ID SYSTEMS INC - FORM 8-K/A - EX-99.4

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8-K/A - ID SYSTEMS INC	v174201_8ka.htm
EX-99.2 - ID SYSTEMS INC	v174201_ex99-2.htm
EX-99.3 - ID SYSTEMS INC	v174201_ex99-3.htm
EX-23.1 - ID SYSTEMS INC	v174201_ex23-1.htm

Exhibit 99.4

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

Effective January 7, 2010, I.D. Systems, Inc. (“I.D. Systems”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with General Electric Capital Corporation and GE Asset Intelligence, LLC (“GEAI”), pursuant to which I.D. Systems acquired GEAI’s telematics business (the “Business”) through the purchase of 100% of the membership interests of Asset Intelligence, LLC (the “Target”), a newly formed, wholly owned subsidiary of GEAI into which substantially all of the assets, including intellectual property, and liabilities of the Business had been transferred immediately prior to the closing. Effective with the closing of the transaction, the Target became a wholly owned subsidiary of I.D. Systems. In connection with the transaction, the Target offered employment to all of the former employees of the Business. Under the terms of the Purchase Agreement, I.D. Systems paid consideration of $15 million in cash at closing. In addition, I.D. Systems may be required to pay additional cash consideration of up to $2 million in or about February 2011, contingent upon the number of new units of telematics equipment sold or subject to a binding order to be sold by the Target during the year ending December 31, 2010. The purchase price is subject to a working capital adjustment to be performed during the first quarter of 2010, pursuant to which a portion of the cash consideration paid at closing may be returned to I.D. Systems to the extent that the actual working capital of the Target delivered at closing, determined in accordance with a formula set forth in the Purchase Agreement, is less than $5.5 million.

As noted above, the Target was formed solely for the purpose of effectuating the transfer and sale of the Business to I.D. Systems and, prior to consummation of the acquisition, the Target did not conduct any business or activities other than those incidental to its formation. The Target was formed for the sole purpose of facilitating the transfer of substantially all of the assets of the Business (historically operated by GEAI) to I.D. Systems, and, in connection therewith, such assets and liabilities of the Business were transferred from GEAI to the Target immediately prior to the closing of the acquisition of the Target by I.D. Systems. As such, the Target does not have any historical financial statements, and the historical financial statements of the Business (and, thus, the historical financial statements of the Target) are the historical financial statements of GEAI. The financial statements of the acquired business referred to in the unaudited pro forma combined condensed financial data are the financial statements of GEAI. Substantially all of the assets of GEAI were transfered to the Target immediately prior to the Target’s acquisition by I.D. Systems, and any non-transferred assets were insignificant. I.D. Systems did not acquire GEAI or any equity interest in GEAI in the transaction.

The historical consolidated financial information has been adjusted in the unaudited pro forma combined condensed financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma combined condensed financial information should be read in conjunction with the accompanying notes to the unaudited pro forma combined condensed financial statements. In addition, the unaudited pro forma combined condensed financial information was based on and should be read in conjunction with the following historical consolidated financial statements and accompanying notes of I.D. Systems and GEAI for the applicable periods.

The unaudited pro forma combined condensed financial information as of and for the nine months ended September 30, 2009 has been prepared from I.D. Systems’ unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2009, and from the unaudited (unreviewed) financial statements of GEAI as of and for the nine months ended September 30, 2009. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2008 has been prepared from I.D. Systems’ audited consolidated financial statements for the year ended December 31, 2008, and from the audited financial statements of GEAI for the six months ended December 31, 2008. In this regard, we note that for purposes of Regulation S-X, the Business as acquired by I.D. Systems was not deemed to be in existence prior to July 1, 2008, and there are no financial statements of the Business prior to such date. Thus, the audited financial statements of GEAI included herein consist of audited financial statements of GEAI as of and for the six-month period ended December 31, 2008.

The unaudited pro forma combined condensed balance sheet as of September 30, 2009 gives effect to the acquisition of the Target as if it had occurred on September 30, 2009 and combines the historical balance sheet of I.D. Systems and GEAI as of September 30, 2009.

As noted above, the unaudited pro forma combined condensed statement of operations for the year ended December 31, 2008 has been prepared from the audited consolidated financial statements of I.D. Systems for the year ended December 31, 2008, and from the audited financial statements of GEAI for the six-months ended December 31, 2008. The unaudited pro forma combined condensed statements of operations for the year or six-month period, as applicable, ended December 31, 2008, and for the nine months ended September 30, 2009, are presented as if the acquisition of the Target had occurred on January 1, 2008 and combine the historical results of I.D. Systems and GEAI for the year or six-month period, as applicable, ended December 31, 2008, and for the nine months ended September 30, 2009.

The pro forma adjustments are preliminary due to the recent closing of the acquisition. The impact of the acquisition on the actual results reported by the combined company in periods following the acquisition may differ significantly from that reflected in these pro forma financial statements for a number of reasons. As a result, the pro forma information is for illustrative purposes only and is not necessarily indicative of what the combined company’s financial condition or results of operations would have been had the acquisition been completed on the applicable dates of this pro forma financial information. In addition, the pro forma financial information does not purport to project the future financial condition and results of operations of the combined company.

These unaudited pro forma combined condensed financial statements should be read in conjunction with (i) the audited consolidated financial statements of I.D. Systems as of and for the year ended December 31, 2008, included in its Annual Report on Form 10-K for the year then ended, and the interim unaudited condensed consolidated financial statements of I.D. Systems as of and for the nine months ended September 30, 2009, included in its Quarterly Report on Form 10-Q for the period ended September 30, 2009, and (ii) the audited financial statements of GEAI for the six months ended December 31, 2008, attached as Exhibit 99.2 to this Current Report on Form 8-K/A.

The pro forma adjustments are based on preliminary estimates, available information and certain assumptions, and may be revised as additional information becomes available. The unaudited pro forma combined condensed financial statements do not reflect any adjustments for non-recurring items or anticipated synergies resulting from the acquisition. The pro forma financial information is based on assumptions and adjustments, including assumptions related to the allocation of the purchase price to the underlying tangible and intangible assets and liabilities acquired based on their respective estimated fair market values. The final purchase price allocation will differ from that reflected in the pro forma financial statements after valuation procedures and amounts recorded in connection with the purchase price allocation are finalized. The impact of such changes could be material. The purchase price allocation included in the pro forma financial information is based on information that was available to the management of I.D. Systems at the time this pro forma financial information was prepared. In addition, the unaudited pro forma combined condensed financial information does not reflect any cost savings from operating efficiencies, synergies or other restructurings that could result from the acquisition.

Accordingly, the pro forma adjustments have been prepared based on assumptions that I.D. Systems believes are reasonable, but that are subject to change once additional information becomes available and the preliminary purchase price allocation is finalized.

I.D. SYSTEMS, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

SEPTEMBER 30, 2009

(in thousands)

	I.D. Systems, Inc. September 30, 2009 (Historical) (Unaudited)			GE Asset Intelligence September 30, 2009 (Historical) (Unaudited and Unreviewed)		Pro Forma Adjustments Debits (Credits) (Unaudited)			Pro Forma Combined (Unaudited)

ASSETS
Current assets:
Cash and cash equivalents		14,496			—	D	(14,496	)
Restricted cash		—			—
Investments – short term		39,861			—	D	(504	)		39,357
Accounts receivable, net		1,938			4,384	F	507			6,829
Unbilled receivables		248			—					248
Due from affiliates		—			507	F	(507	)
Inventory, net		5,596			12,855	I	(5,825	)		12,626
Interest receivable		245			—					245
Deferred cost – current portion		—			11,109	A	(11,109	)		—
Prepaid expenses and other current assets		611			—					611
Total current assets		62,995			28,855		(31,934	)		59,916

Investments – long term		9,945			—					9,945
Fixed assets, net		1,000			379					1,379
Goodwill		200			—	H	1,200			7,578
						I	5,825
						J	353
Other intangible assets		178			2,681	C	(2,681	)
					—	E	3,200			3,378
Deferred cost – less current portion		—			12,740	A	(12,740	)		—

Total assets		74,318			44,655		(36,777	)		82,196

LIABILITIES
Current liabilities
Accounts payable, accrued expenses and other current liabilities		599			6,678	H	(1,200	)		9,727
						K	(1,250	)
Line of credit		12,643								12,643
Deferred revenue – current portion		364			11,447	B	11,447			364
Total current liabilities		13,606			18,125		8,997			22,734

Deferred revenue – less current portion		517			12,245	B	12,245			517
Deferred rent		17			—					17
Total liabilities		14,140			30,370		21,242			23,268

STOCKHOLDERS’ EQUITY
Common Stock		120			—					120
Additional paid in capital		103,056								103,056
Accumulated deficit		(32,100	)			K	1,250			(33,350	)
GE net investment		—			14,285	G	14,285
Accumulated other comprehensive income		18			—					18
		71,094			14,285		15,535			69,844
Treasury stock		(10,916	)		—					(10,916	)
		60,178			14,285		15,535			58,928
Total liabilities and stockholders equity		74,318			44,655		36,777			82,196

See the accompanying notes to the unaudited pro forma combined condensed financial statements which are an integral part of these statements.

I.D. SYSTEMS, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008

(in thousands, except share data)

	I.D. Systems, Inc.			GE Asset Intelligence			Pro Forma			Pro Forma
	Year Ended			Six Months Ended
	December 31, 2008			December 31, 2008			Adjustments			Combined
	(Historical)			(Historical)
	(Audited)			(Audited)			(Unaudited)			(Unaudited)

Revenues:
Products		20,072			5,390						25,462
Services		6,974			5,937						12,911
		27,046			11,327						38,373

Cost of revenues:
Cost of products		9,996			5,811						15,807
Cost of services		3,470			3,987						7,457
		13,466			9,798						23,264

Gross profit		13,580			1,529						15,109

Operating expenses:
Selling general and administrative expenses		16,760			7,747		N M	(610 533	)		24,430
Research and development expenses		2,883			3,409						6,292
Impairment of goodwill		—			15,950		L	(15,950	)		—
Impairment of intangible assets		—			850		L	(850	)		—
		19,643			27,956			(16,877	)		30,722

Loss from operations		(6,063	)		(26,427	)		(16,877	)		(15,613	)
Interest income		2,226			—						2,226
Other income (loss)		(338	)		12						(326	)
Net loss		(4,175	)		(26,415	)		(16,877	)		(13,713	)

Net loss per share	$	(0.38)								$	(1.26)

Weighted average common shares outstanding – Basic and diluted		10,887,000									10,887,000

See the accompanying notes to the unaudited pro forma combined condensed financial statements which are an integral part of these statements.

I.D. SYSTEMS, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2009

(in thousands, except share data)

	I.D. Systems, Inc.			GE Asset Intelligence			Pro Forma			Pro Forma
	Nine Months Ended			Nine Months Ended
	September 30, 2009			September 30, 2009			Adjustments			Combined
	(Historical)			(Historical)
	(Unaudited)			(Unaudited and Unreviewed)			(Unaudited)			(Unaudited)

Revenues:
Products		4,367			10,443						14,810
Services		3,093			9,929						13,022
		7,460			20,372						27,832

Cost of revenues:
Cost of products		2,291			9,852						12,143
Cost of services		1,209			5,182						6,391
		3,500			15,034						18,534

Gross profit		3,960			5,338						9,298

Operating expenses:
Selling general and administrative expenses		11,619			11,979		N M	(780 746	)		23,564
Research and development expenses		2,022			4,086						6,108
Restructuring expenses		—			1,476		O	(1,476	)		—
		13,641			17,541			(1,510	)		29,672

Loss from operations		(9,681	)		(12,203	)		(1,510	)		(20,374	)
Interest income		913			—						913
Interest expense		(87	)								(87	)
Other income (loss)		422			4						426
Net loss		(8,433	)		(12,199	)		(1,510	)		(19,122	)

Net loss per share	$	(0.77)								$	(1.74	)

Weighted average common shares outstanding – Basic and diluted		10,963,000									10,963,000

See the accompanying notes to the unaudited pro forma combined condensed financial statements which are an integral part of these statements.

NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL STATEMENTS

The following pro forma adjustments are included in the unaudited pro forma combined condensed balance sheet:

A)	Reflects the elimination of deferred costs under acquisition accounting.

Reflects the elimination of deferred revenue under acquisition accounting. Deferred revenue in the context of a business combination represents an obligation to provide future products or services to a customer when payment for such products or services has been made prior to the products being delivered or services rendered. GEAI’s deferred revenue is for product already delivered and, therefore, no future obligation to provide services remains. Accordingly, I.D. Systems adjusted the balance of deferred revenue by approximately $23.7 million for the deferred revenue for which no future obligation exists.

C)	Reflects the elimination of existing intangible assets due to the acquisition of Asset Intelligence, LLC.

D)	Reflects the cash paid to the seller as purchase price consideration. Some marketable securities were converted to cash to pay the seller.

To record preliminary estimate of identifiable intangible assets from the acquisition of Asset Intelligence, LLC. These identifiable intangible assets principally include customer lists, patents and technology, trade names and covenants not to compete having an estimated economic life of 3 to 10 years.

F)	To reclassify amounts due from GE owned entities to accounts receivable.

G)	Elimination of Asset Intelligence LLC pre-acquisition equity balances.

H)	To record preliminary estimate of contingent consideration.

I)	To adjust inventory to fair value as a result of the decision of I.D. Systems’ management to discontinue a product line in 2010.

J)	To record preliminary estimate of goodwill from the acquisition of Asset Intelligence, LLC. I.D. Systems is in the process of finalizing the fair value of the assets acquired and liabilities assumed, and thus the preliminary allocation of the purchase price may be subject to change.

The following is a preliminary estimate of the assets acquired and the liabilities assumed by I.D. Systems in the acquisition (in thousands):

Accounts receivable	$	4,891
Inventory		7,030
Fixed assets		379
Accounts payable, accrued expenses
and other current liabilities		(6,678	)
Goodwill		7,378
Other intangibles		3,200
Less: contingent consideration		(1,200	)

Consideration paid	$	15,000

Contingencies: As of the effective time of the acquisition, except as specifically excluded by U.S. GAAP, contingencies are required to be measured at fair value, if the acquisition-date fair value of the asset or liability arising from a contingency can be determined. The asset or liability would be recognized at the acquisition date if both of the following criteria were met: (i) it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (ii) the amount of the asset or liability can be reasonably estimated. These criteria are to be applied using the guidance in ASC Topic 405, Contingencies. As disclosed in GEAI’s audited financial statements as of December 31, 2008 and the unaudited/unreviewed financial statements for the nine- month period ended September 30, 2009, GEAI is involved in various legal proceedings. However, I.D. Systems is still reviewing information regarding the fair value of these contingencies. A fair valuation effort requires review of legal matters and associated defense strategies, which are in progress. As required, GEAI currently accounts for these contingencies under ASC Topic 405. If fair value cannot be determined for GEAI’s contingencies, the combined company would continue to account for the GEAI contingencies using ASC Topic 405. For the purpose of these unaudited pro forma combined financial statements, I.D. Systems has not adjusted the GEAI book values for contingencies. This approach is preliminary and subject to change after completion of the final review and assessment of the contingencies.

K)	To reflect acquisition costs incurred and charged to accumulated deficit, primarily related to professional fees.

The following pro forma adjustments are included in the unaudited pro forma combined condensed statements of operations:

L)	To eliminate impairment of goodwill and intangible assets applicable to the acquired company’s accounting.

M)	Reflects preliminary estimated amortization of identifiable intangible assets over their estimated useful lives of 3 to 10 years.

N)	To eliminate amortization expense for existing intangible assets.

O)	To eliminate restructuring expenses applicable to the acquired company’s accounting.

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