<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1999.
REGISTRATION NO. 333-76947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
I.D. SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3669 22-3270799
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
90 WILLIAM STREET
SUITE 402
NEW YORK, NEW YORK 10038
(212) 677-3800
(Address and Telephone Number of Principal Executive Offices)
------------------------
JEFFREY M. JAGID
CHIEF OPERATING OFFICER
I.D. SYSTEMS, INC.
90 WILLIAM STREET
SUITE 402
NEW YORK, NEW YORK 10038
(Name, Address and Telephone Number of Agent For Service)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
HENRY I. ROTHMAN, ESQ. RUBI FINKELSTEIN, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
1211 AVENUE OF THE AMERICAS 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10112
TELEPHONE: (212) 704-6000 TELEPHONE: (212) 506-3660
TELECOPIER: (212) 704-6288 TELECOPIER: (212) 506-3730
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DATED MAY 14, 1999
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
2,000,000 SHARES
I.D. SYSTEMS, INC.
COMMON STOCK
----------------
This is an initial public offering of shares of I.D. Systems, Inc. I.D.
Systems anticipates that the initial public offering price will be between $7
and $9 per share.
Prior to this offering, there has been no public market for the common
stock. Application has been made for quotation of the common stock on the Nasdaq
SmallCap Market under the symbol "IDSY".
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF ANY COMMON STOCK.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Initial public offering price................................................. $ $
Underwriting discount......................................................... $ $
Proceeds, before expenses, to I.D. Systems.................................... $ $
</TABLE>
I.D. Systems granted the underwriters a 45-day option to purchase, under
certain circumstances, up to an additional 300,000 shares of common stock at the
initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York,
New York on or about , 1999.
GILFORD SECURITIES INCORPORATED
Prospectus dated , 1999
<PAGE>
[PICTURES: TO BE INSERTED]
Proposed pictures for inside front cover:
<TABLE>
<S> <C>
Caption: Wireless Monitoring and Tracking Systems for Virtually Any Object.
Top Left: Picture of cargo in boxes.
Caption: Shipping & Delivery Companies.
Top Right: Picture of forklift in warehouse.
Caption: Companies with forklift fleets.
Bottom Left: Picture of care fleet.
Caption: Car Rental Companies.
Bottom Right: Picture of fleet of railcars.
Caption: Railcar & Transportation Companies.
Scattered
Captions: Analyze Performance; Reduce overhead costs; Increase Profits; Improve
Operating Efficiency.
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND I.D. SYSTEMS' FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
I.D. SYSTEMS, INC.
OUR BUSINESS
I.D. Systems, Inc. designs, develops, and produces a wireless monitoring and
tracking system that uses radio frequency technology. Our system can monitor,
track, analyze, and control the movement of virtually any object, including
vehicles, equipment and packages. Our products enable users to improve operating
efficiencies, reduce costs and increase profits. Our principal customer to date
has been the United States Postal Service. Federal Express Corporation, Avis
Rent A Car System, Inc., Ford Motor Corporation, Hallmark Cards, Inc., QVC Inc.
and World Color Press, Inc. have also recently placed orders for our system. For
the year ended December 31, 1998, sales were approximately $3.3 million
resulting in income from operations of approximately $500,000.
INDUSTRY OVERVIEW
Our products are targeted to the automatic data collection market. This
market primarily refers to companies that use bar-coding equipment to
electronically identify and track objects. Radio frequency identification was
developed to address problems presented by bar-coding technology. Venture
Development Corporation estimates that global revenues for products which use
radio frequency identification systems were $540 million in 1997 and are
projected to increase to $1.6 billion by 2002.
OUR SYSTEM
The main components of our system are miniature computers that attach to the
monitored and tracked objects as well as monitoring devices that exchange
information with these miniature computers. Customers may access the data
collected by our system via the Internet. Our system provides many advantages
over conventional radio frequency systems. Since our system does not need a
central computer or mainframe, we believe our system, when compared to
conventional radio frequency systems, is:
- more flexible;
- lower in cost;
- more reliable; and
- more functional.
OUR INITIAL TARGET MARKET
Our products may be used in a wide variety of industries. We are currently
marketing our system to:
- shipping and delivery companies;
- companies with fleets of forklift trucks and other similar vehicles;
- rental car companies; and
- railroad and transportation companies.
3
<PAGE>
OUR STRATEGY
Our objective is to become the leading provider of wireless monitoring and
tracking systems. To achieve this objective, our strategy is to:
- expand product capabilities and applications by enhancing the features of
our system;
- strengthen sales and marketing efforts, including enhancing our website to
allow prospective customers to "test drive" our system and through, among
other things, Internet advertising; and
- continue to develop additional revenue sources by selling software and
hardware upgrades as well as ongoing maintenance and support contracts.
OUR OFFICES
Our principal executive offices are located at 90 William Street, Suite 402,
New York, NY 10038, and our telephone number is (212) 677-3800. Our corporate
website can be found at www.id-systems.com. Information contained on our website
does not constitute part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by I.D. Systems..... 2,000,000
Shares to be outstanding after this
offering......................... 5,414,375 shares
Use of Proceeds.................... - product development;
- sales and marketing;
- expansion of product capabilities and applications;
and
- working capital and general corporate purposes
Proposed Nasdaq SmallCap Market
Symbol........................... "IDSY"
</TABLE>
Unless stated otherwise, all information in this prospectus assumes:
- the underwriters' over-allotment option is not exercised; and
- a 1.25 to 1 stock split of common stock immediately prior to the effective
date of this prospectus;
and excludes:
- 1,243,750 shares of common stock issuable upon the exercise of outstanding
options; and
- 1,118,750 shares of common stock reserved for future issuance under our
stock option plans.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table summarizes the financial data for our business. We have
historically been treated as an S corporation and, accordingly, have not been
subject to federal or state income taxes. Subsequent to December 31, 1998, we
filed an election to be taxed as a C corporation effective January 1, 1999. Pro
forma net income provides for federal and state income taxes which would have
been provided had we been a C corporation. Pro forma net income for 1997
includes a $468,000 pro forma income tax benefit that will not be available to
offset C corporation income in future years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
---------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $733,000 $ 3,324,000
Gross profit....................................................... 464,000 1,691,000
Income (loss) from operations...................................... (18,000) 544,000
Net income--historical............................................. 75,000 476,000
Pro forma net income............................................... 543,000 284,000
Pro forma net income per share--basic.............................. .17 .08
Pro forma net income per share--diluted............................ .17 .08
Weighted average common shares outstanding--basic.................. 3,154,000 3,414,000
Weighted average common shares outstanding--diluted................ 3,154,000 3,779,000
</TABLE>
The following table indicates a summary of our balance sheet at December 31,
1998:
- on an actual basis; and
- on an as adjusted basis to reflect the sale of 2,000,000 shares of common
stock, after deducting underwriting discounts and commissions and
estimated offering expenses.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ -------------
Working capital.................................................. $ 1,098,000 $ 14,998,000
Total assets..................................................... 2,102,000 16,002,000
Total liabilities................................................ 1,094,000 1,094,000
Stockholders' equity............................................. 1,008,000 14,908,000
</TABLE>
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO
INVEST IN THE SHARES OF OUR COMMON STOCK.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
Although we were incorporated in August 1993, we did not initiate sales of
our initial line of products until March 1995. As a result, we have a limited
operating history upon which you may evaluate our business and prospects. Our
prospectus must be considered in light of risks, expenses, delays, problems and
difficulties frequently encountered by early stage companies.
THE LOSS OF NET SALES TO OUR MAJOR CUSTOMER WOULD LIKELY HAVE A MATERIAL
ADVERSE EFFECT ON US
Our largest customer, the U.S. Postal Service, accounted for approximately
99% and 95% of revenues, in 1997 and 1998. Our contract with the U.S. Postal
Service expires in September 2000. The contract may be terminated, however, at
any time at the discretion of the U.S. Postal Service. The loss of this customer
would likely have a material adverse effect on our business, financial condition
and results of operations.
THE MARKET FOR OUR TECHNOLOGY IS UNCERTAIN
Our success is highly dependent on market acceptance of our wireless
monitoring and tracking system. The market for wireless monitoring and tracking
products and services is new and rapidly evolving and we are not certain that
our target customers will purchase our wireless monitoring and tracking system.
As a result, demand and market acceptance for our products is uncertain. We
cannot assure you that the market for wireless monitoring and tracking
technology will continue to emerge or become sustainable. If the market for our
products fails to grow, develops more slowly than we expect, or becomes
saturated with competing products or services, then our business, financial
condition and results of operations will be materially adversely affected.
THE DELIVERY OF OUR SYSTEM REQUIRES A LONG LEAD TIME
The design, manufacture and delivery of our system to our customers requires
a long lead time due to the amount of customization typically involved in its
production. This amount of time is difficult to predict. In the event our system
takes longer to develop for particular customers than predicted, we may lose
existing customers or find it more difficult to obtain additional customers.
THERE ARE RISKS RELATED TO DOING BUSINESS WITH FEDERAL GOVERNMENT AGENCIES
Contracts with Federal government agencies require annual funding approval
and are terminable at the discretion of such agencies. A reduction in spending
by Federal government agencies could limit the continued funding of our existing
contracts with them and could limit our ability to obtain additional contracts.
These limitations, if significant, could also have a material adverse effect on
our business, financial condition and results of operations.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least 12 months following the date of this prospectus. We
may require additional funding sooner than anticipated. In addition, unplanned
acquisition and development opportunities and other contingencies may arise,
which could require us to raise additional capital. If we raise additional
capital through the sale of equity, including preferred stock, or convertible
debt securities, the percentage ownership of our then existing stockholders will
be diluted.
We currently do not have a credit facility or any commitments for additional
financing. We cannot be certain that additional financing will be available when
and to the extent required. If adequate funds
7
<PAGE>
are not available on acceptable terms, we may be unable to fund our expansion,
develop or enhance our products or respond to competitive pressures. Such
limitation could have a material adverse effect on our business, financial
condition and results of operations.
OUR FAILURE TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY IMPAIR OUR COMPETITIVE
POSITION
Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:
- we will be able to protect our technology adequately;
- our patent and any other issued patents will not be successfully
challenged by one or more third parties, which could result in our loss of
the right to prevent others from exploiting the technology claimed in the
patent or inventions claimed in any other issued patents;
- competitors will not be able to develop similar technology independently;
- intellectual property laws will protect our intellectual property rights;
and
- third parties will not assert that our products infringe upon their
patents, copyrights or trade secrets;
If we are not successful in protecting our intellectual property, there
could be a material adverse effect on our business, financial condition and
results of operations.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION
Litigation may be necessary in order to enforce our patents, copyrights or
other intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement. This type of litigation could result in the expenditure
of significant financial and managerial resources and could result in
injunctions preventing us from distributing certain products. Such claims could
materially adversely affect our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing technology obsolete. If we are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and results of operations will be materially adversely affected. To be
successful, we must adapt to our rapidly changing market by continually
improving the responsiveness, services and features of our products and by
developing new features to meet customer needs. Our success will depend, in
part, on our ability to adapt to rapidly changing technologies, to enhance our
existing services and to develop new services and technologies that address the
needs of our customers.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL,
OUR BUSINESS MAY SUFFER
We are dependent on the continued employment and performance of our
executive officers and key employees, particularly Kenneth S. Ehrman, President,
Jeffrey Jagid, Chief Operating Officer and General Counsel, Bert Loosmore,
Executive Vice President of Engineering, and Michael Ehrman, Executive Vice
President of Software Development. We have applied for key man life insurance
policies on our key employees. The loss of the services of our executive
officers or key employees could have a material adverse effect on our business,
financial condition and results of operations. Please see "Management."
8
<PAGE>
WE RELY ON SUBCONTRACTORS
In order to meet our requirements under our contracts, we rely on the
efforts and skills of subcontractors for manufacturing our products for delivery
to our customers in significant volume. The absence of qualified subcontractors
with whom we have a satisfactory relationship could adversely affect the quality
of our services and products and our ability to perform under our contracts.
REGULATORY UNCERTAINTIES COULD HARM OUR BUSINESS
Our products transmit radio frequency waves, an activity governed by certain
rules and regulations promulgated by the Federal Communications Commission. Our
ability to design, develop and sell our products will continue to be affected by
such rules and regulations. The implementation of unfavorable regulations or
unfavorable interpretations of existing regulations by courts or regulatory
bodies could require us to incur significant compliance costs, cause the
development of the affected markets to become impractical and otherwise
adversely affect our business, financial condition and results of operations.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, technical, operational and financial
resources. If we are unable to manage our growth effectively, our business,
financial condition and results of operations will be materially adversely
affected. To manage our expected growth, we will have to implement and improve
our operational and financial systems and train and manage our growing employee
base. We will also need to maintain and expand our relationships with customers,
subcontractors, and other third parties.
OUR NEW PRODUCTS MAY CONTAIN TECHNOLOGICAL FLAWS AND WE MAY INCUR POTENTIAL
PRODUCT LIABILITY FOR PRODUCTS SOLD BY US
Complex technological products like ours often contain undetected errors or
failures when first introduced or as new versions are released. Despite testing
by us, there still may be errors in new products, even after commencement of
commercial shipments. The occurrence of these errors could result in delays or
failure to achieve market acceptance of our products, which could have a
material adverse effect on our business, financial condition and results of
operations. In addition, because our products are used in business-critical
applications, any errors or failures in these products may give rise to
substantial product liability claims, which also could have a material adverse
effect on our business, financial condition and results of operations.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
The markets for our products and services are relatively new, constantly
evolving and intensely competitive. We expect that competition will intensify in
the future. Many of our current and potential competitors have longer operating
histories, greater name recognition and significantly greater financial,
technical and marketing resources. As a result, our competitors may be able to
develop products comparable or superior to ours or adapt more quickly to new
technologies or evolving customer requirements. In addition, we may, as a
strategic response to changes in the competitive environment, implement pricing,
service or marketing changes designed to extend our customer base. Continued
price concessions or the emergence of other pricing or distribution strategies
by competitors may have a material adverse effect on our business, financial
condition and results of operations.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
Although we have developed internal proprietary software that is Year 2000
compliant, can operate on a stand-alone basis and does not rely on technology
supplied by third parties, there can be no assurance that discovered Year 2000
problems will not occur in the hardware, software or equipment of our customers
that will require substantial revision.
9
<PAGE>
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure by these entities to be Year 2000 compliant
could result in a systemic failure beyond our control such as transportation
systems, telecommunications or electrical failure. Any of these failures could
also prevent us from delivering our system to our customers, which would have a
material adverse effect on our business, results of operations and financial
condition.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following the offering, then the market price of our common stock
could fall. Restrictions under the securities laws and certain lock-up
agreements limit the number of shares of common stock available for sale in the
public market. The holders of 3,414,375 shares of common stock and options
exercisable into an aggregate of 1,243,750 shares of common stock have agreed
not to sell any such securities for 12 months after the offering without the
prior written consent of the representative. However, the representative may, in
its sole discretion, release all or any portion of the securities subject to
such lock-up agreements. Upon expiration of lock-up agreements with the
representative, 3,414,750 shares of common stock will be eligible for resale in
accordance with the provisions of Rule 144.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD ADVERSELY AFFECT OUR
STOCK PRICE
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
- demand for our products and services;
- market acceptance of our wireless monitoring and tracking system;
- price reductions or changes in pricing;
- competitive factors;
- development time and costs of introducing new products;
- technical difficulties with respect to the use of our products;
- management of our growth; and
- general economic conditions.
Additionally, if our operating results in one or more quarters do not meet
the securities analysts' or your expectations, the price of our common stock
could be materially adversely affected.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our certificate of incorporation and by-laws and provisions of
applicable Delaware law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. Our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock,
par value $0.01 per share, and to determine the price and the terms, including
preferences and voting rights, of those shares without stockholder approval.
Although we have no current plans to issue additional shares of our preferred
stock, any such issuance could:
- have the effect of delaying, deferring or preventing a change in control
of our company;
- discourage bids for our common stock at a premium over the market price;
or
- adversely affect the market price of, and the voting and other rights of
the holders of our common stock.
10
<PAGE>
We are subject to certain Delaware laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, some provisions of our certificate of incorporation and by-laws, and
the significant amount of common stock held by our executive officers, directors
and affiliates could together have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change the management
of I.D. Systems.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about I.D. Systems and our
industry. These forward-looking statements involve risks and uncertainties. I.D.
Systems' actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, as more fully
described in the "Risk Factors" section and elsewhere in this prospectus. I.D.
Systems undertakes no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 2,000,000 shares of common stock
offered by us are estimated to be approximately $13,900,000 after deducting
underwriting discounts and commissions and other expenses of the offering. If
the underwriters' over-allotment option is exercised in full we estimate that
net proceeds will be $16,060,000. We expect to use the net proceeds, assuming no
exercise of the underwriters' over-allotment option, approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
APPROXIMATE OF NET
DOLLAR AMOUNT PROCEEDS
-------------- -------------
<S> <C> <C>
Sales, marketing and customer support............................................... $ 3,500,000 25.1%
Web-based customer support.......................................................... 500,000 3.6
Custom chip development and miniaturization......................................... 4,000,000 28.8
Expansion of hardware lab........................................................... 500,000 3.6
Expansion of software lab........................................................... 500,000 3.6
Research and development............................................................ 1,000,000 7.2
Working capital, and general corporate purposes..................................... 3,900,000 28.1
-------------- -----
Total........................................................................... $ 13,900,000 100.0%
-------------- -----
-------------- -----
</TABLE>
SALES, MARKETING AND CUSTOMER SUPPORT. Represents anticipated costs
associated with marketing our system to targeted markets and advertisers,
including salaries for employees that market our system and travel expenses with
respect to marketing.
WEB-BASED CUSTOMER SUPPORT. Represents costs associated with developing a
web-based customer support service.
CUSTOM CHIP DEVELOPMENT AND MINIATURIZATION. Represents anticipated costs
associated with the development of Application Specific Integrated Circuits for
the miniaturization and optimization of our asset communicators.
EXPANSION OF HARDWARE LAB. Represents costs associated with expanding our
in-house capabilities for design and development of our products. Costs include
additional design, simulation, test equipment and the purchase of additional
prototyping tools.
EXPANSION OF SOFTWARE LAB. Represents costs associated with purchasing
tools to be used to enhance our software products as well as salaries for
additional software engineers.
RESEARCH AND DEVELOPMENT. Represents costs associated with initiatives
intended to enhance the performance and increase the capability of our products.
Costs include the hiring of additional employees, construction of prototypes and
testing.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. Working capital may be
used, among other things, to pay salaries of our executive officers, rent, trade
payables, professional fees, and other operating expenses. Please see
"Management."
The allocation of the net proceeds from this offering set forth above
represents our best estimate based upon our currently proposed plans and
assumptions relating to our operations and certain assumptions regarding general
economic conditions. If any of these factors change, we may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portions for other purposes.
We anticipate that the net proceeds of this offering, together with
projected revenues from our operations, will be sufficient to fund our
operations and capital requirements for at least 12 months
12
<PAGE>
following this offering. We cannot assure you, however, that such funds will not
be expended earlier due to unanticipated changes in economic conditions or other
circumstances that we cannot foresee. In the event our plans change or our
assumptions change or prove to be inaccurate, we could be required to seek
additional financing sooner than currently anticipated. We also expect that,
when the opportunity arises, we may acquire or invest in complementary
businesses, products or technologies. We have no present understandings,
commitments or agreements with respect to any material acquisition or
investment.
Pending the use of proceeds in the manner mentioned above, the net proceeds
of this offering will be invested principally in short-term, interest-bearing
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We do
not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
13
<PAGE>
DILUTION
As of December 31, 1998, our net tangible book value was $1,008,000 or
approximately $0.30 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities
divided by the number of shares of common stock. After giving effect to the sale
of the 2,000,000 shares of common stock offered hereby and after deducting the
underwriting discount and estimated offering expenses payable by us, the net
tangible book value, as adjusted, would have been approximately $14,908,000 or
$2.75 per share. This represents an immediate increase in net tangible book
value of $2.45 per share of common stock to existing stockholders and an
immediate dilution of $5.25 per share to new investors. The following table
illustrates this per share dilution
<TABLE>
<S> <C> <C>
Initial public offering price................................................. $ 8.00
Net tangible book value before this offering.................................. $ 0.30
Increase per share attributable to this offering.............................. 2.45
---------
Adjusted net tangible book value per share after this offering................ 2.75
---------
Dilution per share to new investors........................................... $ 5.25
---------
---------
</TABLE>
Assuming the exercise in full of the over allotment option, our net tangible
book value at December 31, 1998 would have been approximately $2.99 per share,
representing an immediate increase in net tangible book value of $2.69 per share
to our existing stockholders and an immediate dilution in net tangible book
value of $5.01 per share to new investors.
The following table summarizes the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share provided by existing stockholders and by investors purchasing shares of
common stock in this offering.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 3,414,000 63.1% $ 1,687,000 9.5% $ 0.49
New Investors........................................ 2,000,000 36.9% 16,000,000 90.5% $ 8.00
---------- --------- ------------- ---------
Total............................................ 5,414,000 100.0% $ 17,687,000 100.0%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
This discussion and table assumes no exercise of other outstanding stock
options or warrants. As of the date of this prospectus, there are options
outstanding to purchase a total of 1,243,750 shares of common stock at a
weighted average exercise price of $1.09 per share. To the extent these options
are exercised, there will be further dilution to new investors.
14
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1998. Our as adjusted capitalization reflects the sale by us of the common stock
offered hereby at an assumed initial public offering price of $8.00 per share
less underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ -------------
Noncurrent notes payable-stockholders................................................ $ 156,000 $ 156,000
Stockholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized, none issued............ -- --
Common stock, $.01 par value: 10,000,000 shares authorized; 3,414,000 shares issued
and outstanding, actual; 5,414,000 shares issued and outstanding, as adjusted...... 34,000 54,000
Additional paid-in capital........................................................... 1,653,000 15,533,000
Accumulated deficit.................................................................. (679,000) (679,000)
------------ -------------
Total stockholders' equity....................................................... 1,008,000 14,908,000
------------ -------------
Total capitalization........................................................... $ 1,164,000 $ 15,064,000
------------ -------------
------------ -------------
</TABLE>
Our stated number of shares of common stock outstanding does not include
200,000 shares of common stock reserved for issuance upon exercise of the
representative's warrants and 1,243,750 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of $1.09
per share.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected statements of operations data for the years ended December 31,
1997 and December 31, 1998 and the selected balance sheet data as of December
31, 1998 have been derived from the audited financial statements included
elsewhere in this prospectus. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
thereto appearing elsewhere in the prospectus. We have historically been treated
as an S Corporation and, accordingly, have not been subject to federal or state
income taxes. Subsequent to December 31, 1998, we filed an election to be taxed
as a C corporation effective January 1, 1999. Pro forma net income provides for
federal and state income taxes which would have been provided had we been a C
corporation and includes a $468,000 pro forma income tax benefit that will not
be available to offset C corporation income in future years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ -- $ 292,000 $ 321,000 $ 733,000 $ 3,324,000
Cost of revenues............................... -- 302,000 333,000 269,000 1,633,000
----------- ----------- ----------- ----------- ------------
Gross profit................................... -- (10,000) (12,000) 464,000 1,691,000
----------- ----------- ----------- ----------- ------------
Operating costs and expenses:
Selling, general and administrative.......... 129,000 312,000 574,000 460,000 1,083,000
Research and development..................... 3,000 197,000 9,000 22,000 64,000
----------- ----------- ----------- ----------- ------------
Total operating costs and expenses............. 132,000 509,000 583,000 482,000 1,147,000
----------- ----------- ----------- ----------- ------------
Income (loss) from operations.................. (132,000) (519,000) (595,000) (18,000) 544,000
Interest income (expense), net................. 6,000 10,000 (19,000) (23,000)
----------- ----------- ----------- ----------- ------------
Net income (loss) before income taxes.......... (132,000) (513,000) (585,000) (37,000) 521,000
Income tax provision (benefit)................. -- -- -- (112,000) 45,000
----------- ----------- ----------- ----------- ------------
Net income (loss)--historical.................. (132,000) (513,000) (585,000) 75,000 476,000
Pro forma income tax (benefit)................. (468,000) 192,000
----------- ----------- ----------- ----------- ------------
Pro forma net income (loss).................... $ (132,000) $ (513,000) $ (585,000) $ 543,000 $ 284,000
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Pro forma net income (loss) per share
--basic...................................... $(.12) $(.24) $(.20) $.17 $.08
--diluted.................................... $(.12) $(.24) $(.20) $.17 $.08
Weighted average common shares outstanding
--basic...................................... 1,091,000 2,103,000 2,864,000 3,154,000 3,414,000
--diluted.................................... 1,091,000 2,103,000 2,864,000 3,154,000 3,779,000
</TABLE>
The adjusted balance sheet data as of December 31, 1998 reflects the sale of
2,000,000 shares of common stock offered hereby after deducting the underwriting
commission and other offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
AS
1994 1995 1996 1997 ACTUAL ADJUSTED
---------- ---------- ---------- ---------- ------------ -------------
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 380,000 $ 503,000 $ 154,000 $ 406,000 $ 1,130,000 $ 15,030,000
Working capital............................. 299,000 414,000 75,000 644,000 1,098,000 14,998,000
Total assets................................ 408,000 540,000 301,000 764,000 2,102,000 16,002,000
Total liabilities........................... 81,000 89,000 234,000 268,000 1,094,000 1,094,000
Total stockholders' equity.................. 328,000 451,000 67,000 496,000 1,008,000 14,908,000
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of I.D. Systems should be read in conjunction with I.D. Systems'
financial statements and notes thereto and the other financial information
included elsewhere in this prospectus. In addition to historical information,
this Management Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this prospectus contain forward-looking
information that involve risks and uncertainties. I.D. Systems' actual results
could differ materially from those anticipated by such forward-looking
information as a result of certain factors, including but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
We were incorporated in August 1993 and began to derive revenues from our
initial line of products in March 1995. Revenues are generated from design and
engineering fees as well as sales of our system. Our fees relate to the time
expended and expertise involved in customizing our system to the needs of each
individual customer. In the future, we intend to generate additional revenues by
selling software and hardware upgrades as well as on-going maintenance and
support contracts to our existing customers. We anticipate that a greater
portion of future revenues will be comprised of sales of our system.
Our initial contract was entered into with the U.S. Postal Service to
develop and install a pilot system in approximately 40 postal facilities in the
Washington D.C. metropolitan area. In 1997, we entered into a follow-on
agreement with the United States Postal Service which provides for the wireless
monitoring and tracking of mail in approximately 300 postal facilities. The
revenues expected from this agreement are approximately $7,000,000 of which
$3,745,000 was recognized as of December 31, 1998. In 1998, we obtained an order
from Federal Express Corporation and orders from other companies for an
integrated tracking and monitoring system for forklift trucks and other similar
vehicles. We also entered into an agreement with Avis Rent A Car System, Inc.,
which provides for the pilot sale of a system which automates the car rental and
return process.
The U.S. Postal Service accounted for approximately 99% and 95% of our
revenues in 1997 and 1998. These contracts provide for revenue relating to
labor, materials and delivery of goods. Our policy is to recognize revenues when
time and material charges are incurred, services are performed or goods are
delivered in accordance with conditions of related contracts. Amounts billed to
customers that do not meet the conditions of our revenue recognition policy are
recorded as deferred revenue until such conditions are met.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
<S> <C> <C>
DECEMBER31, DECEMBER 31,
1998 1997
------------- ---------------
Revenues.............................................................................. 100.0% 100.0%
Cost of revenues...................................................................... 36.7 49.1
----- -----
Gross profit.......................................................................... 63.3 50.9
Selling, general and administrative (expenses)........................................ 62.8 32.6
Research and development.............................................................. 3.0 1.9
----- -----
Income (loss) from operations......................................................... (2.5) 16.4
(Net) Interest expense................................................................ (2.6) (0.7)
----- -----
Income before income tax provision (benefit).......................................... (5.1) 15.7
Income tax expense (benefit).......................................................... (15.3) 1.4
----- -----
Net income............................................................................ 10.2% 15.3%
----- -----
----- -----
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. Revenues increased to $3,324,000 in fiscal 1998 from $733,000 in
fiscal 1997. These increases were primarily attributable to a follow on contract
entered into with the United States Postal Service.
COST OF REVENUES. Cost of revenues increased to $1,633,000 in fiscal 1998
from $269,000 in fiscal 1997. As a percentage of revenues, cost of revenues
increased from 36.7% in fiscal 1997 to 49.1% in fiscal 1998. This increase was
primarily attributable to an increase in the portion of revenues attributable to
materials in fiscal 1998 as compared to fiscal 1997 which typically have lower
margins than revenues related to labor. Gross profit increased to $1,691,000 in
fiscal 1998 from $464,000 in fiscal 1997. As a percentage of revenues, gross
profit decreased from 63.3% in fiscal 1997 to 50.9% in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 135% to $1,083,000 in fiscal 1998 from
$460,000 in fiscal 1997. Of this increase, $482,000 was attributable to an
increase in salaries resulting from an increase in personnel hired during the
year to accommodate our growth. As a percentage of revenues, selling, general
and administrative expenses decreased from 62.8% in fiscal 1997 to 32.6% in
fiscal 1998 due to operating efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $64,000 in fiscal 1998 from $22,000 in fiscal 1997. This increase
was attributable to increased research and development costs related to
developing new applications for our products.
INTEREST EXPENSE (NET). Interest expense (net) increased to $23,000 in
fiscal 1998 from $19,000 in fiscal 1997. This increase was attributable to
interest expense incurred in fiscal 1998 on larger average balances of
stockholder notes and capital lease obligations, offset by an increase in
interest income earned in fiscal 1998 on a larger average cash balance.
INCOME TAXES. Local income tax expense was $45,000 in fiscal 1998 as
compared to a $112,000 income tax benefit in fiscal 1997. The 1997 amount
reflects the recognition of a benefit from net operating loss carry forwards
generated through December 1997.
18
<PAGE>
NET INCOME. Net income increased to $476,000 in fiscal 1998 from $75,000 in
fiscal 1997. This increase was due primarily to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had $1,130,000 of cash and cash equivalents.
Working capital increased $454,000 from $644,000 in fiscal 1997 to $1,098,000 at
December 31, 1998.
Net cash provided by operating activities was $865,000 in 1998 as compared
to $211,000 used in operating activities in 1997. Net cash provided by operating
activities in 1998 was primarily due to net income of $476,000, a $266,000
increase in accounts payable and accrued expenses and a $545,000 increase in
deferred revenue, partially offset by a $601,000 increase in accounts
receivable. The use of cash in operating activities in 1997 was primarily due to
a $114,000 decrease in accounts payable and a $75,000 increase in accounts
receivable.
Cash used in investing activities in 1998 was $76,000 as compared to $31,000
in 1997. The use of cash in investing activities in 1998 and 1997 reflect
capital expenditures for fixed assets.
Cash provided by financing activities was $494,000 in 1998 as compared to
$56,000 used in financing activities in 1997. The cash provided by financing
activities in 1998 resulted primarily from $200,000 of proceeds from the
issuance of common stock and promissory notes and $274,000 of proceeds from the
issuance of common stock in connection with the exercise of warrants. Cash used
in financing activities in 1997 is primarily due to the repayment of stockholder
loans in the amount of $50,000.
We believe our operations have not been and, in the foreseeable future, will
not be materially adversely affected by inflation or changing prices.
RECENTLY ISSUED FINANCIAL STANDARDS
We believe that recently issued financial standards will not have a
significant impact on our results of operations, financial position or cash
flows.
YEAR 2000 RISK
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
products and operating, financial and administrative systems, including the
hardware and software that comprise our system. Our assessment plan consists of:
- assessing material hardware, software and services that are both directly
and indirectly related to the delivery of our system to our users;
- assessing repair or replacement requirements;
- implementing repair or replacement; and
- creating contingency plans in the event of Year 2000 failures.
19
<PAGE>
The software which comprises our system is Year 2000 complaint. We are
conducting testing procedures for all other software and systems that we believe
might be affected by Year 2000 issues. Since third parties developed and
currently support many of the operating, financial and administrative systems
that we use, steps will be taken to ensure that these third-party systems are
Year 2000 compliant. We plan to confirm this compliance through a combination of
the representation by these third parties of their products' Year 2000
compliance, as well as specific testing of these systems. We plan to complete
this process prior to the end of the third quarter of 1999. Until such testing
is completed we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
To date, we have incurred immaterial costs on Year 2000 compliance issues.
Most of our expenses are related to, and are expected to continue to be related
to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. Such expenses, if
higher than anticipated, could have a material adverse effect on our business,
results of operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our system that would have a material adverse effect on our business, results of
operations and financial condition. There can be no assurance that we will not
discover Year 2000 compliance problems in our system that will require
substantial revision. In addition there can be no assurance that third-party
software, hardware or services on which our system will operate will not need to
be revised or replaced, all of which could be time-consuming and expensive. Our
failure to fix or replace our internally developed propriety software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs or the loss of customers and other
business interruptions, any of which could have a material adverse effect on our
business, financial condition and results of operations. Moreover, the failure
of our customers to fix or replace their software or hardware on a timely basis
could result in an indirect adverse effect on our business, financial condition
and results of operation.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systematic failure beyond our control such as a transportation
systems, telecommunications or electrical failure, which could also prevent us
from delivering our system to our customers or decrease the commercial activity
of our customers, which could have a material adverse effect on our business,
financial condition and results of operations.
20
<PAGE>
BUSINESS
GENERAL
We design, develop, and produce a wireless monitoring and tracking system
that uses radio frequency technology. Our system can monitor, track, analyze,
and control the movement of virtually any object, including vehicles, equipment
and packages. Our products enable users to improve operating efficiencies,
reduce costs, and increase profits. Our principal customer to date has been the
United States Postal Service. Federal Express Corporation, Avis Rent A Car
System, Inc., Ford Motor Corporation, Hallmark Cards, Inc., QVC Inc. and World
Color Press, Inc. have also recently placed orders for our system. For the year
ended December 31, 1998, sales were approximately $3.3 million resulting in
income from operations of approximately $500,000.
INDUSTRY OVERVIEW
GROWTH OF THE AUTOMATIC DATA COLLECTION MARKET
Our products are targeted to the automatic data collection market. This
market refers to companies that use bar-coding equipment to electronically
identify and track objects. Bar-coding technology poses numerous limitations
including line-of-sight-only capability, required human intervention and
inability to monitor and control the item to which a bar-code is affixed.
CONVENTIONAL RADIO FREQUENCY IDENTIFICATION SYSTEMS
Radio frequency identification has been developed to address the problems
presented by bar-coding technology. The basic components of any radio frequency
identification system are tags and readers. Each tag contains a miniature
receiver/transmitter and an antenna, controlled by a computer chip. The reader
is a more sophisticated microprocessor controlled transmitter and receiver. Tags
typically contain information uniquely identifying the persons or objects to
which they are attached. Tags transmit data to a central computer, which decides
on a subsequent course of action, including opening a door, sounding an alarm,
debiting an account, sending routing instructions or similar activities.
Radio frequency has many advantages over bar-coding systems, including
greater range and accuracy, reduced line-of-sight requirements, rapid
identification, and resistance to environmental influences such as dirt, rain
and extreme temperatures. Frost & Sullivan has reported that in 1985, revenues
in the United States for the radio frequency identification portion of the
automatic data collection market were $7.5 million. According to Venture
Development Corp., in 1997, total global revenues reached $540 million and are
expected to grow to $1.6 billion by 2002.
Current radio frequency identification products are typically divided into
two categories: read-only systems and read-write systems.
- READ-ONLY SYSTEMS. Read-only products were the first wireless automatic
identification products and were designed to, in certain circumstances,
replace bar-code technology. By using wireless identification tags, these
products reduce line-of-sight reading requirements, increase the amount of
data that can be transferred and allow for accurate readings in harsh
environments and on moving objects. These systems read, store, and
maintain such information in a database in a centralized computer. We
believe that read-only systems have not gained widespread acceptance
because of the large costs associated with their use as compared to the
benefits they provide.
- READ-WRITE SYSTEMS. Read-write systems were developed in order to solve
some of the limitations presented by read-only systems. Read-write
products store specific information directly on the tags, eliminating the
need to access a database in a centralized computer. However, a central
controlling computer or mainframe is needed to interpret the information
received from the tags
21
<PAGE>
and manage the decisions based on that information. The continued need for
central computer control results in systems that are relatively expensive.
I.D. SYSTEMS SOLUTION AND OUR BENEFITS
We have improved the conventional read-write system by providing processing
power, memory and data storage into our asset communicators, or tags, and system
monitors, or readers. As a result, our system does not require a controlling
central or mainframe computer to perform data communication and analysis
functions. This distinguishes our system from competing systems.
The benefits and advantages of our system include the following:
- INCREASED FLEXIBILITY. Our system is capable of meeting each customer's
requirements through low-cost customization. Due to our system's
flexibility, we can readily market our product to a diverse number of
industries by modifying the system software as well as the size and shape
of our devices.
- LOW COST. By providing processing power and memory into our system
components, we eliminate the need for customers to purchase and install a
dedicated central or mainframe computer and associated software and
required communication links. As a result, we believe our system costs
substantially less than competitive systems.
- HIGHLY RELIABLE. Our system eliminates system-wide failures that result
from "crashing" at the mainframe central station, or broken communication
links between a network of conventional readers and the central
controlling computer.
- HIGHLY FUNCTIONAL. By providing computer capabilities into our asset
communicators and system monitors, our system can monitor and track the
object to which it is attached as well as control various peripheral
devices, such as magnetic card readers, displays, and keypads.
STRATEGY
Our objective is to be the leading provider of wireless monitoring and
tracking systems. Key elements of our strategy are as follows:
EXPAND PRODUCT CAPABILITIES AND APPLICATIONS. We intend to continue to
expand our product's capabilities and applications. We believe that the
fundamental architecture of our products can be customized to support additional
features and functions which will broaden our customer base. As part of this
strategy, we have devoted and will continue to commit significant resources to
develop Application Specific Integrated Circuits that decrease the size of our
asset communicators as well as increase the functionality of our system.
STRENGTHEN SALES AND MARKETING EFFORTS. We intend to capitalize on the
growth in demand for automatic identification by continuing to market and
support our products and services. We also plan to strengthen our marketing,
sales and customer support efforts, including internet advertising, as the size
of our market opportunity and customer base increases. We will continue to
target large corporations and government agencies as well as develop strategic
relationships with system integrators and distributors in each of our target
markets.
DEVELOP ADDITIONAL REVENUE SOURCES. We intend to generate significant
revenues beyond the initial sale and installation of our base systems. We expect
to sell software and hardware upgrades as well as ongoing maintenance and
support contracts to our existing customers.
22
<PAGE>
OUR SYSTEM
The main components of our wireless monitoring and tracking system are
miniature computers called asset communicators that attach to the objects being
tracked or monitored. Each asset communicator has its own unique identification
code. Once attached to its assigned item, an asset communicator provides for the
two-way transfer of information using radio transmissions to and from
strategically-located monitoring devices called system monitors. Such two-way
communication is accomplished without a central or controlling mainframe
computer network. Our asset communicators can be tailored to fit the dimension
and functions of various objects. This flexibility allows our system to be used
in a wide variety of applications. We have obtained a patent for our system's
architecture.
Our system includes operating system software that runs on an existing
mainframe or personal computer to allow the system user to collect, manipulate
and display data from system monitors and asset communicators. This software
also enables data to be exchanged between existing computer databases and the
system monitor network. Customers with multiple facilities can access the data
for each facility over the Internet.
We believe that one of the more significant features of our system is that
the asset communicator is a mini-computer, capable of being programmed. Similar
to a personal computer, the software can be customized for several different
applications by changing its program. For example, the United States Postal
Service may elect to use the same asset communicator and system monitor hardware
to track mail as Federal Express to track vehicles. The difference lies in the
software that controls when, how, what and to whom each asset communicator
communicates, including storage and analysis. Each asset communicator and system
monitor is capable of controlling other devices such as a keypads, displays,
locks, or thermometers. This flexibility will allow our products to meet the
requirements of a wide range of markets while minimizing additional hardware
design and development costs.
OUR INITIAL TARGET MARKETS
We intend to emphasize our system's ability to adapt to the individual needs
of customers in a broad range of industries and applications. By modifying our
software without modifying our core technology, we can easily and
cost-effectively customize our system for a wide variety of uses. Initially, we
will target the following market segments:
- shipping and delivery companies;
- companies with fleets of forklift trucks and other similar vehicles;
- car rental companies; and
- railroad and transportation companies.
SHIPPING AND DELIVERY COMPANIES
Our system can be used by postal services and private sector shipping
companies to track packages as they travel through key points in distribution
centers. In these facilities, our system can be used to:
- analyze the speed and efficiency of package handling operations;
- identify bottlenecks in package handling operations;
- indicate where packages become misrouted; and
- locate misrouted packages.
The United States Postal Service inserts our asset communicators into
standard business envelopes which are tracked by system monitors throughout the
mail collection and distribution process. The
23
<PAGE>
United States Postal Service uses the data collected by our system to analyze
performance and highlight problem areas in the processing of mail.
COMPANIES WITH FLEETS OF FORKLIFTS AND OTHER SIMILAR VEHICLES
A wide variety of businesses can use our system to manage and monitor fleet
operations, such as forklift trucks and other similar vehicles in order to
become more efficient and provide security.
During a work shift, the system continually monitors and tracks each
vehicle. The system:
- continually updates each vehicle's location;
- enables real-time, two-way communication with individual vehicle
operators;
- provides maintenance schedules;
- warns of mechanical problems;
- tracks each vehicle's use, including engine hours, battery charge, time
spent in motion and time spent idle;
- requires an operator to enter a PIN authorization code or swipe a security
card to secure the vehicle; and
- requires the operator to conduct an Occupational Safety and Health
Administration checklist.
Our system provides benefits after the shift has completed. The system can
provide an evaluation of vehicle condition after the trip is completed, log the
operator off the vehicle without paperwork or direct human supervision, and shut
off the vehicle automatically. A manager can evaluate data in real-time or study
historical information stored in the system's databases.
We have received orders and delivered systems to the Federal Express
Corporation to monitor certain of their forklift trucks and other similar
vehicles. We have also received orders and delivered equipment to the United
States Postal Service's New Jersey International and Bulk Mail Center and we
have received orders from the United States Postal Service's Springfield Bulk
Mail Center, to monitor and control their forklift trucks and other similar
vehicles. We have also received orders from Ford Motor Corporation, QVC, Inc.,
Hallmark Cards, Inc. and World Color Press, Inc. for systems to monitor their
forklift trucks and other similar vehicles.
CAR RENTAL COMPANIES
Car rental companies can use our system for security, inventory control, and
value added services, as well as to improve overall operations. By attaching
asset communicators to rental cars, car rental companies can obtain real-time
information regarding all available rental cars at any site. This information
may include:
- number of available rental cars;
- vehicle identification numbers, make, model and year;
- fuel level and mileage;
- service and maintenance history; and
- rental history.
Our system also provides car rental companies with an automated and
efficient vehicle check-in and checkout process. We believe that car rental
companies desire to offer value added services and that our system provides
competitive advantages to rental car companies. Since our system is fully
automated, we believe that it offers a major reduction in the time and
inconvenience typically
24
<PAGE>
associated with the pick-up and return of a rental car. Also, our system offers
rental car companies the opportunity to reduce their staffs because we believe
that fewer service representatives will be required at each location at which
our system is installed. We have entered into an agreement with Avis to install
and test a pilot system to track their rental vehicles.
RAILCAR AND TRANSPORTATION COMPANIES
Conventional radio frequency identification tags used in this industry are
typical tags that are "read-only." As a result, we believe that the railcar and
container industry will benefit from the advantages of a wireless monitoring and
tracking system. We believe that our system will allow users in this industry
to:
- cost-effectively locate specific railcars and containers anywhere in the
world;
- monitor a railcar and containers' environment and pressure;
- keep an accurate inventory of containers at each depot;
- prevent theft, misuse or accidental use of containers as they arrive;
- ensure that railcars and containers are inspected on schedule; and
- keep an accurate history of the use of each railcar and container.
CURRENT CUSTOMERS
U.S. POSTAL SERVICE
The U.S. Postal Service is using our system to track the progress of letters
as they move into and out of selected postal facilities. The U.S. Postal Service
inserts our asset communicators into standard business envelopes which are
tracked by system monitors throughout the mail collection and distribution
process. The data collected provides evidence of performance and highlights
problem areas in the processing of mail. Our system also allows the U.S. Postal
Service to identify and eliminate bottlenecks within their facilities, which can
help improve the efficiency of the mail service. The initial program lasted
through the end of December 1996. In August 1997 the U.S. Postal Service entered
into an agreement with us to place our system in approximately 300 facilities by
the end of 1999. This agreement expires in September 2000.
We have received orders and delivered equipment to the United States Postal
Service's New Jersey International and Bulk Mail Center and we have received
orders from the United States Postal Service's Springfield Bulk Mail Center, to
track and control their forklift trucks and other similar vehicles. Our system
provides information as to each lift truck's use, including the time spent in
motion and time spent idle.
FEDERAL EXPRESS CORPORATION
We have received orders from and delivered equipment to Federal Express for
the installation of our system in certain Federal Express vehicles. Federal
Express may use this equipment to provide information on the usage of such
vehicles.
AVIS RENT A CAR SYSTEM, INC.
In October 1998, we entered into an agreement with Avis Rent A Car System,
Inc. for a pilot system. Avis will test our system in a select location to
determine whether our system will effectively monitor and track their rental
cars and automate their car rental and return process. By attaching asset
communicators to rental cars, Avis will be able to obtain real-time information
on all available cars, including fuel, mileage, service and maintenance history.
Our system can also provide Avis with an
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<PAGE>
automated and efficient car check-in and check-out process. If this test is
successful, Avis may purchase our system for its entire U.S. fleet. If this
occurs, we have agreed not to provide our system to another rental car company
for fifteen months.
SALES AND MARKETING
As of the date of this prospectus, our team consists of employees who market
our system directly to large corporations and government agencies and by
attending trade shows. After this offering, we will expand our national sales
and marketing team.
In April 1999, we were awarded a U.S. General Services Administration
contract. The award of this contract enables any government agency to purchase
our products on an off-the-shelf basis, without competitive bidding for a period
of five years. We believe that this contract provides significant sales
opportunities with other government agencies.
We plan to add features to our website to introduce prospective customers to
our system and its benefits. Visitors to our website will be able to compare
their vehicle performance to industry averages, "test drive" our system, and
forecast their potential return on an investment in our system. We intend to
increase traffic on our website by advertising on other related websites.
MANUFACTURING
The software and hardware components of our products are designed,
integrated and tested at our facilities. We also manufacture initial prototypes
at our facilities. We have entered into arrangements with two subcontractors to
produce our products. We do not invest in costly production equipment, employees
and facilities that would be required if we were to manufacture our products in
high volume. We have not, however, entered into an agreement providing for a
long-term commitment with these subcontractors to manufacture our products.
RESEARCH AND DEVELOPMENT
We believe that our current products can be readily adapted for use in a
wide variety of markets. To maintain our competitive advantage in the market, we
plan to continue our research and development efforts to:
- EXPAND THE FLEXIBILITY OF OUR PRODUCTS. We intend to concentrate our
software design effort on developing systems for each new customer's
needs. We will, at the same time, attempt to develop "off-the-shelf"
systems to allow for widespread use of our hardware and software.
- REDUCE THE COST AND SIZE OF OUR SYSTEM. Our design objective is to
integrate the asset communicator's electronic components into Application
Specific Integrated Circuits. This will allow us to reduce the size of our
system significantly and permit high volume production. These two
improvements will enable us to reduce the cost of our system. To
accomplish this, we intend to expand our in-house hardware design
capability to design, test, and support the development of this computer
chip.
COMPETITION
The market for wireless monitoring and tracking systems is relatively new,
constantly evolving and intensely competitive. We expect that competition will
intensify in the near future. Many of our current and potential competitors have
longer operating histories, greater name recognition and significantly greater
financial, technical and marketing resources than us. Our principal competitors
in the development and distribution of wireless monitoring and tracking systems
include: Unova, Inc., Motorola, Inc., Texas Instruments Incorporated, Raytheon
Company, Kasten Chase Applied Research and Micron Communications, Inc. As a
result, such competitors may be able to develop products
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<PAGE>
comparable or superior to us or adapt more quickly to new technologies or
evolving customer requirements. Competitive factors in this market include:
- the ability to customize technology to a customer's particular use;
- quality and reliability of products and software;
- ease of use and interactive features;
- cost per system; and
- compatibility with the user's existing network components and software
systems.
INTELLECTUAL PROPERTY
We currently have one patent issued in the U.S. relating to our product's
architecture and technology and corresponding applications in selected foreign
countries. The patent and currently pending corresponding foreign applications
may not provide us with any competitive advantage. Many of our current and
potential competitors dedicate substantially greater resources to protection and
enforcement of intellectual property rights, especially patents. If a patent is
issued in the future to a competitor which covers our products, we would need to
either obtain a license or design around the patent. We may not be able to
obtain such a license on acceptable terms, if at all, nor design around the
patent.
We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. However, we have not conducted and do not
conduct comprehensive patent searches to determine whether we infringe patents
or other proprietary rights held by third parties. In addition, it is difficult
to proceed with certainty in a rapidly evolving technological environment in
which there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. If we were to
discover that our products violate third-party proprietary rights, we may not be
able to:
- obtain licenses to continue offering such products without substantial
reengineering;
- reengineer our products successfully;
- obtain licenses on commercially reasonable terms, if at all; or
- litigate an alleged infringement successfully or settle without
substantial expense and damage awards.
Any claims against us relating to the infringement of third-party
proprietary rights, even if without merit, could result in our spending
significant financial and managerial resources or in injunctions preventing us
from distributing certain products. Such claims could materially adversely
affect our business, financial condition and results of operations.
Our software products are susceptible to unauthorized copying and uses that
may go undetected, and policing such unauthorized use is difficult. In general,
our efforts to protect our intellectual property rights through patent,
copyright, trademark and trade secret laws may not be effective to prevent
misappropriation of our technology, or to prevent the development and design by
others of products or technologies similar to or competitive with those
developed by us. Our failure or inability to protect our proprietary rights
could materially adversely affect our business, financial condition and results
of operations.
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<PAGE>
EMPLOYEES
We currently have 22 full time employees, of which 15 are engaged in product
development and customization, three in manufacturing, three in marketing, and
one in operations and administration. We expect to hire additional employees
following this offering.
PROPERTY
We lease approximately 5,650 square feet of office space in New York, New
York pursuant to a lease that expires on March 31, 2003. The rent is currently
$9,040 per month, excluding any commitment to contribute towards increases in
real estate taxes, and will increase annually to a maximum rental of $10,741 per
month.
LEGAL PROCEEDINGS
We currently are not involved in any legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Kenneth S. Ehrman................... 29 President and Director
Jeffrey M. Jagid.................... 30 Chief Operating Officer, General Counsel and Director
N. Bert Loosmore.................... 30 Executive Vice President of Engineering and Director
Michael L. Ehrman................... 26 Executive Vice President of Software Development
Bruce Jagid......................... 59 Treasurer and Director
Martin G. Rosansky.................. 60 Secretary and Director
</TABLE>
KENNETH S. EHRMAN is a founder and has been President and Director of I.D.
Systems since inception in 1993. He graduated from Stanford University in 1991
with a Bachelor of Science in Industrial Engineering, where he studied
Management, Production and Finance. Upon his graduation, and until the inception
of I.D. Systems in 1993, Mr. Ehrman worked as a production manager with a
Silicon Valley networking company. Mr. Ehrman is the brother of Michael L.
Ehrman.
JEFFREY M. JAGID has been Chief Operating Officer and a Director of I.D.
Systems, as well as its General Counsel since he joined I.D. Systems in 1995.
Mr. Jagid received a Bachelor of Business Administration from Emory University
in 1991 and a Juris Doctor degree from the Benjamin N. Cardozo School of Law in
1994. Prior to joining I.D. Systems, Mr. Jagid was a corporate litigation
associate at the law firm of Newman Tannenbaum Helpern Syracuse & Hirschtritt
LLP, in New York City. Mr. Jagid is a member of the Bars of the States of New
York and New Jersey. Mr. Jagid is the son of Bruce Jagid.
N. BERT LOOSMORE is a founder and has served as the Executive Vice President
of Engineering and Director of I.D. Systems since inception. Mr. Loosmore
graduated from Stanford University in 1991 with a Bachelor of Science in
Electrical Engineering, where he concentrated on computer hardware and software,
including microprocessor design. From 1991 to 1992, he worked at International
Business Machines, Inc. as a Design and Test Engineer and later as a Production
Engineer. From 1992 until the inception of I.D. Systems in 1993, Mr. Loosmore
was a Production Engineer at a Silicon Valley networking company.
MICHAEL L. EHRMAN has served as the Executive Vice President of Software
Development since he joined I.D. Systems in 1995. Mr. Ehrman served as a
director of I.D. Systems from the date he joined I.D. Systems until April 1999.
Mr. Ehrman graduated from Stanford University in 1994 with a Master of Science
in Engineering Economics Systems as well as a Bachelor of Science in Computer
Systems Engineering. Upon his graduation in 1994, Mr. Ehrman was employed as a
Consultant for Anderson Consulting in New York. Mr. Ehrman is the brother of
Kenneth Ehrman.
BRUCE JAGID is a founder, and has served as Treasurer and a Director of I.D.
Systems since inception. Mr. Jagid has served as Chairman of the Board of
Directors of Ultralife Batteries, Inc., a public company devoted to the
development and manufacture of primary and secondary lithium battery systems,
from March 1991 to January 1999, served as Chief Executive Officer from January
1992 to January 1999 and currently serves as a director. Prior to Mr. Jagid's
involvement with Ultralife, he co-founded Power Conversion, Inc., and was its
President until January 1989. Mr. Jagid received his Bachelor of Science in
Mechanical Engineering from the City College of New York and obtained his
masters degree in Mechanical Engineering from Rensselaer Polytechnic Institute.
Mr. Jagid is the father of Jeffrey M. Jagid.
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<PAGE>
MARTIN G. ROSANSKY is a founder, and has served as Secretary of I.D. Systems
since inception. In March 1991 Mr. Rosansky co-founded and served as the Vice
Chairman of Ultralife Batteries, Inc. Prior to Ultralife, in 1970, Mr. Rosansky
co-founded Power Conversion, Inc., where he was Chairman of the Board, Secretary
and Treasurer from 1970 to January 1989. Mr. Rosansky earned a Bachelor of
Science in Mechanical Engineering from Polytechnic Institute of Brooklyn in
1960.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Our
executive officers serve at the discretion of the Board of Directors and until
their successors are duly elected and qualified.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued, for the
fiscal years ended December 31, 1998, for I.D. Systems' President and three most
highly compensated executive officers other than its President, whose salary and
bonus were in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION AWARDS($)
-------------------- ------------------------------
<S> <C> <C> <C> <C>
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARD OPTIONS/SARS(#)
- -------------------------------------------------------------- --------- --------- ----------- -----------------
Kenneth S. Ehrman............................................. $ 80,000 $ 40,000 -- --
President
Jeffrey M. Jagid.............................................. $ 80,000 $ 40,000 -- --
Chief Operating Officer and General Counsel
N. Bert Loosmore.............................................. $ 80,000 $ 40,000 -- --
Executive Vice President of Engineering
Michael L. Ehrman............................................. $ 80,000 $ 40,000 -- --
Executive Vice President of Software Development
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted during the year ended
December 31, 1998 to I.D. Systems' President and three most highly compensated
executive officers. No options were exercised by such persons during fiscal
1998.
The following options:
- were granted under the I.D. Systems' 1995 Employee Stock Option Plan;
- vest 20% on the first anniversary of the date of grant and an additional
20% each subsequent anniversary from the date of grant; and
- are exercisable at a price which represents the fair market value for the
common stock on the date of grant.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SHARES GRANTED
UNDERLYING TO EMPLOYEES
OPTIONS IN FISCAL YEAR EXERCISE EXPIRATION
NAME GRANTED (%) PRICE ($/SH) DATE
- ------------------------------------------------- ----------- --------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Kenneth S. Ehrman................................ 56,250 12.9% $ 1.20 September , 2008
Jeffrey M. Jagid................................. 90,625 20.7% $ 1.20 September , 2008
N. Bert Loosmore................................. 56,250 12.9% $ 1.20 September , 2008
Michael L. Ehrman................................ 90,625 20.7% $ 1.20 September , 2008
</TABLE>
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<PAGE>
EMPLOYMENT AGREEMENTS
We have entered into three year employment agreements with each of Kenneth
Ehrman, Jeffrey Jagid, N. Bert Loosmore and Michael Ehrman. Pursuant to the
agreements, Kenneth Ehrman and Jeffrey Jagid are entitled to base salaries of
$108,000 and N. Bert Loosmore and Michael Ehrman are entitled to base salaries
of $96,000. Each employment agreement also provides that the employee is
entitled to a bonus as determined by the board of directors, from time to time,
and options under I.D. Systems' 1999 Stock Option Plan. Each Employment
Agreement provides for a term of three years and is renewable upon mutual
consent.
The employment agreements may be terminated for cause and, in the event of
change in control of I.D. Systems, each employee is entitled to a lump sum
payment equal to the greater of one year's salary or the base salary and
benefits that would have been received by the employee if he had remained
employed by I.D. Systems the remainder of the three year term.
The employment agreements also contain confidentiality and non-competition
provisions prohibiting the employee from competing against I.D. Systems and
disclosing trade secrets and other proprietary information.
1995 EMPLOYEE STOCK OPTION PLAN
In July 1995, the board of directors of I.D. Systems adopted a stock option
plan. This plan authorizes the granting of options to purchase up to an
aggregate of 1,250,000 shares of common stock to its key employees and
consultants. The options are non-qualified stock options. As of the date of this
prospectus, options to purchase 1,243,750 shares of common stock are outstanding
under this plan. Options to purchase 337,500 shares are exercisable at $.80 per
share and options to purchase 906,250 shares are exercisable at $1.20 per share.
The options vest over a period of five years. This plan terminates at the close
of business on July 8, 2005.
1999 STOCK OPTION PLAN
In April 1999, the board of directors and stockholders of I.D. Systems
adopted the 1999 Stock Option Plan, pursuant to which, 812,500 shares of common
stock are reserved for issuance upon the exercise of options. This plan is
designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
Our board of directors, or a committee administers this plan and is
authorized, in its discretion, to grant options to all eligible employees of
this plan including officers and directors of, and consultants to, I.D. Systems.
The plan provides for the granting of both incentive stock options and
non-qualified stock options. Options can be granted under this plan on terms and
at prices as determined by the board of directors, or a committee of the board
of directors, except that the exercise price of incentive options will not be
less than the fair market value of common stock on the date of grant. In the
case of an incentive stock option granted to a stockholder who owns more than
10% of the total combined voting power of all classes of stock of I.D. Systems,
the per share exercise proceeds will not be less than 110% of the fair market
value on the date of grant. The aggregate fair market value, determined on the
date of grant, of the shares covered by incentive stock options granted under
the plan that become exercisable by a grantee for the first time in any calendar
year is subject to a $100,000 limit.
As of the date of this prospectus, we have not granted any options to
purchase common stock under this plan.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan will not
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<PAGE>
become effective until the date of this offering. This plan has a term of ten
years, unless terminated sooner by the board. A total of 300,000 shares of
common stock have been reserved for issuance under this plan.
This plan provides for the automatic grant of 25,000 shares of common stock
to each non-employee director at the time he or she is first elected to the
board of directors. He or she will automatically be granted a subsequent option
to purchase 5,000 shares on the first day of each fiscal year, if on such date
he or she has served on the board for at least six months. Each option grant
under this plan will have a term of 10 years and will vest on a cumulative
monthly basis over a four-year period. The exercise price of all options will be
equal to the fair market value of the common stock on the date of grant.
Each of the plans provides for vesting to accelerate and become fully vested
in the event of a change of control of I.D. Systems and the options are not
assumed or substituted by a successor competitor.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established a compensation committee which consists of Bruce Jagid
and Martin Rosansky. We intend to establish an audit committee of the Board of
Directors prior to the consummation of this offering which will be comprised of
at least two independent directors.
DIRECTOR COMPENSATION
I.D. Systems reimburses its directors for reasonable travel expenses
incurred in connection with their activities on behalf of I.D. Systems but does
not pay its directors any fees for board participation.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation eliminates the liability of a director of
I.D. Systems for monetary damages for breach of duty as a director, subject to
certain exceptions. Our certificate of incorporation also provides for I.D.
Systems to indemnify each director of I.D. Systems to the fullest extent
permitted by the Delaware General Corporation Law. The foregoing provisions may
reduce the likelihood of derivative litigation against directors and may
discourage or deter stockholders or mange from suing directors for breaches of
their duty of care, even though such an action, if successful, might otherwise
benefit I.D. Systems and its stockholders. We have entered into indemnification
agreements with certain of our directors and officers in connection with their
service as our directors and officers.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of common stock held by:
- each person or entity who is known by I.D. Systems to beneficially owns
five percent or more of the common stock;
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<PAGE>
- each director and executive officer of I.D. Systems; and
- all directors and executive officers of I.D. Systems as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNERS(L) OWNED(2) OFFERING OFFERING
- ------------------------------------------------------------------------ ----------------- ----------- -----------
<S> <C> <C> <C>
Kenneth Ehrman.......................................................... 531,463(3) 15.4% 9.7%
N. Bert Loosmore........................................................ 548,125(4) 15.8% 10.0%
Bruce Jagid............................................................. 504,700(5) 14.6% 9.3%
Martin Rosansky......................................................... 550,538(6) 15.9% 10.1%
Michael Ehrman.......................................................... 154,025(7) 4.4% 2.8%
Jeffrey M. Jagid........................................................ 199,750(8) 5.7% 3.6%
All directors and executive officers as a group (6 persons)............. 2,488,601(9) 66.6% 43.4%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address for each named individual or group
is in care of I.D. Systems, Inc., 90 William Street, Suite 402, New York, NY
10038.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from
the date of this prospectus upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are held by such person (but not those held by any other person) and which
are exercisable within 60 days of the date of this prospectus have been
exercised and converted.
(3) Includes 47,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(4) Includes 47,500 shares of common stock underlying options granted to Mr.
Loosmore pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(5) Includes 40,000 shares of common stock underlying options granted to Mr.
Jagid pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(6) Includes 40,000 shares of common stock underlying options granted to Mr.
Rosansky pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of this prospectus.
(7) Includes 72,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(8) Includes 72,500 shares of common stock underlying options granted to Mr.
Jagid exercisable within sixty days of this prospectus.
(9) Includes 320,000 shares of common stock underlying options granted to such
individuals pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
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<PAGE>
CERTAIN TRANSACTIONS
In May 1998, we issued a purchase order in the amount of $390,000 to
Ultralife Batteries, Inc., a NASDAQ listed company on whose board of directors
Mr. Bruce Jagid and Mr. Rosansky serve.
We believe that this transaction was fair and reasonable to us and was on
terms no less favorable than could have been obtained from unaffiliated third
parties. We cannot assure you, however, that future transactions or arrangements
between us and affiliates will continue to be advantageous to us, that conflicts
of interest will not arise with respect thereto, or that if conflicts do arise,
they will be resolved in a manner favorable to us. Any such future transactions
will be on terms no less favorable to us than could be obtained from
unaffiliated parties and will be approved by our compensation committee.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 15,000,000 shares of common stock, par value $.01
per share and 5,000,000 shares of preferred stock, par value $.01 per share. As
of the date of this prospectus, we have outstanding 3,414,375 shares of common
stock owned by approximately holders of record.
COMMON STOCK
The holders of the common stock are entitled to one vote for each share held
of record in the election of directors of I.D. Systems and in all other matters
to be voted on by the stockholders. There is no cumulative voting with respect
to the election of directors. As a result, the holders of more than 50 percent
of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- to receive any dividends as may be declared by the board of directors out
of funds legally available for such purpose; and
- in the event of the liquidation, dissolution, or winding up of I.D.
Systems, to share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of stock, if
any, having preference over the common stock. All of the outstanding
shares of common stock are, and the shares of common stock offered hereby
will be, upon issuance and sale, validly issued, fully paid, and
nonassessable. Holders of common stock have no preemptive right to
subscribe for or purchase additional shares of any class of our capital
stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the certificate of incorporation to provide by resolution
for the issuance of shares of preferred stock, in one or more classes or series,
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock, is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
REPORTS TO STOCKHOLDERS
We have agreed, subject to the sale of the shares of common stock in this
offering, that on or before the date of this prospectus, we will register our
common stock under the provisions of Section 12(g) of the Exchange Act of 1934
and we will use our best efforts to maintain registration. Such registration
will require us to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, we will have 5,414,375 shares of
common stock outstanding, assuming no exercise of outstanding options and
warrants, of which the 2,000,000 shares being offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate", which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
All of the remaining 3,414,375 shares of common stock currently outstanding
are "restricted securities" or owned by "affiliates", as those terms are defined
in Rule 144, and may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. The 3,414,375 restricted shares, will be eligible for sale,
without registration, under Rule 144, 90 days following the date of this
prospectus.
LOCKUP AGREEMENT
Holders of all of the 3,414,375 outstanding shares of common stock have
agreed for a period of 12 months following the date of this prospectus without
the representative's prior written consent not to:
- sell or otherwise dispose of any shares of common stock in any public
market transaction including pursuant to Rule 144.
- exercise any rights held by such holders to cause us to register any
shares of common stock for sale pursuant to the Securities Act, in each
case, for a period of 12 months following the date of this prospectus,
without the representative's prior written consent.
RULE 144
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
I.D. Systems or persons whose shares are aggregated with an affiliate who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of the issuer's common stock; or
- the average weekly trading volume during the four calendar weeks preceding
such sale, provided that certain public information about the issuer as
required by Rule 144 is then available and the seller complies with
certain other requirements.
RULE 144(K)
A person who is not an affiliate, has not been an affiliate within three
months prior to sale, and has beneficially owned the restricted shares for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
NO PRIOR MARKET
Prior to this offering, there has been no market for the common stock and no
prediction can be made as to the effect, if any, that market sales of shares of
common stock or the availability of such shares for sale will have on the market
prices of the common stock prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for the common stock and
could impair our ability to raise capital through the sale of its equity
securities.
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CERTAIN CHARTER AND BYLAWS PROVISIONS
AND DELAWARE ANTI-TAKEOVER STATUE
I.D. Systems is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. This section prevents Delaware corporations
from engaging under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder," unless:
- the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers; or
- on or after the date of the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
I.D. Systems' certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting and the right of
stockholders to call special meetings of stockholders. The amended and restated
certificate of incorporation and bylaws do not provide for cumulative voting in
the election of directors. The authorization of undesignated preferred stock
makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of I.D. Systems. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of I.D. Systems. The amendment of any of these provisions would
require approval by holders of at least 75% of the outstanding common stock.
37
<PAGE>
UNDERWRITING
I.D. Systems and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares of common stock indicated in the following table. Gilford Securities
Incorporated is the representative of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Gilford Securities Incorporated............................................ 2,000,000
-----------------
Total.................................................................. 2,000,000
-----------------
-----------------
</TABLE>
The underwriters are committed to purchase all of the shares of common stock
offered by I.D. Systems if any shares of I.D. Systems are purchased.
The underwriters initially will offer the common stock to the public at the
price specified on the cover pages of this prospectus. The underwriters may
allow to some dealers a concession of not more than $ per share of
common stock. The underwriters also may allow, and any other dealers may
reallow, a concession of not more than $ per share of common stock to
some other dealers. If all the shares are not sold at the initial public
offering price, the underwriters may change the offering price and other selling
terms.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 300,000
shares from I.D. Systems to cover such sales at the initial public offering
price less the underwriting discounts and non-accountable expense allowance. If
any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth
above.
I.D. Systems has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act 1933. I.D. Systems
has agreed to pay to the representative a non-accountable expense allowance
equal to two percent of the gross proceeds derived from the sale of the shares
of common stock underwritten, $25,000 of which has been paid to date.
I.D. Systems has applied to list the common stock on the Nasdaq SmallCap
Market under the symbol IDSY.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
SmallCap Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
38
<PAGE>
I.D. Systems, its directors, officers and stockholders have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable or exercisable for shares of common stock
during the period from the date of this prospectus continuing through the date
12 months after the date of this prospectus, without the prior written consent
of the representative. The officers and directors of I.D. Systems and the
holders of all of the shares of common stock have agreed that, for 12 months
following the effective date of the registration statement, any sales of I.D.
Systems' securities shall be made through the representative in accordance with
its customary brokerage practices either on a principal or agency basis. An
appropriate legend shall be marked on the face of the certificates representing
all such securities.
I.D. Systems has agreed to issue and sell to the representative and/or its
designees, for nominal consideration, five year warrants to purchase 200,000
shares of common stock. The representative's warrants are exercisable for a
period of four years commencing one year after the date of this prospectus, at a
price equal to 120% of the initial public offering price of the common stock.
The representative's warrants are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the date of this prospectus, except
to officers of the representative. The representative's warrants contain
anti-dilution provisions providing for adjustments of the number of shares of
common stock issuable on exercise and the exercise price upon the occurrence of
some events, including stock dividends, stock splits, mergers, acquisitions and
recapitalization. The representative's warrants grant to the holders of the
warrants and to the holders of the underlying securities the right to register
the securities underlying the representative's warrants.
I.D. Systems has agreed that for three years from the effective date of the
registration statement, the representative may designate one person for election
to the board of directors of I.D. Systems. In the event that the representative
elects not to designate one person for election to the board of directors, then
it may designate one person to attend all meetings of the board of directors for
a period of five years. I.D. Systems has agreed to reimburse the
representative's designee for all out-of-pocket expenses incurred in connection
with the designees' attendance at meetings of the board of directors.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price of the common stock was determined by
negotiation between I.D. Systems and the representative. Among the factors
considered in determining such prices and terms, were the prevailing market
conditions, including the history of and the prospects for the industry in which
we compete, an assessment of our management, our prospects and our capital
structure. The offering price does not necessarily bear any relationship to our
assets, results of operations or net worth.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for us by Parker Chapin Flattau & Klimpl,
LLP, New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York
has acted as counsel for the underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and for the years ended
December 31, 1997 and 1998 included in this prospectus have been audited by
Richard A. Eisner & Company LLP, independent auditors, as indicated in their
report with respect thereto, and are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
39
<PAGE>
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act
with the Securities and Exchange Commission in Washington, D.C. with respect to
the securities offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to us and the securities offered hereby, reference is
made to the registration statement and the exhibits and schedules thereto filed
as a part thereof. Statements contained in this prospectus as to the contents of
any contract or other document filed as an exhibit to the registration statement
to are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. The registration statement, including all amendments, exhibits and
schedules thereto, may be inspected without charge at the office of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Securities and Exchange Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issues that file electronically with the Commission.
The address of site is http://www.sec.gov.
40
<PAGE>
I.D. SYSTEMS, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report............................................................................. F-2
Balance sheet as of December 31, 1998.................................................................... F-3
Statements of operations for the years ended December 31, 1997 and 1998.................................. F-4
Statements of changes in stockholders' equity for the years ended
December 31, 1997 and 1998............................................................................. F-5
Statements of cash flows for the years ended December 31, 1997 and 1998.................................. F-6
Notes to financial statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
I.D. Systems, Inc.
New York, New York
Upon the consummation of the 1.25 for 1 stock split described in the second
sentence of Note B[2] and the items described in Note I we would be in a
position to issue the following auditors' report:
Richard A. Eisner & Company, LLP
New York, New York
April 20, 1999
"We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 1998 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
"We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
"In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of I.D. Systems, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1998, in conformity with generally accepted
accounting principles."
New York, New York
April 20, 1999
With respect to Notes B[2] and I
, 1999
F-2
<PAGE>
I.D. SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents....................................................... $1,130,000
Accounts receivable............................................................. 741,000
Due from stockholders........................................................... 23,000
Deferred taxes.................................................................. 67,000
Prepaid expenses and other current assets....................................... 21,000
---------
Total current assets...................................................... 1,982,000
Fixed assets--net............................................................... 117,000
Other assets.................................................................... 3,000
---------
$2,102,000
---------
---------
LIABILITIES
Accounts payable and accrued expenses........................................... $ 329,000
Capital lease obligations....................................................... 10,000
Deferred revenue................................................................ 545,000
---------
Total current liabilities................................................. 884,000
Capital lease obligations....................................................... 16,000
Deferred rent................................................................... 38,000
Notes payable--stockholders, less unamortized debt discount of $44,000.......... 156,000
---------
1,094,000
---------
STOCKHOLDERS' EQUITY
Common stock; authorized 10,000,000 shares, $.01 par value; issued and
outstanding 3,414,000 shares.................................................. 34,000
Additional paid-in capital...................................................... 1,653,000
Accumulated deficit............................................................. (679,000)
---------
1,008,000
---------
$2,102,000
---------
---------
</TABLE>
F-3
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
---------- ------------
Revenues............................................................................... $ 733,000 $ 3,324,000
Cost of revenues....................................................................... 269,000 1,633,000
---------- ------------
Gross profit........................................................................... 464,000 1,691,000
Selling, general and administrative expenses........................................... 460,000 1,083,000
Research and development expenses...................................................... 22,000 64,000
---------- ------------
Income (loss) from operations.......................................................... (18,000) 544,000
Interest income........................................................................ 6,000 25,000
Interest expense....................................................................... (25,000) (48,000)
---------- ------------
Income (loss) before taxes............................................................. (37,000) 521,000
Income tax provision (benefit)......................................................... (112,000) 45,000
---------- ------------
NET INCOME--HISTORICAL................................................................. 75,000 476,000
PRO FORMA INCOME TAXES (BENEFIT)....................................................... (468,000) 192,000
---------- ------------
PRO FORMA NET INCOME................................................................... $ 543,000 $ 284,000
---------- ------------
---------- ------------
PRO FORMA NET INCOME PER SHARE--BASIC.................................................. $ .17 $ .08
---------- ------------
---------- ------------
PRO FORMA NET INCOME PER SHARE--DILUTED................................................ $ .17 $ .08
---------- ------------
---------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC INCOME PER SHARE..................... 3,154,000 3,414,000
EFFECT OF POTENTIAL COMMON SHARES FROM EXERCISE OF OPTIONS............................. 365,000
---------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--DILUTED INCOME PER SHARE................... 3,154,000 3,779,000
---------- ------------
---------- ------------
</TABLE>
F-4
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL COMMON
NUMBER OF PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT EQUITY
---------- --------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1997................... 3,000,000 $ 30,000 $ 1,292,000 $ (25,000) $ (1,230,000) $ 67,000
Payment of subscription receivable......... 25,000 25,000
Shares issued with interim financing....... 167,000 2,000 66,000 68,000
Exercise of warrants....................... 247,000 2,000 295,000 297,000
Net income for the year ended December 31,
1997..................................... 75,000 75,000
---------- --------- ------------ ----------- ------------- ------------
BALANCE--DECEMBER 31, 1997................. 3,414,000 34,000 1,653,000 0 (1,155,000) 532,000
Net income for the year ended December 31,
1998..................................... 476,000 476,000
---------- --------- ------------ ----------- ------------- ------------
BALANCE--DECEMBER 31, 1998................. 3,414,000 $ 34,000 $ 1,653,000 $ 0 $ (679,000) $1,008,000
---------- --------- ------------ ----------- ------------- ------------
---------- --------- ------------ ----------- ------------- ------------
</TABLE>
F-5
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C>
1997 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 75,000 $ 476,000
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization...................................................... 24,000 39,000
Amortization of debt discount...................................................... 10,000 14,000
Deferred taxes..................................................................... (112,000) 45,000
Deferred rent expenses............................................................. 38,000
Deferred revenue................................................................... 545,000
Changes in:
Accounts receivable.............................................................. (75,000) (601,000)
Inventory........................................................................ (3,000) 33,000
Prepaid expenses and other assets................................................ (16,000) 1,000
Accounts payable and accrued expenses............................................ (114,000) 266,000
----------- ------------
Net cash provided by (used in) operating activities.......................... (211,000) 856,000
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets............................................................. (31,000) (76,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscription receivable................................................ 25,000
Payment of lease obligations......................................................... (5,000) (6,000)
Proceeds from sale of stock and promissory notes..................................... 200,000
Proceeds from exercise of warrants................................................... 274,000
Payment of stockholder loans......................................................... (50,000)
----------- ------------
Net cash provided by (used in) financing activities.......................... 494,000 (56,000)
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............................................. 252,000 724,000
Cash and cash equivalents--January 1................................................... 154,000 406,000
----------- ------------
CASH AND CASH EQUIVALENTS--DECEMBER 31................................................. $ 406,000 $ 1,130,000
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................... $ 1,000 $ 31,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION:
Equipment acquired pursuant to capital lease obligations............................. $ 11,000 $ 19,000
</TABLE>
F-6
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A--THE COMPANY
I.D. Systems, Inc. (the "Company") develops wireless monitoring, tracking and
information collection systems. The Company customizes its wireless, intelligent
tracking and monitoring system for applications involving various types of
assets including vehicles, materials, equipment and people. The Company was
incorporated in Delaware in 1993 and commenced operations in January 1994.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[2] STOCK SPLIT:
On November 10, 1997, the Board of Directors approved a 10 for 1 stock
split. Subsequent to December 31, 1998 the Company effected a 1.25 for 1
stock split. The accompanying financial statements and notes hereto give
retroactive effect to the stock splits and accordingly, the number of
shares are stated on a post split basis.
[3] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Substantially all of the Company's cash and cash equivalents at December
31, 1998 were held at one financial institution.
[4] FIXED ASSETS AND DEPRECIATION:
Fixed assets are recorded at cost and depreciated using an accelerated
method over the estimated useful lives of the assets which range from five
to seven years. Equipment under capital leases are amortized using an
accelerated method over the terms of the respective leases, or their
estimated useful lives, whichever is shorter.
[5] RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred.
[6] PATENT COSTS:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
[7] REVENUE RECOGNITION:
Revenues in 1997 and 1998 were principally earned pursuant to two contracts
with the United States Postal Service in connection with the development
and sales of wireless monitoring systems and tracking devices. Revenues are
recognized when related time and material charges are incurred, services
are performed or goods are delivered in accordance with conditions of
related contracts. Amounts billed to customers that do not meet the
conditions of the Company's revenue recognition policy are recorded as
deferred revenue until such conditions are met.
F-7
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] BENEFIT PLAN:
The Company maintains a retirement plan under Section 401(k) of the
Internal Revenue Code which covers all eligible employees. The Company
contributed approximately $6,000 to the plan for the year ended December
31, 1998. The Company may decide to make additional contributions to the
plan.
[9] RENT EXPENSE:
Expense related to the Company's facility lease is recorded on a
straight-line basis over the lease term. The difference between rent
expense incurred and the amount paid is recorded as deferred rent and is
amortized over the lease term.
[10] 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".
[11] INCOME TAXES:
The Company had elected to be treated as an S corporation for federal and
state income tax purposes. As a result of this election, the income of the
Company was taxed directly to the individual stockholders. The Company
continued to be subject to New York City income tax. Subsequent to December
31, 1998, the Company filed an election to be taxed as a C corporation and,
effective January 1, 1999, will be subject to federal, state and local
income taxes. See Note F for pro forma information regarding the
incremental income tax provisions which would have been recorded if the
Company had been a taxable corporation, based on the tax laws in effect
during the years ended December 31, 1997 and 1998.
[12] PRO FORMA NET INCOME PER SHARE:
The Company calculates its pro forma net income per share in accordance
with the provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128
requires a dual presentation of "basic" and "diluted" income per share on
the face of the statements of operations. Basic income per share is
computed by dividing the net income by the weighted average number of
shares of common stock outstanding during each period. Diluted income per
share includes the effect, if any, from the potential exercise or
conversion of securities, such as stock options and warrants, which would
result in the issuance of incremental shares of common stock. For the year
ended December 31, 1997 the basic and diluted amounts are the same since
the effect from the potential exercise of 800,000 outstanding stock options
would have been anti-dilutive.
[13] FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, capital lease obligations and notes
payable approximate their fair values due to the short period to maturity
of these instruments.
F-8
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE C--FIXED ASSETS
Fixed assets are stated at cost and, at December 31, 1998, are summarized as
follows:
<TABLE>
<S> <C>
Laboratory equipment.............................................. $ 24,000
Computer software................................................. 15,000
Computer hardware................................................. 60,000
Furniture and fixtures............................................ 50,000
Equipment under capital lease..................................... 39,000
---------
188,000
Accumulated depreciation and amortization......................... 71,000
---------
$ 117,000
---------
---------
</TABLE>
NOTE D--EQUIPMENT LEASE OBLIGATIONS
The Company leases equipment under various agreements with original terms of
36 to 60 months and accounts for these leases as capital leases. The net book
value of the equipment held under capital leases was approximately $23,000 at
December 31, 1998.
Future lease payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 12,000
2000............................................................................ 5,000
2001............................................................................ 5,000
2002............................................................................ 5,000
2003............................................................................ 4,000
------------
31,000
Amount representing interest.................................................... 5,000
------------
Present value of future lease payments.......................................... 26,000
Amount due within one year...................................................... 10,000
------------
$ 16,000
------------
------------
</TABLE>
F-9
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE E--STOCKHOLDERS' EQUITY
[1] COMMON STOCK:
Pursuant to the terms of the Company's stockholders' agreement dated
December 1993, the Company was initially capitalized by the issuance of an
aggregate of 1,250,000 shares of common stock to four individuals who
contributed an aggregate of $100,000. Upon execution of the agreement, two
stockholders each loaned the Company $37,500, bearing interest at 7 1/2%,
payable on demand. The agreement also provided, among other things, for
options for each of the other two stockholders to purchase an additional
312,500 shares for $12,500. In December 1994, both stockholders exercised
their options, financing the transaction through notes payable to the
Company which were paid in November 1997. The agreement further provided
that, in the event that the options were exercised, each of the two
stockholders who loaned the Company money would convert $12,500 of their
loans to the Company to equity and, in January 1995, $25,000 of loans were
contributed to equity and no additional shares were issued. The remaining
loans payable in the amount of $50,000 along with accrued interest were
repaid by the Company in December 1998.
In April 1997, the Company completed a private placement whereby it sold
167,000 shares of common stock and issued $200,000 of promissory notes
maturing in April 2002 bearing interest at 8% per annum for gross proceeds
of $200,000. The common stock issued was valued at $68,000 representing debt
discount which is being amortized over the five-year term of the promissory
notes. As a result, the effective annual interest rate was approximately
15%. For the years ended December 31, 1997 and 1998, $10,000 and $14,000 was
amortized, respectively, and is included in interest expense. In February
1999, the Company repaid $105,000 of the notes plus $28,000 of accrued
interest pursuant to prepayment provisions of the notes. Accordingly, the
Company reduced debt discount and recorded an expense of $23,000 in
connection with the repayment.
In November 1997, the Company issued 247,000 shares of common stock and
received proceeds of $274,000 and a subscription receivable of $23,000 which
was received by the Company subsequent to December 31, 1998 in connection
with the exercise of warrants issued in connection with an equity financing
in a prior year. All other warrants issued in connection with such financing
expired in November 1997.
[2] STOCK OPTIONS:
The Company has adopted a nonqualified stock option plan (the "1995 Plan")
which authorizes the granting, to key employees and consultants, of options
to purchase up to an aggregate of 1,250,000 shares of the Company's common
stock. The 1995 Plan is administered by the Board of Directors, which has
the authority to determine the term during which an option may be exercised
(not more than 10 years), the exercise price of an option and the rate at
which options may be exercised.
F-10
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE E--STOCKHOLDERS' EQUITY (CONTINUED)
[2] STOCK OPTIONS: (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997 and 1998 and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
1997 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- ---------- ---------------
Outstanding at beginning of year........ 425,000 $ 0.88 800,000 $ 1.03
Granted................................. 375,000 1.20 438,000 1.20
--------- ----- ---------- -----
Outstanding at end of year.............. 800,000 1.03 1,238,000 1.09
--------- ----- ---------- -----
--------- ----- ---------- -----
Exercisable at end of year.............. 170,000 0.88 330,000 0.95
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -------------------------
SHARES WEIGHTED SHARES
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
- ---------- ------------ ----------- --------- ------------ -----------
<C> <C> <S> <C> <C> <C>
$0.80...... 338,000 6.52 years $ 0.80 203,000 $ 0.80
$1.20...... 900,000 8.94 years 1.20 127,000 1.20
------------ ----------- --------- ------------ -----
1,238,000 8.28 years 1.09 330,000 0.95
------------ ----------- --------- ------------ -----
------------ ----------- --------- ------------ -----
</TABLE>
At December 31, 1998, 12,000 options were available for future grant under
the 1995 plan which were granted in 1999.
The Company applies APB Opinion 25 and related interpretations in accounting
for options. Accordingly, no compensation cost has been recognized for
employee stock option grants. Had compensation cost for employee stock
option grants been determined based on the fair value at the grant dates for
awards consistent with the method of SFAS No. 123, the Company's historical
net income, pro forma net income and pro forma net income per share (basic
and diluted) for the year ended December 31, 1997 would have been
approximately $40,000, $508,000 and $.16, respectively. The Company's
historical net income, pro forma net income and pro forma net income per
share (basic and diluted) for the year ended December 31, 1998 would have
been approximately $409,000, $217,000 and $.06, respectively. The fair value
of each option grant on the date of grant is estimated using the
Black-Scholes option-pricing model with a minimum value volatility of
effectively 0%, expected life of options of 7 years, risk free interest rate
of 6% and a dividend yield of 0%. The weighted average fair value of options
granted during the years ended December 31, 1997 and 1998 were $.37 and
$.44, respectively.
F-11
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE F--INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT)
[1] HISTORICAL:
The Company is only subject to local income taxes. The income tax benefit of
$112,000 in 1997 reflects the recognition, at December 31, 1997, of a
deferred tax asset relating to the Company's net operating loss
carryforwards for local tax purposes. $109,000 of such benefit relates to a
reduction in the valuation allowance which had previously been provided due
to management's uncertainty regarding the Company's ability to generate
taxable income against which it could apply its net operating loss
carryforwards. The 1998 income tax provision of $45,000 reflects the
utilization of a portion of the deferred tax asset to reduce current tax
expense. As a result the Company has a deferred tax asset of $67,000 at
December 31, 1998, which reflects the Company's net operating loss
carryforwards for local income taxes of approximately $750,000 and which
expire through 2012. The Company is subject to an annual limitation on the
utilization of a portion of its net operating loss carryforwards. Future
stock issuances may subject the Company to additional limitations.
The difference between income taxes (benefits) at the statutory federal
income tax rate and income taxes (benefits) reported in the statements of
operations are attributable to the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
<S> <C> <C>
1997 1998
----------- ----------
Income taxes (benefit) at the federal statutory rate................. $ (13,000) $ 177,000
State and local income taxes (benefit), net of effect on federal
taxes.............................................................. (4,000) 60,000
Reduction of valuation allowance..................................... (109,000)
Effect of S corporation status....................................... 468,000 (192,000)
Reduction of pro forma valuation allowance........................... (454,000)
----------- ----------
$ (112,000) $ 45,000
----------- ----------
----------- ----------
</TABLE>
[2] PRO FORMA:
As a result of the S corporation election, the financial statements do not
include a provision for federal and state income taxes. Subsequent to
December 31, 1998 the Company filed an election to be taxed as a C
corporation, effective January 1, 1999 and accordingly will be subject to
federal, state and local income taxes. Pro forma net income in the
accompanying statements of operations includes pro forma adjustments for
federal and state income taxes (benefits) which would have been provided
(recognized) had the S corporation election not been in effect and is
comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
<S> <C> <C>
1997 1998
----------- ----------
Deferred:
Federal............................................................ $ (354,000) $ 145,000
State.............................................................. (114,000) 47,000
----------- ----------
Pro forma taxes (benefit) on income.................................. $ (468,000) $ 192,000
----------- ----------
----------- ----------
</TABLE>
F-12
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE F--INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT) (Continued)
[2] PRO FORMA: (CONTINUED)
The pro forma tax benefit of $468,000 for 1997 reflects a pro forma deferred
tax asset relating to the Company's net operating loss carryforwards for
federal and state purposes. $454,000 of such pro forma benefit relates to a
reduction in the pro forma valuation reserve which had previously been
provided.
NOTE G--COMMITMENTS AND OTHER MATTERS
[1] OPERATING LEASES:
The Company has entered into various operating leases which provide for
minimum annual rent payments as follows:
<TABLE>
<CAPTION>
OFFICE
FACILITIES OTHER
---------- ---------
<S> <C> <C>
1999................................................................... $ 108,000 $ 45,000
2000................................................................... 117,000 30,000
2001................................................................... 126,000 10,000
2002................................................................... 129,000
2003................................................................... 32,000
---------- ---------
$ 512,000 $ 85,000
---------- ---------
---------- ---------
</TABLE>
The office lease also provides for escalations relating to increases in real
estate taxes and certain operating expenses. Expenses relating to operating
leases aggregated approximately $48,000 and $141,000 for the years ended
December 31, 1997 and 1998, respectively.
[2] CONCENTRATION OF CUSTOMERS:
One customer accounted for approximately 99% and 95% of the Company's
revenues during the years ended December 31, 1997 and 1998, respectively.
This customer accounted for approximately 92% of the Company's accounts
receivable balance at December 31, 1998.
[3] RELATED PARTY TRANSACTIONS:
During the years ended December 31, 1997 and 1998, the Company purchased
approximately $18,000 and $33,000, respectively, of components from a
company where two of the directors are directors of the Company.
Additionally, at December 31, 1998 $357,000 remained open under a purchase
order issued in 1998.
NOTE H--PROPOSED PUBLIC OFFERING
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no
assurance that such offering will be consummated. In connection therewith,
the Company anticipates incurring substantial costs, which, if the offering
is not consummated, will be charged to expense.
F-13
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE I--SUBSEQUENT EVENTS
Subsequent to December 31, 1998 the Company adopted the 1999 Stock Option
Plan and the 1999 Director Option Plan pursuant to which the Company may grant
options to purchase up to 812,500 and 300,000 shares of common stock,
respectively.
Subsequent to December 31, 1998 the Company authorized 5,000,000 shares of
preferred stock. The Company's board of directors has the authority to issue
shares of preferred stock and to determine the price and terms of those shares.
F-14
<PAGE>
[INSIDE BACK COVER PAGE]
Proposed pictures for inside back cover:
<TABLE>
<S> <C>
Caption: Wireless Monitoring and Tracking Systems for Virtually Any Object.
Top Right: Picture of I.D. Systems' software.
Caption: Operating system software.
Bottom Right: Picture of PC assessing Internet overlooking warehouse.
Caption: Data Collection Via Internet.
Top Left: Picture of I.D. Systems' Asset Communicator.
Caption: System monitor
Bottom Left: Picture of I.D. Systems' Asset Communicator.
Caption: Asset Communicator
Scattered
Captions: User friendly; wide variety of applications; proprietary software;
patented system architecture.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Forward Looking Statements................................................ 11
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 21
Management................................................................ 29
Principal Stockholders.................................................... 32
Certain Transactions...................................................... 34
Description of Securities................................................. 35
Shares Eligible for Future Sale........................................... 36
Certain Charter and Bylaws Provisions and Delaware Anti-Takeover Statue... 37
Underwriting.............................................................. 38
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 40
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
[LOGO]
I.D. SYSTEMS, INC.
2,000,000 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
GILFORD SECURITIES
INCORPORATED
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant.
The Certificate of Incorporation includes provisions to the effect that
(subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonable believes are not in violation of the Registrant's corporate
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charger provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. See Item 28.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee.................................................................... $ 5,649
NASD filing fee..................................................................... 2,340
Nasdaq listing expenses............................................................. 10,000
Boston Stock Exchange listing fee................................................... *
Blue sky fees and expenses (including legal and filing fees)........................ *
Printing expenses (other than stock certificates)................................... *
Printing and engraving of stock certificates........................................ *
Legal fees and expenses (other than Blue Sky)....................................... *
Consulting fee...................................................................... *
Accounting fees and expenses........................................................ *
Transfer Agent and Registrar fees and expenses...................................... *
Miscellaneous expenses.............................................................. *
---------
Total........................................................................... $
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1996, the Registrant issued a total of 166,675 shares of common
stock to 31 of its then existing stockholders pursuant to a private placement,
in consideration for payment by such stockholders to the Registrant of $200,010
in cash.
In April 1997 the Registrant issued a series of promissory notes and a total
of 166,737.5 shares of common stock to 29 of its then existing stockholders, in
consideration for an aggregate payment by such stockholders to the Registrant of
$200,090 in cash.
In November 1997 the Registrant issued 247,175 shares of common stock to 24
of its then existing stockholders upon exercise of warrants which had been
issued to such stockholders on November 15, 1995 at a price of $1.20 per share.
Registrant received $296,610 in cash as a result of the exercise of the
warrants.
In issuing securities under the exemption provided by Section 4(2) of the
Securities Act, the Registrant relied on representations made by each purchaser
that such purchaser was either an "accredited investor" as such term is defined
in Rule 501 of Regulation D promulgated under the Securities Act or that such
purchaser has such knowledge and experience in financial and business matters
that such person was capable of evaluating the merits and risks of the
investment.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.**
3.2 Amended and Restated By-Laws of the Registrant.**
4.1 Specimen Certificate of the Registrant's Common Stock.**
4.2 Form of Representative's Warrant Agreement, including Form of Warrant Certificate.**
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.**
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer and Award Standard dated August 22,
1997, as modified on May 12, 1998, September 8, 1998 and March 5, 1999.*
10.2 Federal Supply Service Information Technology Schedule Award effective April 15, 2005.**
10.3 Form of Employment Agreement between the Registrant and its executive officers.**
10.4 Office Lease dated September 30, 1997 between the Registrant and Tov LLC.*
10.5 1995 Non-Qualified Stock Option Plan.*
10.6 1999 Stock Option Plan.*
10.7 Form of Indemnification Agreement.**
10.8 1999 Director Stock Option Plan.**
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in Exhibit 5.1).**
24.1 Power of Attorney (see page II-5).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing as specified in the Underwriting Agreement Common Stock
certificates in such denominations and registered in such names as required by
the Underwriting Agreement to permit prompt delivery to each purchaser.
II-2
<PAGE>
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Securities and Exchange Commission declared it effective.
For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, in New
York County, State of New York, on the 13th day of May, 1999.
I.D. SYSTEMS, INC.
By: /s/ KENNETH S. EHRMAN
-----------------------------------------
Kenneth S. Ehrman
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ KENNETH S. EHRMAN President (Principal
- ------------------------------ Executive Officer) and May 13, 1999
Kenneth S. Ehrman Director
* Director
- ------------------------------ May 13, 1999
Jeffrey M. Jagid
* Director
- ------------------------------ May 13, 1999
N. Bert Loosmore
* Treasurer (Principal
- ------------------------------ Accounting Officer) and May 13, 1999
Bruce Jagid Director
* Director Martin G. Rosansky
- ------------------------------ May 13, 1999
Martin G. Rosansky
<TABLE>
<S> <C> <C> <C>
*By: /s/ KENNETH S. EHRMAN
-------------------------
Kenneth S. Ehrman
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Registrant.**
3.2 Amended and Restated By-Laws of the Registrant.**
4.1 Specimen Certificate of the Registrant's Common Stock.**
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.**
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.**
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer and Award Standard dated August 22,
1997, as modified on May 12, 1998, September 8, 1998, and March 5, 1999.*
10.2 Federal Supply Service Information Technology schedule Award effective April 16, 1999 through April 15,
2004.**
10.3 Form of Employment Agreement between the Registrant and its executive officers.**
10.4 Office Lease dated September 30, 1997 between the Registrant and Tov LLC.*
10.5 1995 Non-Qualified Stock Option Plan.*
10.6 1999 Stock Option Plan.*
10.7 Form of Indemnification Agreement.**
10.8 1999 Director Option Plan.**
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP. (included in Exhibit 5.1)**
24.1 Power of Attorney (see page II-5).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
** To be filed by amendment.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 1 to Registration Statement
on Form SB-2 of our report dated April 20, 1999 on the financial statements
of I.D. Systems, Inc. as of December 31, 1998 and for the years ended
December 31, 1997 and December 31, 1998. We also consent to the reference to
our firm under the caption "Experts" in the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
May 13, 1999
