SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001 Commission file number: 1-15087
I.D. SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 22-3270799
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One University Plaza, Hackensack, New Jersey 07601
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (201) 670-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __
State issuer's revenues for its most recent fiscal year = $923,000.
The aggregate market value of the Common Stock held by nonaffiliates of the
Issuer was approximately $43,477,000 based upon the last sales price of such
stock on March 18, 2002, as disclosed on The NASDAQ Small Cap Market (IDSY).
The number of shares of common stock, par value $0.01 per share, outstanding as
of March 18, 2002 was 6,709,521.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PART I
Item 1. Description of Business..........................................................1
Item 2. Description of Properties........................................................6
Item 3. Legal Proceedings ...............................................................6
Item 4. Submission of Matters to a Vote of Security Holders..............................6
PART II
Item 5. Market For the Registrant's Common Equity
and Related Stockholder Matters..................................................7
Item 6. Management's Discussion and Analysis.............................................7
Item 7. Financial Statements............................................................12
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.............................................26
PART III
Item 9. Directors and Executive Officers of the Registrant..............................27
Item 10. Executive Compensation..........................................................29
Item 11. Security Ownership of Certain Beneficial Owners and Management..................32
Item 12. Certain Relationships and Related Transactions..................................34
Item 13. Exhibits, List and Reports on Form 8-K..........................................34
Exhibit Index ...............................................................................E-1
i
PART I
ITEM 1. DESCRIPTION OF BUSINESS
I.D. Systems, Inc. (the "Company"), a Delaware corporation incorporated in
1993, is a leading provider of advanced wireless solutions for tracking,
managing, and securing enterprise assets. The Company's patented RF (radio
frequency) technology and proprietary software, The Wireless Asset
Net(TM)System, enables real-time, automated, cost-effective monitoring, control,
and analysis of a broad range of objects--including vehicles, materials, and
people. The Company's solutions can benefit users by reducing operating costs,
increasing security, improving safety, enhancing service, and increasing
profits. The Company's customers include British Airways, DaimlerChrysler, Deere
& Co., Ford, General Motors, Hallmark Cards, the U.S. Postal Service, and the
U.S. Navy.
THE TECHNOLOGY
The primary hardware components of the Company's system are wireless
programmable "Asset Communicators" installed on each asset and one or more
fixed-position "System Monitors" forming a coverage area. These devices
communicate with each other via low-power RF transmissions with no ongoing
communication costs.
Asset Communicators are miniature programmable computers that provide
significantly more functionality than conventional asset tracking "RFID tags".
For example, Asset Communicators can control access, detect asset
movement/location, monitor asset utilization, provide two-way text messaging,
and store a large amount of dynamic, configurable asset data. The firmware in
the devices can also be customized easily to meet specific customer needs.
The system does not require a central or controlling mainframe computer to
make decisions. Asset Communicators and System Monitors have the capability to
make decisions autonomously, which significantly reduces the overall system cost
and improves system reliability. System Monitors incorporate a computer network
connection as well as a two-way RF transceiver, and are capable of linking the
mobile assets being monitored to management software on the network.
The Company designs and implements software as well as hardware. Its
modular software systems are user-friendly, with a robust database platform, a
Windows-style or browser-based graphical user interface, and options for both
client-server and web-based delivery.
CURRENT TARGET MARKETS
While there are diverse applications for its technology, the Company is
initially focused on companies that need to monitor, control, and manage four
different types of mobile assets:
>> Industrial vehicles
>> Rental vehicle fleets
1
>> Railcars
>> Packages and letters
In each of these applications, the Company has delivered effective systems
to high-profile customers and these systems have demonstrated significant
benefits.
Industrial Vehicle Applications. The Company's Wireless Asset Net(TM) fleet
management system is designed to address the material handling industry's
safety, security, and cost issues.
To improve fleet safety and security, the system provides (1) wireless
vehicle access control to ensure that only trained and authorized personnel can
use equipment, as required by the Occupational Safety and Health Administration
("OSHA"), (2) electronic vehicle inspection checklists for paperless proof of
OSHA compliance and early detection of emerging vehicle safety issues, and (3)
impact sensing to assign responsibility for accidents. With these capabilities,
the Company's system prevents unqualified personnel from operating equipment,
optimizes fleet health, and establishes driver accountability for abuse of
equipment, eliminating anonymous accidents and reducing damage-related costs.
To further reduce fleet maintenance costs, the Wireless Asset Net also
automates and enforces preventative maintenance scheduling by (1) wirelessly
uploading true "drive-time" data from each individual vehicle, (2) automatically
prioritizing maintenance events based on weighted variables, and (3) enabling
remote lock-out of vehicles overdue for maintenance. The system can also
interface seamlessly with existing maintenance databases.
To generate perhaps the most significant impact on fleet operating costs,
the Wireless Asset Net provides a set of tools to measure vehicle utilization
and justify fleet reductions. The system automatically records the actual
usage-time vs. idle-time of each individual vehicle/operator to benchmark
productivity, compare performance, and enable informed decisions about vehicle
allocation, disposal, and replacement. The system also visually monitors the
location of vehicles -- both in real time and historically -- to find vehicles
that are idle or due for maintenance, take instant vehicle inventory, and track
vehicle travel-paths to optimize labor efficiencies. In addition, the system
communicates work instructions to vehicle operators via two-way text paging to
improve productivity.
In addition, the Company believes its Wireless Asset Net technology can
have a significant impact on the security of airports and military bases.
Aircraft ground support equipment includes aircraft tow tractors, cargo loaders,
baggage tractors, fuel trucks, and catering trucks. The Company believes there
are few systems that effectively control and monitor the use of these vehicles.
In the absence of such controls, a perpetrator who gains access to the ramp area
at airports could access ground support equipment without restriction. The
Company's wireless solution prevents unauthorized use of aircraft ground support
equipment by linking vehicle ignition to a personal identification system and/or
biometrics. The system requires an operator to present an access control ID
badge to the system's intelligent vehicle-mounted hardware (and, optionally,
enter a PIN code) prior to operating a vehicle that services aircraft. A person
must be authorized and trained for a particular vehicle, in a particular area of
the airport, at a particular time of day, in order to use the vehicle. This
driver tracking and control technology not only prevents the unauthorized use of
equipment, but it also allows equipment to be instantly and remotely deactivated
via radio frequency in the event of an emergency.
To enhance its position in the material handling fleet market, the Company
has developed strategic relationships with vehicle manufacturers and other key
companies in the industry. For example, the Company has an agreement with Curtis
Instruments, Inc., the world's largest manufacturer of instrumentation and
controls for battery-powered vehicles, to develop wireless vehicle management
systems integrated into dashboard instrument panels. Once developed, these
systems will be marketed to original equipment manufacturers ("OEMs") of
material handling vehicles, aircraft ground support equipment, durable medical
devices, and other types of mobile electric-powered equipment. Curtis will
assume primary responsibility for manufacturing the systems and marketing them
to its established base of OEM customers, while the Company will take primary
responsibility for providing supporting software, hardware, and services for the
equipment end-users. Under the agreement, the Company will receive royalties on
OEM system sales and be able to derive ongoing revenues from its supporting
products and services.
The industrial vehicle market is the Company's most developed application.
Customers that have piloted and/or deployed the Company's Wireless Asset Net
system include British Airways, DaimlerChrysler, Deere & Co., Ford, General
Motors, Hallmark Cards, the U.S. Postal Service and the U.S. Navy.
2
Rental Fleet Applications. The Company's wireless rental car monitoring
system automatically monitors mileage and fuel data from rental vehicles, and
demonstrates a significant impact on both rental revenues and the quality of
customer service.
Among the many benefits that car rental companies can realize with the
Company's solution, two are most significant. First, by accurately reporting
fuel levels, without human intervention, rental car companies can potentially
increase fuel revenues by an average of more than $2 per rental by accurately
billing customers for fuel used. Second, with the Company's system, the average
car return transaction, including customer wait time, can be reduced from more
than a minute per vehicle to less than 5 seconds. This significant time savings
can allow the rental company to reduce staff and/or devote more attention to
vehicle inspections, to detect damage that would otherwise go unnoticed and
uncharged.
Railcar Industry Applications. The Company's wireless tracking solution has
the potential to revolutionize the rail industry's customer service capabilities
and fundamentally change the way freight railroads operate in North America.
The Company believes that Class I railroads and their customers have a
vested interest in finding a cost-effective way to track the location and status
of railcars in real time. The Company's real-time location system maps train
location against the expected routes and schedules, averts delays by rapidly
identifying unplanned stops, and ensures that the correct railcars are delivered
to the correct locations in a timely manner. The Company believes that this can
translate directly into both customer satisfaction and increased revenues for
the railroads.
The Company's solution for real-time railcar tracking is a unique hybrid of
its patented RF communications architecture, GPS location tracking, a cellular
or satellite link, and proprietary web-based graphical software. The Company's
system can communicate data from an entire train of railcars with just one
cellular or satellite link. Compared to other systems that rely on satellite
transmitters on every railcar, the Company's approach can save millions of
dollars in ongoing communications fees. Compared to systems that rely on
fixed-location reading devices, the Company's system provides information from
any location at any time, eliminating "black holes" between readers. In
addition, the Company believes its approach provides the ability to generate and
communicate significantly more information than the railroads' existing tracking
system.
In the package and letter tracking market, the Company has been focused
primarily on the U.S. Postal Service (USPS). During 2000, the Company's solution
was deployed and began collecting data used to analyze the flow of mail. In this
application, the Company's Asset Communicator is configured to fit inside a
standard business envelope and withstand the rigors of automated mail processing
machinery. The Company's system allows the USPS, for the first time in its
history, to track test mail in real time and identify bottlenecks in the mail
delivery chain. The USPS chose the Company's technology because it provided
virtually 100% detection and communication reliability in harsh environments.
The USPS maintains approximately 500 major mail processing centers and
40,000 facilities overall in the United States.
MANUFACTURING
The Company outsources its hardware manufacturing operations to leading
contract manufacturers including Flextronics International Ltd. and NuVisions
Manufacturing Inc. This strategy enables the Company to focus on its core
competency -- designing hardware and software systems and delivering solutions
to customers -- and to avoid investing in capital-intensive manufacturing
infrastructure. Outsourcing also provides IDSY with the ability to ramp up
deliveries to meet increases in demand without increasing fixed expenses. The
Company has not, however, entered into an agreement providing for a long term
commitment with its subcontractors to manufacture the Company's products.
COMPETITION
The market for wireless tracking and management of enterprise assets is
relatively new, constantly
3
evolving, and competitive. Although the Company's current competitors do not
provide the exact same capabilities, they do offer subsets of the Company's
system capabilities or alternate approaches to the issues the Company's products
resolve. Those companies include both emerging companies with limited operating
histories, such as WhereNet Corp., Remote Equipment Systems, Inc., Media
Recovery, Inc., and companies with longer operating histories, greater name
recognition and/or significantly greater financial, technical and marketing
resources than the Company, such as Savi Technology, Symbol Technologies, Inc.,
and Intermec Technology Corp. The Company expects that competition will
intensify in the near future. There are, however, significant barriers to entry
for the Company's potential competitors.
INTELLECTUAL PROPERTY
The Company currently has one United States patent and pending patent
applications relating to the Company's system architecture and technology. It
also has a corresponding patent and pending patent applications in selected
foreign countries. The patents and patent applications may not provide the
Company with any competitive advantage. Many of the Company's current and
potential competitors dedicate substantially greater resources to protection and
enforcement of intellectual property rights, especially patents.
The Company attempts to avoid infringing known proprietary rights of third
parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent searches to determine
whether it infringes patents or other proprietary rights held by third parties.
In addition, it is difficult to proceed with certainty in a rapidly evolving
technological environment in which there may be numerous patent applications
pending, many of which are confidential when filed, with regard to similar
technologies. If the Company were to discover that its products violate
third-party proprietary rights, the Company may not be able to:
o obtain licenses to continue offering such products without
substantial reengineering;
o reengineer the Company's products successfully to avoid
infringement;
o obtain licenses on commercially reasonable terms, if at all; or
o litigate an alleged infringement successfully or settle without
substantial expense and damage awards.
Any claims against the Company relating to the infringement of third-party
proprietary rights, even if without merit, could result in the expenditure of
significant financial and managerial resources or in injunctions preventing us
from distributing certain products. Such claims could materially adversely
affect the Company's business, financial condition and results of operations.
The Company's software products are susceptible to unauthorized copying and
uses that may go undetected, and policing such unauthorized use is difficult. In
general, the Company's efforts to protect its intellectual property rights
through patent, copyright, trademark and trade secret laws may not be effective
to prevent misappropriation of the technology, or to prevent the development and
design by others of products or technologies similar to or competitive with
those developed by the Company. The
4
Company's failure or inability to protect its proprietary rights could
materially adversely affect the Company's business, financial condition and
results of operations.
EMPLOYEES
The Company currently has thirty-one full time employees, of which ten are
engaged in product development, five in project management and customer support,
six in operations , four in sales and marketing and six in finance and
administration.
5
ITEM 2. DESCRIPTION OF PROPERTIES
In November 1999, the Company entered into a lease that expires on March
31, 2010 for its new facility in Hackensack, NJ, covering approximately 22,500
square feet, which the Company first occupied in March 2000. The rent is
currently $31,060 per month and will increase to $34,835 per month from the 61st
month until the end of the lease.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company completed its initial public offering on June 30, 1999. The
Company's Common Stock is traded on The Nasdaq SmallCap Market under the symbol
IDSY. The following table sets forth, for the periods indicated, the high and
low sales price for the Company's common stock as reported on such quotation
systems.
QUARTER ENDING: HIGH LOW
--------------- ---- ---
2000
----
March 31, 2000 $17.50 $5.625
June 30, 2000 $ 9.00 $3.500
September 30, 2000 $ 7.62 $4.875
December 31, 2000 $ 4.31 $1.750
2001
----
March 31, 2001 $ 5.00 $2.000
June 30, 2001 $ 6.70 $3.375
September 30, 2001 $ 6.00 $3.700
December 31, 2001 $10.85 $4.450
2002
----
January 1, 2002 - March 4, 2002 $11.10 $6.650
There were 42 registered holders and approximately 1,200 beneficial owners
of the Company's Common Stock of record as of March 4, 2002. The Company has not
declared or paid dividends on its Common Stock to date and intends to retain
future earnings, if any, for use in its business for the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with its financial
statements and notes thereto appearing elsewhere herein.
7
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating information expressed as a percentage of revenue:
Year Ended
December 31,
--------------------------
2000 2001
--------------------------
Revenues 100.0% 100.0%
Cost of revenues 76.4 59.4
----- -----
Gross profit 23.6 40.6
Selling, general and administrative expenses 427.0 384.8
Research and development expenses 185.3 112.5
----- -----
Loss from operations (588.7) (456.7)
Interest income 75.6 33.6
Interest expense (0.5) (0.3)
----- -----
Loss before income taxes (513.6) (423.4)
Income tax benefit 3.6
----- -----
Net loss (510.0) (423.4)
====== ======
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
REVENUES. Revenues were $923,000 for the year ended December 31, 2001 compared
to $945,000 in the year ended December 31, 2000. Revenues for the year ended
December 31, 2001 were derived from the delivery and implementation of the
Company's fleet tracking and management system pursuant to on-going pilot
programs.
COST OF REVENUES. Cost of revenues decreased 24.1% to $548,000 in the year ended
December 31, 2001 from $722,000 in the year ended December 31, 2000. As a
percentage of revenues, cost of revenues decreased to 59.4% in the year ended
December 31, 2001 from 76.4% in the year ended December 31, 2000. This decrease
is attributable to a $200,000 reserve on inventory recorded during the year
ended December 31, 2000. Gross profit increased 68.2% to $375,000 in the year
ended December 31, 2001 from $223,000 in the year ended December 31, 2000. As a
percentage of revenues, gross profit increased to 40.6% in the year ended
December 31, 2001 from 23.6% in the year ended December 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 12.0% to $3,552,000 in the year ended December
31, 2001 from $4,035,000 in the year ended December 31, 2000. The decrease was
primarily attributable to a decrease in payroll expenses
8
resulting from cost cutting efforts instituted in the first quarter of 2001. As
a percentage of revenues, selling, general and administrative expenses decreased
to 384.8% in the year ended December 31, 2001 from 427.0% in the year ended
December 31, 2000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
40.7% to $1,038,000 in the year ended December 31, 2001 from $1,751,000 in the
year ended December 31, 2000. This decrease was attributable to completing and
commercializing the new "universal system" of hardware and software for tracking
and managing fleets of industrial vehicles during the first quarter of 2001. As
a percentage of revenues, research and development expenses decreased to 112.5%
in the year ended December 31, 2001 from 185.3% in the year ended December 31,
2000.
NET INTEREST INCOME AND EXPENSE. Interest income was $310,000 in the year ended
December 31, 2001 as compared to $714,000 in the year ended December 31, 2000.
This decrease was attributable to larger average cash, cash equivalents and
short-term investment balances in 2000 as compared to 2001.
Interest expense was $3,000 in the year ended December 31, 2001 as compared to
$5,000 in the year ended December 31, 2000.
INCOME TAXES. There was no income tax expense due in the year ended December 31,
2001. In the year ended December 31, 2000 there was an income tax benefit was
$34,000. The benefit in 2000 reflects a carryback of the Company's net operating
loss for federal purposes of $111,000 partially offset by a $49,000 reduction in
a deferred tax asset.
NET LOSS. Net loss was $3,908,000 in the year ended December 31, 2001 as
compared to net loss of $4,820,000 in the year ended December 31, 2000. This
decrease was due primarily to the reasons described above.
9
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, the Company had cash, cash equivalents and
short-term investments of $5,465,000 and working capital of $5,970,000 as
compared to $8,673,000 and $9,582,000, respectively at December 31, 2000.
Net cash used in operating activities was $3,185,000 for the year ended
December 31, 2001 as compared to net cash used in operating activities of
$3,902,000 for the year ended December 31, 2000. Net cash used in operating
activities in the year ended December 31, 2001 was primarily due to a net loss
of $3,908,000, a decrease in accounts payable and accrued expenses of $125,000
and an increase in inventory of $96,000 partially offset by a decrease in
accounts and unbilled receivables of $412,000, an increase of other liabilities
of $200,000 and a decrease in income taxes receivable of $111,000. Net cash used
in operating activities in the year ended December 31, 2000 was primarily due to
the net loss of $4,820,000, an increase in inventory of $625,000 and an increase
in income tax receivable of $111,000 partially offset by a decrease in accounts
and unbilled receivables of $1,196,000, a decrease in prepaid expenses and other
assets of $205,000 and an increase in accounts payable and accrued expenses of
$154,000.
Net cash provided by investing activities for the year ended December 31,
2001 was $2,478,000 as compared to cash used in investing activities for the
year ended December 31, 2000 of $24,000. The cash provided by investing
activities in the year ended December 31, 2001 was primarily from maturities of
short-term investments of $12,000,000 partially offset by the purchase of
investments of $9,242,000 and amortization of debt discount on investments of
$209,000. The use of cash in investing activities for the year ended December
31, 2000 reflects purchase of investments of $10,140,000, amortization of debt
discount on investments of $183,000 and purchase of fixed assets of $441,000
offset by maturities of short-term investments of $10,740,000.
Net cash provided by financing activities for the year ended December 31,
2001 was $48,000 as compared to net cash used in financing activities of $10,000
for the year ended December 31, 2000. The net cash provided by financing
activities of $48,000 for the year ended December 31, 2001, resulted from
$70,000 of proceeds received from exercise of employee stock options, offset by
$22,000 paid for capital lease obligations. The cash used in financing
activities for the year ended December 31, 2000 reflects $14,000 for payment of
lease obligations partially offset by $4,000 of proceeds received from exercise
of employee stock options.
In January 2002, the Company sold 821,250 shares of common stock and
received proceeds of approximately $6,100,000.
The Company believes its operations have not been and, in the foreseeable
future, will not be materially adversely affected by inflation or changing
prices.
10
INFLATION
The impact of inflation of the Company's revenues and results of operations
has not been significant.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB, under the sections
"Management Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere relate to future events and expectations
and as such constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The words "believes,"
"anticipates," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements and to vary significantly from
reporting period to reporting period. These forward looking statements were
based on various factors and were derived utilizing numerous important
assumptions and other factors that could cause actual results to differ
materially from those in the forward looking statements, including, but not
limited to: uncertainty as to the Company's future profitability and the
Company's ability to develop and implement operational and financial systems to
manage rapidly growing operations, competition in the Company's existing and
potential future lines of business, and other factors. Other factors and
assumptions not identified above were also involved in the derivation of these
forward looking statements, and the failure of such other assumptions to be
realized, as well as other factors, may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forward looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward looking
statements.
11
ITEM 7. FINANCIAL STATEMENTS
Independent auditors' report...............................................13
Balance sheet as of December 31, 2001......................................14
Statements of operations for the years ended
December 31, 2000 and 2001.................................................15
Statements of changes in stockholders' equity
for the years ended December 31, 2000 and 2001.............................16
Statements of cash flows for the years ended December 31, 2000 and 2001....17
Notes to financial statements..............................................18
12
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
I.D. Systems, Inc.
Hackensack, New Jersey
We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 2001 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 2000 and
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of I.D. Systems, Inc. as of December
31, 2001 and the results of its operations and its cash flows for the years
ended December 31, 2000 and 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Richard A. Eisner & Company, LLP
New York, New York
February 7, 2002
13
I.D. SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 2001
ASSETS
Current assets:
Cash and cash equivalents $ 2,426,000
Investments 3,039,000
Accounts receivable 234,000
Inventory 844,000
Prepaid expenses and other current assets 111,000
------------
Total current assets 6,654,000
Fixed assets, net 540,000
Other assets 117,000
------------
$ 7,311,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 574,000
Capital lease obligations 10,000
Other current liabilities 100,000
------------
Total current liabilities 684,000
Deferred rent 42,000
Other liabilities 100,000
------------
Commitments and other matters 826,000
------------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 5,000,000 shares, $.01 par value; none issued Common
stock; authorized 15,000,000 shares, $.01 par value; issued and outstanding
5,866,000 shares 59,000
Additional paid-in capital 15,739,000
Treasury stock; 40,178 shares at cost (113,000)
Accumulated deficit (9,200,000)
------------
6,485,000
------------
$ 7,311,000
============
See notes to financial statements
14
I.D. Systems, Inc.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------
2000 2001
---- ----
Revenue $ 945,000 $ 923,000
Cost of revenue 722,000 548,000
------------- -------------
Gross profit 223,000 375,000
------------- -------------
Operating expenses:
Selling, general and administrative expenses 4,035,000 3,552,000
Research and development expenses 1,751,000 1,038,000
------------- -------------
5,786,000 4,590,000
------------- -------------
Loss from operations (5,563,000) (4,215,000)
Interest income 714,000 310,000
Interest expense (5,000) (3,000)
------------- -------------
Loss before income taxes (4,854,000) (3,908,000)
Income tax benefit 34,000
------------- -------------
NET LOSS $ (4,820,000) $ (3,908,000)
============= =============
NET LOSS PER SHARE - BASIC AND DILUTED $(.84) $(.67)
===== =====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED LOSS PER SHARE 5,721,000 5,840,000
============= =============
See notes to financial statements
15
I.D. SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
--------- ------ ---------- ----------- -------- -------------
BALANCE - JANUARY 1, 2000 5,717,000 $ 57,000 $ 15,554,000 $ (472,000) $ 15,139,000
Shares issued pursuant to exercise
of stock options 4,000 4,000 4,000
Net loss for the year ended
December 31, 2000 (4,820,000) (4,820,000)
--------- --------- ------------- ------------ -------------
BALANCE - DECEMBER 31, 2000 5,721,000 57,000 15,558,000 (5,292,000) 10,323,000
Shares issued pursuant to exercise
of stock options 145,000 2,000 181,000 183,000
Shares received as consideration
for exercise of stock options $ (113,000) (113,000)
Net loss for the year ended
December 31, 2001 (3,908,000) (3,908,000)
--------- --------- ------------- ------------ ---------- -------------
BALANCE - DECEMBER 31, 2001 5,866,000 $ 59,000 $ 15,739,000 $ (9,200,000) $ (113,000) $ 6,485,000
========= ========= ============= ============ ========== =============
See notes to financial statements
16
I.D. SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------
2000 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,820,000) $ (3,908,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 116,000 163,000
Deferred taxes 49,000
Deferred rent expense (23,000) 23,000
Changes in:
Accounts receivable 583,000 63,000
Unbilled receivables 613,000 349,000
Inventory (625,000) (96,000)
Income tax receivable (111,000) 111,000
Prepaid expenses and other assets 205,000 43,000
Accounts payable and accrued expenses 154,000 (125,000)
Taxes payable (43,000) (8,000)
Other liabilities 200,000
------------ ------------
Net cash used in operating activities (3,902,000) (3,185,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (441,000) (71,000)
Purchases of investments (10,140,000) (9,242,000)
Maturities and sales of investments 10,740,000 12,000,000
Amortization of discount on investments (183,000) (209,000)
------------ ------------
Net cash (used in) provided by investing activities (24,000) 2,478,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of lease obligations (14,000) (22,000)
Proceeds from exercise of stock options 4,000 70,000
------------ ------------
Net cash (used in) provided by financing activities (10,000) 48,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,936,000) (659,000)
Cash and cash equivalents - January 1 7,021,000 3,085,000
------------ ------------
CASH AND CASH EQUIVALENTS - DECEMBER 31 $ 3,085,000 $ 2,426,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 5,000 $ 3,000
Income taxes $ 58,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION:
Treasury shares received as consideration for exercise of stock options $ 113,000
See notes to financial statements
17
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE A - THE COMPANY
I.D. Systems, Inc. (the "Company") is a provider of wireless solutions. The
Company designs, develops and produces innovative wireless monitoring and
tracking products that utilize its patented radio-frequency-based system and
Internet-based data management systems. The Company's products are designed to
enable users to improve operating efficiencies and reduce costs. The Company was
incorporated in Delaware in 1993 and commenced operations in January 1994.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
[2] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
[3] INVENTORY:
Inventory, which consists of components for the Company's products, is
stated at cost using the first-in first-out method.
[4] FIXED ASSETS AND DEPRECIATION:
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets which range from three
to ten years. Equipment under capital leases are amortized using the
straight-line method over the terms of the respective leases, or their
estimated useful lives, whichever is shorter.
[5] RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred.
[6] PATENT COSTS:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
18
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] REVENUE RECOGNITION:
Sales are recognized when products are shipped and no future performance is
required by the Company. Contract revenue is recognized based on
performance, in accordance with the terms of the related contracts.
[8] BENEFIT PLAN:
The Company maintains a retirement plan under Section 401(k) of the
Internal Revenue Code which covers all eligible employees. The Company
contributed $36,000 and $0 to the plan during the years ended December 31,
2000 and 2001, respectively.
[9] RENT EXPENSE:
Expense related to the Company's facility lease is recorded on a
straight-line basis over the lease term. The difference between rent
expense incurred and the amount paid is recorded as deferred rent and is
amortized over the lease term.
[10] STOCK-BASED COMPENSATION:
The Company accounts for stock-based employee compensation under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock- Based Compensation."
[11] INCOME TAXES:
The Company uses the asset and liability method of accounting for deferred
income taxes. Deferred income taxes are measured by applying enacted
statutory rates to net operating loss carryforwards and to the differences
between the financial reporting and tax bases of assets and liabilities.
Deferred tax assets are reduced, if necessary, by a valuation allowance for
any tax benefits which are not expected to be realized.
19
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] NET INCOME (LOSS) PER SHARE:
The Company calculates net income (loss) per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires a
dual presentation of "basic" and "diluted" income (loss) per share on the
face of the statements of operations. Basic income (loss) per share is
computed by dividing the net income (loss) by the weighted average number
of shares of common stock outstanding during each period. Diluted income
(loss) per share includes the effect, if any, from the potential exercise
or conversion of securities, such as stock options and warrants, which
would result in the issuance of incremental shares of common stock. For the
years ended December 31, 2000 and 2001 the basic and diluted weighted
average shares outstanding are the same since the effect from the potential
exercise of outstanding stock options and warrants would have been
anti-dilutive (see Note F).
[13] FINANCIAL INSTRUMENTS:
The carrying amounts of cash equivalents, investments, capital lease
obligations and other liabilities approximate their fair values due to the
short period to maturity of these instruments.
NOTE C - INVESTMENTS
The Company's investments at December 31, 2001 consist principally of short-term
commercial paper which mature within one year and are classified as held to
maturity. Accordingly, investments are carried at amortized cost.
NOTE D - FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation and amortization,
and at December 31, 2001, are summarized as follows:
Equipment $ 183,000
Computer software 127,000
Computer hardware 180,000
Furniture and fixtures 114,000
Leasehold improvements 275,000
Equipment under capital lease 51,000
----------
930,000
Accumulated depreciation and amortization 390,000
----------
$ 540,000
==========
20
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE E - EQUIPMENT LEASE OBLIGATIONS
The Company leases equipment under various agreements with original terms of 36
to 60 months and accounts for these leases as capital leases. The net book value
of the equipment held under capital leases was approximately $11,000 at December
31, 2001.
At December 31, 2001 future lease payments of $11,000, including $1,000
representing interest are due in 2002.
NOTE F - STOCKHOLDERS' EQUITY
[1] COMMON STOCK:
In June 1999, the Company sold 2,300,000 shares of its common stock in an
initial public offering. In connection therewith, the Company received net
proceeds of $13,921,000.
[2] PREFERRED STOCK:
The Company has 5,000,000 shares of $.01 par value preferred stock
authorized. The Company's Board of Directors has the authority to issue
shares of preferred stock and to determine the price and terms of those
shares.
21
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[3] STOCK OPTIONS:
The Company has adopted the 1995 Stock Option Plan, pursuant to which the
Company may grant options to purchase up to an aggregate of 1,250,000
shares of common stock. The Company has also adopted the 1999 Stock Option
Plan and the 1999 Director Option Plan, pursuant to which the Company may
grant options to purchase up to 1,812,500 (which was increased during 2001
from 812,500) and 300,000 shares of common stock, respectively. The Plans
are administered by the Board of Directors, which has the authority to
determine the term during which an option may be exercised (not more than
10 years), the exercise price of an option and the rate at which options
may be exercised.
A summary of the status of the Company's stock option plans as of December
31, 2000 and 2001 and changes during the years ended on those dates, is
presented below:
2000 2001
---------------------------------- ----------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
-------------- ------------------ ------------- ------------------
Outstanding at beginning of year 1,479,000 $1.79 1,975,000 $2.76
Granted 590,000 5.59 664,000 4.64
Exercised (4,000) 1.20 (145,000) 1.26
Forfeited (90,000) 5.36 (272,000) 3.59
------------ ------------
Outstanding at end of year 1,975,000 2.76 2,222,000 3.32
============ ============
Exercisable at end of year 848,000 1.20 970,000 1.80
============ ============
As of December 31, 2001 there were 990,000 options available for grant under the
Company's stock option plans.
The following table summarizes information about stock options at December 31,
2001:
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 2001 Life Price 2001 Price
-------- ------------ ----------- --------- ------------ --------
$0.80 275,000 4 years $0.80 275,000 $0.80
1.20 737,000 6 years 1.20 536,000 1.20
2.00-3.63 337,000 9 years 2.87 30,000 3.41
4.13-5.67 459,000 9 years 5.14 60,000 4.28
6.00-8.00 414,000 9 years 7.12 69,000 7.57
------- -------
2,222,000 7 years 3.32 970,000 1.80
========= =======
22
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[3] STOCK OPTIONS: (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for options. Accordingly, no compensation cost has been
recognized for employee stock option grants. Had compensation cost for
employee stock option grants been determined based on the fair value at the
grant dates for awards consistent with the method of SFAS No. 123, the
Company's net loss and net loss per share (basic and diluted) for the year
ended December 31, 2000 would have been approximately $5,395,000, and $.94,
respectively. The Company's net loss and net loss per share (basic and
diluted) for the year ended December 31, 2001 would have been approximately
$4,504,000, and $.77, respectively. The fair value of each option grant on
the date of grant is estimated using the Black-Scholes option-pricing model
with a volatility of 70% for 2000 and 93% for 2001, expected life of
options of 5 years, risk free interest rate of approximately 6% in 2000 and
5% in 2001 and a dividend yield of 0%. The weighted average fair value of
options granted during the years ended December 31, 2000 and 2001 were
$3.55 and $3.40, respectively.
[4] Warrants:
In connection with the Company's initial public offering in June 1999,
warrants to purchase 200,000 shares of common stock were issued to the
underwriter for nominal consideration. The warrants are exercisable for a
period of four years, commencing in June 2000, at a price of $11.55 per
share.
NOTE G - INCOME TAXES
The Company has a deferred tax asset of approximately $3,360,000 at December 31,
2001. This reflects a net operating loss carryforward of approximately
$8,217,000 for federal income tax purposes, substantially all of which expires
in 2020 and 2021, certain state and local net operating losses and certain
timing differences between financial and tax reporting. Future stock issuances
may subject the Company to annual limitations on the utilization of its net
operating loss carryforward. The Company has provided a valuation allowance,
which increased by $1,508,000 during 2001, against the full amount of its
deferred tax asset, since the likelihood of realization cannot be determined.
There was no income tax expense (benefit) for the year ended December 31, 2001.
The components of the income tax expense (benefit) for the year ended December
31, 2000 are approximately as follows:
Current:
Federal $(113,000)
State and local 30,000
---------
(83,000)
Deferred:
Local 49,000
---------
$ (34,000)
=========
23
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE G - INCOME TAXES (CONTINUED)
The difference between income taxes at the statutory federal income tax rate and
income taxes reported in the statements of operations are attributable to the
following:
Year Ended December 31,
----------------------------------
2000 2001
--------------- ---------------
Income tax benefit at the federal statutory rate $ (1,650,000) $ (1,329,000)
State and local income taxes, net of effect on federal taxes (293,000) (193,000)
Increase in valuation allowance 1,852,000 1,508,000
Nondeductible expenses 12,000 7,000
Other 45,000 7,000
-------------- --------------
$ (34,000) $ 0
============== ==============
The deferred tax asset and liability at December 31, 2001 are as follows:
Net operating loss carryforward $ 3,288,000
Allowance for inventory obsolescence 80,000
-------------
3,368,000
Fixed assets (8,000)
-------------
3,360,000
Valuation allowance (3,360,000)
-------------
$ 0
=============
NOTE H - COMMITMENTS AND OTHER MATTERS
[1] OPERATING LEASES:
The Company is obligated under operating leases for its facility, which it
occupied in March 2000, and for furniture and fixtures. The Company's
operating leases provide for minimum annual rental payments as follows:
Furniture
Year Ending and
December 31, Facility Fixtures Total
------------ -------- -------- -----
2002 $ 373,000 $ 124,000 $ 497,000
2003 373,000 10,000 383,000
2004 373,000 373,000
2005 410,000 410,000
2006 410,000 410,000
Thereafter 1,435,000 1,435,000
------------- ----------- -------------
$ 3,374,000 $ 134,000 $ 3,508,000
============= =========== ==============
24
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE H - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[1] OPERATING LEASES: (CONTINUED)
The office lease, which expires in 2010, also provides for escalations
relating to increases in real estate taxes and certain operating expenses.
Expenses relating to operating leases aggregated approximately $479,000 and
$580,000 for the years ended December 31, 2000 and 2001, respectively.
When the Company vacated its former premises, it recorded a charge to
operations of $21,000 in connection with being released from the lease.
[2] EMPLOYMENT AGREEMENTS:
The Company has employment agreements with three executives which provide
for aggregate annual compensation of $312,000 and entitle the executives to
salary increases, bonuses and stock options to be determined by the Board
of Directors. The agreements, which expire in June 2002, provide for
severance payments equal to the greater of one year's salary or the
remaining amount due through the end of the agreements.
[3] CONCENTRATION OF CUSTOMERS:
Four customers accounted for 67% of the Company's revenue during the year
ended December 31, 2000 (each accounting for between 13% and 21%). One of
those customers accounted for 15% and sales of inventory to a vendor
accounted for 11% of the Company's revenue during the year ended December
31, 2001.
One customer accounted for 59% of the Company's accounts receivable at
December 31, 2001.
[4] OTHER LIABILITIES:
In December 2001, the Company settled a claim in connection with a contract
and recorded a charge of $250,000, which is included in general and
administrative expenses in the accompanying financial statements. Pursuant
to the terms of the settlement agreement, the Company paid $50,000 in
December 2001 and will pay $50,000 every six months from June 2002 through
December 2003. Accordingly, $100,000 is reflected as other current
liabilities and $100,000 as other liabilities in the accompanying financial
statements.
NOTE I - SUBSEQUENT EVENT
In January 2002, the Company sold 821,250 shares of common stock and received
net proceeds of approximately $6,100,000.
Warrants to purchase 107,125 shares of common stock were issued to the placement
agent and a finder. The warrants are exercisable for a period of five years,
commencing in January 2002 at a price of $9.58 per share.
25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the names, ages, and positions of the Executive
Officers and Directors of the Company.
NAME AGE POSITION
---- --- --------
Jeffrey M. Jagid 33 Chairman of the Board, Chief Executive
Officer, and Director
Kenneth S. Ehrman 32 President, Chief Operating Officer and
Director
Michael L. Ehrman 29 Executive Vice President of Engineering
Ned Mavrommatis 31 Chief Financial Officer and Treasurer
Beatrice Yormark (1) 57 Director
Martin G. Rosansky (1) 63 Director
Lawrence Burstein (1) 59 Director
N. Bert Loosmore 32 Director
----------
(1) Member of the Compensation and Audit Committees
JEFFREY M. JAGID has been Chairman of the Board since June 1, 2001 and Chief
Executive Officer since June 1, 2000. Prior to that, he had served as the
Company's Chief Operating Officer. Since he joined the Company in 1995, Mr.
Jagid has served as a Director of the Company, as well as its General Counsel.
Mr. Jagid received a Bachelor of Business Administration from Emory University
in 1991 and a Juris Doctor degree from the Benjamin N. Cardozo School of Law in
1994. Prior to joining the Company, Mr. Jagid was a corporate litigation
associate at the law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, in
New York City. He is a member of the Bar of the States of New York and New
Jersey.
KENNETH S. EHRMAN is a founder of the Company and has been its Chief Operating
Officer since June 1, 2000. Mr. Ehrman has been President and a Director of the
Company since inception. He graduated from Stanford University in 1991 with a
Bachelor of Science in Industrial Engineering, where he studied Management,
Production and Finance. Upon his graduation, and until the inception of the
Company in 1993, Mr. Ehrman worked as a production manager with a Echelon
Corporation, the world leader in networking every day devices. Mr. Ehrman is
Michael L. Ehrman's brother.
MICHAEL L. EHRMAN has served as the Company's Executive Vice President of
Engineering since August 1999. Prior to that, he served as its Executive Vice
President of Software Development since he joined the Company in 1995. Mr.
Ehrman graduated from Stanford University in 1994 with a Master of Science in
27
Engineering Economics Systems as well as a Bachelor of Science in Computer
Systems Engineering. Upon his graduation in 1994, Mr. Ehrman was employed as a
Consultant for Andersen Consulting in New York. Mr. Ehrman is Kenneth S.
Ehrman's brother.
NED MAVROMMATIS has served as the Chief Financial Officer since joining the
Company in August 1999 and as Treasurer since June 1, 2001. Prior to joining the
Company, he was a Senior Manager at the accounting firm of Richard A. Eisner &
Company L.L.P. He was a member of Eisner's New Media/Technology Group in the
public company practice. Mr. Mavrommatis received a Bachelor of Business
Administration degree from Bernard M. Baruch College, The City University of New
York in 1993. He is a member of The New York State Society of Certified Public
Accountants and The American Institute of Certified Public Accountants.
BEATRICE YORMARK has served as a director of the Company since June of 2001. Ms.
Yormark is the President and Chief Operating Officer of Echelon Corporation, the
world leader in networking every day devices. Ms. Yormark has been with Echelon
since 1990. Prior to becoming the President and COO in September of 2001, she
held the position of Vice President of Worldwide Marketing and Sales. Before
joining Echelon she was the chief operating officer of Connect, Inc., an on-line
information services company. Before joining Connect, Ms. Yormark held a variety
of positions, including executive director of systems engineering for Telaction
Corporation, director in the role of partner at Coopers & Lybrand, vice
president of sales at INTERACTIVE Systems Corporation, and various staff
positions at the Rand Corporation. Ms. Yormark spent one year teaching computer
science at Purdue University, following the completion of her MS degree in
computer science. In addition to her graduate degree, Ms. Yormark has a BS
degree in mathematics from City College of New York.
MARTIN G. ROSANSKY is a founder of the Company and has served as its Secretary
and as a Director since inception. In March 1991, Mr. Rosansky co-founded and
served as the Vice Chairman of Ultralife Batteries, Inc. Prior to Ultralife, in
1970, Mr. Rosansky co-founded Power Conversion, Inc., where he was Chairman of
the Board, Secretary and Treasurer from 1970 to January 1986. Mr. Rosansky
earned a Bachelor of Science in Mechanical Engineering from Polytechnic
Institute of Brooklyn in 1960.
LAWRENCE BURSTEIN has served as a Director of the Company since June of
1999. Since March 1996, Mr. Burstein has served as President and director of
Unity Venture Capital Associates, Ltd., a private investment company. From
January 1982 to March 1996, Mr. Burstein was Chairman of the Board and a
principal stockholder of Trinity Capital Corporation, a private investment
company. Mr. Burstein is a director of THQ, Inc., Brazil Fast Food Corp., CAS
Medical Systems, Inc., Traffix, Inc. and Gender Sciences Inc. Mr. Burstein
received a Bachelor of Arts in Economics from the University of Wisconsin and a
Bachelor of Law from Columbia Law School.
N. BERT LOOSMORE, a founder of the Company, served as its Executive Vice
President of Technology from August 1999 until December 2000. Prior to that, he
served as the Company's Executive Vice President of Engineering. Mr. Loosmore
has been a Director of the Company since inception. He graduated from Stanford
University in 1991 with a Bachelor of Science in Electrical Engineering, where
he concentrated on computer hardware and software, including microprocessor
design. From 1991 to 1992, he worked at International Business Machines, Inc. as
a Design and Test Engineer and later as a Production Engineer. From 1992 until
the
28
Company's inception, Mr. Loosmore was a Production Engineer at a Silicon Valley
networking company.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. The
Company's executive officers serve at the discretion of the Board of Directors
and until their successors are duly elected and qualified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Exchange Act of 1934, as amended ("Section 16(a)"),
requires the Company's directors and officers and persons who own more than 10%
of the Company's Common Stock (collectively, "Insiders"), to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Insiders are required by Commission regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of copies of such forms received by the Company,
the Company believes that its Insiders have complied with all Section 16 filing
requirements applicable to them with respect to the Company's fiscal year ended
December 31, 2001.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued, for the
fiscal years ended December 31, 2001 and 2000 and 1999, for the Company's Chief
Executive Officer and four most highly compensated executive officers other than
its Chief Executive Officer, whose salary and bonus were in excess of $100,000
(the "Named Officers") who were employed by the Company on December 31, 2001.
29
Summary Compensation Table
Name and Annual Compensation
Principal Position Year Salary Bonus
------------------------------------------------------------------------------------------
Jeffrey M. Jagid 2001 $120,000 ---
Chief Executive Officer 2000 $119,500 ---
and General Counsel 1999 $114,500 $12,000
Kenneth S. Ehrman 2001 $120,000 ---
President and Chief Operating Officer 2000 $119,500 ---
1999 $114,500 $12,000
Michael L. Ehrman 2001 $108,000 ---
Executive Vice President 2000 $107,500 ---
1999 $109,000 $24,000
Ned Mavrommatis 2001 $100,000 ---
Chief Financial Officer and Treasurer 2000 $100,000 ---
1999(1) $34,000 ---
----------
(1) Mr. Mavrommatis joined the Company in August 1999. His annualized salary in
1999 would have been $100,000.
OPTION GRANTS IN 2000
During the year ended December 31, 2001, options to purchase shares of the
Company's common stock were granted under the Company's 1999 Employee Stock
Option Plan to the below named officers and directors in the amounts and at the
per share exercise price set forth opposite their names. All options vest in
equal installments over a five year period commencing on the first anniversary
of the date of grant.
30
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Granted Fiscal 2001 ($/Share) Date
------------------------------------------------------------------------------
Jeffrey M. Jagid 65,000 11.2% $5.67 11/1/11
Michael L. Ehrman 60,000 10.4% $5.67 11/1/11
Ned Mavrommatis 55,000 9.5% $5.67 11/1/11
Kenneth S. Ehrman 45,000 7.8% $5.67 11/1/11
OPTION VALUES
The following table sets forth the number and value of securities
underlying unexercised options that are held by the named executive officers as
of December 31, 2001. The value of unexercised in-the-money options is based on
the fair market value of our common stock on December 31, 2001 of $10.59, as
quoted on the Nasdaq SmallCap Market, minus the actual exercise price. None of
the named executive officers exercised options during the fiscal year ended
December 31, 2001.
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at December
December 31, 2001 31, 2001 ($)
------------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ------------ -------------
Jeffrey M. Jagid 236,875 181,250 2,128,811 1,029,608
Michael L. Ehrman 236,875 176,250 2,163,856 1,005,188
Ned Mavrommatis 30,000 135,000 185,823 755,292
Kenneth S. Ehrman 143,750 107,500 1,327,091 617,385
EMPLOYMENT AGREEMENTS
In June 1999 the Company entered into three-year employment agreements with
Kenneth Ehrman, Jeffrey Jagid and Michael Ehrman. Pursuant to the agreements,
Messrs. Kenneth Ehrman and Jagid are each entitled to base salaries of $108,000
and Mr. Michael Ehrman is entitled to a base salary of $96,000. Each employment
agreement also provides that the employee is entitled to a bonus as determined
by the board of directors, from time to time, and options under the Company's
1999 Stock Option Plan. Each employment agreement provides for a term of three
years and is renewable upon mutual consent.
The employment agreements may be terminated for cause and, in the event of
change in control of the Company, each employee is entitled to a lump sum
payment equal to the greater of one year's salary or the base salary and
benefits that would have been received by the employee if he had remained
employed by the Company the remainder of the three year term.
31
The employment agreements also contain confidentiality and non-competition
provisions prohibiting the employee from competing against the Company and
disclosing trade secrets and other proprietary information.
DIRECTOR COMPENSATION
The Company reimburses its directors for reasonable travel expenses
incurred in connection with their activities on behalf of the Company but does
not pay its directors any fees for board participation.
Non-employee directors are entitled to participate in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan has a term of ten years, unless terminated
sooner by the board. A total of 300,000 shares of common stock have been
reserved for issuance under this plan.
This plan provides for the automatic grant of 15,000 shares of common stock
to each non-employee director at the time he or she is first elected to the
board of directors. He or she will automatically be granted a subsequent option
to purchase 5,000 shares on the first day of each fiscal quarter, if on such
date he or she has served on the board for at least six months. Each option
grant under this plan will have a term of 10 years and will vest on a cumulative
monthly basis over a four-year period. The exercise price of all options will be
equal to the fair market value of the common stock on the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of common stock as of December 31, 2001:
o each person or entity who is known by the Company to beneficially owns
five percent or more of the common stock;
o each director and executive officer of the Company; and
o all directors and executive officers of the Company as a group.
NAME OF BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENTAGE(2)
-------------------------------------------------------------------------------
Jeffrey M. Jagid 489,125(3) 8.00%
Kenneth S. Ehrman 635,213(4) 10.56%
Michael L. Ehrman 333,400(5) 5.45%
Ned Mavrommatis 36,500(6) 0.62%
32
N. Bert Loosmore 567,114(7) 9.66%
Martin Rosansky 603,913(8) 10.13%
Lawrence Burstein 21,500(9) 0.37%
Beatrice Yormark 2,708(10) 0.05%
CQ Capital, LLC 538,200(11) 9.19%
Jack Silver 423,700(12) 7.20%
Adage Capital Partners, L.P. 375,000(13) 6.40%
All Directors and Executive Officers as a group
(8 persons) 2,689,473(14) 40.28%
----------
(1) Unless otherwise indicated, the address for each named individual or
group is in care of the Company, Inc., One University Plaza, 6th Floor
Hackensack, NJ 07601.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days after
December 31, 2001 upon the exercise of options, warrants or convertible
securities (in any case, the "Currently Exercisable Options"). Each beneficial
owner's percentage ownership is determined by assuming that the Currently
Exercisable Options that are held by such person (but not those held by any
other person) have been exercised and converted.
(3) Includes 251,875 shares of common stock underlying Currently Exercisable
Options granted to Mr. Jagid, pursuant to the Company's 1995 Employee Stock
Option Plan and 1999 Stock Option Plan.
(4) Includes 151,250 shares of common stock underlying Currently Exercisable
Options granted to Mr. Ehrman pursuant to the Company's 1995 Employee Stock
Option Plan and 1999 Stock Option Plan.
(5) Includes 251,875 shares of common stock underlying Currently Exercisable
Options granted to Mr. Ehrman pursuant to the Company's 1995 Employee Stock
Option Plan and 1999 Stock Option Plan.
(6) Includes 34,000 shares of common stock underlying Currently Exercisable
Options to Mr. Mavrommatis pursuant to the Company's 1999 Stock Option Plan.
33
(7) Includes 4,167 shares of common stock underlying Currently Exercisable
Options granted to Mr. Loosmore pursuant to the Company's 1999 Director Option
Plan.
(8) Includes 93,375 shares of common stock underlying Currently Exercisable
Options granted to Mr. Rosansky pursuant to the Company's 1995 Employee Stock
Option Plan and its 1999 Director Option Plan.
(9) Includes 21,500 shares of common stock underlying currently exercisable
options granted to Mr. Burstein pursuant to the Company's 1999 Director Option
Plan.
(10) Includes 2,708 shares of common stock underlying currently exercisable
options granted to Ms. Yormark pursuant to the Company's 1999 Director Option
Plan.
(11) Principal office is 65 Locust Avenue, Second Floor, New Canaan, Connecticut
06840. Includes 70,900 beneficially owned by E. Turner Baur, Managing Member of
CQ Partners, LLC.
(12) His address is 660 Madison Avenue, 15th Floor, New York, New York 10021.
(13) Principal office is 200 Clarendon Street, 52nd Floor, Boston, Massachusetts
02116.
(14) Includes 810,750 shares of common stock underlying Currently Exercisable
Options granted to such individuals pursuant to the Company's 1995 Employee
Stock Option Plan, 1999 Stock Option Plan and 1999 Directors Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith or are incorporated herein
by reference, as indicated.
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to the Company's
Form SB-2 filed with the Commission on June 30, 1999).
3.2 Amended and Restated By-Laws of the Company (incorporated
herein by Reference to the Company's Form SB-2 filed with the
Commission on June 30, 1999).
34
4.1 Specimen Certificate of the Company's Common Stock
(incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999).
4.2 Form of Underwriter's Warrant Agreement, including Form of
Warrant Certificate (incorporated herein by reference to the
Company's Form SB-2 filed with the Commission on June 30,
1999).
10.1 Agreement between the Registrant and the United States Postal
Service: Offer and Award Standard dated August 22, 1997, as
modified on May 12, 1998, September 8, 1998, and March 5, 1999
(incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999).
10.2 Federal Supply Service Information Technology schedule Award
effective April 16, 1999 through April 15, 2004 (incorporated
herein by reference to the Company's Form SB-2 filed with the
Commission on June 30, 1999).
10.3 Form of Employment Agreement between the Company and its
executive officers (incorporated herein by reference to the
Company's Form SB-2 filed with the Commission on June 30,
1999).
10.4 1995 Non-Qualified Stock Option Plan (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission
on June 30, 1999).
10.5 1999 Stock Option Plan (incorporated herein by reference to
the Company's Form SB-2 filed with the Commission on June 30,
1999).
10.6 Form of Indemnification Agreement (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission
on June 30, 1999).
10.7 1999 Director Option Plan (incorporated herein by reference to
the Company's Form SB-2 filed with the Commission on June 30,
1999).
10.8 Office Lease dated November 4, 1999 between the Company and
Venture Hackensack Holding, Inc.(incorporated herein by
reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999 filed with the
Commission on March 29, 2000)
23.1 Consent of Richard A. Eisner & Company, LLP
(b) REPORTS ON FORM 8-K
None.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: March 26, 2002
I.D. SYSTEMS, INC.
By: /s/ Jeffrey M. Jagid
-------------------------------------
Jeffrey M. Jagid
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Ned Mavrommatis
-------------------------------------
Ned Mavrommatis
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this Annual
Report on Form 10-KSB is signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Jeffrey M. Jagid Chief Executive Officer March 26, 2002
---------------------------------- and Director
Jeffrey M. Jagid
/s/ Kenneth S. Ehrman Chief Operating Officer March 26, 2002
---------------------------------- and Director
Kenneth S. Ehrman
/s/ Beatrice Yormark Director March 26, 2002
----------------------------------
Beatrice Yormark
/s/ Martin G. Rosansky Director March 26, 2002
----------------------------------
Martin G. Rosansky
/s/ Lawrence Burstein Director March 26, 2002
----------------------------------
Lawrence Burstein
/s/ N. Bert Loosmore Director March 25, 2002
----------------------------------
N. Bert Loosmore
36
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to the Company's
Form SB-2 filed with the Commission on June 30, 1999).
3.2 Amended and Restated By-Laws of the Company (incorporated
herein by Reference to the Company's Form SB-2 filed with the
Commission on June 30, 1999).
4.1 Specimen Certificate of the Company's Common Stock
(incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999).
4.2 Form of Underwriter's Warrant Agreement, including Form of
Warrant Certificate (incorporated herein by reference to the
Company's Form SB-2 filed with the Commission on June 30,
1999).
10.1 Agreement between the Registrant and the United States Postal
Service: Offer and Award Standard dated August 22, 1997, as
modified on May 12, 1998, September 8, 1998, and March 5, 1999
(incorporated herein by reference to the Company's Form SB-2
filed with the Commission on June 30, 1999).
10.2 Federal Supply Service Information Technology schedule Award
effective April 16, 1999 through April 15, 2004 (incorporated
herein by reference to the Company's Form SB-2 filed with the
Commission on June 30, 1999).
10.3 Form of Employment Agreement between the Company and its
executive officers (incorporated herein by reference to the
Company's Form SB-2 filed with the Commission on June 30,
1999).
10.4 1995 Non-Qualified Stock Option Plan (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission
on June 30, 1999).
10.5 1999 Stock Option Plan (incorporated herein by reference to
the Company's Form SB-2 filed with the Commission on June 30,
1999).
10.6 Form of Indemnification Agreement (incorporated herein by
reference to the Company's Form SB-2 filed with the Commission
on June 30, 1999).
10.7 1999 Director Option Plan (incorporated herein by reference to
the Company's Form SB-2 filed with the Commission on June 30,
1999).
E-1
10.8 Office Lease dated November 4, 1999 between the Company and
Venture Hackensack Holding, Inc.(incorporated herein by
reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999 filed with the
Commission on March 29, 2000)
23.1 Consent of Richard A. Eisner & Company, LLP
E-2