U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ____________________ Commission File Number: 1-15087 I.D. SYSTEMS, INC. (Exact name of small business issuer as specified in its charter) Delaware 22-3270799 (State or other jurisdiction or (I.R.S. Employer Identification No) incorporation or organization) One University Plaza, Hackensack, New Jersey 07601 (Address of principal executive offices) (Zip Code) (201) 670-9000 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period) that the issuer was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [_] No [_] APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of the close of business on November 14, 2000 was 5,720,625. A INDEX I.D. Systems, Inc. PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements. Page Condensed Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited) 1 Condensed Statements of Operations (unaudited) for the three months and nine months ended September 30, 1999 and 2000 2 Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 1999 and 2000 3 Notes to Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 B PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements I.D. Systems, Inc. Condensed Balance Sheets December 31, 1999 September 30,2000 (Unaudited) ----------------- ----------------- Assets Cash and cash equivalents $ 7,021,000 $ 4,874,000 Investments 6,005,000 5,181,000 Accounts receivable 880,000 301,000 Unbilled receivables 962,000 763,000 Inventory 123,000 949,000 Deferred taxes 49,000 31,000 Prepaid expenses and other assets 152,000 133,000 ------------ ------------ Total current assets 15,192,000 12,232,000 Fixed assets, net 307,000 628,000 Other assets 324,000 177,000 ------------ ------------ $ 15,823,000 $ 13,037,000 ============ ============ Liabilities Accounts payable and accrued expenses $ 545,000 $ 644,000 Capital lease obligations 14,000 13,000 Income taxes payable 51,000 ------------ ------------ Total current liabilities 610,000 657,000 Capital lease obligations 32,000 23,000 Deferred rent 42,000 13,000 ------------ ------------ 684,000 693,000 ------------ ------------ Stockholders' equity Preferred Stock; authorized 5,000,000 shares, $0.01 par value; none issued Common Stock, authorized 15,000,000 shares, $0.01 par value; issued and outstanding 5,717,000 shares and 5,720,000 shares, respectively 57,000 57,000 Additional paid in capital 15,554,000 15,558,000 Accumulated deficit (472,000) (3,271,000) ------------ ------------ 15,139,000 12,344,000 ------------ ------------ $ 15,823,000 $ 13,037,000 ============ ============ See accompanying notes. 1 I.D. Systems, Inc. Condensed Statements of Operations (Unaudited) Three months ended Nine months ended September 30, September 30, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Revenues $ 1,704,000 $ 231,000 $ 4,213,000 $ 850,000 Cost of Revenues 914,000 107,000 2,517,000 421,000 ----------- ----------- ----------- ----------- Gross Profit 790,000 124,000 1,696,000 429,000 Selling, general and administrative expenses 656,000 1,118,000 1,467,000 2,690,000 Research and development expenses 93,000 489,000 149,000 1,091,000 ----------- ----------- ----------- ----------- Income (loss) from operations 41,000 (1,483,000) 80,000 (3,352,000) Interest income 148,000 185,000 176,000 557,000 Interest expense (18,000) (1,000) (53,000) (4,000) ----------- ----------- ----------- ----------- Income (loss) before taxes 171,000 (1,299,000) 203,000 (2,799,000) Income tax provision 71,000 -- 86,000 -- ----------- ----------- ----------- ----------- Net income (loss) $ 100,000 $(1,299,000) $ 117,000 $(2,799,000) =========== =========== =========== =========== Net income (loss) per share - basic $ 0.02 $ (0.23) $ 0.03 $ (0.49) =========== =========== =========== =========== Net income (loss) per share - diluted $ 0.02 $ (0.23) $ 0.02 $ (0.49) =========== =========== =========== =========== Weighted average common shares outstanding - basic income per share 5,600,000 5,720,000 4,150,000 5,720,000 Effect of potential common shares from exercise of options 1,049,000 -- 1,030,000 -- ----------- ----------- ----------- ----------- Weighted average common shares outstanding - diluted income per share 6,649,000 5,720,000 5,180,000 5,720,000 =========== =========== =========== =========== See accompanying notes 2 I.D. Systems, Inc. Condensed Statements of Cash Flows (Unaudited) Nine months ended September 30, 1999 2000 ------------ ------------ Cash flows from operating activities: Net income (loss) $ 117,000 $ (2,799,000) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 36,000 83,000 Amortization of debt discount 44,000 Deferred taxes 18,000 Deferred rent expense 3,000 (29,000) Deferred revenue (545,000) Changes in: Accounts receivable (360,000) 579,000 Unbilled receivables 199,000 Inventory (826,000) Prepaid expenses and other assets (186,000) 166,000 Income taxes payable (51,000) Accounts payable and accrued expenses 466,000 99,000 ------------ ------------ Net cash used in operating activities (425,000) (2,561,000) ------------ ------------ Cash flows from investing activities: Purchase of fixed assets (98,000) (404,000) Investments maturities 824,000 ------------ ------------ Net cash (used in) provided by investing (98,000) 420,000 activities ------------ ------------ Cash flows from financing activities: Payment of lease obligations (8,000) (10,000) Proceeds from exercise of stock options 4,000 Receipt of amount due from stockholders 23,000 Payment of notes payable - stockholders (200,000) Proceeds from initial public offering - net 13,921,000 ------------ ------------ Net cash provided by (used in) financing activities 13,736,000 (6,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents 13,213,000 (2,147,000) Cash and cash equivalents - beginning of period 1,130,000 7,021,000 ------------ ------------ Cash and cash equivalents - end of period $ 14,343,000 $ 4,874,000 ============ ============ See accompanying notes 3 I.D. Systems, Inc. Notes to Condensed Financial Statements September 30, 2000 NOTE A - Basis of Reporting The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of I.D. Systems, Inc. (the "Company") as of September 30, 2000, the results of its operations for the nine-month and three-month periods ended September 30, 1999 and 2000 and cash flows for the nine-month periods ended September 30, 1999 and 2000. The results of operations for the three - month and nine - month periods ended September 30, 2000 are not necessarily indicative of the operating results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and related disclosures for the year ended December 31, 1999 included in the Company's Annual Report. NOTE B - Net Income Per Share of Common Stock Basic income per share is based on the weighted average number of common shares of outstanding during each period. Diluted income per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and warrants and the proceeds thereof were used to purchase outstanding common shares. For the three-month and nine-month periods ended September 30, 2000 the basic and diluted weighted average shares outstanding are the same since the effect from the potential exercise of outstanding stock options would have been anti-dilutive. NOTE C - Concentration of Customers One customer accounted for approximately 85% and 30% of the Company's revenues during the nine-month periods ended September 30, 1999 and 2000, respectively. NOTE D - Initial Public Offering During July and August of 1999 the Company issued and sold 2,300,000 shares of its common stock at $7.00 per share in an initial public offering. The offering provided net proceeds to the Company of approximately $13,921,000. 4 Item 2. Management's Discussion And Analysis The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve a number of risks and uncertainties. The following are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in the wireless tracking industries, general economic conditions, lower than expected customer orders or variations in customer order patterns, competitive factors including increased competition, changes in product and service mix, and resource constraints encountered in developing new products. The forward-looking statements regarding industry trends, product development and liquidity and future business activities should be considered in light of these factors. 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 its system. The Company's revenues relate to the time expended and expertise involved in customizing its 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 by providing on-going maintenance and support and consulting to its existing customers. The Company's principal 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., John Deere Welland Works, Union Pacific Railroad, a subsidiary of Union Pacific Corporation, and the United States Postal Service. Results of Operations The following table sets forth, for the periods indicated, certain operating information expressed as a percentage of revenue: Three months ended Nine months ended September 30, September 30, 1999 2000 1999 2000 ------ ------ ------ ------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of Revenues 53.6 46.3 59.7 49.5 ------ ------ ------ ------ Gross Profit 46.4 53.7 40.3 50.5 Selling, general and administrative expenses 38.5 483.9 34.8 316.5 Research and development expenses 5.5 211.7 3.5 128.3 ------ ------ ------ ------ Income (loss) from operations 2.4 (641.9) 2.0 (394.3) Net interest income 7.6 79.6 2.9 65.1 ------ ------ ------ ------ Income (loss) before income tax provision 10.0 (562.3) 4.9 (329.2) Income tax expense 4.2 -- 2.1 -- ------ ------ ------ ------ Net income (loss) 5.8% (562.3)% 2.8% (329.2)% ------ ------ ------ ------ 5 Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 REVENUES. Revenues were $231,000 in the three months ended September 30, 2000 as compared to $1,704,000 in the three months ended September 30, 1999. This decrease was attributable to the completion, during January 2000, of the approximately $7.6 million contract with the United States Postal Service (the "USPS mail monitoring contract"). The USPS mail monitoring contract provided for the delivery of a wireless monitoring and tracking system for mail throughout approximately 300 postal facilities. Additionally, during the quarter the Company devoted its resources to developing and commercializing a new "universal" system of hardware and software, which the Company believes will enhance many aspects of system procurement, the sales cycle, and the implementation process. The Company's initial systems required customization for each separate program, including individualized software configurations, distinct asset connectivity solutions, and non-modular functionality. The new universal system provides interoperable software modules, repeatable, non-intrusive asset interconnectivity, and plug-and play peripheral hardware for modular functionality. While the emphasis placed on developing the universal system had a restrictive effect on new revenues during the quarter, this focus should reap rewards for the Company as leading customers move from pilot phase toward replication mode. COST OF REVENUES. Cost of revenues were $107,000 in the three months ended September 30, 2000 as compared to $914,000 in the three months ended September 30, 1999. As a percentage of revenues, cost of revenues were 46.3% in the three months ended September 30, 2000 as compared to 53.6% in the three months ended September 30, 1999. This percentage decrease was primarily attributable to an increase in the portion of revenues derived from software development, which generally have higher margins than revenues related to hardware deliveries. Gross profit was $124,000 in the three months ended September 30, 2000 compared to $790,000 in the three months ended September 30, 1999. As a percentage of revenues, gross profit increased to 53.7% in the three months ended September 30, 2000 from 46.4% in the three months ended September 30, 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $1,118,000 in the three months ended September 30, 2000 as compared to $656,000 in the three months ended September 30, 1999. This increase was attributable to an increase in payroll expenses resulting from an increase in personnel, as well as the increase in occupancy costs due to the Company's relocation to its new headquarters. As a percentage of revenues, selling, general and administrative expenses increased to 483.9% in the three months ended September 30, 2000 from 38.5% in the three months ended September 30, 1999. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses not funded by the Company's customers were $489,000 in the three months ended September 30, 2000 as compared to $93,000 in the three months ended September 30, 1999. This increase was attributable to increased research and development costs related to developing and commercializing a new "universal" system of hardware and software. As a percentage of revenues, research and development expenses increased to 211.7% in the three months ended September 30, 2000 from 5.5% in the three months ended September 30, 1999. NET INTEREST (EXPENSE) INCOME. Interest income was $185,000 in the three months ended September 30, 2000 as compared to $148,000 in the three months ended September 30, 1999. Interest expense was $1,000 in the three months ended September 30, 2000 as compared to $18,000 in the three months ended September 30, 1999. This decrease is attributable to the repayment of stockholder loans during 1999. 6 NET INCOME (LOSS). Net loss was $1,299,000 in the three months ended September 30, 2000 as compared to net income of $100,000 in the three-month period ended September 30, 1999. This was due primarily to the reasons described above. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 REVENUES. Revenues were $850,000 in the nine months ended September 30, 2000 as compared to $4,213,000 in the nine months ended September 30, 1999. This decrease was attributable to the completion of the USPS mail monitoring contract. During the nine months ended September 30, 2000 approximately $806,000, or 95%, of the Company's revenues were derived from sources other than the USPS mail monitoring contract as compared to approximately $719,000, or 17%, in the nine months ended September 30, 1999. During the three months ended September 30, 2000 the Company devoted its resources to developing and commercializing a new "universal" system of hardware and software, which the Company believes will enhance many aspects of system procurement, the sales cycle, and the implementation process. The Company's initial systems required customization for each separate program, including individualized software configurations, distinct asset connectivity solutions, and non-modular functionality. The new universal system provides interoperable software modules, repeatable, non-intrusive asset interconnectivity, and plug-and play peripheral hardware for modular functionality. While the emphasis placed on developing the universal system had a restrictive effect on new revenues during the quarter, this focus should reap rewards for the Company as leading customers move from pilot phase toward replication mode. COST OF REVENUES. Cost of revenues were $421,000 in the nine months ended September 30, 2000 as compared to $2,517,000 in the nine months ended September 30, 1999. As a percentage of revenues, cost of revenues were 49.5% in the nine months ended September 30, 2000 as compared to 59.7% in the nine months ended September 30, 1999. This percentage decrease was primarily attributable to an increase in the portion of revenues derived from sources other than the USPS mail monitoring contract. Under the USPS mail monitoring contract, revenues attributable to materials had lower margins than revenues related to labor. Gross profit was $429,000 in the nine months ended September 30, 2000 compared to $1,696,000 in the nine months ended September 30, 1999. As a percentage of revenues, gross profit increased to 50.3% in the nine months ended September 30, 2000 from 40.5% in the nine months ended September 30, 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $2,690,000 in the nine months ended September 30, 2000 as compared to $1,467,000 in the nine months ended September 30, 1999. This increase was attributable to an increase in payroll expenses resulting from an increase in personnel, as well as an increase in occupancy costs due to the Company's relocation to its new headquarters. As a percentage of revenues, selling, general and administrative expenses increased to 316.5% in the nine months ended September 30, 2000 from 34.8% in the nine months ended September 30, 1999. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses not funded by the Company's customers were $1,091,000 in the nine months ended September 30, 2000 as compared to $149,000 in the nine months ended September 30, 1999. This increase was attributable to increased research and development costs related to developing new applications for the Company's products including a new "universal" system of hardware and software. As a percentage of revenues, research and development expenses increased to 128.3% in the nine months ended September 30, 2000 from 3.6% in the nine months ended September 30, 1999. 7 NET INTEREST (EXPENSE) INCOME. Interest income was $557,000 in the nine months ended September 30, 2000 as compared to $176,000 in the nine months ended September 30, 1999. This increase was attributable to larger average cash, cash equivalents and short-term investment balances in the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999 as the Company received the proceeds from its initial public offering in July and August of 1999. Interest expense was $4,000 in the nine months ended September 30, 2000 as compared to $53,000 in the nine months ended September 30, 1999. This decrease is attributable to the repayment of stockholder loans during 1999. NET INCOME (LOSS). Net loss was $2,799,000 in the nine months ended September 30, 2000 as compared to net income of $117,000 in the nine-month period ended September 30, 1999. This was due primarily to the reasons described above. Liquidity and Capital Resources As of September 30, 2000, the Company had $10,055,000 of cash, cash equivalents and short-term investments and $11,575,000 of working capital as compared to $13,026,000 and $14,582,000, respectively, at December 31, 1999. Net cash used in operating activities was $2,561,000 for the nine months ended September 30, 2000 as compared to net cash used in operating activities of $425,000 for the nine months ended September 30, 1999. Net cash used in operating activities in the nine months ended September 30, 2000 was primarily due to the net loss of $2,799,000 and an increase in inventory of $826,000, offset by a decrease in accounts and unbilled receivables of $778,000 and a decrease of prepaid expenses and other assets of $166,000. Net cash used in operating activities for the nine months ended September 30, 1999 was from a decrease in deferred revenue of $545,000, an increase in accounts receivable of $360,000 and an increase in prepaid expenses and other assets of $186,000, offset by an increase in accounts payable and accrued expenses of $466,000 and net income of $117,000. Net cash provided by investing activities for the nine months ended September 30, 2000 was $420,000 as compared to cash used in investing activities of $98,000 for the nine months ended September 30, 1999. The cash provided by investing activities resulted from maturities of short-term investments of $824,000 offset by use of cash of $404,000 for the purchase of fixed assets. The use of cash of $98,000 for the nine months ended September 30, 1999 reflected capital expenditures for fixed assets. The net cash provided by financing activities of $13,736,000 for the nine months ended September 30, 1999, resulted primarily from $13,921,000 of proceeds from the Company's initial public offering in July and August of 1999 offset by a $200,000 repayment of notes payable to stockholders. The Company believes its operations have not been and, in the foreseeable future, will not be materially adversely affected by inflation or changing prices. Recently Issued Financial Standards The Company believes that recently issued financial standards will not have a significant impact on our results of operations, financial position or cash flows. Impact Of Year 2000 8 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. 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended June 30, 2000. 10 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. I.D. Systems, Inc. Dated: November 14, 2000 By: /s/ Jeffrey M. Jagid ------------------------------------- Jeffrey M. Jagid Chief Executive Officer (Principal Executive Officer) Dated: November 14, 2000 By: /s/ Ned Mavrommatis ------------------------------------- Ned Mavrommatis Chief Financial Officer (Principal Accounting Officer) 11