Form 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2010
or
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o |
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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: 001-15087
I.D. SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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22-3270799 |
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.) |
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One University Plaza, Hackensack, |
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New Jersey
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07601 |
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(Address of principal executive offices)
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(Zip Code) |
(201) 996-9000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934).
Yes o No þ
The number of shares of the registrants common stock, $0.01 par value per share, outstanding
as of the close of business on May 12, 2010 was 11,253,253.
INDEX
I.D. Systems, Inc. and Subsidiaries
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
I.D. Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
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December 31, |
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March 31, |
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2009* |
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2010 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
19,481,000 |
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$ |
5,979,000 |
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Investments short term |
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33,909,000 |
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29,209,000 |
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Accounts receivable, net of allowance
for doubtful accounts
of $106,000 and $123,000 in 2009 and 2010, respectively |
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3,252,000 |
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5,470,000 |
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Note and lease receivable current |
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254,000 |
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Inventory, net |
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4,487,000 |
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9,008,000 |
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Interest receivable |
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97,000 |
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131,000 |
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Deferred
costs current |
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364,000 |
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Prepaid expenses and other current assets |
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686,000 |
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2,142,000 |
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Total current assets |
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61,912,000 |
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52,557,000 |
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Investments long term |
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6,752,000 |
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4,392,000 |
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Note and lease receivable less current portion |
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1,062,000 |
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Deferred costs less current portion |
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761,000 |
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Fixed assets, net |
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917,000 |
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3,872,000 |
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Goodwill |
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619,000 |
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2,590,000 |
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Intangible assets, net |
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375,000 |
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5,816,000 |
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$ |
70,575,000 |
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$ |
71,050,000 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
2,094,000 |
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$ |
6,145,000 |
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Line of credit |
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11,638,000 |
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9,451,000 |
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Deferred revenue |
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501,000 |
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1,264,000 |
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Total current liabilities |
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14,233,000 |
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16,860,000 |
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Deferred revenue |
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461,000 |
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1,884,000 |
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14,694,000 |
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18,744,000 |
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Commitments and Contingencies (Note 30) |
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STOCKHOLDERS EQUITY |
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Preferred stock; authorized 5,000,000 shares, $0.01 par value; none issued |
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Common stock; authorized 50,000,000 shares, $0.01 par value; 12,284,000
and 12,466,000 shares issued at December 31, 2009 and March 31, 2010,
respectively; shares outstanding, 11,075,000 and 11,253,000 at December
31, 2009 and March 31, 2010, respectively |
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120,000 |
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121,000 |
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Additional paid-in capital |
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103,596,000 |
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104,052,000 |
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Accumulated deficit |
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(36,859,000 |
) |
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(40,922,000 |
) |
Accumulated other comprehensive loss |
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(60,000 |
) |
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(19,000 |
) |
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66,797,000 |
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63,232,000 |
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Treasury stock; 1,209,000 and 1,213,000 shares at cost in 2009 and 2010 |
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(10,916,000 |
) |
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(10,926,000 |
) |
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Total stockholders equity |
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55,881,000 |
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52,306,000 |
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Total liabilities and stockholders equity |
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$ |
70,575,000 |
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$ |
71,050,000 |
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* |
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Derived from audited balance sheet as of December 31, 2009. |
See accompanying notes to condensed consolidated financial statements.
1
I.D. Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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Three months ended |
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March 31, |
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2009 |
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2010 |
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Revenue: |
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Products |
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$ |
1,378,000 |
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$ |
2,023,000 |
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Services |
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1,556,000 |
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4,101,000 |
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2,934,000 |
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6,124,000 |
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Cost of revenue: |
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Cost of products |
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798,000 |
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975,000 |
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Cost of services |
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547,000 |
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1,764,000 |
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1,345,000 |
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2,739,000 |
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Gross profit |
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1,589,000 |
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3,385,000 |
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Selling, general and administrative expenses |
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4,211,000 |
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6,474,000 |
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Research and development expenses |
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689,000 |
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1,154,000 |
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Loss from operations |
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(3,311,000 |
) |
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(4,243,000 |
) |
Interest income |
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347,000 |
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209,000 |
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Interest expense |
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(30,000 |
) |
Other (expense) income, net |
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(108,000 |
) |
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1,000 |
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Net loss |
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$ |
(3,072,000 |
) |
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$ |
(4,063,000 |
) |
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Net loss per share basic and diluted |
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$ |
(0.28 |
) |
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$ |
(0.36 |
) |
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Weighted average common shares outstanding basic and diluted |
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10,895,000 |
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11,185,000 |
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See accompanying notes to condensed consolidated financial statements.
2
I.D. Systems, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders Equity
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Accumulated |
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Common Stock |
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Additional |
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Other |
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Number of |
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Paid-in |
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Accumulated |
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Comprehensive |
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Treasury |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Stock |
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Equity |
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Balance at December 31, 2009 |
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12,284,000 |
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$ |
120,000 |
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$ |
103,596,000 |
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$ |
(36,859,000 |
) |
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$ |
(60,000 |
) |
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$ |
(10,916,000 |
) |
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$ |
55,881,000 |
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Net loss |
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(4,063,000 |
) |
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(4,063,000 |
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Comprehensive loss
unrealized gain
on investments |
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66,000 |
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66,000 |
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Foreign currency
translation adjustment |
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(25,000 |
) |
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(25,000 |
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Total comprehensive loss |
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(4,022,000 |
) |
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Shares issued pursuant to
exercise of stock options |
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1,000 |
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1,000 |
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2,000 |
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3,000 |
|
Issuance of restricted stock |
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181,000 |
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Shares
withheld pursuant to stock issuances |
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(10,000 |
) |
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(10,000 |
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Stock based compensation
restricted stock |
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84,000 |
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84,000 |
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Stock based compensation
options |
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370,000 |
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370,000 |
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Balance at March 31, 2010
(Unaudited) |
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12,466,000 |
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$ |
121,000 |
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$ |
104,052,000 |
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$ |
(40,922,000 |
) |
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$ |
(19,000 |
) |
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$ |
(10,926,000 |
) |
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$ |
52,306,000 |
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See accompanying notes to condensed consolidated financial statements.
3
I.D. Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three months ended |
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March 31, |
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2009 |
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2010 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(3,072,000 |
) |
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$ |
(4,063,000 |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
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Bad debt expense |
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16,000 |
|
Accrued interest income |
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32,000 |
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(34,000 |
) |
Stock-based compensation expense |
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559,000 |
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|
454,000 |
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Depreciation and amortization |
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138,000 |
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|
432,000 |
|
Change in fair value of investments |
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108,000 |
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Deferred rent expense |
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(5,000 |
) |
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Deferred revenue |
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475,000 |
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|
802,000 |
|
Changes in: |
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Restricted cash |
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177,000 |
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Accounts receivable |
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2,762,000 |
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|
1,011,000 |
|
Unbilled receivables |
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(32,000 |
) |
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Note and lease receivable |
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|
74,000 |
|
Inventory |
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(1,215,000 |
) |
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|
715,000 |
|
Prepaid expenses and other assets |
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|
(69,000 |
) |
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|
(483,000 |
) |
Deferred costs |
|
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|
|
|
|
(494,000 |
) |
Accounts payable and accrued expenses |
|
|
(1,414,000 |
) |
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|
(1,360,000 |
) |
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Net cash used in operating activities |
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(1,556,000 |
) |
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|
(2,930,000 |
) |
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Cash flows from investing activities: |
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Expenditures for fixed assets including website development costs |
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(198,000 |
) |
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|
(506,000 |
) |
Business acquisition |
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(15,000,000 |
) |
Purchase of investments |
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|
(16,474,000 |
) |
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|
(2,751,000 |
) |
Maturities of investments |
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11,778,000 |
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|
9,877,000 |
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Net cash used in investing activities |
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(4,894,000 |
) |
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(8,380,000 |
) |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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3,000 |
|
Borrowing on line of credit |
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12,900,000 |
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Principal payments on line of credit |
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(160,000 |
) |
|
|
(2,187,000 |
) |
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|
Net cash provided by (used in) financing activities |
|
|
12,740,000 |
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|
|
(2,184,000 |
) |
|
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|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
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|
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|
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(8,000 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
6,290,000 |
|
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|
(13,502,000 |
) |
Cash and cash equivalents beginning of period |
|
|
12,558,000 |
|
|
|
19,481,000 |
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
18,848,000 |
|
|
|
5,979,000 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
30,000 |
|
|
|
|
|
|
|
|
Noncash activities: |
|
|
|
|
|
|
|
|
Unrealized (loss) gain on investments |
|
$ |
(45,000 |
) |
|
$ |
66,000 |
|
|
|
|
|
|
|
|
Accrued contingent consideration |
|
|
|
|
|
$ |
1,017,000 |
|
|
|
|
|
|
|
|
Shares withheld pursuant to stock issuance |
|
$ |
65,000 |
|
|
$ |
10,000 |
|
|
|
|
|
|
|
|
Acquisition: |
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
|
|
|
|
$ |
20,712,000 |
|
Liabilities assumed |
|
|
|
|
|
|
(4,695,000 |
) |
Less: contingent consideration potentially due |
|
|
|
|
|
|
(1,017,000 |
) |
|
|
|
|
|
|
|
|
Net cash paid in 2010 |
|
|
|
|
|
$ |
15,000,000 |
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
I.D. Systems, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2010
NOTE 1 The Company
I.D. Systems, Inc. and its subsidiaries (the Company, we, our or us) develop, market and
sell wireless solutions for managing and securing high-value enterprise assets. These assets
include industrial vehicles, including forklifts, airport ground support equipment, rental vehicles
and transportation assets, such as dry van trailers, refrigerated trailers, railcars and
containers. The Companys patented wireless asset management system addresses the needs of
organizations to control, track, monitor and analyze their assets. The Companys solutions enable
customers to achieve tangible economic benefits by making timely, informed decisions that increase
the security, productivity and efficiency of their operations. The Company outsources its hardware
manufacturing operations to contract manufacturers.
On January 7, 2010, the Company entered into a Membership Interest Purchase Agreement (the
Purchase Agreement) with General Electric Capital Corporation (GECC) and GE Asset Intelligence,
LLC (GEAI ), pursuant to which the Company acquired GEAIs telematics business (the GEAI
Business) through the purchase of 100% of the membership interests of Asset Intelligence, LLC
(AI), a newly formed, wholly owned subsidiary of GEAI into which substantially all of the assets,
including intellectual property, and liabilities of the GEAI Business had been transferred
immediately prior to the closing. Effective with the closing of the transaction, AI became a
wholly owned subsidiary of the Company. See Note 12 to the Unaudited Condensed Consolidated
Financial Statements.
Prior to the AI acquisition, the Company operated in a single reportable segment, which consisted
of the historical operations of I.D. Systems (IDS). Subsequent thereto, the Company has
determined that it has two reportable segments organized by product line: IDS and AI. The IDS
operating segment includes the Companys core wireless asset management systems operations: I.D.
Systems, Inc., I.D. Systems, GmbH, and Didbox Ltd. This core business develops, markets and sells
wireless solutions for managing and securing high-value enterprise assets such as industrial
trucks. The AI operating segment, which consists of Asset Intelligence, LLC, provides data-driven
telematics solutions for tracking and managing supply chain assets such as trailers and containers.
I.D. Systems, Inc. was incorporated in Delaware in 1993 and commenced operations in January 1994.
NOTE 2 Organization and Consolidation Policy
The unaudited interim condensed consolidated financial statements include the accounts of I.D.
Systems, Inc. and its wholly owned subsidiaries Asset Intelligence, LLC (AI), I.D. Systems, GmbH
(GmbH) and Didbox, Ltd. (Didbox) (collectively referred to as the Company). All material
intercompany balances and transactions have been eliminated in consolidation. The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP) for interim
financial information and with the instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP 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 consolidated financial
position of the Company as of March 31, 2010, the consolidated results of its operations for the
three-month periods ended March 31, 2009 and 2010, respectively, the consolidated change in
stockholders equity for the three months ended March 31, 2010 and consolidated cash flows for the
three month-periods ended March 31, 2009 and 2010. The results of operations for the three-month
period ended March 31, 2010 are not necessarily indicative of the operating results for the full
year. We suggest that these financial statements be read in conjunction with the audited financial
statements and related disclosures for the year ended December 31, 2009 included in the Companys
Annual Report on Form 10-K for the year then ended.
NOTE 3 Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents unless they are legally or contractually
restricted. The Companys cash and cash equivalent balances exceed FDIC limits.
NOTE 4 Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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. The Company continually evaluates
estimates used in the preparation of the financial statements for reasonableness. The most
significant estimates relate to stock-based compensation arrangements, the fair value of
auction-rate securities and auction-rate securities rights (see Note 6 Fair Value
Measurements), acquisition accounting, realization of deferred tax assets, the impairment of
tangible and intangible assets, inventory reserves, bad debt reserves and warranty and deferred
revenue and costs. Actual results could differ from those estimates.
5
NOTE 5
Investments
The Companys investments include debt securities, U.S. Treasury Notes, government and state agency
bonds, corporate bonds and auction-rate securities, which are classified as either available for
sale, held to maturity or trading, depending on managements investment intentions relating to
these securities. Available for sale securities are marked-to-market based on quoted market values
of the securities, with the unrealized gain and (losses) reported as comprehensive income or
(loss). For the three months ended March 31, 2009 and 2010, the Company reported unrealized (loss)
gain of ($45,000) and $66,000, respectively, on available for sale securities in comprehensive
loss. Investments categorized as held to maturity are carried at amortized cost because the Company
has both the intent and the ability to hold these investments until they mature. The Company has
classified as short-term those securities that mature within one year, and all other securities are
classified as long-term.
The Companys investments include auction rate securities (ARS) and an auction rate securities
right (ARSR), each as described below.
The Company has classified its ARS investments and ARSR as trading securities. Trading securities
are carried at fair value, with unrealized holding gains and losses included in other income
(expense) on the Companys consolidated statements of operations.
At December 31, 2009 and March 31, 2010, the Company held approximately $19.4 million and $17.3
million fair value in ARS and ARSR, respectively. These ARS represent interests in collateralized
pools of student loan receivables issued by agencies established by counties, cities, states and
other municipal entities within the United States. Liquidity for these ARS is typically provided
by an auction process that resets the applicable interest rate at pre-determined
intervals. Starting in February 2008 and continuing through 2010, these securities failed to sell
at auction. These failed auctions represent liquidity risk exposure and are not defaults or credit
events. As a holder of the securities, the Company continues to receive interest on the ARS.
6
The Company purchased all of the ARS it holds from UBS AG (UBS). In October 2008, the
Company received a non-transferable offer (the Offer) from UBS for a put right (the ARSR)
permitting the Company to sell to UBS at par value all ARS previously purchased from UBS at a
future date (any time during a two-year period beginning June 30, 2010). The Offer also included a
commitment to loan the Company 75% of the UBS-determined value of the ARS at any time until the put
is exercised at a variable interest rate that will equal the lesser of: (i) the applicable
reference rate plus a spread set forth in the applicable credit agreement and (ii) the
then-applicable weighted-average interest or dividend rate paid to the Company by the issuer of the
ARS that is pledged to UBS as collateral. In November 2008, the Company accepted the Offer. In
exchange for the Offer, the Company provided UBS with a general release of claims (other than
certain consequential damages claims) concerning our ARS and granted UBS the right to purchase the
Companys ARS at any time for full par value. The Company intends to exercise its right under the
ARSR to put back the ARS to UBS at the time it becomes available.
The Companys right under the ARSR is in substance a put option with the strike price equal to the
par value of the ARS which is recorded as an asset, measured at fair value with the resultant gain
(loss) recognized in earnings. The Company has classified the ARS as trading securities. The
Company recognized the following gain or (loss) in the consolidated statement of operations for the
three months ended March 31, 2010 from the change in the fair value of these instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
Unrealized |
|
|
|
|
|
|
Fair Value at |
|
|
Purchases |
|
|
Gain |
|
|
Fair Value at |
|
Three months ended March 31, 2010 |
|
January 1, 2010 |
|
|
(Sales) |
|
|
(Loss) |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities |
|
$ |
17,876,000 |
|
|
$ |
(2,150,000 |
) |
|
$ |
104,000 |
|
|
$ |
15,830,000 |
|
Auction Rate Securities Rights |
|
|
1,499,000 |
|
|
|
|
|
|
|
(104,000 |
) |
|
|
1,395,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain recorded for the
three months ended March 31, 2010 |
|
$ |
19,375,000 |
|
|
$ |
(2,150,000 |
) |
|
$ |
|
|
|
$ |
17,225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the ARSR was based on an approach in which the present value of all expected
future cash flows was subtracted from the current fair market value of the security and the
resultant value was calculated as a future value at an interest rate reflective of counterparty
risk.
Given the substantial dislocation in the financial markets and among financial services companies,
there can be no assurance that UBS ultimately will have the ability to repurchase the Companys ARS
at par, or at any other price, as these rights will be an unsecured contractual obligation of UBS,
or that if UBS determines to purchase the Companys ARS at any time, the Company will be able to
reinvest the cash proceeds of any such sale at the same interest rate or dividend yield currently
being paid to the Company. Also, as a condition of accepting the ARSR, the Company was required to
sign a release of claims against UBS, which will prevent the Company from making claims against UBS
related to the Companys investment in ARS, other than claims for consequential damages.
7
The cost, gross unrealized gains (losses) and fair value of available for sale, held to
maturity and trading securities by major security type at March 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
Investments short term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate |
|
$ |
17,225,000 |
|
|
|
|
|
|
$ |
(1,395,000 |
) |
|
$ |
15,830,000 |
|
Auction rate securities right |
|
|
|
|
|
$ |
1,395,000 |
|
|
|
|
|
|
|
1,395,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities |
|
|
17,225,000 |
|
|
|
1,395,000 |
|
|
|
(1,395,000 |
) |
|
|
17,225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
503,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
507,000 |
|
Government agency |
|
|
5,666,000 |
|
|
|
4,000 |
|
|
|
(3,000 |
) |
|
|
5,667,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
|
6,169,000 |
|
|
|
8,000 |
|
|
|
(3,000 |
) |
|
|
6,174,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Notes |
|
|
1,525,000 |
|
|
|
|
|
|
|
|
|
|
|
1,525,000 |
|
Government agency bonds |
|
|
3,253,000 |
|
|
|
|
|
|
|
|
|
|
|
3,253,000 |
|
Corporate bonds and commercial paper |
|
|
1,032,000 |
|
|
|
|
|
|
|
|
|
|
|
1,032,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
|
5,810,000 |
|
|
|
|
|
|
|
|
|
|
|
5,810,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments short term |
|
|
29,204,000 |
|
|
|
1,403,000 |
|
|
|
(1,398,000 |
) |
|
|
29,209,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities long term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency bonds |
|
|
769,000 |
|
|
|
|
|
|
|
|
|
|
|
769,000 |
|
Corporate bonds and commercial paper |
|
|
3,623,000 |
|
|
|
|
|
|
|
|
|
|
|
3,623,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity securities |
|
|
4,392,000 |
|
|
|
|
|
|
|
|
|
|
|
4,392,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments long term |
|
|
4,392,000 |
|
|
|
|
|
|
|
|
|
|
|
4,392,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
33,596,000 |
|
|
$ |
1,403,000 |
|
|
$ |
(1,398,000 |
) |
|
$ |
33,601,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above presents held to maturity investments at cost and
amortized cost. At March 31, 2010, the gross unrealized holding gains
for held to maturity securities were $44,000, short-term, and $99,000,
long-term.
NOTE 6 Fair Value Measurements
The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The following is a brief description of those
levels:
|
|
|
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2: Inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or
liabilities in markets that are not active. |
|
|
|
|
Level 3: Unobservable inputs that reflect the reporting entitys own assumptions. |
8
The following table summarizes the fair values of the Companys investments in the condensed
consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
March 31, |
|
|
Basis of Fair Value Measurements |
|
|
|
2010 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
739,000 |
|
|
$ |
739,000 |
|
|
|
|
|
|
|
|
|
Marketable securities short term |
|
|
29,209,000 |
|
|
|
11,984,000 |
|
|
$ |
|
|
|
$ |
17,225,000 |
|
Marketable securities long term |
|
|
4,392,000 |
|
|
|
4,392,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,340,000 |
|
|
$ |
17,115,000 |
|
|
$ |
|
|
|
$ |
17,225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below includes a roll forward of the Companys investments in ARS and the ARSR classified
under Level 3 from January 1, 2010 to March 31, 2010:
|
|
|
|
|
Fair value, January 1, 2010 |
|
$ |
19,375,000 |
|
Net maturities |
|
|
(2,150,000 |
) |
Unrealized gain included in condensed consolidated statement of operations |
|
|
|
|
|
|
|
|
Fair value, March 31, 2010 |
|
$ |
17,225,000 |
|
|
|
|
|
9
NOTE 7 Revenue Recognition
The Companys product revenue is derived from: (i) sales of our wireless asset management system,
which includes training and technical support; (ii) monitoring equipment and spare parts sold to
customers (for which title transfers on date of customer receipt) and from the related customer
service under contracts that generally provide for service over periods from one to five years;
(iii) post-contract maintenance and support agreements; and (iv) periodically, from leasing
arrangements.
Our wireless asset management system consists of on-asset hardware, communication infrastructure
and software. Revenue derived from the sale of our wireless asset management system is allocated to
each element based upon vendor specific objective evidence (VSOE) of the fair value of the element.
VSOE of the fair value is based upon the price charged when the element is sold separately. Revenue
is recognized as each element is earned based on the selling price of each element, and when there
are no undelivered elements that are essential to the functionality of the delivered elements. The
Companys system is typically implemented by the customer or a third party and, as a result,
revenue is recognized when title and risk of loss passes to the customer, which usually is upon
delivery of the system, persuasive evidence of an arrangement exists, sales price is fixed and
determinable, collectability is reasonably assured and contractual obligations have been satisfied.
In some instances, we are also responsible for providing installation services. The additional
installation services, which could be performed by third parties, are considered another element in
a multi-element deliverable and revenue for installation services is recognized at the time the
installation is provided. Training and technical support revenue are recognized at time of
performance.
The Company recognizes revenues from the sale of monitoring equipment when persuasive evidence of
an arrangement exists, delivery has occurred, the price is fixed or determinable, and
collectability is reasonably assured. These criteria include requirements that the delivery of
future products or services under the arrangement is not required for the delivered items to serve
their intended purpose. The Company has determined that the revenue derived from the sale of
monitoring equipment does not have stand alone value to the customer from the communication
services provided and the arrangements constitute a single unit of accounting. Under these
provisions, all of the Companys billings for equipment and the related cost are deferred,
recorded, and classified as a current and long-term liability and a current and long-term asset,
respectively. Deferred revenue and cost are recognized over the service contract life, beginning at
the time that a customer acknowledges acceptance of the equipment and service. The customer service
contracts typically range from one to five years. At December 31, 2009 and March 31, 2010, deferred
product revenue was $-0- and $1,944,000, respectively. During the three months ended March 31,
2010, the Company amortized deferred revenue of $80,000.
The service revenue for our monitoring equipment relates to charges for monthly messaging usage and
value-added features charges. The usage fee is a monthly fixed charge based on the expected
utilization according to the rate plan chosen by the customer. Service revenue generally commences
upon equipment installation and customer acceptance, and is recognized over the period such
services are provided.
Other revenue, which consists primarily of installation and freight charges, is recognized upon
equipment installation and customer acceptance for installation and upon shipment of equipment for
freight. Spare parts sales are reflected in product revenues and recognized on the date of customer
receipt of the part.
The Company also enters into post-contract maintenance and support agreements. Revenue is
recognized over the service period and the cost of providing these services is expensed as
incurred. At December 31, 2009 and March 31, 2010, deferred maintenance revenue was $962,000 and
$1,204,000, respectively.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on
a net basis and therefore are excluded from revenues in the condensed consolidated statements of
operations.
NOTE 8 Note Receivable and Net Investment in Sales-Type Lease
Notes receivable of $303,000 at March 31, 2010 relates to product financing arrangement that
exceeds one year and bears interest at 8%. Interest is recognized over the life of the note. The
Company does not require collateral for the notes. The Company has not and does not intend to sell
these receivables. Amounts collected on the note receivable is included in net cash provided by
operating activities in the condensed consolidated statements of cash flows. Unearned interest
income is amortized to interest income over the life of the note using the effective-interest
method.
Present
value of net investment in sales-type lease of $1,013,000 is for a five-year lease of the Companys product
and is reflected net of unearned income of $189,000 discounted at 8%. Scheduled maturities of minimum lease
payments outstanding as of March 31, 2010 are as follows:
|
|
|
|
|
Year ending December 31: |
|
|
|
|
|
|
|
|
|
April December 2010 |
|
$ |
151,000 |
|
2011 |
|
|
216,000 |
|
2012 |
|
|
234,000 |
|
2013 |
|
|
253,000 |
|
2014 |
|
|
159,000 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,013,000 |
|
|
|
|
|
10
NOTE 9 Inventory
Inventory, which primarily consists of finished goods and components used in the Companys
products, is stated at the lower of cost or market using the first-in first-out (FIFO) method.
Inventories
as of December 31, 2009 and March 31, 2010 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Components |
|
$ |
898,000 |
|
|
$ |
4,252,000 |
|
Finished goods |
|
|
4,519,000 |
|
|
|
5,669,000 |
|
|
|
|
|
|
|
|
|
|
|
5,417,000 |
|
|
|
9,921,000 |
|
Less: Inventory reserves |
|
|
(930,000 |
) |
|
|
(913,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,487,000 |
|
|
$ |
9,008,000 |
|
|
|
|
|
|
|
|
Inventories as March 31, 2010 include approximately $4.9 million of inventory from the AI
acquisition (see Note 12). The fair value of the acquired inventory is provisional pending the
completion of the valuation of the assets acquired and liabilities assumed.
NOTE 10 Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Equipment |
|
$ |
1,011,000 |
|
|
$ |
1,031,000 |
|
Computer software and website development |
|
|
414,000 |
|
|
|
2,565,000 |
|
Computer hardware |
|
|
774,000 |
|
|
|
1,150,000 |
|
Furniture and fixtures |
|
|
184,000 |
|
|
|
208,000 |
|
Automobiles |
|
|
80,000 |
|
|
|
53,000 |
|
Leasehold improvements |
|
|
514,000 |
|
|
|
645,000 |
|
Construction in process |
|
|
|
|
|
|
566,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,977,000 |
|
|
|
6,218,000 |
|
Accumulated depreciation and amortization |
|
|
(2,060,000 |
) |
|
|
(2,346,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
917,000 |
|
|
$ |
3,872,000 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $138,000 and $288,000 for the three months ended March
31, 2009 and 2010, respectively.
NOTE 11 Capitalized Software Development and Website Development Costs
The Company capitalizes in fixed assets the costs of software development and website development.
Specifically, the assets comprise an implementation of Oracle Enterprise Resource Planning (ERP)
software, enhancements to the GE Veriwise® systems, and a customer interface website
(which is the primary tool used to provide data to our customers). The website employs updated web
architecture and improved functionality and features, including, but not limited to, customization
at the customer level, enhanced security features, custom virtual electronic geofencing of
landmarks, GPS-based remote mileage reporting, and richer mapping capabilities. The Company
capitalized the costs incurred during the development and enhancement stages of the software
and website development. Costs incurred during the planning and post implementation/operation
stages of development were expensed. The Company capitalized $-0- and $393,000 for website
enhancements for the three months ended March 31, 2009 and 2010, respectively. Amortization of
costs associated with computer software and website development was $30,000 and $132,000 for the
three months ended March 31, 2009 and 2010, respectively.
11
NOTE
12 Acquisitions, Goodwill and Other Intangible Assets
On October 19, 2009, the Company acquired Didbox Ltd. (Didbox), a privately held manufacturer and
marketer of vehicle operator identification systems based in the United Kingdom (UK). The
transaction was valued at approximately $660,000 and was structured with $534,000 paid up front in
cash and contingent consideration of $110,000 due in 12 months based upon achievement of certain
revenue and operating profit targets. The Company expects Didbox to meet the revenue and operating
profit targets. The contingent consideration will be evaluated at each reporting date and any
change in estimate will be recorded through earnings. The estimated potential undiscounted amount
of all future payments that could be required to be paid under the contingent consideration
arrangement is between $99,000 and $110,000. The Company incurred acquisition-related expenses of
approximately $43,000, which were included in selling, general and administrative expenses in the
consolidated statement of operations during the year ended December 31, 2009. The Didbox business
complements the Companys existing businesses by allowing access to the original equipment
manufacturer (OEM) dealer network in the UK, and offers the ability to add the I.D. Systems
solution set to its product line. In addition, the acquisition is expected to provide the Company
with access to a broader base of customers in Europe.
The Company has accounted for the Didbox transaction under the acquisition method of accounting and
recorded the assets and liabilities of the acquired business at their estimated fair values at the
date of acquisition. The excess of the purchase price over the estimated fair values of the net
assets acquired is recorded as goodwill. The goodwill is not expected to be deductible for tax
purposes. Allocation of the Didbox purchase price consists of the following:
|
|
|
|
|
Current assets |
|
$ |
93,000 |
|
Other assets |
|
|
36,000 |
|
Current liabilities |
|
|
(104,000 |
) |
Goodwill |
|
|
419,000 |
|
Trademarks and tradenames |
|
|
61,000 |
|
Customer list |
|
|
56,000 |
|
Other intangibles |
|
|
83,000 |
|
|
|
|
|
Fair value of assets acquired |
|
$ |
644,000 |
|
|
|
|
|
The results of operations of Didbox have been included in the consolidated statement of operations
as of the effective date of the acquisition. Pro forma results of operations have not been
presented because the effects of the acquisition were not material.
On January 7, 2010, the Company entered into a Membership Interest Purchase Agreement (the
Purchase Agreement) with General Electric Capital Corporation (GECC) and GE Asset Intelligence,
LLC (GEAI ), pursuant to which the Company acquired GEAIs telematics business (the GEAI
Business) through the purchase of 100% of the membership interests of Asset Intelligence, LLC (the
AI), a newly formed, wholly owned subsidiary of GEAI into which substantially all of the assets,
including intellectual property, and liabilities of the GEAI Business had been transferred
immediately prior to the closing. Effective with the closing of the transaction, AI became a
wholly owned subsidiary of the Company. In connection with the transaction, AI offered employment
to all of the former employees of the GEAI Business. The focus of AIs business is in trucking,
rail, marine and intermodal applications. The acquisition is expected to provide the Company with
access to a broader base of customers.
Under the terms of the Purchase Agreement, the Company paid consideration of $15 million in cash at
closing. In addition, the Company may be required to pay additional cash consideration of up to $2
million in or about February 2011, contingent upon the number of new units of telematics equipment
sold or subject to a binding order to be sold by AI during the year ending December 31, 2010. The
purchase price is subject to a working capital adjustment to be performed during 2010, pursuant to
which a portion of the cash consideration paid at closing may be returned to the Company to the
extent that the actual working capital of AI delivered at closing, determined in accordance with a
formula set forth in the Purchase Agreement, is less than $5.5 million.
The Company incurred acquisition-related expenses of approximately $1,355,000, of which $1,241,000
were included in selling, general and administrative expenses in 2009 and $114,000 during the three
months ended March 31, 2010.
The transaction was accounted for using the acquisition method of accounting and the purchase price
was assigned to the net assets acquired based on the fair value of such assets and liabilities at
the date of acquisition. The Company is in the process of finalizing the fair value of the assets
acquired and liabilities assumed, thus, the preliminary allocation of the purchase price may be
subject to change. The Company recorded $1,017,000 of contingent consideration based on the
estimated number of new units of telematics equipment expected to be sold in 2010. The contingent
consideration was estimated using a probability weighted calculation of the number of new units of
telematics equipment expected to be sold in 2010 discounted at 20.5%, which represents the Companys weighted-average
discount rate. The preliminary allocation
of the AI purchase price consists of the following:
|
|
|
|
|
Current assets, excluding inventory |
|
$ |
4,709,000 |
|
Inventory |
|
|
5,236,000 |
|
Other assets, net |
|
|
3,211,000 |
|
Current liabilities |
|
|
(4,695,000 |
) |
Intangibles |
|
|
5,585,000 |
|
Goodwill |
|
|
1,971,000 |
|
Less: Contingent consideration |
|
|
(1,017,000 |
) |
|
|
|
|
Fair value of assets acquired |
|
$ |
15,000,000 |
|
|
|
|
|
12
The fair value of the assets acquired, liabilities assumed, acquired goodwill and intangible assets
is provisional pending the completion of the valuation of these assets. The goodwill arising from
the acquisition consists largely of the synergies and cost reductions through economies of scale
expected from combining the operations of the Company and AI. The goodwill is expected to be fully
deductible for tax purposes, except the contingent consideration which is deductible only when
paid.
The fair value of the current assets acquired includes trade accounts receivables with a fair value
of $3,272,000. The gross amount due is $3,966,000, of which $694,000 is expected to be
uncollectible.
The results of operations of AI have been included in the condensed consolidated statement of
operations as of the effective date of acquisition.
The following revenue and operating loss of AI were included in the Companys condensed
consolidated results of operations for the three months ended March 31, 2010:
|
|
|
|
|
Revenues |
|
$ |
3,925,000 |
|
Operating loss |
|
|
(774,000 |
) |
The following table represents the combined pro forma revenue and earnings for the three
months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Pro Forma |
|
|
|
Historical |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
6,124,000 |
|
|
$ |
6,366,000 |
|
Net loss |
|
|
(4,063,000 |
) |
|
|
(3,994,000 |
) |
Net loss per share basic and diluted |
|
|
(0.36 |
) |
|
|
(0.36 |
) |
The following table represents the combined pro forma revenue and earnings for the three months
ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Pro Forma |
|
|
|
Historical |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,934,000 |
|
|
$ |
9,809,000 |
|
Net loss |
|
|
(3,072,000 |
) |
|
|
(6,303,000 |
) |
Net loss per share basic and diluted |
|
|
(0.28 |
) |
|
|
(0.58 |
) |
The combined pro forma revenue and earnings for the three-month periods ended March 31, 2009 and
2010 were prepared as though the acquisition had occurred as of January 1, 2009 and 2010,
respectively. This summary is not necessarily indicative of what the results of operations would
have been had this business acquisition occurred during such period, nor does it purport to
represent results of operations for any future periods.
The changes in the carrying amount of goodwill from January 1, 2010 to March 31, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDS |
|
|
AI |
|
|
Total |
|
Balance of as January 1, 2010 |
|
$ |
619,000 |
|
|
|
|
|
|
$ |
619,000 |
|
Asset Intelligence acquisition |
|
|
|
|
|
$ |
1,971,000 |
|
|
|
1,971,000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010 |
|
$ |
619,000 |
|
|
$ |
1,971,000 |
|
|
$ |
2,590,000 |
|
|
|
|
|
|
|
|
|
|
|
13
Identifiable intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Useful |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Carrying |
|
March 31, 2010 |
|
Lives |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Amortized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
11 |
|
|
$ |
4,506,000 |
|
|
$ |
(75,000 |
) |
|
$ |
4,431,000 |
|
Tradename |
|
|
5 |
|
|
|
361,000 |
|
|
|
(18,000 |
) |
|
|
343,000 |
|
Non-competition agreement |
|
|
3 |
|
|
|
175,000 |
|
|
|
(15,000 |
) |
|
|
160,000 |
|
Technology |
|
|
5 |
|
|
|
50,000 |
|
|
|
(4,000 |
) |
|
|
46,000 |
|
Workforce |
|
|
5 |
|
|
|
33,000 |
|
|
|
(3,000 |
) |
|
|
30,000 |
|
Customer list |
|
|
5 |
|
|
|
599,000 |
|
|
|
(32,000 |
) |
|
|
567,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,724,000 |
|
|
|
(147,000 |
) |
|
|
5,577,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list |
|
|
|
|
|
|
104,000 |
|
|
|
|
|
|
|
104,000 |
|
Trademark and Tradename |
|
|
|
|
|
|
135,000 |
|
|
|
|
|
|
|
135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,000 |
|
|
$ |
|
|
|
|
239,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
5,963,000 |
|
|
|
(147,000 |
) |
|
$ |
5,816,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Useful |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Carrying |
|
December 31, 2009 |
|
Lives |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Amortized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
5 |
|
|
$ |
50,000 |
|
|
$ |
(2,000 |
) |
|
$ |
48,000 |
|
Workforce |
|
|
5 |
|
|
|
33,000 |
|
|
|
(1,000 |
) |
|
|
32,000 |
|
Customer list |
|
|
5 |
|
|
|
56,000 |
|
|
|
|
|
|
|
56,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,000 |
|
|
|
(3,000 |
) |
|
|
136,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list |
|
|
|
|
|
|
104,000 |
|
|
|
|
|
|
|
104,000 |
|
Trademark and Tradename |
|
|
|
|
|
|
135,000 |
|
|
|
|
|
|
|
135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,000 |
|
|
$ |
|
|
|
|
239,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
378,000 |
|
|
|
(3,000 |
) |
|
$ |
375,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three months ended March 31, 2009 and 2010 was $-0- and $144,000,
respectively. Future amortization expense for these intangible assets is as follows:
|
|
|
|
|
Year ending December 31: |
|
|
|
|
|
|
|
|
|
April December 2010 |
|
$ |
425,000 |
|
2011 |
|
|
567,000 |
|
2012 |
|
|
567,000 |
|
2013 |
|
|
508,000 |
|
2014 |
|
|
504,000 |
|
NOTE 13 Net Loss Per Share of Common Stock
Net loss per share for the three months ended March 31, 2009 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Basic and diluted loss per share |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,072,000 |
) |
|
$ |
(4,063,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding basic |
|
|
10,895,000 |
|
|
|
11,185,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.28 |
) |
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
Basic loss per share is calculated by dividing net loss by the weighted-average number of common
shares outstanding during the period. Diluted loss per share reflects the potential dilution
assuming common shares were issued upon the exercise of outstanding options and the proceeds
thereof were used to purchase outstanding common shares. For the three months ended March 31, 2009
and 2010, the basic and diluted weighted-average shares outstanding are the same, since the effect
from the potential exercise of outstanding stock options of 2,596,000 and 2,707,000, respectively,
would have been anti-dilutive.
14
NOTE
14 Stock-based Compensation Plans
The Company adopted the 1995 Non-Qualified Stock Option Plan, pursuant to which the Company had the
right to grant options to purchase up to an aggregate of 1,250,000 shares of common stock. The
Company also adopted the 1999 Stock Option Plan, pursuant to which the Company had the right to
grant stock awards and options to purchase up to 2,813,000 shares of common stock. The Company also
adopted the 1999 Director Option Plan, pursuant to which the Company had the right to grant options
to purchase up to an aggregate of 600,000 shares of common stock. The 1995 Non-Qualified Stock
Option Plan expired during 2005 and the 1999 Stock and Director Option Plans expired during 2009
and the Company cannot issue additional options under these plans.
The Company adopted the 2007 Equity Compensation Plan, pursuant to which the Company may grant
options to purchase up to an aggregate of 2,000,000 shares of common stock. The Company also
adopted the 2009 Non-Employee Director Equity Compensation Plan, pursuant to which the Company may
grant options to purchase up to an aggregate of 300,000 shares of common stock. The plans are
administered by the Compensation Committee of the Companys Board of Directors, which has the
authority to determine, among other things, the term during which an option may be exercised (but
not more than 10 years), the exercise price of an option and the vesting provisions.
The Company recognizes all share-based payments in the statement of operations as an operating
expense, based on their fair values on the applicable grant date. As a result, the Company recorded
$514,000 and $370,000 in stock-based compensation expense for the three-month periods ended March
31, 2009 and 2010, respectively.
The following table summarizes the activity of the Companys stock options for the three months
ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted - |
|
|
|
|
|
|
|
|
|
|
Weighted - |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year |
|
|
2,659,000 |
|
|
$ |
8.88 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
368,000 |
|
|
|
2.84 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,000 |
) |
|
|
2.31 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(227,000 |
) |
|
|
7.56 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(92,000 |
) |
|
|
14.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
2,707,000 |
|
|
$ |
7.98 |
|
|
6 years |
|
$ |
76,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
1,541,000 |
|
|
$ |
9.86 |
|
|
5 years |
|
$ |
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
As of March 31, 2010, there was approximately $2,942,000 of unrecognized compensation cost
related to non-vested options granted under the Companys option plans. That cost is expected to be
recognized over a weighted-average period of 2.16 years.
The fair value of each option grant on the date of grant is estimated using the Black-Scholes
option-pricing model reflecting the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Expected volatility |
|
|
56% - 60 |
% |
|
|
54% - 76 |
% |
Expected life of options |
|
5 years |
|
|
5 years |
|
Risk free interest rate |
|
|
2 |
% |
|
|
2 |
% |
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility is based on historical volatility of the Companys common stock and the
expected life of options is based on historical data with respect to employee exercise periods.
The weighted-average fair value of options granted during the three months ended March 31, 2009 and
2010 was $1.87 and $1.18, respectively. The total intrinsic value of options exercised during the
three months ended March 31, 2009 and 2010 was $-0- and $1,000, respectively.
The Company estimates forfeitures at the time of valuation and reduces expense ratably over the
vesting period. This estimate is adjusted periodically based on the extent to which actual
forfeitures differ, or are expected to differ, from the previous estimate.
NOTE
15 Restricted Stock
In 2006, Company began granting restricted stock to employees, whereby the employees are
contractually restricted from transferring the shares until they are vested. The stock is unvested stock and, upon vesting, there are no legal restrictions on the stock. The fair value of each
share is based on the Companys closing stock price on the date of the grant. A summary of all
non-vested shares for the three months ended March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted - |
|
|
|
|
|
|
|
Average |
|
|
|
Non-vested |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Non-vested, beginning of year |
|
|
172,000 |
|
|
$ |
3.78 |
|
Granted |
|
|
181,000 |
|
|
|
2.84 |
|
Vested |
|
|
(11,000 |
) |
|
|
7.41 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, end of period |
|
|
342,000 |
|
|
$ |
3.17 |
|
|
|
|
|
|
|
|
|
The Company recorded $45,000 and $76,000 in stock-based compensation expense for the three month
periods ended March 31, 2009 and 2010, respectively, in connection with restricted stock grants. As
of March 31, 2010, there was $918,000 of total unrecognized compensation cost related to non-vested
shares. That cost is expected to be recognized over a weighted-average period of 2.6 years.
16
NOTE 16 Performance Shares
In June 2009, the Compensation Committee granted 233,000 performance shares to key employees
pursuant to the 2007 Equity Compensation Plan. The issuance of the shares of the Companys common
stock underlying the performance shares is subject to the achievement of stock price targets of the
Companys common stock at the end of a three-year measurement period ending in January 2012, with
the ability to achieve prorated performance shares during interim annual measurement periods from
January 31, 2009 to January 31, 2012. If the performance triggers are not met, the performance shares
will not vest and will automatically be returned to the 2007 Equity Compensation Plan. If the
performance triggers are met, then the shares will be issued to the employees. For the three months
ended March 31, 2010, the Company recorded $8,000 of stock-based compensation expense in connection
with the performance shares.
NOTE 17 Line of Credit
In October 2008, the Company received an offer (the Offer) from UBS for a put right (the ARSR)
permitting the Company to sell to UBS at par value all ARS held by the Company, all of which
were purchased by the Company from UBS, at a future date (any time during a two-year period
beginning June 30, 2010). Included as part of the Offer, the Company received a commitment to
obtain a loan for 75% of the UBS-determined value of the ARS at any time until the put option is
exercised at a variable interest rate (1.31% at March 31, 2010) that will equal the lesser of: (i)
the applicable reference rate plus a spread set forth in the applicable credit agreement and (ii)
the then-applicable weighted-average interest or dividend rate paid to the Company by the issuer of
the ARS that is pledged to UBS as collateral. The Company accepted the Offer in November 2008. In
March 2009, the Company borrowed $12,900,000 (which amount was equal to 75% of the UBS-determined
value of the ARS) against this credit facility. Principal payments, funded by receipt of ARS
principal, reduced the Companys obligation to $9,451,000 at March 31, 2010. This line of credit
facility is payable on demand.
NOTE 18 Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Accounts payable |
|
$ |
1,824,000 |
|
|
$ |
2,716,000 |
|
Accrued warranty |
|
|
|
|
|
|
1,737,000 |
|
Accrued contingent consideration |
|
|
110,000 |
|
|
|
1,127,000 |
|
Other current liabilities |
|
|
160,000 |
|
|
|
565,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,094,000 |
|
|
$ |
6,145,000 |
|
|
|
|
|
|
|
|
NOTE 19 Warranty
The Companys AI segment warrants its products against defects in materials and workmanship for a
period of 12 months from the date of acceptance of the product by the customer. The customers may
purchase an extended warranty providing coverage up to a maximum of 60 months. A provision for
estimated future warranty costs is recorded for expected or historical warranty matters related to
equipment shipped.
The following table summarizes warranty activity during the three months ended March 31, 2010:
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
Accrued warranty reserve, January 7, 2010 (date of acquisition) |
|
$ |
2,053,000 |
|
Accrual for product warranties issued |
|
|
38,000 |
|
Product replacements and other warranty expenditures |
|
|
(296,000 |
) |
Expiration of warranties |
|
|
(58,000 |
) |
|
|
|
|
Accrued warranty reserve, end of period |
|
$ |
1,737,000 |
|
|
|
|
|
17
NOTE 20 Income Taxes
The Company accounts for income taxes under the asset and liability approach. Deferred tax assets
and liabilities are recognized for the expected future tax consequences attributed to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected
to reverse. As of March 31, 2010, the Company had provided a valuation allowance to fully reserve
its net operating loss carry forwards, primarily as a result of anticipated net losses for income
tax purposes.
NOTE 21 Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, and investments in securities,
including ARS and the ARSR, are carried at fair value and accounts payable, line of credit, and
other liabilities approximate their fair values due to the short period to maturity of these
instruments. The fair value of the ARS was determined utilizing a discounted cash flow approach
and market evidence with respect to the ARS collateral, ratings and insurance to assess default
risk, credit spread risk and downgrade risk.
NOTE
22 Concentration of Customers
One customer accounted for 30% of the Companys revenue and 13% of the Companys accounts
receivable during the three-month period ended March 31, 2010.
Three customers accounted for 37%, 22%, and 12% of the Companys revenue during the three-month
period ended March 31, 2009. Two of these customers accounted for over 51% and 16% of the Companys
accounts receivable and unbilled receivables as of March 31, 2009.
NOTE 23 Stock Repurchase Program
On May 3, 2007, the Company announced that its Board of Directors had authorized the repurchase of
issued and outstanding shares of its common stock having an aggregate value of up to $10,000,000
pursuant to a stock repurchase program established pursuant to Rule 10b-18 under the Securities
Exchange Act of 1934, as amended. The amount and timing of such repurchases are dependent upon the
price and availability of shares, general market conditions and the availability of cash, as
determined at the discretion of the Companys management. The repurchases are funded from the
Companys working capital. The Companys stock repurchase program does not have an expiration
date, and the Company may discontinue or suspend the share repurchase program at any time. All
shares of common stock repurchased under the Companys stock repurchase program are held as
treasury stock. The Company did not purchase any shares of its common stock under the stock
repurchase program during the three-month period ended March 31, 2010. As of March 31, 2010, the
Company has purchased approximately 1,075,000 shares of its common stock in open market
transactions under the stock repurchase program for an aggregate purchase price of approximately
$9,970,000, or an average cost of $9.27 per share.
NOTE 24 Comprehensive Loss
Comprehensive loss includes net loss and unrealized losses on available-for-sale investments and
foreign currency translation gains and losses. Cumulative unrealized gains and losses on
available-for-sale investments are reflected as accumulated other comprehensive loss in
stockholders equity on the Companys condensed consolidated balance sheet. The components
of our comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Net Loss |
|
$ |
(3,072,000 |
) |
|
$ |
(4,063,000 |
) |
Unrealized gain (loss) on available-for-sale marketable securities |
|
|
(45,000 |
) |
|
|
66,000 |
|
Foreign currency translation loss |
|
|
|
|
|
|
(25,000 |
) |
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(3,117,000 |
) |
|
$ |
(4,022,000 |
) |
|
|
|
|
|
|
|
18
NOTE 25 Wholly Owned Foreign Subsidiaries
In May 2009, the Company formed an entity in Germany called I.D. Systems, GmbH (the GmbH). This
foreign entity is wholly owned by I.D. Systems, Inc. The GmbH financial statements are consolidated
with the financial statements of I.D. Systems, Inc.
For the three months ended March 31, 2010, the GmbHs operations resulted in net revenues of
$357,000 and a net loss of $7,000. Total assets were $766,000 as of March 31, 2010. The GmbH
operates in a local currency environment using the Euro as its functional currency.
Existing European sales orders/contracts prior to the formation of the GmbH and related accounting
activity will remain in I.D. Systems, Inc. until settled or completed. Existing European employees
and contractors and their related agreements were transferred to the GmbH in August 2009.
In October 2009, the Company acquired Didbox Ltd. (Didbox). This foreign entity is wholly owned
by I.D. Systems, Inc. and is headquartered in the United Kingdom. The Didbox financial statements
are consolidated with the financial statements of I.D. Systems, Inc. as of the effective date of
acquisition.
For the three months ended March 31, 2010, Didboxs operations resulted in net revenues of
$99,000 and net loss of $25,000. Total assets were $729,000 as of March 31, 2010. Didbox operates
in a local currency environment using the British Pound as its functional currency.
Income and expense accounts of foreign operations are translated at actual or weighted-average
exchange rates during the period. Assets and liabilities of foreign operations that operate in a
local currency environment are translated to U.S. dollars at the exchange rates in effect at the
balance sheet date, with the related translation gains or losses reported as components of
accumulated other comprehensive income/loss in consolidated stockholders equity. The translation
of the GmbHs and Didboxs financial statements at March 31, 2010 resulted in a translation loss of
$25,000 which is included in comprehensive loss in the condensed consolidated statement of changes
in stockholders equity.
Gains and losses resulting from foreign currency transactions are included in determining net
income or loss. For the three month periods ended March 31, 2009 and 2010, foreign currency
transaction losses of $2,000 and $18,000, respectively, are included as an offset to selling,
general and administrative expenses in the condensed consolidated statement of operations.
NOTE 26 Rights Agreement
In July 2009, the Company amended its Amended and Restated Certificate of Incorporation in order to
create a new series of preferred stock, to be designated the Series A Junior Participating
Preferred Stock (hereafter referred to as Preferred Stock). Shareholders of the Preferred Stock
will be entitled to certain minimum quarterly dividend rights, voting rights, and liquidation
preferences. Because of the nature of the Series A Preferred Stocks dividend, liquidation and
voting rights, the value of a share of Preferred Stock is expected to approximate the value of one
share of the Companys common stock.
In July 2009, the Company also adopted a shareholder rights plan (the Rights Plan), which
entitles the holders of the rights to purchase from the Company 1/1,000th (subject to
prospective anti-dilution adjustments) of a share of Preferred Stock of the Company at a purchase
price of $19.47 (a Right). The Rights Plan has a three-year term with the possibility of two
separate three-year renewals. Until a Right is exercised or exchanged in accordance with the
provisions of the rights agreement governing the Rights Plan, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation, the right to vote
for the election of directors or upon any matter submitted to stockholders of the Company or to
receive dividends or subscription rights. The Rights were registered with the Securities and
Exchange Commission in July 2009.
On June 29, 2009, the Board of Directors of the Company declared a dividend of one Right for each
outstanding share of common stock. The dividend was paid on July 13, 2009 to the stockholders of
record on that date.
NOTE 27 Severance Agreements
In September 2009, the Company entered into severance agreements with four of its executive
officers. The severance agreements, each of which is substantially identical in form, provide each
executive with certain severance and change in control benefits upon the occurrence of a Trigger
Event, as defined in the severance agreements. As a condition to the Companys obligations under
the severance agreements, each executive has executed and delivered to the Company a restrictive
covenants agreement.
19
Under the terms of the severance agreements, each executive is entitled to the following: (i) a
cash payment at the rate of the executives annual base salary as in effect immediately prior to
the Trigger Event for a period of 12 or 18 months, depending on the
executive, (ii) continued healthcare coverage during the severance period, (iii) partial
accelerated vesting of the executives previously granted stock options and restricted stock
awards, and (iv) an award of Performance Shares under the Restricted Stock Unit Award Agreement
previously entered into between the Company and the executive.
NOTE 28 Operating Segments
Prior to the Asset Intelligence (AI) acquisition in January 2010, the Company operated in a
single reportable segment, consisting of the historical operations of I.D. Systems, Inc. (IDS).
Subsequent thereto, the Company has determined that it has two reportable segments organized by
product line: IDS and AI. The IDS operating segment includes the Companys core wireless asset
management systems operations: I.D. Systems, Inc., I.D. Systems, GmbH, and Didbox Ltd. This core
business develops, markets and sells wireless solutions for managing and securing high-value
enterprise assets such as industrial trucks. The AI operating segment, which consists of Asset
Intelligence, LLC, provides data-driven telematics solutions for tracking and managing supply chain
assets such as trailers and containers.
The Company does not allocate indirect expenses, such as compensation to executives and corporate
personnel, professional fees, finance, and certain other operating costs to the individual
segments. These costs are included in the IDS operating segment. The total assets of each segment
are comprised of the assets of the subsidiaries operating in that segment.
A summary of segment information for the three-month periods ended March 31, 2009 and 2010 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, 2009 |
|
|
March 31, 2010 |
|
(In thousands) |
|
IDS |
|
|
AI |
|
|
Total |
|
|
IDS |
|
|
AI |
|
|
Total |
|
Revenues |
|
$ |
2,934,000 |
|
|
$ |
|
|
|
$ |
2,934,000 |
|
|
$ |
2,199,000 |
|
|
$ |
3,925,000 |
|
|
$ |
6,124,000 |
|
Depreciation and amortization |
|
|
138,000 |
|
|
|
|
|
|
|
138,000 |
|
|
|
143,000 |
|
|
|
289,000 |
|
|
|
432,000 |
|
Operating loss |
|
|
(3,072,000 |
) |
|
|
|
|
|
|
(3,072,000 |
) |
|
|
(3,289,000 |
) |
|
|
(774,000 |
) |
|
|
(4,063,000 |
) |
Capital expenditures |
|
|
(198,000 |
) |
|
|
|
|
|
|
(198,000 |
) |
|
|
(40,000 |
) |
|
|
(466,000 |
) |
|
|
(506,000 |
) |
Segment assets |
|
|
79,186,000 |
|
|
|
|
|
|
|
79,186,000 |
|
|
|
48,500,000 |
|
|
|
22,550,000 |
|
|
|
71,050,000 |
|
Note 29 Reduction in Work Force
As a result of the integration of AI, the Company will eliminate 39 positions,
representing approximately 32% of our total personnel, to be completed by July 31, 2010.
In order to earn a severance payment, affected employees must complete their transition duties and
execute a general release agreement. The total severance cost is expected to be approximately
$456,000. Charges for severance payments are expected to be incurred through the third quarter of
2010.
NOTE 30 Commitments and Contingencies
Except for normal operating leases, the Company is not currently subject to any material commitments or legal proceedings, nor, to
managements knowledge, is any material legal proceeding threatened against the Company.
NOTE 31 Subsequent Events:
On May 10, 2010, the Company entered into an office lease agreement for approximately 21,400
leasable square feet, which includes office space, storage space and data/server space in Woodcliff
Lake, New Jersey, to be used as the Companys corporate headquarters. Occupancy is expected to
occur during the third quarter of 2010. The base rent for the leased premises varies over the term
of the lease and generally ranges from approximately $457,200 to $534,700 per year. The Company
also will be responsible for its pro rata share of any operating expenses, taxes and insurance
expenses incurred in connection with the office building in which the leased premises are located.
The initial term of the lease agreement is for a period of ten years and seven months, and is
scheduled to commence on July 15, 2010 and to expire on February 28, 2021. Under the lease
agreement, the Company has the option to extend the term for up to two subsequent five-year
periods, provided that the base rent during any extension term will be at a market rate.
20
NOTE
32 Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 166 (Accounting
Standards Codification(ASC ) Topic 860 (ASC 860), Accounting for Transfers of Financial
Assetsan amendment of FASB Statement No. 140 (SFAS 166). ASC 860 improves the relevance,
representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement, if any, in transferred financial assets. ASC 860 is effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for interim and annual
reporting periods thereafter. The adoption of this guidance did not have a material impact on the
Companys consolidated financial position or results of operations.
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements. This
ASU establishes the accounting and reporting guidance for arrangements including multiple
revenue-generating activities. This ASU provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration to one or more units of
accounting. The amendments in this ASU also establish a selling price hierarchy for determining the
selling price of a deliverable. Significantly enhanced disclosures are also required to provide
information about a vendors multiple-deliverable revenue arrangements, including information about
the nature and terms, significant deliverables, and its performance within arrangements. The
amendments also require providing information about the significant judgments made and changes to
those judgments and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Early application is permitted. The Company is currently evaluating the impact that
the adoption of this ASU will have on its consolidated financial statements but only if adopted in
tandem with ASU 2009-14 (see below).
In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That Include
Software Elements. This ASU changes the accounting model for revenue arrangements that include
both tangible products and software elements that are essential to the functionality and scopes
these products out of current software revenue guidance. The new guidance will include factors to
help companies determine what software elements are considered essential to the functionality.
The amendments will now subject software-enabled products to other revenue guidance and disclosure
requirements, such as guidance surrounding revenue arrangements with multiple deliverables. The
amendments in this ASU are effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15, 2010. Early application is
permitted. The Company is currently evaluating the impact that the adoption of this ASU will have
on its consolidated financial statements.
In January 2010, the FASB issued additional guidance for improving disclosures about fair value
measurement. Under this guidance, two new disclosures are required: (i) transfers in and out of
Level 1 and 2 measurements and the reasons for the transfers and (ii) a gross presentation of
activity within the Level 3 rollforward. The guidance is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the rollforward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15,
2010. The adoption of this guidance did not have and is not expected to have a material impact on the
Companys consolidated results of operations or financial position.
In May 2009, and as amended in February 2010, new authoritative accounting literature established
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before the financial statements are issued or are available to be issued. This accounting
principle was effective for us as of June 30, 2009, and did not have a material impact on our
consolidated financial statements.
21
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion and analysis of the consolidated financial condition and results of
operations of I.D. Systems, Inc. and its subsidiaries (I.D. Systems, the Company, we, our
or us) should be read in conjunction with the consolidated financial statements and notes thereto
appearing in Part I, Item 1 of this report. In the following discussions, most percentages and
dollar amounts have been rounded to aid presentation, and accordingly, all amounts are
approximations.
Cautionary Note Regarding Forward-Looking Statements
This report contains various forward-looking statements made pursuant to the safe harbor provisions
under the Private Securities Litigation Reform Act of 1995 and information that is based on
managements beliefs as well as assumptions made by and information currently available to
management. Although the Company believes that the expectations reflected in such forward-looking
statements are reasonable, the Company can give no assurance that such expectations will prove to
be correct. When used in this report, the words anticipate, believe, estimate, expect,
predict, project, and similar expressions or words, or the negatives of those words, are
intended to identify forward-looking statements. Readers are cautioned not to place undue reliance
on forward-looking statements, which speak only as of the date hereof, and should be aware that the
Companys actual results could differ materially from those described in the forward-looking
statements due to a number of factors, including 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, and other factors
described under Risk Factors set forth in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2009 and other filings with the Securities and Exchange Commission (the
SEC). Any forward-looking statements regarding industry trends, product development and
liquidity and future business activities should be considered in light of these factors. Unless
otherwise required by law, the Company undertakes no obligation, and expressly disclaims any
obligation, to update or publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events, or otherwise.
The Company makes available through its internet website, free of charge, its Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports
and other filings made by the Company with the SEC, as soon as practicable after the Company
electronically files such reports and filings with the SEC. The Companys website address is
www.id-systems.com. The information contained in this website is not incorporated by reference in
this report.
Overview
We develop, market and sell wireless solutions for managing and securing high-value enterprise
assets. These assets include industrial vehicles, such as forklifts and airport ground support
equipment, rental vehicles, and transportation assets. Our patented wireless asset management
system addresses the needs of organizations to control, track, monitor and analyze their assets.
Our solutions enable our customers to achieve tangible economic benefits by making timely, informed
decisions that increase the security, productivity and efficiency of their operations.
We have focused our core business activities on two primary applications: industrial fleet
management and rental fleet management. Our solution for industrial fleet management allows our
customers to reduce operating costs and capital expenditures and to comply with certain safety
regulations by accurately and reliably measuring and controlling fleet activity. This solution also
enhances security at industrial facilities and areas of critical infrastructure, such as airports,
by controlling access to, and restricting the use of, vehicles and equipment. Our solution for
rental fleet management allows rental car companies to generate higher revenue by more accurately
tracking vehicle data, such as fuel consumption and odometer readings, and improve customer service
by expediting the rental and return processes. In addition to focusing on these core applications,
we have adapted, and intend to continue to adapt, our solutions to meet our customers broader
asset management needs.
We sell our system to both executive and division-level management. Typically, our initial system
deployment serves as a basis for potential expansion across the customers organization. We work
closely with customers to help maximize the utilization and benefits of our system and demonstrate
the value of enterprise-wide deployments.
We market and sell our solutions to a wide range of customers in the commercial and government
sectors. Our customers operate in diverse markets, such as automotive manufacturing, heavy
industry, retail and wholesale distribution, aerospace and defense, homeland security and vehicle
rental.
On January 7, 2010, we acquired the Asset Intelligence (AI) business unit of General Electric
Company, which provides trailer and container tracking solutions for manufacturers, retailers,
shippers and freight transportation providers. The focus of AI on trucking, rail, marine and
intermodal applications expands the scope of assets addressed by I.D. Systems solutions, and the
web and mobile communications technologies of AI are complementary to I.D. Systems portfolio of
wireless asset management patents.
22
AI has long-term communication contracts that provide us with a recurring revenue stream, which is
expected to help reduce quarterly revenue volatility. We expect that
AI will contribute $12 to $15
million to our U.S. GAAP revenue for 2010, including approximately $11 million from recurring
services. We expect the combined gross margins to remain consistent with our historical gross
margins. We have already achieved synergies integrating the AI unit into our core business and we
expect to reduce annual combined operating expenses by approximately $8 million. We expect the
annual operating expenses of the combined businesses to be approximately $22 million.
AI combines web-based software technologies with satellite and cellular communications to deliver
data-driven telematics solutions for supply chain asset management. These solutions help secure
and optimize the performance of trailers, railcars, containers, and the freight they carry,
enabling shippers and carriers to maximize security and efficiency throughout their supply chains.
AIs VeriWise product platform provides comprehensive real-time data for faster, more informed
decision-making in multiple supply chain applications:
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Asset Optimizationcombining web-based asset visibility and
advanced telemetry data to monitor the condition of fleet assets,
streamline asset deployment, optimize utilization, and maximize
return on investment. |
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Cold Chain Managementmaintaining the condition and quality of
temperature-sensitive cargo from point A to point B, and all the
points in between. |
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Fleet Maintenanceutilizing sensor technologies, real-time data
and a wealth of transportation maintenance knowledge to help
control maintenance costs, improve preventative maintenance
practices, increase asset up-time, extend asset life, and reduce
overall cost of ownership. |
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Fuel Managementmonitoring key factors in fuel consumption, such
as tire pressure and engine idle time, to help optimize fuel
performance and reduce transportation costs. |
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Security & Safetyprotecting valuable assets and cargo throughout the supply chain. |
As a
result of the integration of AI, we announced in March 2010 that we
will eliminate 39 positions within our
company, representing approximately 32% of our total personnel, to be completed by July 31, 2010.
In order to earn a severance payment, affected employees must complete their transition duties and
execute a general release agreement. The total severance cost is expected to be approximately
$456,000. Charges for severance payments are expected to be incurred through the third quarter of
2010.
Risks
During the three months ended March 31, 2010, we generated revenues of $6.1 million, and the
Wal-Mart Stores, Inc. accounted for 30% of our revenues. During the three months ended March 31,
2009, we generated revenues of $2.9 million, which does not include the acquisition of AI, and the
U.S. Postal Service, Wal-Mart Stores, Inc. and NACCO Materials Handling Group accounted for 37%,
22% and 12% of our revenues, respectively.
We are highly dependent upon sales of our system to a few customers. The loss of any of these key
customers, or any material reduction in the amount of our products they purchase during a
particular period, could materially and adversely affect our revenues for such period. Conversely,
a material increase in the amount of our products purchased by a key customer (or customers) during
a particular period could result in a significant increase in our revenues for such period, and
such increased revenues may not recur in subsequent periods. Some of these key customers, as well
as other customers of the Company, operate in markets that have suffered business downturns in the
past few years or may so suffer in the future, particularly in light of the current global economic
downturn, and any material adverse change in the financial condition of such customers could
materially and adversely affect our financial condition and results of operations. If we are unable
to replace such revenue from existing or new customers, the market price of our common stock could
decline significantly.
23
We expect that customers who utilize our solutions will do so as part of a large-scale
deployment of these solutions across multiple or all divisions of their organizations. A customers
decision to deploy our solutions throughout its organization will involve a significant commitment
of its resources. Accordingly, initial implementations may precede any decision to deploy our
solutions enterprise-wide. Throughout this sales cycle, we may spend considerable time and expense
educating and providing information to prospective customers about the benefits of our solutions.
The timing of the deployment of our solutions may vary widely and will depend on the specific
deployment plan of each customer, the complexity of the customers organization and the difficulty
of such deployment. Customers with substantial or complex organizations may deploy our solutions in
large increments on a periodic basis. Accordingly, we may receive purchase orders for significant
dollar amounts on an irregular and unpredictable basis. Because of our limited operating history
and the nature of our business, we cannot predict the timing or size of these sales and deployment
cycles. Long sales cycles, as well as our expectation that customers will tend to place large
orders sporadically with short lead times, may cause our revenues and results of operations to vary
significantly and unexpectedly from quarter to quarter.
Our ability to increase our revenues and generate net income will depend on a number of factors,
including, for example, our ability to:
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increase sales of products and services to our existing customers; |
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convert our initial programs into larger or enterprise-wide purchases by our customers; |
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increase market acceptance and penetration of our products; and |
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develop and commercialize new products and technologies. |
Additional risks and uncertainties to which we are subject are described in our Annual Report on
Form 10-K for the year ended December 31, 2009.
Critical Accounting Policies
For the three months ended March 31, 2010, there were no significant changes to the Companys
critical accounting policies as identified in its Annual Report on Form 10-K for the year ended
December 31, 2009.
24
Results of Operations
The following table sets forth, for the periods indicated, certain operating information expressed
as a percentage of revenue:
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Three months ended |
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March 31, |
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2009 |
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2010 |
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Revenue: |
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Products |
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47.0 |
% |
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33.0 |
% |
Services |
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53.0 |
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67.0 |
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100.0 |
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100.0 |
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Cost of revenue: |
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Cost of products |
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27.2 |
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15.9 |
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Cost of services |
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18.6 |
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28.8 |
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45.8 |
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44.7 |
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Gross profit |
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54.2 |
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55.3 |
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Selling, general and administrative expenses |
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143.5 |
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105.7 |
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Research and development expenses |
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23.5 |
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18.8 |
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Loss from operations |
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(112.9 |
) |
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(69.2 |
) |
Interest income, net |
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11.8 |
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3.4 |
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Interest expense |
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(0.5 |
) |
Other income |
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(3.7 |
) |
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Net loss |
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(104.7 |
)% |
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(66.3 |
)% |
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25
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
REVENUES. Revenues increased by $3.2 million, or 108.7%, to $6.1 million in the three months ended
March 31, 2010 from $2.9 million in the same period in 2009. The increase in revenue is principally
attributable to revenue of $3.9 million from AI which was acquired on January 7, 2010.
Revenues from products increased by $0.6 million, or 46.8%, to $2.0 million in the three
months ended March 31, 2010 from $1.4 million in the same period in 2009. Overall, the increase in
revenues was attributable to the AI product revenue of
$0.5 million, which consists principally of
$0.2 million of revenue from Wal-Mart Stores, Inc.
Revenues
from services increased by $2.5 million, or 163.6%, to $4.1
million in the three months
ended March 31, 2010 from $1.6 million in the same period in 2009. The increase in service revenue
is primarily attributable to a decrease in IDS service revenue of $0.9 million resulting from the
amount of services rendered to the United States Postal Service and Wal-Mart Stores, Inc., more
than offset by AI service revenue of $3.4 million which consists principally of Wal-Mart Stores,
Inc. and GE Trailer Fleet Services revenue of $1.5 million and $0.4 million, respectively.
COST
OF REVENUES. Cost of revenues increased by $1.4 million, or
103.6%, to $2.7 million in the three
months ended March 31, 2010 from $1.3 million for the same period in 2009. The increase is
attributable to the increase in revenue in 2010. Gross profit was $3.4 million in 2010 compared to
$1.6 million in 2009. As a percentage of revenues, gross profit increased to 55.3% in 2010 from
54.2% in 2009.
Cost of products increased by $0.2 million, or 22.2%, to $1.0 million in the three months
ended March 31, 2010 from $0.8 million in the same period in 2009. Gross profit for products was
$1.0 million in 2010 compared to $0.6 million in 2009. The increase in gross profit was
attributable to an increase of $0.1 million in the IDS gross profit and $0.3 million from AI. As a
percentage of product revenues, gross profit increased to 51.8% in 2010 from 42.0% in 2009. The
increase in gross profit as a percent of product revenue was due to an increase in the IDS gross
profit percentage to 45.6% in 2010 from 42.0% in 2009 and AI product revenue contributing a higher
gross profit percentage of 69.2% in 2010.
Cost of services increased by $1.3 million, or 222.5%, to $1.8 million, in the three months
ended March 31, 2010 from $0.5 million in the same period in 2010. Gross profit for services was
$2.3 million in 2010 compared to $1.0 million in 2009. The increase in gross profit was
attributable to a decrease of $0.6 million in the IDS gross profit and an increase of $1.9 million
from AI. As a percentage of service revenues, gross profit decreased to 57.0% in 2010 from 64.8% in
2009. The decrease in gross profit as a percent of service revenue was due to a decrease in the IDS gross
profit percentage to 51.1% in 2010 from 64.8% in 2009 and AI service revenue contributing a higher
gross profit percentage of 58.2% in 2010. The gross margin decrease in the IDS gross profit margin
was primarily due to a reduction in service revenue with fixed costs remaining constant driving the
margin down.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses
increased by $2.3 million, or 53.7%, to $6.5 million in the three months ended March 31, 2010
compared to $4.2 million in the same period in 2009. This increase was primarily attributable
to decreases in payroll related and stock-based compensation expense
of $0.4 million, more than offset
by AI selling, general and administrative expenses of $2.5 million which consists principally of
payroll-related and consulting expenses of $1.0 million and $0.8 million, respectively. As a
percentage of revenues, selling, general and administrative expenses decreased to 105.7% in the
three months ended March 31, 2010 from 143.5% in the same period in 2009, primarily due to the
increase in revenue from the AI acquisition.
RESEARCH
AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.5 million, or
67.5%, to $1.2 million in the three months ended March 31,
2010 from $0.7 million in the same period in
2009 due primarily to a decrease in payroll-related and stock compensation expense of $80,000 and
consulting expenses of $66,000, more than offset by AI research and development expenses of
$0.6 million which consists principally of payroll-related and consulting expenses of $0.4 million and
$0.1 million, respectively. As a percentage of revenues, research and development expenses
decreased to 18.8% in the three months ended March 31, 2010 from 23.5% in the same period in 2009,
primarily due to the increase in revenue from the AI acquisition.
26
INTEREST INCOME. Interest income decreased by $138,000 to $209,000 in the three months ended March
31, 2010 from $347,000 in the same period in 2009. This decrease was attributable primarily to the
decrease in cash and investments and in the rate of interest earned on the Companys cash and
investments.
INTEREST EXPENSE. Interest expense increased by $30,000 in the three months ended March 31, 2010
from $-0- in the same period in 2009. This increase was due to interest expense incurred on the
Companys line of credit borrowing facility, which was not in place until March 2009.
OTHER INCOME/EXPENSE. Other income of $1,000 in the three months ended March 31, 2010 increased
$109,000 from other expense of $108,000 in the same period in 2009. The increase consists
principally of the change in the fair value of the Companys investment in auction rate securities
and the auction rate securities right.
NET LOSS. Net loss was $4.1 million, or $(0.36) per basic and diluted share, for the three months
ended March 31, 2010 as compared to net loss of
$3.1 million, or $(0.28) per basic and diluted share,
for the same period in 2009. The increase in the net loss was due primarily to the reasons
described above.
Liquidity and Capital Resources
Historically, except for our line of credit borrowing of $12.9 million in the first quarter of
2009, the Companys capital requirements have been funded primarily from the net proceeds from the
sale of its securities, including the sale of its common stock upon the exercise of options and
warrants. As of March 31, 2010, the Company had cash and marketable securities, which include
auction rate securities and auction rate security rights of $39.6 million and working capital of
$36.0 million compared to $60.1 million and $47.7 million, respectively, as of December 31, 2009.
Operating Activities
Net cash
used in operating activities was $2.9 million for the three months ended March 31, 2010,
compared to net cash used in operating activities of $1.6 million for the same period in 2009. The
net cash used in operating activities for the three months ended March 31, 2010 reflects a net loss
of $4.1 million and includes non-cash charges of $0.5 million for stock-based compensation and $0.4
million for depreciation and amortization expense. Changes in working capital items, net of $5.3
million of working capital acquired in the AI transaction, included:
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a decrease in accounts receivable of $1.0 million resulting from increased cash
collections and the overall decrease in revenue; |
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an increase in deferred costs, prepaid expenses and other assets of $1.0 million; |
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a decrease in inventory of $0.8 million; and |
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a decrease in accounts payable and accrued expenses of $1.4 million primarily
due to the timing of the payments to our vendors. |
Investing Activities
Net cash used in investing activities was $8.4 million for the three months ended March 31, 2010,
compared to net cash used in investing activities of $4.9 million for the same period in 2009. The
change was due primarily to $15.0 million used for the purchase of AI and $0.5 million in fixed
asset additions partially offset by a net increase in maturities of investments of $7.0 million.
Financing Activities
Net cash used in financing activities was $2.2 million for the three months ended March 31, 2010,
compared to net cash provided by financing activities of $12.7 million for the same period in 2009.
The decrease was due to principal payments on the UBS line of credit of $2.2 million in 2010 and
the borrowing of $12.9 million from the UBS line of credit facility in 2009.
27
Capital Requirements
We believe that with the proceeds received from our public offering that was completed by us in
March 2006, the cash we have on hand and operating cash flows we expect to generate, we will have
sufficient funds available to cover our capital requirements for at least the next 12 months.
Our capital requirements depend on a variety of factors, including, but not limited to, the length
of the sales cycle, the rate of increase or decrease in our existing business base, the success,
timing, and amount of investment required to bring new products to market, revenue growth or
decline and potential acquisitions. Failure to generate positive cash flow from operations will
have a material adverse effect on our business, financial condition and results of operations. We
may determine in the future that we require additional funds to meet our long-term strategic
objectives, including for the completion of potential acquisitions. Any additional equity financing
may be dilutive to stockholders, and debt financing, if available, may involve significant
restrictive covenants, and we cannot assure you that such financing will be extended on terms
acceptable to us, or at all.
At December 31, 2009 and March 31, 2010, we held approximately $19.4 million and $17.2 million fair
value, respectively, in investments in ARS and ARSR. The Company purchased all the ARS it holds
from UBS. These ARS represent interests in collateralized pools of student loan receivables issued
by agencies established by counties, cities, states and other municipal entities within the United
States. Liquidity for these ARS is typically provided by an auction process that resets the
applicable interest rate at pre-determined intervals. Starting in February 2008 and continuing into
2010, these securities failed to sell at auction. Holders of the securities continue to receive
interest on the investments, and the securities continue to be auctioned at the pre-determined
intervals (typically every 28 days) until the auction succeeds, the issuer calls the securities, or
they mature. These failed auctions represent liquidity risk exposure and are not defaults or credit
events. A decline in the value of these securities that is not temporary could materially adversely
affect our liquidity and income.
In October 2008, we received a non-transferable offer (the Offer) from UBS for a put right (the
ARSR) permitting the Company to sell all of its ARS to UBS at a future date (any time during a
two-year period beginning June 30, 2010). The Offer also included a commitment to loan the
Company 75% of the UBS-determined value of the ARS at any time until the put is exercised at a
variable interest rate that will equal the lesser of: (i) the applicable reference rate plus a
spread set forth in the applicable credit agreement and (ii) the then-applicable weighted average
interest or dividend rate paid to the Company by the issuer of the ARS that is pledged to UBS as
collateral. In November 2008, the Company accepted the Offer. In exchange for the Offer, the
Company provided UBS with a general release of claims (other than certain consequential damages
claims) concerning the Companys ARS and granted UBS the right to purchase the Companys ARS at any
time for full par value. We intend to exercise our right under the ARSR to put back the ARS to UBS
at the time it becomes available.
In March 2009, the Company borrowed $12,900,000 (which amount was equal to 75% of the
UBS-determined value of the ARS) against the UBS line of credit facility. Principal payments from
the ARS maturities reduced this obligation to $9,451,000 at March 31, 2010. This line of credit
facility is payable on demand. The Company is paying interest on this obligation based upon the
methodology described above, which is partially offset by interest earned on the underlying ARS.
Given the dislocation in the financial markets and among financial services companies, there can be
no assurance that UBS ultimately will have the ability to repurchase the Companys ARS at par, or
at any other price, as these rights will be an unsecured contractual obligation of UBS, or that if
UBS determines to purchase the Companys ARS at any time, the Company will be able to reinvest the
cash proceeds of any such sale at the same interest rate or dividend yield currently being paid to
the Company under the ARS. Also, as a condition of accepting the ARSR, the Company was required to
sign a release of claims against UBS, which will prevent the Company from making claims against UBS
related to the Companys investment in ARS, other than claims for consequential damages.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
28
Contractual Obligations
As of March 31, 2010, there have been no material charges in contractual obligations as disclosed
under the caption Contractual Obligations in Item 7 of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2009, except as noted below.
On May 10, 2010, the Company entered into an office lease agreement for approximately 21,400
leasable square feet, which includes office space, storage space and data/server space in Woodcliff
Lake, New Jersey, to be used as the Companys corporate headquarters. Occupancy is expected to
occur during the third quarter of 2010. The base rent for the leased premises varies over the term
of the lease and generally ranges from approximately $457,200 to $534,700 per year. The Company
also will be responsible for its pro rata share of any operating expenses, taxes and insurance
expenses incurred in connection with the office building in which the leased premises are located.
The initial term of the lease agreement is for a period of ten years and seven months, and is
scheduled to
commence on July 15, 2010 and to expire on February 28, 2021. Under the lease agreement, the
Company has the option to extend the term for up to two subsequent five-year periods, provided that
the base rent during any extension term will be at a market rate.
Inflation
Inflation has not had, nor is it expected to have, a material impact on our consolidated financial
results.
Impact of Recently Issued Accounting Pronouncements
The Company is subject to recently issued accounting standards, accounting guidance and disclosure
requirements. Note 32, Recent Accounting Standards, of Notes to Condensed Consolidated Financial
Statements, which is contained in Item 1 of Part I of this Quarterly Report on Form 10-Q, describes
these new accounting standards and is incorporated herein by reference.
29
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
We are subject to market risk from changes in interest rates, which could affect our future results
of operations and financial condition. We manage our exposure to these risks through our regular
operating and financing activities. As of March 31, 2010, we had cash, cash equivalents and
marketable securities of $39.6 million.
Our cash and cash equivalents consist of cash, money market funds, and short-term investments with
original maturities of three months or less. As of March 31, 2010, the carrying value of our cash
and cash equivalents approximated fair value. In a declining interest rate environment, as
short-term investments mature, reinvestment occurs at less favorable market rates, negatively
impacting future investment income. We maintain our cash and cash equivalents with major financial
institutions; however, our cash and cash equivalent balances with these institutions exceed the
Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor on a systematic
basis the cash and cash equivalent balances in our operating accounts and adjust the balances as
appropriate, these balances could be impacted if one or more of the financial institutions with
which we deposit fails or is subject to other adverse conditions in the financial or credit
markets. To date, we have experienced no loss of principal or lack of access to our invested cash
or cash equivalents; however, we can provide no assurance that access to our invested cash and cash
equivalents will not be affected if the financial institutions in which we hold our cash and cash
equivalents fail or the financial and credit markets continue to deteriorate.
At March 31, 2010, we held approximately $17.2 million fair value, respectively, in investments in
ARS and ARSR. The Company purchased all the ARS it holds from UBS. These ARS represent interests
in collateralized pools of student loan receivables issued by agencies established by counties,
cities, states and other municipal entities within the United States. Liquidity for these ARS is
typically provided by an auction process that resets the applicable interest rate at pre-determined
intervals. Starting in February 2008 and continuing into 2010, these securities failed to sell at
auction. Holders of the securities continue to receive interest on the investments, and the
securities continue to be auctioned at the pre-determined intervals (typically every 28 days) until
the auction succeeds, the issuer calls the securities, or they mature. These failed auctions
represent liquidity risk exposure and are not defaults or credit events. A decline in the value of
these securities that is not temporary could materially adversely affect our liquidity and income.
In October 2008, we received a non-transferable offer (the Offer) from UBS for a put right (the
ARSR) permitting the Company to sell all of its ARS to UBS at a future date (any time during a
two-year period beginning June 30, 2010). The Offer also included a commitment to loan the
Company 75% of the UBS-determined value of the ARS at any time until the put is exercised at a
variable interest rate that will equal the lesser of: (i) the applicable reference rate plus a
spread set forth in the applicable credit agreement and (ii) the then-applicable weighted average
interest or dividend rate paid to the Company by the issuer of the ARS that is pledged to UBS as
collateral. In November 2008, we accepted the Offer. In exchange for the Offer, the Company
provided UBS with a general release of claims (other than certain consequential damages claims)
concerning the Companys ARS and granted UBS the right to purchase the Companys ARS at any time
for full par value. We intend to exercise our right under the ARSR to put back the ARS to UBS at
the time it becomes available.
30
There can be no assurance that UBS ultimately will have the ability to repurchase the Companys ARS
at par, or at any other price, as these rights will be an unsecured contractual obligation of UBS,
or that if UBS determines to purchase the Companys ARS at any time, the Company will be able to
reinvest the cash proceeds of any such sale at the same interest rate or dividend yield currently
being paid to the Company. Also, as a condition of accepting the ARSR, the Company was required to
sign a release of claims against UBS, which will prevent the Company from making claims against UBS
related to the Companys investment in ARS, other than claims for consequential damages.
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Item 4. |
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Controls And Procedures |
a. Disclosure controls and procedures.
During the quarter ended March 31, 2010, our management, including the principal executive officer
and principal financial officer, evaluated our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) related to the recording, processing, summarization and reporting of information in our
reports that we file with the Securities and Exchange Commission (SEC). These disclosure controls
and procedures have been designed to ensure that material information relating to us, including our
subsidiaries, is made known to our management, including these officers, by other of our employees,
and that this information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the SECs rules and forms. Due to the inherent
limitations of control systems, not all misstatements may be detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the control.
Our controls and procedures can only provide reasonable, not absolute, assurance that the above
objectives have been met.
Based on their evaluation as of March 31, 2010, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of March 31, 2010 to reasonably
ensure that the information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms and that information required to be disclosed by us in the reports
we file or submit under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
b. Changes in internal controls over financial reporting.
Except as set forth below, there have been no changes in our internal control over financial
reporting that occurred during the three months ended March 31, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
On January 7, 2010, we completed our acquisition of Asset Intelligence, LLC. We are currently
integrating policies, processes, people, technology and operations for the combined company.
Management will continue to evaluate our internal control over financial reporting as we execute
integration activities.
31
PART II OTHER INFORMATION
In addition to the other information set forth in this report, you should carefully consider the
factors discussed in Part I, Item 1A. Risk Factors, in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009, as such factors could materially affect the Companys
business, financial condition, or future results. In the three months ended March 31, 2010, there
were no material changes to the risk factors disclosed in the Companys 2009 Annual Report on Form
10-K. The risks described in the Annual Report on Form 10-K are not the only risks that the
Company faces. Additional risks and uncertainties not currently known to the Company, or that the
Company currently deems to be immaterial, also may have a material adverse impact on the Companys
business, financial condition, or results.
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
On May 3, 2008, the Company announced that its Board of Directors authorized the repurchase of
issued and outstanding shares of the Companys common stock having an aggregate value of up to
$10,000,000 pursuant to a share repurchase program established under Rule 10b-18 of the
Exchange Act. The amount and timing of such repurchases are dependent upon the price and availability
of shares, general market conditions and the availability of cash, as determined in the discretion
of our management. The repurchases are funded from our working capital. Our share repurchase
program does not have an expiration date, and we may discontinue or suspend the share repurchase
program at any time. All shares of common stock repurchased under our share repurchase program are
held as treasury stock.
The Company did not purchase any shares of its common stock under the repurchase program during the
three months ended March 31, 2010.
The following exhibits are filed with this Quarterly Report on Form 10-Q:
Exhibits:
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2.1 |
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Membership Interest Purchase Agreement, dated as
of January 7, 2010, by and among I.D. Systems,
Inc., General Electric Capital Corporation and GE
Asset Intelligence, LLC (incorporated by reference
to Exhibit 2.1 to the Current Report on Form 8-K
of I.D. Systems, Inc. (File No. 001-15087) filed
with the SEC on January 13, 2010). |
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10.1 |
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Office Lease Agreement, dated as of May 10, 2010,
by and between IPC New York Properties, LLC, as
Landlord, and I.D. Systems, Inc., as Tenant. |
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31.1 |
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Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
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Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
32
Signatures
In accordance with the requirements of the Exchange Act, the Registrant has caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
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I.D. SYSTEMS, INC.
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Dated: May 17, 2010 |
By: |
/s/ Jeffrey M. Jagid
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Jeffrey M. Jagid
Chief Executive Officer
(Principal Executive Officer) |
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Dated: May 17, 2010 |
By: |
/s/ Ned Mavrommatis
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Ned Mavrommatis |
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Chief Financial Officer
(Principal Financial Officer) |
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33
INDEX TO EXHIBITS
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2.1 |
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Membership Interest Purchase Agreement, dated as of January 7, 2010, by and among I.D. Systems,
Inc., General Electric Capital Corporation and GE Asset Intelligence, LLC (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K of I.D. Systems, Inc. (File No.
001-15087) filed with the SEC on January 13, 2010). |
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10.1 |
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Office Lease Agreement, dated as of May 10, 2010, by and between IPC New York Properties, LLC, as
Landlord, and I.D. Systems, Inc., as Tenant. |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
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Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |