<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
__ ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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: 001-14217
INDUSTRIAL DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0322261
- -------------------------------- ----------------------
(State or, other Jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
600 CENTURY PLAZA DRIVE, BUILDING 140, HOUSTON, TEXAS 77073-6013
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-3200
Check whether the issuer (1) has filed all reports required to be filed by
Section 1.3 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.001 Par Value 13,023,718
--------------------------------------------
(Shares outstanding as of September 30, 1998)
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QUARTERLY REPORT ON FORM 10-QSB/A
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at September 30, 1998
and December 31, 1997......................................................1
Condensed Consolidated Statements of Income for the Three
Months ended September 30, 1998 and September 30, 1997 and the
Nine Months ended September 30, 1998 and September 30, 1997................2
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1998 and September 30, 1997............................3
Notes to Condensed Consolidated Financial Statements.......................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................5
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.........................................................11
ITEM 2. CHANGES IN SECURITIES.....................................................11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................11
ITEM 5. OTHER INFORMATION.........................................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................12
Signature.................................................................14
</TABLE>
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR YEAR ENDED DECEMBER 31, 1997
AND FOR NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
September 30, 1998 Dec. 31, 1997
------------------ -------------
(audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 795,451 $ 77,684
Mutual Funds 57,598 380,017
---------- ----------
$ 853,049 $ 457,701
Marketable securities:
Trading 645,632 375,045
Accounts receivable - trade, less allowance for doubtful accounts of
approximately $11,000 and $20,000 in 1997 and 1998, respectively 2,454,210 2,268,864
Inventory 1,265,534 884,342
Note receivable from stockholder 200,000 200,000
Advances to affiliate 0 5,546
Prepaid assets and deferred costs 336,086 66,152
---------- ----------
Total current assets $5,754,511 $4,257,650
---------- ----------
Property and Equipment, net 1,041,362 1,044,381
Other Assets 20,932 6,228
Goodwill 59,842 59,841
---------- ----------
Total assets $6,876,647 $5,368,100
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 375,000 $ 425,000
Current portion - Note payable to bank, term 4,229 34,242
Note Payable - Insurance 62,737 0
Accounts payable 808,563 697,255
Income taxes payable 354,946 79,698
Accrued expenses and other current liabilities 288,754 230,896
---------- ----------
Total current liabilities $1,894,229 $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 share issued in 1998, 12,723,718 shares issued in 1997 $ 13,024 $ 12,724
Additional paid-in capital 2,694,168 2,216,713
Retained earnings 1,835,868 1,224,890
---------- ----------
$4,543,060 $3,454,327
Treasury stock (15,323) (15,323)
---------- ----------
Total stockholders' equity $4,527,737 $3,439,004
---------- ----------
Total liabilities and stockholders' equity $6,876,647 $5,368,100
---------- ----------
---------- ----------
</TABLE>
1
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept 30, 1998 Sept. 30, 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Product sales $ 364,471 $ 1,108,330 $ 1,324,175 $ 1,933,674
Consulting sales 1,132,930 1,151,480 3,193,830 3,164,558
Thermal sales 697,288 1,235,518 2,752,726 2,704,962
Constant Power Sales 1,432,343 0 2,196,451 0
----------- ----------- ----------- -----------
$ 3,627,032 $ 3,495,328 $ 9,467,182 $ 7,803,194
COST OF REVENUES:
Product 377,571 707,217 1,123,016 1,330,823
Consulting 761,966 846,978 2,232,575 2,276,077
Thermal 598,973 942,593 2,086,360 2,037,918
Constant Power 919,377 0 1,427,379 0
----------- ----------- ----------- -----------
$ 2,657,887 $ 2,496,788 $ 6,869,330 $ 5,644,818
GROSS PROFIT 969,144 998,540 2,597,851 2,158,376
Selling, general and administrative 616,830 528,362 1,531,930 1,247,949
Depreciation 20,566 32,144 75,447 88,362
OTHER INCOME (EXPENSE)
Realized gains on marketable securities 120,986 23,691 164,137 99,727
Other income 547 8,559 584 43,158
Unrealized gain (loss) on marketable
securities (85,098) (4,436) (106,839) (38,083)
Interest income, net (17,311) (21,206) (54,926) (60,602)
Thermal expense 0 (27,446) 0 (75,476)
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 350,872 $ 417,196 $ 993,430 $ 790,789
TAX PROVISION $ 144,467 $ 134,551 $ 382,452 $ 266,585
----------- ----------- ----------- -----------
NET INCOME $ 206,405 $ 282,645 $ 610,978 $ 524,204
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER COMMON SHARE $ 0.016 $ 0.022 $ 0.047 $ 0.041
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED EARNINGS PER COMMON SHARE $ 0.016 $ 0.022 $ 0.047 $ 0.041
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,023,718 12,723,718 13,023,718 12,723,718
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,023,718 12,723,718 13,023,718 12,713,718
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
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INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 610,978 $ 524,204
Changes in working capital, net of Thermal and Constant Power
Manufacturing acquisition 236,595 (1,128,190)
--------- -----------
Net cash provided (used) by operating activities: $ 847,573 $ (603,986)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Thermal $ 0 $ (212,000)
Advances on note receivable from stockholder 0 (50,000)
Property and equipment acquired (72,703) (568,663)
Purchase of investments (270,587) (500,000)
Other assets acquired 0 23,096
--------- -----------
Net Cash used by investing activities $(343,290) $(1,307,567)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITES:
Long term mortgage on land and buildings $ (30,013) $ 429,661
Repayment on notes payable, net (3,922) (300,000)
Proceeds from issuance of common stock, net 0 799,999
Sale of Treasury Stock 0 29,000
Borrowings from bank (75,000) 450,000
--------- -----------
Net cash provided by financing activities $(108,935) $ 1,408,660
--------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 395,348 $ (502,893)
CASH AND CASH EQUIVALENTS,
at beginning of period $ 457,701 $ 975,100
--------- -----------
CASH AND CASH EQUIVALENTS,
at end of period $ 853,049 $ 472,207
--------- -----------
--------- -----------
* Non-cash Transactions:
Issuance of common stock for acquisitions $ 663,269 $ 387,000
</TABLE>
3
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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 September
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 September 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 September 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:
<TABLE>
<S> <C>
Purchase price $ 663,269
Fair value of net assets of CPM acquired (663,269)
---------
$ -
</TABLE>
The accounts of CPM are reflected in the condensed consolidated balance
sheets as of September 30, 1998. The shares of common stock issued by the
Company have been reflected as issued and outstanding.
4
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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):
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Total Revenue $ 11,304 $ 10,260
Net Income 855 524
Income Per Share .06 .04
</TABLE>
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 engaged 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. The Company introduced its computer product
segment in 1989 to provide industrial grade computers and industrial
applications for commercial use. This segment operated as a Texas corporation
under the name of Industrial Data Systems, Inc. (IPD). 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 IPD segment
has generated sales as a percent of total revenue of 14.0% and 24.8%, for the
nine months ended September 30, 1998 and 1997, respectively, while the IED
segment has generated sales as a percent of total revenue of 33.7% and 40.6%
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 29.1% and 34.7% for the nine months ended September 30, 1998
and for the seven months ended September 30, 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 23.2% for the six months ended September 30, 1998.
The gross margin varies between each of its operating segments. Computer
product sales have produced a gross margin ranging from 15.2% and 31.2% for
the nine months ended September 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 inreased slightly to 30.1%
in 1998 from 28.1% for the same period in 1997. Thermal's gross margin was
24.2% and 24.7% for the nine months ended September 30, 1998 and 1997,
respectively. Constant Power generated a gross margin of 35.0% for the six
months ended September 30, 1998. The overall gross margin for the Industrial
Data Systems Corporation, which includes product sales, pipeline consulting
services and Thermal for the nine months ended September 30, 1998 and for
Constant Power for six months ended September 30, 1998 was 27.4%. The overall
gross margin for the Company for the same period in 1997 was 27.7%. Gross
margin for 1997 does not include any contribution from Constant Power.
5
<PAGE>
YEAR 2000 ISSUES AND CONSEQUENCES
The "Year 2000 Issue" has come about because many computer hardware and
software components use only the last two digits to refer to a year. If not
corrected, this situation could cause systems to fail or generate erroneous
data. The extent of the potential impact of the Year 2000 problem is not yet
identifiable or determinable.
In 1997 the Company began a program to address its Year 2000 issues.
Testing and upgrading of the Company's internal systems is underway and is
projected to be completed by the end of the second quarter of 1999. The
company's plan of testing compliance will continue throughout 1999. Costs to
address the Year 2000 problems are estimated to be approximately $250,000, of
which approximately $50,000 has been incurred. The cost is being funded from
internally-generated funds and expensed as incurred.
The Company's plan includes contacting outside vendors that are critical
to its ability to provide products and services, to determine the Year 2000
readiness of these suppliers.
The Company expects its program to identify Year 2000 issues to be
adequate, but intends to develop contingency plans in the first quarter of
1999. There can be no guarantee that the Company's current efforts or its
contingency plan will successfully address any contingencies that arise. In
the event the Company is unsuccessful in addressing its Year 2000 issues,
there could be a material adverse effect on the Company's financial
condition, results of operation and liquidity.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are statements of
future expectation and not facts. Actual results or developments might differ
materially from those included in the forward-looking statements because of
factors such as competition and industry restructuring, changes in economic
conditions, changes in laws, regulations, regulatory policies or public
policies, technological developments, and other presently unknown or
unforeseen factors.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets for the for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates percentage of total revenue for each tem.
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30
1998 1997 1998 1997
Amount % Amount % Amount % Amount %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Computer Products $ 364,471 10.05 $ 1,108,330 31.71 $ 1,324,175 13.99 $ 1,933,674 24.78
Consulting Services 1,132,930 31.24 1,151,480 32.94 3,193,830 33.74 3,164,558 40.55
Thermal 697,288 19.22 1,235,518 35.35 2,752,726 29.08 2,704,962 34.66
Constant Power 1,432,343 39.49 0 0.00 2,196,451 23.20 0 0.00
----------- ------ ----------- ------ ----------- ------ ----------- ------
TOTAL REVENUE $ 3,627,032 100.00 $ 3,495,328 100.00 $ 9,467,182 100.00 $ 7,803,194 100.00
----------- ------ ----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------ ----------- ------
GROSS PROFIT:
Computer Products $ (13,100) (0.36) $ 401,113 11.48 $ 201,159 2.12 $ 602,851 7.73
Consulting Services 370,964 10.23 304,502 8.71 961,255 10.15 888,481 11.39
Thermal 98,315 2.71 292,925 8.38 666,366 7.04 667,044 8.55
Constant Power 512,966 14.14 0 0.00 769,072 8.12 0 0.00
----------- ------ ----------- ------ ----------- ------ ----------- ------
TOTAL GROSS PROFIT $ 969,144 26.72 $ 998,540 28.57 $ 2,597,851 27.43 $ 2,158,376 27.66
----------- ------ ----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------ ----------- ------
Selling, General and
Administrative
Expense $ 616,830 17.01 $ 528,362 15.12 $ 1,531,930 16.18 $ 1,247,949 15.99
Depreciation 20,566 0.57 32,144 0.92 75,447 0.80 88,362 1.13
OPERATING INCOME $ 331,748 9.15 $ 438,034 12.53 $ 990,474 10.46 $ 822,065 10.53
----------- ------ ----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------ ----------- ------
Other Income
(Expense) 19,124 0.53 (20,838) (0.60) 2,956 0.03 (31,276) (0.40)
INCOME BEFORE
PROVISION FOR
INCOME TAXES $ 350,872 9.67 $ 417,196 11.94 $ 993,430 10.49 $ 790,789 10.13
Provision for
Income Tax 144,467 3.98 134,551 3.85 382,452 4.04 266,585 3.42
NET INCOME
AFTER INCOME $ 206,405 5.69 $ 282,645 8.09 $ 610,978 6.45 $ 524,204 6.72
----------- ------ ----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------ ----------- ------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
TOTAL REVENUE. Total revenue increased by $131,704 or 3.8% from $3,495,328
for the three months ended September 30, 1997, compared to $3,627,032 in 1998.
Revenue from the IPD, which comprised 10.1% of total revenue for the three
months ended September 30, 1998, decreased by $743,859 or (67.1%). The decrease
in IPD revenue was attributable to a drop in sales orders in the 1998 period and
from unusually high sales during the 1997 period. Revenue from the IED, which
comprised 31.2% of total revenue for the three months ended September 30, 1998,
decreased by $18,550 or (1.6%). Revenue from Thermal, which comprised 19.2% of
total revenue for the three months ended September 30, 1998, decreased by
$538,230 or (43.6%). Thermal's third quarter 1997 revenue included some sizeable
jobs that were larger than the normal scope, creating an inordinate high level
of revenue for that period, this is attributable for
7
<PAGE>
the decrease between the 1997 and the 1998 period. Revenue from CPM which
accounted for 39.5% of total revenue for the three months ended September 30,
1998, was $1,432,343.
GROSS PROFIT. Gross profit decreased by $29,396 or (2.9%) from $998,541 for
the three months ended September 30, 1997 to $969,145 for the same period in
1998. The gross margin as a percentage of total revenues decreased from 28.6%
for the period ended September 30, 1997 to 26.7% for the same period in 1998.
The decrease was attributable to decreases in gross margin for the IPD and
Thermal segments. The gross margin for the IPD decreased from 36.2% for the
period ended September 30, 1997 to (3.6%) for the same period in 1998. This
decrease was attributable to a reduction in sales revenue coupled with relative
fixed production costs and adjustments for obsolete inventory. The gross margin
for the IED increased from 26.4% for the period ended September 30, 1997 to
32.7% for the same period in 1998. This increase was due to securing jobs that
generate higher billing rates and performing "lump-sum" jobs at reduced labor
hours. The gross margin for Thermal decreased from 23.7% for the period ended
September 30, 1997, to 14.1% for the same period in 1998. This decrease was
attributable to an increase in material and labor cost during the 1998 period.
CPM generated a gross margin of 35.8% for the six months ended September 1998.
There was no gross margin contribution from CPM for the 1997 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $88,468 or 16.7% from $528,362 for the
three months ended September 30, 1997, compared to $616,830 for the same period
in 1998. As a percentage of total revenue, selling, general and administrative
expenses increased from 15.1% for the three months ended September 30, 1997, to
17.0% for the same period in 1998. The increase was primarily attributable to
the acquisition of Constant Power and additional costs related to personnel,
office administration and commissions.
OPERATING INCOME. Operating income decreased by $106,286 or (24.3%) from
$438,035 for the three months ended September 30, 1997, compared to $331,749 for
the same period in 1998. Operating income decreased as a percentage of total
revenue from 12.5% for the three months ended September 30, 1997, to 9.2% for
the same period in 1998. The decrease in operating income was a result of an
increase in the selling, general and administrative expenses and an overall
decrease in gross margin.
OTHER INCOME (EXPENSE). Other income increased by $39,962 or 191.8% from
($20,838) for the three months ended September 30, 1997 to $19,124 for the same
period in 1998. This increase was primarily attributable to gains from
marketable securities.
NET INCOME. Net income after taxes decreased by ($76,241) or (27.0%) from
$282,646 for the three months ended September 30, 1997 to $206,405 for the same
period in 1998. Net income after taxes decreased as a percentage of total
revenue from 8.1% for the three months ended September 30, 1997, to 5.7% for the
same period in 1998. This decrease is attributable to lower gross margins and an
increase in selling, general and administrative expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
FINANCIAL DATA REFLECTED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 INCLUDES
ONLY THE SEVEN MONTHS (MARCH-SEPTEMBER) FOR THERMAL'S OPERATIONS SINCE THE
ACQUISITION IN LATE FEBRUARY, 1997 AND DOES NOT REFLECT ANY CONTRIBUTION FROM
CONSTANT POWER FOR THE SAME PERIOD. FINANCIAL DATA REFLECTED FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 INCLUDES ONLY SIX MONTHS (APRIL - SEPTEMBER) FOR
CONSTANT POWER'S OPERATIONS.
8
<PAGE>
TOTAL REVENUE. Total revenue increased by $1,663,988 or 21.3% from
$7,803,194 for the nine months ended September 30, 1997, compared to $9,467,182
in 1998. Revenue from the IPD, which comprised 24.8% of total revenue for the
nine months ended September 30, 1997, decreased by $609,499 or (31.5%). The
attributable is due to an unusually low sales volume in the 1998 period.
Revenue from the IED which comprised 40.6% of total revenue for the nine months
ended September 30, 1997 increased by $29,272 or .9% from $3,164,558 in 1997 to
$3,193,830 for the same period in 1998. The increase in IED revenue was due to
an expansion in the scope of work performed for established clients.
Revenue from Thermal was $2,704,962 or 34.7% of total revenue for the seven
months (March - September), following the acquisition in 1997. Revenue from
Thermal was $2,752,726 or 29.1% of total revenue for the nine months ended
September 30, 1998. This decrease is due to primarily to the decline in the
third quarter 1998 sales volume and to the addition of revenue of CPM to total
revenue.
Revenue from CPM was $2,196,451 or 23.2% of total revenue for the six month
period (April - September), following the acquisition in March 1998. There was
no contribution to revenue by CPM for the nine months ended September 30, 1997.
GROSS PROFIT. Gross profit increased by $439,475 or 20.4% from $2,158,377
for the nine months ended September 30, 1997 to $2,597,852 for the same period
in 1998. The gross margin for the IPD decreased from 31.2% in the nine months
ended September 30, 1997 to 15.2% for the same period in 1998. This decrease in
IPD gross margins was primarily due to higher material and labor costs coupled
with lower sales volume. The gross margin for the IED increased from 28.1% for
the period ended September 30, 1997 to 30.1% for the same period in 1998.
Thermal's gross margin was 24.7% for the seven months (March - September) 1997
to 24.2% for the nine months ended September 30, 1998. CPM generated a gross
margin for the six months (April - September) 1998 of 35%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $283,981 or 22.8% from $1,247,949 for the
nine months ended September 30, 1997 compared to $1,531,930 for the same period
in 1998. As a percentage of total revenue, selling, general and administrative
expenses increased slightly from 16.0% for the nine months ended September 30,
1997 to 16.2% for the same period in 1998.
OPERATING INCOME. Operating income increased by $168,409 or 20.5% from
$822,066 for the nine months ended September 30, 1997, compared to $990,475 for
the same period in 1998. Operating income as a percentage of total revenue
remained the same for the nine months ended September 30, 1997 and 1998 at
10.5%.
OTHER INCOME (EXPENSE). Other income increased by $34,232 or 109.5% from
($31,276) for the nine months ended September 30, 1997 to $2,956 for the same
period in 1998. This increase was due to the Company having realized gains on
its marketable securities in the 1998 period as compared to the 1997 period.
NET INCOME. Net income before taxes increased by $202,641 or 25.6% from
$790,790 for the nine months ended September 30, 1997 to $993,431 for the same
period in 1998. Net income after taxes increased by $86,774 or 16.6% from
$524,205 for the nine months ended September 30, 1997 to $610,978 for the same
period in 1998. Net income after taxes decreased as a percentage of total
revenue from 6.7% for the nine months ended September 30, 1997 to 6.5% for the
same period
9
<PAGE>
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
September 30, 1998, the Company's cash position, including marketable
securities, was sufficient to meet its working capital requirements. The Company
had, as of September 30, 1998, $800,000 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 September 30, 1998.
The Company's working capital was $2,790,559 and $3,860,282 at December 31,
1997 and September 30, 1998, respectively.
CASH FLOW
Operating activities used net cash totaling $603,986 for the nine months
ended September 30, 1997 and generated $847,573 for the nine months ended
September 30, 1998. The Company did not generate significant cash flow from
operating activities for the nine months ended September 30, 1997, due to the
working capital requirements resulting from the rapid growth of the Company.
Trade accounts receivable increased $185,346 since December 31, 1997. Inventory
increased by $381,192 for the same period.
Investing activities used cash totaling, $1,307,567 for the nine months
ended September 30, 1997 and used cash totaling $343,290 for the same period in
1998. The Company's investing activities that used cash during the period ended
September 30, 1997 was primarily related to the purchase of Thermal and its
facilities, in 1998 the investing activities were related to the purchase of
fixed assets and marketable securities.
As of September 30, 1998, the Company had a portfolio of marketable
securities which had a fair market value of $645,632 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 available cash reserves.
10
<PAGE>
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 used cash totaling $108,935 for the nine months ended
September 30, 1998, which was repayment of line of credit and repayment on the
term note for Thermal's facilities. The Company has additional financing amounts
of $800,000 available on its line of credit at September 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 $1,975,952 and
$2,454,210 at September 30, 1997 and 1998, respectively. The number of days'
sales outstanding in trade accounts receivable was 51 days and 70 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
On August 17, 1998 a Form 4 was filed with the Securities and Exchange
Commission reflecting the sale of 9,800 shares of Common Stock which had been
held in a custodial account for the benefit of minor children of William A.
Coskey, President and CEO of Industrial Data Systems Corporation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
11
<PAGE>
ITEM 5. OTHER INFORMATION
On August 31, 1998, the Company accepted the resignation of its director,
Mr. Rex Zerger. Mr. Zerger had also served as Vice President of Sales and
Marketing. Mr. Ken Hedrick was immediately appointed by the Board as an interim
director to replace Mr. Zerger until the next annual meeting of shareholders.
On September 9, 1998, the Company signed an agreement with Houston-based
Hunt Patton & Brazeal to serve as intermediaries and acquisition consultants for
the Company. Hunt Patton & Brazeal will work with the Company to expedite its
merger and acquisition goals as well as long term strategic planning. The
primary acquisition focus will be on organizations that are complimentary to the
Company's areas of strength and expertise; particularly, the manufacturing,
automation and computer systems integration sectors.
On October 9, 1998, the Company signed a Letter of Intent to acquire MLC
Enterprises, Inc. (MLC). MLC is a Houston-based company, which primarily does
business under its division name: Marine and Industrial Fire Safety (MIFS).
Stipulated in the letter of intent, IDS will exchange 50,000 shares of the
Company's common stock for 100% of MLC's shares. MLC had revenues of
approximately $2.2M in 1997 and expects 1998 revenues to be approximately $5M.
It is expected that this transaction will be accretive to the Company's per
share earnings and will close prior to November 15, 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
September 30, 1998.
12
<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: November 16, 1998 By: /s/ Hulda L. Coskey
--------------------------------------
Hulda L. Coskey, Chief Financial Officer,
Secretary and Treasurer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB/A FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 853,049
<SECURITIES> 645,632
<RECEIVABLES> 2,654,210
<ALLOWANCES> (20,000)
<INVENTORY> 1,265,534
<CURRENT-ASSETS> 5,754,511
<PP&E> 1,261,465
<DEPRECIATION> (220,103)
<TOTAL-ASSETS> 6,876,647
<CURRENT-LIABILITIES> 1,894,229
<BONDS> 420,671
0
0
<COMMON> 13,024
<OTHER-SE> 4,530,036
<TOTAL-LIABILITY-AND-EQUITY> 6,876,647
<SALES> 9,467,182
<TOTAL-REVENUES> 9,467,182
<CGS> 6,869,330
<TOTAL-COSTS> 1,607,377
<OTHER-EXPENSES> 57,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54,926)
<INCOME-PRETAX> 993,430
<INCOME-TAX> 382,452
<INCOME-CONTINUING> 610,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 610,978
<EPS-PRIMARY> .047
<EPS-DILUTED> .047
</TABLE>
