U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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: March 31, 2004
--------------
or
[ ] 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: 1-15087
-------
I.D. SYSTEMS, INC.
------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3270799
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE UNIVERSITY PLAZA, HACKENSACK, NEW JERSEY 07601
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 996-9000
--------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period) that the issuer 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Issuer's Common Stock, $0.01 par value,
as of the close of business on May 10, 2004 was 7,238,746.
INDEX
I.D. SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS. Page
----
Condensed Balance Sheets as of December 31, 2003
and March 31, 2004 (unaudited) 1
Condensed Statements of Operations (unaudited) -
for the three months ended March 31, 2003 and 2004 2
Condensed Statements of Cash Flows (unaudited) -
for the three months ended March 31, 2003 and 2004 3
Notes to Condensed Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
ITEM 3. CONTROLS AND PROCEDURES 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
I.D. SYSTEMS, INC.
CONDENSED BALANCE SHEETS
December 31, 2003 MARCH 31, 2004
(UNAUDITED)
----------------- --------------
ASSETS
Cash and cash equivalents $ 3,179,000 $ 2,975,000
Investments 3,339,000 3,371,000
Accounts receivable, net 2,204,000 3,054,000
Inventory 676,000 693,000
Investment in sales type leases 37,000 37,000
Interest receivable 75,000 83,000
Officer loan 10,000 10,000
Prepaid expenses and other current assets 129,000 98,000
------------ ------------
Total current assets 9,649,000 10,321,000
Investments 2,100,000 1,862,000
Fixed assets, net 845,000 861,000
Investment in sales type leases 73,000 64,000
Officer loan 31,000 28,000
Deferred contract costs 675,000 703,000
Other assets 97,000 87,000
------------ ------------
$ 13,470,000 $ 13,926,000
============ ============
LIABILITIES
Accounts payable and accrued expenses $ 1,055,000 $ 1,145,000
Long term debt - current portion 188,000 191,000
Line of credit 137,000 137,000
Deferred revenue 89,000 90,000
------------ ------------
Total current liabilities 1,469,000 1,563,000
Long term debt 648,000 599,000
Deferred revenue 285,000 263,000
Deferred rent 89,000 95,000
------------ ------------
2,491,000 2,520,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 5,000,000 shares, $.01 par value; none issued
Common stock; authorized 15,000,000 shares, $.01 par value; issued and
outstanding 7,097,000 shares and 7,231,000 shares 71,000 72,000
Additional paid-in capital 22,804,000 23,135,000
Treasury stock; 40,000 shares at cost (113,000) (113,000)
Accumulated deficit (11,783,000) (11,688,000)
------------ ------------
10,979,000 11,406,000
------------ ------------
$ 13,470,000 $ 13,926,000
============ ============
See accompanying notes 1
I.D. SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2003 2004
----------- -----------
Revenues $ 1,609,000 $ 2,705,000
Cost of Revenues 755,000 1,255,000
----------- -----------
Gross Profit 854,000 1,450,000
Selling, general and administrative expenses 1,083,000 1,273,000
Research and development expenses 232,000 155,000
----------- -----------
Income (loss) from operations (461,000) 22,000
Interest income 86,000 54,000
Interest expense (10,000) (18,000)
Other income -- 37,000
----------- -----------
NET INCOME (LOSS) $ (385,000) $ 95,000
=========== ===========
NET INCOME (LOSS) PER SHARE - BASIC $ (0.06) $ 0.01
=========== ===========
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.06) $ 0.01
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING- BASIC 6,804,000 7,170,000
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING- DILUTED 6,804,000 8,114,000
=========== ===========
See accompanying notes 2
I.D. SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2003 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (385,000) $ 95,000
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 13,000 59,000
Deferred rent expense 5,000 6,000
Deferred revenues (21,000)
Bad debt expense 2,000 --
Changes in:
Accounts receivable (148,000) (850,000)
Inventory 398,000 (17,000)
Prepaid expenses and other assets 77,000 41,000
Investment in sale type leases (500,000) 9,000
Installment receivable - non-current portion 49,000 --
Deferred contract costs (63,000) (28,000)
Accounts payable and accrued expenses (689,000) 90,000
----------- -----------
Net cash used in operating activities (1,241,000) (616,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (17,000) (75,000)
Purchases of investments (1,165,000) (386,000)
Increase in interest receivable (24,000) (8,000)
Maturities of investments 574,000 550,000
Amortization of (discount) premium on investments 38,000 42,000
Officer loan 2,000 3,000
----------- -----------
Net cash (used in) provided by investing activities (592,000) 126,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loan 1,000,000 --
Repayment of term loan (29,000) (46,000)
Proceeds from exercise of stock options 23,000 332,000
----------- -----------
Net cash provided by financing activities 994,000 286,000
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (839,000) (204,000)
Cash and cash equivalents - beginning of period 3,758,000 3,179,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,919,000 $ 2,975,000
=========== ===========
See accompanying notes 3
I.D. SYSTEMS, INC.
Notes to Condensed Financial Statements
March 31, 2004
NOTE A - BASIS OF REPORTING
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, such
statements include all adjustments (consisting only of normal recurring items)
which are considered necessary for a fair presentation of the financial position
of I.D. Systems, Inc. (the "Company") as of March 31, 2004, the results of its
operations for the three-month periods ended March 31, 2003 and 2004 and cash
flows for the three-month periods ended March 31, 2003 and 2004. The results of
operations for the three-month period ended March 31, 2004 are not necessarily
indicative of the operating results for the full year. It is suggested that
these financial statements be read in conjunction with the financial statements
and related disclosures for the year ended December 31, 2003 included in the
Company's Annual Report.
NOTE B - NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic income (loss) per share is based on the weighted average number of common
shares outstanding during each period. Diluted income (loss) per share reflects
the potential dilution assuming common shares were issued upon the exercise of
outstanding options and warrants and the proceeds thereof were used to purchase
outstanding common shares. For the three-month period ended March 31, 2003, the
basic and diluted weighted average shares outstanding are the same since the
effect from the potential exercise of outstanding stock options would have been
anti-dilutive.
NOTE C - REVENUE RECOGNITION
The Company's revenues are derived from contracts with multiple element
arrangements, which include the Company's system, training and technical
support. Revenues are recognized as each element is earned based on the relative
fair value of each element and when there are no undelivered elements that are
essential to the functionality of the delivered elements. The Company's system
is typically implemented by the customer or a third party and, as a result,
revenue is recognized when title passes to the customer, which usually is upon
delivery of the system, provided all other revenue recognition criteria are met.
Training and technical support revenues are generally recognized at time of
performance.
The Company also enters into post-contract maintenance and support agreements.
Revenue is recognized over the service period and the cost of providing these
services is expensed as incurred.
The Company also derives revenues under leasing arrangements. Such arrangements
provide for monthly payments covering the system sale, maintenance and interest.
These arrangements meet the criteria to be accounted for as sales-type leases
pursuant to Statement of Financial Accounting Standards No. 13, "Accounting for
Leases". Accordingly, the system sale is recognized upon delivery of the system,
provided all other revenue recognition criteria are met. Upon the recognition of
revenue, an asset is established for the "investment in sales-type leases".
Maintenance revenue and interest income are recognized monthly over the lease
term.
NOTE D - STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123,
4
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which was released in
December 2002 as an amendment of SFAS No. 123. The following table illustrates
the effect on net income and earnings per share if the fair value based method
had been applied to all awards.
THREE MONTHS ENDED MARCH 31,
---------------------------------
2003 2004
-------------- --------------
Reported net income (loss) $ (385,000) $ 95,000
Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects 0 0
Stock-based employee compensation determined under the
fair value based method, net of related tax effects (140,000) (295,000)
-------------- --------------
Pro forma net loss $ (525,000) $ (200,000)
============== ==============
Loss per share (basic and diluted):
As reported $(0.06) $0.01
============== ==============
Pro forma $(0.08) $(0.03)
============== ==============
NOTE E - LONG TERM DEBT
In January 2003, the Company closed on a five-year term loan for $1,000,000 with
a financial institution. Interest at the 30-day LIBOR plus 1.75% and principal
are payable monthly. To hedge the loan's floating interest expense the Company
entered into an interest rate swap contemporaneously with the closing of the
loan and fixed the rate of interest at 5.28% for the five-year term.
NOTE F - LINE OF CREDIT
The Company has a working capital line of credit, with maximum borrowings of
$500,000. Interest at the 30 day LIBOR Market Index Rate (1.2% at December 31,
2003) plus 1.75% is payable monthly. At March 31, 2004, the Company owed
$137,000 under this line of credit. Outstanding principal amounts are payable by
May 23, 2004.
NOTE G - DEFERRED CONTRACT COSTS
During 2003, the Company entered into a contract with a customer pursuant to
which the Company's system will be implemented on a portion of the customer's
fleet of vehicles. The Company will be entitled to issue sixty monthly invoices
of up to $40,000 per month, each of which is contingent upon certain conditions
being met. Costs directly attributable to this contract, consisting principally
of engineering and manufacturing costs, are being deferred until implementation
of the system is completed. The capitalized costs will be charged to cost of
revenue in accordance with the cost recovery method, pursuant to which the
capitalized contract costs will be reduced in each period by an amount equal to
the revenue recognized until all of the capitalized costs are written off. As of
March 31, 2004, the Company capitalized $703,000 of such contract costs and
expects to incur additional costs until the installation is complete. The
Company will continue to evaluate the carrying amount of the capitalized
contract costs for potential impairment.
NOTE H - CONCENTRATION OF CUSTOMERS
Three customers accounted for 45%, 20% and 16%, respectively, of the Company's
revenue during the three month period ended March 31, 2004. The same customers
accounted for 40%, 11% and 14%, respectively, of the Company's accounts
receivable as of March 31, 2004.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and results of
operations of I.D. Systems should be read in conjunction with I.D. Systems'
financial statements and notes thereto appearing elsewhere herein.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve a number of risks
and uncertainties. The following are among the factors that could cause actual
results to differ materially from the forward-looking statements: business
conditions and growth in the wireless tracking industries, general economic
conditions, lower than expected customer orders or variations in customer order
patterns, competitive factors including increased competition, changes in
product and service mix, and resource constraints encountered in developing new
products. The forward-looking statements contained in this MD&A regarding
industry trends, product development and liquidity and future business
activities should be considered in light of these factors.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue:
THREE MONTHS ENDED
MARCH 31,
2003 2004
------ ------
Revenues 100.0% 100.0%
Cost of Revenues 46.9 46.4
------ ------
Gross Profit 53.1 53.6
Selling, general and administrative expenses 67.3 47.1
Research and development expenses 14.4 5.7
------ ------
Income (loss) from operations (28.6) 0.8
Net interest income 4.7 1.3
Other Income -- 1.4
------ ------
NET INCOME (LOSS) (23.9)% 3.5%
------ ------
6
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
REVENUES. Revenues were $2,705,000 in the three months ended March 31, 2004
compared to $1,609,000 in the three months ended March 31, 2003. The increase in
revenues in the quarter ended March 31, 2004 is attributable primarily to
continued customer acceptance and market penetration of the Company's patented
Wireless Asset Net(TM) system for tracking and managing fleets of industrial
equipment.
COST OF REVENUES. Cost of revenues were $1,255,000 in the three months ended
March 31, 2004 compared to $755,000 in the three months ended March 31, 2003. As
a percentage of revenues, cost of revenues were 46.4% in the three months ended
March 31, 2004 as compared to 46.9% in the three months ended March 31, 2003.
Gross profit was $1,450,000 in the three months ended March 31, 2004 compared to
$854,000 in the three months ended March 31, 2003. As a percentage of revenues,
gross profit increased to 53.6% in the three months ended March 31, 2004 from
53.1% in the three months ended March 31, 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,273,000 in the three months ended March 31, 2004
compared to $1,083,000 in the three months ended March 31, 2003. This increase
was primarily attributable to an increase in sales and marketing and customer
service, payroll expenses. As a percentage of revenues, selling, general and
administrative expenses decreased to 47.1% in the three months ended March 31,
2004 from 67.3% in the three months ended March 31, 2003 as a result of the
increase in revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$155,000 in the three months ended March 31, 2004 compared to $232,000 in the
three months ended March 31, 2003. This decrease was attributable to the fact
that an increased percentage of the Company's research and development expenses
for the period ended March 31, 2004 were funded by a customer. That portion is
included in cost of sales for the period ended March 31, 2004. As a percentage
of revenues, research and development expenses decreased to 5.7% in the three
months ended March 31, 2004 from 14.4% in the three months ended March 31, 2003.
NET INTEREST INCOME AND EXPENSE.
Interest income was $54,000 in the three months ended March 31, 2004 as compared
to $86,000 in the three months ended March 31, 2003. This decrease is
attributable to the assignment of certain sales type leases to a third-party
leasing company. During the three month period ended March 31, 2003, the Company
earned interest income in connection with sales type lease arrangements. The
Company invests in investment grade commercial paper and corporate bonds, which
are classified as held to maturity.
Interest expense was $18,000 in the three months ended March 31, 2004 as
compared to $10,000 in the three months ended March 31, 2003. This increase is
attributable to the Company's working capital line of credit and its five-year
term loan.
OTHER INCOME. Other income of $37,000 in the three-month period ended March 31,
2004 reflects rental income from a sublease arrangement.
NET INCOME (LOSS). Net income was $95,000 in the three months ended March 31,
2004 as compared to net loss of $385,000 in the three-month period ended March
31, 2003. This was due primarily to the reasons described above.
7
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, the Company had $8,208,000 of cash, cash equivalents and
investments and $8,758,000 of working capital as compared to $8,618,000 and
$8,180,000, respectively, at December 31, 2003.
Net cash used in operating activities for the three months ended March 31, 2004
was $616,000 as compared to net cash used in operating activities of $1,241,000
for the three months ended March 31, 2003. Net cash used in operating activities
in the three months ended March 31, 2004 was due to an increase in accounts
receivable of $850,000 offset by net income of $95,000, depreciation and
amortization of $59,000 and an increase in accounts payable and accrued expenses
of $90,000. Net cash used in operating activities in the three months ended
March 31, 2003 was due to a net loss of $385,000, an increase in accounts
receivable of $148,000, an increase in investment in sales type leases of
$500,000 and a decrease in accounts payable and accrued expenses of $689,000,
offset by a decrease in inventory of $398,000.
Net cash provided by investing activities for the three months ended March 31,
2004 was $126,000 as compared to net cash used in investing activities for the
three months ended March 31, 2003 of $592,000. Net cash provided by investing
activities in the three months ended March 31, 2004 was primarily from
maturities of investments of $550,000 partially offset by purchases of
investments of $386,000 and purchases of fixed assets of $75,000. Net cash used
in investing activities in the three months ended March 31, 2003 was primarily
from purchases of investments of $1,165,000 partially offset by maturities of
investments of $574,000.
Net cash provided by financing activities for the three months ended March 31,
2004 was $286,000 as compared to net cash provided by financing activities of
$994,000 for the three months ended March 31, 2003. Net cash provided by
financing activities in the three months ended March 31, 2004 was from the
proceeds received in connection with the exercise of employee stock options of
$332,000, offset by repayments of the five-year term loan of $46,000. Net cash
provided by financing activities in the three months ended March 31, 2003 was
from the proceeds of $1,000,000 received in connection with obtaining a
five-year term loan, partially offset by repayments of the five-year term loan
of $29,000.
The Company believes it has sufficient cash, cash equivalents and investments
for the next twelve months of operations.
The Company believes its operations have not been and, in the foreseeable
future, will not be materially adversely affected by inflation or changing
prices.
RECENTLY ISSUED FINANCIAL STANDARDS
The Company believes that recently issued financial standards will not have a
significant impact on our results of operations, financial position or cash
flows.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our principal executive officer and the principal financial officer,
the Company conducted an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end
of the period covered by this report (the "Evaluation Date"). Based on this
evaluation, the Company's principal executive officer and principal financial
officer concluded as of the Evaluation Date that the Company's disclosure
controls and procedures were effective such that the material information
required to be included in our Securities and Exchange Commission ("SEC")
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to the Company.
8
Additionally, there were no significant changes in the Company's internal
control over financial reporting or in other factors that occurred during this
quarter that could materially affect, or is reasonably likely to materially
affect the Company's internal control over financial reporting. We have not
identified any significant deficiencies or material weaknesses in our internal
control over financial reporting, and therefore there were no corrective actions
taken.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 2004.
9
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
I.D. Systems, Inc.
Dated: May 10, 2004 By: /s/ Jeffrey M. Jagid
---------------------------------------
Jeffrey M. Jagid
Chief Executive Officer
(Principal Executive Officer)
Dated: May 10, 2004 By: /s/ Ned Mavrommatis
---------------------------------------
Ned Mavrommatis
Chief Financial Officer
(Principal Financial Officer)
10