-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBJ0cgUwzy1QSxCEB1Det1WhfYETJurMKcEKY2wcOHHunHthAyZcdFwF/lOBVrnu DDLwbnVF6TcbbhWa+3rs6g== 0001144204-04-011846.txt : 20040813 0001144204-04-011846.hdr.sgml : 20040813 20040813153520 ACCESSION NUMBER: 0001144204-04-011846 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ID SYSTEMS INC CENTRAL INDEX KEY: 0000049615 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 223270799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-15087 FILM NUMBER: 04974132 BUSINESS ADDRESS: STREET 1: ONE UNIVERSITY PLAZA CITY: HACKENSACK STATE: NJ ZIP: 07601 BUSINESS PHONE: 2016709000 MAIL ADDRESS: STREET 1: ID SYSTEMS INC STREET 2: ONE UNIVERSITY PLAZA CITY: HACKENSACK STATE: NJ ZIP: 07601 10QSB 1 form10qsb.txt 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, 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 August 1, 2004 was 7,594,755. INDEX I.D. SYSTEMS, INC.
PART I - FINANCIAL INFORMATION.................................................................................................1 Item 1. Condensed Financial Statements............................................................................1 Condensed Balance Sheets as of December 31, 2003 and June 30, 2004 (unaudited)............................1 Condensed Statement of Operations (unaudited) for the three months and six months ended June 30, 2003 and 2004.............................................................................................2 Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2003 and 2004............3 Notes to Condensed Financial Statements...................................................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................7 Item 3. Controls And Procedures..................................................................................10 PART II - OTHER INFORMATION...................................................................................................11 Item 6. Exhibits and Reports on Form 8-K.........................................................................11 Signatures ........................................................................................................12
PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS I.D. SYSTEMS, INC. CONDENSED BALANCE SHEETS
JUNE 30, 2004 December 31, 2003 (UNAUDITED) --------------------- --------------------- ASSETS Cash and cash equivalents $ 3,179,000 $ 4,705,000 Short-term investments 3,339,000 2,881,000 Accounts receivable 2,204,000 2,498,000 Unbilled receivables -- 983,000 Inventory 676,000 1,242,000 Investment in sales type leases 37,000 38,000 Interest receivable 75,000 73,000 Officer loan 10,000 10,000 Prepaid expenses and other current assets 129,000 30,000 --------------------- --------------------- Total current assets 9,649,000 12,460,000 Long-term investments 2,100,000 1,815,000 Fixed assets, net 845,000 905,000 Investment in sales type leases 73,000 54,000 Officer loan 31,000 26,000 Deferred contract costs 675,000 670,000 Other assets 97,000 86,000 --------------------- --------------------- $ 13,470,000 $ 16,016,000 ===================== ===================== LIABILITIES Accounts payable and accrued expenses $ 1,055,000 $ 1,645,000 Long term debt - current portion 188,000 193,000 Line of credit 137,000 137,000 Deferred revenue 89,000 92,000 --------------------- --------------------- Total current liabilities 1,469,000 2,066,000 Long term debt 648,000 550,000 Deferred revenue 285,000 239,000 Deferred rent 89,000 100,000 --------------------- --------------------- 2,491,000 2,956,000 --------------------- --------------------- 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 7,595,000 shares 71,000 76,000 Additional paid-in capital 22,804,000 24,545,000 Treasury stock; 40,000 shares at cost (113,000) (113,000) Accumulated deficit (11,783,000) (11,448,000) ---------------------- --------------------- 10,979,000 13,060,000 --------------------- --------------------- $ 13,470,000 $ 16,016,000 ===================== =====================
See accompanying notes 1 I.D. SYSTEMS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- ----------------------------------- 2003 2004 2003 2004 --------------- --------------- --------------- --------------- Revenues $ 2,125,000 $ 3,764,000 $ 3,734,000 $ 6,469,000 Cost of Revenues 1,076,000 1,867,000 1,831,000 3,122,000 --------------- --------------- --------------- --------------- Gross Profit 1,049,000 1,897,000 1,903,000 3,347,000 Selling, general and administrative expenses 1,105,000 1,434,000 2,188,000 2,707,000 Research and development expenses 219,000 283,000 451,000 438,000 --------------- --------------- --------------- --------------- Income (loss) from operations (275,000) 180,000 (736,000) 202,000 Interest income 79,000 40,000 165,000 94,000 Interest expense (15,000) (15,000) (25,000) (33,000) Other income -- 37,000 -- 74,000 --------------- --------------- --------------- --------------- NET INCOME (LOSS) $ (211,000) $ 242,000 $ (596,000) $ 337,000 =============== =============== =============== =============== NET INCOME (LOSS) PER SHARE - BASIC $ (0.03) $ 0.03 $ (0.09) $ 0.05 =============== =============== =============== =============== NET INCOME (LOSS) PER SHARE - DILUTED $ (0.03) $ 0.03 $ (0.09) $ 0.04 =============== =============== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 6,833,000 7,335,000 6,819,000 7,253,000 =============== =============== =============== =============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 6,833,000 8,634,000 6,819,000 8,374,000 =============== =============== =============== ===============
See accompanying notes 2 I.D. SYSTEMS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------------------------------- 2003 2004 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (596,000) $ 337,000 Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 59,000 125,000 Deferred rent expense 11,000 11,000 Deferred revenue 176,000 (43,000) Bad debt expense 2,000 -- Deferred contract costs (121,000) 5,000 Changes in: Accounts receivable (721,000) (294,000) Unbilled receivables (449,000) (983,000) Inventory 560,000 (568,000) Prepaid expenses and other assets (62,000) 110,000 Investment in sales type leases 570,000 18,000 Installment receivable - non-current portion 82,000 -- Other liabilities (50,000) -- Accounts payable and accrued expenses 60,000 590,000 ------------------ ------------------ Net cash used in operating activities (479,000) (692,000) ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (36,000) (185,000) Purchase of investments (2,582,000) (487,000) Decrease (increase) in interest receivable (31,000) 2,000 Maturities of investments 1,424,000 1,106,000 Amortization of premium on investments 94,000 124,000 Collection of officer loan 5,000 5,000 ------------------ ------------------ Net cash (used in) provided by investing activities (1,126,000) 565,000 ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from term loan 1,000,000 -- Repayment of term loan (74,000) (93,000) Proceeds from exercise of stock options 185,000 721,000 Proceeds from exercise of warrants -- 1,025,000 ------------------ ------------------ Net cash provided by financing activities 1,111,000 1,653,000 ------------------ ------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (494,000) 1,526,000 Cash and cash equivalents - beginning of period 3,758,000 3,179,000 ------------------ ------------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,264,000 $ 4,705,000 ================== ==================
See accompanying notes 3 I.D. SYSTEMS, INC. Notes to Condensed Financial Statements June 30, 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 June 30, 2004, the results of its operations for the three-month and six-month periods ended June 30, 2003 and 2004 and cash flows for the six-month periods ended June 30, 2003 and 2004. The results of operations for the three-month and six-month periods ended June 30, 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 to Stockholders. NOTE B - EARNINGS (LOSS) PER SHARE OF COMMON STOCK Earnings (loss) per share for the three months and six months ended June 30, 2004 and 2003 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------- ----------------------------------- 2003 2004 2003 2004 --------------- -------------- --------------- -------------- BASIC EARNINGS (LOSS) PER SHARE Net income (loss) $ (211,000) $ 242,000 $ (596,000) $ 337,000 -------------- -------------- -------------- -------------- Weighted average shares outstanding 6,833,000 7,335,000 6,819,000 7,253,000 -------------- -------------- -------------- -------------- Basic earnings (loss) per share $ (0.03) $ 0.03 $ (0.09) $ 0.05 ============== ============== ============== ============== DILUTED EARNINGS (LOSS) PER SHARE Net income (loss) $ (211,000) $ 242,000 $ (596,000) $ 337,000 -------------- -------------- -------------- -------------- Weighted average shares outstanding 6,833,000 7,335,000 6,819,000 7,253,000 -------------- -------------- -------------- -------------- Dilutive effect of stock options 0 1,299,000 0 1,121,000 -------------- -------------- --------------- -------------- Weighted average shares outstanding, diluted 6,833,000 8,634,000 6,819,000 8,374,000 -------------- -------------- --------------- -------------- Diluted earnings (loss) per share $ (0.03) $ 0.03 $ (0.09) $ 0.04 ============== ============== ============== ==============
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, 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. 4 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, "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 (loss) and earnings (loss) per share if the fair value based method had been applied to all awards.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------- ---------------------------------- 2003 2004 2003 2004 ---------------- ---------------- ---------------- ---------------- Reported net income (loss) $ (211,000) $ 242,000 $ (596,000) $ 337,000 Stock-based employee compensation determined under the fair value based method, net of related tax effects (209,000) (307,000) (443,000) (602,000) --------------- --------------- --------------- --------------- Pro forma net loss $ (420,000) $ (65,000) $ (1,039,000) $ (265,000) =============== =============== =============== =============== Income (loss) per share - basic As reported $ (0.03) $ 0.03 $ (0.09) $ 0.05 =============== =============== =============== =============== Pro forma $ (0.06) $ (0.01) $ (0.15) $ (0.04) =============== =============== =============== =============== Income (loss) per share - diluted As reported $ (0.03) $ 0.03 $ (0.09) $ 0.04 =============== =============== =============== =============== Pro forma $ (0.06) $ (0.01) $ (0.15) $ (0.04) =============== =============== =============== ===============
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. The loan is secured by all the assets of the Company. The fair value of the interest rate swap is not material to the financial statements or results of operations. 5 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 plus 1.75% is payable monthly. At June 30, 2004, the Company owed $137,000 under this line of credit and the interest rate was 3.08%. 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 June 30, 2004, the Company capitalized $830,000 of such contract costs and amortized $160,000 of such costs. The implementation of the system is substantially completed and additional contract costs are not anticipated to be significant. 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 40%, 26% and 11%, respectively, of the Company's revenue during the six month period ended June 30, 2004. The same customers accounted for 32%, 36% and 3%, respectively, of the Company's accounts and unbilled receivable as of June 30, 2004. NOTE I - UNBILLED RECEIVABLES In accordance with a contractual arrangement with one customer, the Company is not able to invoice for systems delivered until the entire number of systems covered under the purchase ordered are delivered. As the systems are delivered and all of the criteria for revenue recognition are satisfied, the Company recognizes revenue and records an unbilled receivable for the delivered systems. Once all the systems covered under the specific purchase order are delivered then the Company invoices the customer for the entire amount. At June 30, 2004 unbilled receivables were $983,000. 6 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, ------------------------- ----------------------- 2003 2004 2003 2004 --------- --------- --------- --------- Revenues 100.0% 100.0% 100.0% 100.0% Cost of Revenues 50.6 49.6 49.0 48.3 --------- --------- --------- --------- Gross Profit 49.4 50.4 51.0 51.7 Selling, general and administrative expenses 52.0 38.1 58.6 41.8 Research and development expenses 10.3 7.5 12.1 6.8 --------- --------- --------- --------- Income (loss) from operations (12.9) 4.8 (19.7) 3.1 Net interest income 3.0 0.6 3.7 0.9 Other income -- 1.0 -- 1.1 --------- --------- --------- --------- NET INCOME (LOSS) (9.9)% 6.4% (16.0)% 5.1% --------- --------- --------- ---------
7 THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003 REVENUES. Revenues were $3,764,000 in the three months ended June 30, 2004 compared to $2,125,000 in the three months ended June 30, 2003. The increase in revenues in the three-month period is attributable primarily to continued customer acceptance and market penetration of the Company's Wireless Asset Net system for tracking and managing fleets of industrial equipment. Included in revenues in the three months ended June 30, 2004 is $120,000 of revenue related to the contract described in Note G. COST OF REVENUES. Cost of revenues were $1,867,000 in the three months ended June 30, 2004 compared to $1,076,000 in the three months ended June 30, 2003. As a percentage of revenues, cost of revenues were 49.6% in the three months ended June 30, 2004 compared to 50.6% in the three months ended June 30, 2003. This decrease resulted from cost reductions to the hardware component of the Company's system. Gross profit was $1,897,000 in the three months ended June 30, 2004 compared to $1,049,000 in the three months ended June 30, 2003. As a percentage of revenues, gross profit increased to 50.4% in the three months ended June 30, 2004 from 49.4% in the three months ended June 30, 2003. Included in costs of revenues in the three months ended June 30, 2004 is $120,000 of amortized capitalized costs associated with the contract described in Note G. In accordance with the cost recovery method, the capitalized contract costs were reduced by the same amount equal to the revenue recognized in the period. Excluding the amortization of the deferred contract costs of $120,000 for the three months ended June 30, 2004, gross profit as a percentage of revenues was 52.1% in comparison 49.4% in the three months ended June 30, 2003. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $1,434,000 in the three months ended June 30, 2004 compared to $1,105,000 in the three months ended June 30, 2003. This increase was primarily attributable to increased sales, marketing and customer service payroll expenses. As a percentage of revenues, however, selling, general and administrative expenses decreased to 38.1% in the three months ended June 30, 2004 from 52.0% in the three months ended June 30, 2003 as a result of an increase in revenue. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were $283,000 in the three months ended June 30, 2004 compared to $219,000 in the three months ended June 30, 2003. As a percentage of revenues, however, research and development expenses decreased to 7.5% in the three months ended June 30, 2004 from 10.3% in the three months ended June 30, 2003 as a result of an increase in revenue. NET INTEREST INCOME AND EXPENSE. Interest income was $40,000 in the three months ended June 30, 2004 compared to $79,000 in the three months ended June 30, 2003. This decrease was attributable to the assignment of certain sales type leases to a third-party leasing company. During the three month period ended June 30, 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 $15,000 in the three months ended June 30, 2004 compared to $15,000 in the three months ended June 30, 2003. OTHER INCOME. Other income of $37,000 in the three-month period ended June 30, 2004 reflects rental income from a sublease arrangement. NET INCOME (LOSS). Net income was $242,000, or $0.03 per diluted share, in the three months ended June 30, 2004 compared to a net loss of $211,000, or $(0.03) per diluted share, in the three months ended June 30, 2003. This was due primarily to the reasons described above. 8 SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 REVENUES. Revenues were $6,469,000 in the six months ended June 30, 2004 compared to $3,734,000 in the six months ended June 30, 2003. The increase in revenues in the six-month period is attributable primarily to continued customer acceptance and market penetration of the Company's Wireless Asset Net system for tracking and managing fleets of industrial equipment. Included in revenues in the six months ended June 30, 2004 is $160,000 of revenue related to the contract described in Note G. COST OF REVENUES. Cost of revenues were $3,122,000 in the six months ended June 30, 2004 compared to $1,831,000 in the six months ended June 30, 2003. As a percentage of revenues, cost of revenues were 48.3% in the six months ended June 30, 2004 as compared to 49.0% in the six months ended June 30, 2003. This decrease resulted from cost reductions to the hardware component of the Company's system. Gross profit was $3,347,000 in the six months ended June 30, 2004 compared to $1,903,000 in the six months ended June 30, 2003. As a percentage of revenues, gross profit increased to 51.7% in the six months ended June 30, 2004 from 51.0% in the six months ended June 30, 2003. Included in costs of revenues in the six months ended June 30, 2004 is $160,000 of amortized capitalized costs associated with the contract described in Note G. In accordance with the cost recovery method, the capitalized contract costs were reduced by the same amount equal to the revenue recognized in the period. Excluding the amortization of the deferred contract costs of $160,000 for the six months ended June 30, 2004, gross profit as a percentage of revenues was 53.1% in comparison 51.0% in the six months ended June 30, 2003. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $2,707,000 in the six months ended June 30, 2004 compared to $2,188,000 in the six months ended June 30, 2003. This increase was primarily attributable to increased sales, marketing and customer service payroll expenses. As a percentage of revenues, however, selling, general and administrative expenses decreased to 41.8% in the six months ended June 30, 2004 from 58.6% in the six months ended June 30, 2003 as a result of an increase in revenues. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were $438,000 in the six months ended June 30, 2004 compared to $451,000 in the six months ended June 30, 2003. As a percentage of revenues, however, research and development expenses decreased to 6.8% in the six months ended June 30, 2004 from 12.1% in the six months ended June 30, 2003 as a result of an increase in revenues. NET INTEREST INCOME AND EXPENSE. Interest income was $94,000 in the six months ended June 30, 2004 compared to $165,000 in the six months ended June 30, 2003. This decrease was attributable to the assignment of certain sales type leases to a third-party leasing company. During the six month period ended June 30, 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 $33,000 in the six months ended June 30, 2004 compared to $25,000 in the six months ended June 30, 2003. This increase is attributable to the Company's working capital line of credit and its five year term loan. NET LOSS. Net income was $337,000, or $0.04 per diluted share, in the six months ended June 30, 2004 compared to net loss of $596,000, or $(0.09) per diluted share, in the six-months ended June 30, 2003. This was due primarily to the reasons described above. 9 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2004, the Company had $9,401,000 of cash, cash equivalents and investments and $10,394,000 of working capital as compared to $8,618,000 and $8,180,000, respectively, at December 31, 2003. Net cash used in operating activities was $692,000 for the six months ended June 30, 2004 compared to net cash used in operating activities of $479,000 for the six months ended June 30, 2003. Net cash used in operating activities in the six months ended June 30, 2004 was primarily due to an increase in accounts receivable of $294,000, an increase in unbilled receivables of $983,000 and an increase in inventory of $568,000 due to the building of finished goods to be able to deliver quicker on customer orders, partially offset by an increase in accounts payable and accrued expenses of $590,000 and net income of $337,000. Net cash used in operating activities in the six months ended June 30, 2003 was primarily due to the net loss of $596,000, an increase in accounts receivable of $721,000, an increase in unbilled receivables of $449,000 and an increase in deferred contract costs of $121,000, partially offset by a decrease in inventory of $560,000, a decrease in investment in sales type leases of $570,000 resulting from the proceeds from the assignment of certain sales type leases to a third party and an increase in deferred revenue of $176,000. Net cash provided by investing activities for the six months ended June 30, 2004 was $565,000 compared to net cash used in investing activities of $1,126,000 for the six months ended June 30, 2003. Net cash provided by investing activities in the six months ended June 30, 2004 was primarily for the maturities of investments of $1,106,000, offset by purchases of investments of $487,000 and purchases of fixed assets of $185,000. Net cash used in investing activities in the six months ended June 30, 2003 was primarily for the purchase of investments of $2,582,000, offset by maturities of investments of $1,424,000. Net cash provided by financing activities for the six months ended June 30, 2004 was $1,653,000 compared to net cash provided by financing activities of $1,111,000 in the six months ended June 30, 2003. Net cash provided by financing activities for the six months ended June 30, 2004 was from $1,025,000 of proceeds received in connection with the exercise of warrants and $721,000 from proceeds received in connection with exercise of employee stock options. Net cash provided by financing activities for the six months ended June 30, 2003 was from the proceeds of $1,000,000, received in connection with obtaining a five year term loan and $185,000 from proceeds received in connection with 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. 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") 10 reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidating subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. There were no significant changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, 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 controls, 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 Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification 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: On May 10, 2004, the Company filed a report on Form 8-K under Items 7 and 12, which included a press release issued announcing its results of operations and financial condition for the first quarter of 2004. 11 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: August 13, 2004 By: /s/ Jeffrey M. Jagid -------------------- Jeffrey M. Jagid Chief Executive Officer (Principal Executive Officer) Dated: August 13, 2004 By: /s/ Ned Mavrommatis ------------------- Ned Mavrommatis Chief Financial Officer (Principal Financial Officer) 12 EX-31.1 2 ex-31_1.txt EXHIBIT 31.1 CERTIFICATION I, Jeffrey M. Jagid, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of I.D. Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and; 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer `s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 13, 2004 /s/ Jeffrey Jagid ----------------- Jeffrey M. Jagid Chairman and Chief Executive Officer (Principal Executive Officer) EX-31.2 3 ex-31_2.txt EXHIBIT 31.2 CERTIFICATION I, Ned Mavrommatis, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of I.D. Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and; 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. Date: August 13, 2004 /s/ Ned Mavrommatis ------------------- Ned Mavrommatis Chief Financial Officer (Principal Financial Officer) EX-32 4 ex-32.txt EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeffrey M. Jagid, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that the Quarterly Report on Form 10-QSB of I.D. Systems, Inc. for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of I.D. Systems, Inc. I, Ned Mavrommatis, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-QSB of I.D. Systems, Inc. for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of I.D. Systems, Inc. By: /s/ Jeffrey Jagid ----------------------------------- Jeffrey M. Jagid Chairman and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2004 By: /s/ Ned Mavrommatis ----------------------------------- Ned Mavrommatis Chief Financial Officer (Principal Financial Officer) Date: August 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----