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, 1998 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 88-0322261
--------------------- -----------------------
(State or, other (I.R.S.Employer
Jurisdiction of Identification Number)
corporation 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 13,023,718
--------------------------
(Shares outstanding as of June 30,
1998)
<PAGE>
QUARTERLY REPORT ON FORM 10-QSB
FOR THE PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
NUMBER
------
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997...............................................3
Condensed Consolidated Statements of Operations for the
Three Months ended June 30, 1998 and June 30, 1997 ................4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended June 30, 1998 and June 30, 1997 ................5
Notes to Condensed Consolidated Financial Statements...............6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.............................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................13
Signature ........................................................14
2
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR YEAR ENDED DECEMBER 31, 1997
AND FOR SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 578,964 $ 77,684
Mutual funds ................................... 184,432 380,017
----------- -----------
763,396 457,701
Marketable securities:
Trading ........................................ 590,087 375,045
Accounts receivable - trade, less allowance
for doubtful accounts of Approximately $11,000
and $16,000 in 1997 and 1998, respectively ..... 2,066,328 2,268,864
Inventory .......................................... 1,310,274 884,342
Note receivable from stockholder ................... 200,000 200,000
Advances to affiliate .............................. 0 5,546
Prepaid assets and deferred costs .................. 493,689 66,152
----------- -----------
----------- -----------
Total current assets ...................... $ 5,423,773 $ 4,257,650
----------- -----------
Property and Equipment, net ........................ 1,049,997 1,044,381
Other Assets ....................................... 8,349 6,228
Goodwill ........................................... 59,841 59,841
----------- -----------
=========== ===========
Total assets .............................. $ 6,541,960 $ 5,368,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank ............................... $ 475,000 $ 425,000
Current portion - Note payable to bank, term ....... 17,121 34,242
Accounts payable ................................... 444,012 697,255
Income taxes payable ............................... 266,667 79,698
Accrued expenses and other current liabilities ..... 259,135 230,896
----------- -----------
----------- -----------
Total current liabilities ................. $ 1,461,935 $ 1,467,091
----------- -----------
Note payable to bank, term ......................... 420,671 420,671
DEFERRED INCOME TAX ................................ 34,010 41,334
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 75,000,000 shares
authorized; 13,023,718 shares issued in 1998, .. 13,024 12,724
12,723,718 shares issued in 1997
Additional paid-in capital ......................... 2,879,682 2,216,713
Retained earnings .................................. 1,747,961 1,224,890
----------- -----------
4,640,667 3,454,327
Treasury stock ..................................... (15,323) (15,323)
----------- -----------
Total stockholders' equity ................ $ 4,625,344 $ 3,439,004
----------- -----------
Total liabilities and stockholders' equity $ 6,541,960 $ 5,368,100
=========== ===========
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months ended Six Months ended
June 30, 1998 June 30, 1997
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Product sales ................................. $ 959,704 $ 310,249
Consulting sales .............................. 2,060,900 909,407
Thermal sales ................................. 2,055,438 242,785
Constant Power sales .......................... 764,108 0
------------ ------------
$ 5,840,150 $ 1,462,441
COST OF REVENUES:
Product ....................................... 745,445 233,856
Consulting .................................... 1,470,609 631,178
Thermal ....................................... 1,487,387 162,690
Constant Power ................................ 508,002 0
------------ ------------
$ 4,211,443 $ 1,027,724
------------ ------------
GROSS PROFIT .................................. 1,628,707 434,717
Selling, general and administrative ............... 915,100 305,900
Depreciation ...................................... 54,881 22,794
OTHER INCOME (EXPENSE)
Realized gains on marketable securities ....... 43,151 55,497
Other income .................................. 37 15,460
Unrealized gain (loss) on marketable securities (21,741) (51,377)
Interest income, net .......................... (37,615) (20,152)
Thermal expense ............................... 0 (22,723)
------------ ------------
INCOME BEFORE TAXES ............................... $ 642,558 $ 82,728
TAX PROVISION ..................................... 237,985 28,335
------------ ------------
NET INCOME ........................................ $ 404,573 $ 54,393
============ ============
BASIC EARNINGS PER COMMON SHARE ................... $ 0.031 $ 0.004
============ ============
DILUTED EARNINGS PER COMMON SHARE ................. $ 0.031 $ 0.004
============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .. 13,023,718 12,926,858
============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,023,718 12,926,858
============ ============
</TABLE>
4
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
(unaudited)
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................. $ 404,573 $ 241,559
Changes in working capital, net of Thermal and Constant Power
Manufacturing acquisitions ............................... 144,058 (796,462)
----------- -----------
Net cash provided (used) by operating activities: ........... $ 548,631 $ (554,903)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Thermal ......................................... 0 (212,000)
Advances on note receivable from stockholder ................ 0 (50,000)
Property and equipment acquired ............................. (60,773) (547,181)
Purchase of investments ..................................... (215,042) (500,000)
Other assets acquired ....................................... 0 (12,040)
----------- -----------
Net cash used by investing activities ....................... $ (275,815) $(1,321,221)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long term mortgage on land and buildings .................... (17,121) 429,661
Repayment on notes payable, net ............................. 0 (300,000)
Proceeds from issuance of common stock, net ................. 0 799,999
Sale of Treasury Stock ...................................... 0 29,000
Borrowings from bank ........................................ 50,000 450,000
----------- -----------
Net cash provided by financing activities ................... $ 32,879 $ 1,408,660
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... $ 305,695 $ (467,464)
CASH AND CASH EQUIVALENTS, at beginning of period ........... $ 457,701 $ 975,100
----------- -----------
CASH AND CASH EQUIVALENTS, at end of period ................. $ 763,396 $ 507,636
=========== ===========
* Non-cash Transactions:
Issuance of common stock for acquisitions .............. $ 663,269 $ 387,000
</TABLE>
5
<PAGE>
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
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,
1998 and 1997. 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 condensed financial
statements be read in conjunction with the Company's audited financial
statements for the years ended December 31, 1997 and 1996, which are
included in the Company's annual report on Form 10-KSB/A. 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, 1998, The Company had notes receivable due from a stockholder
in the amount of $200,000. The notes are unsecured, due on demand and bear
interest at a rate of 9% per annum. Interest on the note is due annually.
3. STOCKHOLDERS' EQUITY:
There was no issuance or retirement of the Company's Common stock during
the quarter ended June 30, 1998.
4. ACQUISITION:
In March 1998, the Company acquired Constant Power Manufacturing
Incorporated, (CPM) in a stock purchase. The Company issued 300,000 shares
of the Company's common stock, which may be put back to the Company for $1
per share at the option of the holder.
The following is the computation recorded in connection with the
acquisition of CPM:
Purchase price $ 663,269
Fair value of net assets of CPM acquired (663,269)
---------
$ -
The accounts of CPM are reflected in the condensed consolidated balance
sheets as of June 30, 1998. The shares of common stock issued by the
Company have been reflected as issued and outstanding.
6
<PAGE>
The following table reflects pro forma 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, ENDED JUNE 30,
-------------- --------------
1998 1997
---- ----
Total Revenue .................... $6,758 $6,699
Net Income ....................... 523 635
Income per Share ................. .04 .05
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is qualified in its entirety by, and should be
read in conjunction with, the Company's Consolidated Financial Statements
including the notes thereto, included elsewhere in the Company's Annual Report
on Form 10-KSB/A for the year ended December 31, 1997.
OVERVIEW
The Company has been in business since 1985 engaging in 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 this segment. In October 1997, the engineering consulting
segment, which had previously operated as Industrial Data Systems, Inc. dba IDS
Engineering, was incorporated as a Texas corporation under the name of IDS
Engineering, Inc. (IED). The Company introduced its computer product segment in
1989 to provide industrial grade portable and rack mounted computers for
commercial use. This segment operated as a Texas corporation under the name of
Industrial Data Systems, Inc. (IPD). The IPD segment has generated sales as a
percent of total revenue of 14.2% and 19.2%, for the six months ended June 30,
1998 and 1997, respectively, while the IED segment has generated sales as a
percent of total revenue of 30.5% and 46.7% for the same periods. In 1997, the
Company acquired the Thermal segment, which fabricates air handling equipment
for commercial heating ventilation and cooling systems. The Thermal segment has
generated sales as a percent of total revenue of 30.4% and 34.1% for the six
months ended June 30, 1998 and 1997, respectively. In March 1998, the Company
acquired the Constant Power Manufacturing, Inc. (CPM) segment, which
manufactures industrial grade battery backup systems and battery chargers. The
CPM segment has generated sales as a percent of total revenue of 24.9% for the
three months ended June 30, 1998.
The gross margin varies between each of its operating segments. Computer
product sales have produced a gross margin ranging from 22.3% and 24.4% for the
six months ended June 30, 1998 and 1997, respectively. This decrease is
attributable to the overall decline in IPD sales coupled with a relative fixed
production overhead. The gross margin for pipeline engineering services, which
reflects direct labor costs, has decreased slightly to 28.6% in 1998 from 29.0%
for the same period in 1997. Thermal's gross margin was 27.6% and 25.5% for the
six months ended June 30, 1998 and 1997, respectively. This increase was
attributable to the overall increase in sales volume from 1997 to 1998. Constant
Power generated a gross margin of 33.5% for the three months ended June 30,
1998. The overall gross margin for Industrial Data Systems Corporation, which
includes product sales, pipeline consulting services and Thermal for the six
months ended June 30, 1998 and for Constant Power for three months ended June
30, 1998 was 27.9%. The overall gross margin for the Company for the same period
in 1997 was 26.9%. Gross margin for 1997 does not include any contribution from
Constant Power.
7
<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
1998 1997 1998 1997
Amount % Amount % Amount % Amount %
---------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Computer Products ............ $ 309,023 $ 9.63 515,095 18.10 $ 959,704 16.43 $ 825,344 19.16
Consulting Services .......... 1,012,285 31.55 1,103,671 38.79 2,060,900 35.29 2,013,078 46.73
Thermal ...................... 1,123,146 35.00 1,226,659 43.11 2,055,438 35.19 1,469,444 34.11
Constant Power ............... 764,108 23.81 0 0.00 764,108 13.08 0 0.00
Total Revenue ...... $ 3,208,562 100.00 $ 2,845,425 100.00 $ 5,840,150 100.00 $ 4,307,866 100.00
Gross Profit:
Computer Porducts ............ $ 24,939 0.78 $ 125,345 4.41 $ 214,259 3.67 $ 201,738 4.68
Consulting Services .......... 344,006 10.72 305,750 10.75 590,291 10.11 583,979 13.56
Thermal ...................... 375,308 11.70 294,024 10.33 568,051 9.73 374,119 8.68
Constant Power ............... 256,106 7.98 0 0.00 256,106 4.39 0 0.00
Total Gross Profit ... $ 1,000,360 31.18 $ 725,119 25.48 $ 1,628,707 27.89 $ 1,159,836 26.92
Selling, General and
Administrative Expense ............. 487,982 15.21 413,685 14.54 915,100 15.67 719,585 16.70
Depreciation ....................... 25,029 0.78 33,425 1.17 54,881 0.94 56,219 1.31
Operating Income ................... $ 487,348 15.19 $ 278,009 9.77 $ 658,726 11.28 $ 384,032 8.91
Other Income (Expense) ............. (16,336) -0.51 12,856 0.45 (16,168) -0.28 (10,439) -0.24
Income Before Provision
for Income Taxes ................... $ 471,012 14.68 $ 290,865 10.22 $ 642,558 11.00 $ 373,593 8.67
Provision for Income Taxes ......... 255,973 7.98 103,699 3.64 237,985 4.07 132,034 3.06
Net Income After Income
Taxes .............................. $ 215,039 6.70 $ 187,166 6.58 $ 404,573 6.93 $ 241,559 5.61
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
TOTAL REVENUE. Total revenue increased by $363,137 or 12.8% from
$2,845,425 for the three months ended June 30, 1997, compared to $3,208,562 in
1998. Revenue from the IPD, which comprised 9.6% of total revenue for the three
months ended June 30, 1998, decreased by $206,072 or 40.0%. The decrease in IPD
revenue was attributable to a reduction in sales due to the timing of orders
between the periods. Revenue from the IED, which comprised 31.6% of total
revenue for the three months ended June 30, 1998, decreased by $91,387 or 8.3%.
Revenue from Thermal, which comprised 35.0% of total revenue for the three
months ended June 30, 1998, decreased by $103,513 or 8.4%. Revenue from CPM
which accounted for 23.8% of total revenue for the three months ended June 30,
1998, was $764,108.
8
<PAGE>
GROSS PROFIT. Gross profit increased by $275,241 or 38.0% from $725,119
for the three months ended June 30, 1997 to $1,000,360 for the same period in
1998. The gross margin as a percentage of total revenues increased from 25.5%
for the period ended June 30, 1997 to 31.2% for the same period in 1998. The
increase was attributable to an increase in gross margin for the IED and Thermal
segments and the addition of CPM during the three months ended June 30, 1998.
The gross margin for the IPD decreased from 24.3% for the period ended June 30,
1997 to 8.1% for the same period in 1998. This decrease was attributable to a
reduction in sales revenue coupled with relative fixed production costs. The
gross margin for the IED increased from 27.7% for the period ended June 30, 1997
to 34.0% for the same period in 1998. This increase was due to securing jobs
that generate higher billing rates. The gross margin for Thermal increased from
24.0% for the period ended June 30, 1997 to 33.4% for the same period in 1998.
This increase was attributable to cost reduction measures implemented during the
1998 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $74,297 or 18.0% from $413,685 for the
three months ended June 30, 1997 compared to $487,982 for the same period in
1998. As a percentage of total revenue, selling, general and administrative
expenses increased from 14.5% for the three months ended June 30, 1997 to 15.2%
for the same period in 1998. The increase was primarily attributable to the
acquisition of Constant Power and the consolidation of its personnel and
operations into existing office and production facilities.
OPERATING INCOME. Operating income increased by $209,339 or 75.3% from
$278,009 for the three months ended June 30, 1997, compared to $487,348 for the
same period in 1998. Operating income increased as a percentage of total revenue
from 9.8% for the three months ended June 30, 1997 to 15.2% for the same period
in 1998. The increase in operating income was a result of an increase in overall
gross margin.
OTHER INCOME (EXPENSE). Other expense increased by $29,192 or 227.1% from
$12,856 for the three months ended June 30, 1997 to ($16,336) for the same
period in 1998. This increase was due to a reduction in gains from marketable
securities and an increase in interest expense generated from utilization of
line of credit funds.
NET INCOME. Net income after taxes increased by $27,873 or 14.9% from
$187,166 for the three months ended June 30, 1997 to $215,039 for the same
period in 1998. Net income after taxes increased as a percentage of total
revenue from 6.6% for the three months ended June 30, 1997 to 6.7% for the same
period in 1998.
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 AND DOES NOT REFLECT ANY CONTRIBUTION FROM CONSTANT POWER
FOR THE SAME PERIOD. FINANCIAL DATA REFLECTED FOR THE SIX MONTHS ENDED JUNE 30,
1998 INCLUDES ONLY THREE MONTHS (APRIL - JUNE) FOR CONSTANT POWER'S OPERATIONS.
TOTAL REVENUE. Total revenue increased by $1,532,284 or 35.6% from
$4,307,866 for the six months ended June 30, 1997, compared to $5,840,150 in
1998. Revenue from the IPD, which comprised 19.2% of total revenue for the six
months ended June 30, 1997, increased by $134,360 or 16.3%. The increase in IPD
revenue was generated because the revenue generated in the 1997 period was
abnormally low.
9
<PAGE>
Revenue from the IED which comprised 46.7% of total revenue for the six months
ended June 30, 1997 increased by $47,822 or 2.4% from $2,013,078 in 1997 to
$2,060,900 for the same period in 1998. The slight increase in IED revenue was
due to an expansion in the scope of work performed for established clients.
Revenue from Thermal was $1,469,444 or 34.1 % of total revenue for the four
months (March - June), following the recent acquisition. Revenue from Thermal
was $2,055,438 or 35.2% of total revenue for the six months ended June 30, 1998.
This increase is primarily attributable to the 1998 numbers including a full six
months.
GROSS PROFIT. Gross profit increased by $468,871 or 40.4% from $1,159,837
for the six months ended June 30, 1997 to $1,628,708 for the same period in
1998. The gross margin for the IPD decreased from 24.4 % in the six months ended
June 30, 1997 to 22.3% for the same period in 1998. This decrease in IPD gross
margins was primarily due to an increase in production costs coupled with
relatively stable sales prices. The gross margin for the IED decreased from
29.0% for the period ended June 30, 1997 to 28.6% for the same period in 1998.
Thermal's gross margin increased from 25.5% for the four month period (March
- -June) 1997 to 27.6% for the six months ended June 30, 1998. This is
attributable to the difference in the length of the period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $195,515 or 27.2% from $719,585 for the six
months ended June 30, 1997 compared to $915,100 for the same period in 1998. As
a percentage of total revenue, selling, general and administrative expenses
decreased from 16.7% for the six months ended June 30, 1997 to 15.7% for the
same period in 1998. 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 $274,694 or 71.5% from
$384,032 for the six months ended June 30, 1997, compared to $658,727 for the
same period in 1998. Operating income increased as a percentage of total revenue
from 8.9% for the six months ended June 30, 1997 to 11.3% for the same period in
1998. The increase in operating income was a result of increased revenues,
improved gross profit and reduced selling, general and administrative expenses
as a percent of total revenue.
OTHER INCOME (EXPENSE). Other expense increased by $5,729 or 54.9% from
$10,439 for the six months ended June 30, 1997 to $16,168 for the same period in
1998. This increase 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 and Constant Power. This increase was also due in part to
the Company having less realized gains on its marketable securities in the 1998
period as compared to the 1997 period to offset other expense.
NET INCOME. Net income before taxes increased by $268,965 or 72.0% from
$373,594 for the six months ended June 30, 1997 to $642,559 for the same period
in 1998. Net income after taxes increased by $163,014 or 67.5% from $241,560 for
the six months ended June 30, 1997 to $404,573 for the same period in 1998. Net
income after taxes increased as a percentage of total revenue from 5.6% for the
six months ended June 30, 1997 to 6.9% for the same period in 1998 due to higher
margins and reduced selling, general and administrative expenses as a percent of
total revenue.
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, 1998, the Company's cash position, including marketable securities, was
sufficient to meet its working capital requirements. The
10
<PAGE>
Company had, as of June 30, 1998, $675,000 in additional advances available
under its line of credit with a bank. The Company's line of credit which
provides for maximum borrowings of $1,150,000, which bears interest at prime
plus 1%, is for a term of one year and matures on June 30, 1999. 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
consolidated its line of credit into one line for all subsidiaries. This
consolidation and renewal of its line of credit was effective June 30, 1998.
The Company's working capital was $1,994,467 and $3,487,506 at December
31, 1997 and June 30, 1998, respectively.
CASH FLOW
Operating activities used net cash totaling $554,903 for the six months
ended June 30, 1997 and generated $531,510 for the six months ended June 30,
1998. The Company did not generate significant cash flow from operating
activities for the six months ended June 30, 1997, due to the working capital
requirements resulting from the rapid growth of the Company. Trade accounts
receivable decreased $202,536 since December 31, 1997. Inventory increased by
$425,932 for the same period.
Investing activities used cash totaling, $1,321,221 for the three months
ended June 30, 1997 and used cash totaling $275,815 for the same period in 1998.
The Company's investing activities that used cash during the period ended June
30, 1997 was primarily related to the purchase of Thermal and its facilities.
As of June 30, 1998, the Company had a portfolio of marketable securities
which had a fair market value of $590,087 and consisted of common stocks, bonds
and mutual funds. The common 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
Smith Barney & Co. These mutual fund investments are generally held for longer
than a one-year period. These securities are traded by the Company as part of
its plan to provide additional cash for working capital requirements.
The marketable securities to be held to maturity are stated at amortized
cost. Marketable securities classified as available-for-sale are stated at
market value, with unrealized gains and losses reported as a separate component
of stockholder's equity, net of deferred income taxes. If a decline in market
value is determined to be other than temporary, any such loss is charged to
earnings. Marketable securities accounted for as trading securities are stated
at market value, with unrealized gains and losses charged to income. William A.
Coskey, the Company's President and Chief Executive Officer, is responsible for
managing the Company's portfolio of marketable securities. The funds used in
this portfolio were from generally available from cash reserves.
The Company has implemented a policy that restricts it from purchasing any
securities on margin, and also limits the investment of any one security or
mutual fund to represent no more than 10% of the Company's investment portfolio.
The Company believes that the risks associated with its investment portfolio are
slightly higher than the risk of loss in a Standard & Poor's 500 Index Fund.
This higher risk is due to the less diverse distribution of the Company's
portfolio as compared to the broadly based Standard & Poor's 500 Stock Index.
11
<PAGE>
Financing activities provided cash totaling $32,879 for the six months
ended June 30, 1998, which was utilization of line of credit and repayment on
the term note for Thermal's facilities. The Company has additional financing
amounts of $675,000 available on its line of credit at June 30, 1998. The line
of credit has been used principally to finance accounts receivable and inventory
purchases.
ASSET MANAGEMENT
The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had net trade accounts receivable of $1,717,951and
$2,066,328 at June 30, 1997 and 1998, respectively. The number of days' sales
outstanding in trade accounts receivable was 85 days and 64 days, respectively.
Bad debt expenses have been insignificant for each of these periods.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June 8,
1998 at 2:00 p.m. at the corporate offices of the Company in Houston, Texas. A
total of 12,302,357 shares of common stock, which is 94.5% of the shares
outstanding on April 20, 1998 were represented at the meeting, either in person
or by proxy. Three proposals were approved by the shareholders with the vote
tabulations noted as follows:
1. The following directors were elected to serve until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified.
DIRECTORS: FOR AGAINST ABSTAIN
--- ------- -------
William A. Coskey, 12,301,857 0 500
P.E.
Hulda L. Coskey 12,301,857 0 500
David W. Gent, P.E. 12,297,857 0 4,500
Rex S. Zerger 12,297,857 0 4,500
Gordon R. Wingate 12,297,857 0 4,500
12
<PAGE>
2. Ratification of the appointment of Hein + Associates, LLP as the
Company's independent auditors.
FOR AGAINST ABSTAIN
--- ------- -------
12,297,847 1,000 3,510
3. The Industrial Data Systems Corporation 1998 Incentive Plan, adopted by
the Board of Directors on April 30, 1998 was approved.
FOR AGAINST ABSTAIN
--- ------- -------
10,267,577 6,600 510
These were all the matters submitted to the Shareholders at the Annual
Meeting of the Shareholders.
ITEM 5. OTHER INFORMATION
On May 7, 1998, the Company filed an application for the listing of its
securities with the American Stock Exchange. The application was approved by the
American Stock Exchange on June 8, 1998. Trading of the Company's stock on the
American Stock Exchange commenced on June 16, 1998 under the symbol IDS. Prior
to this time, the Company's stock had been traded under the ticker symbol IDDS
on the OTC Electronic Bulletin Board. In conjunction with this transaction, a
Form 8-A for registration of certain classes of securities pursuant to Section
12(b) or (g) of the Securities Exchange Act of 1934 was filed with the SEC on
June 11, 1998.
In compliance with Rule 891 Qualified Transfer Agents of the American
Stock Exchange requirements, the Company terminated its Transfer Agent, Pacific
Stock Transfer Company and appointed Harris Trust and Savings Bank, to serve as
its Transfer Agent and Registrar effective June 1, 1998. In conjunction with
this transaction, a Form 8-A for registration of certain classes of securities
pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 was
filed with the SEC on June 11, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule
b. Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
13
<PAGE>
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 14, 1998 By: /s/ HULDA L. COSKEY
--------------------------
Hulda L. Coskey, Chief Financial
Officer,
Secretary and Treasurer
14
<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, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 763,396
<SECURITIES> 590,087
<RECEIVABLES> 2,266,328
<ALLOWANCES> 16,000
<INVENTORY> 1,310,274
<CURRENT-ASSETS> 5,423,773
<PP&E> 1,270,100
<DEPRECIATION> (220,103)
<TOTAL-ASSETS> 6,541,960
<CURRENT-LIABILITIES> 1,461,935
<BONDS> 420,671
0
0
<COMMON> 13,024
<OTHER-SE> 4,627,643
<TOTAL-LIABILITY-AND-EQUITY> 4,625,344
<SALES> 5,840,150
<TOTAL-REVENUES> 5,840,150
<CGS> 4,211,443
<TOTAL-COSTS> 969,981
<OTHER-EXPENSES> 21,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37,615)
<INCOME-PRETAX> 642,558
<INCOME-TAX> 237,985
<INCOME-CONTINUING> 404,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 404,573
<EPS-PRIMARY> 0.031
<EPS-DILUTED> 0.031
</TABLE>
