SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
COMMISSION FILE NUMBER: 000-22061
INDUSTRIAL DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 76-0157248
(State or, other Jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
600 CENTURY PLAZA DRIVE, BUILDING 140, HOUSTON, TEXAS 77073-6013
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-3200
Check whether the issuer (1) has filed all reports required to be filed
by Section 1.3 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.001 Par Value 12,723,718
(Shares outstanding as of June 30, 1997)
<PAGE>
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
PAGE
NUMBER
------
PART 1 FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS .............................................. 3
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................. 9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES ............................................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 16
ITEM 5. OTHER INFORMATION ................................................ 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 17
Signature ...................................................... 17
2
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 31,1996
------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 460,204 $ 637,217
Mutual funds ................................................................ 47,432 337,883
----------- -----------
$ 507,636 $ 975,100
Marketable securities:
Trading ..................................................................... 787,587 400,348
Available-for-sale .......................................................... 27,771 56,781
----------- -----------
$ 815,358 $ 457,129
Accounts receivable - trade, less allowance for doubtful accounts of .......... $ 1,717,951 $ 593,739
approximately 11,000 in 1996 and 1997, respectively
Note receivable from an affiliate ............................................. -- 84,936
Inventory ..................................................................... 667,679 221,096
Note receivable from sale of common stock ..................................... -- 799,999
Note receivable from stockholder .............................................. 100,000 50,000
Advances to affiliate ......................................................... 58,319 30,000
Prepaid assets and deferred costs ............................................. 64,526 48,858
----------- -----------
Total current assets .............................................. $ 3,931,469 $ 3,260,857
----------- -----------
PROPERTY AND EQUIPMENT, net ................................................... 958,943 122,578
OTHER ASSETS .................................................................. 212,957 2,000
----------- -----------
Total Assets ...................................................... $ 5,103,369 $ 3,385,435
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portions long-term debt .............................................. $ 14,567 --
Note payable to bank .......................................................... 575,000 $ 325,000
Accounts payable .............................................................. 426,879 57,698
Income taxes payable .......................................................... 114,728 128,065
Accrued expenses and other current liabilities ................................ 163,003 170,523
----------- ----------
Total Current Liabilities ......................................... $ 1,294,177 $ 681,286
----------- -----------
LONG TERM LIABILITIES:
Deferred Income Tax ........................................................... 34,010 34,010
Notes Payable Long -Term, less current portion ................................ 429,661
----------- -----------
Total Long -Term Liabilities: ................................. 463,671 34,010
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 75,000,000 shares authorized; 12,723,718 shares
issued in 1997, 13,129,999
shares issued in 1996 ......................................................... 12,724 13,130
Additional paid - in capital ...................................... 2,263,913 1,829,684
Retained earnings ................................................. 1,085,022 842,395
Net unrealized gain on marketable securities ...................... -- 1,068
----------- -----------
3,361,659 1,269,293
----------- -----------
Treasury stock .................................................... (16,138) (16,138)
----------- -----------
Total Stockholders Equity ......................................... $ 3,345,521 $ 2,670,139
----------- -----------
Total Liabilities and Stockholders Equity ............. $ 5,103,369 $ 3,385,435
=========== ===========
</TABLE>
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
------------------------------ --------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Product sales ......................................... $ 515,095 $ 421,101 $ 825,344 $ 681,091
Consulting fees ........................................ 1,103,671 911,359 2,013,078 1,812,615
Thermal sales .......................................... 1,226,659 -- 1,469,444 --
------------ ----------- ------------ ------------
$ 2,845,425 $ 1,332,460 $ 4,307,866 $ 2,493,706
COST OF REVENUES:
Product ................................................ 389,750 334,535 623,606 547,196
Consulting .............................................. 797,921 657,706 1,429,099 1,310,243
Thermal ................................................ 932,635 -- 1,095,325 --
------------ ----------- ------------ ------------
$ 2,120,306 $ 992,241 $ 3,148,030 $ 1,857,439
GROSS PROFIT: ............................................ $ 725,119 $ 340,219 $ 1,159,836 $ 636,267
------------ ----------- ------------ ------------
Selling, general and administrative ...................... 413,685 234,970 719,585 480,823
Depreciation ............................................. 33,425 6,941 56,219 13,261
OTHER INCOME (EXPENSE):
Realized gains on marketable securities ................ 20,539 34,684 76,036 119,221
Other income ........................................... 19,137 1,502 34,597 1,502
Unrealized gain (loss) on marketable securities ........ 17,730 3,841 (33,647) (5,733)
Interest income, net ................................... (19,243) 840 (39,395) 2,686
Thermal expense ........................................ (25,307) -- (48,030) --
------------ ----------- ------------ ------------
INCOME BEFORE TAXES ...................................... $ 290,865 $ 139,175 $ 373,593 $ 259,859
TAX PROVISION ............................................ $ 103,699 $ 3,298 $ 132,034 $ 23,188
------------ ----------- ------------ ------------
NET INCOME ............................................... $ 187,166 $ 135,877 $ 241,559 $ 236,671
============ =========== ============ ============
------------ ----------- ------------ ------------
NET INCOME PER COMMON SHARE ............................. $ .015 $ .013 $ .019 $ .022
============ =========== ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
12,723,718 10,630,000 12,723,718 10,630,000
============ =========== ============ ============
</TABLE>
4
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEAR ENDED DECEMBER 31, 1996 (AUDITED) AND THE
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL GAIN(LOSS)ON
COMMON STOCK PAID-IN- RETAINED MARKETABLE TREASURY
CAPITAL EARNINGS SECURITIES STOCK TOTAL
SHARES AMOUNT
---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 .............. 13,129,999 $ 13,130 $1,829,684 $ 842,395 $ 1,068 $ (16,138) $2,670,139
---------- ---------- ---------- ---------- ---------- ---------- ------------
Cancellation Of Common Shares .... (600,000) (600) 600 -- -- -- -0-
Issuance Of Common Shares .......... 193,719 194 433,629 -- -- -- 433,823
Net Change in Unrealized Gain -- -- -- 1,068 (1,068) -- -0-
(Loss) on Marketable Securities
Net Income ......................... -- -- -- 241,559 -- -- 241,559
----------- ----------
BALANCES, June 30, 1997 ............ 12,723,718 $ 12,724 $2,263,913 $1,085,022 $ -0- $ (16,138) $3,345,521
========== ========== ========== ========== ========== =========== ==========
</TABLE>
5
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................................... $ 241,559 $ 236,671
Depreciation - Non Cash ............................................ 56,219 --
Changes in working capital, net of Thermal acquisition ............. (852,681) (562,250)
----------- ---------
Net cash used by operating activities .............................. $ (554,903) $(325,579)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Thermal ................................................ (212,000) --
Advances on note receivable from stockholder ....................... (50,000) --
Property and equipment acquired .................................... (547,181) --
Purchase of investments ............................................ (500,000) --
Other assets acquired .............................................. (12,040) 13,723
----------- ---------
Net Cash used by investing activities .............................. $(1,321,221) $ 13,723
----------- ---------
CASH FLOW FINANCING ACTIVITIES
Long term mortgage on land and buildings ........................... 429,661 --
Repayments on notes payable, net ................................... (300,000) --
Proceeds from issuance of common stock, net ........................ 799,999 --
Sale of Treasury Stock ............................................. 29,000 --
Borrowings from bank ............................................... 450,000 --
----------- ---------
Net cash provided by financing activities .......................... $ 1,408,660 $ --
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$ (467,464) $(311,856)
----------- ---------
CASH AND CASH EQUIVALENTS, at beginning of period
$ 975,100 $ 573,832
----------- ---------
CASH AND CASH EQUIVALENTS, at end of period ........................ $ 507,636 $ 261,976
=========== =========
* NON-CASH TRANSACTIONS:
Issuance of common stock for Thermal acquisitions ............ $ 387,000 --
</TABLE>
Thermal Acquisitions
6
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Industrial Data Systems Corporation (the
"Company"), included herein, are unaudited for all periods ended June
30, 1997 and 1996. They reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management,
necessary to fairly depict the results for the periods presented.
Certain information and note disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission. It is
suggested these financial statements be read in conjunction with the
Company's audited financial statements for the years ended December 31,
1996 and 1995, which are included in the Company's annual report on
Form 10-KSB. The Company believes that the disclosures made herein are
adequate to make the information presented not misleading.
2. NOTE RECEIVABLE FROM STOCKHOLDER:
At June 30, 1997, The Company had notes receivable due from two
stockholders in the amount of $50,000 each. The notes receivable are
unsecured, due on demand and bear interest at a rate of 9% per annum.
Interest on the notes is due annually.
3. STOCKHOLDERS' EQUITY:
The Company issued 2,499,999 shares of common stock in exchange for
five non-interest bearing notes totaling $999,999. During fiscal 1996,
the Company received the payment on one of the notes totaling $200,000.
On January 27, 1997, the four remaining notes were paid in full and the
Company received the remaining $799,999.
4. ACQUISITION:
In February 1997, the Company acquired Thermaire, Inc. dba Thermal
Corporation (Thermal) in a stock purchase. The Company paid $600,000,
consisting of $212,563 in cash and 193,719 shares of the Company's
common stock, which may be put back to the Company for $2 per share at
the option of the holder. This option expires August 15, 1997.
Additionally, the Company purchased the facilities that Thermal had
been leasing from an affiliate for $500,000. The Company obtained bank
financing totaling $450,000 related to the acquisition of these
facilities. The acquisition has been accounted for on the purchase
method of accounting. Goodwill arising as a result of this transaction
totaled approximately $50,434. Previously, in 1995, the Company had
issued 600,000 shares of its common stock to Thermal on a contingent
basis. These shares were held in an escrow account pending completion
of the acquisition, at which time these shares were released from
escrow and canceled. The aforementioned 193,719 shares were issued
under revised terms of the purchase agreement.
7
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following is the computation of goodwill recorded in connection with Thermal
and the related land and building previously leased by Thermal:
Purchase price $1,100,000
Fair value of net assets of
Thermal acquired (354,566)
Appraised value of land and building acquired (695,000)
---------
Goodwill $ 50,434
======
The following table reflects proforma information as if this transaction had
occurred at the beginning of each of the periods presented, (in 000's except per
share data):
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 ENDED JUNE 30, 1996
Total Revenue $ 4,668 $ 3,642
Net Income 293 255
Income per Share .023 .024
5. LINES OF CREDIT:
Since the acquisition of Thermal, a bank line of credit in the amount
of $400,000 has been approved to provide working capital which was
previously provided by the Company through the factoring of
receivables. This line of credit is at a rate of prime plus 1% and has
a maturity of one year. Additionally, the Company's bank line of credit
in the amount of $350,000 has been renewed for an additional one year
term at prime plus 1%.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is qualified in its entirety by, and should be read in
conjunction with, the Company's Consolidated Financial Statements including the
notes thereto, included elsewhere in the Company's Annual Report on Form
10-KSB/A for the period ended December 31, 1996.
OVERVIEW
The Company was formed in 1985 to engage in the business of providing
engineering consulting services to the pipeline divisions of major integrated
oil and gas companies. For the period 1985 through 1989, most of its revenues
were derived from the IDS Engineering Division (IED). In 1989, the Company
introduced its Industrial Products Division (IDP) segment and has continued to
introduce new products to the marketplace. The IPD segment has generated sales
as a percent of total revenue of 19.2% and 27.3%, for the six months ended June
30, 1997 and 1996, respectively, while the IED segment has generated sales as a
percent of total revenue of 46.7% and 72.7% for the same period. The Company's
recent acquisition, Thermal Corp., has generated sales as a percent of total
revenue of 34.1% for the six months ended June 30, 1997.
The gross margin varies between each of its operating segments. Computer product
sales have produced a gross margin ranging from 24.4 % and 19.7% for the six
months ended June 30, 1997 and 1996, respectively. The gross margin for IED,
which reflects direct labor costs, has ranged from 29.0% in 1997 to 27.7% in
1996. The variation is primarily attributable to the pricing and the mix of
services provided, and to the level of direct labor as a component of cost
during any given period. Thermal's gross margin for the four months ended since
its acquisition was 25.6%. The overall gross margin for Industrial Data Systems
Corporation, which includes IPD and IED for the six months ended June 30, 1997
and Thermal's four months of operations ended June 30, 1997 was 26.9%. The
overall gross margin for the Company for the same period in 1996 (excluding
Thermal's operations) was 25.5%.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates percentage of total revenue for each item.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------- ------------------------
1997 1996 1997 1996
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Computer Products ............................ $ 515,095 18.10 $ 421,101 31.60 $ 825,344 19.16 $ 681,091 27.31
Consulting Services .......................... 1,103,671 38.79 911,359 68.40 2,013,078 46.73 1,812,615 72.69
Thermal ...................................... 1,226,659 43.11 -- -- 1,469,444 34.11 -- --
---------- ------ ---------- ------ ----------- ------ ---------- ------
TOTAL REVENUE ....................... $2,845,425 100.00 $1,332,460 100.00 $ 4,307,866 100.00 $2,493,706 100.00
========== ====== ========== ====== =========== ====== ========== ======
GROSS PROFIT:
Computer Products ............................ $ 125,345 4.41 $ 86,566 6.49 $ 201,738 4.68 $ 133,895 5.36
Consulting Services .......................... 305,750 10.74 253,653 19.04 583,979 13.56 502,372 20.15
Thermal ...................................... 294,024 10.33 -- -- 374,119 8.68 -- --
---------- ------ ---------- ------ ----------- ------ ---------- ------
TOTAL GROSS PROFIT ............... $ 725,119 25.48 $ 340,219 25.53 $ 1,159,836 26.92 $ 636,267 25.51
========== ====== ========== ====== =========== ====== ========== ======
Selling, General and Administrative Expense ...... 413,685 14.54 234,970 17.63 719,585 16.70 480,823 19.28
Depreciation .................................... 33,425 1.17 6,941 0.52 56,219 1.31 13,261 0.53
OPERATING INCOME (EXPENSE)
$ 278,009 9.77 $ 98,308 7.38 $ 384,032 8.91 $ 142,183 5.70
========== ====== ========== ====== =========== ====== ========== ======
Other Income (Expense) ................. 12,856 0.45 40,867 3.06 (10,439) (0.24 117,676 4.72
INCOME BEFORE PROVISION FOR INCOME TAXES .......... $ 290,865 10.22 $ 139,175 10.44 $ 373,593 8.67 $ 259,644 10.41
Provisions for Income Taxes .............. 103,699 3.64 3,298 0.25 132,034 3.07 23,188 0.93
NET INCOME AFTER INCOME TAXES
$ 187,166 6.58 $ 135,877 10.19 $ 241,559 5.60 $ 236,671 9.49
========== ====== ========== ====== =========== ====== ========== ======
</TABLE>
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1997
SINCE THE THERMAL ACQUISITION WAS COMPLETED IN LATE FEBRUARY, 1997, FINANCIAL
DATA FOR THE QUARTER ENDED JUNE 30, 1996, DOES NOT INCLUDE THE RESULTS OF
THERMAL'S OPERATIONS.
TOTAL REVENUE. Total revenue increased by $1,512,965 or 113.5% from
$1,332,460 for the quarter ended June 30, 1996, compared to $2,845,425 in 1997.
Revenue from the IPD, which comprised 18.1% of total revenue for the quarter
ended June 30, 1997, increased by $93,994 or 22.3%. The increase in IPD revenue
was generally attributable to increased shipments of existing product lines.
Revenue from the IED which comprised 38.8% of total revenue for the quarter
ended June 30, 1997 increased by $192,312 or 21.1%.
10
<PAGE>
The increase in IED revenue for the quarter ended June 30, 1997 was due to
increased activity in the pipeline industry and from the recent industry trend
to outsource engineering projects to consulting firms such as IED. Another
factor in IED's increased revenue was the hiring of a full time business
development manager during the first quarter of 1997.
Revenue from Thermal was $1,226,659 for the second quarter of 1997, which
comprised 43.1% of total revenue for the quarter ended June 30, 1997.
GROSS PROFIT. The Company's total gross profit increased by $384,900
or 113.1% from $340,219 for the quarter ended June 30, 1996 to $725,119 for the
same period in 1997. The gross margin for the IPD increased from 20.6% in the
quarter ended June 30, 1996 to 24.3% for the same period in 1997. The increase
in IPD gross margins was primarily due to decreases in component costs coupled
with relatively stable sales prices.
The gross margin for the IED remained relatively constant at 27.8% for the
period ended June 30, 1996 to 27.7% for the same period in 1997. IED billing and
wage rates increased proportionally during the periods reported from 1996 to
1997.
The gross margin for Thermal was 24.0 % for the quarter ended June 30, 1997.
Thermal's gross profit comprised 40.5% of total gross profit for the quarter
ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $178,715 or 76.1% from $234,970 for the
quarter ended June 30, 1996 compared to $413,685 for the same period in 1997. As
a percentage of total revenue, selling, general and administrative expenses
decreased from 17.6% for the quarter ended June 30, 1996 to 14.5% for the same
period in 1997. This percentage decrease was primarily attributable to overall
increases in selling, general and administrative expenses which were offset by
greater increases in revenue.
OPERATING INCOME. Operating income increased by $179,701 or 183%
from $98,308 for the quarter ended June 30, 1996, compared to $278,009 for the
same period in 1997. Operating income increased as a percentage of total revenue
from 7.4% for the quarter ended June 30, 1996 to 9.8% for the same period in
1997. The increase in operating income was partially a result of the inclusions
of Thermal's operations in the 1997 period.
OTHER INCOME (EXPENSE). Other income decreased by $28,011 or 68.5%
from $40,867 for the quarter ended June 30, 1996 to $12,856 for the same period
in 1996. This decrease was due to additional interest expense due to higher
utilization of the Company's line of credit and expenses associated with the
acquisition of Thermal. This decrease was also due in part to the Company having
less realized gains on its marketable securities in the 1997 period as compared
to the 1996 period.
11
<PAGE>
NET INCOME. Net income before taxes increased by $151,690 or 109.0%
from the $139,175 for the quarter ended June 30, 1996 to $290,865 for the same
period in 1997. Net income after taxes increased by $51,289 or 37.7% from
$135,877 for the quarter ended June 30, 1996 to $187,166 for the same period in
1997. Net income after taxes decreased as a percentage of total revenue from
10.2% for the quarter ended June 30, 1996 to 6.6% for the same period in 1997
due to significant increases in tax provisions.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
FINANCIAL DATA REFLECTED FOR THE SIX MONTHS ENDED JUNE 30, 1997 INCLUDES ONLY
THE FOUR MONTHS (MARCH - JUNE) FOR THERMAL'S OPERATIONS SINCE THE ACQUISITION IN
LATE FEBRUARY, 1997. FINANCIAL DATA FOR THE SIX MONTHS ENDED JUNE 30, 1996 DOES
NOT INCLUDE RESULTS OF THERMAL'S OPERATIONS.
TOTAL REVENUE. Total revenue increased by $1,814,160 or 72.7% from
$2,493,706 for the six months ended June 30, 1996, compared to $4,307,866 in
1997. Revenue from the IPD, which comprised 19.2% of total revenue for the six
months ended June 30, 1996, increased by $144,253 or 21.2%. 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.
Revenue from the IED which comprised 46.7% of total revenue for the six months
ended June 30, 1997 increased by $200,463 or 11.1% from $1,812,6115 in 1996 to
$2,013,078 for the same period in 1997. The increase in IED revenue was due to
increased activity in the pipeline industry and from the recent industry trend
to outsource engineering projects to consulting firms such as IED. Another
factor in IED's increased revenue was the hiring of a full time business
development manger during the first quarter of 1997.
Revenue from Thermal was $1,469,444 or 34.1 % of total revenue for the four
months (March - June), following the recent acquisition.
GROSS PROFIT. Gross profit increased by $523,569 or 82.3% from
$636,267 for the six months ended June 30, 1996 to $1,159,836 for the same
period in 1997. The gross margin for the IPD increased from 19.7 % in the six
months ended June 30, 1996 to 24.4% for the same period in 1997. The increase in
IPD gross margins was primarily due to decreases in component costs coupled with
relatively stable sales prices. The gross margin for the IED increased from
27.7% for the period ended June 30, 1996 to 29.0% for the same period in 1997.
The increase in IED gross profit was attributable to IED billing and wage rates
remaining fairly constant during the periods reported from 1996 to 1997.
Thermal's gross profit was 25.6% which represents 32.3% of the Company's total
gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $238,762 or 49.6% from $480,823 for the six
months ended June 30, 1996 compared to $719,585 for the same period in 1997. As
a percentage of total revenue, selling, general and administrative expenses
decreased from 19.3% for the six months ended June 30, 1996 to 16.7% for the
same period in 1997. This percentage decrease was primarily attributable to
overall increases in selling, general and administrative expenses which were
offset by greater increases in revenue.
12
<PAGE>
OPERATING INCOME. Operating income increased by $241,849 or 170.1%
from $142,183 for the six months ended June 30, 1996, compared to $384,032 for
the same period in 1997. Operating income increased as a percentage of total
revenue from 5.7% for the six months ended June 30, 1996 to 8.9% for the same
period in 1997. The increase in operating income was a result of increased
revenues, slightly improved gross profit and reduced selling, general and
administrative expenses as a percent of total revenue.
OTHER INCOME (EXPENSE). Other income decreased by $128,115 or 108.1%
from $117,676 for the six months ended June 30, 1996 to -$10,439 for the same
period in 1997. This decrease was due to additional interest expense due to
higher utilization of the Company's line of credit and expenses associated with
the acquisition of Thermal. This decrease was also due in part to the Company
having less realized gains on its marketable securities in the 1997 period as
compared to the 1996 period.
NET INCOME. Net income before taxes increased by $113,734 or 43.8%
from $259,859 for the six months ended June 30, 1996 to $373,593 for the same
period in 1997. Net income after taxes increased by $4,888 or 2.1% from $236,671
for the six months ended June 30, 1996 to $241,559 for the same period in 1997.
Net income after taxes decreased as a percentage of total revenue from 9.5% for
the six months ended June 30, 1996 to 5.6% for the same period in 1997 due to
significant increases in tax provisions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its cash requirements principally
through borrowings under its line of credit and through operations. As of June
30, 1997, the Company's cash position, including marketable securities, was
sufficient to meet its working capital requirements. The Company had, as of June
30, 1997, $175,000 in additional advances available under its line of credit
with a bank. The Company's line of credit which provides for maximum borrowings
of $350,000, which bears interest at prime plus 1%, is for a term of one year
and matures on June 11, 1998. The line of credit is secured by accounts
receivable and inventory. The Company has established an additional line of
credit for Thermal, which provides for maximum borrowings of $400,000, which
bears interest at prime plus 1%, is for a term of one year and matures on June
11, 1998. The additional line of credit is secured by accounts receivable and
inventory of Thermal, and a guaranty from the Company.
The Company's working capital was $2,579,571 and $2,637,292 at December 31, 1996
and June 30, 1997, respectively.
CASH FLOW
Operating activities used net cash totaling $325,579 and $554,903 for the six
months ended June 30, 1996 and 1997 respectively. The Company did not generate
significant cash flow from operating activities for the six months ended June
30, 1996, due to the working capital requirements resulting from the rapid
growth of the Company. Trade accounts receivable increased $1,124,212 since
December 31, 1996. Inventory increased by $446,583 for the same period.
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Investing activities provided cash totaling, $13,723 for the six months ended
June 30, 1996 and used cash totaling $1,321,221 for the same period in 1997. The
Company's investing activities that used cash during these periods were
primarily related to the purchase of Thermal and its facilities and other
investments.
As of June 30, 1997, the Company had a portfolio of marketable securities which
had a fair market value of $815,358 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.
The Company has implemented a policy that restricts it from purchasing any
securities on margin, and also limits the investment of any one security or
mutual fund to represent no more than 10% of the Company's investment portfolio.
The Company believes that the risks associated with its investment portfolio are
slightly higher than the risk of loss in a Standard & Poor's 500 Index Fund.
This higher risk is due to the less diverse distribution of the Company's
portfolio as compared to the broadly based Standard & Poor's 500 Stock Index.
Financing activities provided cash totaling $1,408,660 for the six months ended
June 30, 1997. Additionally, financing activities provided net cash of $150,000,
which included repayment of $300,000 on the Company's line of credit and an
increase in borrowings of $450,000. The Company has additional financing amounts
of $175,000 available on its line of credit at June 30, 1997. The line of credit
has been used principally to finance accounts receivable and inventory
purchases. Of the $999,999 proceeds received from the sale of securities,
$200,000 was received in 1996 with the remaining balance being paid in full in
January, 1997. In the first quarter of 1997, the Company repurchased 4,000
shares of IDS stock for the treasury. In May, 1997, the Company sold 4,000
shares of its treasury stock to employees for the original purchase price.
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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.
During the next six months, the Company expects to incur an estimated $100,000
for capital expenditures, a majority of which is expected to be incurred for
computer equipment. The actual amount and timing of such capital expenditures
may vary substantially depending upon, among other things, the Company's level
of growth.
ASSET MANAGEMENT
The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had net trade accounts receivable of $906,237 and
$1,717,951 at June 30, 1996 and 1997, respectively. The number of days' sales
outstanding in trade accounts receivable was 61 days and 54 days, respectively.
Bad debt expenses have been insignificant (approximately 0.1%) for each of these
periods.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 15, 1997, the Company issued 193,719 shares of its common stock,
$.001 par value, in connection with the acquisition of Thermaire, Inc. The
Company had issued 600,000 shares of its common stock to Thermal in 1995, on a
contingent basis, which were canceled on February 15, 1997. These shares were
held in an escrow account pending completion of the acquisition. The number of
shares outstanding as of June 30, 1997, was 12,723,718.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of Industrial Data Systems Corporation
was held on Friday, June 20, 1997, at the corporate office of the Company for
the following purposes: 1) To elect five directors to the Board of Directors of
the Company to serve until the next Annual Meeting of Shareholders or until
their respective successors are elected and qualified; 2) To approve and ratify
the appointment of Hein & Associates, LLP as the Company's independent auditors;
and 3) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof. Proxies for the meeting were solicited
pursuant to Regulation 14A under the Exchange Act. There was no solicitation in
opposition to the Management's nominees for discussion as listed in the proxy
statement. All such nominees were elected with 9,713,489 votes for, 0 votes
against, and 0 votes withheld. All matters were approved with 9,713,489 votes
for, 0 votes against, and 0 votes withheld. There were 2,986,429 abstentions and
broker non-votes.
ITEM 5. OTHER INFORMATION
On June 7, 1997, the Company announced that it had signed a letter of intent to
acquire Design Automation Systems (DA), in a cash and stock transaction. DA is a
twelve year old Value Added Reseller, (VAR) of industrial technology solutions.
As a VAR of Sun Microsystems, Hewlett-Packard, Digital, and IBM Products, DA
offers network based distributed computing systems, including professional
workstations, servers and UNIX operating systems. DA is headquartered in Houston
with offices in Oklahoma City, Oklahoma and Detroit, Michigan.
The Company believes that the acquisition of DA will provide the opportunity for
the IPD to immediately broaden its sales channels for its recently introduced
CandereTM SPARC station products through the expansive network of DA sales
representatives. In addition, this proposed acquisition will approximately
triple the Company's revenues and will be accretive to the Company's per share
earnings.
At the time of filing of this Form 10-QSB for the period ended June 30, 1997,
both companies are continuing to finalize acquisition details. No formal
Purchase Agreement is in place at this time. The Company's financial statements
do not reflect the accounts of the Company to be acquired as of any date or for
any period covered by this Form 10-QSB or the accompanying financial statements.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.18 Blanket Service Contract with Texaco Pipeline Company
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDUSTRIAL DATA SYSTEMS CORPORATION
Dated: August 13, 1997 By: /s/HULDA L. COSKEY
Hulda L. Coskey, Vice President
and Chief Financial Officer
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EXHIBIT 10.18
Texaco Pipeline Inc.
Contract No. TPS - 97OIWF
ENGINEERING SERVICES
IDS Engineering
Houston, Tx.
<PAGE>
MISCELLANEOUS WORK AGREEMENT
Agreement # TPS - 97OIWF
1. PARTIES
The parties to this Miscellaneous Work Agreement ("Agreement") are IDS
Engineering ("Contractor") and Texaco Pipeline Inc.("Company")
2. DURATION
This Agreement is effective as of the date of the last signature by the
parties ("Effective Date") and continues in force indefinitely, subject to the
other terms of this Agreement. This Agreement can also be terminated by either
party upon thirty (30) days written notice to the other party. The indemnity,
audit and confidentiality provisions of this Agreement shall survive the
termination of this Agreement.
3 SERVICES COVERED BY THIS AGREEMENT
3.1 Contractor will provide services as described in the attached Exhibit
A (the "Services").
3.2 Contractor acknowledges that by prior knowledge and examination, it
will understand the nature of the work, the environment, and the
difficulties which may be incident to performing the Services prior to
commencing the Services.
3.3 Contractor warrants that all Services under this Agreement shall be
performed and completed in a good and workmanlike manner, that all
material and equipment furnished shall be of good and merchantable quality
and that Contractor's performance shall be free of defect and satisfactory
and acceptable to Company.
4 RELATIONSHIP OF THE PARTIES
Contractor certifies that it is and shall conduct itself as an independent
contractor in its performance of the Services. Contractor further certifies that
none of the employees, agents or subcontractors of Contractor shall be
considered or hold themselves out or act as employees of Company. Contractor
agrees that neither Contractor nor any of its employees, agents or
subcontractors shall, except as specifically provided in writing, act as an
agent for Company.
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5. MODIFICATIONS
5.1 Company may activate the Services, order additional services or make
changes to the Services by written or oral request to Contractor.
Contractor shall promptly provide Company with a written acknowledgment of
such request. This acknowledgment will contain the revised scope of
Services proposed, estimated cost, and any terms not already specified in
this Agreement. Company will indicate its acceptance of this
acknowledgment by properly executing and returning one copy of the
acknowledgment to Contractor.
5.2 No modification of the scope of the Services shall be binding on
Company unless approved in writing and signed by Company. Unless otherwise
provided in writing, modifications so approved shall be in effect on the
day such approval is signed by Company. If the modifications are for
pricing, then the new price will apply to work provided or equipment
ordered after the day on which such approval is signed by Company. It is
agreed that Company will not be bound by any additional terms beyond a
modification of Services or prices which may be specified as part of
Contractor's work ticket, delivery ticket, invoice, etc., to the extent
such terms alter any rights or obligations contained herein. Signing such
tickets, invoices, etc., by Company does not constitute approval or
acceptance of such additional terms.
5.3 Company shall not honor Contractor invoices providing rate increases
for either equipment or labor unless Company has agreed in writing before
the equipment or labor is provided by Contractor.
6. CONFLICTS
If there is a conflict between any provisions in the body of this
Agreement (without Exhibits or documents incorporated by reference, if any) and
any provisions in the attached Exhibits or documents incorporated by reference,
if any, the provisions in the body of this Agreement (without Exhibits or
documents incorporated by reference, if any) will control.
7. AGREEMENT PRICE
7.1 Payment for the Services will be at the rates provided in Exhibit B.
Contractor will invoice Company and provide Company substantiation of
hours worked and costs incurred, including hours worked and costs incurred
by third parties providing any part of the Services. Invoices, in
triplicate and showing the Agreement number, shall be submitted as
promptly as possible, but no later than six (6) months from the date
Services are performed. Payment for Services in accordance with the
provisions of this Agreement will be made within thirty (30) days of
receiving an invoice in the proper form with written verifications.
7.2 Except as otherwise provided in this Agreement, Contractor shall
supply and pay for all services, materials (which unless otherwise
specified shall be new), and all other items ordinarily furnished by
Contractor, directly or indirectly, in connection with the Services.
Company shall supply the services, materials and other items expressly
described on Exhibit A.
7.3 Where Contractor, at the request of Company, furnishes services,
materials or other items which Company is obligated to furnish or supply,
Company, upon receipt from Contractor of substantiation of costs incurred,
will reimburse Contractor for the actual costs of those services,
materials or other items.
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7.4 Company shall have the right to retain any portion of the amount
payable to Contractor until such time as Company has been presented an
affidavit in the form attached hereto as Exhibit C from each person or
entity that has provided labor, services, materials or equipment in
connection with the Services stating that the person or entity has been
paid in full for all such labor, services, materials or equipment or until
the applicable statutory period for filing liens has expired. Company
shall have the right to request such affidavits from subcontractors,
vendors, materialmen, equipment suppliers and laborers.
7.5 Contractor authorizes Company to deduct from any amount payable to
Contractor (whether or not arising out of this Agreement), all amounts
which may be payable by Contractor to Company, and also all amounts for
which Company may become liable to third parties due to Contractor's acts
in performing or failing to perform Contractor's obligations under this
Agreement. If the amount or validity of these claims made by a third party
is disputed by Contractor, or if any indebtedness exists which appears to
be the basis for a claim or lien, Company may withhold from any payment
due, without liability for interest because of such withholding, an amount
sufficient to cover such claim. Companies exercise or failure to exercise
such right to deduct or to withhold shall not, however, affect the
obligation of Contractor to protect Company as elsewhere provided in this
Agreement.
7.6 Contractor accepts exclusive liability for payment of federal and
state payroll taxes and for contributions for unemployment insurance, old
age pensions, annuities, retirement, and other benefits, imposed under any
provision of any law, and measured by remuneration paid or payable by
Contractor to employees of Contractor engaged in the Services or in any
incidental operation. Contractor will require that each subcontractor who
performs a -any part of the Services accept the same responsibility and
liability with respect to employees of that subcontractor.
7.7 Payment for the Services shall only be due if (a) no lien or claim for
labor and services performed or for materials and equipment furnished for
or in connection with the Services has been filed or made; (b) the
Services have been inspected and accepted by Company; and (c) Contractor
has met all of the terms of this Agreement.
8. CONFIDENTIALITY
8.1 Contractor, in the course of negotiations and performance of this
Agreement and subsequent relationships with Company, may have access to
financial, accounting, statistical, personnel, client or other technical
or business information of Company, its parent company, or their
respective subsidiaries or affiliated companies, which information is and
shall be deemed for all purposes under this Agreement as trade secrets of
Company. Except as otherwise provided in this Agreement, all such
information shall be considered Confidential Information.
8.2 Contractor agrees to hold all Confidential Information in confidence
for a period of twenty (20) years from the date of receipt of the
Confidential Information. During such period, Contractor will use the
Confidential Information solely for the purposes of
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performing the Services. Contractor may disclose Confidential Information
to employees, agents or subcontractors of Contractor to whom disclosure is
necessary for the purposes of performing, the Services, but only under
terms and conditions which protect the confidentiality of the Confidential
Information as required by this Agreement.
8.3 The obligations imposed by this Agreement shall not apply to any
Confidential Information that:
8.3.1 is already in the possession of Contractor on the date of this
Agreement (except Confidential Information in connection with bids,
negotiations and/or discussions leading to the execution of this
Agreement) or is independently developed by Contractor; or
8.3.2 is or becomes publicly available through no fault of
Contractor; or
8.3.3 is obtained by Contractor from a third person who is under no
obligation of confidence to Company; or
8.3.4 is disclosed without restriction by Company; or
8.3.5 for which disclosure is required by law, but only after first
notifying Company of such required disclosure.
8.4 The obligations set forth in this Section 8 shall survive the
termination of this Agreement.
9. POLLUTION CONTROL
9.1 For purposes of this Section 9:
9.1.1 "Legally Applicable Standards" is defined as all requirements
imposed by any Federal, State or local law or regulation intended to
protect human safety, health or the environment,
9.1.2 "Contaminant" is defined as any solid, liquid, gaseous or
thermal irritant, pollutant or substance whose nature, quantity or
existence renders it subject to Legally Applicable Standards,
9.1.3 "Contamination" is defined as the presence of any Contaminant
in the air, soil or water at or exceeding levels subjecting any
person to any liabilities, fines, penalties, or assessment or
remediation obligations under any Legally Applicable Standards.
9.1.4 "Contractor Contamination" is defined as the presence of any
Contaminant brought or caused (solely or concurrently) by Contractor
or subcontractor, and/or any of their respective employees, agents
or invitees to property at which the Services are being or have been
performed, that is in the air, soil, or water on, above or under
that property at or exceeding levels
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subjecting any person to any liabilities, fines, penalties, or
assessment or remediation obligations under any Legally Applicable
Standards.
9.2 Contractor agrees to notify Company as soon as possible after the
discovery of Contractor Contamination. If such Contractor Contamination
poses an immediate risk to human health or safety, or the environment,
Contractor will, at its own cost, take all appropriate measures that in
Contractor's professional opinion are justified to preserve and protect
human health or safety, and the environment.
10. INDEMNITY
10.1 CONTRACTOR, TO THE EXTENT PERMITTED BY LAW, SHALL DEFEND, PROTECT,
INDEMNIFY AND HOLD HARMLESS COMPANY, AND DIRECTLY OR INDIRECTLY, ITS
PARENT, AFFILIATE AND SUBSIDIARY COMPANIES, AND THEIR RESPECTIVE
DIRECTORS, EMPLOYEES AND AGENTS ("INDEMNIFIED PARTIES"), AGAINST ALL
CLAIMS, DEMANDS OR CAUSES OF ACTION, SUITS, DAMAGES, LIABILITIES,
JUDGMENTS, LOSSES - AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
ATTORNEYS' FEES AND COSTS OF LITIGATION, WHETHER INCURRED FOR AN
INDEMNIFIED PARTY'S PRIMARY DEFENSE OR FOR ENFORCEMENT OF ITS
INDEMNIFICATION RIGHTS) WHICH MAY BE INCURRED BY AN INDEMNIFIED PARTY OR
ASSERTED BY CONTRACTOR (INCLUDING, WITHOUT LIMITATION, CONTRACTOR'S
EMPLOYEES, CONTRACTORS AND AGENTS) OR BY ANY THIRD PARTY ON ACCOUNT OF:
(I) ANY PERSONAL INJURY, DISEASE OR DEATH OF ANY PERSON(S), DAMAGE
TO OR LOSS OF ANY PROPERTY, OR MONEY DAMAGES OR SPECIFIC PERFORMANCE
OWED TO ANY THIRD PARTY
(BY CONTRACT OR OPERATION OF LAW), AND ANY FINES, PENALTIES, ASSESSMENTS,
ENVIRONMENTAL RESPONSE COSTS OR INJUNCTIVE OBLIGATIONS CAUSED BY, ARISING
OUT OF, OR IN ANY WAY INCIDENTAL TO OR IN CONNECTION WITH, ACTIONS OR
OMISSIONS OF CONTRACTOR (INCLUDING, WITHOUT LIMITATION, ITS EMPLOYEES,
CONTRACTORS AND AGENTS) OR ANY THIRD PARTY INCLUDING, WITHOUT LIMITATION,
(1) THE SOLE NEGLIGENCE, FAULT OR STRICT LIABILITY OF CONTRACTOR AND (2)
THE CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF ANY COMBINATION OF
THE INDEMNIFIED PARTIES, CONTRACTOR AND/OR ANY THIRD PARTY; AND
(II) ANY BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT OF CONTRACTOR
CONTAINED IN THIS AGREEMENT.
10.2 IT IS THE INTENTION OF THE PARTIES THAT THE OBLIGATIONS OF CONTRACTOR
UNDER THIS INDEMNITY SECTION ARE WITHOUT REGARD TO WHETHER THE NEGLIGENCE,
FAULT OR STRICT LIABILITY OF AN INDEMNIFIED PARTY IS A CONTRIBUTORY
FACTOR, AND SUCH OBLIGATIONS ARE INTENDED TO PROTECT THE INDEMNIFIED
PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE, FAULT OR STRICT
LIABILITY. WITHOUT REGARD TO
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THE EXTENT OF NEGLIGENCE, IF ANY, OF AN INDEMNIFIED PARTY, CONTRACTOR, AT
ITS EXPENSE, SHALL DEFEND ANY SUCH CLAIM OR SUIT AGAINST AN INDEMNIFIED
PARTY AND SHALL PAY ANY RESULTING JUDGMENT OR AWARD. IF, AFTER CONTRACTOR
HAS BOTH DEFENDED ANY SUCH SUIT AND PAID ANY RESULTING JUDGMENT OR AWARD,
IT IS DETERMINED BY A FINAL NONAPPEALABLE DECISION THAT THE MATTER WAS A
RESULT OF THE SOLE OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF
AN INDEMNIFIED PARTY, THEN COMPANY AGREES TO REIMBURSE CONTRACTOR FOR THE
JUDGMENT OR AWARD AGAINST THE COMPANY AND THE PORTION OF CONTRACTOR'S
REASONABLE ATTORNEYS' FEES, LITIGATION EXPENSES AND COURT COSTS WHICH
RELATE TO AN INDEMNIFIED PARTY'S DETERMINED LIABILITY. THE INDEMNIFIED
PARTIES EXPRESSLY RESERVE THE RIGHT TO PARTICIPATE IN THEIR DEFENSE WITH
COUNSEL OF THEIR OWN CHOOSING. CONTRACTOR'S OBLIGATIONS UNDER THIS
INDEMNITY SECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.
11. INSURANCE
11.1 Contractor shall maintain at its sole cost, and shall require any
subcontractors it may engage to maintain at all times while performing
Services under this Agreement, the insurance coverage set forth below with
companies satisfactory to Company with full policy limits applying, but
not less than as stated.
11.1.1 Workers' Compensation Insurance as required by laws and regulations
applicable to and covering employees of Contractor engaged in the
performance of the Services;
11.1.2 Employers' Liability Insurance protecting Contractor against common
law liability in the absence of statutory liability, for employee
bodily injury arising, out of the master-servant relationship with a
limit of not less than $ 1,000,000 and having the following
endorsements, if applicable:
11.1.2.1 To provide against liability under the U.S. Longshoremen's
and Harbor Workers' Compensation Act, as amended, including
protection with respect to this Act's extension under the
Outer Continental Shelf Land Act;
11.1.2.2 To provide against liability under the "Jones Act", Death
on the High Seas Act and the General Maritime Law; and
11.1.2.3 To provide that a claim "in rem" shall be treated as a
claim against the employer.
11.1.3 Commercial General Liability Insurance including products and
completed operations with limits of not less than $ 1,000,000 per
occurrence and in the aggregate;
11.1.4 Automobile Liability Insurance including- non-owned and hired
vehicle coverage with limits of liability of not less than $1
000,000; and
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11.1.5 If applicable, Hull and Machinery Insurance in an amount not less
than the full market value of each vessel owned or chartered by
Contractor and used in performing the Services. Such insurance shall
include full collision liability with the sistership clause
unamended.
11.1.6 If applicable, aircraft coverage for all owned or non-owned
aircraft, including rotor craft, with single limit of not less than
$3,000,000, each occurrence, for bodily injury including passengers
and property damage.
11.1.7 Pollution and spillage cleanup and third party insurance to protect
against claims brought either by governments or third parties for
damages occasioned by polluting substances totaling an amount of not
less than $0.
11.1.8 Excess Liability Insurance over Automobile Liability, Commercial
General Liability, and Employers' Liability coverages afforded by
the primary policies described above with minimum limits of $
5,000,000 excess of specified limits.
11.2 In addition to all other risks for which coverage is provided in
Sections 11. I.3 ) and 11.1.8, the Commercial General Liability Insurance
and Excess Liability Insurance in those sections shall cover the
contractual liability assumed under the provisions set forth in this
Agreement.
11.3 Prior to commencement of the Services, a certificate evidencing the
required coverages of this Agreement shall be delivered to Company,
naming, Company and ALL APPLICABLE PARENTS, SUBSIDIARIES S AND AFFILIATES,
as additional insureds under the Commercial General Liability and Excess
Liability Insurance Policies. This certificate shall provide that any
change restricting or reducing, coverage or the cancellation of any
policies under which certificates are issued shall not be valid as
respects Company's interest therein until Company has received thirty (30)
days written notice of such change or cancellation. Further, the
certificate shall state that the insurance is primary coverage and not
concurrent or excess over other valid insurance which may be available to
Company. Each Workers' Compensation policy shall be endorsed to provide
waiver of subrogation rights in favor of Company and ALL APPLICABLE
PARENTS, SUBSIDIARIES AND AFFILIATES.
11.4 Contractor agrees to comply with all terms of the insurance contracts
referenced in this Section 11. Failure of Contractor to keep the required
insurance policies in full force and effect during the term of this
Agreement and during any extensions shall constitute a breach of this
Agreement and Company shall have the right, in addition to any other
rights, to immediately cancel and terminate this Agreement without further
cost to Company. Nothing contained in these provisions relating to
coverage and amounts set out herein shall operate as a rotation of
Contractor's liability in tort or contracted for under the terms of this
Agreement. Should coverage be provided on a claims-made basis, the policy
shall include at least a two (2) year extended reporting period
endorsement, and shall not contain a "prior acts" exclusion.
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11.5 IT IS THE INTENTION OF THE PARTIES THAT THE INSURANCE COVERAGES
PROVIDED BY CONTRACTOR IN FULFILLMENT OF THESE OBLIGATIONS BE AS BROAD AS
POSSIBLE. IN NO EVENT WILL THE CONTRACTOR ACCEPT ANY POLICY WHICH PROPOSES
TO EXCLUDE COVERAGE SOLELY BECAUSE (1) A CLAIM IS MADE ALLEGING (A)
PERSONAL INJURY, DEATH OR PROPERTY DAMAGE OF THE CONTRACTOR OR
CONTRACTOR'S EMPLOYEES, SUBCONTRACTORS OR AGENTS, (B) PERSONAL INJURY,
DEATH OR PROPERTY DAMAGE RESULTING FROM THE NEGLIGENCE OR GROSS NEGLIGENCE
OF COMPANY, (C) PERSONAL INJURY, DEATH OR PROPERTY DAMAGE RESULTING FROM
THE SUDDEN OR ACCIDENTAL RELEASE, DISCHARGE OR DISPERSAL OR CHEMICALS,
LIQUIDS, GASSES, WASTE MATERIALS OR POLLUTANTS, OR (2) THE INDEMNITY
PROVISIONS OF TIES AGREEMENT ARE INAPPLICABLE OR OTHERWISE UNENFORCEABLE.
11.6 NOTHING CONTAINED IN THESE PROVISIONS RELATING TO COVERAGE AND
AMOUNTS SHALL OPERATE AS A LIMITATION OF CONTRACTOR'S LIABILITY UNDER THE
TERMS OF THIS AGREEMENT.
11.7 CONTRACTOR SHALL PROVIDE A COPY OF SECTION 10, INDEMNITY, AND SECTION
11, INSURANCE, TO ITS CARRIER AND REQUIRE THE CARRIER TO PROVIDE INSURANCE
COVERAGE THAT COMPLIES WITH BOTH SECTIONS.
12. ASSIGNMENT
Contractor shall not assign this Agreement nor subcontract the whole or
any part of the Services, without Company's prior written consent.
Company's consent to any such assignment or subcontract shall not relieve
Contractor or Contractor's surety of any liability for the performance of
this Agreement. Company may withhold its consent in its sole and
unfettered discretion.
13. FORCE MAJEURE
13.l For the purpose of this Agreement, "Force Majeure" shall mean an act
of God, an act of the public enemy, strike, lockout, boycott, picketing,
riot, insurrection, fire, or any governmental law, order, rule, regulation
or ordinance, or any other occurrence not within the reasonable control of
the party claiming Force Majeure.
13.2 If either party is rendered unable, wholly or in part, by Force
Majeure to carry out its obligations (except financial obligations) under
this Agreement, it is agreed that on such party's giving notice and
reasonably full particulars of such Force Majeure in writing or by
facsimile to the other party within a reasonable time after the occurrence
of the cause relied on, then the obligations of the party giving such
notice, so far as they are affected by such Force Majeure, shall be
canceled during the continuance of any inability so caused, but for no
longer period, and such cause shall so far as possible be remedied with
all reasonable dispatch.
13.3 It is understood and agreed that the settlement of strikes and
lockouts shall be entirely within the discretion of the party asserting
Force Majeure as the excuse for
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nonperformance, and that the above requirement that any Force Majeure
shall be remedied with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands of an
opposing party when such course is inadvisable in the discretion of the
party asserting Force Majeure.
14 ABANDONMENT OF OR FAILURE TO COMMENCE THE SERVICES
If Contractor fails to commence the Services within thirty (30) days of the
Effective Date of the Contract or of any order for additional services, or after
such commencement abandons the Services or for any reason suspends or refuses to
continue the Services or any portion of the Services after direction by Company
for a period of five (5) days, unless prevented from commencing or continuing
the Services by Force Majeure, or by any failure or delay on the part of
Company, then Company shall have the right to take over the Services and all
materials and supplies furnished by Contractor and complete the Services, or
cause the Services to be completed, at the expense of Contractor. In any such
case Company shall also have the night to retain and use in the performance of
the Services all tools and equipment employed, or which were to have been
employed, by Contractor in the Services which at the time are located at the
site of the Services. If Company exercises the right to use Contractor's tools
and equipment as described in this paragraph, Company shall pay Contractor a
reasonable rental for these tools and equipment.
15 COMPANY'S RIGHT TO TERMINATE
At any time, Company, at its absolute discretion, may by written notice to
Contractor terminate and/or abandon the construction of facilities or suspend
work in progress. Upon such discontinuance or suspension, Contractor shall be
entitled to receive and or retain all its reimbursable costs as reasonably
needed to terminate the work hereunder and turn it over to Company. Contractor
shall retain or be paid by Company that portion of the fixed fee, if applicable,
which is reasonable and proportional to the work performed by Contractor prior
to the termination of work subject, however, to the other payment terms of this
Agreement.
16 AUDITS
Contractor shall maintain during the course of this Agreement, and retain
for not less than four (4) years after the termination of this Agreement,
complete and accurate records of all of Contractor's costs and documentation of
items which are chargeable to Company under this Agreement. Company shall have
the right at any reasonable time during that period and during normal business
hours to inspect and audit those records by authorized representatives of its
own or any third-party consultant selected by it. The records to be thus
maintained and retained by Contractor shall include (a) payroll records,
including social security numbers and labor classifications, accounting for
total time distribution of Contractor's employees 'working full or part time on
the Services, as well as canceled payroll checks or signed receipts for payroll
payments in cash; (b) invoices for purchases, receiving and issuing documents,
and all other unit inventory records for Contractor's stocks or capital items;
(c) paid invoices and canceled checks for materials purchased and for
subcontractors and any other third parties' charges; and (d) all other records
required to verify the accuracy of Contractor's charges. If such audit reveals a
discrepancy between the amount or value of materials or services billed to
Company and that which is evidenced by Contractor's books and records, Company
shall have the right to adjust its account with Contractor, which adjustment may
necessitate a refund of funds
10
<PAGE>
disbursed to Contractor. If Contractor fails to maintain or make available such
books and records, Company will not be liable for any charges based on such
costs unless Contractor produces adequate proof of those costs. If Company is
unable to gain access to the pertinent records of any of the Contractor's
subcontractors or vendors, Contractor will expend every effort to assist Company
in obtaining this information.
17 CONFLICTS OF INTEREST
17.1 No Contractor employee, agent, director, or subcontractor shall give
or cause to be given to any Company employee (or their immediate family) any
gift, entertainment, travel, payment, loan, or service regardless of value. Nor
will Contractor's employees, agents, directors, or subcontractors provide direct
or indirect employment to family members of active employees of Company without
written approval of the appropriate Company Division Manager. Also any
arrangement by Contractor to enter into any direct or indirect business
arrangement with any employee or agent of Company is prohibited.
17.2 Company may audit pertinent Contractor, subcontractor, or vendor
records to confirm compliance with the above paragraph. If Company cannot gain
access to pertinent records of any of Contractor's subcontractors or vendors,
Contractor will expend every effort to assist Company in obtaining the requested
information from Contractor's subcontractors and vendors necessary for a
complete audit to confirm compliance with the above paragraph.
18 CONTRACTOR SAFETY MANAGEMENT
Contractor agrees to abide by the terms of the Contractor Safety
Management requirements in attached Exhibit D, which Exhibit D is hereby
incorporated by reference.
19 SUBSTANCE ABUSE
Contractor agrees to abide by the terms of the Substance Abuse requirements in
attached Exhibit E, which Exhibit E is hereby incorporated by reference.
20 COMPLIANCE WITH APPLICABLE LAWS
20.1 Contractor agrees to keep posted all notices required under workers'
compensation laws and other laws, ordinances, rules, or regulations of any
governmental authority having jurisdiction over the Services.
20.2 Contractor agrees to procure from the proper authority all permits
and licenses which may be required in the performance of the Services, and
pay all excise, license, occupation, and other taxes which may become
payable to any authority by reason of the Services, including all taxes
upon the sale, use, storage, consumption, or fabrication of the materials,
supplies, equipment, and other things furnished by Contractor.
20.3 Contractor agrees to comply, and shall ensure that its employees,
agents and/or subcontractors comply, with all federal, state, tribal,
county, and municipal laws, rules, regulations, and ordinances applicable
to the performance of the Services.
11
<PAGE>
20.4 Contractor shall comply, and cause Contractor's employees and agents
and others entering upon Company's premises in connection with the
Services to comply, with all applicable federal, state, tribal, county,
and municipal laws, ordinances, rules, and regulations.
21 EQUAL EMPLOYMENT OPPORTUNITY
Contractor agrees to abide by the terms of the Equal Employment
Opportunity requirements in attached Exhibit "F", which Exhibit "F" is hereby
incorporated by reference.
22 ARBITRATION
Contractor and Company agree to abide by the terms of the Terms of
Arbitration requirements in the attached Exhibit "G," which Exhibit "G" is
hereby incorporated by reference.
23 ANNOUNCEMENTS AND PRESS RELEASES
Contractor agrees that during and after the term of this Agreement, it
will make no announcements, press releases or other publications concerning, the
Services without the prior written consent of Company.
24 OWNERSHIP OF DATA
All data and information related to the Services, and generated by
Contractor during the performance of the Services, are the sole property of
Company. Contractor agrees to destroy all draft copies of reports when
subsequent final copies of those reports are generated.
25 APPLICABLE LAW
This Agreement shall be interpreted in accordance with the laws of the
State of Texas.
26 LIMITATION ON COMPANY'S LIABILITY
26.1 Company's liability is expressly limited to the Agreement Price set
forth on the face of this Agreement, or any modifications. Said sum is
payable only after Contractor has performed all of Contractor's duties and
obligations and has met all the conditions contained in this Agreement.
26.2 Company shall not be responsible for damage to, or loss of, any of
Contractor's materials, supplies, tools or equipment which Contractor may
use or store on Company's premises.
12
<PAGE>
27 SEVERABILITY
If any part, term or provision of this Agreement is held by the
arbitration tribunal or a court of competent jurisdiction to be illegal or in
conflict with any law, the validity of the remaining portions or provisions
shall not be affected, and the rights and obligations of the parties shall be
construed and enforced as if the Agreement did not contain the particular part,
term or provision held to be invalid.
28 SURVIVAL
The warranty, indemnity, audit, confidentiality and arbitration provisions
of this Agreement shall survive the termination of this Agreement.
29 WAIVER
The failure of either party hereto at any time to require performance by
the other party of any provision of this Agreement shall in no way effect the
right of such party thereafter to enforce the same, nor shall any waiver of any
breach of any provision hereof by the other party be taken or held to be a
waiver by such party of any succeeding breach of such provision, or as a waiver
of the provision itself.
30 SECTION HEADINGS
The section headings appearing in this Agreement have been inserted for
the purpose of convenience and ready reference. They do not purport to, and
shall not be deemed to define, limit or extend the scope or intent of the
sections to which they appertain.
31 EXHIBITS
Contractor acknowledges that the following exhibits are attached hereto
and made a part hereof:
Exhibit A - Services
Exhibit B - Rates for Services
Exhibit C - Affidavit for use in connection with Paragraph 7.4
Exhibit D - Contractor Safety Management
Exhibit E - Substance Abuse
Exhibit F - Equal Employment Opportunity
Exhibit G - Terms of Arbitration
13
<PAGE>
32. NOTICES
All notices necessary to be given under the terms of this Agreement,
except as herein otherwise provided, shall be in writing and shall be
communicated by prepaid mail, telegram or facsimile transmission addressed to
the respective parties at the address below or to such other address as
respectively designated hereafter in writing from time to time:
TO CONTRACTOR: IDS Engineering
600 Century Plaza Drive
Building 140
Houston, Texas 77073-6013
Attn: William A. Coskey
Phone (281) 821-3200
Facsimile: (281) 821-3230
TO COMPANY: Texaco Pipeline Inc.
1670 Broadway
Denver, Colorado 80202
Attn: Ron B. Copple
Phone (303) 860-3304
Facsimile: (303) 860-3045
33 ENTIRE AGREEMENT
This Agreement supersedes all prior oral or written proposals, communications or
other agreements related to the subject matter of this Agreement. This Agreement
sets forth the entire agreement between the parties with regard to the subject
matter of this Agreement and no amendment shall be binding upon the parties
unless in writing and signed by both parties.
CONTRACTOR COMPANY
IDS Engineering Texaco Pipeline Inc.
By: _____________________ By:
Name: William A. Coskey Name:
Title: President Title:
Date: 4/29/97 197 Date:
14
EXHIBIT 11
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PAGE 1 OF 2
DAYS Weighted
SHARES OUTSTANDING SHARES
------ ----------- --------
Quarter Ended June 30, 1996:
Balance March 31, 1996 ............... 10,630,000 90 10,630,000
Common Stock Issuances ............... 0 0 0
---------- -----------
Balance June 30, 1996 ................ 10,630,000 10,630,000
========== ===========
SIX MONTH ENDED JUNE 30, 1996:
Balance December 31, 1995 ............ 10,630,000 180 10,630,000
Common Stock Issuances ............... 0 0 0
---------- -----------
Balance June 30, 1996 ................ 10,630,000 10,630,000
========== ===========
QUARTER ENDED JUNE 30, 1997:
Balance March 31, 1997 ............... 12,723,718 90 12,723,718
Common Stock Issuances ............... 0 0 0
---------- -----------
Balance June 30, 1997 ................ 12,723,718 12,723,718
========== ===========
SIX MONTH ENDED JUNE 30, 1997:
Balance December 31, 1996 13,129,999 180 13,129,999
Common Stock Issuances 0 135 (304,710)
---------- -----------
Balance June 30, 1997 12,723,718 12,825,289
========== ===========
18
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
PAGE 2 OF 2
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY:
<S> <C> <C> <C> <C>
Weighted average number of
shares of common stock ........... 12,723,718 10,630,000 12,825,289 10,630,000
Assumed exercise of certain
stock options .................... -- -- -- --
Assumed exercise of stock warrants .... -- -- -- --
----------- ----------- ----------- -----------
12,723,718 10,630,000 12,825,289 10,630,000
=========== =========== =========== ===========
Net income (loss) ..................... $ 187,166 $ 135,877 $ 241,559 $ 236,671
=========== =========== =========== ===========
PRIMARY EARNINGS PER SHARE:
Net income (loss) ..................... $ .015 $ .013 $ .019 $ .022
=========== =========== =========== ===========
FULLY-DILUTED:
Weighted average number of
shares of common stock ........... 12,723,718 10,630,000 12,825,289 10,630,000
Assumed exercise of certain
stock options .................... -- -- -- --
Assumed exercise of stock warrants .... -- -- -- --
----------- ----------- ----------- -----------
12,723,718 10,630,000 12,825,289 10,630,000
=========== =========== =========== ===========
Net income (loss) ..................... $ 187,166 $ 135,877 $ 241,559 $ 236,671
=========== =========== =========== ===========
PRIMARY EARNINGS PER SHARE:
Net income (loss) ..................... $ .015 $ .013 $ .019 $ .022
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 507,636
<SECURITIES> 815,358
<RECEIVABLES> 1,729,153
<ALLOWANCES> (11,202)
<INVENTORY> 667,679
<CURRENT-ASSETS> 3,931,470
<PP&E> 1,248,469
<DEPRECIATION> 289,526
<TOTAL-ASSETS> 5,103,370
<CURRENT-LIABILITIES> 1,294,177
<BONDS> 429,661
0
0
<COMMON> 12,724
<OTHER-SE> 3,332,797
<TOTAL-LIABILITY-AND-EQUITY> 5,103,370
<SALES> 4,307,866
<TOTAL-REVENUES> 4,307,866
<CGS> 3,148,030
<TOTAL-COSTS> 3,923,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,395
<INCOME-PRETAX> 373,593
<INCOME-TAX> 132,034
<INCOME-CONTINUING> 241,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241,559
<EPS-PRIMARY> .019
<EPS-DILUTED> .019
</TABLE>