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 SEPTEMBER 30, 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 Identification Number)
incorporation or organization)
600 CENTURY PLAZA DRIVE, BUILDING 140, HOUSTON, TEXAS 77073-6013
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-3200
Check whether the issuer (1) has filed all reports required to be filed by
Section 1.3 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.001 Par Value 12,723,718
--------------------------
(Shares outstanding as of September 30, 1997)
1
<PAGE>
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE
NUMBER
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................8
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION..............................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................16
Signature .....................................................16
2
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
--------- ---------
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 407,079 $ 637,217
Mutual funds ................................. 65,128 337,883
--------- ---------
$ 472,207 $ 975,100
Marketable securities:
Trading ...................................... 811,783 400,348
Available-for-sale ........................... 21,920 56,781
--------- ---------
$ 833,703 $ 457,129
Accounts receivable - trade, less allowance for
doubtful accounts of approximately $9,500 in
1997 and $11,000 in 1996, respectively ....... $1,975,952 $ 593,739
Note receivable from an affiliate ............... -- 84,936
Inventory ....................................... 807,229 221,096
Note receivable from sale of common stock ....... -- 799,999
Note receivable from stockholder ................ 100,000 50,000
Advances to affiliate ........................... -- 30,000
Prepaid assets and deferred costs ............... 81,365 48,858
--------- ---------
Total current assets ...................... $4,270,456 $3,260,857
--------- ---------
PROPERTY AND EQUIPMENT, net ..................... 952,138 122,578
OTHER ASSETS .................................... 189,861 2,000
--------- ---------
Total Assets .............................. $5,412,455 $3,385,435
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portions long-term debt ................ $ 14,567 --
Note payable to bank ............................ 425,000 $ 325,000
Accounts payable ................................ 440,559 57,698
Income taxes payable ............................ 209,280 128,065
Accrued expenses and other current liabilities .. 234,752 170,523
--------- ---------
Total Current Liabilities ................. $1,324,158 $ 681,286
---------- ----------
LONG TERM LIABILITIES:
Deferred Income Tax ............................. 34,010 34,010
Notes Payable Long -Term, less current portion .. 426,121
---------- ----------
Total Long -Term Liabilities: ... 460,131 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 .................... 2,263,913 1,829,684
Retained earnings ............................... 1,367,667 842,395
Net unrealized gain on marketable securities .... -- 1,068
---------- ----------
3,644,304 2,686,277
---------- ----------
Treasury stock at cost .......................... (16,138) (16,138)
---------- ----------
Total Stockholders' Equity ...................... $3,628,166 $2,670,139
========== ==========
Total Liabilities and Stockholders' Equity $5,412,455 $3,385,435
========== ==========
3
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Product sales .............. $ 1,108,330 $ 762,942 $ 1,933,674 $ 1,444,033
Consulting fees ............. 1,151,480 896,470 3,164,558 2,709,084
Thermal sales ............... 1,235,518 -- 2,704,962 --
----------- ----------- ----------- -----------
$ 3,495,328 $ 1,659,412 $ 7,803,194 $ 4,153,117
COST OF REVENUES:
Product ..................... 707,217 498,894 1,330,823 1,046,089
Consulting .................. 846,978 701,852 2,276,077 2,012,095
Thermal ..................... 942,593 -- 2,037,918 --
----------- ----------- ----------- -----------
$ 2,496,788 $ 1,200,746 $ 5,644,818 $ 3,058,194
GROSS PROFIT: ................. $ 998,540 $ 458,666 $ 2,158,376 $ 1,094,933
----------- ----------- ----------- -----------
Selling, general and
administrative ............... 528,362 233,777 1,247,949 714,600
Depreciation .................. 32,144 8,430 88,362 21,691
OTHER INCOME (EXPENSE):
Realized gains on
marketable securities ...... 23,691 136,669 99,727 255,889
Other income ................ 8,559 4,943 43,158 6,446
Unrealized gain (loss) on
marketable securities ...... (4,436) (9,711) (38,083) (15,444)
Interest income, net ........ (21,206) (3,203) (60,602) (517)
Thermal expense ............. (27,446) -- (75,476) --
----------- ----------- ----------- -----------
INCOME BEFORE TAXES ........... $ 417,196 $ 345,157 $ 790,789 $ 605,017
TAX PROVISION ................. $ 134,551 $ 154,910 $ 266,585 $ 178,098
----------- ----------- ----------- -----------
NET INCOME .................... $ 282,645 $ 190,247 $ 524,204 $ 426,919
=========== =========== =========== ===========
NET INCOME PER COMMON
SHARE ......................... $ .022 $ .018 $ .041 $ .040
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ............ 12,723,718 10,630,000 12,723,718 10,630,000
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 524,204 $ 426,919
Depreciation 88,362 21,691
Changes in working capital, (1,216,550) (583,804)
net of Thermal acquisition
------------- --------------
Net cash used by operating
activities $ (568,850) $ (135,194)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Thermal (212,000) ----
Advances on note
receivable from
stockholder (50,000) ----
Property and equipment
acquired (568,663) (36,514)
Purchase of investments (500,000) ----
Other assets acquired 23,096 7,353
------------- --------------
Net cash used by investing
activities $(1,307,569) $ (29,161)
------------- --------------
CASH FLOW FINANCING
ACTIVITIES
Long-term mortgage on land
and buildings 429,661 ----
Repayments on notes
payable, net (300,000) ----
Proceeds from issuance of
common stock,
net 799,999 ----
Sale of Treasury Stock 29,000 ----
Borrowings from bank 450,000 ----
------------- --------------
Net cash provided by
financing activities $ 1,408,660 $ ----
------------- --------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (502,893) $ (164,355)
------------- --------------
CASH AND CASH EQUIVALENTS,
at beginning of period $ 975,100 $ 573,832
------------- --------------
CASH AND CASH EQUIVALENTS, $ 472,207 $ 409,477
at end of period
============= ==============
* NON-CASH TRANSACTIONS:
Issuance of common stock $ 387,000 ----
for Thermal acquisition
5
<PAGE>
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 September
30, 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 September 30, 1997, The Company had notes receivable due from two
stockholders in the amount of $50,000 each. 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.
3. STOCKHOLDERS' EQUITY:
In 1996 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. This option was not exercised and expired August 15, 1997.
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
$50,000. 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 canceled. The aforementioned 193,719
shares were issued under revised terms of the purchase agreement.
6
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 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 NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1997 1996
---- ----
Total Revenue $ 8,163 $ 6,039
Net Income 576 467
Income per Share .045 .044
5. LINES OF CREDIT:
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 prime 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%.
7
<PAGE>
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 IDS Engineering Division (IED). In 1989, the Company
introduced its Industrial Products Division (IDP) segment and has continued to
introduce new products to the marketplace. The IPD segment has generated sales
as a percent of total revenue of 24.8% and 34.8%, for the nine months ended
September 30, 1997 and 1996, respectively, while the IED segment has generated
sales as a percent of total revenue of 40.6% and 65.2% for the same period. The
Company's recent acquisition, Thermal Corp., has generated sales as a percent of
total revenue of 34.7% for the nine months ended September 30, 1997.
The gross margin varies between each of its operating segments. Computer product
sales have produced a gross margin ranging from 31.2% and 27.6% for the nine
months ended September 30, 1997 and 1996, respectively. The gross margin for
IED, which reflects direct labor costs, has ranged from 28.1% in 1997 to 25.7%
in 1996. 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. Thermal's gross margin for the seven months ended since
its acquisition was 24.6%. The overall gross margin for Industrial Data Systems
Corporation, which includes IPD and IED for the nine months ended September 30,
1997 and Thermal's seven months of operations ended September 30, 1997 was
27.7%. The overall gross margin for the Company for the same period in 1996
(excluding Thermal's operations) was 26.4%.
8
<PAGE>
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.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------- ------------------------------
1997 1996 1997 1996
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ -
REVENUE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Products .................... $ 1,108,330 31.71 $ 762,942 45.98 $ 1,933,674 24.78 $1,444,033 34.77
Consulting Services .................. 1,151,480 32.94 896,470 54.02 3,164,558 40.55 2,709,084 65.23
Thermal .............................. 1,235,518 35.35 -- -- 2,704,962 34.66 -- --
----------- ------ ---------- ------ ----------- ------ ---------- ------
TOTAL
REVENUE .............................. $ 3,495,328 100.00 $1,659,412 100.00 $ 7,803,194 100.00 $4,153,117 100.0
=========== ====== ========== ====== =========== ====== ========== ======
GROSS PROFIT:
Computer Products .................... $ 401,113 11.48 $ 264,048 15.91 $ 602,851 7.73 $ 397,944 9.58
Consulting Services .................. 304,502 8.71 194,618 11.73 888,481 11.39 696,989 16.78
Thermal .............................. 292,925 8.38 -- -- 667,044 8.55 -- --
----------- ------ ---------- ------ ----------- ------ ---------- ------
TOTAL GROSS PROFIT ................... $ 998,540 28.57 $ 458,666 27.64 $ 2,158,376 27.66 $1,094,933 26.36
=========== ====== ========== ====== =========== ====== ========== ======
Selling, General and
Administrative Expense ............... 528,362 15.12 233,777 14.09 1,247,949 15.99 714,600 17.21
Depreciation ......................... 32,144 0.92 8,430 0.51 88,362 1.13 21,691 0.52
OPERATING INCOME
(EXPENSE) ............................ $ 438,034 12.53 $ 216,459 13.04 $ 822,065 10.53 $ 358,642 8.64
=========== ====== ========== ====== =========== ====== ========== ======
Other Income (Expense) ............... (20,838) (0.60) 128,698 7.76 (31,276) (0.40) 246,374 5.93
INCOME BEFORE PROVISION
FOR INCOME TAXES ..................... $ 417,196 11.94 $ 345,157 20.80 $ 790,789 10.13 $ 605,016 14.57
Provisions for Income Taxes .......... 134,551 3.85 154,910 9.34 266,585 3.42 178,098 4.29
NET INCOME AFTER INCOME
TAXES ................................ $ 282,645 8.09 $ 190,247 11.46 $ 524,204 6.72 $ 426,918 10.28
=========== ====== ========== ====== =========== ====== ========== ======
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER
30, 1997
SINCE THE THERMAL ACQUISITION WAS COMPLETED IN LATE FEBRUARY, 1997, FINANCIAL
DATA FOR THE QUARTER ENDED SEPTEMBER 30, 1996, DOES NOT INCLUDE THE RESULTS OF
THERMAL'S OPERATIONS.
TOTAL REVENUE. Total revenue increased by $1,835,916 or 110.6% from
$1,659,412 for the quarter ended September 30, 1996, compared to $3,495,328 in
1997. Revenue from the IPD, which comprised 31.7% of total revenue for the
quarter ended September 30, 1997, increased by $345,388 or 45.3%. The increase
in IPD revenue was generally attributable to increased shipments of existing
product lines. Revenue from the IED which comprised 32.9% of total revenue for
the quarter ended September 30, 1997 increased by $255,010 or 28.4%.
9
<PAGE>
The increase in IED revenue for the quarter ended September 30, 1997 was due to
increased activity in the pipeline industry and from the recent industry trend
to outsource engineering projects to consulting firms such as IED. Another
factor in IED's increased revenue was the hiring of a full time business
development manager during the first quarter of 1997.
Revenue from Thermal was $1,235,518 for the third quarter of 1997, which
comprised 35.4% of total revenue for the quarter ended September 30, 1997.
GROSS PROFIT. The Company's total gross profit increased by $539,874 or
117.7% from $458,666 for the quarter ended September 30, 1996 to $998,540 for
the same period in 1997. The gross margin for the IPD increased from 34.6% in
the quarter ended September 30, 1996 to 36.2% for the same period in 1997. The
increase in IPD gross margins was primarily due to decreases in component costs
coupled with relatively stable sales prices.
The gross margin for the IED increased from 21.7% for the period ended September
30, 1996 to 26.4% for the same period in 1997. The increase in IED gross margins
was primarily due to stable wage rates and an increase in billing rates.
The gross margin for Thermal was 23.7% for the quarter ended September 30, 1997.
Thermal's gross profit comprised 29.3% of total gross profit for the quarter
ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $294,585 or 126% from $233,777 for the
quarter ended September 30, 1996 compared to $528,362 for the same period in
1997. As a percentage of total revenue, selling, general and administrative
expenses increased from 14.09% for the quarter ended September 30, 1996 to
15.12% for the same period in 1997. This percentage increase was primarily
attributable to overall increases in selling, general and administrative
expenses resulting from company growth and acquisition of Thermal's operations.
OPERATING INCOME. Operating income increased by $221,575 or 102.4% from
$216,459 for the quarter ended September 30, 1996, compared to $438,034 for the
same period in 1997. Operating income decreased as a percentage of total revenue
from 13% for the quarter ended September 30, 1996 to 12.53% for the same period
in 1997. The decrease in operating income was partially a result of the
inclusion of Thermal's operations in the 1997 period.
OTHER INCOME (EXPENSE). Other income decreased by $149,536 or 116.2% from
$128,698 for the quarter ended September 30, 1996 to ($20,838) for the same
period in 1997. This decrease was due to additional interest expense due to
higher utilization of the Company's line of credit and expenses associated with
the acquisition of Thermal. This decrease was also due in part to the Company
having less realized gains on its marketable securities in the 1997 period as
compared to the 1996 period.
10
<PAGE>
NET INCOME. Net income before taxes increased by $72,039 or 20.9% from the
$345,157 for the quarter ended September 30, 1996 to $417,196 for the same
period in 1997. Net income after taxes increased by $92,398 or 48.6% from
$190,247 for the quarter ended September 30, 1996 to $282,645 for the same
period in 1997. Net income after taxes decreased as a percentage of total
revenue from 11.5% for the quarter ended September 30, 1996 to 8.1% for the same
period in 1997 due to additional operating expenses related to the Thermal
operations and overall company growth.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
FINANCIAL DATA REFLECTED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 INCLUDES
ONLY THE SEVEN MONTHS (MARCH - SEPTEMBER) FOR THERMAL'S OPERATIONS SINCE THE
ACQUISITION IN LATE FEBRUARY, 1997. FINANCIAL DATA FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 DOES NOT INCLUDE RESULTS OF THERMAL'S OPERATIONS.
TOTAL REVENUE. Total revenue increased by $3,650,077 or 87.9% from
$4,153,117 for the nine months ended September 30, 1996, compared to $7,803,194
in 1997. Revenue from the IPD, which comprised 34.8% of total revenue for the
nine months ended September 30, 1996, increased by $489,641 or 33.9%. The
increase in IPD revenue was generally attributable to increased sales to new and
existing customers which resulted from expanded sales promotions.
Revenue from the IED which comprised 40.6% of total revenue for the nine
months ended September 30, 1997 increased by $455,474 or 16.8% from $2,709,084
in 1996 to $3,164,558 for the same period in 1997. The increase in IED revenue
was due to increased activity in the pipeline industry and from the recent
industry trend to outsource engineering projects to consulting firms such as
IED. Another factor in IED's increased revenue was the hiring of a full time
business development manger during the first quarter of 1997.
Revenue from Thermal was $2,704,962 or 34.7 % of total revenue for the
seven months (March - September), following the recent acquisition.
GROSS PROFIT. Gross profit increased by $1,063,443 or 97.1% from
$1,094,933 for the nine months ended September 30, 1996 to $2,158,376 for the
same period in 1997. The gross margin for the IPD increased from 27.6 % in the
nine months ended September 30, 1996 to 31.1% for the same period in 1997. The
increase in IPD gross margins was primarily due to decreases in component costs
coupled with relatively stable sales prices. The gross margin for the IED
increased from 25.7% for the nine months ended September 30, 1996 to 28.1% for
the same period in 1997. The increase in IED gross profit was attributable to
IED billing increasing and wage rates remaining fairly constant during the
periods reported from 1996 to 1997.
Thermal's gross profit was 24.7% which represents 30.9% of the Company's
total gross profit.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $533,349 or 74.6% from $714,600 for the
nine months ended September 30, 1996 compared to $1,247,949 for the same period
in 1997. As a percentage of total revenue, selling, general and administrative
expenses decreased from 17.2% for the nine months ended September 30, 1996 to
16% for the same period in 1997. This percentage decrease was primarily
attributable to overall increases in selling, general and administrative
expenses which were offset by greater increases in revenue.
OPERATING INCOME. Operating income increased by $463,423 or 129.2% from
$358,642 for the nine months ended September 30, 1996, compared to $822,065 for
the same period in 1997. Operating income increased as a percentage of total
revenue from 8.6% for the nine months ended September 30, 1996 to 10.5% for the
same period in 1997. The increase in operating income was a result of increased
revenues, slightly improved gross profit and reduced selling, general and
administrative expenses as a percent of total revenue.
OTHER INCOME (EXPENSE). Other income decreased by $277,650 or 112.7% from
$246,374 for the nine months ended September 30, 1996 to ($31,276) for the same
period in 1997. This decrease was due to additional interest expense due to
higher utilization of the Company's line of credit and expenses associated with
the acquisition of Thermal. This decrease was also due in part to the Company
having less realized gains on its marketable securities in the 1997 period as
compared to the 1996 period.
NET INCOME. Net income before taxes increased by $185,773 or 30.7% from
$605,016 for the nine months ended September 30, 1996 to $790,789 for the same
period in 1997. Net income after taxes increased by $97,286 or 22.8% from
$426,918 for the nine months ended September 30, 1996 to $524,204 for the same
period in 1997. Net income after taxes decreased as a percentage of total
revenue from 10.3% for the nine months ended September 30, 1996 to 6.7% for the
same period in 1997 due to significant increases in tax provisions.
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
September 30, 1997, the Company's cash position, including marketable
securities, was sufficient to meet its working capital requirements. The Company
had, as of September 30, 1997, $325,000 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 interest 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 and inventory. The Company has established an additional
line of credit for Thermal, which provides 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's working capital was $2,579,571 and $2,946,298 at December
31, 1996 and September 30, 1997, respectively.
12
<PAGE>
CASH FLOW
Operating activities used net cash totaling $135,194 and $568,850 for the
nine months ended September 30, 1996 and 1997 respectively. Trade accounts
receivable increased $1,382,213 since December 31, 1996. Inventory increased by
$586,133 for the same period.
Investing activities used cash totaling, $29,161 for the nine months ended
September 30, 1996 and used cash totaling $1,307,569 for the same period in
1997. The Company's investing activities that used cash during these periods
were primarily related to the purchase of Thermal and its facilities and other
investments.
As of September 30, 1997, the Company had a portfolio of marketable
securities which had a fair market value of $833,703 and consisted of common
stocks, preferred stocks, bonds, commodity futures funds 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, John Henry & Co. 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 provide additional
cash for working capital requirements.
The marketable securities to be held to maturity are stated at amortized
cost. Marketable securities classified as available-for-sale are stated at
market value, with unrealized gains and losses reported as a separate component
of stockholder's equity, net of deferred income taxes. If a decline in market
value is determined to be other than temporary, any such loss is charged to
earnings. Marketable securities accounted for as trading securities are stated
at market value, with unrealized gains and losses charged to income. William A.
Coskey, the Company's President and Chief Executive Officer, is responsible for
managing the Company's portfolio of marketable securities. The funds used in
this portfolio were from generally available 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 $1,408,660 for the nine months
ended September 30, 1997. Additionally, financing activities provided net cash
of $150,000, which included repayment of $300,000 on the Company's line of
credit and an increase in borrowings of $450,000. The Company has additional
financing amounts of $175,000 available on its line of credit at September 30,
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. In the first quarter of 1997, the Company
repurchased 4,000 shares of IDS stock for the treasury. In May, 1997, the
Company sold 4,000 shares of its treasury stock to employees for the original
purchase price.
13
<PAGE>
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 is
expected to provide the Company with sufficient cash to meet working capital
requirements during the next twelve months. However, no assurances can be given
that the Company's working capital needs will be met through Company revenues.
During the next three months, the Company expects to incur an estimated
$100,000 for capital expenditures. These expenditures will include computer
equipment, construction costs and other cost related to the expansion of IPD's
manufacturing facilities. 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 $1,018,418 and
$1,975,952 at September 30, 1996 and 1997, respectively. The number of days'
sales outstanding in trade accounts receivable was 55 days and 51 days,
respectively. Bad debt expenses have been insignificant (approximately 0.1%) for
each of these periods.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
LETTER OF INTENT On June 7, 1997, the Company announced that it had signed
a letter of intent to acquire Design Automation Systems (DA), in a cash and
stock transaction.
At the time of filing of this Form 10-QSB for the period ended September
30, 1997, both companies are continuing to finalize acquisition details. No
formal Purchase Agreement is in place at this time. The Company's financial
statements do not reflect the accounts of the Company to be acquired as of any
date or for any period covered by this Form 10-QSB or the accompanying financial
statements.
MANAGEMENT CONTRACT On July 1, 1997 the Company signed a contract with BHC
Management Corporation to engage their services in providing consulting
management relating to potential acquisiton candidates. This contract is an
annual renewable contract and is payable at the rate of $4,000 per month.
FACILITIES EXPANSION On July 19, 1997 the Company signed a five year lease
with 319 Century Plaza Associates Ltd. for an additional 12,000 square feet of
office/manufacturing space adjacent to its existing facilities. The lease
expires August 31, 2000. Build-out costs, furniture and fixtures are estimated
at approximately $100,000 and will occur prior to year end 1997. Occupation of
the additional facilities is planned prior to year end 1997.
ENGINEERING CONTRACT On September 16, 1997 the IED signed a Professional
Services Subcontract Agreement with Jacobs Engineering Group, Inc., a Delaware
corporation, for engineering, design, drafting/CAD, and project management
services on a cost reimbursable basis. This contract is effective until July 1,
2000.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter for
which this report is filed.
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: November 14, 1997 By:_______________________
Hulda L. Coskey, Vice President
and Chief Financial Officer
16
EXHIBIT 11
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PAGE 1 OF 2
DAYS WEIGHTED
SHARES OUTSTANDING SHARES
------ ----------- ------
QUARTER ENDED SEPTEMBER 30,
1996:
Balance March 31, 1996 10,630,000 90 10,630,000
Common Stock Issuances 0 0 0
-------------- --------------
Balance September 30, 1996 10,630,000 10,630,000
============== ==============
NINE MONTHS ENDED SEPTEMBER
30, 1996:
Balance December 31, 1995 10,630,000 180 10,630,000
Common Stock Issuances 0 0 0
-------------- --------------
Balance September 30, 1996 10,630,000 10,630,000
============== ==============
QUARTER ENDED SEPTEMBER 30,
1997:
Balance June 30, 1997 12,723,718 90 12,723,718
Common Stock Issuances 0 0 0
-------------- --------------
Balance September 30, 1997 12,723,718 12,723,718
============== ==============
NINE MONTHS ENDED SEPTEMBER
30, 1997:
Balance December 31, 1996 13,129,999 270 13,129,999
Common Stock Issuances (406,281) 270 (406281)
-------------- --------------
Balance September 30, 1997 12,723,718 12,723718
============== ==============
17
<PAGE>
EXHIBIT 11
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
PAGE 2 OF 2
Quarter Ended Nine Months Ended
September 30 September 30
------------------------ --------------------------
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY:
Weighted average number
of shares of common
stock 12,723,718 10,630,000 12,723,718 10,630,000
Assumed exercise of
certain stock options ---- ---- ---- ----
Assumed exercise of
stock warrants ---- ---- ---- ----
=========== ========== ============ ============
12,723,718 10,630,000 12,723,718 10,630,000
=========== ========== ============ ============
Net income $ 282,645 $135,877 $ 524,204 $ 236,671
=========== ========== ============ ============
PRIMARY EARNINGS PER
SHARE:
Net income $ .022 $ .013 $ .041 $ .022
=========== ========== ============ ============
FULLY-DILUTED:
Weighted average number
of shares of common
stock 12,723,718 10,630,000 12,723,718 10,630,000
Assumed exercise of
certain stock options ---- ---- ---- ----
Assumed exercise of
stock warrants ---- ---- ---- ----
=========== ========== ============ ============
12,723,718 10,630,000 12,723,718 10,630,000
=========== ========== ============ ============
Net income $ 282,645 $135,877 $ 524,204 $ 236,671
=========== ========== ============ ============
FULLY-DILUTED EARNINGS
PER SHARE:
Net income $ .022 $ .013 $ .041 $ .022
=========== ========== ============ ============
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 472,207
<SECURITIES> 833,703
<RECEIVABLES> 2,085,452
<ALLOWANCES> (9,500)
<INVENTORY> 807,229
<CURRENT-ASSETS> 4,270,456
<PP&E> 1,269,022
<DEPRECIATION> (316,884)
<TOTAL-ASSETS> 5,412,455
<CURRENT-LIABILITIES> 1,358,168
<BONDS> 426,121
0
0
<COMMON> 12,724
<OTHER-SE> 3,615,442
<TOTAL-LIABILITY-AND-EQUITY> 5,412,455
<SALES> 4,638,636
<TOTAL-REVENUES> 7,803,194
<CGS> 3,368,741
<TOTAL-COSTS> 3,612,388
<OTHER-EXPENSES> (29,326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,602
<INCOME-PRETAX> 790,789
<INCOME-TAX> 266,585
<INCOME-CONTINUING> 524,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,204
<EPS-PRIMARY> .041
<EPS-DILUTED> .041
</TABLE>
