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: June 30, 2002
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 or incorporation (I.R.S. Employer
or organization) Identification No)
One University Plaza, Hackensack, New Jersey 07601
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 670-9000
--------------
(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 X No _
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's Common Stock, $0.01 par
value, as of the close of business on August 8, 2002 was 6,798,722.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Condensed Financial Statements. . . . . . . . . . . . . . . . 3
Condensed Balance Sheets as of December 31, 2001
and June 30, 2002 (unaudited) . . . . . . . . . . . . . 3
Condensed Statements of Operations (unaudited) for the three
months and six months ended June 30, 2001 and 2002. . . 4
Condensed Statements of Cash Flows (unaudited) for the six
months ended June 30, 2001 and 2002 . . . . . . . . . . 5
Notes to Unaudited Condensed Financial Statements. . . . . . . . .6
Item 2. Management's Discussion And Analysis. . . . . . . . . . . . . 7
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
I.D. Systems, Inc.
Condensed Balance Sheets
June 30,2002
December 31, 2001 (Unaudited)
----------------- ------------
Assets
Cash and cash equivalents $ 2,426,000 $ 4,986,000
Investments 3,039,000 2,237,000
Accounts receivable 234,000 622,000
Inventory 844,000 1,036,000
Investment in sales type leases 64,000
Prepaid expenses and other current assets 111,000 229,000
----------- -----------
Total current assets 6,654,000 9,174,000
Investments 2,586,000
Fixed assets, net 540,000 576,000
Investment in sales type leases 226,000
Other assets 117,000 153,000
----------- -----------
$ 7,311,000 $ 12,715,000
=========== ============
Liabilities
Accounts payable and accrued expenses $ 574,000 $ 772,000
Capital lease obligations 10,000 4,000
Other current liabilities 100,000 100,000
----------- -----------
Total current liabilities 684,000 876,000
Deferred rent 42,000 54,000
Other liabilities 100,000 50,000
----------- -----------
826,000 980,000
----------- -----------
Stockholders' equity
Preferred Stock; authorized 5,000,000 shares, $0.01
par value; none issued
Common Stock, authorized 15,000,000 shares,
$0.01 par value; issued and outstanding 5,866,000
shares and 6,799,000 shares, respectively 59,000 68,000
Additional paid in capital 15,739,000 22,042,000
Treasury stock; 40,178 shares at cost (113,000) (113,000)
Accumulated deficit (9,200,000) (10,262,000)
----------- -----------
6,485,000 11,735,000
----------- -----------
$ 7,311,000 $ 12,715,000
=========== ============
See Accompanying Notes
3
I.D. Systems, Inc.
Condensed Statements of Operations
(Unaudited)
Three months ended June 30, Six months ended June 30,
2001 2002 2001 2002
---------- --------- ----------- -----------
Revenues $ 137,000 $1,178,000 $ 424,000 $ 2,009,000
Cost of Revenues 99,000 593,000 245,000 968,000
---------- --------- ----------- -----------
Gross Profit 38,000 585,000 179,000 1,041,000
Selling, general and administrative expenses 765,000 814,000 1,536,000 1,697,000
Research and development expenses 271,000 271,000 587,000 551,000
---------- --------- ----------- -----------
Loss from operations (998,000) (500,000) (1,944,000) (1,207,000)
Interest income 80,000 95,000 197,000 146,000
Interest expense (1,000) (2,000) (1,000)
---------- --------- ----------- -----------
Net loss $ (919,000) $ (405,000) $(1,749,000) $(1,062,000)
=========== ========= ============ ============
Net loss per share - basic and diluted $ (0.16) $ (0.06) $ (0.30) $ (0.16)
=========== ========= ============ ============
Weghted average common shares
outstanding - basic and diluted loss per
share 5,838,000 6,797,000 5,829,000 6,622,000
=========== ========= =========== ===========
See Accompanying Notes
4
I.D. Systems, Inc.
Condensed Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
2001 2002
----------- -----------
Cash flows from operating activities:
Net loss $(1,749,000) $(1,062,000)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 80,000 91,000
Deferred rent expense 12,000 12,000
Changes in:
Accounts receivable 28,000 (388,000)
Unbilled receivables 253,000
Inventory (123,000) (192,000)
Prepaid expenses and other assets 45,000 (154,000)
Investment in sales type leases (290,000)
Other liabilities (50,000)
Income taxes payable (8,000)
Accounts payable (554,000) 198,000
----------- -----------
Net cash used in operating activities (2,016,000) (1,835,000)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (7,000) (127,000)
Purchase of investments (6,245,000) (4,702,000)
Accrued interest receivable (87,000)
Maturities of investments 8,158,000 3,039,000
Amortization of (discount) premium on investments (25,000) (34,000)
----------- -----------
Net cash provided by (used in) investing activities 1,881,000 (1,911,000)
----------- -----------
Cash flows from financing activities:
Payment of lease obligations (7,000) (6,000)
Proceeds from exercise of stock options 22,000 169,000
Net proceeds from private placement 6,143,000
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Net cash provided by financing activities 15,000 6,306,000
----------- -----------
Net (decrease) increase in cash and cash equivalents (120,000) 2,560,000
Cash and cash equivalents - beginning of period 3,085,000 2,426,000
----------- -----------
Cash and cash equivalents - end of period $ 2,965,000 $ 4,986,000
=========== ===========
5
See Accompanying Notes
I.D. Systems, Inc.
Notes to Unaudited Condensed Financial Statements
June 30, 2002
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 June 30, 2002, the results of its
operations for the three-month and six-month periods ended June 30, 2001 and
2002 and cash flows for the six-month periods ended June 30, 2001 and 2002. The
results of operations for the three-month and six-month periods ended June 30,
2002 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,
2001 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 and six-month periods
ended June 30, 2001 and 2002, 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 - Private Placement
In January 2002, the Company sold 821,250 shares of common stock and received
net proceeds of approximately $6,143,000.
Warrants to purchase 107,125 shares of common stock were issued to the placement
agent and a finder. The warrants are exercisable for a period of five years,
commencing in January 2002, at a price of $9.58 per share.
NOTE D - Sales Type Leases
During the quarter ended June 30, 2002 the Company began deriving revenues under
leasing arrangements. Such arrangements provide for monthly payments covering
the product cost, maintenance and interest. These arrangements meet the criteria
to be accounted for as sales-type leases. Accordingly, revenue for the product
cost is recognized when products are shipped, and if required by contract,
6
implemented. Upon the recognition of revenue, an asset is established which is
classified as an "investment in sales-type leases". Maintenance revenue and
interest income are recognized monthly over the lease term. The Company
recognized $290,000 of product revenues during the quarter ended June 30, 2002
pursuant to such arrangements.
ITEM 2. Management's Discussion And Analysis
The following discussion and analysis of the Company's financial condition and
results of operations of I.D. Systems should be read in conjunction with I.D.
Systems' condensed 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 Six months ended
June 30, June 30,
2001 2002 2001 2002
------- ------- -------- -------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 72.3 50.3 57.8 48.2
------- ------- -------- -------
Gross Profit 27.7 49.7 42.2 51.8
Selling, general and administrative expenses 558.4 69.1 362.3 84.5
Research and development expenses 197.8 23.0 138.4 27.4
------- ------- -------- -------
Loss from operations (728.5) (42.4) (458.5) (60.1)
Net interest income 57.7 8.0 46.0 7.2
------- ------- -------- -------
Net loss (670.8)% (34.4)% (412.5)% (52.9)%
------- ------- -------- -------
7
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
REVENUES. Revenues were $1,178,000 in the three months ended June 30, 2002 as
compared to $137,000 in the three months ended June 30, 2001. The increase in
revenues in the three-month period is due to customers beginning to transition
from successful pilot programs of the Company's fleet tracking and management
system to larger production-scale orders. On July 31, 2002 the Company had order
backlog of approximately $3,200,000.
COST OF REVENUES. Cost of revenues were $593,000 in the three months ended June
30, 2002 as compared to $99,000 in the three months ended June 30, 2001. As a
percentage of revenues, cost of revenues were 50.3% in the three months ended
June 30, 2002 as compared to 72.3% in the three months ended June 30, 2001. This
percentage decrease was primarily attributable to the increase in revenues and
certain fixed production costs incurred in 2001. The Company began fully
outsourcing its production in 2002. Gross profit was $585,000 in the three
months ended June 30, 2002 compared to $38,000 in the three months ended June
30, 2001. As a percentage of revenues, gross profit increased to 49.7% in the
three months ended June 30, 2002 from 27.7% in the three months ended June 30,
2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $814,000 in the three months ended June 30, 2002 as
compared to $765,000 in the three months ended June 30, 2001. This increase was
attributable to increased payroll expenses associated with sales and marketing.
As a percentage of revenues, selling, general and administrative expenses
decreased to 69.1% in the three months ended June 30, 2002 from 558.4% in the
three months ended June 30, 2001.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$271,000 in the three months ended June 30, 2002 and $271,000 in the three
months ended June 30, 2001. As a percentage of revenues, research and
development expenses decreased to 23.0% in the three months ended June 30, 2002
from 197.8% in the three months ended June 30, 2001.
INTEREST INCOME AND EXPENSE. Interest income was $95,000 in the three months
ended June 30, 2002 as compared to $80,000 in the three months ended June 30,
2001. This increase was attributable to larger average cash, cash equivalents
and short-term investment balances in the three months ended June 30, 2002 as
compared to the three months ended June 30, 2001. In addition, the Company
earned interest income in connection with sales type lease arrangements in the
three months ended June 30, 2002.
Interest expense was $1,000 in the three months ended June 30, 2001.
NET LOSS. Net loss was $405,000 in the three months ended June 30, 2002 as
compared to net loss of $919,000 in the three-months ended June 30, 2001. This
was due primarily to the reasons described above.
8
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
REVENUES. Revenues were $2,009,000 in the six months ended June 30, 2002 as
compared to $424,000 in the six months ended June 30, 2001. The increase in
revenues in the six-month period is due to customers beginning to transition
from successful pilot programs of the Company's fleet tracking and management
system to larger production-scale orders. On July 31, 2002 the Company had order
backlog of approximately $3,200,000.
COST OF REVENUES. Cost of revenues were $968,000 in the six months ended June
30, 2002 as compared to $245,000 in the six months ended June 30, 2001. As a
percentage of revenues, cost of revenues were 48.2% in the six months ended June
30, 2002 as compared to 57.8% in the six months ended June 30, 2001. This
percentage decrease was primarily attributable to the increase in revenues and
certain fixed production costs incurred in 2001. The Company began fully
outsourcing its production in 2002. Gross profit was $1,041,000 in the six
months ended June 30, 2002 compared to $179,000 in the six months ended June 30,
2001. As a percentage of revenues, gross profit increased to 51.8% in the six
months ended June 30, 2002 from 42.2% in the six months ended June 30, 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,697,000 in the six months ended June 30, 2002 as
compared to $1,536,000 in the six months ended June 30, 2001. This increase was
attributable to increased payroll expenses associated with sales and marketing.
As a percentage of revenues, selling, general and administrative expenses
decreased to 84.5% in the six months ended June 30, 2002 from 362.3% in the six
months ended June 30, 2001.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$551,000 in the six months ended June 30, 2002 as compared to $587,000 in the
six months ended June 30, 2001. As a percentage of revenues, research and
development expenses decreased to 27.4% in the six months ended June 30, 2002
from 138.4% in the six months ended June 30, 2001.
INTEREST INCOME AND EXPENSE. Interest income was $146,000 in the six months
ended June 30, 2002 as compared to $197,000 in the six months ended June 30,
2001. This decrease was attributable to the reduction of interest rates. The
Company invests in commercial paper and corporate bonds, which are classified as
held to maturity. In addition, the Company earned interest income in connection
with sales type lease arrangements in the six months ended June 30, 2002.
Interest expense was $1,000 in the six months ended June 30, 2002 as compared to
$2,000 in the six months ended June 30, 2001.
NET LOSS. Net loss was $1,062,000 in the six months ended June 30, 2002 as
compared to net loss of $1,749,000 in the six-months ended June 30, 2001. This
was due primarily to the reasons described above.
9
Liquidity and Capital Resources
As of June 30, 2002, the Company had $9,809,000 of cash, cash equivalents and
investments and $8,298,000 of working capital as compared to $5,465,000 and
$5,970,000, respectively, at December 31, 2001.
Net cash used in operating activities was $1,835,000 for the six months ended
June 30, 2002 as compared to net cash used in operating activities of $2,016,000
for the six months ended June 30, 2001. Net cash used in operating activities in
the six months ended June 30, 2002 was primarily due to the net loss of
$1,062,000, an increase in accounts receivable of $388,000, an increase in
investments in sales type leases of $290,000, an increase in inventory of
$192,000 and an increase in prepaid expenses and other assets of $154,000,
partially offset by an increase in accounts payable of $198,000. Net cash used
in operating activities in the six months ended June 30, 2001 was primarily due
to the net loss of $1,749,000, an increase in inventory of $123,000 and a
decrease in accounts payable of $554,000, partially offset by a decrease in
accounts and unbilled receivables of $281,000. In 2002 the Company began
deriving revenue under sales type lease arrangements and expects to derive
additional revenue under similar arrangements in the future.
Net cash used in investing activities for the six months ended June 30, 2002 was
$1,911,000 as compared to cash provided by investing activities of $1,881,000
for the six months ended June 30, 2001. The cash used in investing activities in
the six months ended June 30, 2002 was for the purchase of investments of
$4,702,000 and the purchase of fixed assets of $127,000, offset by maturities of
investments of $3,039,000. The cash provided by investing activities in the six
months ended June 30, 2001 was primarily from maturities of short-term
investments of $8,158,000, partially offset by the purchase of investments of
$6,245,000.
Net cash provided by financing activities for the six months ended June 30, 2002
was $6,306,000 as compared to cash provided by financing activities of $15,000
for the six months ended June 30, 2001. The net cash provided by financing
activities in the six months ended June 30, 2002 was from the proceeds of
$6,143,000 received in connection with the sale of 821,250 shares of common
stock and $169,000 received form proceeds from exercise of employee stock
options, offset by $6,000 paid for capital lease obligations. The net cash
provided by financing activities for the six months ended June 30, 2001,
reflects $22,000 of proceeds received from exercise of employee stock options.
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.
10
PART II - OTHER INFORMATION
ITEM 3. Exhibits and Reports on Form 8-K
Exhibits:
99 - Certification 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 June 30, 2002.
Signatures
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.
I.D. Systems, Inc.
Dated: August 1, 2002 By: /s/ Jeffrey M. Jagid
----------------------------------
Jeffrey M. Jagid
Chief Executive Officer
(Principal Executive Officer)
Dated: August 1, 2002 By: /s/ Ned Mavrommatis
---------------------------------
Ned Mavrommatis
Chief Financial Officer
(Principal Accounting Officer)
11