UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 001-14217
INDUSTRIAL DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
------
(State or, other Jurisdiction of
corporation or organization)
88-0322261
----------
(I.R.S. Employer Identification Number)
600 Century Plaza Drive, Suite 140, Houston, Texas 77073-6033
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(281) 821-3200
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of business of March 31, 2002.
$0.001 Par Value Preferred Stock.............................. 2,500,000 shares
$0.001 Par Value Common Stock................................. 22,861,199 shares
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001...........................1
Condensed Consolidated Statements of Income for the Three Months
ended March 31, 2002 and March 31, 2001.................................................................2
Condensed Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2002 and March 31, 2001.................................................................3
Notes to Condensed Consolidated Financial Statements....................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................................7
Part II. Other Information
Item 1. Legal Proceedings......................................................................................10
Item 2. Changes in Securities..................................................................................10
Item 3. Defaults Upon Senior Securities........................................................................11
Item 4. Submission of Matters to a Vote of Security Holders....................................................11
Item 5. Other Information......................................................................................11
Item 6. Exhibits and Reports on Form 8-K.......................................................................11
Signature .............................................................................................12
i
Part I. Financial Information
Item 1. Financial Statements
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31, 2001
-------------- -----------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 370,884 $ 1,244,907
Accounts receivable - trade, less allowance for doubtful accounts of
approximately $209,000 for 2002 and $271,000 for 2001 13,911,385 14,908,069
Inventory 650,709 730,507
Cost and estimated earnings in excess of billings on uncompleted
contracts 712,281 691,048
Prepaid and other 671,878 740,670
------------ ------------
Total current assets 16,317,137 18,315,201
PROPERTY AND EQUIPMENT, net 4,994,838 5,123,115
OTHER ASSETS 328,700 333,567
GOODWILL 14,514,367 14,513,806
------------ ------------
Total assets $36,155,042 $38,285,689
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $10,098,296 $9,076,520
Current portion - long term debt 1,063,142 1,357,228
Billings and estimated earnings in excess of cost on uncompleted
contracts 630,513 777,712
Notes payable 183,897 398,974
Preferred dividends payable 50,000 -
Current portion - capital lease payable 50,795 48,058
Income taxes payable 161,170 -
------------ ------------
Total current liabilities 12,237,813 11,658,492
Long term debt, net of current portion 9,218,466 12,131,582
Capital lease payable, net of current portion 142,348 149,665
------------ ------------
Total liabilities 21,598,627 23,939,739
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
2,500,000 shares outstanding 2,500 2,500
Common stock, $.001 par value; 75,000,000 shares authorized;
22,861,199 issued and outstanding 22,862 22,862
Additional paid-in capital 11,832,971 11,832,971
Retained earnings 2,698,082 2,487,617
------------ ------------
Total stockholders' equity 14,556,415 14,345,950
------------ ------------
Total liabilities and stockholders' equity $ 36,155,042 $ 38,285,689
============ ============
See accompanying notes to interim condensed consolidated financial statements.
1
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For The Three Months Ended March 31,
2002 2001
------------ ------------
OPERATING REVENUES $ 20,702,727 $ 5,953,906
OPERATING EXPENSES:
Direct costs 17,478,606 4,627,101
Selling, general and administrative 2,444,228 754,898
Depreciation and amortization 220,390 32,591
------------ ------------
20,143,224 5,414,590
------------ ------------
Operating income 559,503 539,316
OTHER INCOME (EXPENSE)
Other income 117,073 14,630
Interest income (expense) (233,340) (17,227)
------------ ------------
(116,267) (2,597)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 443,236 536,719
PROVISION FOR INCOME TAXES 177,294 198,500
------------ ------------
NET INCOME 265,942 338,219
PREFERRED STOCK DIVIDENDS 50,000 --
------------ ------------
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS $ 215,942 $ 338,219
============ ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.01 $ 0.03
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 22,861,199 12,964,918
============ ============
See accompanying notes to interim condensed consolidated financial statements.
2
INDUSTRIAL DATA SYSTEMS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 265,942 $ 338,219
Adjustment for non-cash items 220,390 32,591
Changes in working capital, net 2,238,502 (434,479)
------------ ------------
Net cash provided (used) by operating activities 2,724,834 (63,669)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment acquired (112,883) (117,715)
Proceeds from sale of property 42,523 --
------------ ------------
Net cash used by investing activities (70,360) (117,715)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit 24,179,355 --
Payments on line of credit (26,955,906) --
Short-term note repayments -- (8,229)
Lease borrowings (repayments) (15,065) --
Long-term borrowings (repayments) (736,881) 153,620
------------ ------------
Net cash provided (used) by financing activities (3,528,497) 145,391
------------ ------------
NET CHANGE IN CASH (874,023) (35,993)
CASH, at beginning of period 1,244,907 242,592
------------ ------------
CASH, at end of period $ 370,884 $ 206,599
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 153,044 $ 17,227
Income taxes paid -- 178,000
NON-CASH:
Lease to finance equipment -- 50,000
Accrual of preferred stock dividend declaration 50,000
See accompanying notes to interim condensed consolidated financial statements.
3
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Industrial Data Systems
Corporation ("IDS" or the "Company"), included herein, are unaudited for
the three-month period ended March 31, 2002 and 2001. These financial
statements 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 accounting principles generally accepted in the United
States of America, 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,
2001 and 2000, which are included in the Company's annual report on Form
10-K. The Company believes that the disclosures made herein are adequate to
make the information presented not misleading.
2. ACQUISITION
The acquisition of Petrocon Engineering, Inc. (the "Merger") was
consummated on December 21, 2001 with an effective date for accounting
purposes of December 31, 2001. Through an indirect subsidiary, IDS acquired
all the outstanding shares of stock of Petrocon Engineering, Inc.
("Petrocon") an engineering services company with offices along the Texas
and Louisiana gulf coast in exchange for the issuance of 9,800,000 shares
of IDS stock. None of Petrocon's earnings were included as part of IDS
operations for 2001. Footnote 2 of the Form 10-K describes all
subsidiaries.
3. LINE OF CREDIT AND DEBT
Effective December 31, 2001 as part of the Merger, IDS entered into a
financing arrangement with Fleet whereby all of Petrocon's outstanding debt
(the "Credit Facility" comprised of a line of credit and a term loan), was
refinanced. The new loan agreement positions the Fleet debt as senior to
all other debt and includes a line of credit limited to $15,000,000,
subject to borrowing base restrictions and a term loan in the amount of
$500,000. The Credit Facility is collateralized by substantially all the
assets of the Company. At March 31, 2002, $6,118,000 was outstanding on the
line of credit and $344,000 was outstanding on the term loan. Both the line
of credit and the term loan mature on June 14, 2003. The interest rate on
the line of credit is one-quarter of one percent plus prime (5.0 percent at
March 31, 2002), and the commitment fee on the unused line of credit is
0.375 percent. The interest rate on the term loan is one-half of one
percent plus prime (5.25 percent at March 31, 2002). Monthly principal
payments on the term loan plus interest commenced January 1, 2002 and
continue until maturity. The remaining borrowings available under the line
of credit as of March 31, 2002, were $3,217,000 after consideration of the
borrowing base limitations. The Company's Credit Facility contains
covenants which require the maintenance of certain ratios, including
cumulative fixed charge coverage and debt coverages and specified levels of
certain other items. This Credit Facility replaced a revolving credit note
that was collateralized with accounts receivable and inventory of the
Company.
As part of the Merger consideration, Petrocon's pre-Merger debt with Equus
was reorganized, restructured and reduced. Equus agreed to exchange notes
worth $9,700,000 including accrued interest for $2,500,000 in preferred
stock, a payment of $2,000,000, a forgiveness of $2,200,000, and a new note
for $3,000,000. The new note has interest at 9.5 percent per annum with
interest
4
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
paid quarterly beginning February 15, 2002 and principal payments being
repaid quarterly beginning August 15, 2002. This note is subordinated to
the Company's loan with Fleet.
(in thousands)
March 31, December 31,
2002 2001
-------- --------
Fleet Credit Facility-
Line of credit, prime plus 0.25% (5.00% at March 31,
2002), maturing in 2003 $ 6,118 $ 8,894
Term loan, interest at prime plus 0.50% (5.25% at March 31,
2002), due in monthly installments of $60,000, maturing
through 2003 344 523
Equus-
Note payable, interest at 9.5%, principal due quarterly in
installments of $110,000, maturing through 2005 3,034 3,000
Vendors-
Notes payable, interest at 8%, due monthly in
decreasing amounts starting at $115,000, maturing
through 2004 785 1,072
-------- --------
10,281 13,489
Less- current maturities (1,063) (1,357)
-------- --------
Long-term debt, net of current portion $ 9,218 $ 12,132
======== ========
Current notes payable include a note which finances commercial insurance on
a short-term basis, with a balance of $184,000 and $434,000 as of March 31,
2002 and December 31, 2001, respectively.
4. ALLOCATION OF GOODWILL
The Company's plan to pursue potential acquisitions of complementary
businesses was realized on December 21, 2001 through its Merger with
Petrocon. IDS entered into a letter of intent on April 3, 2001 to acquire,
through merger with a wholly owned subsidiary, Petrocon Engineering, Inc.,
an engineering support services company with offices along the Texas and
Louisiana gulf coast, in exchange for 9,800,000 shares of IDS, valued at
$0.71 per share. The purchase price totaled $23,806,000. The transaction
was financed by issuance of common stock valued at $6,637,000, net of
registration costs, issuance of preferred stock with a liquidation value of
$2,500,000 and assumption of debt totaling $13,737,000. The purchase
resulted in the recognition of an intangible, goodwill, of $14,514,000.
The initial business strategy of the combined company will focus on
cross-marketing its engineering capabilities and, following a reduction in
its debt burden, completing mergers and acquisitions in its engineering
business. Since there is little overlap in the engineering customer bases
of the two companies, there is considerable potential to enhance the
internal growth of the combined company through cross-marketing. An intense
marketing effort focused on those customers who are identified as most
likely to buy the additional services offered through the combined company
will be the highest priority.
5
INDUSTRIAL DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," goodwill is no longer amortized
over its estimated useful life, but rather will be subject to at least an
annual assessment for impairment. The initial test for impairment, as of
January 1, 2002, must be completed by the end of the second quarter of
2002. The Company is currently in the process of such valuation. Goodwill
for the Company for the three months ended March 31, 2001 was $4,000. Net
income for the first quarter of 2001, adjusted to exclude goodwill
amortization, would have changed to $336,000 ($0.03 per share would have
remained the same).
The unaudited proforma combined historical results, as if Petrocon had been
acquired at the beginning of fiscal 2001 as compared to the results of
operations for 2002 are estimated to be:
(In thousands, except per share data) 2002 2001
- ------------------------------------- ------------ -------------
Net sales $20,703 $23,717
Net income from continuing
operations 559 1,236
Net earnings per share from
continuing operations - basic and diluted 0.01 0.02
The proforma results presented above do not include amortization of the
goodwill, but do include the reduction of forgiven and restructured
interest expense on debt. The proforma results do not purport to be
indicative of what actually would have occurred if the acquisition had been
completed as of the beginning of each fiscal period presented, nor are they
necessarily indicative of future consolidated results.
5. SEGMENT INFORMATION
The Company operates in three business segments: (1) engineering consulting
services primarily to major integrated oil and gas companies; (2)
engineered systems, providing design and implementation of control systems
for specific applications primarily in the energy and process industries,
uninterruptible power systems and battery chargers; and (3) manufacturing
of air handling equipment for commercial heating, ventilation and cooling
systems. Sales and operating income set forth in the following table are
the results of these segments. The amounts reported in the corporate
segment include those activities that are allocated to the operating
segments.
Segment information for the three months ended March 31, 2002 and 2001,
respectively, was as follows (in thousands)
Engineering Engineered
2002 Services Systems Manufacturing Corporate Total
---- -------- ------- ------------- --------- -----
Net sales from external
customers $ 17,875 $ 2,287 $ 541 $ - $20,703
Operating profit (loss) 1,461 174 (53) (1,023) 559
Engineering Engineered
2001 Services Systems Manufacturing Corporate Total
---- -------- ------- ------------- --------- -----
Net sales from external
customers $ 3,947 $ 1,046 $ 961 $ - $ 5,954
Operating profit (loss) 616 150 64 (291) 539
6
Item 2. Management's Discussion And Analysis And Results Of Operations
Forward-Looking Statements
Certain information contained in this Form 10-Q Quarterly Report, the
Company's Annual Report to Stockholders, as well as other written and oral
statements made or incorporated by reference from time to time by the Company
and its representatives in other reports, filings with the Securities and
Exchange Commission, press releases, conferences, or otherwise, may be deemed to
be forward-looking statements with the meaning of Section 21E of the Securities
Exchange Act of 1934. This information includes, with limitation, statements
concerning the Company's future financial position, and results of operations;
planned capital expenditures; business strategy and other plans for future
operations; the future mix of revenues and business; commitments and contingent
liabilities; and future demand and industry conditions. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "may," and similar expressions, as they relate to the
Company and its management, identify forward-looking statements. Actual results
could differ materially from the results described in the forward-looking
statements due to the risks and uncertainties set forth with this Quarterly
Report on Form 10-Q.
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 in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
Overview
On April 3, 2001, the Company entered into a non-binding letter of intent
relating to a proposed Merger between a newly created subsidiary of the Company
and Petrocon Engineering, Inc. The Merger was consummated on December 21, 2001
with an effective date for accounting purposes of December 31, 2001. The new
Company will provide a broader range of services over a larger geographic area.
The Merger has resulted in some immediate expenses relating to consolidation of
the operations of the two companies; however, the Company believes that the
long-term impact of the Merger will be beneficial to the Company. The Company
filed current reports of Unscheduled Material Events on Form 8-K on January 7,
2002 and Form 8-K/A on March 5, 2002 describing the Merger. The result of
operations in 2002 includes the newly merged entity.
7
Results of Operations
The Company operates in three segments, the engineering services segment,
the engineered systems segment, and the manufacturing segment. The following
table sets forth, for the periods indicated, the appropriate percentages of
sales generated by each of the operating segments.
Percentage of Revenue
---------------------
For the three months ended March 31,
Operating Segment 2002 2001
----------------- ---- ----
Engineering services 86.3 % 66.3 %
Engineered systems 11.0 17.6
Manufacturing 2.6 16.1
----- -----
Total revenue 100.0 % 100.0 %
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
Total Revenue. Total revenue increased by $14,749,000 or 248% from
$5,954,000 for the three months ended March 31, 2001, compared to $20,703,000 in
2002. Revenue from the engineering services segment, which comprised 86.3% of
total revenue for the three months ended March 31, 2002, increased by
$13,928,000 or 353%. The Petrocon companies generated revenues of $15,096,000 in
the engineering services segment. Revenue from the engineered systems segment
was $2,287,000, which comprised 11.0% of total revenue for the three months
ended March 31, 2002, an increase of $1,241,000 or 119% over the same period in
2001. Of this increase, $1,501,000 resulted from the Petrocon Merger. Revenue
generated by the manufacturing segment for the three months ended March 31, 2002
decreased by $420,000 or 44% from the same period in 2001. Due to the
acquisition of Petrocon the manufacturing segment has become a smaller portion
of total revenues, declining from 16.1% of total revenues for the three months
ended March 31, 2001 to 2.6% for the three months ended March 31, 2002. The
Company believes that the decline in revenues in both the manufacturing segment
and the original IDS engineered systems segment is a result of the economic
slowdown in the fourth quarter of 2001 and the first quarter 2002.
Gross Profit. Gross profit increased by $1,897,000 or 143% from $1,327,000
for the three months ended March 31, 2001 to $3,224,000 for the same period in
2002. The gross margin as a percentage of total revenues decreased from 22.3%
for the period ended March 31, 2001 to 15.6% for the same period in 2002.
Although the decrease in gross margin occurred in every segment, the largest
decrease came in the engineering services segment, which had a gross margin of
14.5% for the three months ended March 31, 2002, down from a gross margin of
21.0% for the same period in 2001. This decrease in gross margins occurred
throughout the Company largely due to lower sales created by a sluggish national
economy, particularly in the gas and energy related sector, the completion of
lucrative lump-sum turnkey projects in the Houston division, and the impact of
lower utilization rates in the Baton Rouge and Houston offices where the Company
felt that short term retention of core staff members was necessary to meet
longer-term objectives. Lower utilization rates, particularly in the Baton Rouge
and Houston divisions, impacted margins negatively. The gross profit for the
engineered systems segment decreased from 23.3% for the period ended March 31,
2001 to 21.5% for the same period in 2002. This decrease occurred due to the
completion of several large lump sum projects and slow start for new projects in
2002 due to the sluggish economy. The manufacturing segment's gross margin
generated in the period ended March 31, 2002 as compared to the same period in
2001 was $136,000 or 25.1% as compared to $256,000 or 26.6%.
8
Other income and expenses. During the first quarter of 2002, the Company
received a $110,000 settlement on its previous claim against a software provider
whose product did not meet the expectations of the Company. There were no
similar settlements in 2001. This increase in income was offset by the increase
in interest expense. With the Merger, certain debt was assumed by the Company
which increased interest expense from $17,000 to $233,000 from the first three
months of 2001 as compared to the first three months of 2002.
Net income. Net income after taxes decreased by $72,000 or 21% from
$338,000 for the three months ended March 31, 2001 to $266,000 for the same
period in 2002. As a percentage of total revenue, the net income percentage was
1.3% for the three months ended March 31, 2002 and 5.7% for same period in 2001.
Liquidity and Capital Resources
Effective December 31, 2001 as part of the Merger, IDS entered into a
financing arrangement with Fleet whereby all of Petrocon's outstanding debt (the
"Credit Facility" comprised of a line of credit and a term loan), was
refinanced. The new loan agreement positions the Fleet debt as senior to all
other debt and includes a line of credit limited to $15,000,000, subject to
borrowing base restrictions and a term loan in the amount of $500,000. The
Credit Facility is collateralized by substantially all the assets of the
Company. At March 31, 2002, $6,118,000 was outstanding on the line of credit and
$344,000 was outstanding on the term loan. Both the line of credit and the term
loan mature on June 14, 2003. The interest rate on the line of credit is
one-quarter of one percent plus prime, and the commitment fee on the unused line
of credit is 0.375 percent. The interest rate on the term loan is one-half of
one percent plus prime. Monthly principal payments on the term loan plus
interest commenced January 1, 2002 and continue until maturity. The remaining
borrowings available under the line of credit as of March 31, 2002, were
$3,217,000 after consideration of the borrowing base limitations. The Company's
Credit Facility contains covenants, which require the maintenance of certain
ratios, including cumulative fixed charge coverage and debt coverages and
specified levels of certain other items.
As of March 31, 2002, the Company's cash position was sufficient to meet
its working capital requirements. EBITDA, earnings before interest, taxes,
depreciation and amortization, for the three months ended March 31, 2002 was
$780,000. Any future decrease in demand for the Company's services or products
would reduce the availability of funds through operations.
The Company's working capital was $4,079,000 and $6,657,000 at March 31,
2002 and December 31, 2001, respectively.
As of March 31, 2002, IDS had long-term debt outstanding of $10,281,000.
This long-term debt includes the Credit Facility of $6,118,000 on the line of
credit and $344,000 on the term loan, both of which mature in June 2003, and
becoming a current debt in the second quarter of 2002.
Cash Flow
Operating activities provided net cash totaling $2,725,000 and used net
cash of $64,000 for the three months ended March 31, 2002 and 2001,
respectively. Trade receivables decreased $997,000 since December 31, 2001.
Inventory decreased by $80,000 for the same period.
Investing activities used cash totaling $70,000 for the three months ended
March 31, 2002 and $118,000 for the same period in 2001. The Company's investing
activities that used cash during the period ended March 31, 2002 was for the
purchase of property and equipment.
9
Financing activities used cash totaling $3,528,000 for the three months
ended March 31, 2002, including the repayment of the line of credit and
long-term debt. Financing activities provided cash totaling $145,000 for the
same period in 2001.
The Company believes that it has available necessary cash for the next 12
months. Cash and the availability of cash, could be materially restricted if
circumstances prevent the timely internal processing of invoices into receivable
accounts, if such accounts are not collected within 90 days of the original
invoice date, or if project mix shifts from cost reimbursable to fixed costs
contracts during significant periods of growth.
If losses occur, IDS may not be able to meet the monthly fixed charge ratio
covenant of the Fleet Credit Facility. In that event, if IDS is unable to obtain
a waiver or amendment of the covenant, IDS may be unable to borrow under the
Credit Facility and may have to repay all loans then outstanding under the
Credit Facility.
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 $13,911,000 and
$14,908,000 at March 31, 2002 and December 31, 2001, respectively. The number of
days' sales outstanding in trade accounts receivable was 60 days and 79 days,
respectively.
PART II. Other Information
Item 1. Legal Proceedings
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. The Company is currently party to
legal proceedings that have been reserved for, are covered by insurance, or
that, if determined adversely to us individually or in the aggregate, would not
have a material affect on the Company's results of operations.
Two claims in the 60th District Court of Jefferson County, Texas and the
14th District Court of Parish of Calcasieu, Louisiana, respectively, that
involve alleged failure of contractual performance purportedly caused by faulty
design. If the Company is found to have any liability, it believes that such
liability would be covered by errors and omissions insurance, except for the
deductible which was accrued in a prior period. Both of these cases are in the
discovery phase. The Company believes that these lawsuits are without merit and
plans to vigorously defend itself in both lawsuits.
Item 2. Changes in Securities
None.
10
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Form 8-K
During the quarter ended March 31, 2002 the Company filed a report
on Form 8-K and a report on Form 8-K/A pertaining to the Merger with
Petrocon Engineering, Inc., as follows:
Form 8-K, Current Report of Unscheduled Material Events, filed on January
7, 2002, described the acquisition of Petrocon Engineering, Inc.
Form 8-K/A, Current Report of Unscheduled Material Events, filed on March
5, 2002, contained the audited balance sheets of the business acquired as
of December 31, 2000 and 1999 and the unaudited balance sheet as of
September 30, 2001 and the audited related statements of operations,
stockholders' equity (deficit) and cash flows for the three years ended
December 31, 2000, 1999 and 1998 and the unaudited statements of
operations, stockholders' equity (deficit) and cash flows for the nine
months ended September 30, 2001 and 2000. The Form 8-K/A also contained
unaudited Pro Forma Combined Financial Data for IDS giving effect to the
Merger.
b. Exhibits
None.
11
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: May 9, 2002 By: /s/ Robert W. Raiford
---------------------------------------------
Robert W. Raiford, Chief Financial Officer,
Treasurer, and Assistant Secretary
12