UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 000-22061
INDUSTRIAL DATA SYSTEMS CORPORATION
(Name of Small Business Issuer in its Charter)
NEVADA 76-0157248
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 CENTURY PLAZA DRIVE, BUILDING 140
HOUSTON, TEXAS 77073-6016
(281) 821-3200
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Check whether the issuer has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months, 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 Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB/A or any amendment to
this Form 10-KSB/A. [X].
The net sales for the Company for the fiscal year ended December 31, 1996 were
$5,536,960.
The aggregate market value of the voting stock held by non-affiliates of the
Company on March 31, 1997 was $23,371,955. The number of shares outstanding of
the Company's common stock on March 31, 1997 was 13,129,999.
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 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997.
Transitional Small Business Disclosure Format (Check One) Yes [_] No [X]
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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/A. THE DISCUSSION IN THIS ANNUAL
REPORT ON FORM 10-KSB/A CONTAINS FORWARD LOOKING STATEMENTS WHICH INVOLVE RISKS
AND OTHER UNCERTAINTIES. REFERENCES TO THE "COMPANY" OR TO "IDS" REFER TO
INDUSTRIAL DATA SYSTEMS CORPORATION. REFERENCES TO "THERMAL" REFER TO THE RECENT
ACQUSITION OF THERMAIRE, INC., DBA THERMAL CORP. THE HISTORICAL AND PRO FORMA
FINANCIAL STATEMENTS RELATED TO THE THERMAL ACQUISITION ARE INCLUDED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB/A FOR THE YEAR ENDED DECEMBER 31, 1996.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
INDUSTRIAL DATA SYSTEMS CORPORATION
Industrial Data Systems Corporation ("IDS") was incorporated in the
State of Nevada in June 1994. The Company's principal executive offices are
located at 600 Century Plaza Drive, Building 140, Houston, Texas 77073. The
Company's telephone number is (281) 821-3200.
IDS 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 two operating segments: the
Industrial Products Division ("IPD") and the IDS Engineering Division ("IED").
The IPD is a provider of specialized microcomputer products that are targeted to
be sold to the industrial market. The IPD manufactures and sells industrial and
portable computers, microcomputers and color CRT monitors under the Company's
trade name, which include the SafeCase Series 3000, 4000, 5000 and 7000. The
microcomputer and peripheral products are designed to be used in industrial
applications, which include manufacturing, process control, discrete
manufacturing, data acquisition and man-machine interfaces. The computers and
monitors that are manufactured by the Company are different from conventional,
commercial desktop and portable computers by its architecture, packaging,
functionality, integration services and value-added software. The computer
products manufactured by the IPD are "open systems" that support "off-the-shelf"
software operated under DOS or Windows. The Company also derives revenue from
the integration and resale of industrial computer products manufactured by other
companies. Recently introduced products include the SafeCase Candere Workstation
Series which are more fully described below.
The IPD positions itself to provide engineered industrial personal
computers. The IPD adds value to standard computer components by packaging these
components in enclosures which withstand tough environmental conditions and/or
enclosures that have a special form factor. The Company also adds value by
integrating and technically supporting advanced microcomputer systems.
The IED offers engineering services 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 management team of the IED has the capability of
developing a project from the initial planning stages through detailed design
and construction management. The services
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provided include project scoping, cost estimating, engineering design, 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 Company has a long
standing relationship with Exxon Pipeline Company, Arco Pipeline Company,
Marathon Pipeline Company and Texas Eastern Products Pipeline Company. New
business relationships with other major oil companies are developed through
in-house personnel.
THERMAIRE, INC. DBA THERMAL CORP.
The Company entered into an Agreement with the owners of Thermaire, Inc.
on August 15, 1995 to acquire Thermaire, Inc. in a contingent purchase
transaction. The Company issued 600,000 shares of Common Stock which are
currently 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 Thermaire, Inc. will expire on February
15, 1997. In connection with this transaction, the Company has entered into an
agreement to purchase the facilities of Thermaire, Inc., subject to the
completion of the contingent purchase transaction for cash consideration of
$500,000, on or before February 15, 1997. The Company exercised its option to
purchase Thermaire, Inc., effective as of December 31, 1996, with the delivery
of all documentation and funds to occur and be fully exchanged on February 15,
1997.
The Company acquired Thermaire, Inc., a Texas corporation, doing
business as Thermal Corp. ("Thermal") on February 15, 1997. Mr. Joe
Hollingsworth, the former President and owner, acquired the industrial air
handling division assets of a predecessor business known as Thermal Engineering
("Old Thermaire") in 1972, and operated the Company until 1990, at which time
Old Thermaire was sold to 20th Century Holding Company, as a wholly owned
subsidiary. 20th Century Holding Company encountered financial difficulties and
filed for protection under the bankruptcy code in July, 1992. The assets of Old
Thermaire were placed in receivership and Mr. Hollingsworth reaquired these
assets in October, 1992, with the intention of continuing the company in its
present form. Thermal, was incorporated on November 17, 1992. Throughout its
history, Thermal has built a prominent reputation in the commercial and
industrial air handling industry for its quality products which are distributed
throughout the United States.
Thermal owns and operates a metal fabrication facility in Houston,
Texas. The Company's IED intends to use this facility to secure turn-key
engineering contracts which require the delivery of certain manufactured
components. This facility can also provide the IPD with an alternative source of
supply for its customized metal enclosures. The Company believes that the
benefits derived from the utilization of the metal fabrication facility by the
IED and IPD, will have a beneficial impact on the financial condition of the
Company.
As of April 30, 1997, Thermal employed approximately 45 employees.
Thermal owns and occupies a 37,735 square foot facility on approximately 4.5
acres which consists of approximately 2,500 square feet of office space and
35,200 square feet of manufacturing area located in Houston, Texas.
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
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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.
Thermal's product lines are sold and distributed through an extensive
network of national sales representatives made up of approximately 30
representative organizations in the US. Many sales leads have been obtained
through visibility gained at industry trade shows around the country, the most
prominent of which is the annual ASHRAE show. Thermal's ability to customize
their standard product line to meet non-standard applications allows them to
command a premium pricing structure for their air handling products. Thermal
obtains a large percentage of their sales based on their ability to manufacture
and deliver the air handling products in an expedient manner. Thermal's products
are sold nationwide to Fortune 500 companies. 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.
Major competitors of Thermal in the commercial segment are Trane,
Carrier, and York. Those competitors who have a strategy similar to Thermal are
Temptrol, Pace, and LaSalle Manufacturing. Thermal's maket share is estimated to
be less than 1% in the United States. We believe that this is a unique market
with few competitors. The Company plans to expand its share of the market
through increased marketing efforts and by replacing dormant sales
representatives with those with higher profile in existing territories. We plan
to offer units which have more value added features which include integrated
electronic control systems
The most prominent trend in the air handling industry is the movement
toward double wall design of the air handling units as opposed to single wall
design. A single wall unit has one outer wall with interior insulation which is
in constant contact with the air flow. In a double wall unit, the insulation is
enclosed between two layers of metal, both interior and exterior, thus
preventing the air flow to come in contact with the insulation. This method of
design relieves environmental concerns about the quality of air provided to
inhabitants of commercial buildings. More than 80% of Thermal's products
incorporate this double wall design feature. See "Acquisitions - Acquisition of
Thermaire, Inc. dba Thermal Corp." for additional information relating to this
acquisition.
ACQUISITIONS
HISTORY
Industrial Data Systems, Inc., a Texas corporation, was incorporated in
May 1985, to provide engineering consulting services to the pipeline divisions
of major integrated oil companies. The Company grew slowly to ten employees in
1989. At that time, a strategic decision was made by management to enter the
industrial computer marketplace. In 1989, the Company designed and built its
first industrial computer and in 1991, hired its first marketing manager. The
Company continued to support both businesses and developed its industrial
computer business through nationwide advertising.
Its product sales grew through the creation of new product lines.
ACQUISITION OF INDUSTRIAL DATA SYSTEMS, INC.
On August 1, 1994, the Company entered into an agreement to purchase all
of the issued and outstanding shares of Industrial Data Systems, Inc., a Texas
corporation, in a tax-free exchange of Common Stock. The Company issued
9,500,000 shares of its Common Stock to William A. Coskey and Hulda L. Coskey,
with each individual beneficially holding 4,762,800, and 4,750,000,
respectively. William A. Coskey and Hulda L. Coskey beneficially held all of the
issued and outstanding shares of
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the Common Stock of Industrial Data Systems, Inc., a Texas corporation, at the
time of the acquisition. William A. Coskey held the positions of Chairman of the
Board, Chief Executive Officer and President of Industrial Data Systems, Inc.,
and Hulda L. Coskey held the positions of Director, Vice President and
Secretary/Treasurer of Industrial Data Systems, Inc. The executive officers,
management team and beneficial ownership of securities held by the executive
officers were the same in both companies at the time of the transaction.
ACQUISITION OF THERMAIRE, INC. DBA THERMAL CORP.
The Company entered into an Agreement with the owners of Thermaire, Inc.
dba Thermal Corp. on August 15, 1995 to acquire Thermaire, Inc. dba Thermal
Corp. in a contingent purchase transaction. 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 Thermaire, Inc. dba
Thermal Corp. 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, Thermaire, Inc. dba Thermal Corp purchased the previously leased
facilities of Thermaire, Inc. dba Thermal Corp., 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. The audited financial statements of
Thermaire, Inc. dba Thermal Corp. are included herein as Exhibit 99 and the
proforma financial statements giving the effect to the acquisition for the
combined companies is included as Exhibit 99.1. Financial statements of
Thermaire, Inc. dba Thermal Corp. will be consolidated with the Company's
financial statements prospectively from the date of acquisition. See "Subsequent
Events" included in the Accompanying Notes to the Consolidated Financial
Statements of Industrial Data Systems Corporation for additional information
relating to this acquisition. NEW PRODUCTS
INTRODUCTION OF SAFECASE SERIES 400
On August 14, 1996, the Company announced the introduction of the
SafeCase Series 400 computer as its latest entry into the industrial portable
computer market. This computer is the industrial equivalent of a contemporary
commercial grade notebook computer. The size of the computer is 9" wide by 12"
in length and 5" in height and provides the same basic footprint as commercial
grade laptop computers, and complements the performance, durability and
reliability of the Company's other industrial computers. The SafeCase Series 400
is designed to be utilized in an environment with mild and severe weather
conditions, from light rain to gusting winds and temperatures ranging from nine
to 50 degrees Celsius, and is constructed to withstand shock at 10G and
vibration loads of 0.5mm within a five to 100 Hz range. The SafeCase Series 400
is a fully featured portable computer with an introduction price of $4,695. The
Company has experienced minor delays in the product testing phase of the
SafeCase 400, and initial deliveries of this computer are now scheduled to
commence during the third quarter of 1997.
INTRODUCTION OF CANDERE WORKSTATION SERIES
The Company recently introduced two new workstation products which
utilize Sun Microsystems SPARC technology. These products, packaged as either
tower or rack mount units are designed for the industrial and/or the
communications based environments. These new products will
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allow the Company to participate in the $4 billion workstation market for Sun
hardware. The new technology uses PCI Bus expansion slots to allow for lower
cost, higher performance peripherals available in the PC world to be
incorporated in the Sun hardware market at a dramatic cost savings.
Advertisement of the Candere Workstation Series will be implemented via the
Company's direct sales force, direct mail, trade publications, telemarketing,
and Sunworld On Line Product Showcase which has a hot-link directly to the
Company's own Internet home page. Delivery of these products will begin in the
second quarter of 1997 with an introductory price of approximately $9,000 per
unit.
The Company plans to increase sales through the introduction of
additional computer products in 1997, and it is in the process of researching
complementary computer products which are suitable to the industrial computer
market.
INDUSTRY OVERVIEW
The market for computer products and services has experienced
significant growth in recent years and the use of such products and services
within organizations has been impacted by several concurrent trends. The
introduction of LANs (local area networks) and WANs (wide area networks) has
allowed organizations to supplement or replace expensive, centralized mainframe
computer systems with more flexible and affordable PC-based client/server
platforms. The emergence of widely accepted industry standards for hardware and
software has increased the acceptance of open architecture LANs and WANs which
can and frequently do contain products from numerous manufacturers and
suppliers. Industrial personal computers and workstations are displacing other
controllers in a growing number of applications. Suppliers of office grade
(white box) personal computers have a price advantage. However, the necessity of
"hardened" units for difficult industrial environments ensures growth in the
sales of industrial personal computers and workstations.
The worldwide industrial personal computer and workstation industry is
one that predominantly services OEM (Original Equipment Manufacturer) and
systems integrator applications. Growth is expected to be slightly higher for
OEM and systems integrator applications than for end-user applications. Quality,
reliability, shock resistance and speed of operation are key factors of
significance for the user. The ability of the user to use the industrial
personal computer in rugged environments, such as harsh office, light industrial
and heavy industrial applications is also essential.
Users have needs and expectations that will affect product designs in
the industrial computer market. The type of backplane that is used, is of
critical importance as it affects ruggedness, expandability and price. The
supply side of the market is moving in diverse directions depending on price and
performance. High-end industrial personal computer and workstation vendors are
shifting more to active backplanes in order to lower prices, while low-end
vendors are continuing to use predominantly passive backplanes to meet user
demands for expansion and ease of servicing.
The industrial personal computer market is following the desktop market
in terms of bus architectures with industrial modifications. The ISA (Industry
Standard Architecture) bus will remain the industry standard for primary buses,
and will be integrated in hybrid form with PCI (Peripheral Component
Interconnect) in a large percentage of shipments. The average number of board
expansion slots is expected to increase over the next five years. The number of
PCMCIA slots is expected to remain the same, but more industrial PCI computers
and workstations will have these features. The industrial personal computer and
workstation market is moving heavily in the direction of Pentium, which will be
followed by P-6, P-7 and Power PC microprocessors.
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The most popular enclosure type for industrial personal computers and
workstations is rack mount. Panel mount is the second most popular enclosure for
light and heavy industrial conditions, and third most popular for harsh office
conditions. Bench top, desktop and tabletop is the second most popular for harsh
office, and the third most popular enclosure type for light and heavy industrial
environments. Relative use of these enclosures are expected to shift only
slightly over the next five years, as are those of lesser used pedestal mounts,
hand held, notebooks and luggable portables.
Distribution channels for computer products changed significantly
commencing in the early 1990's. During that period, many manufacturers of
computers began to scale back their sales forces and, in order to ensure the
continued wide distribution of their products, started to offer their products
to wholesale computer distributors which previously had sold only software and
peripheral equipment. In addition, manufacturers also began allowing resellers
to purchase products from more than one distributor, a practice known as "open
sourcing". Expanding computer sales to distributors and allowing open sourcing
intensified price competition among suppliers.
Rapid technological improvements in computer hardware and the
introduction of new software operating systems have also created the need to
expand or upgrade existing networks and systems. At the same time, price
decreases have made such networks and systems affordable to a larger number of
organizations. The Company believes that these trends have increased the general
demand for computer products and related information technology services.
The advent of open architecture networks has also impacted the market
for information technology services. Wider use of complex networks involving a
variety of manufacturer's equipment, operating systems and application software
has made it increasingly difficult to diagnose problems and maintain the
technical knowledge and repair parts necessary to provide support services.
Increasingly, organizations seeking computer products often require prospective
vendors not only to offer products from many manufacturers and suppliers, but to
have available and proficient service expertise to assist them in product
selection, system design, installation and post-installation assistance and
service. The Company believes that the ability to offer customers a
comprehensive solution to their information technology needs, including the
ability to work within its customers' industrial environments as integral
members of their management information system staff, are increasingly important
in the marketplace.
COMPETITION
The Company competes against various companies across its different
product lines. The Company's line of industrial portable computers compete with
products manufactured by Fieldworks, Dolch and Kontron. The Company's industrial
computer products which are mountable in a 19" 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, Toshiba and IBM. This commercial competition effectively sets
pricing for the Company's product line, since the Company's 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.
The Company believes that its products compete effectively based on its
engineering responsiveness to specific industrial market requirements, the
resulting functional specialization of its products, and its strategy of
focusing on relatively "sheltered" market niches where major competitors have
difficulty in tailoring their offerings to specific application requirements.
These strategies help offset the greater name recognition and broader service
and support resources of the Company's major competitors.
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The Company is engaged in business activities that are targeted to
industrial markets which are less competitive and typically generate greater
profit margins. The Company 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. The pricing competition for the
Company's IPD segment is from large manufacturers of commercial grade computer
products. The IPD's pricing of its computer product line is governed by pricing
in the commercial market. The pricing competition of the IED segment 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. Some of the Company's 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 the Company. As a result, the Company's competitors may be
able to adapt more quickly to changes in customer demands or to commit resources
to sales and service of its products than the Company has available. Such
competitors could also seek to increase their presence in the markets where the
Company is providing sales and services by creating strategic alliances with
other competitors of the Company, by offering new or improved products and
services to the Company's customers or increasing their efforts to gain and
retain market share through competitive pricing.
The Company's largest supplier, Microbus, Inc., a vendor of CPU boards
accounted for approximately 18% of total purchases for the year ended December
31, 1996. The CPU boards are purchased on individual purchase orders. The
Company does not have a long term contract with Microbus, Inc. to purchase the
CPU boards. In the event that this supplier could not provide CPU boards to the
Company, the Company believes that it would not have an adverse affect on the
Company's results of operations due to an abundance of suppliers of CPU boards
in the marketplace.
BUSINESS STRATEGY
The Company intends to increase market share and market penetration
through its existing product line, and also increase its sales through strategic
relationships with other computer manufacturers. On September 20, 1996, the
Company announced that it had entered into a Volume Purchasing Agreement with
Texas Microsystems, a division of Sequoia Systems, Inc. Under the terms of the
Purchasing Agreement, the Company will purchase OEM subsystems from Texas
Microsystems and act as an authorized systems integrator for their industrial
computer products. Texas Microsystems is a leading manufacturer of industrial
computer CPU boards and chassis products. The Company continues to actively
pursue similar OEM contracts with several major suppliers in the industrial
computer and desktop workstation marketplace.
The Company also 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. No specific acquisitions are being negotiated or planned as of
the date of this Annual Report on Form 10-KSB and 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.
In order to achieve its growth objective, the Company intends to
commence with the expansion
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of its national marketing network to increase sales of its current line of
proprietary industrial computer products. This expansion into new locations
within the United States will require additional in-house sales personnel and
sales representatives.
PRODUCTS
INDUSTRIAL PRODUCTS DIVISION
The Company's Industrial Products Division ("IPD") provides Intel
microprocessor-based microcomputer systems and system components that are
extremely dependable and can withstand harsh weather conditions and demanding
work environments. These computer systems are designed to withstand a wide
fluctuation in temperatures, shock waves, vibration, electromagnetic and radio
frequency interference, in addition to airborne dust particles and excessive
moisture.
SAFECASE SERIES 3000
The SafeCase Series 3000 is a microcomputer designed to be operated at
sites where temperature, vibration and airborne dust particles are of primary
concern. This microcomputer is designed to accommodate either active motherboard
CPUs or passive backplanes with plug-in CPUs. Being extremely adaptable, it can
be configured to accommodate various types of CPU boards, in addition to the
installation of various floppy and hard drives. The microcomputer enclosure is
constructed of 16 gauge steel and is pressurized by a filtered push-pull fan
cooling system to prevent dust particles and other matter from entering into the
computer. All of the computer components are modularly installed and shock
mounted. The SafeCase Series 3000 is suitable for installation in a standard 19"
equipment rack.
SAFECASE SERIES 4000
The SafeCase Series 4000 is a durable, rugged portable computer designed
to be operated under extremely harsh environmental conditions normally
encountered at industrial and commercial locations. The computer is constructed
with a four slot passive backplane and three full-size open bus slots to allow
the user to customize it with industry standard add-in boards. These computers
are designed with dual cooling fans to control heat build-up, are fully gasketed
to prevent the penetration of moisture and dust particles, and has a shock
mounted disk drive which together enhance its service life. The locations and
sites under which these computers are generally operated are unlike the
environmental conditions under which the plastic notebook and laptop computers
are operated. To complement the durability of the SafeCase Series 4000, its
sturdy aluminum carrying case has been designed to withstand excessive
mechanical loads.
SAFECASE SERIES 5000
The SafeCase Series 5000 is a color CRT computer monitor designed with a
resolution of 1024 x 768 pixels, positive pressure fan and filter which protects
against internal damage from airborne dust particles, and is mountable in a 19"
equipment rack. This monitor can be interfaced with a touch screen adapter. The
color CRT computer monitor is available in 14" and 20" diagonal models.
SAFECASE SERIES 7000
The SafeCase Series 7000 is a microcomputer designed for applications
which require an
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industrial computer to be mounted on a wall or attached to
machinery or other equipment. The features of this microcomputer include a six
slot passive backplane and plug-in CPU board, a positive pressure, filtered
cooling system, two drives which will accommodate either floppy or hard disks in
addition to a 150 watt power supply.
IPD PRODUCT DEVELOPMENT
The Company's engineering strategy is to continue to develop
differentiated microprocessor based capabilities that can be delivered in
"open-systems" using industry standard technology. Through this product
development strategy, the Company is able to provide highly reliable and readily
available microcomputers that are compatible with "off-the-shelf" application
software and hardware. These microcomputers can also provide a much greater
degree of system availability to users by focusing on reliability as its main
feature.
Product development during calendar 1997 will be concentrated on the
completion of and revisions to the previously announced SafeCase 400 product.
Revisions will also be made to the current SafeCase 4000 product line to
increase functionality and reduce cost. In addition, the Company will continue
to extend its products offerings to include high-end computer platforms. These
enhancements will include the latest Pentium, Pentium Pro and/or Sun Sparc
processors.
SALES AND MARKETING
IPD
Revenues derived from the IPD are approximately 53% in-house direct
sales, approximately 42% from sales representatives and approximately 5% from
catalog distributors sales.
IED
Revenues derived from the Company's IED are 100% direct in-house sales.
DIRECT SALES
The Company's SafeCase Series of computer products are primarily
marketed through commissioned third-party sales representatives. These sales
representatives are teamed with in-house sales managers and are assigned to
territories within the United States. The Company believes that this method of
selling leads to increased account penetration, proper management of its
products, and enhanced customer service which create and maintain the foundation
for long-term relationships with its customers. The Company's in-house sales
personnel receive a salary in addition to commission, which is based upon a
percentage of their sales. The Company 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. The Company promotes its
products and services through general and trade advertising, participation in
trade shows and through telemarketing and most recently through on-line Internet
communication via the Company's home page. The Company's records reflect that
approximately 30% of its sales of SafeCase series originates through
word-of-mouth referrals from existing customers and industry members, such as
manufacturer's representatives. Additionally, the sales personnel of its IPD
seek to capitalize on customer relationships that have been developed by its IED
personnel. Sales leads developed by this synergy are then jointly pursued. The
IPD's customer base of over 200 accounts consists primarily of Fortune 500
companies in all industry segments within
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the United States.
OTHER METHODS OF SALES
Sales of the IPD are primarily generated through commissioned sales
representatives and its in-house direct sales force. The Company also has an
arrangement with two catalog distributors that offer industrial computer
products and related peripherals. The SafeCase 4000 product is sold through
catalog distribution. This method of sales currently accounts for approximately
5% of IPD's total revenue.
All in-house sales personnel are located at the Company's principal
executive offices in Houston, Texas. The IPD does not anticipate hiring direct
regional sales managers who would be located in other states.
GOVERNMENT CONTRACTS
Sales to branches of the United States government have accounted for
less than 1% of total revenue.
CUSTOMERS
The Company's top ten customers (which varied from period to period) accounted
in the aggregate for approximately 90% and 82% of the Company's total revenue
during 1995 and 1996, respectively. . Exxon Pipeline Company, Inc., its major
customer, accounted for 65% and 39% of the Company's total revenue for the same
periods.
Currently, the top ten customers are:
Arco Pipeline Company
Exxon Pipeline Company, Inc.
Marathon Pipeline Company
Baker Hughes Inteq
Texas Eastern Products Pipeline
SAIC
Union Pacific Resources
Industrial Computer Source
Cummins Engine Co., Inc.
CNG Transmission Corp.
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 the Company's computer 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.
11
<PAGE>
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 Houston based technical support staff provides
initial telephone trouble shooting services for end-user customers and
distributors. These services include isolating and verifying reported product
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 generally provides end-user purchasers of its systems
with a one year warranty.
DEPENDENCE UPON SUPPLIERS
The Company's business depends upon its 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
computers, computer systems and computer components from distributors in order
to obtain competitive pricing, maximize product availability and maintain
quality control. In some cases, the Company's computer components are purchased
through a single source. The Company does not always have a long term purchasing
contract in place to purchase computer components from single sources. In the
normal course of business, the Company executes blanket purchase orders with its
major suppliers for a period of one year in order to maintain competitive
pricing and service. The purchase orders include provisions for the delivery, on
a monthly basis, of an adequate supply of computer parts to fulfill the
Company's orders for a one year period.
The Company relies on a few key contract manufacturers for the
manufacture of some components used in the assembly of its microcomputers. .
Suntronic, Inc. and Arrow Manufacturing, Inc., provide contract assembly of PC
boards to the Company, on an as needed basis. No long term contracts are in
place for the use of these services. The Company's single source suppliers are
Microbus, Inc., Zero Enclosures, and Promed Keyboard Group. These manufacturers
are the single sources for the Company's CPU boards, enclosures and keyboards,
respectively. Although such subcontracting arrangements offer cost and capacity
advantages, and would eliminate the need to incur certain capital expenditures
associated with manufacturing, reliance on third party manufacturers gives the
Company less control over the manufacturing process for these components than if
it undertook such activities itself. Any failure of such subcontractors to
manufacture and deliver components as planned, or any problems with the quality
of such components, could have a material adverse effect on the Company's
operations.
The Company purchases from other manufacturers substantially all
peripheral devices and components used in its products. A majority of the
components and peripherals are available from a number of different suppliers,
although certain major items are procured from single sources. The Company
believes that alternate sources could be developed for such single source items,
if necessary, however, in the event that certain peripheral or component
shortages were to occur, it could have an adverse effect on the Company's
operations.
There can be no assurance that the Company will be able to continue to
obtain the necessary computer components from its single sources on terms
acceptable to the Company, if at all. There can
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<PAGE>
be no assurance that such relationship will continue or that, in the event of a
termination of its 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.
RAPID TECHNOLOGICAL CHANGE
The business in which the Company competes is characterized by rapid
technological change and frequent introduction of new products and product
enhancements. The Company's success depends in large part on its ability to
identify and obtain products that meet the changing requirements of the
marketplace. The metal enclosures for the Company's SafeCase 4000 portable
computer are subject to manufacturer and distributor allocations due to its
customized design. The LCD flat panel display used in the SafeCase 4000 portable
computer may also be subject to distributor allocations due to its high demand
in the marketplace. The Company could experience delays in the receipt of these
integral products. During the past five years since this product was introduced,
the Company has not encountered any delays in the delivery of these products.
There can be no assurance that the Company will be able to identify and offer
products necessary to remain competitive or avoid losses related to obsolete
inventory and drastic price reductions. The Company 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 the Company's suppliers to maintain adequate inventory levels of
computer products demanded by the Company's 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 the Company 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.
PATENTS, TRADEMARKS, LICENSES
The Company's success depends in part upon its proprietary technology,
and 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.
EMPLOYEES
As of March 31, 1997, the Company employed approximately 90 individuals,
of which 40 were employed by the Company's subsidiary, Thermaire, Inc. dba
Thermal Corp. Of these, approximately four were employed in sales, marketing and
customer services, forty were employed in engineering and technical production
positions and six were employed in administration, finance and MIS. 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
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<PAGE>
collective bargaining agreement. The Company believes that relations with its
employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company does not own any real property and currently leases all of
its existing facilities. The Company leases its principal executive offices in
Houston, Texas, which consists of approximately 18,155 square feet that has been
divided into administrative offices, computer production operations and
warehouse facilities. The lease which will expire on August 31, 2000 is for a
five year term. Management believes that it has the ability to sustain a 100%
sales growth without having to expand its facilities or relocate its offices.
The Company also leases office space which consists of approximately 180 square
feet in Clarksburg, West Virginia, for the purpose of providing an office
facility for engineering and technical employees who reside in that State. This
lease will expire on May 31, 1997. The Company intends to continue operations at
its West Virginia location and believes that suitable facilities will be
available as needed.
As a result of the acquisiton of Thermaire, Inc. dba Thermal Corp., the
land and property previously leased by Thermaire, Inc. dba Thermal Corp. was
purchased by Thermaire, Inc. dba Thermal Corp for $500,000, consisting of
$50,000 cash advance from the Company and a note payable in the amount of
$450,000. 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.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. To management's knowledge, the
Company is not currently involved in any material legal proceedings and is not
aware of any 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 year ended December 31, 1996.
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
NASDAQ Electronic Bulletin Board System under the symbol "IDDS".
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1995
First Quarter................................ 0.750 0.750
Second Quarter............................... 1.000 0.375
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<PAGE>
Third Quarter................................ 1.000 0.875
Fourth Quarter............................... 1.000 0.750
YEAR ENDED DECEMBER 31, 1996
First Quarter................................ 1.125 0.750
Second Quarter............................... 0.875 0.375
Third Quarter................................ 4.250 0.875
Fourth Quarter. ............................. 7.250 3.125
THREE MONTHS ENDED MARCH 31, 1997............ 9.250 6.500
The foregoing figures, are based on information published by Dow Jones
Retrieval Service, do not reflect retail markups or markdowns and may not
represent actual trades.
Management believes that the Company has received positive response from
the investment community as a result of recent press releases regarding the
introduction of several new products including the Company's Series 400 SafeCase
industrial portable PC and the Candere Series Sun Ultrasparc-based workstation.
The press releases are distributed through Dow Jones, Bloomberg, Reuters, AP,
UPI and other investor wire services. These press releases are alosso
distributed to approximately 50 industrial computer trade publications.
As of March 31, 1997, the Common Stock was held by approximately 393
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 Operations."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 this Annual Report on Form
10-KSB/A.
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 29.9% and 37.4%,
for 1995 and 1996, respectively, while the IED segment has generated sales as a
percent of total revenue of 70% and 62.6% for the same period.
15
<PAGE>
The gross margin varies between each of its operating segments. Computer
product sales have produced a gross margin ranging from 26.5% in 1995 to 28.6%
in 1996 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 27.9% in 1995 to 28.3% 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. The overall gross margin for Industrial Data Systems Corporation,
which includes both product sales and pipeline consulting services, has varied
between 27.5% in 1995 to 28.4% in 1996. This variation reflects the different
mix of product sales and the amount of revenue derived from pipeline engineering
consulting services from period to period. Revenue from computer product sales
accounted for 37.4% of the Company's total revenue for the year ended December
31, 1996. Revenue from pipeline engineering consulting services accounted for
62.6% of the Company's total revenue for the year ended December 31, 1996.
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,
------------------------------------
1995 1996
----------------- -----------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
Revenue:
Computer Products ...................... $1,354,888 29.9 $2,068,517 37.4
Consulting Services .................... 3,170,298 70.1 3,468,443 62.6
---------- ----- ---------- -----
Total revenue ........................ 4,525,186 100.0 5,536,960 100.0
Gross Profit:
Computer Products ...................... 359,681 26.5 591,303 28.6
Consulting Services .................... 885,113 27.9 980,899 28.3
---------- ----- ---------- -----
Total gross profit ................... 1,244,794 27.5 1,572,202 28.4
Selling, general and administrative
expenses ................................. 758,784 16.8 1,049,879 19.0
---------- ----- ---------- -----
Depreciation ............................. 17,631 0.4 33,689 0.6
---------- ----- ---------- -----
Operating income ....................... 468,379 10.4 488,616 8.8
Other income (expense) ................... 143,153 3.2 120,169 2.2
---------- ----- ---------- -----
Income before provision
for income taxes ....................... 611,532 13.5 608,785 11.0
Provision for income taxes ............... 244,109 5.4 206,367 3.7
---------- ----- ---------- -----
Net income after income taxes ............ $ 367,423 8.1 $ 402,418 7.3
========== ===== ========== =====
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
TOTAL REVENUE. Total revenue increased by $1,011,774 or 22.4% from
$4,525,186 in 1995 to $5,536,960 in 1996. Revenue from the IPD, which comprised
37.4% of total revenue in 1996 increased by $713,629 or 52.7%. 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
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<PAGE>
the introduction of new product lines. Revenue from the IED which comprised
62.6% of total revenue in 1996 increased by $298,145 or 9.4%.
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, 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 1995 increase in IED revenue was due to additional 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 $327,408 or 26.3% from
$1,244,794 in 1995 to $1,572,202 in 1996. The gross margin for the IED increased
from 27.9% in 1995 to 28.3% in 1996. The increase was attributable to increased
rates for consulting services which were not totally offset by increased payroll
expenses. The gross margin for the IPD increased from 26.5% in 1995 to 28.6% in
1996. 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 $291,095 or 38.4% from $758,784 in 1995 to
$1,049,879 in 1996. As a percentage of total revenue, selling, general and
administrative expenses increased from 16.8% in 1995 to 19.0% in 1996. The
dollar increase was primarily attributable to an increase in general and
administrative expenses and sales compensation to accommodate the Company's
growth. Personnel costs, the largest other component of general and
administrative expenses, increased at a slower rate than total revenue. Certain
general and administrative expenses are relatively fixed, and the Company was
able to leverage these expenses as revenue increased during 1996.
The following table details the significant increases in selling,
general and administrative expense increases for the year ended December 31,
1996:
<TABLE>
<CAPTION>
Selling, general and $ Increase % of % of 1996
Administrative Expense 1995 to 1996 Increase Revenue Comments
- ------------------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C>
Building lease expense .. 18,403 23% 2% Scheduled increase
Administrative expense .. 156,891 115% 5% Transfer of certain officer from Engineering
Dept. to Admin. Dept. and one additional employee
Thermal expenses ........ 64,768 325% 2% Reflects General Manager salary for 12 months
in 1996 and 6 months in 1995
IPD sales expenses ...... 100,859 200% 2% Reflects Sales Manager salary for 12 months
in 1996 and only 6 months in 1995
</TABLE>
17
<PAGE>
OPERATING INCOME. Operating income increased by $20,237 or 4.3% from
$468,379 in 1995 to $488,616 in 1996. Operating income decreased as a percentage
of total revenue from 10.4% in 1995 to 8.8% in 1996. The increase in operating
income was a result of a increased revenues, slightly higher gross margins
coupled with increased selling, general and administrative expenses.
OTHER INCOME (EXPENSE). Other income decreased by $22,984 or 16.1% from
$143,153 in 1995 to $120,169 in 1996. This decrease was primarily due to smaller
gains in marketable securities, and by additional interest expense due to higher
utilization of the Company's line of credit.
NET INCOME. Net income after taxes increased by $34,995 or 9.5% from
$367,423 in 1995 to $402,418 in 1996. Net income after taxes decreased as a
percentage of total revenue from 8.1% in 1995 to 7.3% in 1996.
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 December 31, 1996, the Company's cash position, including marketable
securities, was sufficient to meet its working capital requirements. The Company
had, as of December 31, 1996, $25,000 in additional advances available under its
line of credit with a bank. This line of credit provides for maximum borrowings
of $350,000, which bears interest at prime plus 1% is for a term of one year,
matures on June 11, 1997, and 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. The Company has established
with its bank, an additional line of credit for Thermal, which will provide for
maximum borrowings of $400,000. The additional line of credit is secured by
accounts receivable and inventory of Thermal, and a guaranty from the Company.
On August 2, 1996, the Company issued 2,499,999 shares of its common
stock in exchange for promissory notes due February 15, 1997, totaling $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 $1,158,758 and $2,579,571 at December
31, 1995 and December 31, 1996, respectively.
CASH FLOW
Operating activities provided net cash totaling $317,205 and $128,863
during 1995 and 1996, respectively. The Company has not generated significant
cash flow from operating activities due to the working capital requirements
resulting from the rapid growth of the Company. Trade accounts receivable
increased $281,908 and decreased $28,773 for the years ended December 31, 1995
and 1996, respectively. Inventory increased by $42,000 and 81,582 for the same
periods.
Investing activities used cash totaling, $28,805 and $234,920,
respectively, during the years ended December 31, 1995 and 1996. The Company's
investing activities that used cash during these periods was primarily related
to cash advances to an affiliate (Thermaire, Inc. dba Thermal Corp.) and capital
expenditures.
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<PAGE>
As of December 31, 1996, the Company had a portfolio of marketable
securities which had a fair market value of $457,129 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.
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. During 1996, the
Company made no new investment of funds in the securities portfolio.
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 $16,375 and $507,325 during
1995 and 1996. During 1996, $190,000 was provided from the issuance of Common
Stock. Additionally, financing activities provided net cash of $42,325 as a
result of the net sale of treasury stock, and an increase in borrowings of
$275,000 under its line of credit. The Company has additional financing amounts
available on its line of credit ($25,000 at December 31, 1996), and the proceeds
of $1,000,000 from a private placement of common stock. The line of credit has
been used principally to finance accounts receivable and inventory purchases. Of
the $1,000,000 proceeds received from the sale of securities, $200,000 was
received in 1996 with the remaining balance being paid in full in January, 1997;
$787,437 is expected to be used for working capital, and the balance of $212,563
was used to purchase Thermaire, Inc. dba Thermal Corp. Additional bank financing
in the amount of $450,000 has been obtained for the purchase of the facilities
that Thermaire, Inc. dba Thermal Corp. had been leasing.
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 twelve 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
19
<PAGE>
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 trade accounts receivable of $622,512 and $593,739 at
December 31, 1995 and 1996, respectively. The number of days' sales outstanding
in trade accounts receivable was 50 days and 39 days, respectively. Bad debt
expenses have been insignificant (approximately .01%) for each of these periods.
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements for Thermaire, Inc. dba Thermal Corp.,
as of December 31, 1996 are attached hereto and made a part hereof as Exhibit 99
in connection with the Company's acquisition of Thermaire, Inc. dba Thermal
Corp. on February 14, 1997. The unaudited proforma condensed consolidated
financial information of the combined companies as of December 31, 1996 and for
the year then ended are attached hereto and made a part hereof as Exhibit 99.1.
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.
20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report ............................................... 21
Consolidated Balance Sheets, December 31, 1995 and 1996 .................... 22
Consolidated Statements of Income for the Years Ended
December 31, 1995 and 1996 ............................................ 23
Consolidated Statement of Stockholders' Equity for the
Years ended December 31, 1995 and 1996 ................................ 24
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995 and 1996 ...................................... 25
Notes to Consolidated Financial Statements ................................. 26
21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Industrial Data Systems Corporation and Subsidiary
dba IDS Technical Services
We have audited the accompanying consolidated balance sheets of Industrial Data
Systems Corporation and Subsidiary as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. 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 financial statements referred to above, present fairly, in
all material respects, the financial position of Industrial Data Systems
Corporation and Subsidiary as of December 31, 1995 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Hein & Associates, L.L.P.
Certified Public Accountants
Houston, Texas
February 19, 1997
22
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Cash in bank .................................... $ 342,304 $ 637,217
Mutual funds .................................... 231,528 337,883
----------- -----------
573,832 975,100
Marketable securities, at market value:
Trading ......................................... 238,423 400,348
Available-for-sale .............................. 32,655 56,781
----------- -----------
271,078 457,129
Account receivable - trade, less allowance for
doubtful accounts of approximately $11,000 and
$16,000 in 1996 and 1995, respectively ............ 622,512 593,739
Note receivable from an affiliate ................. -- 84,936
Inventory ......................................... 139,514 221,096
Note receivable from sale of common stock ......... -- 799,999
Note receivable from stockholder .................. -- 50,000
Advances to affiliate ............................. -- 30,000
Prepaid assets and deferred costs ................. 48,858
----------- -----------
Total current assets ......................... 1,606,936 3,260,857
----------- -----------
PROPERTY AND EQUIPMENT, net ........................ 106,283 122,578
OTHER ASSETS ....................................... 2,000 2,000
----------- -----------
Total assets ................................. $ 1,715,219 $ 3,385,435
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank .............................. $ 50,000 $ 325,000
Accounts payable .................................. 113,478 57,698
Income taxes payable .............................. 166,986 128,065
Accrued expenses and other current liabilities .... 117,714 170,523
----------- -----------
Total current liabilities .................... 448,178 681,286
DEFERRED INCOME TAX ................................ 31,423 34,010
COMMITMENTS AND CONTINGENCIES (Notes 6, 8 and 13)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 75,000,000
shares authorized; 13,129,999 shares issued
in 1996; 10,630,000 shares issued in 1995 ....... 10,630 13,130
Additional paid-in capital ........................ 817,397 1,829,684
Retained earnings ................................. 439,977 842,395
Net unrealized gain on marketable securities ...... 1,289 1,068
----------- -----------
2,686,277 1,269,293
Treasury stock, 38,700 and 19,800 shares in
1995 and 1996, respectively, at cost ............ (33,675) (16,138)
----------- -----------
Total stockholders' equity ........................ 1,235,618 2,670,139
----------- -----------
Total liabilities and stockholders' equity ... $ 1,715,219 $ 3,385,435
=========== ===========
23
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996
----------- ------------
OPERATING REVENUES:
Product sales ................................... $ 1,354,888 $ 2,068,517
Consulting fees ................................. 3,170,298 3,468,443
----------- ------------
4,525,186 5,536,960
OPERATING EXPENSES:
Cost of revenues:
Product ....................................... 995,207 1,477,214
Consulting .................................... 2,285,185 2,487,544
Selling, general and administrative ............. 758,784 1,049,897
Depreciation .................................... 17,631 33,689
----------- ------------
4,056,807 5,048,344
OTHER INCOME (EXPENSE):
Realized gains on marketable securities, net .... 97,727 86,824
Net unrealized gains (losses) on
marketable securities ......................... 29,932 20,389
Interest income (expense), net .................. 8,653 (456)
Other income .................................... 6,841 13,412
----------- ------------
143,153 120,169
----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ......... 611,532 608,785
PROVISION FOR INCOME TAXES:
Federal ......................................... 217,572 185,468
State ........................................... 26,537 20,899
----------- ------------
244,109 206,367
----------- ------------
NET INCOME ....................................... $ 367,423 $ 402,418
=========== ============
NET INCOME PER COMMON SHARE ...................... $ .04 $ .04
=========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....... $10,002,630 $ 11,244,269
=========== ============
24
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAIN (LOSS)
------------------- ADDITIONAL RETAINED ON MARKETABLE TREASURY
SHARES AMOUNT PAID-IN CAPITAL EARNINGS SECURITIES STOCK TOTAL
---------- ------- --------------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 ................ 10,000,000 $10,000 $ 808,977 $ 72,554 $ 3,057 $ -- $ 894,588
Stock issuance ($.30 share) ............ 30,000 30 8,970 -- -- -- 9,000
Purchases of treasury stock
(64,500 shares) ...................... -- -- -- -- -- (58,750) (58,750)
Sales of stock from treasury
(25,800 shares) ...................... -- -- 50 -- -- 25,075 25,125
Stock issued in connection with
contingent purchase .................. 600,000 600 (600) -- -- -- --
Change in unrealized gain on
marketable securities ................ -- -- -- -- (1,768) -- (1,768)
Net income ............................. -- -- -- 367,423 -- -- 367,423
---------- ------- --------------- -------- ------------- -------- -----------
BALANCES, December 31, 1995 .............. 10,630,000 10,630 817,397 439,977 1,289 (33,675) 1,235,618
Stock issuance ($.40 share), net
of $10,000 of offering costs ......... 2,499,999 2,500 987,499 -- -- -- 989,999
Purchases of treasury stock
(10,500 shares) ...................... -- -- -- -- -- (8,188) (8,188)
Sale of stock from treasury
(29,400 shares) ...................... -- -- 24,788 -- -- 25,725 50,513
Change in unrealized gain on
marketable securities ................ -- -- -- -- (221) -- (221)
Net income ............................. -- -- -- 402,418 -- -- 402,418
---------- ------- --------------- -------- ------------- -------- -----------
BALANCES, December 31, 1996 .............. 13,129,999 $13,130 $ 1,829,684 $842,395 $ 1,068 $(16,138) $ 2,670,139
========== ======= =============== ======== ============= ======== ===========
</TABLE>
25
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
DECEMBER 31,
---------------------
1995 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 367,423 $ 402,418
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ........................................ 17,631 33,689
Increase in trading securities, net ................. (81,435) (161,925)
Changes in:
Accounts receivable - trade ...................... (281,908) 28,773
Inventory ........................................ (42,200) (81,582)
Accounts payable ................................. 42,965 (55,780)
Income tax payable ............................... 101,426 (38,921)
Accrued expenses and other current liabilities ... 48,891 52,809
Deferred income tax expense ......................... 41,098 14,617
Non-cash compensation provided to officers .......... 103,305 --
Other, net .......................................... 9 (65,235)
--------- ---------
Net cash provided by operating activities ........ 317,205 128,863
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable from affiliate ........................ -- (84,936)
Advances on note receivable from stockholder .......... -- (50,000)
Capital expenditures .................................. (85,388) (49,984)
Purchases of available-for-sale securities ............ (76,367) (24,000)
Proceeds from sale of available-for-sale securities ... 132,950 4,000
Advances to affiliate ................................. -- (30,000)
--------- ---------
Net cash used in investing activities ............ (28,805) (234,920)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net ........................ 50,000 275,000
Proceeds from issuance of common stock, net ........... -- 190,000
Purchase of treasury stock ............................ (58,750) (8,188)
Sales of stock from treasury .......................... 25,125 50,513
--------- ---------
Net cash provided by financing activities ........ 16,375 507,325
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............. 304,775 401,268
CASH AND CASH EQUIVALENTS, at beginning of year ........ 269,057 573,832
--------- ---------
CASH AND CASH EQUIVALENTS, at end of year .............. $ 573,832 $ 975,100
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid ......................................... $ 4,103 $ 12,350
Income taxes paid ..................................... $ 40,000 $ 241,483
========= =========
NON-CASH TRANSACTIONS:
Issuance of common stock for services provided ........ $ 9,000 $ --
Issuance of common stock (600,000 shares) during
1995 in connection with a contingent business
acquisition (see Note 13) ........................... $ -- $ --
Common stock issued in exchange for notes
receivable (see Note 9) ............................. $ -- $ 799,999
========= =========
26
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - The accompanying consolidated financial statements include
the accounts of Industrial Data Systems Corporation (IDS or the Company),
a Nevada corporation, and its wholly-owned subsidiary Industrial Data
Systems, Inc., a Texas corporation, dba IDS Technical Services. All
significant intercompany balances and transactions have been eliminated in
consolidation.
INVENTORY - Inventory is composed of computer components and finished
goods and is carried at the lower of cost or market value, with cost
determined on the first-in, first out (FIFO) method of accounting. The
majority of inventory at December 31, 1996 and 1995 consisted of computer
components.
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 - Property and equipment is stated at cost,
adjusted for accumulated depreciation. Depreciation is calculated using an
accelerated method over the estimated useful lives of the related assets,
which is five years.
INVESTMENTS IN REAL ESTATE LIMITED PARTNERSHIPS - Investments in real
estate limited partnerships were carried at the lower of cost or estimated
fair market value of the underlying real estate. These investments were
assigned to two officers, who are also major stockholders of the Company,
during 1995 in lieu of cash compensation.
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.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash in
bank, investments in highly liquid money market mutual funds, and other
investments with a remaining maturity of 90 days or less on the date of
purchase.
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.
RECLASSIFICATIONS - Amounts in the prior year financial statements have
been reclassified as necessary to conform to the current year
presentation.
27
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
NEW ACCOUNTING PRONOUNCEMENT - The FASB issued Statement of Financial
Accounting Standards No. 128, entitled "Earnings Per Share", during
February 1997. The new statement, which is effective for financial
statements issued after December 31, 1997, including interim periods,
establishes standards for computing and presenting earnings per share. The
new statement requires retroactive restatement of all prior-period
earnings per share data presented. The Company does not believe the new
statement will have a material impact upon previously presented earnings
per share information.
2. MARKETABLE SECURITIES:
Marketable securities at December 31, 1996 are summarized as follows:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- --------- --------
Trading:
Common stocks ........... $225,027 $ 40,981$ (10,258) $255,750
Bond .................... 100,000 -- -- 100,000
Other ................... 25,000 19,598 -- 44,598
-------- -------- --------- --------
350,027 60,579 (10,258) 400,348
Available-for-sale:
Mutual fund ............. 55,713 1,068 -- 56,781
-------- -------- --------- --------
$405,740 $ 61,647 $ (10,258) $457,129
======== ======== ========= ========
Marketable securities at December 31, 1995 are summarized as follows:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- --------- --------
Trading:
Common stocks ........... $183,491 $ 26,896$ (6,973) $203,414
Other ................... 25,000 10,009 -- 35,009
-------- -------- --------- --------
208,491 36,905 (6,973) 238,423
Available-for-sale:
Mutual fund ............. 31,366 1,289 -- 32,655
-------- -------- --------- --------
$239,857 $ 38,194 $ (6,973) $271,078
======== ======== ========= ========
28
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTE RECEIVABLE FROM STOCKHOLDER:
The Company has a note receivable due from a stockholder. 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.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
---------------------
1995 1996
--------- ---------
Furniture and fixtures ....... $ 42,859 $ 43,610
Computer equipment ........... 104,226 153,459
--------- ---------
147,085 197,069
Accumulated depreciation ..... (40,802) (74,491)
--------- ---------
$ 106,283 $ 122,578
========= =========
5. NOTE PAYABLE TO BANK:
The Company has a line of credit with a bank of $350,000 at prime plus 1%
(9.25% at December 31, 1996). The line of credit, which expires on June
11, 1997, is collateralized by accounts receivable, inventory and is
guaranteed by the stockholders of the Company. There was $325,000
outstanding under the line at December 31, 1996. Interest on the
outstanding borrowings is due and payable monthly.
6. LEASE:
The Company leases office space under a non-cancelable operating lease.
Total rent expense for the years ended December 31, 1995 and 1996 was
$79,269 and $99,187, respectively. Future minimum rentals due under
non-cancelable operating leases with an original term of at least one year
are as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1997 $ 108,573
1998 108,936
1999 108,936
2000 72,624
---------
$ 399,069
=========
29
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PROFIT SHARING PLAN:
The Company has a 401(k) profit sharing 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 3% 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 $33,214 and $44,496
for the years ended December 31, 1995 and 1996, respectively.
8. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS:
The Company manufactures and distributes industrial and portable computers
and computer monitors to commercial companies primarily in the southern
states and provides pipeline engineering 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.
The Company had sales to two major customers totaling approximately
$2,967,000 (of which $2,139,000 was for pipeline engineering services
provided and $828,000 represents product sales), respecively for 1996,
representing 39% and 15%, respectively of total revenues for the year. For
1995, the Company provided pipeline engineering services to one major
customer totaling approximately $2,927,000 which represents 65% of total
revenues for that year. At December 31, 1996, amounts due from four
customers who individually had amounts due in excess of 10% of trade
receivables, totaled $298,829. At December 31, 1995, amounts due from
customers in excess of 10% of trade accounts receivable amounted to
$220,680, all of which was due from a single customer.
9. 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.
30
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FEDERAL INCOME TAXES:
The Company's income tax provision differs from the amount expected by
applying the federal statutory rate of 34%. The following is a
reconciliation of the expected versus actual provision.
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
-------- ---------
Expected provision at 34% .................. $207,921 $ 206,986
State income taxes ......................... 26,537 20,899
Other ...................................... 9,651 (21,518)
-------- ---------
$244,109 $ 206,367
======== =========
The Company has deferred tax assets and liabilities at December 31, 1995
and 1996 as follows:
1995 1996
-------- --------
Deferred tax assets - allowance for doubtful accounts .... $ 6,000 $ 4,235
Deferred tax liabilities:
Unrealized gain on trading securities ............... (11,224) (18,870)
Accumulated depreciation on property on equipment ... (26,199) (19,375)
-------- --------
(37,423) (38,245)
Net deferred tax .................................... $(31,423) $(34,010)
======== ========
The Company files a consolidated federal income tax return with the
company it acquired in 1997 (see Note 13). The amounts reflected herein
represent the Company's tax activity as if it filed a separate return,
which would not vary significantly from allocating its portion of the
consolidated amounts.
11. SEGMENT INFORMATION:
<TABLE>
<CAPTION>
Revenues Operating Earnings Identifiable Assets
Year Ended December 31, Year Ended December 31, December 31
------------------------- ---------------------- -------------------------
1995 1996 1995 1996 1995 1996
---------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Industrial Products Division (IPD) ......... $1,354,888 $2,068,517 91,991 219,796 $ 432,398 $ 455,488
IDS Engineering Division (IED) ............. 3,170,298 3,468,443 379,738 275,221 415,717 458,635
---------- ---------- -------- --------- ---------- ----------
Total .......................... $4,525,186 $5,536,960 $471,729 $ 495,017 $ 848,115 $ 914,123
========== ========== ======== ========= ========== ==========
Interest expense ........................... -- -- 8,653 (456) -- --
General corporate .......................... -- -- 131,150 114,224 867,104 2,471,312
Consolidated income before
income taxes ......................... -- -- $611,532 $ 608,785 -- --
======== ========= ---------- ----------
Total assets ......................... -- -- -- -- $1,715,219 $3,385,435
========== ==========
</TABLE>
Year Ended December 31,
--------------------
1995 1996
------- -------
Depreciation and Amortization, net of
amounts included in cost of service and
rentals:
Industrial Products Division (IPD) .......... $ 2,116 $ 4,043
------- -------
IDS Engineering Division (IED) .............. 12,165 23,245
------- -------
General corporate ........................... 3,350 6,400
------- -------
Total ................................. $17,631 $33,689
======= =======
31
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SEGMENT INFORMATION (CONTINUED):
Capital Expenditures:
Industrial Products Division (IPD) ............. $18,358 $10,747
------- -------
IDS Engineering Division (IED) ................. 67,030 39,237
------- -------
Total .................................... $85,388 $49,984
======= =======
12. TRANSACTIONS WITH AFFILIATE:
The Company is providing working capital financing to the company it
acquired in 1997 (see Note 13). Under the terms of this agreement, the
Company pays 98% of the face value of selected sales invoices. The Company
funds 85% of the face value of the invoice upon acceptance and the
remaining 13% upon ultimate collection of the invoice. The advances are
collateralized by the accounts receivable, inventory and machinery and
equipment of the borrower.
The Company has an advance to the company it acquired in 1997 (see Note
13). The advances, totaling $30,000 at December 31, 1996, are unsecured,
bear no interest rate and contain no terms of repayment.
During 1996, the Company employed an individual to perform the general
manager function at the company it acquired in 1997 (see Note 13). The
Company incurred salary and related payroll costs for this individual
totaling approximately $93,000.
13. SUBSEQUENT EVENT:
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,
32
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SUBSEQUENT EVENT (CONTINUED):
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 ..................... (336,178)
Appraised value of land and building acquired (695,000)
-----------
Goodwill .................................... $ 68,822
===========
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.
33
<PAGE>
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: May 14, 1997 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,
Director
By: /s/ REX S. ZERGER
Rex S. Zerger, Vice President -
Sales & Marketing, Director
By: /s/ DAVID W. GENT
David W. Gent, P.E., Director
By: /s/ ALAN W. HARVEY
Alan W. Harvey, Director
34
<PAGE>
DESCRIPTION AND INDEX OF EXHIBITS
2 Agreement and Plan of Reorganization for the Purchase of Industrial Data
Systems, Incorporated, dated August 1, 1994 (3)
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 (3)
2.2 Action by Written Consent of the Stockholders for the Purchase of
Industrial Data Systems, Incorporated, a Texas corporation, dated August
1, 1994 (3)
2.3 Stock Acquisition Agreement for the Purchase of Thermaire Incorporated,
dba Thermal Corp., dated August 15, 1995 (3)
2.4 Escrow Agreement for the Purchase of Thermaire Incorporated, dba Thermal
Corp., dated August 15, 1995 (3)
2.5 Earnest Money Contract for the Purchase of Thermaire Incorporated, dba
Thermal Corp.'s Manufacturing Facility, dated August 15, 1995 (3)
2.6 Offering Memorandum, 504D Offering of 500,000 Shares of Common Stock in
the State of Nevada, dated July 26, 1994 (3)
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 (3)
2.8 Agreement for Amendment and Substitution of Subscription Agreement and
Notes, dated July 10, 1996 (3)
2.9 Stock Purchase Subscription Agreement from World Glory Company Limited,
dated July 10, 1996 (3)
2.10 Stock Purchase Subscription Agreement from Asian Harvest Corporation
Limited., dated July 10, 1996 (3)
2.11 Stock Purchase Subscription Agreement from Silver Course Corporation,
dated July 10, 1996 (3)
2.13 Stock Purchase Subscription Agreement from Pines Intervest Corporation,
dated July 10, 1996 (3)
2.14 Stock Purchase Subscription Agreement from Wilton Assets Corp., dated July
10, 1996 (3)
35
<PAGE>
3 Articles of Incorporation, dated June 20, 1994 (3)
3.1 Corporate Charter, dated June 22, 1994 (3)
3.2 Bylaws dated June 22, 1994 (3)
4.1 Revolving Credit Line with Texas Commerce Bank, N.A., dated June 11, 1996
(3)
4.2 Promissory Note plus Restricted Common Stock to John H. Cameron, dated
July 23, 1994 (3)
4.3 Promissory Note plus Restricted Common Stock to Charles B. Pollock, et ux,
dated July 23, 1994 (3)
4.4 Promissory Note payable to Industrial Data Systems Corporation from World
Glory Company Limited., dated July 15, 1996 (3)
4.5 Promissory Note payable to Industrial Data Systems Corporation from Asian
Harvest Corporation, Ltd., dated July 15, 1996 (3)
4.6 Promissory Note payable to Industrial Data Systems Corporation from Silver
Course Corporation, dated July 15, 1996 (3)
4.7 Promissory Note payable to Industrial Data Systems Corporation from Pines
Intervest Corporation, dated July 15, 1996 (3)
4.8 Promissory Note payable to Industrial Data Systems Corporation from Wilton
Assets Corp. dated July 15, 1996 (3)
10 Lease Agreement between Industrial Data Systems, Incorporated, a Texas
corporation, and American General Life Insurance Company, dated January
16, 1991 (3)
10.1 First Amendment to Lease Agreement between Industrial Data Systems,
Incorporated, a Texas corporation, and American General Life Insurance
Company, dated December 7, 1993 (3)
10.2 Second Amendment to Lease Agreement between Industrial Data Systems
Corporation, a Nevada corporation, and American General Life Insurance
Company, dated December 29, 1994 (3)
10.3 Third Amendment to Lease Agreement between Industrial Data Systems
Corporation, a Nevada corporation, and American General Life Insurance
Company, dated December 8, 1995 (3)
10.4 Lease Agreement between Industrial Data Systems Corporation, a Nevada
corporation, and Clarksburg, West Virginia Masonic Building, dated June 1,
1995 (3)
10.5 Adoption Agreement for Nonstandardized Code 401(k) Profit Sharing Plan,
dated January 1, 1993 (3)
36
<PAGE>
10.6 Blanket Service Contract - Exxon Pipeline Company (3)
10.7 Blanket Service Contract - Marathon Oil Company (3)
10.8 Blanket Service Contract -Texas Eastern Transmision Corporation (3)
10.9 Blanket Service Contract -Trunkline Gas Company (3)
10.10 Blanket Service Contract -Panhandle Eastern Pipeline Company (3)
10.11 Blanket Service Contract -ARCO Pipe Line Company (3)
10.12 Blanket Service Contract -CNG Transmission Corporation (3)
10.13 Blanket Service Contract -Columbia Gas Transmission Corporation (3)
10.14 Blanket Service Contract -Praxair, Inc. (3)
10.15 Blanket Service Contract -Texas Products Pipeline Company (3)
10.16 Volume Purchase Agreement (3)
21 Subsidiary of the Registrant (2)
23 Consent of Lindsey, Keys & Shannon (2)
24 Power of Attorney (2)
27 Financial Data Schedule
99 Audited Financial Statements of Thermaire, Inc. dba Thermal Corp.as of and
for the year ended December 31, 1996
99.1 Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statement of
Income as of and for the year ended December 31, 1996 for Industrial Data
Systems Corporation and Thermaire, Inc. dba Thermal Corp.
(3) Exhibits incorporated by reference in 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 in 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 in the Company's Registration Statement
on Form 10SB/A filed with the Securities and Exchange Commission on May
14, 1997.
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 975,100
<SECURITIES> 457,129
<RECEIVABLES> 593,739
<ALLOWANCES> 11,000
<INVENTORY> 221,096
<CURRENT-ASSETS> 3,260,857
<PP&E> 197,069
<DEPRECIATION> (74,491)
<TOTAL-ASSETS> 3,385,435
<CURRENT-LIABILITIES> 681,286
<BONDS> 0
0
0
<COMMON> 13,130
<OTHER-SE> 2,657,009
<TOTAL-LIABILITY-AND-EQUITY> 3,385,435
<SALES> 2,068,517
<TOTAL-REVENUES> 5,536,960
<CGS> 1,477,214
<TOTAL-COSTS> 3,964,758
<OTHER-EXPENSES> 1,083,586
<LOSS-PROVISION> (5,000)
<INTEREST-EXPENSE> (456)
<INCOME-PRETAX> 608,785
<INCOME-TAX> 206,367
<INCOME-CONTINUING> 402,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,418
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
EXHIBIT 99
THERMAIRE, INC.
DBA THERMAL CORP
FINANCIAL STATEMENT
AND INDEPENDENT AUDITOR'S REPORT
YEAR ENDED DECEMBER 31, 1996
<PAGE>
INDEX
PAGE
INDEPENDENT AUDITOR'S REPORT...............................................41
BALANCE SHEET - December 31, 1996..........................................42
STATEMENT OF INCOME & RETAINED EARNINGS (DEFICIT) -
Year Ended December 31, 1996........................................43
STATEMENT OF CASH FLOWS - Year Ended December 31, 1996.....................44
NOTES TO FINANCIAL STATEMENTS..............................................45
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Thermaire, Inc.
We have audited the accompanying balance sheet of Thermaire, Inc., dba Thermal
Corp, as of December 31, 1996 and the related statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Thermaire, Inc. as of December
31, 1996, and the results of their operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Lindsey, Keys & Shannon, P.C.
Spring, Texas
March 1, 1997
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash .......................................................... $ 3,301
Accounts Receivable ........................................... 271,906
Inventory ..................................................... 239,367
Prepaid Expenses .............................................. 4,680
---------
519,254
---------
PROPERTY AND EQUIPMENT, At Cost ............................... 297,480
Less Accumulated Depreciation ................................. (161,741)
---------
135,739
---------
OTHER ASSETS, Net of Amortization ............................. 425
---------
TOTAL ASSETS ............................................ $ 655,418
=========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable Short Term:
Affiliate .................................................. $ 109,086
Insurance Financing ........................................ 3,014
Accounts Payable - Trade ...................................... 168,659
Accounts Payable - Shareholders ............................... 96,131
Other Accrued Expenses ........................................ 1,850
---------
378,740
---------
SHAREHOLDERS' EQUITY:
Common Stock,
Voting, no par value, 1,000,000
shares authorized, 10,000 shares
issued and outstanding .................................. 25,000
Non-voting, $1.00 par value, 500,000
shares authorized, 451,292 shares
issued and outstanding .................................. 451,292
Retained Earnings (Deficit) ................................ (199,614)
---------
276,678
---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ................ $ 655,418
=========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
COMBINED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE YEAR ENDING DECEMBER 31, 1996
NET SALES $ 2,404,375
COST OF GOODS SOLD 2,150,642
----------------
GROSS MARGIN 253,733
----------------
OTHER OPERATING EXPENSES:
Sales & Marketing 32,416
General & Administrative 309,118
----------------
341,534
----------------
LOSS FROM OPERATIONS (87,801)
OTHER INCOME (EXPENSE):
Net Gain on Sale of Property & Equipment 11,865
Interest Expenses (10,959)
----------------
NET INCOME (LOSS) (86,895)
RETAINED EARNINGS (DEFICIT)
Beginning of Year (112,718)
----------------
End of Year $ (199,614)
================
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1996
NET CASH FLOW FROM (USED BY) OPERATING ACTIVITIES:
Net Income (loss) ........................................ $ (86,896)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ......................... 41,869
(Increase) Decrease in Current Assets:
Accounts Receivable ................................ (104,746)
Inventory .......................................... (89,298)
Prepaid Expenses ................................... (620)
Increase (Decrease) in Current Liabilities:
Accounts Payable - Trade ........................... 98,270
Amounts Payable - Shareholders ..................... 41,005
Other Accrued Expenses ............................. (661)
---------
Net Cash Flow Provided by (Used by) Operating Activities . (101,077)
---------
CASH FLOW FROM (USED BY) INVESTING ACTIVITIES:
Acquisition of Property and Equipment .................... (14,783)
Disposition of Property and Equipment - Net .............. 13,059
---------
Net Cash Flow from (Used by) Investing Activities ........ (1,724)
---------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in Notes Payable:
Loans and Advances from Affiliate, Net ................ 109,086
Insurance Financing, Net .............................. 3,014
---------
Net Cash Provided by Financing Activities ................ 112,100
---------
NET INCREASE IN CASH ..................................... 9,299
CASH (OVERDRAFT) AT BEGINNING OF YEAR .................... (5,998)
---------
CASH AT END OF YEAR ...................................... $ 3,301
=========
SUPPLEMENTAL DISCLOSURES:
Interest Paid ............................................ $ 10,959
Income Taxes Paid ........................................ $ - 0 -
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY - Thermaire, Inc., dba Thermal Corp (the Company), is a
custom manufacturer of air conditioning and related equipment primarily for sale
to independent sales representatives located throughout the United States. The
Company's business is tied closely to the commercial and industrial construction
industry; consequently, the Company's ability to sell products and collect
amounts due from customers is affected by economic fluctuations in these
industries.
Starting in January, 1996 and continuing for approximately seven months,
the Company manufactured and sold stainless steel electrical enclosures to a
special group of acquired customers. This business generated gross margins of
approximately $39,000 on sales of $218,000. The business was discontinued in
August resulting in a loss of approximately $8,000 which was netted against the
gain on sale of fixed assets. These operations have not been reported as
discontinued operations in the accompanying Statement of Income (Loss) due to
materiality considerations.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the Company considers only immediately available demand deposits to be cash
equivalents.
INVENTORY - Inventory consists primarily of raw materials used in
manufacturing and is carried at the lower of cost or market value, with cost
determined on the first-in, first out method of accounting. Costs related to
current jobs in process are valued at actual cost of material and labor expended
on the job to date and include a factor for overhead.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost,
adjusted for accumulated depreciation. Depreciation is calculated using a
straight line method with lives of seven years for used equipment and ten years
for new equipment. Salvage value is not considered.
INCOME TAXES - The Company's taxable income (loss) is included in a
consolidated tax return filed by an affiliated company (see Note 7). Taxable
income for 1996 exceeded book income by approximately $17,000 which represents
the difference between book and tax methods of depreciation. A provision has not
made on the Company's books to reflect the benefits accruing to the consolidated
entity from the reduction of taxable income from operating losses of the
Company.
USE OF ESTIMATES - The preparation of the Company's 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. The Company performs ongoing credit
evaluations of its customers and regularly sells on open account with out
payment in advance. The Company assesses its credit risk and provides an
allowance for doubtful accounts for accounts, if any, which is deemed doubtful
for collection.
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
NOTES TO FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Machinery and equipment $ 276,197
Fixtures and office equipment 11,451
Leasehold improvements 9,332
Other 500
---------
297,480
Less accumulated depreciation (161,741)
---------
$ 135,739
=========
NOTE PAYABLE SHORT TERM - AFFILIATE:
The Company is provided working capital by an affiliated company through
financing of sales invoices. Under the terms of the agreement, the Company
receives 98% of the face amount of selected invoices, of which 85% of the face
value of the invoice is received upon acceptance and the remaining 13% upon
ultimate collection of the invoice. The advances are collateralized by all
accounts receivable, inventory and property and equipment of the Company. As of
December 31, 1996, $79,086 is owing under this arrangement.
The Company has received additional advances from the same affiliate.
These advances, totaling $30,000 at December 31, 1996, are unsecured, bear no
interest rate and contain no terms of repayment.
SERVICES PROVIDED BY AFFILIATE:
During 1996, the Company received management services, at no cost, from a
affiliated company with an estimated value of $93,000.
ACCOUNTS PAYABLE SHAREHOLDERS:
Included in payable to shareholders is $59,500 of rent accrued between
August 1, 1995 and December 31, 1996. Subsequent to year end, this amount due
was forgiven by the shareholders in connection with the acquisition of the land
and buildings by the Company (see note 7).
<PAGE>
THERMAIRE, INC.
DBA THERMAL CORP
NOTES TO FINANCIAL STATEMENTS
MAJOR CUSTOMER:
During 1996, approximately 30% of the Company's sales were made to another
corporation located in the Houston market. The stock of this corporation is
owned by individuals who are relatives of the shareholders of the Company. These
sales were made at gross margins approximating those to other large customers.
As of December 31, 1996, approximately $153,000 of open invoices are due from
this corporation and all are considered current and collectible by management.
SUBSEQUENT EVENT:
On August 15, 1995, the Company became a party to a Stock Acquisition
Agreement for the contingent sale of all of its issued and outstanding stock.
Shares of stock of the acquiring corporation were placed in escrow and the
acquiring corporation became responsible for management of the business. In
February 1997, the transaction was completed and the Company is now owned 100%
by the acquiring corporation. In connection therewith, the Company entered into
a loan agreement to purchase the facilities from the prior owners. The purchase
price of the property was $500,000, payable $50,000 at closing and 59 monthly
installments of four thousand five hundred thirty two and 13/100 dollars
($4,532.13) including interest at 8.88% per annum with a 60th payment due for
any remaining balances. The acquiring corporation advanced funds for the down
payment and closing costs. The loan is secured by the assets acquired, along
with the guarantee of the acquiring corporation.
On July 1, 1996, Industrial Data Systems, Inc., the parent company of
Thermaire, Inc. dba Thermal Corp., entered into a lease agreement with Joe B.
Hollingsworth (Lessor) for the Thermal premises situated on 10500 Windfern Rd.,
Houston, Harris County, Texas. The lease agreement is for a period of eighteen
months commencing July 1, 1995 and ending on December 31, 1996 with a fixed
monthly rate of $3,500 per month. Total rent expenses for the years ended
December 31, 1995 and 1996 was $42,000 and $42,000, respectively.
Prior to this formal lease agreement, for the months of January through
June, 1995, Thermal had a verbal month-to-month lease agreement with Mr.
Hollingsworth for the same property at a rate of $3,500 per month, which was
paid as agreed.
The prior owners of the facilities were Mr. Joe Hollingsworth and Mr.
William A. Jackson. Mr. Joe Hollingsworth, one of the owners, was a founder of
Thermal. There were no affiliations among Industrial Data Systems Corporation
and Thermal prior to the date of the Stock Acquisition Agreement nor did the
Company have any affiliations with Mr. Joe Hollingsworth or Mr. William A.
Jackson prior to the date of the Stock Acquisition Agreement.
47
EXHIBIT 99.1
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
AS OF DECEMBER 31, 1996
<PAGE>
INDEX
PAGE
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION...........50
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS
OF DECEMBER 31, 1996.................................................51
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996.........................................52
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..53
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet is
presented as of December 31, 1996. The pro forma balance sheet has been prepared
giving effect to the acquisition of Thermaire, Inc. for $1,100,000 and the
related purchase accounting adjustments and the collection of the balance due of
$799,999 under the note receivable from sale of common stock, as if all such
transactions had occurred on December 31, 1996. The unaudited pro forma
condensed statement of income is presented as if these transactions occurred at
the beginning of the year presented. The acquisition was accounted for under the
purchase method of accounting. Pro forma adjustments are explained in the Notes
to Unaudited Condensed Consolidated Financial Information.
The pro forma condensed consolidated balance sheet does not purport to be
indicative of the financial position that would have occurred had the proposed
acquisition been consummated on December 31, 1996, nor is the pro forma
condensed consolidated statement of income necessarily indicative of
consolidated results of operations had the transactions occurred at the
beginning of the year presented, or future operating results. The unaudited pro
forma condensed consolidated financial information should be read in conjunction
with the Company's historical financial statements and the related notes thereto
and other financial information.
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDUSTRIAL
DATA PRO FORMA
SYSTEMS THERMAIRE, PRO FORMA COMBINED
CORPORATION INC. ADJUSTMENTS BALANCES
----------- ----------- ----------- --------
(Historical)(Historical) Dr (Cr)
<S> <C> <C> <C> <C>
Cash and cash equivalents ...... $ 975,100 $ 3,301 799,999(a) $ 1,515,838
(212,562)(b)
(50,000)(c)
Marketable securities .......... 457,129 -- 457,129
Accounts receivable ............ 593,739 271,906 865,645
Advances and note receivable due
from affiliate and stockholder 164,936 -- (109,086)(d) 55,850
Inventory ...................... 221,096 239,367 460,463
Note receivable from sale of
common stock .................. 799,999 -- (799,999)(a) --
Other current assets ........... 48,858 4,680 53,538
---------- --------- -----------
Total current assets ...... 3,260,857 519,254 3,408,463
-- 500,000(c)
Property and equipment, net .... 122,578 135,739 195,000(b) 953,317
Goodwill ....................... -- -- 68,822(b) 68,822
Other assets ................... 2,000 425 2,425
---------- --------- -----------
Total assets .............. $3,385,435 $ 655,418 $ 4,433,027
========== ========= ===========
Note payable to bank ........... $ 325,000 $ -- $ 325,000
Note payable to seller ......... -- -- (450,000)(c) 450,000
Accounts payable ............... 57,698 168,659 226,357
Account payable to an affiliate -- 96,131 59,500(b) 36,631
Advances and notes payable
due to an affiliate ........... -- 109,086 109,086(d) --
Accrued expenses and other
current liabilities ........... 170,523 4,864 175,387
Income taxes payable ........... 128,065 -- 128,065
---------- --------- -----------
Total current liabilities . 681,286 378,740 1,341,440
Deferred income tax ............ 34,010 -- 34,010
-- 276,678(b)
Stockholders' equity .......... 2,670,139 276,678 (387,438)(b) 3,057,577
---------- --------- -----------
Total liabilities and
stockholders' equity ... $3,385,435 $ 655,418 $ 4,433,027
========== ========= ===========
</TABLE>
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDUSTRIAL
DATA PRO FORMA
SYSTEMS THERMAIRE, PRO FORMA COMBINED
CORPORATION INC. ADJUSTMENTS BALANCES
----------- ---------- ----------- --------
(Historical) (Historical) Dr (Cr)
<S> <C> <C> <C> <C>
NET REVENUES .............. $ 5,536,960 $ 2,404,375 $ 7,941,335
OPERATING EXPENSES:
Cost of revenues:
Product ................ 1,477,214 2,150,642 3,627,856
Consulting ............. 2,487,544 -- 2,487,544
Selling, general and
administrative ....... 1,083,586 341,534 5,000(e) 1,460,120
30,000(f)
----------- ----------- -----------
5,048,344 2,492,176 7,575,520
OTHER INCOME, net ......... 120,169 906 40,000(g) 81,075
----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES ............. 608,785 (86,895) 446,890
PROVISION FOR INCOME TAXES 206,367 -- (50,000)(h) 156,367
----------- ----------- -----------
NET INCOME ................ $ 402,418 $ (86,895) $ 290,523
=========== =========== ===========
NET INCOME PER COMMON
SHARE .................... $ .03
=========
WEIGHTED AVERAGE COMMON
OUTSTANDING .............. 10,250,454
==========
</TABLE>
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1996
In preparing the pro forma condensed consolidated financial information as of
and for the year ended December 31, 1996, the Company made the following
adjustments:
(a) To give effect to the January 1997 collection of the notes
receivable from sale of common stock.
(b) To give effect to the acquisition of Thermaire, Inc. for $600,000
($212,562 in cash, and $387,438 in Common Stock) and the related
purchase accounting adjustments. 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 ...................... (336,178)
Appraised value of land and building acquired (695,000)
----------
Goodwill .................................... $ 68,822
==========
(c) To give effect to acquisition of the building and land previously
leased by Thermaire, Inc. dba Thermal Corp. which was acquired with
debt of $450,000 and cash of $50,000.
(d) To eliminate amounts due by Thermaire, Inc. to Industrial Data
Systems Corporation.
(e) To give effect to amortization of goodwill on the straight line
method over 10 years.
(f) To give effect to depreciation expense on the building acquired in
the transaction, which is being depreciated over 20 years.
(g) To give effect to interest expense on the $450,000 of acquisition
debt. The acquisition debt consists of a note payable to a bank, due
in 59 monthly installments of $4,532, including interestr at 8.88%,
with a sixtieth and final installment due on February 28, 2002.
(h) To give effect to taxes on the pro forma adjustments.
