SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER: 000-22061
INDUSTRIAL DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 76-0157248
(State or, other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 CENTURY PLAZA DRIVE, BUILDING 140, HOUSTON, TEXAS 77073-6013
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-3200
Check whether the issuer (1) has filed all reports required to be filed
by Section 1.3 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.001 Par Value 12,723,718
-----------------------------------------
(Shares outstanding as of March 31, 1997)
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QUARTERLY REPORT ON FORM 10-QSB
FOR THEPERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE
NUMBER
------
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 ............................ 3
Condensed Consolidated Statements of Operations
for the Three Months ended March 31, 1997 and
Historical Condensed Consolidated Statements of
Operations for the Three Months ended March 31, 1996 ............ 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the Year ended December 31,
1996 and the Three Months ended March 31, 1997 .................. 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1997 and Historical
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 1996 ........................... 6
Notes to Financial Statements ..................................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 9
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities ............................................. 14
ITEM 6. Exhibits and Reports on Form 8-K .................................. 15
Signature ......................................................... 15
2
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR YEAR ENDED DECEMBER 31, 1996 (AUDITED)
AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
MARCH 31, 1997 DECEMBER 31, 1996
(historical) (audited)
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents: ............. $ 351,146 $ 637,217
Mutual funds ........................... 183,055 337,883
--------------- ---------------
534,201 975,100
Marketable securities:
Trading ................................ 696,716 400,348
Available-for-sale ..................... 27,451 56,781
--------------- ---------------
724,167 457,129
Accounts receivable - trade, less
allowance for doubtful accounts
of approximately 11,000 in 1996
and 1997, respectively ................. 1,097,703 593,739
Note receivable from an affiliate ........ 0 84,936
Inventory ................................ 681,530 221,096
Note receivable from sale of common stock 0 799,999
Note receivable from stockholder ......... 100,000 50,000
Advances to affiliate .................... 57,910 30,000
Prepaid assets and deferred costs ........ 36,678 48,858
--------------- ---------------
Total current assets ............. $ 3,232,189 $ 3,260,857
--------------- ---------------
PROPERTY AND EQUIPMENT, net .............. 967,981 122,578
OTHER ASSETS ............................. 200,917 2,000
--------------- ---------------
Total assets ..................... $ 4,401,087 $ 3,385,435
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank ..................... 472,688 325,000
Accounts payable ......................... 479,036 57,698
Income taxes payable ..................... 116,399 128,065
Accrued expenses and other
current liabilities .................... 169,599 170,523
--------------- ---------------
Total current liabilities: ....... $ 1,237,722 $ 681,286
--------------- ---------------
DEFERRED INCOME TAX ...................... 34,010 34,010
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 75,000,000
shares authorized; 12,723,718 shares
issued in 1997, 13,129,999 shares
issued in 1996 ......................... 12,724 13,130
Additional paid in capital ....... 2,239,074 1,829,684
Retained earnings ................ 896,788 842,395
Net unrealized gain on
marketable securities .......... 1,068 1,068
--------------- ---------------
3,149,654 1,269,293
Treasury stock ................... (20,299) (16,138)
--------------- ---------------
Total stockholders' equity ....... $ 3,129,355 $ 2,670,139
--------------- ---------------
Total liabilities and
stockholders' equity ... $ 4,401,087 $ 3,385,435
=============== ===============
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
Three Months ended Three Months ended
March 31, 1997 March 31, 1996
(historical) (historical)
--------------- ---------------
OPERATING REVENUES::
Product sales ....................... $ 310,249 $ 259,990
Consulting fees ...................... 909,407 901,256
Thermal sales ........................ 242,785 --
--------------- ---------------
$ 1,462,441 $ 1,161,246
COST OF REVENUES:
Product .............................. 233,856 212,660
Consulting ............................ 631,178 652,537
Thermal .............................. 162,690 --
--------------- ---------------
$ 1,027,724 $ 865,197
GROSS PROFIT ........................... 434,717 296,049
--------------- ---------------
Selling, general and administrative .... 305,900 245,834
Depreciation ........................... 22,794 6,320
OTHER INCOME (EXPENSE)
Realized gains on marketable
securities ........................ 55,497 84,536
Other income ......................... 15,460 --
Unrealized gain (loss) on
marketable securities ............. (51,377) (9,574)
Interest income, net ................. (20,152) 1,846
Thermal expense ...................... (22,723) --
--------------- ---------------
INCOME BEFORE TAXES .................... $ 82,728 $ 120,703
TAX PROVISION .......................... 28,335 19,890
--------------- ---------------
--------------- ---------------
NET INCOME ............................. $ 54,393 $ 100,813
=============== ===============
=============== ===============
NET INCOME PER COMMON SHARE ............ $ 004 $ .009
=============== ===============
=============== ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ................... 12,926,858 10,630,000
=============== ===============
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEAR ENDED DECEMBER 31, 1996 (AUDITED) AND
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAIN (LOSS)
-------------------------- ADDITIONAL RETAINED ON MARKETABLE TREASURY
SHARES AMOUNT PAID-IN CAPITAL EARNINGS SECURIITES STOCK TOTAL
----------- ----------- ------------ -------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 ..... 13,129,999 $ 13,130 $ 1,829,684 $842,395 $ 1,068 $(16,138) $2,670,139
=========== =========== ============ ======== ============ ======== ==========
Activity in treasury stock .. -- -- 21,547 -- -- (4,161) 17,386
Cancellation of common shares (600,000) (600) 600 -- -- -- 0
Issuance of common shares ... 193,719 194 387,243 -- -- -- 387,437
Net income .................. -- -- -- 54,393 -- -- 54,393
----------- ----------- ------------ -------- ------------ -------- ----------
BALANCES, March 31, 1997 ........ 12,723,718 $ 12,724 $ 2,239,074 $896,788 $ 1,068 $(20,299) $3,129,355
----------- ----------- ------------ -------- ------------ -------- ----------
</TABLE>
5
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INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
------------------------------
(unaudited)
1997 1996
------------ ------------
CAH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................ $ 54,393 $ 100,813
Changes in working capital,
net of Thermal acquisition ............ (183,291) (305,488)
------------ ------------
Net cash used by operating
activities ............................ (128,898) (204,675)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Thermal ....................... (212,000) --
Advances on note receivable
from stockholder ...................... (50,000) --
Property acquired ......................... (500,000) --
Purchase of investments ................... (500,000)
Other ..................................... -- 19,868
------------ ------------
Net cash used by investing
activities ............................ (1,262,000) 19,868
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments on notes payable, net .......... (300,000) --
Proceeds from issuance of common
stock, net ............................ 799,999 --
Borrowings from bank ...................... 450,000 --
------------ ------------
Net cash provided by financing
activities ............................ 949,999 --
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................ (440,899) (184,807)
------------ ------------
CASH AND CASH EQUIVALENTS,
at beginning of period .................. 975,100 573,832
------------ ------------
CASH AND CASH EQUIVALENTS,
at end of period ........................ $ 534,201 $ 389,025
============ ============
* Non-Cash Transactoins:
Issuance of common stock for
Thermal acquisition 387,000 --
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Industrial Data Systems Corporation (the
"Company"), included herein, are unaudited for all periods ended March 31,
1997 and 1996. They reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary
to fairly depict the results for the periods presented. Certain
information and note disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles', have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. It is suggested
these financial statements be read in conjunction with the Company's
audited financial statements for the years ended December 31, 1996 and
1995, which are included in the Company's annual report on Form 10-KSB.
The Company believes that the disclosures made herein are adequate to make
the information presented not misleading.
2. NOTE RECEIVABLE FROM STOCKHOLDER:
At March 31, 1997, The Company had an additional note receivable due from
a stockholder in the amount of $50,000. The note receivable is unsecured,
due on demand and bears interest at a rate of 9% per annum. Interest on
the note is due annually.
3. STOCKHOLDERS' EQUITY:
The Company issued 2,499,999 shares of common stock in exchange for five
non-interest bearing notes totaling $999,999. During fiscal 1996, the
Company received the payment on one of the notes totaling $200,000. On
January 27, 1997, the four remaining notes were paid in full and the
Company received the remaining $799,999.
4. ACQUISITION:
In February 1997, the Company acquired Thermaire, Inc. dba Thermal
Corporation (Thermal) in a stock purchase. The Company paid $600,000,
consisting of $212,563 in cash and 193,719 shares of the Company's common
stock, which may be put back to the Company for $2 per share at the option
of the holder. Additionally, the Company purchased the facilities that
Thermal had been leasing from an affiliate for $500,000. The Company
obtained bank financing totaling $450,000 related to the acquisition of
these facilities. The acquisition has been accounted for on the purchase
method of accounting. Goodwill arising as a result of this transaction
totaled approximately $125,000. Previously, in 1995, the Company had
issued 600,000 shares of its common stock to Thermal on a contingent
basis. These shares were held in an escrow account pending completion of
the acquisition, at which time these shares were released from escrow and
cancelled. The aforementioned 193,719 shares were issued under revised
terms of the purchase agreement.
The following is the computation of goodwill recorded in connection with
Thermal and the related land and building previously leased by Thermal:
Purchase price ................................... $ 1,100,000
Fair value of net assets of
Thermal acquired ............................... (354,566)
Appraised value of land and building acquired .... (695,000)
-----------
Goodwill ......................................... $ 50,434
===========
The financial statements do not reflect the accounts of Thermal because
the acquisition did not close until February 1997. The shares of common
stock issued by the Company and held in escrow have not been reflected as
issued and outstanding in the accompanying financial statements.
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The following table reflects proforma information as if this transaction
had occurred at the beginning of each of the periods presented, (in 000's
except per share data):
For the Three Months For the Three Months
Ended March 31, 1997 Ended March 31, 1996
-------------------- --------------------
Total Revenue ...... $ 1,822 $ 1,556
Net Income ......... 94 18
Income per Share ... .004 .000
5. SUBSEQUENT EVENT:
Since the acquisition of Thermal, a bank line of credit in the amount of
$400,000 has been approved to provide working capital which was previously
provided by the Company through the factoring of receivables. This line of
credit is at a rate of prive plus 1% and has a maturity of one year.
Additionally, the Company's bank line of credit in the amount of $350,000 has
been renewed for an additional one year term at prime plus 1%.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS-OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by, and should be
read in conjunction with, the Company's Consolidated Financial Statements
including the notes thereto, included elsewhere in the Company's Annual Report
on Form 10-KSB/A for the period ended December 31, 1996.
OVERVIEW
The Company was formed in 1985 to engage in the business of providing
engineering consulting services to the pipeline divisions of major integrated
oil and gas companies. For the period 1985 through 1989, most of its revenues
were derived from the IED segment. In 1989, the Company introduced its IPD
segment and has continued to introduce new products to the marketplace. The IPD
segment has generated sales as a percent of total revenue of 21% and 22%, for
the three months ended March 31, 1997 and 1996, respectively, while the IED
segment has generated sales as a percent of total revenue of 62% and 78% for the
same period. The Company's recent acquisition, Thermal Corp., has generated
sales as a percent of total revenue of 17% for the three months ended March 31,
1997.
The gross margin varies between each of its operating segments. Computer
product sales have produced a gross margin ranging from 5.2% and 4.1% for the
three months ended March 31, 1997 and 1996, respectively, due to the intense
price competition characteristic of the computer products market. The gross
margin for pipeline engineering services, which reflects direct labor costs, has
ranged from 19.0% in 1997 to 21.4% in 1996. Thermal's gross margin for the three
months ended March 31, 1997 was 5.5%. The variation is primarily attributable to
the pricing and the mix of services provided, and to the level of direct labor
as a component of cost during any given period. The overall gross margin for
Industrial Data Systems Corporation, which includes product sales, pipeline
consulting services, and Thermal's operations for the three months ended March
31, 1997 was 29.7%. The overall gross margin for the Company for the same period
in 1996 (excluding Thermal's operations) was 25.5%.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates percentage of total revenue for each item.
Three Months Ended March 31,
-----------------------------------------
1997 1996
------------------- ------------------
Amount % Amount %
---------- ----- ---------- -----
Revenue:
Computer Products ................ 310,249 21.2 259,990 22.4
Consulting Services .............. 909,407 62.2 901,256 77.6
Thermal .......................... 242,785 16.6 0 0.0
---------- ----- ---------- -----
Total revenue ................. 1,462,441 100.0 1,161,246 100.0
---------- ----- ---------- -----
Gross Profit:
Computer Products ................ 76,393 5.2 47,330 4.1
Consulting Services .............. 278,229 19.0 248,719 21.4
Thermal .......................... 80,095 5.5 0 0.0
---------- ----- ---------- -----
Total gross profit ............ 434,717 29.7 296,049 25.5
---------- ----- ---------- -----
Selling, general and administrative
expenses
Depreciation ....................... 305,900 20.9 245,834 21.2
Operating income ............... 22,794 1.6 6,320 0.5
106,023 7.2 43,895 3.8
---------- ----- ---------- -----
Other income (expense) ............. (23,295) (1.6) 76,808 6.6
Income before provision
for income taxes ........... 82,728 5.7 120,703 10.4
---------- ----- ---------- -----
Provision for income taxes ......... 28,335 1.9 19,890 1.7
Net income after income taxes ...... 54,393 3.7 100,813 8.7
---------- ----- ---------- -----
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
TOTAL REVENUE. Total revenue increased by $301,195 or 25.9% from
$1,161,246 for the three months ended March 31, 1996, compared to $1,462,441 in
1997. Revenue from the IPD, which comprised 22.4% of total revenue for the three
months ended March 31, 1996, increased by $50,259 or 19.3%. The increase in IPD
revenue was generally attributable to increased sales to new and existing
customers which resulted from the hiring of additional sales personnel, in
addition to the introduction of new product lines. Revenue from the IED which
comprised 62.2% of total revenue for the three months ended March 31, 1997
increased slightly by $8,151 or .9%. Revenue from Thermal was $242,785 for the
first quarter of 1997, which was derived only during the month of March,
following the recent acquisition.
IED revenue is derived from engineering services provided to the
pipeline division of major integrated oil companies. These services are
performed on facilities that include cross-country pipelines, pipeline pump
stations, compressor stations, metering facilities, underground storage
facilities, tank storage facilities and product loading terminals. The IED has
the capability of developing a project from the initial planning stages through
detailed design and construction management. The services provided include
project scoping, cost estimating, engineering design,
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material procurement, mechanical fabrication, in addition to project and
construction management. The IED has ten blanket service contracts currently in
place to provide services on a time and materials reimbursable basis. The IED
also performs services for its clients on a turnkey lump sum basis.
The IED client base consists of major oil companies such as Exxon
Pipeline Company, Arco Pipeline Company, Marathon Pipeline Company, Praxair,
Inc., Sonsub, CNG Transmission and Texas Eastern Products Pipeline Company. New
business relationships with other major oil companies are developed through
in-house personnel.
The slight increase in IED revenue for the three months ended March 31,
1997 was due to a slight increase in engineering consulting projects resulting
from increased drilling and exploration activity in the oil and gas industry and
from the recent industry trend to outsource more engineering projects to
consulting firms such as IED.
GROSS PROFIT. Gross profit increased by $138,668 or 46.8% from $296,049
for the three months ended March 31, 1996 to $434,717 for the same period in
1997. The gross margin for the IED decreased from 21.4% in the three months
ended Marach 31, 1996 to 19.0% for the same period in 1997. The decrease was
attributable to the inclusion of Thermal's gross profit during the 1997 period.
The gross margin for the IPD increased from 4.1% for the period ended March 31,
1996 to 5.2% for the same period in 1997. This increase was primarily
attributable to a sales blend of products that have higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $60,066 or 24.4% from $245,834 for the
three months ended March 31, 1996 compared to $305,900 for the same period in
1997. As a percentage of total revenue, selling, general and administrative
expenses decreased from 21.2% for the three months ended March 31, 1996 to 20.9%
for the same period in 1997. The dollar decrease was primarily attributable to a
decrease in general and administrative expenses.
OPERATING INCOME. Operating income increased by $62,128 or 141.5% from
$43,895 for the three months ended March 31, 1996, compared to $106,023 for the
same period in 1997. Operating income increased as a percentage of total revenue
from 3.8% for the three months ended March 31, 1996 to 7.2% for the same period
in 1997. The increase in operating income was a result of slightly higher gross
margins coupled with increased selling, general and administrative expenses.
OTHER INCOME (EXPENSE). Other income decreased by $101,103 or 130.3%
from $76,808 for the three months ended March 31, 1996 to $-23,295 for the same
period in 1996. This decrease was due to unrealized losses in marketable
secuities, additional interest expense due to higher utilization of the
Company's line of credit, and expenses associated with the acquisition of
Thermal.
NET INCOME. Net income after taxes decreased by $46,420 or 46.1% from
$100,813 for the three months ended March 31, 1996 to $54,393 for the same
period in 1997. Net income after taxes decreased as a percentage of total
revenue from 8.7% for the three months ended March 31, 1996 to 3.7% for the same
period in 1997.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its cash requirements
principally through borrowings under its line of credit and through operations.
As of March 31, 1997, the Company's cash position, including marketable
securities, was sufficient to meet its working capital requirements. The Company
had, as of March 31, 1997, $25,000 in additional advances available under its
line of credit with a bank. The Company's line of credit which provides for
maximum borrowings of $350,000, which bears intersts at prime plus 1%, is for a
term of one year and matures on June 11, 1998. The line of credit is secured by
accounts receivable, inventory and the personal guarantees of certain
stockholders and officers of the Company. The Company has established an
additional line of credit for Thermal, which will provide for maximum borrowings
of $400,000, which bears interest at prime plus 1%, is for a term of one year
and matures on June 11, 1998. The additional line of credit is secured by
accounts receivable and inventory of Thermal, and a guaranty from the Company.
The Company issued 2,499,999 shares of its common stock on August 2,
1996, in exchange for promissory notes due February 15, 1997, which totaled
$999,999. These notes were subsequently paid in full on January 27, 1997. The
Company believes that it has sufficient working capital and does not intend to
sell shares of its common stock within the next twelve months.
The Company's working capital was $2,579,571 and $1,994,467 at December
31, 1996 and March 31, 1997, respectively.
CASH FLOW
Operating activities used net cash totaling $204,675 and $128,898 for
the three months ended March 31, 1996 and 1997 respectively. During the three
months ended March 31, 1997, the Company received $799,999 in proceeds from the
issuance of common stock, in addition to the repayment of $300,000 on notes
payable. The Company did not generate significant cash flow from operating
activities for the three months ended March 31, 1996, due to the working capital
requirements resulting from the rapid growth of the Company. Trade accounts
receivable increased $503,964 since December 31, 1996. Inventory increased by
$460,434 for the same period.
Investing activities provided cash totaling, $19,868 for the three
months ended March 31, 1996 and used cash totaling $1,262,000 for the same
period in 1997. The Company's investing activities that used cash during these
periods was primarily related to the purchase of Thermal and its facilities and
other investments.
As of March 31, 1997, the Company had a portfolio of marketable
securities which had a fair market value of $724,167 and consisted of common
stocks, preferred stocks, bonds and mutual funds. The common stocks, preferred
stocks and bonds that the company holds consists of securities which are traded
on three national exchanges - the New York Stock Exchange, the American Stock
Exchange and the NASDAQ National Market System. These securities are frequently
traded by the Company. The mutual funds that the Company has available for sale
are open end stock funds which are managed by Aim, Pioneer, and Smith Barney &
Co. These mutual fund investments are generally held for longer than a one year
period. These securities are traded by the Company as part of its plan to
provides additional cash for working capital requirements.
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The marketable securities to be held to maturity are stated at amortized
cost. Marketable securities classified as available-for-sale are stated at
market value, with unrealized gains and losses reported as a separate component
of stockholder's equity, net of deferred income taxes. If a decline in market
value is determined to be other than temporary, any such loss is charged to
earnings. Marketable securities accounted for as trading securities are stated
at market value, with unrealized gains and losses charged to income. William A.
Coskey, the Company's President and Chief Executive Officer, is responsible for
managing the Company's portfolio of marketable securities. The funds used in
this portfolio were from generally available from cash reserves.
The Company has implemented a policy that restricts it from purchasing
any securities on margin, and also limits the investment of any one security or
mutual fund to represent no more than 10% of the Company's investment portfolio.
The Company believes that the risks associated with its investment portfolio are
slightly higher than the risk of loss in a Standard & Poor's 500 Index Fund.
This higher risk is due to the less diverse distribution of the Company's
portfolio as compared to the broadly based Standard & Poor's 500 Stock Index.
Financing activities provided cash totaling $949,999 for the three
months ended March 31, 1997. Additionally, financing activities provided net
cash of $150,000, which included repayment of $300,000 on the Comapny's line of
credit and an increase in borrowings of $450,000 for the purchase of Thermal's
facilities. The Company has additional financing amounts of $325,000.available
on its line of credit at March 31, 1997. The line of credit has been used
principally to finance accounts receivable and inventory purchases. Of the
$999,999 proceeds received from the sale of securities, $200,000 was received in
1996 with the remaining balance being paid in full in January, 1997.
Upon the consummation of the acquisition of Thermal on February 15, 1997
the Company immediately implemented a cost reduction program which reduced the
operating costs during the first quarter of 1997. During this time, the Company
also experienced a backlog of orders from its commercial and industrial
customers which are currently being filled. The revenues generated from the sale
of its products combined with its ongoing efforts in controlling costs will
provide the Company with sufficient cash to meet working capital requirements
during the next twelve months. The Company anticipates that the acquisition of
Thermal will increase revenues by approximately 54% during the next twelve
months.
During the next nine months, the Company expects to incur an estimated
$100,000 for capital expenditures, a majority of which is expected to be
incurred for specialized computer production equipment. The actual amount and
timing of such capital expenditures may vary substantially depending upon, among
other things, the Company's level of growth.
ASSET MANAGEMENT
The Company's cash flow from operations has been affected primarily by
the timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had net trade accounts receivable of $593,739 and
$1,097,703 at March 31, 1996 and 1997, respectively. The number of days' sales
outstanding in trade accounts receivable was 46 days and 67 days, respectively.
Bad debt expenses have been insignificant (approximately .01%) for each of these
periods.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 15, 1997, the Company issued 193,719 of its common stock,
$.001 par value, in connection with the acquisition of Thermaire, Inc. The
Company had issued 600,000 shares of its common stock to Thermal in 1995, on a
contingent basis, which were cancelled on February 15, 1997. These shares were
held in an escrow account pending completion of the acquisition. The number of
shares outstanding as of March 31, 1997, was 12,723,718.
ITEM 5. SUBSEQUENT EVENT
On February 15, 1997, the Company acquired Thermaire, Inc., doing
business as Thermal Corporation in a stock purchase. The Company paid $600,000
for Thermal, which consisted of $212,563 in cash and the issuance of 193,719
shares of the Company's common stock, which may be put back to the Company for
$2 per share at the option of the holder. The Company also purchased the
facilities that Thermal had been leasing from an affiliate for $500,000. The
Company obtained bank financing totaling $450,000 to purchase the facilities.
The acquisition has been accounted for on the purchase method of accounting.
Goodwill arising as a result of this transaction totaled approximately $50,434.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDUSTRIAL DATA SYSTEMS CORPORATION
Dated: May 21, 1997 By: /s/ HULDA L. COSKEY
Hulda L. Coskey, Vice President
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COPMANY'S ANNUAL REPORT ON FORM 10-QSB FOR THE QUARTER ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 534,201
<SECURITIES> 724,167
<RECEIVABLES> 1,108,703
<ALLOWANCES> (11,000)
<INVENTORY> 1,097,703
<CURRENT-ASSETS> 3,232,189
<PP&E> 1,224,083
<DEPRECIATION> (256,102)
<TOTAL-ASSETS> 4,401,086
<CURRENT-LIABILITIES> 1,237,722
<BONDS> 0
0
0
<COMMON> 12,724
<OTHER-SE> 3,116,631
<TOTAL-LIABILITY-AND-EQUITY> 4,401,087
<SALES> 1,462,441
<TOTAL-REVENUES> 1,462,441
<CGS> 1,027,724
<TOTAL-COSTS> 1,356,418
<OTHER-EXPENSES> 3,143
<LOSS-PROVISION> (11,000)
<INTEREST-EXPENSE> 20,152
<INCOME-PRETAX> 82,728
<INCOME-TAX> 28,335
<INCOME-CONTINUING> 54,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,393
<EPS-PRIMARY> 0.004
<EPS-DILUTED> 0.004
</TABLE>
