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
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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
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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
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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")
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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.
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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)
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