Unassociated Document
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: March 31,
2009
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period from ___________________________ to
____________________
|
|
Commission
File Number: 1-15087
|
(Exact
name of registrant as specified in its charter)
Delaware
|
22-3270799
|
(State or
other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
One University Plaza,
Hackensack, New
Jersey
|
07601
|
(Address of
principal executive offices)
|
(Zip
Code)
|
(201)
996-9000
(Issuer's
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 x 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.
Large
accelerated filer o Accelerated
filer x
Non-accelerated
filer o (Do not check if smaller
reporting company)
Smaller reporting company o
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
x
The number of shares of the
registrant’s Common Stock, $0.01 par value per share, outstanding as of the
close of business on May 7, 2009 was 10,912,534.
INDEX
I.D.
Systems, Inc.
PART
I - FINANCIAL INFORMATION
Item
1. |
Financial
Statements |
Page |
|
|
|
|
Condensed
Balance Sheets as of December 31, 2008
|
|
|
and
March 31, 2009 (unaudited)
|
1
|
|
|
|
|
Condensed
Statements of Operations (unaudited) -
|
|
|
for
the three months ended March 31, 2008 and 2009
|
2
|
|
|
|
|
Condensed
Statement of Changes in Stockholders’ Equity (unaudited) -
|
|
|
for
the three months ended March 31, 2009
|
3
|
|
|
|
|
Condensed
Statements of Cash Flows (unaudited) -
|
|
|
for
the three months ended March 31, 2008 and 2009
|
4
|
|
|
|
|
Notes
to Unaudited Condensed Financial Statements
|
5
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of
|
|
|
Financial
Condition and Results of Operations
|
14
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
|
|
|
Item
4.
|
Controls
and Procedures
|
22
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
Item
1a.
|
Risk
Factors
|
23
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
23
|
|
|
|
Item 6.
|
Exhibits
|
23
|
|
|
|
Signatures
|
24
|
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
I.D. Systems, Inc.
Condensed Balance Sheets
|
|
December 31, 2008 *
|
|
|
March 31,
2009
|
|
|
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,558,000 |
|
|
$ |
18,848,000 |
|
Restricted
cash
|
|
|
230,000 |
|
|
|
53,000 |
|
Investments
– short term
|
|
|
8,550,000 |
|
|
|
7,054,000 |
|
Accounts
receivable, net
|
|
|
8,245,000 |
|
|
|
5,483,000 |
|
Unbilled
receivables
|
|
|
168,000 |
|
|
|
200,000 |
|
Inventory,
net
|
|
|
3,273,000 |
|
|
|
4,488,000 |
|
Interest
receivable
|
|
|
217,000 |
|
|
|
185,000 |
|
Prepaid
expenses and other current assets
|
|
|
261,000 |
|
|
|
330,000 |
|
Total
current assets
|
|
|
33,502,000 |
|
|
|
36,641,000 |
|
|
|
|
|
|
|
|
|
|
Investments
– long term
|
|
|
34,911,000 |
|
|
|
40,950,000 |
|
Fixed
assets, net
|
|
|
1,050,000 |
|
|
|
1,110,000 |
|
Goodwill
|
|
|
200,000 |
|
|
|
200,000 |
|
Other
intangible assets
|
|
|
178,000 |
|
|
|
178,000 |
|
Other
assets
|
|
|
107,000 |
|
|
|
107,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
69,948,000 |
|
|
$ |
79,186,000 |
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
2,175,000 |
|
|
$ |
826,000 |
|
Line
of credit
|
|
|
- |
|
|
|
12,740,000 |
|
Deferred
revenue
|
|
|
424,000 |
|
|
|
822,000 |
|
Total
current liabilities
|
|
|
2,599,000 |
|
|
|
14,388,000 |
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
231,000 |
|
|
|
308,000 |
|
Deferred
rent
|
|
|
33,000 |
|
|
|
28,000 |
|
Total
liabilities
|
|
|
2,863,000 |
|
|
|
14,724,000 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock; authorized 5,000,000 shares, $.01 par value; none
issued
|
|
|
-- |
|
|
|
-- |
|
Common
stock; authorized 50,000,000 shares, $.01 par value; 12,082,000 and
12,122,000 shares issued at December 31, 2008 and March 31, 2009,
respectively, shares outstanding, 10,893,000 and 10,913,000 at December
31, 2008 and March 31, 2009, respectively.
|
|
|
120,000 |
|
|
|
120,000 |
|
Additional
paid-in capital
|
|
|
101,437,000 |
|
|
|
101,996,000 |
|
Accumulated
deficit
|
|
|
(23,667,000 |
) |
|
|
(26,739,000 |
) |
Accumulated
other comprehensive income
|
|
|
46,000 |
|
|
|
1,000 |
|
|
|
|
77,936,000 |
|
|
|
75,378,000 |
|
Treasury
stock; 1,189,000 shares and 1,209,000 shares at cost at December 31, 2008
and March 31, 2009, respectively
|
|
|
(10,851,000 |
) |
|
|
(10,916,000 |
) |
Total
stockholders’ equity
|
|
|
67,085,000 |
|
|
|
64,462,000 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
69,948,000 |
|
|
$ |
79,186,000 |
|
* Derived
from audited balance sheet as of December 31, 2008
I.D. Systems, Inc.
Condensed Statements of
Operations
(Unaudited)
|
|
Three months
ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Products
|
|
$ |
3,253,000 |
|
|
|
1,378,000 |
|
Services
|
|
|
1,075,000 |
|
|
|
1,556,000 |
|
|
|
|
4,328,000 |
|
|
|
2,934,000 |
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
Cost of
products
|
|
|
1,536,000 |
|
|
|
798,000 |
|
Cost of
services
|
|
|
680,000 |
|
|
|
547,000 |
|
|
|
|
2,216,000 |
|
|
|
1,345,000 |
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
2,112,000 |
|
|
|
1,589,000 |
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
4,261,000 |
|
|
|
4,211,000 |
|
Research and development
expenses
|
|
|
711,000 |
|
|
|
689,000 |
|
|
|
|
|
|
|
|
|
|
Loss from
operations
|
|
|
(2,860,000 |
) |
|
|
(3,311,000 |
) |
Interest
income
|
|
|
826,000 |
|
|
|
347,000 |
|
Other
expense
|
|
|
-- |
|
|
|
(108,000 |
) |
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,034,000 |
) |
|
$ |
(3,072,000 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share – basic
and
diluted
|
|
$ |
(0.19 |
) |
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding- basic and
diluted
|
|
|
10,881,000 |
|
|
|
10,895,000 |
|
I.D. Systems, Inc.
Condensed Statement of Changes in Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
12,082,000 |
|
|
$ |
120,000 |
|
|
$ |
101,437,000 |
|
|
$ |
(23,667,000 |
) |
|
$ |
46,000 |
|
|
$ |
(10,851,000 |
) |
|
$ |
67,085,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,072,000 |
) |
|
|
|
|
|
|
|
|
|
|
(3,072,000 |
) |
Comprehensive
loss - unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,000 |
) |
|
|
|
|
|
|
(45,000 |
) |
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,117,000 |
) |
Shares
withheld pursuant to issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of restricted and
performance stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,000 |
) |
|
|
(65,000 |
) |
Issuance
of restricted and performance stock
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation – restricted stock
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
Stock
based compensation - options
|
|
|
|
|
|
|
|
|
514,000 |
|
|
|
|
|
|
|
|
|
|
|
|
514,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009 (Unaudited)
|
|
|
12,122,000 |
|
|
$ |
120,000 |
|
|
$ |
101,996,000 |
|
|
$ |
(26,739,000 |
) |
|
$ |
1,000 |
|
|
$ |
(10,916,000 |
) |
|
$ |
64,462,000 |
|
I.D. Systems, Inc.
Condensed Statements of Cash
Flows
(Unaudited)
|
|
Three
months ended
March
31,
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,034,000 |
) |
|
$ |
(3,072,000 |
) |
Adjustments
to reconcile net loss to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Accrued
interest income
|
|
|
24,000 |
|
|
|
32,000 |
|
Stock-based
compensation expense
|
|
|
785,000 |
|
|
|
559,000 |
|
Depreciation
and amortization
|
|
|
140,000 |
|
|
|
138,000 |
|
Change
in fair value of investments
|
|
|
-- |
|
|
|
108,000 |
|
Deferred
rent expense
|
|
|
(5,000 |
) |
|
|
(5,000 |
) |
Deferred
revenue
|
|
|
(50,000 |
) |
|
|
475,000 |
|
Changes
in:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
-- |
|
|
|
177,000 |
|
Accounts
receivable
|
|
|
(523,000 |
) |
|
|
2,762,000 |
|
Unbilled
receivables
|
|
|
(1,271,000 |
) |
|
|
(32,000 |
) |
Inventory
|
|
|
831,000 |
|
|
|
(1,215,000 |
) |
Prepaid
expenses and other assets
|
|
|
87,000 |
|
|
|
(69,000 |
) |
Accounts
payable and accrued expenses
|
|
|
(1,565,000 |
) |
|
|
(1,414,000 |
) |
Net
cash used in operating activities
|
|
|
(3,581,000 |
) |
|
|
(1,556,000 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(40,000 |
) |
|
|
(198,000 |
) |
Purchase
of investments
|
|
|
(2,350,000 |
) |
|
|
(16,474,000 |
) |
Maturities
of investments
|
|
|
19,692,000 |
|
|
|
11,778,000 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
17,302,000 |
|
|
|
(4,894,000 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of term loan
|
|
|
(19,000 |
) |
|
|
-- |
|
Proceeds
from exercise of stock options
|
|
|
7,000 |
|
|
|
-- |
|
Purchase
of treasury shares
|
|
|
(2,310,000 |
) |
|
|
-- |
|
Borrowing
on line of credit
|
|
|
-- |
|
|
|
12,900,000 |
|
Principal
payments on line of credit
|
|
|
-- |
|
|
|
(160,000 |
) |
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(2,322,000 |
) |
|
|
12,740,000 |
|
Net
increase in cash and cash equivalents
|
|
|
11,399,000 |
|
|
|
6,290,000 |
|
Cash
and cash equivalents - beginning of period
|
|
|
5,103,000 |
|
|
|
12,558,000 |
|
Cash
and cash equivalents - end of period
|
|
$ |
16,502,000 |
|
|
|
18,848,000 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
-- |
|
|
$ |
-- |
|
Noncash
activities:
|
|
|
|
|
|
|
|
|
Unrealized
loss on investments
|
|
$ |
(1,034,000 |
)
|
|
$ |
(45,000 |
)
|
Shares
withheld pursuant to stock issuance
|
|
$ |
424,000 |
|
|
$ |
65,000 |
|
I.D.
Systems, Inc.
Notes to
Unaudited Condensed Financial Statements
March 31,
2009
NOTE
A - Basis of Reporting
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
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 accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion
of management, such statements include all adjustments (consisting only of
normal recurring items) which are considered necessary for a fair presentation
of the financial position of I.D. Systems, Inc. (the "Company") as of March 31,
2009, the results of its operations for the three month periods ended March 31,
2008 and 2009, the change in stockholders equity for the three months ended
March 31, 2009 and cash flows for the three-month periods ended March 31, 2008
and 2009. The results of operations for the three-month period ended
March 31, 2009 are not necessarily indicative of the operating results for the
full year. It is suggested that these financial statements be read in
conjunction with the financial statements and related disclosures for the year
ended December 31, 2008 included in the Company's Annual Report on Form
10-K.
NOTE
B – 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 Company’s cash and cash equivalent
balances exceed FDIC limits.
NOTE
C – Investments
The Company’s investments include debt
securities, government and state agency bonds, corporate bonds and auction
rate certificates, which are classified as either available for sale, held to
maturity or trading, depending on management’s 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, the Company reported an unrealized loss of $45,000 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 Company’s investments include
auction rate securities (“ARS”) and an auction rate securities right (“ARSR”)
described below.
The Company has classified its ARS
investments as trading securities as set forth in Statement of Financial
Accounting Standards (“SFAS”) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities,” and has elected to account for its ARSR
investment using the provisions of SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities.” Trading securities are carried at
fair value, with unrealized holding gains and losses included in other income
(expense) on the Company’s statements of operations.
At March 31, 2009, the Company held
approximately $20.4 million par value in ARS ($19.9 million fair value
including the ARSR, which was valued at $1.8 million at March 31, 2009). 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. In February 2008 and continuing in
2009, these securities failed to sell at auction. These failed auctions
represent liquidity risk exposure and are not defaults or credit
events. As holder of the securities, the Company continues to
receive interest on the ARS, 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.
The Company purchased all of the ARS it
holds from UBS. 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 of the
Company's ARS at a future date (any time during a two-year period beginning
June 30, 2010). The Offer also included a commitment from UBS 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. The Offer was non-transferable and expired on
November 14, 2008. During 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 Company’s ARS and granted UBS the right to purchase the Company's
ARS at any time for full
par value.
The Company’s right under the ARSR
is in substance a put option with the strike price equal to the par value of the
ARS. The Company records this right as an asset and measures it at
fair value under SFAS No. 159, with the resultant gain or loss recognized in
earnings. Pursuant to SFAS No. 159, the Company recognized a loss in the statement of operations for
the three months ended March 31, 2009 in the amount of $168,000 as a result of
valuing the ARSR. The Company has classified the ARS as trading
securities. For the three months ended March 31, 2009, the $60,000 increase in fair value of the
ARS was recognized in earnings. The net charge to operations for the
three months ended March 31, 2009 was $108,000 which was included in other
expense. The fair value of the ARSR was based on an approach in which
the present value of all expected future cash flows were 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 Company's
auction rate securities 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 Company's 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 Company's investment in ARS, other than claims for consequential
damages.
NOTE
D – Inventory
Inventory, which primarily consists of
finished goods and components used in the Company’s products, is stated at the
lower of cost using the first-in first-out method or market.
NOTE
E – Unbilled Receivables and Deferred Revenue
Under
certain customer contracts, the Company invoices progress billings once certain
milestones are met. As the systems are delivered, and services are performed and
all of the criteria for revenue recognition are satisfied, the Company
recognizes revenue. If the amount of revenue recognized for financial reporting
purposes is greater than the amount invoiced, an unbilled receivable is
recorded. If the amount invoiced is greater than the amount of revenue
recognized for financial reporting purposes, deferred revenue is recorded. At
December 31, 2008 and March 31, 2009, unbilled receivables were $168,000 and
$200,000, respectively, and deferred revenue was $655,000 and $1,130,000,
respectively.
NOTE F – Goodwill and Intangible
Assets
On April 18, 2008, the Company acquired
the assets of PowerKey, the industrial vehicle monitoring products division of
International Electronics, Inc., a manufacturer of access control and security
equipment, for approximately $573,000, which includes approximately $73,000 of
direct acquisition costs. The tangible assets acquired include inventory
(totaling approximately $191,000), and fixed assets (totaling approximately
$4,000).
Allocation of the purchase price of the
intangible assets consists of the following: goodwill (totaling approximately
$200,000), trademarks and trade names (totaling approximately $74,000), and a
customer list (totaling approximately $104,000) resulting from the acquisition
of PowerKey are carried at cost. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company will test the goodwill and
intangible assets on an annual basis in the fourth quarter or more frequently if
the Company believes indicators of impairment exist.
At December 31, 2008, the Company
determined that no impairment existed to the goodwill, customer list and
trademark and trade name, its acquired intangible assets. The Company also
determined that the use of indefinite lives for the customer list and trademark
and trade name remains applicable at December 31, 2008 and the Company expects
to derive future benefits from these intangible assets. As of March 31, 2009,
there were no indications of impairment.
NOTE
G - Net Loss Per Share of Common Stock
Net
loss per share is as follows:
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,034,000 |
) |
|
$ |
(3,072,000 |
) |
Weighted
average shares outstanding
|
|
|
10,881,000 |
|
|
|
10,895,000 |
|
Basic
and diluted net loss per share
|
|
$ |
(0.19 |
) |
|
$ |
(0.28 |
) |
Basic
income per share is based on the weighted average number of common shares
outstanding during each period. Diluted income 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 under the treasury stock method. For the three months
ended March 31, 2008 and 2009, the basic and diluted weighted average shares
outstanding were the same since the effect from the potential exercise of
outstanding stock options would have been anti-dilutive.
NOTE
H – Revenue
Recognition
The Company's revenues are derived from
contracts with multiple element arrangements, which include the Company's
system, training and technical support. Revenue 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 Company's
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 when the system has been delivered, persuasive
evidence of an arrangement exists, sales price is fixed and determinable,
collectability is reasonably assured and contractual obligations have been
satisfied. Training and technical support revenue are generally recognized at
time of performance.
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.
NOTE
I – Stock-based Compensation Plans
The
Company adopted the 1995 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 and the 2008
Equity Compensation Plan, pursuant to which the Company may grant stock awards
and options to purchase up to 2,813,000 and 2,000,000 shares, respectively, of
common stock. The Company also adopted the 1999 Director Option Plan, pursuant
to which the Company may grant options to purchase up to an aggregate of 600,000
shares of common stock. The plans are administered by the
Compensation Committee of the Company’s Board of Directors, which has the
authority to determine, among other things, the term during which an option may
be exercised (not more than 10 years), the exercise price of an option and the
vesting provisions.
The
Company accounts for stock-based employee compensation under SFAS No. 123(R),
“Share-Based Payment”
which requires all share based payments, including grants of stock options, to
be recognized 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 $785,000 and $559,000 in stock-based compensation expense for the three
month periods ended March 31, 2008 and 2009, respectively.
The
following table summarizes the activity of the Company’s stock options for the
three months ended March 31, 2009:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
2,601,000 |
|
|
$ |
9.81 |
|
|
|
|
|
Granted
|
|
|
20,000 |
|
|
|
3.94 |
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Forfeited
|
|
|
(25,000 |
) |
|
|
9.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of period
|
|
|
2,596,000 |
|
|
$ |
9.77 |
|
6
years
|
|
$ |
74,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of period
|
|
|
1,722,000 |
|
|
$ |
9.60 |
|
5
years
|
|
$ |
72,000 |
|
As of
March 31, 2009, there was approximately $4,113,000 of unrecognized compensation
cost related to non-vested options granted under the plans. That cost is
expected to be recognized over a weighted average period of 1.91
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
|
|
|
|
2008
|
|
|
2009
|
|
Volatility
|
|
|
74 |
% |
|
|
58 |
% |
Expected
life of options
|
|
5
years
|
|
|
5
years
|
|
Risk
free interest rate
|
|
|
3 |
% |
|
|
2 |
% |
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
Expected
volatility is based on historical volatility of the Company’s 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, 2008 and 2009 was $5.11 and $1.87, respectively. The total intrinsic
value of options exercised during the three months ended March 31, 2008 and 2009
was $4,000 and $-0-, respectively.
Under
SFAS No. 123(R), forfeitures are estimated at the time of valuation and reduce
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
J – 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 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 reduced the Company’s obligation to
$12,740,000 at March 31, 2009. This line of credit facility is payable on
demand.
NOTE
K – Restricted Stock
As of
March 31, 2009, there were 10,500 shares of unvested restricted stock that were
outstanding and granted to executive officers, pursuant to the 1999 Stock Option
Plan, as amended and restated effective April 20, 2005. The plan is administered
by the Compensation Committee, which has the authority to determine the terms of
those shares. For the period ended March 31, 2009, the Company recorded $45,000
of stock-based compensation expense in connection with the restricted stock
grants. As of March 31, 2009, there was $65,000 of total unrecognized
compensation cost related to non-vested shares. That cost is expected to be
recognized over the next two years.
NOTE
L – 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, 2009, 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
M - Concentration of Customers and Vendors
Three
customers accounted for 37%, 22%, and 12% of the Company’s revenue during the
three-month period ended March 31, 2009. Two of these customers accounted for
over 51% and 16% of the Company’s accounts receivable and unbilled receivables
as of March 31, 2009.
One
customer accounted for 83% of the Company’s revenue during the three-month
period ended March 31, 2008. This same customer accounted for 84% of
the Company’s accounts receivable and unbilled receivables as of March 31,
2008.
NOTE
N – Stock Repurchase Program
On May 3,
2008, 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 share repurchase program
established under Rule 10b-18 of 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 Company’s
management. The repurchases are funded from the Company’s working
capital. The Company’s share repurchase program does not have an
expiration date, and it may discontinue or suspend the share repurchase program
at any time. All shares of common stock repurchased under
the Company’s share repurchase program are held as treasury stock. As of March
31, 2009, the Company has purchased approximately 1,075,000 shares in open
market transactions under the program for approximately $9,970,000 or at an
average cost of $9.27 per share.
NOTE
O - Comprehensive Loss
Comprehensive
loss includes net loss and unrealized losses on available-for-sale marketable
securities. Cumulative unrealized gains and losses on available-for-sale
marketable securities are reflected as accumulated other comprehensive loss in
stockholders’ equity on the Company’s balance sheet. For the three months
ended March 31, 2009, comprehensive loss was $3,117,000 which includes a
net loss of $3,072,000 and an unrealized loss on available-for-sale marketable
securities of $45,000.
NOTE
P - Use of Estimates
The
preparation of financial statements in conformity with GAAP requires the use of
estimates and assumptions by management that affect reported amounts of assets
and liabilities and disclosures 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 most significant estimates relate to
stock-based compensation arrangements and the fair value of our investments in
auction rate securities and auction rate securities right (See Note R –Fair
Value Measurements). Actual results could differ from these
estimates.
NOTE
Q - Commitments and Contingencies
The
Company is not currently subject to any material legal proceedings, nor to
management’s knowledge is any material legal proceeding threatened against the
Company.
NOTE R - Fair Value
Measurements
On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”) for financial assets and liabilities. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This standard does not require any new fair value
measurements, but rather applies to all other accounting pronouncements that
require or permit fair value measures. The adoption of SFAS No. 157 did not
significantly change the
Company’s valuation of
assets or liabilities. In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”)
No. 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays
the effective date of SFAS No. 157 for all non-recurring nonfinancial
assets and nonfinancial liabilities to fiscal years beginning after
November 15, 2008.
SFAS No. 157 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 entity’s own
assumptions.
|
The Company’s implementation of SFAS No. 157 for financial assets and liabilities
on January 1, 2008, had no effect on its existing
fair-value measurement practices but requires disclosure of a fair-value
hierarchy of inputs the Company uses to value an asset or a
liability. The following table summarizes the bases used by the Company’s broker dealer
to measure certain assets
and liabilities at fair value on a recurring basis in the balance
sheet:
|
|
Balance at
March 31,
|
|
|
Basis of Fair Value Measurements
|
|
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities – short
term
|
|
$ |
7,054,000 |
|
|
$ |
7,054,000 |
|
|
$ |
— |
|
|
$ |
— |
|
Marketable securities – long
term
|
|
|
40,950,000 |
|
|
|
20,970,000 |
|
|
|
— |
|
|
|
19,980,000 |
|
|
|
$ |
48,004,000 |
|
|
$ |
28,024,000 |
|
|
$ |
— |
|
|
$ |
19,980,000 |
|
The table
below includes a roll forward of the Company’s investments in ARS and the ARSR
from January 1, 2009 to March 31, 2009:
Fair
value, January 1, 2009
|
|
$ |
20,088,000 |
|
Unrealized
loss included in statement of operations
|
|
|
(108,000 |
) |
Fair
value, March 31, 2009
|
|
$ |
19,980,000 |
|
NOTE
S – Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. This statement relating to financial assets is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of SFAS 157 did not have a material
impact on our financial statements. The provisions of SFAS 157
related to other non-financial assets and liabilities were effective on January
1, 2009, and are being applied prospectively. The adoption of these
additional SFAS 157 provisions did not have any impact on the Company’s
financial statements.
In June 2008, the FASB issued Staff
Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP EITF 03-6-1”), which is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. FSP EITF 03-6-1 clarifies that share-based payment awards
that entitle holders to receive non-forfeitable dividends before they vest will
be considered participating securities and included in the basic earning per
share calculation. The adoption of FSP EITF 03-6-1 did not have any
effect on the Company’s financial statements.
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141R, Business Combinations. This Statement replaces FASB SFAS No. 141. SFAS
141R establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. In April 2009, the FASB issued
FSP 141(R)-1 which modified the guidance in SFAS No. 141R related to contingent
assets and liabilities. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The effect of these changes will be applicable to acquisitions after
January 1, 2009.
In April 2008, the FASB issued FSP FAS
142-3, “Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”).
FSP FAS 142-3 amends the factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets”.
This guidance for determining the useful life of a recognized intangible asset
applies prospectively to intangible assets acquired individually or with a group
of other assets in either an asset acquisition or business combination. FSP FAS
142-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008, earlier adoption is
prohibited. The adoption of FSP FAS 142-3 did not have any effect on
the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. This Statement
amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. In addition to the amendments to ARB
51, this Statement amends FASB Statement No. 128, Earnings per Share; so that
earnings-per-share data will continue to be calculated the same way those data
were calculated before this Statement was issued. This Statement is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The adoption of this pronouncement did not
have any impact on the Company’s financial statements.
In March 2008, the FASB issued SFAS No.
161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS
161”). This new standard enhances disclosure requirements for derivative
instruments in order to provide users of financial statements with an enhanced
understanding of (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” and its
related interpretations, and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. SFAS 161 is to be applied prospectively for the first annual reporting
period beginning on or after November 15, 2008. The Company believes that the
adoption of SFAS 161 will not have a material impact on the Company’s financial
statement disclosures since the Company does not have any derivative
instruments.
On April 9, 2009, the FASB
simultaneously issued the following three FSPs:
|
·
|
FSP FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly,
provides additional guidance to companies for determining fair values of
financial instruments for which there is no active market or quoted prices
may represent distressed transactions. The guidance includes a
reaffirmation of the need to use judgment in certain
circumstances.
|
|
·
|
FSP FAS 107-1 and APB 28-1,
Interim
Disclosures about Fair Value of Financial Instruments, requires companies to provide
additional fair value information for certain financial instruments in
interim financial statements, similar to what is currently required to be
disclosed on an annual basis
|
|
·
|
FSP FAS 115-2, FAS 124-2, and EITF
99-20-2, Recognition
and Presentation of Other-Than-Temporary Impairments, amends the existing guidance
regarding impairments for investments in debt
securities. Specifically, it changes how companies determine if
an impairment is considered to be other-than-temporary and the related
accounting. This standard also provides for increased
disclosures.
|
These
FSPs apply to both interim and annual periods and will be effective for us
beginning April 1, 2009. We have evaluated these standards and
believe they will have no impact on our financial condition and results of
operations.
NOTE
T - Reclassifications
Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion and analysis of the financial condition and results of
operations of I.D. Systems, Inc. (the “Company,” “we” or
“us”) should be read in conjunction with the condensed financial statements and
notes thereto appearing elsewhere herein.
This
report contains various forward-looking statements made pursuant to the safe
harbor provisions under the Private Securities Litigation Reform Act of 1995
(the “Reform Act”) and information that is based on management’s 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
Company’s 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
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008
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. The Company undertakes no
obligation, and expressly disclaims any obligation, to publicly release the
results on 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, 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 Company’s website address is
www.id-systems.com. The information contained in this website is not
incorporated by reference in this report.
In the
following discussions, most percentages and dollar amounts have been rounded to
aid presentation, and accordingly, all amounts are approximations.
Overview
The
Company develops, markets and sells wireless solutions for managing and securing
high-value enterprise assets. These assets include industrial vehicles, such as
forklifts and airport ground support equipment, and rental vehicles. Our
patented Wireless Asset Net system, which utilizes RFID technology, 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 sell
our system to both executive and division-level management. Typically, our
initial system deployment serves as a basis for potential expansion across the
customer’s organization. We work closely with customers to help
maximize the utilization and benefits of our system and demonstrate the value of
enterprise-wide deployments.
During
the three months ended March 31, 2009, we generated revenues of $2.9 million,
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. During the
three months ended March 31, 2008, we generated revenues of $4.3 million, and
the U.S. Postal Service accounted for 83% of our revenues.
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.
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 customer’s 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 customer’s
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 revenue 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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·
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increase
sales of products and services to our existing
customers;
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·
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convert
our initial programs into larger or enterprise-wide purchases by our
customers;
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·
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increase
market acceptance and penetration of our products; and
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·
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develop
and commercialize new products and
technologies.
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Critical
Accounting Policies
For the
three months ended March 31, 2009, there were no changes to the Company’s
critical accounting policies as identified in its Annual Report on Form 10-K for
the year ended December 31, 2008.
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
March
31,
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|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Products
|
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|
75.2 |
% |
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47.0 |
% |
Services
|
|
|
24.8 |
|
|
|
53.0 |
|
|
|
|
100.0 |
|
|
|
100.0 |
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Cost
of Revenues:
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|
|
|
|
|
|
|
|
Cost
of products
|
|
|
35.5 |
|
|
|
27.2 |
|
Cost
of services
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|
15.7 |
|
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|
18.6 |
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|
|
|
|
|
|
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|
Gross
Profit
|
|
|
48.8 |
|
|
|
54.2 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
98.5 |
|
|
|
143.5 |
|
Research
and development expenses
|
|
|
16.4 |
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(66.1 |
) |
|
|
(112.9 |
) |
Net
interest income
|
|
|
19.1 |
|
|
|
11.8 |
|
Other
income
|
|
|
-- |
|
|
|
(3.7 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(47.0 |
)% |
|
|
(104.7 |
)% |
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
REVENUES. Revenues decreased
by $1.4 million, or 32.2%, to $2.9 million in the three months ended March 31,
2009.
Revenues
from products decreased by $1.9 million or 57.6%, to $1.4 million in the three
months ended March 31, 2009 from $3.3 million in the same period in 2008. The
decrease in revenues was attributable to the decrease in the amount of orders
received from the United States Postal Service partially offset by an increase
in revenue from other customers. Revenue from the United States Postal Service
decreased by $2.5 million in the three months ended March 31, 2009, compared to
the three months ended March 31, 2008.
Revenues
from services increased by $481,000 or 44.7%, to $1.6 million in the three
months ended March 31, 2009 from $1.1 million in the same period in 2008. The
increase in service revenue is primarily attributable to more implementation
services rendered, increased service revenue rates on a new contract, and
increased maintenance revenue.
COST OF REVENUES. Cost of
revenues decreased by $871,000, or 39.3%, to $1.3 million in the three months
ended March 31, 2009 from $2.2 million for the same period in 2008. The decrease
is attributable to the decrease in revenue in 2009. Gross profit was $1.6
million in 2009 compared to $2.1 million in 2008. As a percentage of revenues,
gross profit increased to 54.2% in 2009 from 48.8% in 2008. The gross margin increase
was attributable to an increased gross margin on service revenue due to a
combination of increased maintenance revenue which has higher margins than
implementation services and the effect of a renewed contract with increased
rates for services.
Cost of
products decreased by $738,000, or 48.0%, to $798,000 in the three months ended
March 31, 2009 from $1.5 million in the same period in 2008. Gross profit was
$580,000 in 2009 compared to $1.7 million in 2008. As a percentage of product
revenues, gross profit decreased to 42.0% in 2009 from 52.8% in 2008. During
2009, approximately $96,000 of non-customer specific materials and obsolete
inventory sold for a minimal amount (not previously reserved for) negatively
impacted the margin for products for the three months ended March 31,
2009.
Cost of
services decreased by $133,000, or 19.6%, to $547,000 in the three months ended
March 31, 2009 from $680,000 in the same period in 2008. Gross profit was $1.0
million in 2009 compared to $395,000 in 2008. As a percentage of service
revenues, gross profit increased to 64.8% in 2009 from 36.7% in
2008. An increase in maintenance service revenue of $106,000 in the
first quarter of 2009 as compared to the same period in 2008 partially added to
the increased gross margin since maintenance revenue has a higher gross margin
than implementation services. In addition, the effect of a renewed contract with
increased revenue rates for services also provided for increased gross profit on
service revenue.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES. Selling, general and administrative expenses decreased by
$50,000, or 1.2%, to $4.2 million in the three months ended March 31, 2009
compared to $4.3 million in the same period in 2008. This decrease was
negligible and cannot be attributed to any specific expense item. As a
percentage of revenues, selling, general and administrative expenses increased
to 143.5% in the three months ended March 31, 2009 from 98.5% in the same period
in 2008 primarily due to the decrease in revenue in the three months ended March
31, 2009. During April of 2009, we reduced our workforce by approximately ten
percent. The reduction is expected to yield annual cost savings of approximately
$1.0 million. The reductions were not in the area of sales and marketing, as we
want to continue to invest in growth opportunities.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased by $22,000, to $689,000 in
the three months ended March 31, 2009 from $711,000 in the same period in 2008.
As a percentage of revenues, research and development expenses increased to
23.5% in the three months ended March 31, 2009 from 16.4% in the same period in
2008 due primarily to a decrease in revenue in the three months ended March 31,
2009.
INTEREST INCOME. Interest
income decreased by $479,000 to $347,000 in the three months ended March 31,
2009 from $826,000 in the same period in 2008. This decrease was attributable
primarily to the decrease in the rate of interest earned on the Company’s
various investments.
OTHER
EXPENSE. Other expense of $108,000 in the three months ended
March 31, 2008 reflects the change in the fair value of the Company’s investment
in auction rate securities and the auction rate security rights.
NET LOSS. Net loss was $3.1
million or $(0.28) per basic and diluted share for the three months ended March
31, 2009 as compared to net loss of $2.0 million or $(0.19) per basic and
diluted share for the same period in 2008. The increase in net loss was due
primarily to the reasons described above.
Liquidity
and Capital Resources
Historically,
except in the first quarter of 2009 with respect to our line of credit
borrowing, the Company’s 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 and from cash flows
generated from operations. As of March 31, 2009, the Company had cash and
marketable securities of $66.9 million and working capital of $22.3 million
compared to $56.0 million and $30.1 million, respectively, as of December 31,
2008.
Operating
Activities:
Net cash
used in operating activities was $1.6 million for the three months ended March
31, 2009 compared to net cash used by operating activities of $3.6 million for
the same period in 2008. The change was due primarily to a decrease in accounts
receivable of $2.8 million and an increase in deferred revenue of $475,000
partially offset by an increase in inventory of $1.2 million.
Investing
Activities:
Net cash
used by investing activities was $4.9 million for the three months ended March
31, 2009 compared to net cash provided by investing activities of $17.3 million
for the same period in 2008. The decrease was due primarily to an increase in
the purchase of investments which was partially offset by a decrease in
maturities of investments.
Financing
Activities:
Net cash
provided in financing activities was $12.7 million for the three months ended
March 31, 2009 compared to net cash used in financing activities of $2.3 million
for the same period in 2008. The increase was due to the borrowing of $12.9
million from the UBS line of credit facility.
Capital
Requirements
The
Company believes that with the cash it has on hand it will have sufficient funds
available to cover its working capital requirements as well complete its stock
repurchase program for at least the next 12 months.
The
Company’s working 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 its 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 the Company’s business,
financial condition and results of operations. The Company may determine in the
future that it requires additional funds to meet its long-term strategic
objectives, including completion of potential acquisitions. Any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may involve significant restrictive covenants, and the Company cannot
make any assurances you that such financing will be extended on terms acceptable
to it or at all.
At March 31, 2009, the Company held
approximately $20.4 million par value in auction rate securities
(“ARS”) ($19.9
million fair value including the ARSR described below, which was valued at $1.8
million at March 31, 2009). 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. In February 2008 and continuing in 2009,
these securities failed to sell at auction. These failed auctions represent
liquidity risk exposure and are not defaults or credit events. As
holder of the securities, the Company continues to receive interest on the
ARS.
The Company purchased all of the ARS it
holds from UBS. In October 2008, the Company received an 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 Company’s ARS and granted UBS the right to purchase the Company's ARS at any
time for full par value.
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 reduced this obligation to
$12,740,000 at March 31, 2009. This line of credit facility is
payable on demand. The Company will be paying interest on this obligation based
upon the methodology described above, which will partially offset interest
earned on the underlying ARS.
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 Company's
auction rate securities 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 Company's auction rate securities 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 auction rate securities rights, 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 Company's investment in auction
rate securities, other than claims for consequential
damages.
Impact
of Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. This statement relating to financial assets is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of SFAS 157 did not have a material
impact on our financial statements. The provisions of SFAS 157
related to other non-financial assets and liabilities were effective on January
1, 2009, and are being applied prospectively. The adoption of these
additional SFAS 157 provisions did not have any impact on the Company’s
financial statements.
In June 2008, the FASB issued Staff
Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP EITF 03-6-1”), which is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. FSP EITF 03-6-1 clarifies that share-based payment awards
that entitle holders to receive non-forfeitable dividends before they vest will
be considered participating securities and included in the basic earning per
share calculation. The adoption of FSP EITF 03-6-1 did not have any
effect on the Company’s financial statements.
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141R, Business Combinations. This Statement replaces FASB SFAS No. 141. SFAS
141R establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. In April 2009, the FASB issued
FSP 141(R)-1 which modified the guidance in SFAS No. 141R related to contingent
assets and liabilities. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The effect of these changes will be applicable to acquisitions after
January 1, 2009.
In April 2008, the FASB issued FSP FAS
142-3, “Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”).
FSP FAS 142-3 amends the factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets”.
This guidance for determining the useful life of a recognized intangible asset
applies prospectively to intangible assets acquired individually or with a group
of other assets in either an asset acquisition or business combination. FSP FAS
142-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008, earlier adoption is
prohibited. The adoption of FSP FAS 142-3 did not have any effect on
the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. This Statement
amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. In addition to the amendments to ARB
51, this Statement amends FASB Statement No. 128, Earnings per Share; so that
earnings-per-share data will continue to be calculated the same way those data
were calculated before this Statement was issued. This Statement is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The adoption of this pronouncement did not
have any impact on the Company’s financial statements.
In March 2008, the FASB issued SFAS No.
161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS
161”). This new standard enhances disclosure requirements for derivative
instruments in order to provide users of financial statements with an enhanced
understanding of (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” and its
related interpretations, and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. SFAS 161 is to be applied prospectively for the first annual reporting
period beginning on or after November 15, 2008. The Company believes that the
adoption of SFAS 161 will not have a material impact on the Company’s financial
statement disclosures since the Company does not have any derivative
instruments.
On April 9, 2009, the FASB
simultaneously issued the following three FSPs:
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·
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FSP FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly,
provides additional guidance to companies for determining fair values of
financial instruments for which there is no active market or quoted prices
may represent distressed transactions. The guidance includes a
reaffirmation of the need to use judgment in certain
circumstances.
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·
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FSP FAS 107-1 and APB 28-1,
Interim
Disclosures about Fair Value of Financial Instruments, requires companies to provide
additional fair value information for certain financial instruments in
interim financial statements, similar to what is currently required to be
disclosed on an annual basis
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|
·
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FSP FAS 115-2, FAS 124-2, and EITF
99-20-2, Recognition
and Presentation of Other-Than-Temporary Impairments, amends the existing guidance
regarding impairments for investments in debt
securities. Specifically, it changes how companies determine if
an impairment is considered to be other-than-temporary and the related
accounting. This standard also provides for increased
disclosures.
|
These
FSPs apply to both interim and annual periods and will be effective for us
beginning April 1, 2009. We have evaluated these standards and
believe they will have no impact on our financial condition and results of
operations.
Item
3. 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, 2009, we had cash, cash equivalents and marketable securities of $66.9
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, 2009, 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 the 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 worsen.
At March 31, 2009, the Company held approximately $20.4
million par value in ARS ($19.9 million fair value including the ARSR, which was
valued at $1.8 million at March 31, 2009). 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. In February 2008 and continuing in 2009, these securities
failed to sell at auction. These failed auctions represent liquidity risk
exposure and are not defaults or credit events. As holder of the
securities, the Company continues to receive interest on the ARS, 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.
The Company puchased all of the ARS it
holds from UBS. In October 2008, the Company received an offer (the “Offer”)
from UBS for a put right (the “ARSR”) permitting the Company to sell
all of its ARS to UBS at par value 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. The Offer was non-transferable and expired on
November 14, 2008. During 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 Company's ARS
at any time for full par value.
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 Company's
auction rate securities 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 Company's auction rate securities 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 auction rate securities rights, 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 Company's investment in auction
rate securities, other than claims for consequential
damages.
Item
4. Controls And Procedures
a.
|
Disclosure
controls and procedures.
|
During the first three months of 2009,
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. 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 Securities and Exchange Commission’s 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, 2009, 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,
2009 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
Securities and Exchange Commission 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.
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Changes
in internal controls over financial
reporting.
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There have been no changes in our
internal control over financial reporting that occurred during the quarter ended
March 31, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1a. Risk Factors
There were no material changes in any
risk factors previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2008 filed with the Securities and Exchange Commission on
March 14, 2009.
Item
2. 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 Company’s 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 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 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-month period ended March 31, 2009.
Item
6. Exhibits
The
following exhibits are filed with this Quarterly Report on Form
10-Q:
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.
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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 11, 2009
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By:
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/s/ Jeffrey
M. Jagid |
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Jeffrey
M. Jagid |
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Chief
Executive Officer
(Principal
Executive Officer)
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Dated:
May 11, 2009
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By:
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/s/ Ned
Mavrommatis |
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Ned
Mavrommatis |
|
|
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Chief
Financial Officer
(Principal
Financial Officer)
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