will serve to diversify its client base. Thermal continues to focus on establishing and supporting a qualified sales representative network within the U.S., and exploiting its niche for custom products. The addition of a plate-fin coil manufacturing line will help reduce product costs and production time, and also generate additional revenues from increased sales of replacement coils. 8 CPM has expanded its marketing activities beyond the Texas-Gulf Coast region. In February 1999, CPM signed contracts with three sales representative firms outside of this region. Management anticipates that additional sales representatives will be added in 2000. CPM has strategically placed advertising for its batteries, battery chargers, and UPS systems in a well-known product catalogue. The Company plans to continue these advertisements through the year 2002. The Company intends to continue to pursue potential acquisitions of complementary businesses. The success of this strategy depends not only upon the Company's ability to acquire complementary businesses on a cost-effective basis, but also upon its ability to integrate acquired operations into its organization effectively, to retain and motivate key personnel and to retain customers of acquired firms. There can be no assurance that the Company will be able to find suitable acquisition candidates or be successful in acquiring or integrating such businesses. Furthermore, there can be no assurance that financing required for any such transactions will be available on satisfactory terms. SALES AND MARKETING The Company's various subsidiaries derive revenues from in-house direct sales, sales representatives and catalog distributor sales. Sales representatives are teamed with in-house sales managers and are assigned to territories within the United States. Management believes that this method of selling leads to increased account penetration, proper management of its products, and enhanced customer service which creates and maintains the foundation for long-term relationships with its customers. The Company's in- house sales personnel are normally compensated utilizing incentive commissions which are based on either a percentage of revenues or gross profitability which can be attributed to their efforts. Management believes that its past and future growth depends in large measure on its ability to attract and retain qualified sales representatives and sales management personnel. Management is of the opinion that its in-house marketing and selling of its products allows for more freedom and control, thus increasing profitability. The Company's subsidiaries promote their products and services through general and trade advertising, participation in trade shows, through telemarketing and most recently through on-line Internet communication via IDSC's corporate home page which provides links to each of the subsidiaries' webpages. The Company is currently in the process of updating each of its subsidiaries' Internet web sites and expects to have updates completed by mid- 2000. It is the opinion of management that the Internet is a powerful marketing tool, and with the increasing e-commerce activity becoming evident, each subsidiary must be positioned to capitalize on this trend. The Company's sales personnel focus on building long-term relationships with customers and, through their product and industry expertise, providing customers with product application, engineering and after-the-sale services. Additionally, the sales personnel of IDSC subsidiaries seek to capitalize on customer relationships that have been developed by each 9 subsidiary through cross-selling of the various products and services offered by each subsidiary. Sales leads developed by this synergy are then jointly pursued. Much of the Company's business is repeat business, and the source of new customers has been largely through word-of-mouth referrals from existing customers and industry members, such as manufacturers representatives. CUSTOMERS IDSC's customer base consists primarily of Fortune 500 companies in numerous industry segments within the United States. The Company's largest ten customers (which varied from period to period) accounted in the aggregate for approximately 63% and 65% of the Company's total revenue during 1998 and 1999, respectively. Currently, the Company's major customers include: IED: EXXON Pipeline Co. Inc., Jacobs Engineering, Marathon Pipeline Co., Equistar Chemicals, LP, EGP Fuels Company THERMAL: Hollingsworth Equipment, Inc., South Texas Equipment, Airmont, Inc., Conditioning Components Company CPM: Brown and Root International Based upon historical results and existing relationships with customers, the Company believes that, although efforts are being made to diversify its client base, a substantial portion of its total revenue and gross profit will continue to be derived from sales to existing customers. There are no long-term commitments by such customers to purchase products or services from the Company. Sales of IDSC's subsidiaries products are typically made on a purchase order basis. A significant reduction in orders from any of the Company's largest customers could have a material adverse effect on the Company's financial condition and results of operations. Similarly, the loss of any one of the Company's largest customers or the failure of any one of such customers to pay its accounts receivable on a timely basis could have a material adverse effect on the Company's financial condition and results of operations. There can be no assurance that the Company's largest customers will continue to place orders with the Company or that orders by such customers will continue at their previous levels. There can be no assurance that the Company's customers for its engineering services will continue to enter into contracts with the Company for such services or that existing contracts will not be terminated. CUSTOMER SERVICE AND SUPPORT The Company provides service and technical support to its customers in varying degrees depending upon the product line and on customer contractual arrangements. The Company's support staff provides initial telephone troubleshooting services for end-user customers and distributors. These services include isolating and verifying reported product 10 failures, authorizing product returns and tracking completion of repaired goods in support of customer requirements. Technical support also provides on-site engineering support in the event that a technical issue can not be resolved over the telephone. The Company provides limited warranty coverage for its products for varying time periods depending on a variety of factors. On a routine basis, IED provides start-up and commissioning services for projects in which it provides engineering services. DEPENDENCE UPON SUPPLIERS The Company's businesses depend upon the ability to obtain an adequate supply of products and parts at competitive prices and on reasonable terms. The Company's suppliers are not obligated to have products on hand for timely delivery to the Company nor can they guarantee product availability in sufficient quantities to meet the Company's demands. There can be no assurance that such products will be available as required by the Company at prices or on terms acceptable to the Company. The Company procures a majority of its components from distributors in order to obtain competitive pricing, maximize product availability and maintain quality control. IDS purchases from other manufacturers substantially all peripheral devices and components used in its systems. A majority of the components and peripherals are available from a number of different suppliers, although certain major items are procured from single sources. Management believes that alternate sources could be developed for such single source items, if necessary. However, if peripheral or component shortages were to occur, it could have an adverse effect on IDS' operations. The business in which IDS competes is characterized by rapid technological change and frequent introduction of new products and product enhancements. IDS' success depends in large part on its ability to identify and obtain products that meet the changing requirements of the marketplace. IDS could experience delays in the receipt of these integral products. There can be no assurance that IDS will be able to identify and offer products necessary to remain competitive or avoid losses related to obsolete inventory and drastic price reductions. IDS attempts to maintain a level of inventory required to meet its near term delivery requirements by relying on the ready availability of products from its principal suppliers. Accordingly, the failure of IDS' suppliers to maintain adequate inventory levels of computer products demanded by its existing and potential customers and to react effectively to new product introductions could have a material adverse affect on the Company's financial condition and results of operations. Failure of IDS to gain sufficient access to new products or product enhancements could also have a material adverse affect on the Company's financial condition and results of operations. Thermal currently stocks key components due to long lead times. Specialty items are purchased as required for each job. Thermal has increased its stocking levels, because of the potential delays in manufacturing which would be caused by its inability to procure critical components. 11 All of CPM's products are manufactured using components and materials that are available from numerous domestic suppliers. CPM has approximately 10 principal suppliers of components and each of those could be replaced with several competitors; therefore, CPM anticipates little or no difficulty in obtaining components in sufficient quantities and in a timely manner to support its manufacturing and assembly operations. There can be no assurance that IDSC's subsidiaries will be able to continue to obtain the necessary components from any of its single sources on terms acceptable to the Company, if at all. There can be no assurance that such relationships will continue or that, in the event of a termination of any relationship, it would be able to obtain alternative sources of supply without a material disruption in the Company's ability to provide products to its customers. Any material disruption in the Company's supply of products would have a material adverse effect on the Company's financial condition and results of operations. No one manufacturer or vendor provides products that account for 10% or more of the Company's revenues. PATENTS, TRADEMARKS, LICENSES The Company's success depends in part upon its proprietary technology, and it relies primarily on trade secrecy and confidentiality agreements to establish and protect its rights in its proprietary technology. The Company does not own the rights to any U.S. or foreign patents. There can be no assurance that the Company's present protective measures will be adequate to prevent unauthorized use or disclosure of its technology or independent third party development of the same or similar technology. Although the Company's competitive position could be affected by its ability to protect its proprietary and trade secret information, the Company believes other factors, such as the technical expertise and knowledge of the Company's management and technical personnel, and the timeliness and quality of support services provided by the Company, to be more significant in maintaining the Company's competitive position. The Company currently has no patents, trademarks, licenses or royalty agreements. GOVERNMENT REGULATIONS Certain of the Company's subsidiaries are subject to various laws and regulations relating to its business and operations, and various health and safety regulations as established by the Occupational Safety and Health Administration. The Company is not currently aware of any situation or condition that it believes is likely to have a material adverse effect on its results of operations or financial condition. RESEARCH AND DEVELOPMENT Research and development cost for 1999 was approximately $79,000. Expenditures for research and development in 1998 were approximately $25,000. As of December 31, 1999, IDSC's subsidiaries were involved in several active research and development activities. These projects included: a standard meter skid package with modular, 12 interchangeable components predesigned by IED to reduce project cost and execution times; Thermal's design of a double wall fan coil unit for hospitals and schools and triple deck multizone units for the replacement market; and CPM's development of its proprietary battery monitor product and its product line of microprocessor controlled battery chargers. EMPLOYEES As of December 31, 1999, the Company employed approximately 116 individuals within its four subsidiaries; approximately nine were employed in sales, marketing and customer services; 56 were employed in engineering; 36 were employed in technical production positions; and 15 were employed in administration, finance and management information systems. The Company believes that its ability to recruit and retain highly skilled and experienced technical, sales and management personnel has been, and will continue to be, critical to its ability to execute its business plan. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company believes that relations with its employees are good. ITEM 2. DESCRIPTION OF PROPERTY FACILITIES Except as noted below, the Company leases its principal executive offices in Houston, Texas, which consist of approximately 32,836 square feet in two adjoining offices. Approximately 12,000 square feet of this space is currently utilized for production operations and warehouse space for the IDS and CPM operations. On February 10, 1999, IED signed a lease for its newly established office in Tulsa, Oklahoma. This office space consists of 5,400 square feet in a one- story office building. The lease is for a term of two years, ending on February 28, 2001. The base monthly rent is $2,925. with an additional common area fee of $225 per month. Modifications are currently being made to the existing office space at IED's Tulsa facility in order to more efficiently utilize its engineering and design areas. Due to the recent successes of its business development strategy, it is expected that an amended lease will be executed in March 2000, to be commenced in August 2000, in order to secure an additional 2,700 square feet of abutting office space for the Tulsa operation. As a result of the acquisition of Thermal, land and property previously leased by Thermal was purchased by Thermal for $500,000, consisting of $50,000 cash advance from the Company and a note payable in the amount of $450,000. The balance on this note at December 31, 1999 was $404,098. This property consists of 4.5995 acres of land improved with a 37,725 square foot concrete tiltwall office/manufacturing facility located in Houston, Texas, of which approximately 2,500 square feet is used for office space and 35,200 square feet for manufacturing. Remodeling of 1,600 square feet of office and engineering space was completed in February 2000 which allowed office personnel to vacate temporary modular offices on the premises. 13 The leased property associated with the previously acquired IDS FAB subsidiary are no longer the responsibility of IDSC as a result of the Settlement Agreement described in Item 1 - Description of Business and incorporated by reference as Exhibit 10.31 on the Company's Form 10-QSB for the quarter ended September 30, 1999. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business. The Company is not currently involved in any material legal proceedings and is not aware of any material legal proceeding threatened against it. ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year ended December 31, 1999. 14 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, $.001 par value per share, is quoted on the American Stock Exchange effective June 16, 1998, under the symbol "IDS". Prior to June 16, 1998, the Company's Common Stock was traded on the NASDAQ Electronic Bulletin Board under the symbol "IDDS." HIGH LOW ---- ----- YEAR ENDED DECEMBER 31, 1998 ---------------------------- First Quarter................................... 6.750 3.125 Second Quarter.................................. 6.000 3.250 Third Quarter................................... 8.688 6.000 Fourth Quarter.................................. 9.375 5.875 YEAR ENDED DECEMBER 31, 1999 ---------------------------- First Quarter................................... 9.250 7.250 Second Quarter.................................. 10.750 1.750 Third Quarter................................... 2.688 1.000 Fourth Quarter.................................. 1.188 0.750 The foregoing figures are based on information published by NASDAQ/AMEX, do not reflect retail markups or markdowns and may not represent actual trades. As of December 31, 1999, the Common Stock was held by approximately 181 stockholders of record. DIVIDEND POLICY The Company has never declared or paid a cash dividend on the Common Stock. The payment of dividends in the future will depend on the Company's earnings, capital requirements, operating and financial position and general business conditions. The Company intends to retain any future earnings for reinvestment in its business and does not intend to pay cash dividends in the foreseeable future. The Company has not entered into any agreement which restricts its ability to pay dividends on its Common Stock in the future. See "Management's Discussion and Analysis or Plan of Operation." 15 ITEM 6. 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 this Annual Report on Form 10-KSB. Footnote 12 to the Financial Statements contains segment information. OVERVIEW Since the Company's formation in 1985, its major source of revenues has been the provision of engineering consulting services to the pipeline divisions of major integrated oil and gas companies. The Engineering segment accounted 48.8% of total revenues for 1999. The Company has made a concentrated effort to expand upon the engineering consulting services and has actively pursued more turn-key projects which requires full service of jobs in the engineering, procurement and construction phases. In spite of reduced sales revenues during 1999, the Air Handling segment has been able to maintain a stable gross margin percentage by controlling labor and material costs. The Company believes that tight market conditions prevalent during most of 1999 in the oil and gas related markets contributed to the decline in sales revenues within its three production segments. The overall consolidated gross margin decreased in 1999. This is attributable to the lower revenues reported during the year not being accompanied by lower labor and material costs. The overall gross margin decreased from 25.4% in 1998 to 23.3% in 1999. The Company reclassified the activity pertaining to the Fabricating segment as discontinued for the years ended December 31, 1998 and 1999. This resulted in a loss from discontinued operations in 1998 of $221,457 and of $1,972 in 1999. The acquisition of IDS FAB was rescinded, effective October 28, 1999 and as a result of the rescission, the Company recorded a one-time loss on the disposal of discontinued operations of $481,085, net of tax of approximately $146,000. YEAR 2000 (Y2K) ISSUES AND CONSEQUENCES The Company's program to address its Year 2000 issues was successful and the Company experienced no down-time or stoppage of normal business activities due to Y2K issues. The Company did not experience any adverse or detrimental effects from Y2K issues effecting the ability to transact business with any of its major suppliers or customers. All normal banking and business transactions have been conducted without incident. The Company believes it experienced some effects of the Y2K concerns, resulting in lower revenues due to the redirection of capital expenditures toward the identification and remediation of Y2K issues. The Company expects no adverse effects on its ability to conduct business from Y2K issues in the future. 16 FORWARD-LOOKING STATEMENTS Certain information contained in this Form 10-KSB Annual Report, the Company's Annual Report to Shareholders, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, may be deemed to be forward-looking statements with the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, with limitation, statements concerning the Company's future financial position, and results of operations; planned capital expenditures; business strategy and other plans for future operations; the future mix of revenues and business; commitments and contingent liabilities; Year 2000 issues; and future demand and industry conditions. Although the Company believes that the expectations reflected in such forward- looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. When used in this report, the words "anticipate," "believe," "estimate," "expect," "may," and similar expressions, as they relate to the Company and its management, identify forward- looking statements could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth with this Annual Report on Form 10-KSB generally. 17 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. Years ended December 31, ------------------------ 1998 1999 ---- ----- Amount % Amount % ------ -- ------ -- Revenue: Engineering....................... $ 4,406,585 34.8 $ 5,978,180 48.8 Air Handling...................... 3,707,672 29.3 3,151,295 25.7 Power Systems..................... 3,016,286 23.8 2,372,889 19.4 Products.......................... 1,535,915 12.1 736,084 6.1 ----------- ----- ----------- ===== Total Revenue...................... $12,666,458 100.0 $12,238,449 100.0 Gross Profit: Engineering........................ 1,263,454 28.7 1,599,722 26.8 Air Handling....................... 715,547 19.3 598,766 19.0 Power Systems...................... 926,760 30.7 478,905 20.2 Products........................... 309,637 20.2 171,048 23.2 ----------- ----- ----------- ----- Total Gross Profit.................. $ 3,215,398 25.4 $ 2,848,440 23.3 Selling, general and administrative expenses............................ 2,277,711 18.0 2,615,922 21.4 ----------- ----- ----------- ----- Operating Income................ 937,687 7.4 232,518 1.9 Other income (expense)............... (11,022) (0.1) 78,436 0.6 Income from continuing operations before provision for income taxes........................... 926,665 7.6 310,954 2.5 Provision for income taxes........... 285,376 2.3 151,212 1.2 ----------- ----- ----------- ----- Income from continuing operations.... 641,289 5.2 159,742 1.3 ----------- ----- ----------- ----- Loss from discontinued operations.... (221,457) (1.8) (1,972) 0.0 ----------- ----- ----------- ----- Loss on disposal of discontinued operations, net of tax of approximately $146,000 in 1999.. 0 0.0 (481,085) (3.9) ----------- ----- ----------- ----- Net Income (Loss).................... $ 419,832 3.4 $ (323,315) (2.6) =========== ===== =========== ===== 18 YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 In October 1999, the acquisition of IDS FAB, which took place in November 1998 was rescinded. As a result of this, the operating results of IDS FAB were reclassified as discontinued operations for 1998 and 1999. The following comparisons reflect these reclassifications. TOTAL REVENUE. Total revenue decreased by $428,009 or 3.4% from $12,666,458 in 1998 to $12,238,449 in 1999. Revenue from the Engineering segment, which comprised 34.8% and 48.8% of total revenue in 1998 and 1999, respectively, increased by $1,571,595 or 35.7%. This increase was due to the segment adding several sizable lump-sum projects to its existing revenue base and to additional revenues generated by its Tulsa operation. Revenue from the Air Handling segment comprised 29.3% and 25.7% of total revenue in 1998 and 1999, respectively, decreased by $556,377 or 15.0%. The Power Systems segment contributed revenue in nine months ended December 31,1998 of $3,016,286, which comprised 23.8% of total revenues and for the year ended December 31,1999 it generated 19.4% of total revenues. Revenue from the Products segment comprised 12.1% and 6.1% of total revenues for 1998 and 1999, respectively. The Company believes the decrease in revenues in the Air Handling, Power Systems and Products segments was attributable to an overall decline in the market as a result of Y2K concerns and the redirection of capital expenditure funds to identify and remedy Y2K issues. GROSS PROFIT. Gross profit decreased by $366,958 or 11.4% from $3,215,398 in 1998 to $2,848,440 in 1999. The gross margin for the Engineering segment increased by $336,268 or 26.6% from 1998 to 1999. This was attributable to the increase in revenues in 1999. The gross margin for the Air Handling segment decreased by $116,781 or 16.3% from 1998 to 1999. This decrease was due to the decrease in 1999 revenues as explained above. The Power Systems segment gross margin declined by an amount of $447,855 from 30.7% in 1998 to 20.2% in 1999 due to a decrease in revenues not accompanied by offsetting reductions direct material and labor costs. The Products segment gross margin decreased by $138,589 or 44.8% from 1998 to 1999, which was attributable to lower revenues. The gross margin generated in 1999, as a percentage of sales, was slightly higher than what was generated in 1998 due to the reduction in direct material and labor costs, which were brought about by management as a result of decreased revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $338,211 or 14.8% from $2,277,711 in 1998 to $2,615,922 in 1999. As a percentage of total revenue, selling, general and administrative expenses increased from 18.0% in 1998 to 21.4% in 1999. The increase was attributable to additional expense related to the establishment of the Tulsa office and related increases in personnel and benefit costs. OPERATING PROFIT. Operating profit decreased by $705,169 or 75.2% from $937,687 in 1998 to $232,518 in 1999. Operating profit decreased as a percentage of total revenue from 7.4% in 1998 to 1.9% in 1999. This decrease was brought about by the lower combined 19 revenues, lower gross margins in the Air Handling, the Power Systems and Products segment and to the increase in selling, general and administrative expense. INCOME FROM CONTINUING OPERATIONS. Income from continuing operations decreased by $481,547 or 75.1% from $641,289 in 1998 to $159,742 in 1999. This was attributable to the overall decline in revenues and gross margins accompanied by an increase in selling, general and administrative costs. The Company's attempt to maintain a stable workforce base for future growth and additional expenses to maintain the Tulsa operations contributed to the increased expenses. DISCONTINUED OPERATIONS. Discontinued operations contributed a loss of $221,457 in 1998. In 1999, discontinued operations generated a loss of $1,972. The loss on disposal of discontinued operations, as a result of the rescission of the IDS FAB acquisition generated a one-time loss of $481,085. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has satisfied its cash requirements principally through operations and, as needed, by borrowings under its line of credit. As of December 31, 1998, the Company's cash position, was in management's judgment, sufficient to meet its working capital requirements. The Company had, as of December 31, 1999, approximately $835,000 in additional advances available under its line of credit with a bank. This line of credit 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 May 12, 2000. The Company expects the line of credit will be renewed at that time. The line of credit is secured by accounts receivable, inventory and the personal guarantees of certain stockholders and officers of the Company. As of December 31, 1999, the Company had $315,660 outstanding against the line of credit note. Interest on the outstanding balance of this note is paid on a monthly basis. At its maturity on May 12, 2000, the Company expects that the line of credit term note will be renewed. The Company believes that it has sufficient working capital and does not intend to sell shares of its Common Stock within the next 12 months. The Company's working capital was $3,047,291 and $3,306,316 at December 31, 1998 and December 31, 1999, respectively. CASH FLOW Operating activities provided net cash totaling $773,432 and $93,703 during 1998 and 1999, respectively. The Company has not generated significant cash flow from operating activities due to the working capital requirements resulting from its rapid growth in the engineering segment. 20 Investing activities generated cash totaling $208,515 and $114,020 respectively, during the years ended December 31, 1998 and 1999. In 1998, the Company's investing activities that used cash were primarily related to the acquisition of CPM and IDS FAB and capital expenditures. In 1999, the Company's investing activities consisted primarily of capital expenditures. Financing activities provided cash totaling $7,630 and used cash totaling $196,514 during 1998 and 1999, respectively. The Company has additional financing amounts available on its line of credit ($835,000 at December 31, 1999). 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 trade accounts receivable of $2,913,128 and $2,540,835 at December 31, 1998 and 1999, respectively. The number of days' sales outstanding in trade accounts receivable was 70 days and 76 days, at December 31, 1998 and 1999, respectively. Bad debt expenses have been insignificant (approximately .01%) for each of these periods. 21 ITEM 7. FINANCIAL STATEMENTS The audited consolidated financial statements for Industrial Data Systems Corporation, as of December 31, 1999 and 1998 are attached hereto and made part hereof. INDEX Page ---- INDEPENDENT AUDITOR'S REPORT.................................... 23 CONSOLIDATED BALANCE SHEET - December 31, 1999.................. 24 CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999 and 1998..................... 25 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1999 and 1998..................... 26 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999 and 1998..................... 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................... 28 22 INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Industrial Data Systems Corporation We have audited the accompanying consolidated balance sheet of Industrial Data Systems Corporation and Subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1998 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Industrial Data Systems Corporation and Subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the years ended December 31, 1998 and 1999, in conformity with generally accepted accounting principles. /s/Hein + Associates llp Houston, Texas March 17, 2000 23 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 663,972 Municipal bond, at cost 300,000 Accounts receivable - trade, less allowance for doubtful 2,540,835 accounts of approximately $6,500 Inventory 771,808 Notes receivable from stockholders 150,000 Federal income tax receivable 53,000 Prepaid and other 329,441 ---------- Total current assets 4,809,056 PROPERTY AND EQUIPMENT, net 1,070,218 GOODWILL 34,650 ---------- Total assets $5,913,924 ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Notes payable $ 342,010 Current maturities of long-term debt 39,259 Accounts payable 779,017 Deferred income taxes 45,000 Accrued expenses and other current liabilities 297,454 ---------- Total current liabilities 1,502,740 LONG-TERM DEBT 384,658 DEFERRED INCOME TAXES 52,000 COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 16) STOCKHOLDERS' EQUITY: Common stock, $.001 par value; 75,000,000 shares authorized; 12,964,918 shares issued and outstanding 12,965 Additional paid-in capital 2,640,154 Retained earnings 1,321,407 ---------- Total stockholders' equity 3,974,526 ---------- Total liabilities and stockholders' equity $5,913,924 ========== SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 24 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ----------------------------------------- 1998 1999 ----------------- ----------------- OPERATING REVENUES: Engineering services $ 4,406,585 $ 5,978,180 Product sales 8,259,873 6,260,269 ----------- ----------- 12,666,458 12,238,449 OPERATING EXPENSES: Cost of engineering services 3,143,131 4,378,459 Cost of product sales 6,307,929 5,011,550 Selling, general and administrative 2,277,711 2,615,922 ----------- ----------- 11,728,771 12,005,931 ----------- ----------- Operating profit 937,687 232,518 OTHER INCOME (EXPENSE): Realized gains on marketable securities, net 14,510 50,909 Net unrealized gains (losses) on marketable securities 3,772 - Interest income 49,542 46,963 Interest expense (78,846) (68,067) Other income - 48,631 ----------- ----------- (11,022) 78,436 ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAX (BENEFIT) EXPENSE 926,665 310,954 PROVISION FOR INCOME TAX (BENEFIT) EXPENSE: Federal 412,810 141,632 State 24,900 14,580 Deferred (80,334) (5,000) ----------- ----------- 357,376 151,212 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 569,289 159,742 LOSS FROM DISCONTINUED OPERATIONS, net of tax of approximately $72,000 in 1998 (149,457) (1,972) LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net of tax of approximately $146,000 in 1999 - (481,085) ----------- ----------- NET INCOME (LOSS) $ 419,832 $ (323,315) =========== =========== BASIC AND DILUTED EARNINGS PER COMMON SHARE: Continuing operations $0.05 $0.01 Discontinued operations $(0.02) $(0.03) ----------- ----------- Net income (loss) $0.03 $(0.02) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,947,280 13,055,535 =========== ===========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENT. 25 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1999
Common Stock Additional Total --------------------- Paid-in Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity ---------- ------- ---------- ---------- --------- ------------ BALANCES, December 31, 1997 12,723,718 $12,724 $2,176,713 $1,224,890 $(15,323) $3,399,004 Stock issuances in conjunction with acquisitions 350,000 350 589,450 - - 589,800 Net income - - - 419,832 - 419,832 ---------- ------- ---------- ---------- --------- ------------ BALANCES, December 31, 1998 13,073,718 13,074 2,766,163 1,644,722 (15,323) 4,408,636 Treasury stock Acquisition: Received 50,000 shares in rescission agreement - - - - (43,750) (43,750) Purchased 40,000 shares - - - - (67,045) (67,045) Retirement (108,800) (109) (126,009) - 126,118 - Net loss - - - (323,315) - (323,315) ---------- ------- ---------- ---------- --------- ------------ BALANCES, December 31, 1999 12,964,918 $12,965 $2,640,154 $1,321,407 $ - $3,974,526 ========== ======= ========== ========== ========= ============
See accompanying notes to these consolidated financial statements. 26 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------ 1998 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 419,832 $ (323,315) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 170,564 144,304 Deferred income tax expense from continuing operations (32,334) (5,000) Gain on sale of trading securities (14,510) (50,909) Loss from discontinued operations 221,457 483,057 Changes in operating assets and liabilities, net of assets acquired in business combinations: Accounts receivable - trade 660,162 (583,747) Inventory 177,745 91,289 Trading securities (287,092) 427,556 Accounts payable (832,867) 436,699 Income taxes payable 77,302 (210,000) Accrued expenses and other current liabilities 270,488 (214,905) Other, net (57,315) (101,326) ---------- ---------- Net cash provided by operating activities 773,432 93,703 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (84,707) (208,923) Purchase of IDS Fabricated Systems, Inc., net of cash received 125,387 - Purchase of Constant Power Manufacturing, Inc., net of cash received 112,289 - Payments (advances) on note receivable from stockholder 50,000 - Repayments from affiliate 5,546 - ---------- ---------- Net cash provided by investing activities 208,515 (208,923) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term repayments (12,470) (146,014) Long-term borrowings (repayments) 20,100 16,545 Purchases of treasury stock - (67,045) ---------- ---------- Net cash provided by (used in) financing activities 7,630 (196,514) ---------- ---------- NET CASH USED IN DISCONTINUED OPERATIONS $ (221,457) $ (250,115) ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS 768,120 (561,849) CASH AND CASH EQUIVALENTS, at beginning of year 457,701 1,225,821 ---------- ---------- CASH AND CASH EQUIVALENTS, at end of year $1,225,821 $ 663,972 ========== ========== SUPPLEMENTAL DISCLOSURES: Interest paid $ 81,000 $ 68,709 Income taxes paid $ 232,632 $ 415,580 ========== ========== NON-CASH TRANSACTIONS: Purchase price adjustment - adjustment to liabilities and goodwill $ - $ 121,649 Issuance of common stock in conjunction with purchase of IDS Fabricated Systems, Inc. $ 289,800 $ - Issuance of common stock in conjunction with purchase of Constant Power Manufacturing, Inc. $ 300,000 $ - Assumption of $200,000 note payable in conjunction with purchase of IDS Fabricated Systems, Inc. $ 200,000 $ - Treasury stock received in rescission transaction (See Note 15) $ - $ 43,750
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS. 27 INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - The accompanying consolidated financial statements include the accounts of Industrial Data Systems Corporation ("IDSC" or the "Company"), a Nevada corporation, and its wholly owned subsidiaries Industrial Data Systems, Inc., a Texas corporation, ("IDS"); Thermaire, Inc., a Texas corporation, dba Thermal Corporation ("Thermal"); Constant Power Manufacturing, Inc. ("CPM"), a Texas corporation, and IDS Engineering, Inc. ("IED"), a Texas corporation. The 1998 amounts include the accounts of IDS Fabricated Systems, Inc. ("IDS FAB"), a Texas corporation which was disposed of in 1999 (see Note 15). All significant intercompany balances and transactions have been eliminated in consolidation. Cash and Cash Equivalents - Cash and cash equivalents include cash in bank and investments in highly liquid money market mutual funds. Inventory - Inventory is composed primarily of raw materials and component parts (computer components, sheet metal, copper tubing, blower fans and fan motors) and is carried at the lower of cost or market value, with cost determined on the first-in, first-out ("FIFO") method of accounting. Revenue Recognition - The Company's revenues are composed of product sales and engineering service revenue. The Company recognizes service revenue when such services are performed and product sales upon shipment to the customer. Marketable Securities - 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 stockholders' 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. Trading securities are stated at fair value, with unrealized gains and losses recognized in earnings. The Company records the purchases and sales of marketable securities and records realized gains and losses on the trade date. Realized gains or losses on the sale of securities are recognized on the specific identification method. Property and Equipment - All property and equipment is stated at cost, adjusted for accumulated depreciation. Depreciation on all property and equipment, other than land, building and improvements, is calculated using an accelerated method over the estimated useful lives of the related assets, which is five years. Depreciation on the building is calculated using a straight-line method over the useful life, which is 40 years. Leasehold improvements are amortized over the term of the related lease. 28 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill - The Company capitalizes the excess purchase price over the fair value of net assets acquired ("goodwill") and amortizes this intangible asset on a straight-line basis over 5-10 years. Long-lived Assets - The Company reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company has not identified any such impairment losses. Income Taxes - The Company accounts for deferred income taxes in accordance with the asset and liability method, whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement and tax bases of its existing assets and liabilities. The provision for income taxes represents the current tax payable or refundable for the period plus or minus the tax effect of the net change in the deferred tax assets and liabilities during the period. Earnings Per Share - Basic earnings per share was computed by dividing net income by the weighted average common shares outstanding as of December 31, 1998 and 1999. The options outstanding at December 31, 1999 (see Note 8) were not considered in the computation of diluted EPS for the year ended December 31, 1999 since their effect would have been antidilutive. Use of Estimates - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying results. Actual results could differ from these estimates. Fair Value of Financial Instruments - The fair value of financial instruments, primarily accounts receivable, notes receivable, bonds, accounts payable and notes payable, closely approximate the carrying values of the instruments due to the short-term maturities of such instruments. Comprehensive Income - Comprehensive income is defined as all changes in stockholders' equity, exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity, such as translation adjustments on investments in foreign subsidiaries and certain changes in minimum pension liabilities. The Company's comprehensive income (loss) is equal to net income (loss) for all periods presented in these financial statements. Reclassifications - Amounts in prior years' financial statements are reclassified as necessary to conform with the current year's presentation. Such reclassifications had no effect on net income. 29 2. AFFILIATE RECEIVABLES The Company has several notes receivable due from officers of the Company totaling $150,000 at December 31, 1999. The notes receivable are unsecured, due on demand and bear interest at a rate of 9% per annum. Interest on the notes is due annually. During the years ended December 31, 1998 and 1999, the Company recognized interest income of approximately $18,000 and $13,500, respectively, on these notes. 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31, 1999: Land $ 90,000 Furniture and fixtures 128,666 Computer equipment 364,073 Building 605,000 Shop equipment 161,169 Leasehold improvements 72,618 Building improvements 77,538 ---------- 1,499,064 Accumulated depreciation and amortization (428,846) ---------- $1,070,218 ========== 4. NOTES PAYABLE The Company entered into a Revolving Credit Note with a bank on May 12, 1999 in the amount of $1,150,000, bearing interest at prime + 1% (9.75% at December 31, 1999) and maturing on May 12, 2000. The outstanding balance due at December 31, 1999 was $315,660. This note is collateralized by the accounts receivable and inventory of the Company. The agreement contains certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $3,600,000. The Company is financing a portion of its insurance each year on a short- term basis, with a balance of $26,350 at December 31, 1999. 5. LONG TERM DEBT The Company has a term note payable with a bank of $450,000 at 8.88%. The loan, which expires on February 28, 2002, is collateralized by land and building. There was $404,098 outstanding under this note at December 31, 1999. Interest on the outstanding amount is due and payable monthly. The Company is financing a portion of its insurance over 23 months bearing interest at 7.95% with a remaining balance of $19,819 at December 31, 1999. 30 5. LONG TERM DEBT (Continued) Future maturities of long-term debt are as follows: Years Ending December 31, ------------------------- 2000 $ 39,259 2001 21,238 2002 363,420 -------- Total 423,917 Less current portion (39,259) -------- Long-term debt $384,658 ======== 6. LEASES The Company leases office space under two non-cancelable operating leases. Total rent expense for the years ended December 31, 1998 and 1999 was approximately $109,000 and $275,000, respectively. Future minimum rentals due under the non-cancelable operating leases with an original term of at least one year are approximately as follows: Years Ending December 31, ------------------------- 2000 $154,000 2001 246,000 2002 170,000 -------- $570,000 ======== 7. PROFIT SHARING PLAN The Company has a 401(k) profit sharing plan (the "Plan") covering substantially all employees. Under the terms of the Plan, the Company will make matching contributions equal to 50% of employee contributions up to 6% of employee compensation, as defined. Employees may make contributions up to 15% of their compensation, subject to certain maximum contribution limitations. The employer's contributions vest on a schedule of 25% per year for four years. The Company made contributions to the Plan of approximately $93,000 and $120,000 for the years ended December 31, 1998 and 1999, respectively. 8. STOCK OPTION PLAN In June 1998, the Company created the Industrial Data Systems Corporation 1998 Incentive Plan (the "Option Plan"). The Option Plan provides for grants of nonstatutory options, incentive stock options, restricted stock awards and stock appreciation rights. The Company has adopted the disclosure-only provisions of the Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. The Company elected to continue following Accounting Principles Board Opinion No. 25 and recognize compensation expense, if any, based on the intrinsic value method of the equity instrument at the measurement date. Accordingly, no compensation cost has been recognized for grants under the Option Plan because the exercise price of the options equals the market price of the stock on the date of the grants. Had compensation cost of the Option Plan been determined based on the fair 31 8. STOCK OPTION PLAN (Continued) value at the grant date for awards in 1998 and 1999 consistent with the provisions of SFAS No. 123, the Company's pre-tax income in 1998 and 1999 would not have changed. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999 dividend yield of 0%, expected volatility of 94%, risk-free interest rates of 6%, and expected lives of two years. Under the Option Plan, the total number of shares of common stock that may be granted is 1,200,000. Each option granted in 1999 has an exercise price of $1.25 per share and vests over 48 months. The maximum term of the options is ten years. The following table summarizes stock option activity: Outstanding, January 1, 1999 - Granted 200,000 Canceled or expired - Exercised - --------- Outstanding, December 31, 1999 200,000 ========= Exercisable at December 31, 1999 5,000 ========= Available for grant at December 31, 1999 1,000,000 ========= Weighted-average fair value of options, granted during the year $ .42 ========= Weighted-average fair value of options at December 31, 1999 $ .42 ========= 9. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS The Company manufactures and distributes industrial and portable computers and computer monitors, power systems and battery chargers, and air handling equipment for air conditioning and heating systems to commercial companies primarily in the southern states and provides pipeline engineering and fabricated systems and services primarily to major integrated oil and gas companies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company assesses its credit risk and provides an allowance for doubtful accounts for any accounts which it deems doubtful for collection. The Company maintains deposits in banks which may exceed the amount of federal deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any possible deposit loss is minimal. For the years ended December 31, 1998 and 1999, the Company had sales to one major customer in the Engineering segment totaling approximately $2,533,000 and $3,460,000, respectively, which represent 19% and 24%, respectively, of total revenues. At December 31, 1999, amounts due from two customers who individually had amounts due in excess of 10% of trade receivables totaled $793,000. 32 10. STOCKHOLDERS' EQUITY In 1998, the Company issued 300,000 shares of common stock as part of the CPM acquisition and 50,000 shares as part of the IDS FAB acquisition (see Note 14). In 1999, the Company purchased 40,000 shares of its own stock for $67,045 under a program approved by the Board of Directors to repurchase up to 400,000 shares of Company common stock at no more than $5 per share. Also in 1999, as part of a rescission agreement, the Company received back 50,000 shares of the Company common stock that had been issued during 1998 in the acquisition of IDS FAB (see Note 15). All treasury shares were retired in 1999. 11. FEDERAL INCOME TAXES The following is a reconciliation of expected to actual income tax expense from continuing operations: YEARS ENDED DECEMBER 31, ------------------------- 1998 1999 --------- --------- Federal income tax expense (benefit) at 34% $315,066 $105,724 State and foreign taxes 16,434 9,622 Nondeductible expenses 16,775 3,400 Other 9,101 32,466 -------- -------- $357,376 $151,212 ======== ======== The components of the Company's deferred tax liability consisted of the following at December 31, 1999: Deferred tax asset: Allowance for doubtful accounts $ 2,500 Deferred tax liabilities: Tax accounting change from cash basis to accrual basis - CPM Acquisition (95,000) Depreciation (4,500) --------- Deferred tax liability, net $(97,000) ========= 12. SEGMENT INFORMATION The Company operates in four business segments: (1) the manufacture and distribution of industrial computer systems to industrial and commercial companies; (2) engineering consulting services primarily to major integrated oil and gas companies; (3) the manufacture and distribution of air handling equipment for HVAC systems to commercial companies; and (4) the manufacture and distribution of uninterruptible power systems and battery chargers. Sales, operating income, interest income and expense, identifiable assets, capital expenditures and depreciation set forth in the following table are the results of the four segments. The amount in corporate and eliminations includes amounts to eliminate intercompany items, including notes receivable and notes payable. 33 12. SEGMENT INFORMATION (CONTINUED) Segment information for the years 1998 and 1999 was as follows:
(Thousands) - ------------------------------------------------------------------------------------------------------------------------------------ 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Disposed Air Power Segment Products Engineering Handling Systems Corporate Assets Total -------- ----------- -------- ------ --------- -------- ----- Net sales from external customers $ 1,535 $ 4,407 $ 3,708 $ 3,016 $ - $ - $ 12,666 Operating earnings (363) 603 60 638 - - 938 Interest income - - - - 50 - 50 Interest expense - - - - 79 - 79 Depreciation and amortization 29 47 79 - 16 - 171 Total assets 536 2,100 1,755 1,677 215 1,646 7,929 Capital expenditures $ 25 $ 19 $ 32 $ - $ 9 $ - $ 85 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales from external customers $ 736 $ 5,978 $ 3,151 $ 2,373 $ - - $ 12,238 Operating earnings (36) 428 (38) (121) - 233 Interest income - - - - 47 - 47 Interest expense - - - - 68 - 68 Depreciation and amortization 36 50 58 - - - 144 Total assets 1,342 1,735 1,719 1,067 51 - 5,914 Capital expenditures $ - $ 121 $ 88 $ - $ - $ - $ 209 - ------------------------------------------------------------------------------------------------------------------------------------
13. TRANSACTION WITH AFFILIATE In July 1997, the Company entered into a management contract with BHC Management Corporation ("BHC"), a Texas corporation. As compensation for services provided hereunder, IDS agreed to pay BHC the sum of $4,000 per month plus expenses not to exceed $500 per month. The principals of BHC are stockholders of IDS. The total payments made to BHC during 1998 and 1999 were approximately $48,000 and $8,000, respectively. 14. ACQUISITIONS In April 1998, the Company acquired CPM in a stock purchase. The Company paid $500,000, consisting of $200,000 in cash and 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. This acquisition has been accounted for on the purchase method of accounting. No goodwill was generated in this transaction. The operating results of CPM have been included in the Company's consolidated financial statements since the date of acquisition. 34 In November 1998, the Company acquired IDS FAB in a stock purchase. The Company paid $389,800, consisting of $100,000 in cash and 50,000 shares of the Company's common stock, whose fair market value at the date of exchange was $289,800. This acquisition has been accounted for on the purchase method of accounting. The purchase price exceeded the fair value of the net assets acquired by approximately $593,000. The operating results of IDS FAB have been included in the Company's consolidated financial statements since the date of acquisition (see Note 15 for discussion regarding rescission of this agreement in 1999). The following unaudited proforma consolidated results of operations of the year ended December 31, 1998 assumes the CPM and IDS FAB acquisitions occurred as of January 1, 1998. (thousands, except per share data) 1998 ----------------------------------------------------------------------- Net sales $19,488 Net earnings 306 Basic earnings per share .02 ----------------------------------------------------------------------- In management's opinion, the unaudited proforma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of fiscal 1998 or of future operations of the combined companies under the ownership and management of the Company. 15. DISCONTINUED OPERATIONS On October 28, 1999, the Company entered into a settlement agreement with the former owner of IDS FAB to rescind the original acquisition agreement dated November 1, 1998. As a result of the settlement agreement, the Company received the originally issued 50,000 shares of its common stock, valued at $43,750 at the date of the rescission, back from the former owner of IDS FAB and transferred the stock of IDS FAB to the former owner. All assets and liabilities of IDS FAB were transferred back to and assumed by the former owner of IDS FAB. In the first two fiscal quarters of the year ended December 31, 1999, prior to determination to dispose of the segment, the Company had recognized a loss of approximately $765,000 related to impairment of assets of IDS FAB. In the fourth quarter, this impairment charge was reclassified to be included in the loss on disposal of discontinued operations. The discontinued segment recognized sales revenues of approximately $750,000 in 1998 and none in 1999. Additionally, included in the loss on disposal of discontinued operations is approximately $85,000 of legal fees related to the disposition. 16. CONTINGENCIES The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business. These actions when ultimately concluded and determined will not, in the opinion of management, have a material effect on results of operations or the financial condition of the Company. 35 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in and disagreements with the Company's accountants on accounting and financial disclosure. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE Incorporated herein by reference in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2000. ITEM 10. EXECUTIVE COMPENSATION Incorporated herein by reference in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2000. ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS Incorporated herein by reference in the Company's definitive proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 2000. 36 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K A. FINANCIAL STATEMENTS The consolidated financial statements are contained herein as listed on the "Index" on page 22 hereof. B. REPORTS ON FORM 8-K There were no Current Reports on Form 8-K filed by the Company during the quarter ended December 31, 1999 that have not been previously reported in the Company's Quarterly Reports on Form 10-QSB. C. DESCRIPTION AND INDEX OF EXHIBITS Number Description - ------ ----------- 2 Agreement and Plan of Reorganization for the Purchase of Industrial Data Systems, Incorporated, dated August 1, 1994 (1) 2.1 Action by Written Consent of the Board of Directors for the Purchase of Industrial Data Systems, Incorporated, a Texas corporation, dated August 1, 1994 (1) 2.2 Action by Written Consent of the Stockholders for the Purchase of Industrial Data Systems, Incorporated, a Texas corporation, dated August 1, 1994 (1) 2.3 Stock Acquisition Agreement for the Purchase of Thermaire Incorporated, dba Thermal Corp., dated August 15, 1995 (1) 2.4 Escrow Agreement for the Purchase of Thermaire Incorporated, dba Thermal Corp., dated August 15, 1995 (1) 2.5 Earnest Money Contract for the Purchase of Thermaire Incorporated, dba Thermal Corp.'s Manufacturing Facility, dated August 15, 1995 (1) 2.6 Offering Memorandum, 504D Offering of 500,000 Shares of Common Stock in the State of Nevada, dated July 26, 1994 (1) 2.7 Action by the Board of Directors regarding the 504D Stock Offering of 2,499,999 Shares of Common Stock, dated July 10,1996 (1) 2.8 Agreement for Amendment and Substitution of Subscription Agreement and Notes, dated July 10, 1996 (1) 37 2.9 Deleted 2.10 Deleted 2.11 Deleted 2.13 Deleted 2.14 Deleted 2.15 Stock Acquisition Agreement, dated March 25, 1998, by and among Industrial Data Systems Corporation, John L. "Jack" Ripley, and Constant Power Manufacturing Incorporated. Previously filed as Exhibit 2.1 on (8). 2.16 Deleted 2.17 Deleted 2.18 Deleted 2.19 Deleted 2.20 Deleted 2.21 Deleted 2.21.a Deleted 2.22 Deleted 3 Articles of Incorporation, Industrial Data Systems Corporation, dated June 20, 1994 (1) 3.1 Corporate Charter, Industrial Data Systems Corporation, dated June 22, 1994 (1) 3.2 Corporate Bylaws, Industrial Data Systems Corporation, dated June 22, 1994 (1) 3.3 Articles of Incorporation, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3 on (7) 3.4 Corporate Charter, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3.1 on (7) 3.5 Corporate Bylaws, IDS Engineering, Inc., dated October 15, 1997. Previously filed as Exhibit 3.2 on (7) 3.6 Deleted 3.7 Deleted 3.8 Deleted 38 3.9 Deleted 4.1 Revolving Credit Line with Texas Commerce Bank, N.A., dated June 11, 1996 (1) 4.2 Deleted 4.3 Deleted 4.4 Deleted 4.5 Deleted 4.6 Deleted 4.7 Deleted 4.8 Deleted 10 Deleted 10.1 Deleted 10.2 Deleted 10.3 Deleted 10.4 Deleted 10.5 Adoption Agreement for Nonstandardized Code 401(k) Profit Sharing Plan, dated January 1, 1993 (1) 10.6 Blanket Service Contract - Exxon Pipeline Company (3) 10.7 Blanket Service Contract - Marathon Oil Company (3) 10.8 Deleted 10.9 Deleted 10.10 Deleted 10.11 Blanket Service Contract - ARCO Pipe Line Company (3) 10.12 Deleted 10.13 Deleted 10.14 Deleted 39 10.15 Deleted 10.16 Deleted 10.17 Lease between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, Ltd., dated August 18, 1997. Previously filed as Exhibit 10 on (7) 10.18 First Amendment to Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, dated September 19, 1997. Previously filed as Exhibit 10.1 on (7) 10.19 Second Amendment to Lease Agreement between Industrial Data Systems, Incorporated, a Texas corporation, and 319 Century Plaza Associates, dated November 19, 1997. Previously filed as Exhibit 10.2 on (7) 10.20 Employment Agreement, dated March 25, 1998, by and between Constant Power Manufacturing Incorporated and Jack Ripley. Previously filed as Exhibit 10.19 on (8) 10.21 First Amendment to Employment Agreement, dated April 3, 1998, by and between Jack Ripley and Constant Power Manufacturing Incorporated. Previously filed as Exhibit 10.20 on (8) 10.22 Deleted 10.23 Pledge Agreement, dated March 25, 1998, by and between Industrial Data Systems Corporation and John L. "Jack" Ripley. Previously filed as Exhibit 10.22 on (8) 10.24 Fourth Amendment to Lease between Industrial Data Systems, Inc., a Texas corporation and 600 C.C. Business Park Ltd., dated September 1, 1998 (10) 10.25 Lease Agreement between IDS Engineering, Inc. and d/b/a Wilshire Square, dated February 8, 1999 (10) 10.26 Deleted 10.27 Deleted 10.28 Deleted 10.29 Deleted 10.30 Blanket Service Contract with Texaco Pipeline Company. Previously filed as Exhibit 10.18 on (4) 10.31 Settlement Agreement between the Company and Michael L. Moore (14) 10.32 Blanket Service Contract with Caspian Consortium-R (15) 40 10.33 Blanket Service Contract with Caspian Consortium-K (15) 11 Statement Regarding Computation of Per Share Earnings (4) (5) 21 Subsidiary of the Registrant (11) 23 Deleted 24 Power of Attorney (2) 27 Financial Data Schedule (11) (12) 99 Deleted 99.1 Deleted (1) Exhibits incorporated by reference on the Company's Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 27, 1997. (2) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 filed with the Securities and Exchange Commission on April 14, 1997. (3) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities and Exchange Commission on May 14, 1997 (4) Exhibits incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 filed with the Securities and Exchange Commission on August 14, 1997 (5) Exhibits incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997 filed with the Securities and Exchange Commission on November 14, 1997 (6) Deleted (7) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 10, 1998 (8) Exhibits incorporated by reference on the Company's Form 8-K filed April 10, 1998 and Form 8-K/A filed April 29, 1998 (9) Deleted (10) Exhibits incorporated by reference on the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1998 (11) Exhibit incorporated by reference on the Company's Annual Reports on Form 10-KSB. (12) Exhibit incorporated by reference on the Company's Annual Reports on Form 10-QSB. (13) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999 filed with the Securities and Exchange commission on May 17, 1999 41 (14) Exhibit incorporated by reference on the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange commission on November 15, 1999 (15) Exhibits incorporated by reference on this Annual Report on Form 10-KSB for the year ended December 31, 1999 42 SIGNATURES In accordance with Section 12 of the Securities Exchange act of 1934, the Registrant has caused this Annual Report on Form 10 KSB to be signed on its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL DATA SYSTEMS CORPORATION Dated: March 28, 2000 By: /s/ William A. Coskey ---------------------------- William A. Coskey, P.E., Chairman of the Board, President and Chief Executive Officer By: /s/ Hulda L. Coskey ---------------------------- Hulda L. Coskey, Chief Financial Officer, Secretary, Treasurer, Director By: /s/ David W. Gent ---------------------------- David W. Gent, P.E., Director By: /s/ Gordon R. Wingate ---------------------------- Gordon R. Wingate, Director By: /s/ Ken J. Hedrick ---------------------------- Ken J. Hedrick, Controller, Director 43 EX-10.32 2 BLANKET SERVICE CONTRACT WITH CASPIAN CONSORTIUM-R EXHIBIT 10.32 CONTRACT AND SERVICES THIS AGREEMENT, between Caspian Consortium-R whose mailing address is: * (hereinafter called COMPANY) and IDS Engineering, Inc. (hereinafter called CONTRACTOR) whose address is 600 Century Plaza Drive Building 140, Houston, TX 77073 USA, provides for the performance CONTRACTOR of the work and services stipulated below on the terms and conditions set forth. Unless otherwise provided herein, all notices shall be given writing to the addresses stated above or addresses given in writing to the other party from time to time. 1. WORK TO BE PERFORMED: 1.1. CONTRACTOR shall perform the work services which are described in Exhibit A attached hereto, and made a part hereof, or by supplement or amendment by written Work Order issued pursuant hereto (whether or not any Exhibit A be attached), at the price or rates and on the terms described in either Exhibit A or in such Work Orders. Work Orders (distinguished from oral or written field work orders) may be issued only by COMPANY management personnel. Such work and services shall be done in accordance with the plan specifications, instructions, and other provisions which are either attached hereto and made a part hereof, or are separately identified by signatures and incorporated herein by reference and consistent with COMPANY standards. If such standards are not provided, acceptable industry practice, local codes, or CONTRACTOR'S standards may be employed, each with COMPANY prior written approval. 2. ENVIRONMENT: 2.1. CONTRACTOR shall exercise due diligence prevent pollution and any other type of environmental damage during performance under this Contract. At all times CONTRACTOR shall exercise great care and due caution regarding CONTRACTOR'S engagement in ultrahazardous activities or use of ultrahazardous materials during performance under this Contract, including but not limited to activities involving the use of radioactive sources or explosive substances or corrosive substances. 2.2. CONTRACTOR shall observe and comply with all applicable laws, rules, orders, decrees and regulations concerning environmental protection as well as COMPANY'S requirements regarding environmental protection. Further, in those cases where has provided CONTRACTOR with a copy of an environmental protection policy and/or made reference to a set of environmental guidelines, CONTRACTOR shall comply with, or cause its employees, agents, servants, and subcontractors to comply with said environmental protection policy and/or Guidelines. 3. CHANGES: 3.1. COMPANY reserves the right during the progress of the work to make any changes, additions, or deletions in the original plans and specifications. All changes shall be made in writing and accepted by both parties before CONTRACTOR proceeds with the work thereon. Provisions permitting such alterations without specific consent of the insurer shall be included in the terms of any performance bond required hereunder, so that the validity of such bond shall not be affected thereby. No bills for extras will be allowed unless ordered and authorized by COMPANY, irrespective of any terms which may be contained in any published price list, field work order, delivery ticket, or other paper (other than Work Order) which may be issued in connection with the performance of the work hereunder (whether specific reference is made to this contract or not), the terms and conditions of this contract shall apply in determining the rights and liabilities of the parties. *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 1 EXHIBIT 10.32 4. COMMENCEMENT AND TERM: 4.1. CONTRACTOR shall commence performance of the work and services contemplated by this contract and thereafter prosecute the same diligently to completion consistent with good industry practices and within the period of time prescribed by COMPANY hereunder, or if none are specifically set forth, within a reasonable time under the circumstances. Any Work Order issued hereunder may be canceled by either party by written notice given at least fifteen (15) days previous to the date provided for commencement of work and services thereunder. If no specific term is stated in Exhibit A, this Contract and Services Agreement shall continue in effect until terminated by written notice by either party given at any time when there is no outstanding work in progress or under order. 5. SUPERVISION, INSPECTION AND DIRECTION: 5.1. COMPANY shall have no power or authority to direct, supervise or control CONTRACTOR with respect to the means, manner or method of performance of the work or services performed or rendered hereunder, and CONTRACTOR in the exercise of his independent employment and as an independent contractor, shall select the means, manner and method of performance thereof CONTRACTOR is responsible to COMPANY only for the results to be obtained, but the work and services performed or rendered hereunder shall meet with the approval of COMPANY or its designated representative who shall be entitled to inspection to the extent necessary to assure such results. At all times when work is in progress, there shall be a foreman or head workman on the grounds as representative of the CONTRACTOR, and also copies of the plans and specifications if such are part of the agreement. Instructions given to such foreman or head workman shall be considered as having been given to the CONTRACTOR. COMPANY'S failure to make inspection or test, or to discover defective workmanship, material or equipment, shall not relieve CONTRACTOR from any responsibility. Payment of any funds by COMPANY shall not constitute a waiver or acceptance of defects. 6. RECORDS AND AUDIT: 6.1. CONTRACTOR agrees to keep accurate records on a daily basis of the names of the employees, starting and ending time for each length of lunch period, travel time, the type of work performed by each, the materials used and other relevant information COMPANY expressly requests, and to preserve same for at least two years after the completion of each separate job under this Contract. COMPANY shall have the right and from time to during reasonable business hours to inspect and audit all of CONTRACTOR'S books and records bearing directly or indirectly on the work and services performed hereunder and the prices and rates charged therefore. 7. MATERIALS AND PERSONNEL: 7.1. CONTRACTOR shall furnish at its own expense any labor, superintendence, bonds, permits, machinery equipment, tools, fuel, supplies, facilities materials, transportation and all other things necessary for the performance and completion of any work services hereunder, except such items as COMPANY specifically agrees to furnish. Unless otherwise specified, all materials shall be new and of a grade and quality deemed by COMPANY to be adequate for the required use. 7.2. To the extent possible, in providing services hereunder, CONTRACTOR shall utilize National personnel, suppliers and service contractors whose price, quality, availability, and times of delivery are comparable to International price, quality, availability, and times of delivery. *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 2 EXHIBIT 10.32 8. RISK OF LOSS: 8.1. CONTRACTOR: CONTRACTOR shall assume liability at all times for damage to or destruction of CONTRACTOR'S equipment including, but not limited to, all tools, machinery, and appliances regardless of when or how such damage or destruction occurs. COMPANY shall be under no liability to CONTRACTOR for any such loss. 8.2. COMPANY: Until written acceptance by COMPANY of construction or installation work, or work and other services, all risk of loss, damage or destruction by any cause of such work or of such materials or equipment of CONTRACTOR used in such work shall be borne by CONTRACTOR. 9. INSURANCE: 9.1. CONTRACTOR and sub-contractors shall provide insurance specified on Exhibit B attached hereto, covering all operations hereunder, with companies forms and amounts acceptable to COMPANY, and shall furnish such evidence thereof as may be required by COMPANY. 10. INDEMNITY: 10.1. CONTRACTOR agrees to release COMPANY from all liability for, and shall protect, defend, indemnify and hold free and harmless COMPANY, its shareholders, and their officers, directors, and employees from and against any and all claims, demands and causes of action of every kind and character arising out of, incident to, or in connection with this Contract or performance of work or services hereunder, regardless of whether the liability therefore is based upon some alleged act or omission of COMPANY or of some third or other party, whether negligent or not, and including without limitation by enumeration all taxes, claims, debts, fines, penalties, forfeitures, patent infringements, loss of use, death, injury and damages to all CONTRACTOR personnel and property, together with the amount of judgments, penalties, interest, court costs, legal and other fees and expenses in connection therewith. 10.2. COMPANY agrees to release CONTRACTOR from all liability for, and shall protect, defend, indemnify and hold free and harmless CONTRACTOR and the officers, directors, and employees of CONTRACTOR from and against any and all claims, demands and causes of action of every kind and character arising out of, incident to, or in connection with this Contract or performance of work or services hereunder, regardless of whether the liability therefore is based upon some alleged act or omission of COMPANY or CONTRACTOR or of some third or other party, whether negligent or not, and including without limitation by enumeration all taxes, claims, debts, fines, penalties, forfeitures, patent infringements, loss of use, death, injury and damages to all COMPANY personnel and property, together with the amount of judgments, penalties, interest, court costs, legal and other fees and expenses in connection therewith. 11. FAILURE TO PROSECUTE WORK: 11.1. Time and quality of work shall be of the essence of this Contract. In case CONTRACTOR at any time shall fail in any way to prosecute the work herein provided for with reasonable diligence and in a good, workmanlike and safe mariner, COMPANY at its option upon three days written notice delivered to CONTRACTOR, or its representative, or deposited in a registered mail or courier service for which receipt is returned, terminate the work hereunder and thereafter proceed with action for damages, or in the alternative, by its own employees, or by separate independent contract, take control of this work for the purpose of completing the same, furnishing all additional; labor, materials and equipment required except for that equipment or materials which were previously furnished by or bought by COMPANY for CONTRACTOR'S performance of work and services hereunder. In the latter event, CONTRACTOR *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 3 EXHIBIT 10.32 shall be entitled, upon completion of the work, to the difference between the Contract price and the reasonable cost and expense incurred by COMPANY in finishing said work. If such cost of completion should exceed the Contract price, CONTRACTOR agrees to pay the excess to COMPANY as liquidated damages agreed upon by the parties hereto in consideration of the difficulty of ascertaining the actual damages by other means. If Contractor contends that its performance is being delayed by COMPANY in any way, it shall notify COMPANY in writing immediately of the exact nature of such claim or be held to have waived same. 12. COMPLIANCE: 12.1. CONTRACTOR agrees to comply with COMPANY'S safety rules and procedures while working on or near COMPANY'S premises and with all valid applicable federal, republic, state and local laws, decrees, orders rules and regulations. Identification of specific laws, orders, rules and regulations, which may be made in an Exhibit C attached hereto, shall not limit the general applicability of this compliance provision. If CONTRACTOR is a licensed contractor, the provisions of this Contract shall not apply to the extent that services of the CONTRACTOR performed hereunder are subject to conflicting requirements under its license issued by the appropriate governmental regulatory body. Such services shall be governed by the CONTRACTOR'S license and any published regulatory requirements referred to therein. This Contract shall be construed under and in accordance with the laws of the state of Texas, U.S.A., with jurisdiction in Harris County. CONTRACTOR waives its right to claim COMPANY has no jurisdictional right of access to such court system in the event that COMPANY seeks adjudication of a claim, controversy or dispute between the Parties hereto (including the enforcement of a subsequent award); and COMPANY waives its right to claim lack of jurisdiction as a defense in such court system in the event CONTRACTOR files such an action. Titles to the provisions herein shall not be interpretive of the Contract terms. 12.2. CONTRACTOR shall observe and comply with all applicable laws, rules, orders, decrees regulations and orders concerning health and safety, including but not limited to those of the Russian Federation and any political subdivision thereof, as well as the COMPANY'S requirements, if any. Further, in those cases where COMPANY has provided CONTRACTOR with a copy of the health and safety policy and/or made reference to a set of health and safety guidelines, CONTRACTOR shall comply with, and cause its employees, servants, agents, and subcontractors to comply with said health and safety policy and/or health and safety guidelines. 13. SETTLEMENT AND PAYMENT: 13.1. CONTRACTOR agrees to perform the work hereunder for not to exceed sum of * excluding Value Added Tax (VAT). Before final settlement, CONTRACTOR shall show payment and release of all debts, taxes, liens, claims, charges and obligations arising by operation of law or otherwise out of its performance of the work hereunder. COMPANY may withhold funds due CONTRACTOR hereunder or otherwise, without interest, to assure itself of all such obligations, or the obligations of CONTRACTOR to COMPANY in connection with any other between COMPANY or any of its affiliated companies and CONTRACTOR, or to satisfy any provisions of relating to claims against CONTRACTOR. CONTRACTOR shall invoice COMPANY monthly for the services performed. Upon completion of the work in accordance with the terms hereof and in accordance with Exhibit A, and after final acceptance thereof by COMPANY'S authorized representatives, COMPANY agrees to pay CONTRACTOR the final invoice. All payments shall be made to CONTRACTOR's bank by wire transfer: *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 4 EXHIBIT 10.32 Payment will be made within thirty days of invoice. Payment is deemed to be made when COMPANY instructs its bank to wire transfer the funds to the CONTRACTOR. Each party pays its own banking costs. 13.2. Except as otherwise provided in the contract or a supplemental Contract, all income and other applicable taxes, levies or assessments now or hereafter imposed upon or with respect to, or measured by, the compensation paid to CONTRACTOR, or the materials, equipment, work or services furnished or performed hereunder by CONTRACTOR, shall be for the account of, and promptly paid by CONTRACTOR to the appropriate governmental authority. To the extent that the COMPANY is required to withhold taxes from payments due CONTRACTOR under this Contract, COMPANY is authorized to do so and shall promptly notify Contractor of such withholding. 14. CONFIDENTIALITY Except as to information provided to COMPANY's contractor Valmet, CONTRACTOR hereby agrees to keep confidential and not to disclose or make any use of any confidential or proprietary information, knowledge, data or other information of the COMPANY relating to any business of the COMPANY or any of its clients, except as the COMPANY may otherwise consent in writing. Such written consent by COMPANY must be given prior to any disclosure by CONTRACTOR. This restriction pertains not only to documents and information generated by the CONTRACTOR itself, but also to all documents and information provided to him by others in the COMPANY or otherwise acquired during, the course of this Contract. The CONTRACTOR further agrees not to deliver, reproduce, or in any way allow such information, or any documentation relating thereto, to be delivered or to be used by any third parties without the specific prior decision or consent of a duly authorized representative of the COMPANY. It is understood by CONTRACTOR that the economic information regarding the Work and Services to be Performed is sensitive information and disclosure of same could cause significant damage to the COMPANY. 15. ASSIGNMENT: 15.1. This Contract may not be assigned by CONTRACTOR without the express written permission of the COMPANY. Any Assignment made without prior written approval of the COMPANY is null and void. 16. MISCELLANEOUS CONTRACT PROVISIONS: 16.1. CONTRACTOR agrees that it will comply with all valid, applicable laws, orders, decrees, rules and regulations presently in force, or which may be enacted in the future if they regulate the work and services performed hereunder. 16.2. CONTRACTOR agrees that neither it nor any subcontractor, employee, agent or other entity shall, directly or indirectly, in connection with the performance of services for COMPANY: (A) Make any payment to any officer or employee of any government, or to any political party or official thereof, where such payment either (1) is unlawful under laws applicable thereto, or (2) would be unlawful under the Foreign Corrupt Practices Act of 1977 as amended (the "Act"), of the United States of America, if CONTRACTOR were a "domestic concern" within the meaning of such Act, (B) Make any payment to any person, if such payment constitutes an illegal bribe, illegal kickback or other illegal payment under *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 5 EXHIBIT 10.32 laws applicable thereto; or (C ) commit, directly or indirectly, any other act or omission having the same effect under the law. 16.3. This Contract, including all Exhibits, Work Orders, oral orders, plans, specifications, instructions, and other provisions which are issued pursuant hereto and attached hereto or incorporated herein by reference, constitutes the entire agreement between the parties. No other representations, bids, memoranda, or other matter shall vary, alter or interpret the terms hereof. In the event there is a conflict between the terms of this Contract and the provisions of Exhibit A, Work Order, oral orders, plans, specifications, instructions, and other provisions, the terms of this Contract shall prevail. Failure of the COMPANY to exercise by option, right, or privilege hereunder, or to demand compliance as to any obligation or covenant shall not constitute a waiver of the same, or any such succeeding right, privilege, or option, or of strict performance of the same or any succeeding obligation or covenant. EXECUTED in duplicate Russian and English originals on this 24 day of January, 2000. CONTRACTOR IDS Engineering, Inc. By: /s/ William A. Coskey Title: President Name: William A. Coskey COMPANY Caspian Pipeline Consortium-R By: * By: * Title: * Title: * Name: * Name: * *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 6 EXHIBIT 10.32 EXHIBIT "B" CONTRACTOR INSURANCE REQUIREMENTS CONSULTING AND GENERAL CONTRACTOR shall, at its expense, maintain or cause to be maintained the insurance coverages set forth below with insurance companies acceptable to COMPANY. Prior to commencement of work and services hereunder, CONTRACTOR shall deliver to certificates (a) evidencing the issuance of insurance containing the coverages required herein and (b) providing that the insurance shall not be canceled or materially changed without thirty (30) days prior written notice to COMPANY. Commencement or performance of services without delivering the certificate(s) of insurance shall not constitute a waiver of CONTRACTOR'S obligation to provide the required coverages. Failure to obtain such insurance shall be a breach of the Contract. 1. Comprehensive General Liability Insurance, including coverage for Contractual liability for this Contract, and Cross-liability, in the amount of $1,000,000 combined single limit each occurrence for body injury and property damage. If CONTRACTOR'S General Liability Insurance is written on a "claims-made" form it must provide for (i) a retroactive date prior to, or coincident with, the commencement of work and services under this Contract and (ii) a minimum extended claims reporting period of one (1) year. 2. If automobiles are to be furnished by CONTRACTOR in performance of work and services under this Contract, Comprehensive Automobile Liability Insurance, covering all vehicles owned, non-owned, or hired, in the amount of $500,000 combined single limit occurrence for bodily injury and property damage. 3. I aircraft, including helicopters, are to be furnished by CONTRACTOR in performance of work and services under this Contract, CONTRACTOR must obtain Aircraft Liability Insurance, with contractual liability provisions, covering bodily injury including passenger liability and property damage, hangerkeepers liability and ground liability including products and completed operations in the amount of at least $10,000,000 combined single limit each occurrence. 4. If watercraft is to be furnished by CONTRACTOR in performance of the work and services under this Contract, then a supplement this Exhibit shall be executed by the parties. GENERAL CONDITIONS FOR INSURANCE A. CONTRACTOR hereby waives its right of subrogation against the COMPANY to the extent of liabilities assumed under this Contract and shall cause its insurers to waive any rights of subrogation against COMPANY. With regard to insurance to be taken out by CONTRACTOR hereunder, all insurance under polices taken out by CONTRACTOR shall be primary insurance because such insurance applies to the obligations assumed hereunder. B. With respect to insurance maintained hereunder by CONTRACTOR, all insurance coverages afforded by policies of insurance maintained by CONTRACTOR shall be primary insurance as such coverages apply the liabilities assumed under this Contract. C. Where use of subcontractors has been approved by the COMPANY, CONTRACTOR shall require all such contractors to obtain, maintain, and keep in force during the time which they are engaged, adequate *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 7 EXHIBIT 10.32 insurance coverage and shall furnish COMPANY acceptable evidence of such insurance upon request. Any deficiencies in such coverage shall be the sole responsibility of CONTRACTOR. D. No form of CONTRACTOR liability self-insurance, including but not limited to insuring with a parent, subsidiary, or affiliate organization, is acceptable or allowable under the terms of this Contract, unless AGREED TO BY COMPANY PRIOR TO COMMENCEMENT OF WORK AND SERVICES HEREUNDER. CONTRACTOR IDS Engineering, Inc. By: /s/ William A. Coskey Title: President Name: William A. Coskey COMPANY Caspian Pipeline Consortium-R By: * Title: * Name: * By: * Title: * Name: * *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 8 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Exhibit A Project Number: * Programming Services A. Scope of Work: Part 1: Work Caspian Pipeline Consortium-R (CPC-R) and Caspian Pipeline Consortium-K (CPC-K) are together building, a unitary crude oil pipeline from Tengiz, Kazakhstan to the Black Sea. Initial design will include five pump stations, a tank farm, a marine terminal and SPM. The design of the pipeline will include a SCADA system for the control and monitoring of the pipeline system from Tengiz pump station to the Black Sea Marine Terminal Facility. SCADA will maintain overall surveillance and control responsibilities of the pipeline, inclusive of the Pump Stations, Pipeline Block Valves, Marine Terminal, Tank Farm and SPM. The pipeline will be controlled and monitored from an Operations Control Center located at the Marine Terminal. Primary, real time local control of the pump stations and Marine Terminal Facilities will be accomplished by using Programmable Logic Controllers (PLCs). The PLCs will be monitored and controlled by the Primary SCADA system and by a Human Machine Interface (HMI) in the local control rooms. A single scope of work has been written herein to provide for the uniform and homogenous working of this single computer control system. Work to be performed by the Contractor for the system in Russia shall be performed under contract with CPC-R; and work to be performed for the system in Kazakhstan shall be performed under contract with CPC-K. All programming work by Contractor shall be performed in the United States. Any additional work to be performed later by Contractor in either Russia or Kazakhstan shall be governed by separate service contracts with CPC-R or CPC-K, respectively, at the rates set forth herein in Part 2 of this Scope of Work. Contractor is to provide the assembly and programming of the PLC systems for five (5) pump stations in Russia and Kazakhstan. There will be five (5) ESD PLCs and approximately a total of thirty (30) General Purpose PLCs for five (5) pump stations. Contractor will assemble the PLC hardware that will be supplied by the Company's contractor, Valmet. The Contractor will pro-ram the systems as per Company's requirement and specifications. The five (5) pump stations are Tengiz, Atyrau (in Kazakhstan), and Astrakhan, Komsomolsk and Kropotkin (in Russia). General Purpose PLCs and specialty systems will be Allen Bradley ControlLogix and ESD PLC will be Hima. PLC hardware will be provided by the Company's contractor, Valmet, to the Contractor. 1. Contractor to pro-ram PLCs as per the following listed documents provided by Company. . P&ID . Control Narrative . Cause & Effect . Flow Chart . Project Standard . Location of system (cabinet/HMI/etc.) . I/0 loading (for each PLC) . "Package Vendor" interface data . Wiring/Communication architecture . CPC Standard for PLC Controllogix Program Data File Structure *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 9 Client Name: Caspian Pipeline Consortium-R January, 2000 Project Name: * Project Number: * 2. Hardware to be supplied by Company's contractor, Valmet, directly to Contractor. . Cabinets (as per size and quantity recommended by Contractor) . ESD PLC modules, processors, communication, I/Os, Power Supplies, Hima Cables, etc. . General Purpose PLC modules, processors, communication, I/Os, Power Supplies, Allen Bradley cables, etc. . Remote I/0 modules . Remote I/0 cabinets 3. Contractor shall layout the cabinets as per industry common practice and from the following information from the Company: 3.1 Bill of material for each PLC 3.2 Brand, style, color, finish, maximum depth (preference, 600 mm) of Cabinet. Company will specify height of cabinet (2 meters). Cable entry into the cabinet shall be through the top, 200 mm top clearance, use compression type terminals. 3.3 Limits of space at job site. 4. Contractor to determine if multiple PLCs of like functions (for example: mainline motor driven pumps) could be mounted in one cabinet. 5. Contractor will select the size of cabinets (width and depth only). Contractor will inform the Company of the cabinet sizes. Company will instruct Valmet to purchase and deliver the cabinets directly to the Contractor. Note that all cabinets are to be of the same depth. 6. Contractor to provide the wiring drawing, and cabinet layout drawings to Company as early as possible. Company will use drawings to complete loop drawings and other design documents. 7. Contractor will provide the temporary communication cables (company supplied specification) to connect the systems in their shop. Communication cables (supplied by others) external to cabinets will be available only at the job site. 8. For required hardware missed by Company the Contractor is responsible to inform Company to provide or cause to provide such in an expeditious manner. If the missed items are minor and the Contractor can provide them in a more expeditious manner, Contractor shall provide and charge the Company as long as Company has given prior approval for the purchase. 9. Contractor shall verify that system hardware is complete. 10. Contractor shall be responsible for assembling the hardware and ensuring all assemblies are complete and work as a system. 11. Contractor to interface the PLC system with SCADA. 12. Contractor to supply to Company the following documents as a minimum; *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 10 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Project Number: * 12.1 Assembly drawings 12.2 Logic diagrams of software 12.3 Functional description of software 12.4 Original copies of all software Generated by Contractor 13. All software developed under this contract is and shall remain the sole property of the Company. Contractor may not use such software for any other applications. 14. Contractor to provide five (5) lap top PLC based computers for interface and programming the PLC systems. One lap top computer per pump station with the following minimum configuration; Pentium 111, 64 Meg RAM, 6 Gicabyte Hard Drive, Window 98 operating system. 15. A functional test to ensure proper operation of all devices and components shall be performed prior to shipment. Company reserves the right to witness and approve the functional test.** 15.1 Contractor to submit Factory Acceptance Procedure for Company's approval. 15.2 FAT to include coordinated test with SCADA supplier. 15.3 Company to be given two weeks notice before test. 15.4 Contractor to supply simulated input/outputs used in testing. 16. Contractor to inform Company of the location where hardware is to be delivered and assembled. Delivery of system to job site will be by Valmet. Coordination between Contractor and Valmet is required.* 17. Contractor to inform Company of the location where programming will be performed.** **Note: Contractor is advised that it may be necessary to ship PLCs to schedule- critical locations prior to completion of logic coding and testing. Contractor shall assure that he has enough available PLC and support hardware at his premises to complete all programming and testing without interruption should the object hardware require shipment prior to software completion. 18. Schedule: 18.1 System for Tengiz and Astrakhan pump stations should be at job site by * 18.2 System for the other Pump Stations should be at job site by at a later "supplied dates". 18.3 Loop Checking 18.3.1 Tengiz - * 18.3.2 18.3.2 Astrakhan - * 18.3.3 Atyrau - * 18.3.4 Komsomolsk - * 18.3.5 Kropotkin - * 18.4 Start-up 18.4.1 Tengiz -* 18.4.2 Astrakhan - * 18.4.3 Atyrau - * *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 11 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Project Number: * 18.4.4 Komsomolsk - * 18.4.5 Kropotkin - * 19. Contractor to provide a complete and detailed design, manufacturing, delivery schedule. 20. All software and PLC pro-rams shall be Y2K compliant. 21. Cabinets will be located at an environmentally-controlled room at job site. Remote I/0 units will not be necessarily in a controlled environment. 22. ESD and General Purpose PLC system shall be assembled, wired, and tested, within respective cabinets. 23. Contractor is to ensure all assembles are in compliance with applicable Russian and Kazakhstan regulations. 24. Preparation for shipment: 24.1 Contractor shall submit procedures for the cleaning, preservation, packing, handling, lifting, shipping and storage of the material and equipment under this order. 24.2 Contractor shall ensure all equipment is adequately packed, crated, boxed skidded or otherwise protected and prepared for shipment in such a manner as to prevent loss and damage during handling, transportation and storage. 25. Hardware count: (Preliminary) 25.1 Tenciz (Kazakhstan) . 18 Analoc, Input modules . 1 Analog Output module . 83 Discrete Input modules . 55 Discrete Output modules . 10 Control Net Boards . Ethernet boards . 20 Processors . 16 Chassis . 19 Power supplies . 10 General Purpose PLC cabinets (number will change depending on Vendor recommendation) . 5 Remote I/0 cabinets . 1 ESD PLC system, with a cabinet 25.2 Astrakhan (Russia) . 15 Analog Input modules . 1 Analog Output module . 53 Discrete Input modules . 35 Discrete Output modules *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 12 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Project Number: * . 4 Control Net Boards . 20 Ethernet boards . 18 Processors . 11 Chassis . 15 Power supplies . 9 General Purpose PLC cabinets (number will change depending on Vendor recommendation) . 5 Remote I/0 cabinets . 1 ESD PLC system, with a cabinet 25.3 Atyrau (Kazakhstan) - estimate same as Astrakhan pump station 25.4 Komsomolsk (Russia) - estimate same as Astrakhan pump station 25.5 Kropotkin (Russia) - estimate same as Astrakhan pump station Part 2: Rates for Work Performed All Rates for work (programming services) performed outside Russia under this contract shall be at the Standard or Overtime Rates shown below. Contractor is expected to provide site support during installation, commissioning and startup. In the event that Contractor is requested to perform any of the following work in Russia, a separate services contract will be entered into by the parties for such work at the Overseas Rates contained below. VAT will be added to each invoice as a separate line item for work performed inside Russia (Overseas Rate) under the separate contract. Contractor will interface as required with the desion institutes (GTP/GIPVN) to facilitate programming and hardware activities. GTP is in Moscow and GIPVN is in Samara, Russia. Rates for Engineering Services: These rates include all Contractor's charges for insurance, taxes, overhead and profit. These rates also include Contractor's overhead costs of Computer work stations and software for normal engineering, and drafting projects. CLASSIFICATION - -------------- Std. Rate O.T. Rate Overseas Rate - -------------- --------- --------- ------------- Sr. Project Engineer * * * Project Engineer * * * Sr. Engr/Programming Spec. * * * Engineer * * * Project Control Engineer * * *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 13 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Project Number: * Designer * * Operator/Draftsperson * * Project Clerk/Translator * * Senior Clerk * * Clerk/Secretary * * NOTE: 20% VAT will be added to each invoice as a separate line item. Company written approval will be required before authorizing overtime hours. Contractor shall not work over 16 hours in a 24-hour day. The overtime rate shall apply to all hours worked over 40 hours per week, or on Contractor holidays, or on weekends if worked at client request. Travel and Expenses Contractor project-related travel expenses will only be incurred when required and authorized in advance by Company, and will be billed at cost plus * percent. For prolonged assignments performed outside the Houston office area, a reasonable per them allowance will be agreed upon by the parties in lieu of certain expenses and charges for applicable personnel. Reproduction All third party reproduction costs will be billed at cost plus * percent. Plots issued to Company whether preliminary or final will be billed at * per 22" x 34" sheet. Laser print drawings or copies (11" x 27", letter or legal size) issued to Company will be billed at * inch sheet. Binders (including tabs) issued to Company will be billed at * each. Subcontracts/Miscellaneous Costs All miscellaneous and third party costs will be billed at cost plus * percent. Reimbursable Equipment In the event that Contractor procures hardware and equipment under Item 8, Part 1, Contractor shall be reimbursed by Company at cost. B. Payment Schedule The compensation paid to Contractor for Programming Services shall be based upon the rates above and shall be based upon the labor hours necessary to complete the Scope of Work. Contractor shall submit invoices on a monthly basis, indicating the hours worked, for these services. Compensation to be paid to Contractor for hardware and equipment supplied by Contractor, if any, shall be invoiced by Contractor not more than ninety days before delivery of the SCADA system to the Company. All invoices should be sent to the Company at the following address: *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 14 Client Name: Caspian Pipeline Consortium-R January, 2000 Proj. Name: * Project Number: * Caspian Pipeline Consortium-R Project Accountant * * * * ** All payments shall be made thirty days after receipt of invoice. VAT shall be shown separately and will be paid by Company directly to the appropriate governmental authorities. C. Cost Estimate of Work This Contract is a "not to exceed contract" for the value of *which estimate is set forth on the Attached Cost Estimate, A- 1. Because the cost of services has been estimated, it is imperative that when Contractor reaches eighty-percent of the value of the contract *, Contractor shall notify Company of the status of the work. END OF EXHIBIT A *CONFIDENTIAL TREATMENT REQUEST. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WTIH THE COMMISSION. Page 15 EX-10.33 3 BLANKET SERVICE CONTRACT WITH CASPIAN CONSORTIUM-K EXHIBIT 10.33 CONTRACT AND SERVICES THIS AGREEMENT, between Caspian Consortium-K whose mailing address is, * (hereinafter called COMPANY) and IDS Engineering, Inc. (hereinafter called CONTRACTOR) whose address is 600 Century Plaza Drive Building 140, Houston, TX 77073 USA, provides for the performance CONTRACTOR of the work and services stipulated below on the terms and conditions set forth. Unless otherwise provided herein, all notices shall be given writing to the addresses stated above or addresses given in writing to the other party from time to time. 1. WORK TO BE PERFORMED: 1.1. CONTRACTOR shall perform the work services which are described in Exhibit A attached hereto, and made a part hereof, or by supplement or amendment by written Work Order issued pursuant hereto (whether or not any Exhibit A be attached), at the price or rates and on the terms described in either Exhibit A or in such Work Orders. Work Orders (distinguished from oral or written field work orders) may be issued only by COMPANY management personnel. Such work and services shall be done in accordance with the plan specifications, instructions, and other provisions which are either attached hereto and made a part hereof, or are separately identified by signatures and incorporated herein by reference and consistent with COMPANY standards. If such standards are not provided, acceptable industry practice, local codes, or CONTRACTOR'S standards may be employed, each with COMPANY prior written approval 2. ENVIRONMENT 2.1. CONTRACTOR shall exercise due diligence prevent pollution and any other type of environmental damage during performance under this Contract. At all times CONTRACTOR shall exercise great care and due caution regarding CONTRACTOR'S engagement in ultrahazardous activities or use of ultrahazardous materials during performance under this Contract, including but not limited to activities involving the use of radioactive sources or explosive substances or corrosive substances. 2.2. CONTRACTOR shall observe and comply with all applicable laws, rules, orders, decrees and regulations concerning environmental protection as well as COMPANY'S requirements regarding environmental protection. Further, in those cases where has provided CONTRACTOR with a copy of an environmental protection policy and/or made reference to a set of environmental guidelines, CONTRACTOR shall comply with, or cause its employees, agents, servants, and subcontractors to comply with said environmental protection policy and/or Guidelines. 3. CHANGES: 3.1. COMPANY reserves the right during the progress of the work to make any changes, additions, or deletions in the original plans and specifications. All changes shall be made in writing and accepted by both parties before CONTRACTOR proceeds with the work thereon. Provisions permitting such alterations without specific consent of the insurer shall be included in the terms of any performance bond required hereunder, so that the validity of such bond shall not be affected thereby. No bills for extras will be allowed unless ordered and authorized by COMPANY, irrespective of any terms which may be contained in any published price list, field work order, delivery ticket, or other paper (other than Work Order) which may be issued in connection with the performance of the work hereunder (whether specific reference is made to this contract or not), the terms and conditions of this contract shall apply in determining the rights and liabilities of the parties. *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 1 EXHIBIT 10.33 4. COMMENCEMENT AND TERM: 4.1. CONTRACTOR shall commence performance of the work and services contemplated by this contract and thereafter prosecute the same diligently to completion consistent with good industry practices and within the period of time prescribed by COMPANY hereunder, or if none are specifically set forth, within a reasonable time under the circumstances. Any Work Order issued hereunder may be canceled by either party by written notice given at least fifteen (15) days previous to the date provided for commencement of work and services thereunder. If no specific term is stated in Exhibit A, this Contract and Services Agreement shall continue in effect until terminated by written notice by either party given at any time when there is no outstanding work in progress or under order. 5. SUPERVISION, INSPECTION AND DIRECTION: 5.1. COMPANY shall have no power or authority to direct, supervise or control CONTRACTOR with respect to the means, manner or method of performance of the work or services performed or rendered hereunder, and CONTRACTOR in the exercise of his independent employment and as an independent contractor, shall select the means, manner and method of performance thereof CONTRACTOR is responsible to COMPANY only for the results to be obtained, but the work and services performed or rendered hereunder shall meet with the approval of COMPANY or its designated representative who shall be entitled to inspection to the extent necessary to assure such results. At all times when work is in progress, there shall be a foreman or head workman on the grounds as representative of the CONTRACTOR, and also copies of the plans and specifications if such are part of the agreement. Instructions given to such foreman or head workman shall be considered as having been given to the CONTRACTOR. COMPANY'S failure to make inspection or test, or to discover defective workmanship, material or equipment, shall not relieve CONTRACTOR from any responsibility. Payment of any funds by COMPANY shall not constitute a waiver or acceptance of defects. 6. RECORDS AND AUDIT: 6.1. CONTRACTOR agrees to keep accurate records on a daily basis of the names of the employees, starting and ending time for each length of lunch period, travel time, the type of work performed by each, the materials used and other relevant information COMPANY expressly requests, and to preserve same for at least two years after the completion of each separate job under this Contract. COMPANY shall have the right and from time to during reasonable business hours to inspect and audit all of CONTRACTOR'S books and records bearing directly or indirectly on the work and services performed hereunder and the prices and rates charged therefore. 7. MATERIALS AND PERSONNEL: 7.1 CONTRACTOR shall furnish at its own expense any labor, superintendence, bonds, permits, machinery equipment, tools, fuel, supplies, facilities materials, transportation and all other things necessary for the performance and completion of any work services hereunder, except such items as COMPANY specifically agrees to furnish. Unless otherwise specified, all materials shall be new and of a grade and quality deemed by COMPANY to be adequate for the required use. 7.2. To the extent possible, in providing services hereunder, CONTRACTOR shall utilize National personnel, suppliers and service contractors whose price, quality, availability, and times of delivery are comparable to International price, quality, availability, and times of delivery. 8. RISK OF LOSS: *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 2 EXHIBIT 10.33 8.1. CONTRACTOR: CONTRACTOR shall assume liability at all times for damage to or destruction of CONTRACTOR'S equipment including, but not limited to, all tools, machinery, and appliances regardless of when or how such damage or destruction occurs. COMPANY shall be under no liability to CONTRACTOR for any such loss. 8.2. COMPANY: Until written acceptance by COMPANY of construction or installation work, or work and other services, all risk of loss, damage or destruction by any cause of such work or of such materials or equipment of CONTRACTOR used in such work shall be borne by CONTRACTOR. 9. INSURANCE: 9.1. CONTRACTOR and sub-contractors shall provide insurance specified on Exhibit B attached hereto, covering all operations hereunder, with companies forms and amounts acceptable to COMPANY, and shall furnish such evidence thereof as may be required by COMPANY. 10. INDEMNITY: 10.1. CONTRACTOR agrees to release COMPANY from all liability for, and shall protect, defend, indemnify and hold free and harmless COMPANY, its shareholders, and their officers, directors, and employees from and against any and all claims, demands and causes of action of every kind and character arising out of, incident to, or in connection with this Contract or performance of work or services hereunder, regardless of whether the liability therefore is based upon some alleged act or omission of COMPANY or of some third or other party, whether negligent or not, and including without limitation by enumeration all taxes, claims, debts, fines, penalties, forfeitures, patent infringements, loss of use, death, injury and damages to all CONTRACTOR personnel and property, together with the amount of judgments, penalties, interest, court costs, legal and other fees and expenses in connection therewith. 10.2. COMPANY agrees to release CONTRACTOR from all liability for, and shall protect, defend, indemnify and hold free and harmless CONTRACTOR and the officers, directors, and employees of CONTRACTOR from and against any and all claims, demands and causes of action of every kind and character arising out of, incident to, or in connection with this Contract or performance of work or services hereunder, regardless of whether the liability therefore is based upon some alleged act or omission of COMPANY or CONTRACTOR or of some third or other party, whether negligent or not, and including without limitation by enumeration all taxes, claims, debts, fines, penalties, forfeitures, patent infringements, loss of use, death, injury and damages to all COMPANY personnel and property, together with the amount of judgments, penalties, interest, court costs, legal and other fees and expenses in connection therewith. 11. FAILURE TO PROSECUTE WORK: 11.1. Time and quality of work shall be of the essence of this Contract. In case CONTRACTOR at any time shall fail in any way to prosecute the work herein provided for with reasonable diligence and in a good, workmanlike and safe mariner, COMPANY at its option upon three days written notice delivered to CONTRACTOR, or its representative, or deposited in a registered mail or courier service for which receipt is returned, terminate the work hereunder and thereafter proceed with action for damages, or in the alternative, by its own employees, or by separate independent contract, take control of this work for the purpose of completing the same, furnishing all additional; labor, materials and equipment required except for that equipment or materials which were previously furnished by or bought by COMPANY for CONTRACTOR'S performance of work and services hereunder. In the latter event, CONTRACTOR *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 3 EXHIBIT 10.33 shall be entitled, upon completion of the work, to the difference between the Contract price and the reasonable cost and expense incurred by COMPANY in finishing said work. If such cost of completion should exceed the Contract price, CONTRACTOR agrees to pay the excess to COMPANY as liquidated damages agreed upon by the parties hereto in consideration of the difficulty of ascertaining the actual damages by other means. If Contractor contends that its performance is being delayed by COMPANY in any way, it shall notify COMPANY in writing immediately of the exact nature of such claim or be held to have waived same. 12. COMPLIANCE: 12.1 CONTRACTOR agrees to comply with COMPANY'S safety rules and procedures while working on or near COMPANY'S premises and with all valid applicable federal, republic, state and local laws, decrees, orders rules and regulations. Identification of specific laws, orders, rules and regulations, which may be made in an Exhibit C attached hereto, shall not limit the general applicability of this compliance provision. If CONTRACTOR is a licensed contractor, the provisions of this Contract shall not apply to the extent that services of the CONTRACTOR performed hereunder are subject to conflicting requirements under its license issued by the appropriate governmental regulatory body. Such services shall be governed by the CONTRACTOR'S license and any published regulatory requirements referred to therein. This Contract shall be construed under and in accordance with the laws of the state of Texas, U.S.A., with jurisdiction in Harris County. CONTRACTOR waives its right to claim COMPANY has no jurisdictional right of access to such court system in the event that COMPANY seeks adjudication of a claim, controversy or dispute between the Parties hereto (including the enforcement of a subsequent award); and COMPANY waives its right to claim lack of jurisdiction as a defense in such court system in the event CONTRACTOR files such an action. Titles to the provisions herein shall not be interpretive of the Contract terms. 12.2 CONTRACTOR shall observe and comply with all applicable laws, rules, orders, decrees regulations and orders concerning health and safety, including but not limited to those of the Russian Federation and any political subdivision thereof, as well as the COMPANY'S requirements, if any. Further, in those cases where COMPANY has provided CONTRACTOR with a copy of the health and safety policy and/or made reference to a set of health and safety guidelines, CONTRACTOR shall comply with, and cause its employees, servants, agents, and subcontractors to comply with said health and safety policy and/or health and safety guidelines. 13. SETTLEMENT AND PAYMENT: 13.1 CONTRACTOR agrees to perform the work hereunder for not to exceed sum of, * excluding Value Added Tax (VAT). Before final settlement, CONTRACTOR shall show payment and release of all debts, taxes, liens, claims, charges and obligations arising by operation of law or otherwise out of its performance of the work hereunder. COMPANY may withhold funds due CONTRACTOR hereunder or otherwise, without interest, to assure itself of all such obligations, or the obligations of CONTRACTOR to COMPANY in connection with any other between COMPANY or any of its affiliated companies and CONTRACTOR, or to satisfy any provisions of relating to claims against CONTRACTOR. CONTRACTOR shall invoice COMPANY monthly for the services performed. Upon completion of the work in accordance with the terms hereof and in accordance with Exhibit A, and after final acceptance thereof by COMPANY'S authorized representatives, COMPANY agrees to pay CONTRACTOR the final invoice. All payments shall be made to CONTRACTOR's bank by wire transfer: *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 4 EXHIBIT 10.33 * * * * * * Payment will be made within thirty days of invoice. Payment is deemed to be made when COMPANY instructs its bank to wire transfer the funds to the CONTRACTOR. Each party pays its own banking costs. 13.2 Except as otherwise provided in the contract or a supplemental Contract, all income and other applicable taxes, levies or assessments now or hereafter imposed upon or with respect to, or measured by, the compensation paid to CONTRACTOR, or the materials, equipment, work or services furnished or performed hereunder by CONTRACTOR, shall be for the account of, and promptly paid by CONTRACTOR to the appropriate governmental authority. To the extent that the COMPANY is required to withhold taxes from payments due CONTRACTOR under this Contract, COMPANY is authorized to do so and shall promptly notify Contractor of such withholding. 14. CONFIDENTIALITY Except as to information provided to COMPANY's contractor Valmet, CONTRACTOR hereby agrees to keep confidential and not to disclose or make any use of any confidential or proprietary information, knowledge, data or other information of the COMPANY relating to any business of the COMPANY or any of its clients, except as the COMPANY may otherwise consent in writing. Such written consent by COMPANY must be given prior to any disclosure by CONTRACTOR. This restriction pertains not only to documents and information generated by the CONTRACTOR itself, but also to all documents and information provided to him by others in the COMPANY or otherwise acquired during, the course of this Contract. The CONTRACTOR further agrees not to deliver, reproduce, or in any way allow such information, or any documentation relating thereto, to be delivered or to be used by any third parties without the specific prior decision or consent of a duly authorized representative of the COMPANY. It is understood by CONTRACTOR that the economic information regarding the Work and Services to be Performed is sensitive information and disclosure of same could cause significant damage to the COMPANY. 15. ASSIGNMENT: 15.1. This Contract may not be assigned by CONTRACTOR without the express written permission of the COMPANY. Any Assignment made without prior written approval of the COMPANY is null and void. 16. MISCELLANEOUS CONTRACT PROVISIONS: 16.1. CONTRACTOR agrees that it will comply with all valid, applicable laws, orders, decrees, rules and regulations presently in force, or which may be enacted in the future if they regulate the work and services performed hereunder. *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 5 EXHIBIT 10.33 16.2. CONTRACTOR agrees that neither it nor any subcontractor, employee, agent or other entity shall, directly or indirectly, in connection with the performance of services for COMPANY: (A) Make any payment to any officer or employee of any government, or to any political party or official thereof, where such payment either (1) is unlawful under laws applicable thereto, or (2) would be unlawful under the Foreign Corrupt Practices Act of 1977 as amended (the "Act"), of the United States of America, if CONTRACTOR were a "domestic concern" within the meaning of such Act, (B) Make any payment to any person, if such payment constitutes an illegal bribe, illegal kickback or other illegal payment under laws applicable thereto; or (C) commit, directly or indirectly, any other act or omission having the same effect under the law. 16.3 This Contract, including all Exhibits, Work Orders, oral orders, plans, specifications, instructions, and other provisions which are issued pursuant hereto and attached hereto or incorporated herein by reference, constitutes the entire agreement between the parties. No other representations, bids, memoranda, or other matter shall vary, alter or interpret the terms hereof. In the event there is a conflict between the terms of this Contract and the provisions of Exhibit A, Work Order, oral orders, plans, specifications, instructions, and other provisions, the terms of this Contract shall prevail. Failure of the COMPANY to exercise by option, right, or privilege hereunder, or to demand compliance as to any obligation or covenant shall not constitute a waiver of the same, or any such succeeding right, privilege, or option, or of strict performance of the same or any succeeding obligation or covenant. EXECUTED in duplicate Russian and English originals on this 24 day of January, 2000. CONTRACTOR IDS Engineering, Inc. By: /s/ William A. Coskey Title: President Name: William A. Coskey COMPANY Caspian Pipeline Consortium-K By: * By: * Title: * Title: * Name: * Name: * *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 6 EXHIBIT 10.33 EXHIBIT "B" CONTRACTOR INSURANCE REQUIREMENTS CONSULTING AND GENERAL CONTRACTOR shall, at its expense, maintain or cause to be maintained the insurance coverages set forth below with insurance companies acceptable to COMPANY. Prior to commencement of work and services hereunder, CONTRACTOR shall deliver to certificates (a) evidencing the issuance of insurance containing the coverages required herein and (b) providing that the insurance shall not be canceled or materially changed without thirty (30) days prior written notice to COMPANY. Commencement or performance of services without delivering the certificate(s) of insurance shall not constitute a waiver of CONTRACTOR'S obligation to provide the required coverages. Failure to obtain such insurance shall be a breach of the Contract. 1. Comprehensive General Liability Insurance, including coverage for Contractual liability for this Contract, and Cross-liability, in the amount of $1,000,000 combined single limit each occurrence for body injury and property damage. If CONTRACTOR'S General Liability Insurance is written on a "claims-made" form it must provide for (i) a retroactive date prior to, or coincident with, the commencement of work and services under this Contract and (ii) a minimum extended claims reporting period of one (1) year. 2. If automobiles are to be furnished by CONTRACTOR in performance of work and services under this Contract, Comprehensive Automobile Liability Insurance, covering all vehicles owned, non-owned, or hired, in the amount of $500,000 combined single limit occurrence for bodily injury and property damage. 3. If aircraft, including helicopters, are to be furnished by CONTRACTOR in performance of work and services under this Contract, CONTRACTOR must obtain Aircraft Liability Insurance, with contractual liability provisions, covering bodily injury including passenger liability and property damage, hangerkeepers liability and ground liability including products and completed operations in the amount of at least $10,000,000 combined single limit each occurrence. 4. If watercraft is to be furnished by CONTRACTOR in performance of the work and services under this Contract, then a supplement this Exhibit shall be executed by the parties. GENERAL CONDITIONS FOR INSURANCE A. CONTRACTOR hereby waives its right of subrogation against the COMPANY to the extent of liabilities assumed under this Contract and shall cause its insurers to waive any rights of subrogation against COMPANY. With regard to insurance to be taken out by CONTRACTOR hereunder, all insurance under polices taken out by CONTRACTOR shall be primary insurance because such insurance applies to the obligations assumed hereunder. B. With respect to insurance maintained hereunder by CONTRACTOR, all insurance coverages afforded by policies of insurance maintained by CONTRACTOR shall be primary insurance as such coverages apply the liabilities assumed under this Contract. C. Where use of subcontractors has been approved by the COMPANY, CONTRACTOR shall require all such contractors to obtain, maintain, and keep in force during the time which they are engaged, adequate *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 7 EXHIBIT 10.33 insurance coverage and shall furnish COMPANY acceptable evidence of such insurance upon request. Any deficiencies in such coverage shall be the sole responsibility of CONTRACTOR. D. No form of CONTRACTOR liability self-insurance, including but not limited to insuring with a parent, subsidiary, or affiliate organization, is acceptable or allowable under the terms of this Contract, unless AGREED TO BY COMPANY PRIOR TO COMMENCEMENT OF WORK AND SERVICES HEREUNDER. CONTRACTOR IDS Engineering, Inc. By: /s/ William A. Coskey Title: President Name: William A. Coskey COMPANY Caspian Pipeline Consortium-K By: * Title: * Name: * By: * Title: * Name: * *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 8 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * Exhibit A Programming Services A. Scope of Work: Part 1: Work Caspian Pipeline Consortium-R (CPC-R) and Caspian Pipeline Consortium-K (CPC-K) are together building a unitary crude oil pipeline from Tengiz, Kazakhstan to the Black Sea. Initial design will include five pump stations, a tank farm, a marine terminal and SPM. The design of the pipeline will include a SCADA system for the control and monitoring of the pipeline system from Tengiz pump station to the Black Sea Marine Terminal Facility. SCADA will maintain overall surveillance and control responsibilities of the pipeline, inclusive of the Pump Stations, Pipeline Block Valves, Marine Terminal, Tank Farm and SPM. The pipeline will be controlled and monitored from an Operations Control Center located at the Marine Terminal, Primary, real time local control of the pump stations and Marine Terminal Facilities will be accomplished by using Programmable Logic Controllers (PLCs). The PLCs will be monitored and controlled by the Primary SCADA system and by a Human Machine Interface (HMI) in the local control rooms. A single scope of work has been written herein to provide for the uniform and homogenous working of this single computer control system. Work to be performed by the Contractor for the system in Russia shall be performed under contract with CPC-R; and work to be performed for the system in Kazakhstan shall be performed under contract with CPC-K. All programming work by Contractor shall be performed in the United States. Any additional work to be performed later by Contractor in either Russia or Kazakhstan shall be governed by separate service contracts with CPC-R or CPC-K, respectively, at the rates set forth herein in Part 2 of this Scope of Work. Contractor is to provide the assembly and programming of the PLC systems for five (5) pump stations in Russia and Kazakhstan. There will be five (5) ESD PLCs and approximately a total of thirty (30) General Purpose PLCs for five (5) pump stations. Contractor will assemble the PLC hardware that will be supplied by the Company's contractor, Valmet. The Contractor will program the systems as per Company's requirement and specifications. The five (5) pump stations are Tengiz, Atyrau (in Kazakhstan), and Astrakhan, Komsomolsk and Kropotkin (in Russia). General Purpose PLCs and specialty systems will be Allen Bradley ControlLogix and ESD PLC will be Hima. PLC hardware be provided by the Company's contractor, Valmet, to the Contractor. 1. Contractor to program PLCs as per the following listed documents provided by Company. . P&ID . Control Narrative . Cause & Effect . Flow Chart . Project Standard . Location of system (cabinet/HMI/etc.) . I/0 loading (for each PLC) . "Package Vendor" interface data . Wiring/Communication architecture *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 9 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * . CPC Standard for PLC Controllogix Program and Data File Structure 2. Hardware to be supplied by Company's contractor, Valmet, directly to Contractor: . Cabinets (as per size and quantity recommended by Contractor) . ESD PLC modules, processors, communication, I/Os, Power Supplies, Hima Cables, etc. . General Purpose PLC modules, processors, communication, I/Os, Power Supplies, Allen Bradley cables, etc. . Remote I/0 modules . Remote I/0 cabinets 3. Contractor shall layout the cabinets as per industry common practice and from the following information from the Company: 3.1 Bill of material for each PLC 3.2 Brand, style, color, finish, maximum depth (preference, 600 mm) of Cabinet. Company will specify height of cabinet (2 meters). Cable entry into the cabinet shall be through the top, 200 mm top clearance, use compression type terminals. 3.3 Limits of space at job site. 4. Contractor to determine if multiple PLCs of like functions (for example: mainline motor driven pumps) could be mounted in one cabinet. 5. Contractor will select the size of cabinets (width and depth only). Contractor will inform the Company of the cabinet sizes. Company will instruct Valmet to purchase and deliver the cabinets directly to the Contractor. Note that all cabinets are to be of the same depth. 6. Contractor to provide the wiring drawing and cabinet layout drawings to Company as early as possible. Company will use drawings to complete loop drawings and other design documents. 7. Contractor will provide the temporary communication cables (company supplied specification) to connect the systems in their shop. Communication cables (supplied by others) external to cabinets will be available only at the job site. 8. For required hardware missed by Company the Contractor is responsible to inform Company to provide or cause to provide such in an expeditious manner. If the missed items are minor and the Contractor can provide them in a more expeditious manner, Contractor shall provide and charge the Company as long as Company has given prior approval for the purchase. 9. Contractor shall verify that system hardware is complete. 10. Contractor shall be responsible for assembling the hardware and ensuring all assemblies are complete and work as a system. 11. Contractor to interface the PLC system with SCADA. 12. Contractor to supply to Company the following documents as a minimum; *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 10 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * 12.1 Assembly drawings 12.2 Logic diagrams of software 12.3 Functional description of software 12.4 Original copies of all software generated by Contractor 13. All software developed under this contract is and shall remain the sole property of the Company. Contractor may not use such software for any other applications. 14. Contractor to provide five (5) lap top PLC based computers for interface and programming the PLC systems. One lap top computer per pump station with the following minimum configuration; Pentium 111, 64 Meg RAM, 6 Gigabyte Hard Drive, Window 98 operating system. 15. A functional test to ensure proper operation of all devices and components shall be performed prior to shipment. Company reserves the right to witness and approve the functional test.** 15.1 Contractor to submit Factory Acceptance Procedure for Company's approval. 15.2 FAT to include coordinated test with SCADA supplier. 15.3 Company to be given two weeks notice before test. 15.4 Contractor to supply simulated input/outputs used in testing. 16. Contractor to inform Company of the location where hardware is to be delivered and assembled. Delivery of system to job site will be by Valmet. Coordination between Contractor and Valmet is required.* 17. Contractor to inform Company of the location where programming will be performed.** **Note: Contractor is advised that it may be necessary to ship PLCs to schedule- - ------ critical locations prior to completion of logic coding and testing. Contractor shall assure that he has enough available PLC and support hardware at his premises to complete all programming and testing without interruption should the object hardware require shipment prior to software completion. 18. Schedule: 18.1 System for Tengiz and Astrakhan pump stations should be at job site by* 18.2 System for the other Pump Stations should be at job site by at a later "supplied dates". 18.3 Loop Checking 18.3.1 Tengiz - * 18.3.2 Astrakhan - * 18.3.3 Atyrau - * 18.3.4 Komsomolsk - * 18.3.5 Kropotkin - * *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 11 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * 18.4 Start-up 18.4.1 Tengiz - * 18.4.2 Astrakhan - * 18.4.3 Atyrau - * 18.4.4 Komsomolsk - * 18.4.5 Kropotkin - * 19. Contractor to provide a complete and detailed design, manufacturing, delivery schedule 20. All software and PLC programs shall be Y2K compliant. 21. Cabinets will be located at an environmentally-controlled room at job site. Remote I/0 units will not be necessarily in a controlled environment. 22. ESD and General Purpose PLC system shall be assembled, wired, and tested, within respective cabinets. 23. Contractor is to ensure all assemblies are in compliance with applicable Russian and Kazakhstan regulations. 24. Preparation for shipment: 24.1 Contractor shall submit procedures for the cleaning, preservation, packing, handling, lifting, shipping and storage of the material and equipment under this order. 24.2 Contractor shall ensure all equipment is adequately packed, crated, boxed skidded or otherwise protected and prepared for shipment in such a manner as to prevent loss and damage during handling, transportation and storage. 25. Hardware count: (Preliminary) 25.1 Tengiz (Kazakhstan) . Analog Input modules . Analog Output module . Discrete Input modules . Discrete Output modules . Control Net Boards . Ethernet boards . Processors . Chassis . Power supplies . General Purpose PLC cabinets (number will change depending on Vendor recommendation) . Remote 1/0 cabinets . ESD PLC system, with a cabinet *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 12 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * 25.2 Astrakhan (Russia) . Analog Input modules . Analog Output module . Discrete Input modules . Discrete Output modules . Control Net Boards . Ethernet boards . Processors . Chassis . Power supplies . General Purpose PLC cabinets (number will change depending on Vendor recommendation) . Remote 1/0 cabinets . ESD PLC system, with a cabinet 25.3 Atyrau (Kazakhstan) - estimate same as Astrakhan pump station 25.4 Komsomolsk (Russia) - estimate same as Astrakhan pump station 25.5 Kropotkin (Russia) - estimate same as Astrakhan pump station Part 2: Rates for Work Performed All Rates for work (programming services) performed outside Kazakhstan under this contract shall be at the Standard or Overtime Rates shown below. Contractor is expected to provide site support during installation, commissioning and startup. In the event that Contractor is requested to perform any of the following work inside Kazakhstan, a separate services contract will be entered into by the parties for such work at the Overseas Rates contained below. VAT will be added to each invoice as a separate line item for work performed inside Kazakhstan (Overseas Rate) under the separate contract Rates for Engineering, Services: These rates include all Contractor's charges for insurance, taxes, overhead and profit. These rates also include Contractor's overhead costs of Computer work stations and software for normal engineering and drafting projects. *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 13 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * CLASSIFICATION Std. Rate O.T. Rate Overseas Rate Sr. Project Engineer * * * Project Engineer * * * Sr. Engr/Programming Spec. * * * Engineer * * * Project Control Engineer * * Designer * * Operator/Draftsperson * * Project, Clerk/Translator * * Senior Clerk * * Clerk/Secretary * * Company written approval will be required before authorizing overtime hours. Contractor shall not work over 16 hours in a 24-hour day. The overtime rate shall apply to all hours worked over 40 hours per week, or on Contractor holidays, or on weekends if worked at Company's request. Travel and Expenses Contractor project-related travel expenses will only be incurred when required and authorized in advance by Company, and will be billed at cost plus * percent. For prolonged assignments performed outside the Houston office area, a reasonable per them allowance will be agreed upon by the parties in lieu of certain expenses and charges for applicable personnel. Reproduction All third party reproduction costs will be billed at cost plus * percent. Plots issued to Company whether preliminary or final will be billed at * per 22" x 34" sheet. Laser print drawings or copies (11" x 17", letter or legal size) issued to Company will be billed at * each sheet. Binders (including tabs) issued to Company will be billed at * each . Subcontracts/Miscellaneous Costs All miscellaneous and third party costs will be billed at cost plus * percent. Reimbursable Equipment In the event that Contractor procures hardware and equipment under Item 8, Part 1, Contractor shall be reimbursed by Company at cost. *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 14 Client Name: Caspian Pipeline Consortium-K January, 2000 Proj. Name: * Project Number: * B. Payment Schedule The compensation paid to Contractor for Programming Services shall be based upon the rates above and shall be based upon the labor hours necessary to complete the Scope of Work. Contractor shall submit invoices on a monthly basis, indicating the hours worked, for these services. Compensation to be paid to Contractor for hardware and equipment supplied by Contractor, if any, shall be invoiced by Contractor not more than ninety days before delivery of the SCADA system to the Company. All invoices should be sent to the Company in care of-. Caspian Pipeline Consortium-Kc/o Caspian Pipeline Consortium-R * * * * * * * All payments shall be made thirty days after receipt of invoice. Contractor's invoices are subject to withholding tax payable by Company to the Republic of Kazakhstan. C. Cost Estimate of W This contract is a "not-to-exceed contract' for the value of * which estimate is set forth on the attached Cost Estimate, A-1. Because the cost of the services has been estimated, it is imperative that when the Contractor's costs reach eighty-percent of the value of the contract * Contractor shall notify the Company of the status of the work. END OF EXHIBIT A *CONFIDENTIAL TREATMENT REQUEST THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION. Page 15 A-1 COST ESTIMATE - CPC-R
ACCOUNT DESCRIPTION MATERIALS IDS LABOR IDS EXPENSES Sub-total-RUSSIA Sub-total-KAZAKHSTAN TOTALS - ----------------------------------------------------------------------------------------------------------------------------------- 1-0 Project Management * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ 2-0 General PLC * * * * * * * Program/Doc/QA-QC - ------------------------------------------------------------------------------------------------------------------------------------ 3-0 Pump PLC Programming (2 * * * * * * * sta. Only) - ------------------------------------------------------------------------------------------------------------------------------------ 4-0 ESD PLC Programming & Doc * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ 5-0 Hardware Design & Specs. * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ 6-0 Control Rack Fabrications * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ 7-0 Miscellaneous * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ 8-0 Taxes * * - ------------------------------------------------------------------------------------------------------------------------------------ TOTALS WITHOUT CONTINGENCY * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------ TOTALS INCLUDING CONTINGENCY * * * * * * * - ------------------------------------------------------------------------------------------------------------------------------------
Note: Contingency is * on materials and expenses and nearly * on IDS labor. Key Points and Assumptions: . Completed drawings for the Tengiz and Astrakhan will be delivered to IDS Engr. By *. . Similarities between the three grassroots pump stations will help to make a streamless approach to some of the programming duties. . No significant delays in hardware deliveries. . Includes five (5) lap-top computers as specific in your scope document with the Allan Bradley and HIMA software packages loaded. . Includes FAT at Valmet-Houston as stated in your scope of work document. . Includes all items listed as deliverables in your scope of work item #13, plus required control cabinets. . Includes one project manager (native Russian) and also one lead programmer, to insure good communications and programming efficiency. Items that may reduce the job costs: . Although it is expected to incur some similarities in the stations, more similarities could reduce the project costs . Time spent on documentation efforts of programs could be reduced on specific requirements for each station Page 16 EX-21 4 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Industrial Data Systems, Inc. Incorporated in the State of Texas IDS Engineering, Inc. Incorporated in the State of Texas Thermaire, Inc. dba Thermal Corp. Incorporated in the State of Texas Constant Power Manufacturing, Inc. Incorporated in the State of Texas EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 663,972 300,000 2,697,363 (6,528) 771,808 4,809,056 1,499,065 (428,847) 5,913,924 1,502,740 384,658 0 0 12,965 3,961,561 5,913,924 6,260,269 12,238,449 5,011,550 12,005,931 (78,436) 0 68,067 310,954 151,212 159,742 (483,057) 0 0 (323,315) (0.03) (0.03)
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