SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number: 1-15087
December 31, 1999
I.D. SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 22-3270799
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One University Plaza, Hackensack, New Jersey 07601
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (201) 670-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes __x__ No_____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __x__
State issuer's revenues for its most recent fiscal year = $5,555,000
The aggregate market value of the Common Stock held by nonaffiliates of the
Issuer was approximately $42,500,000 based upon the last sales price of such
stock on March 27, 2000, as disclosed on The NASDAQ Small Cap Market (IDSY).
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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PART I
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Item 1. Description of Business.........................................................................1
Item 2. Description of Properties......................................................................11
Item 3. Legal Proceedings..............................................................................11
Item 4. Submission of Matters to a Vote of Security Holders............................................11
PART II
Item 5. Market For the Registrant's Common Equity and Related Stockholder Matters......................12
Item 6. Management's Discussion and Analysis...........................................................12
Item 7. Financial Statements...........................................................................18
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure............................................................35
PART III
Item 9. Directors and Executive Officers of the Registrant...........................................36
Item 10. Executive Compensation........................................................................38
Item 11. Security Ownership of Certain Beneficial Owners and Management................................40
Item 12. Certain Relationships and Related Transactions................................................43
Item 13. Exhibits, List and Reports on Form 8-K........................................................44
Exhibit Index 46.................................................................................................46
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PART I
Item 1. Description of Business
I.D. Systems, Inc. is a leading provider of wireless solutions which
designs, develops, and produces innovative wireless monitoring and tracking
solutions that utilize its patented radio frequency-based system and
Internet-based data management technology. The Company's products are designed
to enable users to improve operating efficiencies, reduce costs, and increase
profits. Its principal customers include DaimlerChrysler Corporation, Dana
Commercial Credit Corporation, a wholly owned subsidiary of Dana Corporation,
Federal Express Corporation, Ford Motor Company, General Motor Corporation,
Hallmark Cards, Inc., QVC Inc., Union Pacific Railroad a subsidiary of Union
Pacific Corporation and the United States Postal Service.
Industry Overview
Growth of the Automatic Data Collection Market
The Company's products are targeted to the automatic data collection
market. That is, 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.
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o 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. The Company believes 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.
o 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 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 Benefits
The Company has improved the conventional read-write system by providing
processing power, memory and data storage into its asset communicators, or tags,
and system monitors, or readers. As a result, the Company's system (the "ID
System") does not require a controlling central or mainframe computer to perform
data communication and analysis functions. This distinguishes the ID System from
competing systems.
The benefits and advantages of the ID System include the following:
o Increased Flexibility. The ID System is capable of meeting each
customer's requirements through low-cost customization. Due to the ID System's
flexibility, the Company can readily market the system to a diverse number of
industries by modifying the system software, as well as the size and shape of
its devices.
o Low Cost. By providing processing power and memory into the system
components, the Company eliminates the need for customers to purchase and
install a dedicated central or mainframe computer and associated software and
required communication links. As a result, the Company believes that its system
costs substantially less than competitive systems.
o Highly Reliable. The ID 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.
o Highly Functional. By providing computer capabilities into the asset
communicators and system monitors, the ID System can monitor, track and control
the object to which the system is attached, as well as control various
peripheral devices, such as magnetic card readers, displays, and keypads.
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Strategy
The Company's objective is to be the leading provider of wireless
solutions. Key elements of the Company's strategy are as follows:
Expand Product Capabilities and Applications. The Company intends to
continue to expand the ID System's capabilities and applications. The Company
believes that the fundamental architecture of the ID System can be customized to
support additional features and functions which will broaden the Company's
customer base. As part of this strategy, the Company has devoted and will
continue to commit significant resources to develop Application Specific
Integrated Circuits that decreases the size of the Company's asset communicators
as well as increase the functionality of the system.
Strengthen Sales and Marketing Efforts. The Company intends to capitalize
on the growth in demand for automatic identification by continuing to market and
support its products and services. The Company also plans to strengthen its
marketing, sales and customer support efforts, including internet advertising,
as the size of its market opportunity and customer base increases. The Company
will continue to target large corporations and government agencies, as well as
develop strategic relationships with system integrators and distributors in each
of its target markets. The Company will also continue to form strategic
relationships with partners that have the potential to rapidly accelerate its
sales growth in its target markets.
Develop Additional Revenue Sources. The Company intends to generate
significant revenues beyond the initial sale and installation of its base
systems. It expects to sell software and hardware upgrades, as well as ongoing
maintenance and support contracts to its existing customers.
The Company's System
The main components of the ID System is 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. The two-way communication is
accomplished without a central or controlling mainframe computer network. The
Company's asset communicators can be tailored to fit the dimension and functions
of various objects. This flexibility allows the ID System to be used in a wide
variety of applications. The Company has obtained a patent for the ID System's
architecture.
The ID 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.
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The Company believes that one of the more significant features of the ID
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 does 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
keypads, displays, locks, or thermometers. This flexibility will allow the
Company's products to meet the requirements of a wide range of markets while
minimizing additional hardware design and development costs.
Initial Target Markets
The Company intends to emphasize the ID System's ability to adapt to the
individual needs of customers in a broad range of industries and applications.
By modifying its software without modifying the core technology, the Company can
easily and cost-effectively customize the system for a wide variety of uses.
Initially, the Company will target the following market segments:
o shipping and delivery companies;
o companies with fleets of forklift trucks and other similar vehicles;
o car rental companies; and
o railroad and transportation companies.
Shipping and Delivery Companies
The ID 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, the system can be used to:
o analyze the speed and efficiency of package handling operations;
o identify bottlenecks in package handling operations;
o indicate where packages become misrouted; and
o locate misrouted packages.
The United States Postal Service inserts the Company's asset communicators
into standard business envelopes which are tracked by system monitors throughout
the mail
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collection and distribution process. The United States Postal Service uses the
data collected by the 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 the ID 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 complete an Occupational Safety and
Health Administration checklist.
The ID 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.
The Company has received orders from the DaimlerChrysler Corporation, Dana
Commercial Credit Corporation ("DCC"), Federal Express Corporation, Ford Motor
Company, General Motor Corporation, Hallmark Cards, Inc., QVC Inc. and various
United States Postal Bulk Mail Centers to monitor certain of their forklift
trucks and other similar vehicles. The Company has also entered into a joint
marketing agreement with DCC, one of the largest industrial fleet leasing and
management companies in the United States. Under the agreement, DCC will
exclusively promote the Company's wireless fleet management systems to its
customers in North America. DCC will also actively market the ID System through
its existing distribution channels, which include a direct sales force and a
network of several hundred
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industrial equipment dealers. Under the agreement, the Company granted DCC an
exclusive option to provide financial services to any customer who finances its
acquisition of the Company's products. The Company will also assist DCC in
developing an Internet-based data collection and distribution system for
tracking and managing fleets of industrial vehicles.
Car Rental Companies
Car rental companies can use the ID 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.
The ID System also provides car rental companies with an automated and
efficient vehicle check-in and checkout process. The Company believe that car
rental companies desire to offer value added services and that the ID System
provides competitive advantages to them. Since the ID System is fully automated,
the Company believes that it offers a major reduction in the time and
inconvenience typically associated with the pick-up and return of a rental car.
Also, the system offers rental car companies the opportunity to reduce their
staffs because the Company believes that fewer service representatives will be
required at each location at which the system is installed. The Company has
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 pilot program was completed during 1999 and Avis is currently evaluating the
results.
Railcar and transportation companies
Conventional radio frequency identification tags used in this industry are
typical tags that are "read-only." With the ID System, railcars communicate
vital data (order of the train, status of contents, geographical location, etc.)
utilizing a combination of radio frequency, cellular or satellite link and the
Internet. The Company's customers will be able to view and analyze data remotely
- - and in real time - using the ID System's web-based reporting tools and on-line
graphical route maps. The ID System is unique because it communicates data from
the entire train of railcars with just one cellular or satellite link. Compared
to railcar-tracking systems that rely on satellite transmitters on every
railcar, the Company's approach can save millions of dollars in ongoing
satellite communications charges. This approach also provides significantly
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more information than the railroads' existing railcar-tracking system which
cannot provide data in real time as it relies on only about 1,200 "reader" sites
throughout the United States. As a result, the Company believes that the railcar
and container industry will benefit from the advantages of a wireless monitoring
and tracking system. The Company believe that the ID 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.
The Company was awarded an initial pilot program by Union Pacific Railroad
(UP), to monitor trains using the ID System. The ID System will provide UP and
one of its customers, FMC Corporation, with real-time location and status of
railcars. The Company has also entered into a strategic teaming agreement with
GE Harris Railway Electronics, L.L.C., the leading provider of electronics,
communications and train control technology for the global railroad industry.
Under the agreement, the Company and GE Harris will collaborate to develop
applications and opportunities in the railroad industry that integrate the
Company's technology and GE Harris technology.
Customers
The Company's customers include DaimlerChrysler Corporation, Dana
Commercial Credit Corporation, a wholly owned subsidiary of Dana Corporation,
Federal Express Corporation, Ford Motor Company, General Motors Corporation,
Hallmark Cards, Inc., QVC Inc., Union Pacific Railroad, a subsidiary of Union
Pacific Corporation, and the United States Postal Service.
During the year ended December 31, 1998 the United States Postal Service
accounted for 95% of the Company's revenue. During the year ended December 31,
1999 that number decreased to 70% as the Company continued to diversify its
revenue sources.
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Sales and Marketing
The Company's sales force consists of employees who market the system
directly to large corporations and government agencies and by attending trade
shows.
In April 1999, the Company was awarded a United States General Services
Administration contract which enables any government agency to purchase the
Company's products on an off-the-shelf basis, without competitive bidding, for a
period of five years. The Company believes that this contract provides
significant sales opportunities with other government agencies.
The Company plans to add features to its website to introduce prospective
customers to the ID System and its benefits. Visitors to the Company's website
will be able to compare their vehicle performance to industry averages, "test
drive" the system, and forecast their potential return on an investment in the
system. The Company intends to increase traffic on its website by advertising on
other strategic websites.
Manufacturing
The software and hardware components of the Company's products are
designed, integrated and tested at the Company's facilities. The Company also
manufactures initial prototypes at its facilities. The Company has entered into
arrangements with two subcontractors to produce products. The Company does not
invest in the costly production equipment, employees and facilities that would
be required if it were to manufacture the products in high volume. The Company
has not, however, entered into an agreement providing for a long-term commitment
with these subcontractors to manufacture products.
Research and Development
The Company believes that its current products can be readily adapted for
use in a wide variety of markets. To maintain its competitive advantage in the
market, the Company plans to continue its research and development efforts to:
Expand the flexibility of the Company's products. The Company intends to
concentrate its software design efforts on developing systems for each new
customer's needs. The Company will, at the same time, attempt to develop
"off-the-shelf" systems to allow for widespread use of the Company's hardware
and software.
Reduce the cost and size of the Company's system. The Company's design
objective is to integrate the asset communicator's electronic components into
its Application Specific Integrated Circuits. This will allow the Company to
reduce the size of the ID System significantly and permit high volume production
which, in turn, will enable the Company to reduce the cost of the ID System. To
accomplish this, the Company intends to expand its in-house hardware design
capability to design, test, and support the development of this computer chip.
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Competition
The market for wireless monitoring and tracking systems is relatively new,
constantly evolving and intensely competitive. The Company expects that
competition will intensify in the near future. Many of the Company's current and
potential competitors have longer operating histories, greater name recognition
and significantly greater financial, technical and marketing resources than the
Company. The Company's 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, its competitors may be
able to develop products comparable or superior to us or adapt more quickly to
new technologies or evolving customer requirements. Competitive factors in this
market include:
o the ability to customize technology to a customer's particular use;
o quality and reliability of products and software;
o ease of use and interactive features;
o cost per system; and
o compatibility with the user's existing network components and software
systems.
Intellectual Property
The Company currently has one United States patent relating to the
Company's product's architecture and technology. It also has corresponding
applications in selected foreign countries. The patent and currently pending
corresponding foreign applications may not provide the Company with any
competitive advantage. Many of the Company's 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 the Company's products, the Company would
need to either obtain a license or design around the patent. The Company may not
be able to obtain such a license on acceptable terms, if at all, nor design
around the patent.
The Company attempts to avoid infringing known proprietary rights of third
parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent searches to determine
whether it infringes 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 the Company were to discover that its products violate
third-party proprietary rights, the Company may not be able to:
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o obtain licenses to continue offering such products without substantial
reengineering;
o reengineer the Company's products successfully;
o obtain licenses on commercially reasonable terms, if at all; or
o litigate an alleged infringement successfully or settle without
substantial expense and damage awards.
Any claims against the Company relating to the infringement of third-party
proprietary rights, even if without merit, could result in the expenditure of
significant financial and managerial resources or in injunctions preventing us
from distributing certain products. Such claims could materially adversely
affect the Company's business, financial condition and results of operations.
The Company's software products are susceptible to unauthorized copying and
uses that may go undetected, and policing such unauthorized use is difficult. In
general, the Company's efforts to protect its intellectual property rights
through patent, copyright, trademark and trade secret laws may not be effective
to prevent misappropriation of the technology, or to prevent the development and
design by others of products or technologies similar to or competitive with
those developed by the Company. The Company's failure or inability to protect
the its proprietary rights could materially adversely affect the Company's
business, financial condition and results of operations.
Employees
The Company currently has thirty-one full time employees, of which eighteen
are engaged in product development and customization, four in operations and
manufacturing, five in sales and marketing, and four in finance and
administration.
Recent Public Offering
On June 30, 1999, the Company completed its initial public offering of its
common stock, which closed in July 1999 and August 1999 (over-allotment). The
offering provided net proceeds to the Company of approximately $13,921,000 from
the sale of 2,300,000 shares at $7.00 per share. The Company has been applying
the proceeds in accordance with its Prospectus dated June 30, 1999.
Specifically, during March 2000 the Company moved to its new facility in
Hackensack, New Jersey. In connection with the move, it expanded its software
and hardware laboratories. The Company is continuing to increase its engineering
and sales and marketing resources and has also begun to commit significant
resources to the development of its Application Specific Integrated Circuits
that decrease the size of its asset communicators as well as increase the
functionality of its systems.
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Item 2. Description of Properties
In November 1999, the Company entered into a lease that expires on March
31, 2010 for its new facility in Hackensack, NJ. The Company occupied the
approximately 22,500 square feet pursuant in March 2000. The rent is currently
$31,060 per month and will increase to $34,835 per month from the 61st month
until the end of the lease.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company completed its initial public on June 30, 1999. The Company's
Common Stock is traded on The Nasdaq SmallCap Market under the symbol IDSY. The
following table sets forth, for the periods indicated, the high and low sales
price for the Company's common stock as reported on such quotation systems.
Quarter Ending: High Low
--------------- ---- ---
September 30, 1999 9.500 5.500
December 31, 1999 6.500 4.125
There were approximately 50 registered holders and 1,000 beneficial owners
of the Company's Common Stock of record as of March 27, 2000. The Company has
not declared or paid dividends on its Common Stock to date and intends to retain
future earnings, if any, for use in its business for the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with its financial
statements and notes thereto appearing elsewhere herein.
The Company was incorporated in August 1993 and began to derive revenues
from its initial line of products in March 1995. Revenues are generated from
design and engineering fees, as well as sales of the ID System. The Company's
revenues relate to the time expended and expertise involved in customizing the
ID System to the needs of each individual customer and related material costs.
In the future, the Company intends to generate additional revenues by selling
software and hardware upgrades, as well as on-going maintenance and support
contracts to its existing customers. The Company anticipates that a greater
portion of future revenues will be comprised of sales of the ID System.
The Company's initial contract was entered into with the United States
Postal Service to develop and install a pilot system in approximately 40 postal
facilities in the Washington D.C. metropolitan area. In 1997, the Company
entered into a $6.7 million follow-on agreement with which provides for the
wireless monitoring and tracking of mail in approximately 300 postal facilities.
During September 1999, the Company received an $875,000 increase to that
agreement. During 1999, the Company entered into contracts with DaimlerChrysler
Corporation,
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Dana Commercial Credit Corporation, Federal Express Corporation, Ford Motor
Company, General Motors Corporation, Hallmark Cards Inc., and other companies
for integrated tracking and monitoring systems for forklift trucks and other
similar vehicles. The Company 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 pilot program was completed during 1999
and Avis is currently evaluating its results.
Results of Operations
The following table sets forth, for the periods indicated, certain
operating information expressed as a percentage of revenue:
Year Ended
December 31,
-----------------------
1998 1999
--------- ---------
Revenues 100.0% 100.0%
Cost of revenues 49.1 57.0
--------- ---------
Gross profit 50.9 43.0
Selling, general and administrative expenses 32.6 38.2
Research and development expenses 1.9 4.2
--------- ---------
Income from operations 16.4 0.6
Interest income 0.7 6.7
Interest expense (1.4) (0.9)
--------- ---------
Income before taxes 15.7 6.4
Income tax provision 1.4 2.7
--------- ---------
Historical net income 14.3 3.7
========= =========
Historical net income 14.3
Pro forma income taxes 5.8
---------
Pro forma net income 8.5
=========
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Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenues. Revenues increased 67.1% to $5,555,000 in the year ended December 31,
1999 from $3,324,000 in the year ended December 31, 1998. This increase was
attributable to an increase in the amount of work performed by the Company for
the United States Postal Service and work performed under contracts with new
customers such as Dana Commercial Credit, Federal Express Corporation, Ford
Motor Company, Avis Rent A Car System, Inc. and Hallmark Cards.
Cost Of Revenues. Cost of revenues increased 93.9% to $3,167,000 in the year
ended December 31, 1999 from $1,633,000 in the year ended December 31, 1998. As
a percentage of revenues, cost of revenues increased to 57.0% in the year ended
December 31, 1999 from 49.1% in the year ended December 31, 1998. This increase
was primarily attributable to an increase in the portion of revenues under the
United States Postal Service contract attributable to materials in the year
ended December 31, 1999 as compared to the year ended December 31, 1998, which
under this contract have lower margins than revenues related to labor. The
United States Postal Service contract accounted for 95% and 70% of the Company's
revenue in 1998 and 1999 respectively. Gross profit increased 41.2% to
$2,388,000 in the year ended December 31, 1999 from $1,691,000 in the year ended
December 31, 1998. As a percentage of revenues, gross profit decreased to 43.0%
in the year ended December 31, 1999 from 50.9% in the year ended December 31,
1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 95.8% to $2,121,000 in the year ended December
31, 1999 from $1,083,000 in the year ended December 31, 1998. The increase was
attributable to an increase in salaries and recruiting fees resulting from an
increase in personnel hired to accommodate the Company's growth. As a percentage
of revenues, selling, general and administrative expenses increased to 38.2% in
the year ended December 31, 1999 from 32.6% in the year ended December 31, 1998.
Research and Development Expenses. Research and development expenses increased
262.5% to $232,000 in the year ended December 31, 1999 from $64,000 in the year
ended December 31, 1998. This increase was attributable to increased research
and development costs related to developing new applications for the Company's
products. As a percentage of revenues, research and development expenses
increased to 4.2% in the year ended December 31, 1999 from 1.9% in the year
ended December 31, 1998.
Net Interest (Expense) Income. Interest income was $374,000 in the year ended
December 31, 1999 as compared to $25,000 in the year ended December 31, 1998.
This increase was attributable to larger average cash and investment balances in
1999 as compared to 1998 as the Company received the proceeds from the Company's
initial public offering in July and August of 1999.
Interest expense was $53,000 in the year ended December 31, 1999 as compared to
$48,000 in the year ended December 31, 1998. This increase is attributable to
accelerated amortization of the debt discount due to the repayment of
stockholder loans.
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Income Taxes. Income tax expense was $149,000 in the year ended December 31,
1999 as compared to $45,000 in the year ended December 31, 1998. Beginning
January 1, 1999, the Company became subject to federal and state income taxes as
a C corporation. Prior to January 1, 1999, the Company was an S corporation for
federal and state tax purposes and was only subject to local taxes. Pro forma
net income for the year ended December 31, 1998 reflects $192,000 of federal and
state income taxes which would have been recognized had the S corporation
election not been in effect.
Net Income. Net income was $207,000 in the year ended December 31, 1999 as
compared to pro forma net income of $284,000 in the year ended December 31,
1998. This decrease was due primarily to the reasons described above.
Liquidity and Capital Resources
As of December 31, 1999, the Company had $13,026,000 of cash, cash
equivalents and short-term investments and $14,582,000 of working capital as
compared to $1,130,000 and $1,098,000, respectively at December 31, 1998.
Net cash used in operating activities was $1,627,000 for the year ended
December 31, 1999 as compared to net cash provided by operating activities of
$856,000 for the year ended December 31, 1998. Net cash used in operating
activities in the year ended December 31, 1999 was primarily due to an increase
in accounts and unbilled receivables of $1,101,000, an increase in prepaid
expenses and other assets of $455,000 and a decrease in deferred revenue of
$545,000, partially offset by an increase in accounts payable and accrued
expenses of $222,000 and net income of $207,000. Net cash provided by operating
activities for the year ended December 31, 1998 was from net income of $476,000,
an increase in accounts payable and accrued expenses of $266,000 and an increase
in deferred revenue of $545,000, partially offset by an increase in accounts
receivable of $601,000.
Cash used in investing activities for the year ended December 31, 1999 was
$6,218,000 as compared to $76,000 for the year ended December 31, 1998. The use
of cash in investing activities for the year ended December 31, 1999 was due to
the purchase of investments of $6,005,000 and $213,000 of capital expenditures
for fixed assets. The use of cash of $76,000 for the year ended December 31,
1998 reflected capital expenditures for fixed assets.
Net cash provided by financing activities was $13,736,000 for the year
ended December 31,1999 as compared to net cash used in financing activities of
$56,000 for the year ended December 31, 1998. Cash provided by financing
activities for the year ended December 31, 1999 resulted primarily from
$13,921,000 of net proceeds received from the Company's initial public offering
in July and August of 1999, partially offset by $200,000 of repayments of notes
payable to stockholders.
15
<PAGE>
The Company completed its initial public offering of its common stock,
which closed in July 1999 and August 1999 (over-allotment). The offering
provided net proceeds to the Company of approximately $13,921,000 from the sale
of 2,300,000 shares at $7.00 per share.
The Company believes its operations have not been and, in the foreseeable
future, will not be materially adversely affected by inflation or changing
prices.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues. Revenues increased to $3,324,000 in the year ended December 31, 1998
from $733,000 in the year ended December 31, 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 the year ended
December 31, 1998 from $269,000 in the year ended December 31, 1997. As a
percentage of revenues, cost of revenues increased from 36.7% in the year ended
December 31, 1997 to 49.1% in fiscal 1998. This increase was primarily
attributable to an increase in the portion of revenues attributable to materials
in the year ended December 31, 1998 as compared to the year ended December 31,
1997 which typically have lower margins than revenues related to labor. Gross
profit increased to $1,691,000 in the year ended December 31, 1998 from $464,000
in the year ended December 31, 1997. As a percentage of revenues, gross profit
decreased from 63.3% in the year ended December 31, 1997 to 50.9% in the year
ended December 31, 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 135% to $1,083,000 in the year ended December
31, 1998 from $460,000 in the year ended December 31, 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
the year ended December 31, 1997 to 32.6% in the year ended December 31, 1998
due to operating efficiencies.
Research and development expenses. Research and development expenses increased
to $64,000 in the year ended December 31, 1998 from $22,000 in the year ended
December 31, 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 21.1% to $23,000 in the
year ended December 31, 1998 from $19,000 in the year ended December 31, 1997.
This increase was attributable to interest expense incurred in the year ended
December 31, 1998 on larger average balances of stockholder notes and capital
lease obligations, offset by an increase in interest income earned in the year
ended December 31, 1998 on a larger average cash balance.
Income taxes. Local income tax expense was $45,000 in the year ended December
31, 1998 as compared to a $112,000 income tax benefit in the year ended December
31, 1997. The 1997
16
<PAGE>
amount reflects the recognition of a benefit from net operating loss carry
forwards generated through December 1997.
Net income. Net income increased to $476,000 in the year ended December 31, 1998
from $75,000 in the year ended December 31, 1997. This increase was due
primarily to the reasons described above.
Inflation
The impact of inflation of the Company's revenues and results of operations
has not been significant.
Impact of Year 2000
In late 1999, the Company completed its remediation and testing of systems
in order to become Year 2000 ready. As a result of its planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company expensed immaterial amounts during 1999
in connection with remediating its systems. During 2000, the Company expects to
remediate certain non-critical systems at an immaterial cost that will be funded
through operating cash flows. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Forward Looking Statements
Certain statements in this Annual Report on Form 10-KSB, under the sections
"Management Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere relate to future events and expectations
and as such constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The words "believes,"
"anticipates," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements and to vary significantly from
reporting period to reporting period. These forward looking statements were
based on various factors and were derived utilizing numerous important
assumptions and other factors that could cause actual results to differ
materially from those in the forward looking statements, including, but not
limited to: uncertainty as to the Company's future profitability and the
Company's ability to develop and implement operational and financial systems to
manage rapidly growing operations, competition in the Company's existing and
potential future lines of business, and other factors. Other factors and
assumptions not identified above were also
17
<PAGE>
involved in the derivation of these forward looking statements, and the failure
of such other assumptions to be realized, as well as other factors, may also
cause actual results to differ materially from those projected. The Company
assumes no obligation to update these forward looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward looking statements.
Item 7. Financial Statements
Page
----
Independent Auditors' Report 19
Balance sheet as of December 31, 1999 20
Statements of operations for the years ended December 31, 1998 and 1999 21
Statements of changes in stockholders' equity for the years ended
December 31, 1998 and 1999 22
Statements of cash flows for the years ended December 31, 1998 and 1999 23
Notes to financial statements 25
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
I.D. Systems, Inc.
New York, New York
We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 1999 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1998 and
1999. 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, 1999 and the results of its operations and its cash flows for the years
ended December 31, 1998 and 1999, in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
January 28, 2000
19
<PAGE>
I.D. Systems, Inc.
Balance Sheet
December 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 7,021,000
Investments 6,005,000
Accounts receivable 880,000
Unbilled receivables 962,000
Inventory 123,000
Deferred taxes 49,000
Prepaid expenses and other current assets 152,000
------------
Total current assets 15,192,000
Fixed assets - net 307,000
Other assets 324,000
------------
$ 15,823,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 545,000
Capital lease obligations 14,000
Income taxes payable 51,000
------------
Total current liabilities 610,000
Capital lease obligations 32,000
Deferred rent 42,000
------------
684,000
------------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 5,000,000 shares,
$.01 par value; none issued
Common stock; authorized 15,000,000 shares,
$.01 par value; issued and outstanding
5,717,000 shares 57,000
Additional paid-in capital 15,554,000
Accumulated deficit (472,000)
------------
15,139,000
------------
$ 15,823,000
============
See notes to financial statements
20
<PAGE>
I.D. Systems, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues $ 3,324,000 $ 5,555,000
Cost of revenues 1,633,000 3,167,000
----------- -----------
Gross profit 1,691,000 2,388,000
Selling, general and administrative expenses 1,083,000 2,121,000
Research and development expenses 64,000 232,000
----------- -----------
Income from operations 544,000 35,000
Interest income 25,000 374,000
Interest expense (48,000) (53,000)
----------- -----------
Income before taxes 521,000 356,000
Income tax provision 45,000 149,000
----------- -----------
Historical net income $ 476,000 $ 207,000
=========== ===========
Net income per share - basic $.05
====
Net income per share - diluted $.04
====
Historical net income 476,000
Pro forma income taxes 192,000
-----------
Pro forma net income $ 284,000
===========
Pro forma net income per share - basic $.08
====
Pro forma net income per share - diluted $.08
====
Weighted average common shares outstanding -
basic income per share 3,414,000 4,545,000
Effect of potential common shares from exercise
of options 365,000 1,021,000
----------- -----------
Weighted average common shares outstanding -
diluted income per share 3,779,000 5,566,000
=========== ===========
</TABLE>
See notes to financial statements
21
<PAGE>
I.D. Systems, Inc.
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------
Number Additional
of Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 3,414,000 $34,000 $ 1,653,000 $(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 (679,000) 1,008,000
Shares issued pursuant to initial public
offering 2,300,000 23,000 13,898,000 13,921,000
Shares issued pursuant to exercise of
stock options 3,000 3,000 3,000
Net income for the year ended
December 31, 1999 207,000 207,000
--------- ------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1999 5,717,000 $57,000 $15,554,000 $ (472,000) $15,139,000
========= ======= =========== =========== ===========
</TABLE>
See notes to financial statements
22
<PAGE>
I.D. Systems, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 476,000 $ 207,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 39,000 57,000
Amortization of debt discount 14,000 44,000
Deferred taxes 45,000 18,000
Deferred rent expense 38,000 4,000
Changes in:
Accounts receivable (601,000) (139,000)
Unbilled receivables (962,000)
Inventory 33,000 (123,000)
Prepaid expenses and other assets 1,000 (455,000)
Accounts payable and accrued expenses 266,000 222,000
Income taxes payable 45,000
Deferred revenue 545,000 (545,000)
--------- -----------
Net cash provided by (used in) operating activities 856,000 (1,627,000)
--------- -----------
Cash flows from investing activities:
Purchase of fixed assets (76,000) (213,000)
Purchases of investments (6,005,000)
--------- -----------
Net cash used in investing activities (76,000) (6,218,000)
--------- -----------
Cash flows from financing activities:
Payment of lease obligations (6,000) (11,000)
Receipt of amount due from stockholder 23,000
Payment of stockholder loans (50,000) (200,000)
Proceeds from exercise of stock options 3,000
Net proceeds from sale of stock in initial public offering 13,921,000
--------- -----------
Net cash provided by (used in) financing activities (56,000) 13,736,000
--------- -----------
Net increase in cash and cash equivalents 724,000 5,891,000
Cash and cash equivalents - January 1 406,000 1,130,000
--------- -----------
</TABLE>
See notes to financial statements
23
<PAGE>
I.D. Systems, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Cash and cash equivalents - December 31 $ 1,130,000 $ 7,021,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 31,000 $ 37,000
Cash paid for income taxes $ 98,000
Supplemental disclosure of noncash financing information:
Equipment acquired pursuant to capital lease obligations $ 19,000 $ 31,000
</TABLE>
See notes to financial statements
24
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note A - The Company
I.D. Systems, Inc. (the "Company") is a provider of wireless solutions. The
Company designs, develops and produces innovative wireless monitoring and
tracking products that utilize its patented radio-frequency-based system and
Internet-based data management systems. The Company's products are designed to
enable users to improve operating efficiencies and reduce costs. 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 June 29, 1999, the Company effected a 1.25 for 1 stock split. The
accompanying financial statements and notes hereto give retroactive
effect to the stock split and accordingly, the number of shares for all
periods 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.
[4] Inventory:
Inventory which consists of components for the Company's systems is
stated at cost using the first-in first-out method.
[5] Fixed assets and depreciation:
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets which range from
three to ten years. Equipment under capital leases are amortized using
the straight-line method over the terms of the respective leases, or
their estimated useful lives, whichever is shorter.
25
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note B - Summary of Significant Accounting Policies (continued)
[6] Research and development:
Research and development costs are charged to expense as incurred.
[7] Patent costs:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
[8] Revenue recognition:
The majority of 1998 revenues (95%) and 1999 revenues (55%) were earned
pursuant to contracts under which revenues have been recognized when
related time and material charges were incurred. All other revenues have
been recognized either when services were performed, goods were delivered
or as work progressed, measured by the percentage-of-completion method,
in accordance with conditions of related contracts. Amounts billed to
customers that did not meet the conditions of the Company's revenue
recognition policy were recorded as deferred revenue until such
conditions were met. Unbilled receivables were recorded if conditions of
the Company's revenue recognition policy were met.
[9] 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 during the year ended
December 31, 1999.
[10] 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.
[11] 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
26
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note B - Summary of Significant Accounting Policies (continued)
interpretations. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock- Based Compensation."
[12] 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, became subject to federal,
state and local income taxes. See Note G 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 year ended December 31, 1998. The Company does
not currently intend to make any distributions of S corporation earnings.
[13] Net income per share:
The Company calculates its net income per share, and in 1998 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.
[14] 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.
Note C - Investments
The Company's investments at December 31, 1999 consist principally of short-term
commercial paper which mature within one year and are classified as held to
maturity. Accordingly, investments are carried at amortized cost.
27
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note D - Fixed Assets
Fixed assets are stated at cost and, at December 31, 1999, are summarized as
follows:
Laboratory equipment $ 58,000
Computer software 39,000
Computer hardware 119,000
Furniture and fixtures 120,000
Leasehold improvements 25,000
Equipment under capital lease 70,000
----------
431,000
Accumulated depreciation and amortization (124,000)
----------
$ 307,000
==========
Note E - 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 $27,000 at December
31, 1999.
Future lease payments as of December 31, 1999 are as follows:
YEAR ENDING
DECEMBER 31,
------------
2000 $ 18,000
2001 17,000
2002 15,000
2003 4,000
---------
54,000
Amount representing interest 8,000
---------
Present value of future lease payments 46,000
Amount due within one year 14,000
---------
$ 32,000
=========
28
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note F - Stockholders' Equity (continued)
[1] Common stock:
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 year ended December 31, 1998, $14,000
was amortized and is included in interest expense. During 1999, the
Company repaid the notes plus $35,000 of accrued interest pursuant to
payment provisions of the notes. Accordingly, interest expense in 1999
includes $44,000 related to the debt discount.
In June 1999, the Company sold 2,300,000 shares of its common stock in an
initial public offering. In connection therewith, the Company received
net proceeds of $13,921,000
In June 1999, the Company increased the number of common shares
authorized to 15,000,000.
[2] Preferred stock:
In June 1999, the Company authorized 5,000,000 shares of $.01 par value
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.
[3] Stock options:
The Company has adopted the 1995 Stock Option Plan, pursuant to which the
Company may grant options to purchase up to an aggregate of 1,250,000
shares of common stock. The Company has also adopted the 1999 Stock
Option Plan and the 1999 Director Plan, pursuant to which the Company may
grant options to purchase up to 812,500 and 300,000 shares of common
stock, respectively. The Plans are 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.
A summary of the status of the Company's stock options as of December 31,
1998 and 1999 and changes during the years ending on those dates, is
presented below:
29
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note F - Stockholders' Equity (continued)
<TABLE>
<CAPTION>
1998 1999
------------------------------ ----------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 800,000 $1.03 1,238,000 $1.09
Granted 438,000 1.20 275,000 5.18
Exercised (3,000) 1.20
Forfeited (31,000) 4.16
--------- ---------
Outstanding at end of year 1,238,000 1.09 1,479,000 1.79
========= =========
Exercisable at end of year 330,000 0.95 574,000 1.01
========= =========
</TABLE>
As of December 31, 1999, there were 881,000 options available for grant
under the Company's stock option plans.
The following table summarizes information about stock options at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1999 Life Price 1999 Price
------------ ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.80 338,000 6 years $0.80 270,000 $0.80
1.20 894,000 8 years 1.20 304,000 1.20
4.13 167,000 10 years 4.13
7.38 - 7.67 80,000 10 years 7.61
------------ --------- -------
1,479,000 8 years 1.79 574,000 1.01
========= =======
</TABLE>
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
30
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note F - Stockholders' Equity (continued)
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 Company's historical net income, historical net income per share
(basic) and historical net income per share (diluted) for the year ended
December 31, 1999 would have been approximately $131,000, $.03 and $.02,
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% for 1998 and 58% for 1999, expected
life of options of 5 to 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, 1998 and 1999 were $.44 and $2.79,
respectively.
[3] Warrants:
In connection with the Company's initial public offering in June 1999,
warrants to purchase 200,000 shares of common stock were issued to the
underwriter for nominal consideration. The warrants are exercisable for a
period of four years, commencing in June 2000, at a price of $11.55 per
share.
Note G - Income Taxes and Pro Forma Income Taxes
[1] Historical:
Through December 31, 1998 the Company was subject only to local income
taxes. Effective January 1, 1999, the Company elected to be taxed as a
corporation and accordingly is subject to federal, state and local income
taxes. The Company has a deferred tax asset of $49,000 at December 31,
1999, which reflects the Company's net operating loss carryforwards for
local income taxes of approximately $573,000 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 at the statutory federal income tax
rate and income taxes reported in the statements of operations are
attributable to the following:
31
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note G - Income Taxes and Pro Forma Income Taxes (continued)
<TABLE>
<CAPTION>
Year Ended
---------------------------
December 31,
1998 1999
------------ ------------
<S> <C> <C>
Income taxes at the federal statutory rate $ 177,000 $ 121,000
State and local income taxes, net of effect on
federal taxes 60,000 33,000
Effect of S corporation status (192,000)
Other (5,000)
------------ ------------
$ 45,000 $ 149,000
============ ============
</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 for the year
ended December 31, 1998. Pro forma net income for the year ended December
31, 1998 in the accompanying statements of operations includes pro forma
adjustments for federal and state income taxes which would have been
provided had the S corporation election not been in effect and is
comprised of the following:
Deferred:
Federal $ 145,000
State 47,000
-----------
Pro forma taxes (benefit) on income $ 192,000
===========
Note H - Commitments and Other Matters
[1] Operating leases:
The Company's current facility is rented pursuant to a lease, which
provides the Company with the right to sublet the space, subject to
approval from the landlord. In November 1999, the Company entered into a
lease on its new facility, which it expects to occupy in March 2000. The
Company's operating leases provide for minimum annual rental payments as
follows:
32
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note H - Commitments and Other Matters (continued)
<TABLE>
<CAPTION>
Current New
Facility Facility Other Total
------------ ------------- ----------- --------------
<S> <C> <C> <C> <C>
2000 $ 117,000 $ 311,000 $ 36,000 $ 464,000
2001 126,000 373,000 16,000 515,000
2002 129,000 373,000 502,000
2003 32,000 373,000 405,000
2004 373,000 373,000
Thereafter 2,255,000 2,255,000
------------ ------------- ----------- --------------
$ 404,000 $ 4,058,000 $ 52,000 $ 4,514,000
============ ============= =========== ==============
</TABLE>
The office leases also provide for escalations relating to increases in
real estate taxes and certain operating expenses. Expenses relating to
operating leases aggregated approximately $141,000 and $113,000 for the
years ended December 31, 1998 and 1999, respectively.
When the Company vacates its current premises, it will be required to
record a charge to operations for the current value of the anticipated
loss if it has not sublet the space. Additionally, pursuant to the new
lease, the Company has issued a letter of credit in the amount of
$317,703 which remains open as of December 31, 1999.
[2] Employment agreements:
In June 1999, the Company entered into three-year employment agreements
with four executives which provide for aggregate annual compensation of
$408,000 and entitle the executives to salary increases, bonuses and
stock options to be determined by the Board of Directors. The agreements
also provide for severance payments through the end of the agreements.
[3] Concentration of customers:
One customer accounted for 95% and 70% of the Company's revenues during
the years ended December 31, 1998 and 1999, respectively. This customer
accounted for 37% of the Company's accounts receivable balance and 35% of
its unbilled receivables balance at December 31, 1999.
One other customer accounted for 12% of the Company's revenues for the
year ended December 31, 1999. This customer accounted for 49% of the
Company's unbilled receivables balance at December 31, 1999.
33
<PAGE>
I.D. Systems, Inc.
Notes to Financial Statements
December 31, 1999
Note H - Commitments and Other Matters (continued)
[4] Related party transactions:
During the years ended December 31, 1998 and 1999, the Company purchased
approximately $33,000 and $262,000, respectively, of components from a
company where two of the Company's directors were directors in 1998 and
one of the Company's directors continues to be a director. Additionally,
at December 31, 1999 $95,000 remained open under a purchase order issued
in 1998.
34
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
35
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
With Section 16(a) of the Exchange Act
Directors and Executive Officers
The following table sets forth certain information concerning the Executive
Officers and Directors of the Company.
Name Age Position
---- --- --------
Kenneth S. Ehrman 30 President and Director
Jeffrey M. Jagid 31 Chief Operating Officer, General
Counsel and Director
N. Bert Loosmore 30 Executive Vice President of Technology
and Director
Michael L. Ehrman 27 Executive Vice President of Engineering
Ned Mavrommatis 29 Chief Financial Officer
Bruce Jagid (1) 60 Director
Martin G. Rosansky (1) 60 Director
Lawrence Burstein (1) 56 Director
----------
(1) Member of the Compensation and Audit Committees
Kenneth S. Ehrman is a founder of the Company and has been its President
and Director since inception in 1993. He graduated from Stanford University in
1991 with a Bachelor of Science in Industrial Engineering after studying
Management, Production and Finance. Upon his graduation, and until the inception
of the Company in 1993, Mr. Ehrman worked as a production manager with a Silicon
Valley networking company. Mr. Ehrman is Michael L. Ehrman's brother.
Jeffrey M. Jagid has been Chief Operating Officer, General Counsel and a
Director of the Company since he joined the Company 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 the Company, Mr. Jagid was a corporate litigation associate at the law
firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, in New York City. He is a
member of the Bar of the States of New York and New Jersey. Mr. Jagid is Bruce
Jagid's son.
N. Bert Loosmore is a founder of the Company and has served as its
Executive Vice President of Technology since August 1999. Prior to that, since
inception, he served as the Company's Executive Vice President of Engineering.
Mr. Loosmore has been a Director of the Company since inception. He graduated
from Stanford University in 1991 with a Bachelor of
36
<PAGE>
Science in Electrical Engineering after concentrating in 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 Company's inception, Mr. Loosmore was
a Production Engineer at a Silicon Valley networking company.
Michael L. Ehrman has served as the Company's Executive Vice President of
Engineering since August 1999. From 1995 when he joined the Company until then,
he served as its Executive Vice President of Software Development. He served as
a director of the Company from the date he joined the Company 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 by Anderson Consulting in New York. Mr. Ehrman is Kenneth Ehrman's
brother.
Ned Mavrommatis has served as the Chief Financial Officer since joining the
Company in August 1999. Prior to joining the Company, he was a Senior Manager at
the accounting firm of Richard A. Eisner & Company L.L.P. where he was a member
of the New Media/Technology Group in the public company practice. Mr.
Mavrommatis received a Bachelor of Business Administration degree from Bernard
M. Baruch College, The City University of New York in 1993. He is a member of
The New York State Society of Certified Public Accountants and The American
Institute of Certified Public Accountants.
Bruce Jagid is a founder of the Company and has served as its Treasurer and
as a Director since inception. Mr. Jagid 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 its 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 Jeffrey M. Jagid's father.
Martin G. Rosansky is a founder of the Company and has served as its
Secretary and as a Director of the Company since inception. In March 1991, Mr.
Rosansky co-founded and served as the Vice Chairman of Ultralife Batteries, Inc.
Prior to Mr. Rosansky's involvement with Ultralife, he co-founded Power
Conversion, Inc. and was its 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.
Lawrence Burstein has served as a Director of the Company since June of
1999. Since March 1996, Mr. Burstein has served as President and director of
Unity Venture Capital Associates, Ltd., a private investment company. From
January 1982 to March 1996, Mr. Burstein was Chairman of the Board and a
principal stockholder of Trinity Capital Corporation, a private investment
company. Mr. Burstein is a director of THQ, Inc., Brazil Fast Food Corp.,
37
<PAGE>
CAS Medical Systems, Inc., Quintel Communications, Inc. and Medical Nutrition
Inc. Mr. Burstein received a Bachelor of Arts in Economics from the University
of Wisconsin and a Bachelor of Law from Columbia Law School.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. The
Company's executive officers serve at the discretion of the Board of Directors
and until their successors are duly elected and qualified.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid or accrued, for the
fiscal years ended December 31, 1999, 1998 and 1997, for the Company's President
and four most highly compensated executive officers other than its President
(the "Named Officers"), whose salary and bonus were in excess of $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards ($)
-----------------------------------------------------------------
Restricted Securities
Name and Principal Stock Underlying
Position Year Salary ($) Bonus ($) Award Options/SARs (#)
- --------------------- ---- --------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Kenneth S. Ehrman, 1999 $114,500 $12,000 -- --
President 1998 $ 80,000 $40,000 -- --
1997 $ 65,000 -- -- --
Jeffrey M. Jagid, Chief 1999 $114,500 $12,000 -- --
Operating Officer and 1998 $ 80,000 $40,000 -- --
General Counsel 1997 $ 65,000 -- -- --
N. Bert Loosmore, 1999 $109,000 $24,000 -- --
Executive Vice President of 1998 $ 80,000 $40,000 -- --
Technology 1997 $ 65,000 -- -- --
Michael L. Ehrman, 1999 $109,000 $24,000 -- --
Executive Vice President of 1998 $ 80,000 $40,000 -- --
Engineering 1997 $ 65,000 -- -- --
Ned Mavrommatis, 1999 $ 34,000 -- -- --
Chief Financial Officer (1)
</TABLE>
- ----------
(1) Mr. Mavrommatis joined the Company in August 1999; his annualized salary
would have been $100,000.
38
<PAGE>
Options Grants in Last Fiscal Year
No options were exercised by the Company's President or Named Officers
during the year ended December 31, 1999; 40,000 options exercisable at $4.125
per share were granted to Ned Mavrommatis during the year ended December 31,
1999.
Employment Agreements
In June 1999, the Company entered into three-year employment agreements,
renewable upon mutual consent, with Kenneth Ehrman, Jeffrey Jagid, N. Bert
Loosmore and Michael Ehrman. Pursuant to the agreements, Messrs. Ehrman and
Jagid are each entitled to base salaries of $108,000 and Messrs. Loosmore and
Ehrman are each 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 the Company's 1999
Stock Option Plan.
In the event of change in control of the Company, 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 the Company the remainder of the three year term.
The employment agreements may be terminated for cause and contain
confidentiality and non-competition provisions prohibiting the employee from
competing against the Company and disclosing trade secrets and other proprietary
information.
Director Compensation
The Company reimburses its directors for reasonable travel expenses
incurred in connection with their activities on behalf of the Company but does
not pay its directors any fees for board participation.
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 and 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. The 1999 Director Option Plan provides for the
automatic grant of 15,000 shares of common stock to each non-employee director
at the time he or she is first elected to the board of directors and an
automatic grant of an option to purchase 5,000 shares on the first day of each
fiscal quarter, if on such date he or she has served on the board for at least
six months. Each option grant has a term of 10 years and vests on a cumulative
monthly basis over a four-year period. The exercise price of all options will
equal the fair market value of the common stock on the date of grant.
Employee directors are entitled to participate in the 1999 Stock Option
Plan. A total of 812,500 shares have been reserved for issuance under the plan.
The plan provides for grants of incentive stock options and non-qualified stock
options. Options can be granted under the plan on terms and at prices as
determined by the board of directors, or a committee of the board of
39
<PAGE>
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 the Company's stock, 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 December 31, 1999 no grants have been made to
directors under this plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of shares of common stock as of March 27, 2000:
o each person or entity who is known by the Company to beneficially owns
five percent or more of the common stock;
o each director and executive officer of the Company; and
o all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Name of Beneficial Owners (l) Number of Shares Percent (2)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kenneth Ehrman 565,213(3) 9.74%
--------------------------------------------------------------------------------------------------------
N. Bert Loosmore 581,875(4) 10.03%
--------------------------------------------------------------------------------------------------------
Bruce Jagid 532,825(5) 9.22%
--------------------------------------------------------------------------------------------------------
Martin Rosansky 568,663(6) 9.84%
--------------------------------------------------------------------------------------------------------
Michael Ehrman 209,650(7) 3.58%
--------------------------------------------------------------------------------------------------------
Jeffrey M. Jagid 255,375(8) 4.37%
--------------------------------------------------------------------------------------------------------
Austin W. Marxe and David Greenhouse 351,300(9) 6.10%
--------------------------------------------------------------------------------------------------------
President and Fellows of Harvard College 375,000(10) 6.60%
--------------------------------------------------------------------------------------------------------
All directors and executive offers as a group
(6 persons) 2,713,601(11) 43.38%
--------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Unless otherwise indicated, the address for each named individual or group
is in care of the Company, Inc., One University Plaza, 6th Floor
Hackensack, NJ 07601.
(2) Unless otherwise indicated, the Company 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
40
<PAGE>
acquired by such person within 60 days after March 27, 2000 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
after March 27, 2000 have been exercised and converted.
(3) Includes 81,250 shares of common stock underlying options granted to Mr.
Ehrman pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
(4) Includes 81,250 shares of common stock underlying options granted to Mr.
Loosmore pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
(5) Includes 58,125 shares of common stock underlying options granted to Mr.
Jagid pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
(6) Includes 58,125 shares of common stock underlying options granted to Mr.
Rosansky pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
(7) Includes 128,125 shares of common stock underlying options granted to Mr.
Ehrman pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
(8) Includes 128,125 shares of common stock underlying options granted to Mr.
Jagid exercisable within sixty days after March 27, 2000.
(9) Austin W. Marxe and David Greenhouse are officers, directors and members
or principal shareholders of MGP Advisers Limited Partnership, a Delaware
limited partnership ("MGP"), SST Advisers, L.L.C., a Delaware limited
liability company ("SSTA") and AWM Investment Company, Inc., a Delaware
corporation ("AWM") MGP is the general partner of and investment adviser
to Special Situations Fund III, L.P., a Delaware limited partnership ("SSF
III"); SSTA is the general partner of and investment advisor to Special
Situations Technology Fund, L.P., a Delaware limited partnership ("SST");
and AWM is the general partner of MGP and the general partner of and
investment advisor to Special Situations Cayman Fund, L.P., a Cayman
Island limited partnership (the "Cayman Fund"). The Cayman Fund's
principal office is c/o CIBC Bank and Trust Company (Cayman) Limited, CIBC
Bank Building, P.O. Box 694, Grand Cayman, Cayman islands, British West
Indies. The other entities all have their principal office at 153 East
53rd Street, New York, New York 10022. Of the 351,300 shares of Common
Stock beneficially owned by Messrs. Marxe and Greenhouse, 241,700 (4.2%)
shares are owned by SSF III; 34,300 (0.6%) shares are owned by SST; and
75,300 (1.3%) shares are owned by the Cayman Fund. SSF III, SST, CAY, MGP,
SSTA and AWM have sole power to vote or direct the vote and to dispose or
to direct the disposition of all securities reported hereby which are
respectively beneficially owned by each fund and its investment advisor.
Messrs. Marxe and Greenhouse have shared power to vote or to direct the
vote of and to dispose or to direct the disposition
41
<PAGE>
of securities reported hereby which are beneficially owned by Messrs.
Marxe and Greenhouse by virtue of being executive officers of the
investment advisors.
(10) Its principal office is c/o Harvard Management company, Inc., 600 Atlantic
Avenue, Boston, Massachusetts 02210.
(11) Includes 535,000 shares of common stock underlying options granted to such
individuals pursuant to the Company's 1995 Employee Stock Option Plan and
exercisable within sixty days after March 27, 2000.
1995 Employee Stock Option Plan
In July 1995, the Company's board of directors adopted the 1995 Employee
Stock Option Plan. This plan authorizes the granting of non-qualified stock
options to purchase up to an aggregate 1,250,000 shares of common stock to key
employees and consultants. The options vest over a period of five years. The
plan will terminate at the close of business on July 8, 2005.
As of December 31, 1999, options to purchase 1,233,750 shares of common
stock were outstanding under the 1995 Employee Stock Option Plan. Options to
purchase 337,500 shares (of which an aggregate of 250,000 options are held by
directors) are exercisable at $0.80 per share and options to purchase 896,250
shares (of which an aggregate of 546,875 options are held by directors) are
exercisable at $1.20 per share.
1999 Stock Option Plan
In April 1999, the Company's board of directors and stockholders adopted
the Company's 1999 Stock Option Plan, pursuant to which, 812,500 shares of
common stock are reserved for issuance. It is designed to serve as an incentive
for retaining qualified and competent employees, directors and consultants.
The Company's board of directors, or a committee, administers the plan and
is authorized, in its discretion, to grant options to all eligible employees,
including officers and directors of, and consultants to, the Company. The plan
provides for the granting of both incentive stock options and non-qualified
stock options. Options can be granted under the 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 the Company's stock, 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 December 31, 1999, options to purchase 232,500 shares of common stock
are outstanding under this plan. Options to purchase 65,000 shares are
exercisable at $7.67 per share
42
<PAGE>
and options to purchase 167,500 shares are exercisable at $4.125 per share. All
options are held by non-director employees.
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 and 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 15,000 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 an to purchase 5,000
shares on the first day of each fiscal quarter, 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.
As of December 31, 1999 options to purchase 15,000 shares of common stock
at $7.375 per share are outstanding under this plan.
Item 12. Certain Relationships and Related Transactions
During the years ended December 31, 1998 and 1999, the Company purchased
approximately $33,000 and $262,000, respectively, of components from a company
where two of the Company's directors were directors in 1998 and one of the
Company's directors continued to be a director. Additionally, at December 31,
1999 $95,000 remained open under a purchase order issued in 1998.
The Company believes that these transactions were fair and reasonable to it
and were on terms no less favorable than could have been obtained from
unaffiliated third parties. The Company cannot offer assurance, however, that
future transactions or arrangements between it and affiliates will continue to
be advantageous to the Company, 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 the Company. Any such future transactions will be on terms
no less favorable to the Company than could be obtained from unaffiliated
parties and will be approved by the Company's compensation committee.
43
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith or are incorporated herein by
reference, as indicated.
Number Description of Exhibit
- ------ ----------------------
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated By-Laws.
4.1 Specimen Certificate of the Company's Common Stock.
4.2 Form of Underwriter's Warrant Agreement, including Form of
Warrant Certificate.
10.1 Agreement between the Company and the United States 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 Company and its
executive officers.
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.
10.9 Office Lease dated November 4, 1999 between the Company and
Venture Hackensack Holding, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
I.D. Systems, Inc.
By: /s/ Kenneth S. Ehrman
---------------------------------------
Kenneth S. Ehrman
President (Principal Executive Officer)
By: /s/ Ned Mavrommatis
---------------------------------------
Ned Mavrommatis
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this Annual
Report on Form 10-KSB/A is signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kenneth S. Ehrman
- ------------------------------------
Kenneth S. Ehrman President and Director April 24, 2000
/s/ Jeffrey M. Jagid Chief Operating Officer April 24, 2000
- ------------------------------------ and Director
Jeffrey M. Jagid
/s/ N. Bert Loosmore Executive VP of Technology April 24, 2000
- ------------------------------------ and Director
N. Bert Loosmore
/s/ Bruce Jagid Director April 24, 2000
- ------------------------------------
Bruce Jagid
/s/ Martin G. Rosansky Director April 24, 2000
- ------------------------------------
Martin G. Rosansky
/s/ Lawrence Burstein Director April 24, 2000
- ------------------------------------
Lawrence Burstein
</TABLE>
45
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999). X
3.2 Amended and Restated By-Laws of the Company (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission on
June 30, 1999). X
4.1 Specimen Certificate of the Company's Common Stock (incorporated herein
by reference to the Company's Form SB-2 filed with the Commission on
June 30, 1999). X
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant
Certificate (incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999). X
10.1 Agreement between the Registrant and the United States Postal Service:
Offer and Award Standard dated August 22, 1997, as modified on May 12,
1998, September 8, 1998, and March 5, 1999 (incorporated herein by reference
to the Company's Form SB-2 filed with the Commission on June 30, 1999). X
10.2 Federal Supply Service Information Technology schedule Award
effective April 16, 1999 through April 15, 2004 (incorporated
herein by reference
to the Company's Form SB-2 filed with the Commission on June 30, 1999). X
10.3 Form of Employment Agreement between the Company and its executive
officers (incorporated herein by reference to the Company's Form SB-2 filed
with the Commission on June 30, 1999). X
10.5 1995 Non-Qualified Stock Option Plan (incorporated herein by reference
to the Company's Form SB-2 filed with the Commission on June 30, 1999). X
10.6 1999 Stock Option Plan (incorporated herein by reference to the Company's
Form SB-2 filed with the Commission on June 30, 1999). X
10.7 Form of Indemnification Agreement (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission
on June 30, 1999). X
10.8 1999 Director Option Plan (incorporated herein by reference to the Company's
Form SB-2 filed with the Commission on June 30, 1999). X
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
10.9 Office Lease dated November 4, 1999 between the Company and Venture
Hackensack Holding, Inc...............................................................48
23.1 Consent of Richard A. Eisner & Company, LLP...........................................49
27.1 Financial Data Schedule...............................................................50
</TABLE>
47
Exhibit 10.9
On November 4, 1999, the Company entered into a lease, as tenant, with
Venture Hackensack Holding, Inc., as landlord, for approximately 22,500 square
feet of office space located at One University Plaza, Hackensack, New Jersey.
The lease expires on March 31, 2010. The rent is currently $30,060 per month and
will increase to $34,835 per month from the 61st month until the end of the
term.
48
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
on Form S-8 (Registration No. 333-87973) of our report dated January 28, 2000 on
the financial statements included in the 1999 annual report on Form 10-KSB/A of
I.D. Systems, Inc.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 20, 2000
49
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED. THIS
INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-TYPE> 12-MOS
<PERIOD-END> DEC-31-1999
<CASH> 7,021,000
<SECURITIES> 6,005,000
<RECEIVABLES> 1,842,000
<ALLOWANCES> 0
<INVENTORY> 123,000
<CURRENT-ASSETS> 15,192,000
<PP&E> 431,000
<DEPRECIATION> 124,000
<TOTAL-ASSETS> 15,823,000
<CURRENT-LIABILITIES> 610,000
<BONDS> 0
0
0
<COMMON> 57,000
<OTHER-SE> 15,082,000
<TOTAL-LIABILITY-AND-EQUITY> 15,823,000
<SALES> 5,555,000
<TOTAL-REVENUES> 5,555,000
<CGS> 3,167,000
<TOTAL-COSTS> 5,520,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,000
<INCOME-PRETAX> 356,000
<INCOME-TAX> 149,000
<INCOME-CONTINUING> 207,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207,000
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
