SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:                       Commission file number: 1-15087
December 31, 1999

                               I.D. SYSTEMS, INC.
                 (Name of small business issuer in its charter)

           Delaware                                            22-3270799
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                          Identification No.)

One University Plaza, Hackensack, New Jersey                       07601
(Address of Principal Executive Offices)                         (Zip Code)

         Issuer's telephone number, including area code: (201) 670-9000

        Securities registered pursuant to Section 12(b) of the Act: None

        Securities registered pursuant to Section 12(g) of the Act: None

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes _X_   No ___.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of Issuer's  knowledge,  in the definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. _X_

State issuer's revenues for its most recent fiscal year = $5,555,000

The  aggregate  market  value of the Common Stock held by  nonaffiliates  of the
Issuer was  approximately  $42,500,000  based upon the last sales  price of such
stock on March 27, 2000, as disclosed on The NASDAQ Small Cap Market (IDSY).


                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>



                                TABLE OF CONTENTS


PART I

   Item 1.  Description of Business..........................................1
   Item 2.  Description of Properties.......................................10
   Item 3.  Legal Proceedings ..............................................11
   Item 4.  Submission of Matters to a Vote of Security Holders.............11

PART II

   Item 5.  Market For the Registrant's Common Equity and
             Related Stockholder Matters....................................12
   Item 6.  Management's Discussion and Analysis............................12
   Item 7.  Financial Statements............................................18
   Item 8.  Changes in and Disagreements With Accountants on
              Accounting and Financial Disclosure...........................35

PART III

   Item 9.    Directors and Executive Officers of the Registrant............36
   Item 10.  Executive Compensation.........................................38
   Item 11.  Security Ownership of Certain Beneficial Owners
              and Management................................................40
   Item 12.  Certain Relationships and Related Transactions.................42
   Item 13.  Exhibits, List and Reports on Form 8-K.........................43

Exhibit Index ..............................................................46


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<PAGE>


                                     PART I

Item 1.  Description of Business

     I.D.  Systems,  Inc.  is a leading  provider of  wireless  solutions  which
designs,  develops,  and produces  innovative  wireless  monitoring and tracking
solutions   that  utilize  its  patented   radio   frequency-based   system  and
Internet-based data management  technology.  The Company's products are designed
to enable users to improve  operating  efficiencies,  reduce costs, and increase
profits.  Its principal  customers  include  DaimlerChrysler  Corporation,  Dana
Commercial  Credit  Corporation a wholly owned  subsidiary of Dana  Corporation,
Federal  Express  Corporation,  Ford Motor Company,  General Motor  Corporation,
Hallmark  Cards,  Inc., QVC Inc.,  Union Pacific  Railroad a subsidiary of Union
Pacific Corporation and the United States Postal Service.

Industry Overview

     Growth of the Automatic Data Collection Market

     The  Company's  products  are  targeted to the  automatic  data  collection
market.  That is,  companies  that use  bar-coding  equipment to  electronically
identify and track objects.  Bar-coding  technology  poses numerous  limitations
including  line-of-sight-only   capability,   required  human  intervention  and
inability to monitor and control the item to which a bar-code is affixed.

     Conventional Radio Frequency Identification Systems

     Radio frequency  identification  has been developed to address the problems
presented by bar-coding technology.  The basic components of any radio frequency
identification  system  are tags and  readers.  Each tag  contains  a  miniature
receiver/transmitter  and an antenna,  controlled by a computer chip. The reader
is a more sophisticated microprocessor controlled transmitter and receiver. Tags
typically  contain  information  uniquely  identifying the persons or objects to
which they are attached. Tags transmit data to a central computer, which decides
on a subsequent course of action,  including opening a door,  sounding an alarm,
debiting an account, sending routing instructions or similar activities.

     Radio  frequency has many advantages  over  bar-coding  systems,  including
greater  range  and  accuracy,   reduced   line-of-sight   requirements,   rapid
identification,  and resistance to  environmental  influences such as dirt, rain
and extreme temperatures.  Frost & Sullivan has reported that, in 1985, revenues
in the  United  States  for the radio  frequency  identification  portion of the
automatic  data  collection  market  were $7.5  million.  According  to  Venture
Development  Corp., in 1997,  total global revenues reached $540 million and are
expected to grow to $1.6 billion by 2002.

     Current radio frequency  identification products are typically divided into
two categories: read-only systems and read-write systems.


                                       1
<PAGE>


     o Read-Only  Systems.  Read-only products were the first wireless automatic
identification products and were designed to, in certain circumstances,  replace
bar-code  technology.  By using  wireless  identification  tags,  these products
reduce line-of-sight reading requirements,  increase the amount of data that can
be  transferred  and allow for accurate  readings in harsh  environments  and on
moving objects.  These systems read,  store,  and maintain such information in a
database in a centralized computer.  The Company believes that read-only systems
have not gained widespread acceptance because of the large costs associated with
their use as compared to the benefits they provide.

     o Read-Write  Systems.  Read-write systems were developed in order to solve
some of the  limitations  presented by read-only  systems.  Read-write  products
store specific information directly on the tags,  eliminating the need to access
a database in a centralized computer. However, a central controlling computer or
mainframe  is needed to interpret  the  information  received  from the tags and
manage the decisions based on that  information.  The continued need for central
computer control results in systems that are relatively expensive.

I.D. Systems Solution and Benefits

     The Company has improved the  conventional  read-write  system by providing
processing power, memory and data storage into its asset communicators, or tags,
and system  monitors,  or readers.  As a result,  the Company's  system (the "ID
System") does not require a controlling central or mainframe computer to perform
data communication and analysis functions. This distinguishes the ID System from
competing systems.

     The benefits and advantages of the ID System include the following:

     o  Increased  Flexibility.  The  ID  System  is  capable  of  meeting  each
customer's requirements through low-cost  customization.  Due to the ID System's
flexibility,  the Company can readily  market the system to a diverse  number of
industries  by modifying the system  software,  as well as the size and shape of
its devices.

     o Low Cost.  By  providing  processing  power and  memory  into the  system
components,  the Company  eliminates  the need for  customers  to  purchase  and
install a dedicated  central or mainframe  computer and associated  software and
required  communication links. As a result, the Company believes that its system
costs substantially less than competitive systems.

     o Highly  Reliable.  The ID System  eliminates  system-wide  failures  that
result from "crashing" at the mainframe central station, or broken communication
links  between a network of  conventional  readers and the  central  controlling
computer.

     o Highly  Functional.  By providing  computer  capabilities  into the asset
communicators and system monitors,  the ID System can monitor, track and control
the  object  to  which  the  system  is  attached,  as well as  control  various
peripheral devices, such as magnetic card readers, displays, and keypads.


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<PAGE>


Strategy

     The  Company's  objective  is  to  be  the  leading  provider  of  wireless
solutions. Key elements of the Company's strategy are as follows:

     Expand  Product  Capabilities  and  Applications.  The  Company  intends to
continue to expand the ID System's  capabilities and  applications.  The Company
believes that the fundamental architecture of the ID System can be customized to
support  additional  features and  functions  which will  broaden the  Company's
customer  base.  As part of this  strategy,  the  Company  has  devoted and will
continue  to  commit  significant  resources  to  develop  Application  Specific
Integrated Circuits that decreases the size of the Company's asset communicators
as well as increase the functionality of the system.

     Strengthen Sales and Marketing  Efforts.  The Company intends to capitalize
on the growth in demand for automatic identification by continuing to market and
support its products and  services.  The Company  also plans to  strengthen  its
marketing,  sales and customer support efforts,  including internet advertising,
as the size of its market  opportunity and customer base increases.  The Company
will continue to target large corporations and government  agencies,  as well as
develop strategic relationships with system integrators and distributors in each
of its  target  markets.  The  Company  will  also  continue  to form  strategic
relationships  with partners that have the potential to rapidly  accelerate  its
sales growth in its target markets.

     Develop  Additional  Revenue  Sources.  The  Company  intends  to  generate
significant  revenues  beyond  the  initial  sale and  installation  of its base
systems.  It expects to sell software and hardware upgrades,  as well as ongoing
maintenance and support contracts to its existing customers.

The Company's System

     The main  components of the ID System is miniature  computers  called asset
communicators that attach to the objects being tracked or monitored.  Each asset
communicator  has its own  unique  identification  code.  Once  attached  to its
assigned  item,  an asset  communicator  provides  for the  two-way  transfer of
information  using  radio   transmissions  to  and  from   strategically-located
monitoring  devices  called  system  monitors.   The  two-way  communication  is
accomplished  without a central or controlling  mainframe computer network.  The
Company's asset communicators can be tailored to fit the dimension and functions
of various objects.  This flexibility  allows the ID System to be used in a wide
variety of  applications.  The Company has obtained a patent for the ID System's
architecture.

     The ID System includes  operating  system software that runs on an existing
mainframe or personal  computer to allow the system user to collect,  manipulate
and display data from system  monitors and asset  communicators.  This  software
also enables data to be exchanged  between existing  computer  databases and the
system monitor network.  Customers with multiple  facilities can access the data
for each facility over the Internet.


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<PAGE>


     The Company  believes that one of the more  significant  features of the ID
System is that the  asset  communicator  is a  mini-computer,  capable  of being
programmed.  Similar to a personal computer,  the software can be customized for
several different  applications by changing its program. For example, the United
States Postal  Service may elect to use the same asset  communicator  and system
monitor  hardware to track mail as Federal Express does to track  vehicles.  The
difference  lies in the software that controls when,  how, what and to whom each
asset  communicator  communicates,  including  storage and analysis.  Each asset
communicator and system monitor is capable of controlling  other devices such as
keypads,  displays,  locks, or  thermometers.  This  flexibility  will allow the
Company's  products to meet the  requirements  of a wide range of markets  while
minimizing additional hardware design and development costs.

Initial Target Markets

     The Company  intends to emphasize  the ID System's  ability to adapt to the
individual  needs of customers in a broad range of industries and  applications.
By modifying its software without modifying the core technology, the Company can
easily and  cost-effectively  customize  the system for a wide  variety of uses.
Initially, the Company will target the following market segments:

     o    shipping and delivery companies;

     o    companies with fleets of forklift trucks and other similar vehicles;

     o    car rental companies; and

     o    railroad and transportation companies.

     Shipping and Delivery Companies

     The ID System can be used by postal  services and private  sector  shipping
companies to track  packages as they travel  through key points in  distribution
centers. In these facilities, the system can be used to:

     o    analyze the speed and efficiency of package handling operations;

     o    identify bottlenecks in package handling operations;

     o    indicate where packages become misrouted; and

     o    locate misrouted packages.

     The United States Postal Service inserts the Company's asset  communicators
into standard business envelopes which are tracked by system monitors throughout
the mail collection and distribution  process.  The United States Postal Service
uses the data  collected  by the system to  analyze  performance  and  highlight
problem areas in the processing of mail.


                                       4
<PAGE>


     Companies with Fleets of Forklifts and Other Similar Vehicles

     A wide  variety of  businesses  can use the ID System to manage and monitor
fleet operations, such as forklift trucks and other similar vehicles in order to
become more efficient and provide security.

     During a work  shift,  the system  continually  monitors  and  tracks  each
vehicle. The system:

     continually updates each vehicle's location;

     enables real-time, two-way communication with individual vehicle operators;

     provides maintenance schedules;

     warns of mechanical problems;

     tracks each vehicle's use,  including  engine hours,  battery charge,  time
     spent in motion and time spent idle;

     requires an operator to enter a PIN authorization  code or swipe a security
     card to secure the vehicle; and

     requires  the  operator  to  complete  an  Occupational  Safety  and Health
     Administration checklist.

     The ID System provides  benefits after the shift has completed.  The system
can provide an evaluation of vehicle condition after the trip is completed,  log
the operator off the vehicle without paperwork or direct human supervision,  and
shut off the vehicle automatically.  A manager can evaluate data in real-time or
study historical information stored in the system's databases.

     The Company has received orders from the DaimlerChrysler Corporation,  Dana
Commercial Credit Corporation ("DCC"),  Federal Express Corporation,  Ford Motor
Company,  General Motor Corporation,  Hallmark Cards, Inc., QVC Inc. and various
United  States  Postal Bulk Mail  Centers to monitor  certain of their  forklift
trucks and other  similar  vehicles.  The Company has also  entered into a joint
marketing  agreement with DCC, one of the largest  industrial  fleet leasing and
management  companies  in the  United  States.  Under  the  agreement,  DCC will
exclusively  promote the  Company's  wireless  fleet  management  systems to its
customers in North America.  DCC will also actively market the ID System through
its existing  distribution  channels,  which  include a direct sales force and a
network of several hundred industrial  equipment  dealers.  Under the agreement,
the Company granted DCC an exclusive option to provide financial services to any
customer who finances its  acquisition  of the


                                       5
<PAGE>


Company's  products.   The  Company  will  also  assist  DCC  in  developing  an
Internet-based data collection and distribution system for tracking and managing
fleets of industrial vehicles.

     Car Rental Companies

     Car rental companies can use the ID System for security, inventory control,
and value added services, as well as to improve overall operations. By attaching
asset  communicators  to rental cars, car rental  companies can obtain real-time
information  regarding all available  rental cars at any site. This  information
may include:

     number of available rental cars;

     vehicle identification numbers, make, model and year;

     fuel level and mileage;

     service and maintenance history; and

     rental history.

     The ID System also  provides car rental  companies  with an  automated  and
efficient  vehicle check-in and checkout  process.  The Company believe that car
rental  companies  desire to offer value added  services  and that the ID System
provides competitive advantages to them. Since the ID System is fully automated,
the  Company  believes  that  it  offers  a  major  reduction  in the  time  and
inconvenience  typically associated with the pick-up and return of a rental car.
Also,  the system offers rental car  companies the  opportunity  to reduce their
staffs because the Company believes that fewer service  representatives  will be
required  at each  location  at which the system is  installed.  The Company has
entered into an agreement  with Avis Rent A Car System,  Inc. which provides for
the pilot sale of a system which  automates  the car rental and return  process.
The pilot program was completed during 1999 and Avis is currently evaluating the
results.

     Railcar and transportation companies

     Conventional radio frequency  identification tags used in this industry are
typical  tags that are  "read-only."  With the ID System,  railcars  communicate
vital data (order of the train, status of contents, geographical location, etc.)
utilizing a combination of radio  frequency,  cellular or satellite link and the
Internet. The Company's customers will be able to view and analyze data remotely
- and in real time - using the ID System's web-based reporting tools and on-line
graphical route maps. The ID System is unique because it communicates  data from
the entire train of railcars with just one cellular or satellite link.  Compared
to  railcar-tracking  systems  that  rely on  satellite  transmitters  on  every
railcar,  the  Company's  approach  can save  millions  of  dollars  in  ongoing
satellite communications charges. This approach also provides significantly more
information than the railroads'  existing  railcar-tracking  system which cannot
provide  data in real time as it  relies  on only  about  1,200  "reader"  sites
throughout the United States. As a


                                       6
<PAGE>


result,  the  Company  believes  that the railcar and  container  industry  will
benefit from the advantages of a wireless  monitoring and tracking  system.  The
Company believe that the ID System will allow users in this industry to:

     cost-effectively  locate specific  railcars and containers  anywhere in the
     world;

     monitor a railcar and containers' environment and pressure;

     keep an accurate inventory of containers at each depot;

     prevent theft, misuse or accidental use of containers as they arrive;

     ensure that railcars and containers are inspected on schedule; and

     keep an accurate history of the use of each railcar and container.

     The Company was awarded an initial pilot program by Union Pacific  Railroad
(UP), to monitor  trains using the ID System.  The ID System will provide UP and
one of its customers,  FMC  Corporation,  with real-time  location and status of
railcars.  The Company has also entered into a strategic  teaming agreement with
GE Harris Railway  Electronics,  L.L.C.,  the leading  provider of  electronics,
communications  and train control  technology for the global railroad  industry.
Under the  agreement,  the  Company and GE Harris  will  collaborate  to develop
applications  and  opportunities  in the railroad  industry  that  integrate the
Company's technology and GE Harris technology.

Customers

     The  Company's   customers  include   DaimlerChrysler   Corporation,   Dana
Commercial  Credit  Corporation,  a wholly owned subsidiary of Dana Corporation,
Federal Express  Corporation,  Ford Motor Company,  General Motors  Corporation,
Hallmark Cards,  Inc., QVC Inc., Union Pacific  Railroad,  a subsidiary of Union
Pacific Corporation and the United States Postal Service.

     During the year ended  December 31, 1998 the United States  Postal  Service
accounted for 95% of the Company's  revenue.  During the year ended December 31,
1999 that number  decreased to 70% as the Company  continued  to  diversify  its
revenue sources.

Sales and Marketing

     The  Company's  sales  force  consists of  employees  who market the system
directly to large  corporations  and government  agencies and by attending trade
shows.

     In April 1999,  the Company was awarded a United  States  General  Services
Administration  contract  which  enables any  government  agency to purchase the
Company's products on an off-the-shelf basis, without competitive bidding, for a
period  of  five  years.  The  Company  believes  that  this  contract  provides
significant sales opportunities with other government agencies.


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<PAGE>


     The Company  plans to add features to its website to introduce  prospective
customers to the ID System and its benefits.  Visitors to the Company's  website
will be able to compare their vehicle  performance to industry  averages,  "test
drive" the system,  and forecast their potential  return on an investment in the
system. The Company intends to increase traffic on its website by advertising on
other strategic websites.

Manufacturing

     The  software  and  hardware  components  of  the  Company's  products  are
designed,  integrated and tested at the Company's  facilities.  The Company also
manufactures initial prototypes at its facilities.  The Company has entered into
arrangements with two  subcontractors to produce products.  The Company does not
invest in the costly production  equipment,  employees and facilities that would
be required if it were to manufacture  the products in high volume.  The Company
has not, however, entered into an agreement providing for a long-term commitment
with these subcontractors to manufacture products.

Research and Development

     The Company  believes that its current  products can be readily adapted for
use in a wide variety of markets.  To maintain its competitive  advantage in the
market, the Company plans to continue its research and development efforts to:

          Expand the flexibility of the Company's products.  The Company intends
     to concentrate its software  design efforts on developing  systems for each
     new  customer's  needs.  The  Company  will,  at the same time,  attempt to
     develop  "off-the-shelf"  systems  to  allow  for  widespread  use  of  the
     Company's hardware and software.

          Reduce the cost and size of the Company's system. The Company's design
     objective is to integrate the asset  communicator's  electronic  components
     into its  Application  Specific  Integrated  Circuits.  This will allow the
     Company to reduce the size of the ID System  significantly  and permit high
     volume  production  which,  in turn,  will enable the Company to reduce the
     cost of the ID System.  To accomplish  this, the Company  intends to expand
     its in-house  hardware design  capability to design,  test, and support the
     development of this computer chip.

Competition

     The market for wireless  monitoring and tracking systems is relatively new,
constantly  evolving  and  intensely  competitive.   The  Company  expects  that
competition will intensify in the near future. Many of the Company's current and
potential competitors have longer operating histories,  greater name recognition
and significantly greater financial,  technical and marketing resources than the
Company. The Company's principal competitors in the development and distribution
of wireless  monitoring and tracking systems  include:  Unova,  Inc.,  Motorola,
Inc., Texas Instruments  Incorporated,  Raytheon  Company,  Kasten Chase Applied
Research and


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<PAGE>


Micron Communications,  Inc. As a result, its competitors may be able to develop
products  comparable or superior to us or adapt more quickly to new technologies
or evolving customer requirements. Competitive factors in this market include:

     o    the ability to customize technology to a customer's particular use;

     o    quality and reliability of products and software;

     o    ease of use and interactive features;

     o    cost per system; and

     o    compatibility with the user's existing network components and software
          systems.

Intellectual Property

     The  Company  currently  has  one  United  States  patent  relating  to the
Company's  product's  architecture  and  technology.  It also has  corresponding
applications in selected  foreign  countries.  The patent and currently  pending
corresponding  foreign  applications  may  not  provide  the  Company  with  any
competitive  advantage.  Many of the Company's current and potential competitors
dedicate  substantially  greater  resources to  protection  and  enforcement  of
intellectual  property rights,  especially patents. If a patent is issued in the
future to a competitor  which covers the Company's  products,  the Company would
need to either obtain a license or design around the patent. The Company may not
be able to obtain  such a license on  acceptable  terms,  if at all,  nor design
around the patent.

     The Company attempts to avoid infringing known proprietary  rights of third
parties  in its  product  development  efforts.  However,  the  Company  has not
conducted  and does not  conduct  comprehensive  patent  searches  to  determine
whether it infringes patents or other proprietary  rights held by third parties.
In addition,  it is difficult  to proceed with  certainty in a rapidly  evolving
technological  environment  in which there may be numerous  patent  applications
pending,  many of which are  confidential  when  filed,  with  regard to similar
technologies.  If the  Company  were  to  discover  that  its  products  violate
third-party proprietary rights, the Company may not be able to:

     o    obtain licenses to continue offering such products without substantial
          reengineering;

     o    reengineer the Company's products successfully;

     o    obtain licenses on commercially reasonable terms, if at all; or

     o    litigate  an  alleged  infringement  successfully  or  settle  without
          substantial expense and damage awards.


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<PAGE>


     Any claims against the Company  relating to the infringement of third-party
proprietary  rights,  even if without merit,  could result in the expenditure of
significant  financial and managerial resources or in injunctions  preventing us
from  distributing  certain  products.  Such claims could  materially  adversely
affect the Company's business, financial condition and results of operations.

     The Company's software products are susceptible to unauthorized copying and
uses that may go undetected, and policing such unauthorized use is difficult. In
general,  the  Company's  efforts to protect its  intellectual  property  rights
through patent, copyright,  trademark and trade secret laws may not be effective
to prevent misappropriation of the technology, or to prevent the development and
design by others of  products or  technologies  similar to or  competitive  with
those  developed by the Company.  The Company's  failure or inability to protect
the its  proprietary  rights could  materially  adversely  affect the  Company's
business, financial condition and results of operations.

Employees

     The Company currently has thirty-one full time employees, of which eighteen
are engaged in product  development  and  customization,  four in operations and
manufacturing,   five  in  sales  and   marketing,   and  four  in  finance  and
administration.

Recent Public Offering

     On June 30, 1999, the Company  completed its initial public offering of its
common stock,  which closed in July 1999 and August 1999  (over-allotment).  The
offering provided net proceeds to the Company of approximately  $13,921,000 from
the sale of 2,300,000  shares at $7.00 per share.  The Company has been applying
the  proceeds  in  accordance   with  its   Prospectus   dated  June  30,  1999.
Specifically,  during  March  2000  the  Company  moved to its new  facility  in
Hackensack,  New Jersey.  In connection  with the move, it expanded its software
and hardware laboratories. The Company is continuing to increase its engineering
and sales  and  marketing  resources  and has also  begun to commit  significant
resources to the development of its  Application  Specific  Integrated  Circuits
that  decrease  the size of its  asset  communicators  as well as  increase  the
functionality of its systems.

Item 2.  Description of Properties

     In November  1999,  the Company  entered into a lease that expires on March
31,  2010 for its new  facility in  Hackensack,  NJ. The  Company  occupied  the
approximately  22,500 square feet pursuant in March 2000.  The rent is currently
$31,060  per month and will  increase  to $34,835  per month from the 61st month
until the end of the lease.


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<PAGE>


Item 3.  Legal Proceedings

         None.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.


                                       11
<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     The Company  completed its initial  public on June 30, 1999.  The Company's
Common Stock is traded on The Nasdaq  SmallCap Market under the symbol IDSY. The
following table sets forth,  for the periods  indicated,  the high and low sales
price for the Company's common stock as reported on such quotation systems.


                  Quarter Ending:                    High              Low
                  ---------------                    ----              ---
                  September 30, 1999                 9.500             5.500
                  December 31, 1999                  6.500             4.125


     There were  approximately 50 registered holders and 1,000 beneficial owners
of the  Company's  Common Stock of record as of March 27, 2000.  The Company has
not declared or paid dividends on its Common Stock to date and intends to retain
future earnings, if any, for use in its business for the foreseeable future.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The following  discussion and analysis of the Company's financial condition
and  results of  operations  should be read in  conjunction  with its  financial
statements and notes thereto appearing elsewhere herein.

     The Company was  incorporated  in August 1993 and began to derive  revenues
from its initial  line of products in March 1995.  Revenues are  generated  from
design and  engineering  fees, as well as sales of the ID System.  The Company's
revenues  relate to the time expended and expertise  involved in customizing the
ID System to the needs of each individual  customer and related  material costs.
In the future,  the Company intends to generate  additional  revenues by selling
software  and hardware  upgrades,  as well as on-going  maintenance  and support
contracts  to its existing  customers.  The Company  anticipates  that a greater
portion of future revenues will be comprised of sales of the ID System.

     The  Company's  initial  contract was entered  into with the United  States
Postal Service to develop and install a pilot system in  approximately 40 postal
facilities  in the  Washington  D.C.  metropolitan  area.  In 1997,  the Company
entered  into a $6.7 million  follow-on  agreement  with which  provides for the
wireless monitoring and tracking of mail in approximately 300 postal facilities.
During  September  1999,  the  Company  received  an  $875,000  increase to that
agreement.  During 1999, the Company entered into contracts with DaimlerChrysler
Corporation,


                                       12
<PAGE>


Dana Commercial  Credit  Corporation,  Federal Express  Corporation,  Ford Motor
Company,  General Motors  Corporation,  Hallmark Cards Inc., and other companies
for  integrated  tracking and monitoring  systems for forklift  trucks and other
similar  vehicles.  The Company also entered into an agreement  with Avis Rent A
Car System,  Inc., which provides for the pilot sale of a system which automates
the car rental and return process.  The pilot program was completed  during 1999
and Avis is currently evaluating its results.

     Results of Operations

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
operating information expressed as a percentage of revenue:

                                                               Year Ended
                                                               December 31,
                                                             ----------------
                                                             1998        1999
                                                             ----------------
Revenues                                                    100.0%       100.0%
Cost of revenues                                             49.1         57.0
                                                            -----        -----

Gross profit                                                 50.9         43.0
Selling, general and administrative expenses                 32.6         38.2
Research and development expenses                             1.9          4.2
                                                            -----        -----

Income from operations                                       16.4          0.6
Interest income                                               0.7          6.7
Interest expense                                             (1.4)        (0.9)
                                                            -----        -----

Income before taxes                                          15.7          6.4
Income tax provision                                          1.4          2.7
                                                            -----        -----

Historical net income                                        14.3          3.7
                                                            =====        =====

Historical net income                                        14.3
Pro forma income taxes                                        5.8
                                                            -----

Pro forma net income                                          8.5
                                                            =====



                                       13
<PAGE>


Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998

REVENUES.  Revenues increased 67.1% to $5,555,000 in the year ended December 31,
1999 from  $3,324,000  in the year ended  December 31, 1998.  This  increase was
attributable  to an increase in the amount of work  performed by the Company for
the United States Postal  Service and work  performed  under  contracts with new
customers such as Dana  Commercial  Credit,  Federal Express  Corporation,  Ford
Motor Company, Avis Rent A Car System, Inc. and Hallmark Cards.

COST OF REVENUES.  Cost of revenues  increased  93.9% to  $3,167,000 in the year
ended December 31, 1999 from  $1,633,000 in the year ended December 31, 1998. As
a percentage of revenues,  cost of revenues increased to 57.0% in the year ended
December 31, 1999 from 49.1% in the year ended December 31, 1998.  This increase
was primarily  attributable  to an increase in the portion of revenues under the
United  States Postal  Service  contract  attributable  to materials in the year
ended December 31, 1999 as compared to the year ended  December 31, 1998,  which
under this  contract  have lower  margins than  revenues  related to labor.  The
United States Postal Service contract accounted for 95% and 70% of the Company's
revenue  in  1998  and  1999  respectively.  Gross  profit  increased  41.2%  to
$2,388,000 in the year ended December 31, 1999 from $1,691,000 in the year ended
December 31, 1998. As a percentage of revenues,  gross profit decreased to 43.0%
in the year ended  December  31, 1999 from 50.9% in the year ended  December 31,
1998.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative expenses increased 95.8% to $2,121,000 in the year ended December
31, 1999 from  $1,083,000 in the year ended  December 31, 1998. The increase was
attributable  to an increase in salaries and  recruiting  fees resulting from an
increase in personnel hired to accommodate the Company's growth. As a percentage
of revenues,  selling, general and administrative expenses increased to 38.2% in
the year ended December 31, 1999 from 32.6% in the year ended December 31, 1998.

RESEARCH AND DEVELOPMENT  EXPENSES.  Research and development expenses increased
262.5% to $232,000 in the year ended  December 31, 1999 from $64,000 in the year
ended December 31, 1998. This increase was  attributable  to increased  research
and development  costs related to developing new  applications for the Company's
products.  As a  percentage  of  revenues,  research  and  development  expenses
increased  to 4.2% in the year  ended  December  31,  1999 from 1.9% in the year
ended December 31, 1998.

NET INTEREST  (EXPENSE)  INCOME.  Interest income was $374,000 in the year ended
December  31, 1999 as compared to $25,000 in the year ended  December  31, 1998.
This increase was attributable to larger average cash and investment balances in
1999 as compared to 1998 as the Company received the proceeds from the Company's
initial public offering in July and August of 1999.


                                       14
<PAGE>


Interest  expense was $53,000 in the year ended December 31, 1999 as compared to
$48,000 in the year ended December 31, 1998.  This increase is  attributable  to
accelerated   amortization  of  the  debt  discount  due  to  the  repayment  of
stockholder loans.

INCOME  TAXES.  Income tax expense was  $149,000 in the year ended  December 31,
1999 as  compared  to $45,000 in the year ended  December  31,  1998.  Beginning
January 1, 1999, the Company became subject to federal and state income taxes as
a C corporation.  Prior to January 1, 1999, the Company was an S corporation for
federal and state tax purposes  and was only  subject to local taxes.  Pro forma
net income for the year ended December 31, 1998 reflects $192,000 of federal and
state  income  taxes  which  would have been  recognized  had the S  corporation
election not been in effect.

NET  INCOME.  Net income was  $207,000  in the year ended  December  31, 1999 as
compared  to pro forma net income of  $284,000  in the year ended  December  31,
1998. This decrease was due primarily to the reasons described above.

Liquidity and Capital Resources

     As of  December  31,  1999,  the  Company  had  $13,026,000  of cash,  cash
equivalents  and short-term  investments  and  $14,582,000 of working capital as
compared to $1,130,000 and $1,098,000, respectively at December 31, 1998.

     Net cash used in operating  activities  was  $1,627,000  for the year ended
December 31, 1999 as compared to net cash  provided by operating  activities  of
$856,000  for the year  ended  December  31,  1998.  Net cash used in  operating
activities in the year ended  December 31, 1999 was primarily due to an increase
in accounts  and  unbilled  receivables  of  $1,101,000,  an increase in prepaid
expenses  and other  assets of $455,000  and a decrease  in deferred  revenue of
$545,000,  partially  offset by an  increase  in  accounts  payable  and accrued
expenses of $222,000 and net income of $207,000.  Net cash provided by operating
activities for the year ended December 31, 1998 was from net income of $476,000,
an increase in accounts payable and accrued expenses of $266,000 and an increase
in deferred  revenue of  $545,000,  partially  offset by an increase in accounts
receivable of $601,000.

     Cash used in investing  activities for the year ended December 31, 1999 was
$6,218,000 as compared to $76,000 for the year ended  December 31, 1998. The use
of cash in investing  activities for the year ended December 31, 1999 was due to
the purchase of investments  of $6,005,000 and $213,000 of capital  expenditures
for fixed  assets.  The use of cash of $76,000 for the year ended  December  31,
1998 reflected capital expenditures for fixed assets.

     Net cash  provided by financing  activities  was  $13,736,000  for the year
ended December  31,1999 as compared to net cash used in financing  activities of
$56,000  for the year ended  December  31,  1998.  Cash  provided  by  financing
activities  for the  year  ended  December  31,  1999  resulted  primarily  from
$13,921,000 of net proceeds  received from the Company's initial public offering
in July and August of 1999,  partially offset by $200,000 of repayments of notes
payable to stockholders.


                                       15
<PAGE>


     The Company  completed  its initial  public  offering of its common  stock,
which  closed  in July  1999 and  August  1999  (over-allotment).  The  offering
provided net proceeds to the Company of approximately  $13,921,000 from the sale
of 2,300,000 shares at $7.00 per share.

     The Company  believes its operations  have not been and, in the foreseeable
future,  will not be  materially  adversely  affected by  inflation  or changing
prices.

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997

Revenues.  Revenues  increased to $3,324,000 in the year ended December 31, 1998
from  $733,000  in the year  ended  December  31,  1997.  These  increases  were
primarily  attributable  to a follow on  contract  entered  into with the United
States Postal Service.

Cost of revenues.  Cost of revenues  increased to  $1,633,000  in the year ended
December  31,  1998 from  $269,000 in the year ended  December  31,  1997.  As a
percentage of revenues,  cost of revenues increased from 36.7% in the year ended
December  31,  1997 to  49.1%  in  fiscal  1998.  This  increase  was  primarily
attributable to an increase in the portion of revenues attributable to materials
in the year ended  December 31, 1998 as compared to the year ended  December 31,
1997 which  typically have lower margins than revenues  related to labor.  Gross
profit increased to $1,691,000 in the year ended December 31, 1998 from $464,000
in the year ended  December 31, 1997. As a percentage of revenues,  gross profit
decreased  from 63.3% in the year ended  December  31, 1997 to 50.9% in the year
ended December 31, 1998.

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses increased 135% to $1,083,000 in the year ended December
31, 1998 from $460,000 in the year ended  December 31, 1997.  Of this  increase,
$482,000 was attributable to an increase in salaries  resulting from an increase
in personnel hired during the year to accommodate our growth. As a percentage of
revenues,  selling,  general and administrative expenses decreased from 62.8% in
the year ended  December  31, 1997 to 32.6% in the year ended  December 31, 1998
due to operating efficiencies.

Research and development  expenses.  Research and development expenses increased
to $64,000 in the year ended  December  31, 1998 from  $22,000 in the year ended
December 31, 1997.  This  increase was  attributable  to increased  research and
development costs related to developing new applications for our products.

Interest expense (net). Interest expense (net) increased 21.1% to $23,000 in the
year ended  December 31, 1998 from $19,000 in the year ended  December 31, 1997.
This increase was  attributable to interest  expense  incurred in the year ended
December 31, 1998 on larger average  balances of  stockholder  notes and capital
lease  obligations,  offset by an increase in interest income earned in the year
ended December 31, 1998 on a larger average cash balance.

Income  taxes.  Local income tax expense was $45,000 in the year ended  December
31, 1998 as compared to a $112,000 income tax benefit in the year ended December
31,  1997.  The 1997


                                       16
<PAGE>


amount  reflects  the  recognition  of a benefit from net  operating  loss carry
forwards generated through December 1997.

Net income. Net income increased to $476,000 in the year ended December 31, 1998
from  $75,000  in the year  ended  December  31,  1997.  This  increase  was due
primarily to the reasons described above.

Inflation

     The impact of inflation of the Company's revenues and results of operations
has not been significant.

Impact of Year 2000

     In late 1999, the Company  completed its remediation and testing of systems
in  order  to  become  Year  2000  ready.  As  a  result  of  its  planning  and
implementation  efforts,  the Company experienced no significant  disruptions in
mission critical information  technology and non-information  technology systems
and believes those systems successfully  responded to the Year 2000 date change.
The  Company  is not aware of any  material  problems  resulting  from Year 2000
issues,  either with its  products,  its internal  systems,  or the products and
services of third parties.  The Company expensed  immaterial amounts during 1999
in connection with remediating its systems.  During 2000, the Company expects to
remediate certain non-critical systems at an immaterial cost that will be funded
through  operating cash flows.  The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure  that any latent  Year 2000  matters  that may arise are
addressed promptly.

Forward Looking Statements

Certain  statements  in this Annual  Report on Form  10-KSB,  under the sections
"Management  Discussion  and  Analysis  of  Financial  Condition  and Results of
Operations,"  "Business" and elsewhere  relate to future events and expectations
and as such constitute  "forward-looking  statements"  within the meaning of the
Private  Securities  Litigation  Reform  Act  of  1995.  The  words  "believes,"
"anticipates,"  "plans,"  "expects,"  and similar  expressions  are  intended to
identify  forward-looking  statements.  Such forward-looking  statements involve
known and unknown  risks,  uncertainties,  and other factors which may cause the
actual  results,  performance  or  achievements  of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied  by  such  forward-looking  statements  and to vary  significantly  from
reporting  period to reporting  period.  These forward  looking  statements were
based  on  various  factors  and  were  derived  utilizing   numerous  important
assumptions  and  other  factors  that  could  cause  actual  results  to differ
materially  from those in the forward  looking  statements,  including,  but not
limited  to:  uncertainty  as to the  Company's  future  profitability  and  the
Company's ability to develop and implement  operational and financial systems to
manage rapidly  growing  operations,  competition in the Company's  existing and
potential  future  lines of  business,  and other  factors.  Other  factors  and
assumptions  not identified  above were also


                                       17
<PAGE>


involved in the derivation of these forward looking statements,  and the failure
of such other  assumptions to be realized,  as well as other  factors,  may also
cause actual  results to differ  materially  from those  projected.  The Company
assumes no  obligation  to update these  forward  looking  statements to reflect
actual  results,  changes in assumptions  or changes in other factors  affecting
such forward looking statements.

Item 7  Financial Statements
                                                                            Page
                                                                            ----
   Independent Auditors' Report                                              19

   Balance sheet as of December 31, 1999                                     20

   Statements of operations for the years ended
    December 31, 1998 and 1999                                               21

   Statements of changes in stockholders' equity for the
    years ended December 31, 1998 and 1999                                   22

   Statements of cash flows for the years ended
     December 31, 1998 and 1999                                              23

   Notes to financial statements                                             25


                                       18
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
I.D. Systems, Inc.
New York, New York


We have  audited the  accompanying  balance  sheet of I.D.  Systems,  Inc. as of
December  31,  1999  and  the  related  statements  of  operations,  changes  in
stockholders'  equity and cash flows for the years ended  December  31, 1998 and
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects,  the financial position of I.D. Systems,  Inc. as of December
31,  1999 and the  results  of its  operations  and its cash flows for the years
ended  December  31,  1998 and  1999,  in  conformity  with  generally  accepted
accounting principles.



/S/Richard A. Eisner & Company, LLP

New York, New York
January 28, 2000


                                       19
<PAGE>


                               I.D. Systems, Inc.
                                  Balance Sheet
                                December 31, 1999

ASSETS
Current assets:
   Cash and cash equivalents                                       $  7,021,000
   Investments                                                        6,005,000
   Accounts receivable                                                  880,000
   Unbilled receivables                                                 962,000
   Inventory                                                            123,000
   Deferred taxes                                                        49,000
   Prepaid expenses and other current assets                            152,000
                                                                   ------------
      Total current assets                                           15,192,000

Fixed assets - net                                                      307,000
Other assets                                                            324,000
                                                                   ------------
                                                                   $ 15,823,000
                                                                   ============
LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses                           $    545,000
   Capital lease obligations                                             14,000
   Income taxes payable                                                  51,000
                                                                   ------------
      Total current liabilities                                         610,000

Capital lease obligations                                                32,000
Deferred rent                                                            42,000
                                                                   ------------
                                                                        684,000
                                                                   ------------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 5,000,000 shares, $.01 par value;
none issued
Common stock; authorized 15,000,000 shares,
$.01 par value; issued and outstanding 5,717,000 shares                  57,000
Additional paid-in capital                                           15,554,000
Accumulated deficit                                                    (472,000)
                                                                   ------------
                                                                     15,139,000
                                                                   ------------
                                                                   $ 15,823,000
                                                                   ============

See notes to financial statements


                                       20
<PAGE>


                               I.D. Systems, Inc.
                            Statements of Operations


<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                        --------------------------
                                                                           1998            1999
                                                                        -----------    -----------
<S>                                                                     <C>            <C>
Revenues                                                                $ 3,324,000    $ 5,555,000
Cost of revenues                                                          1,633,000      3,167,000
                                                                        -----------    -----------
Gross profit                                                              1,691,000      2,388,000
Selling, general and administrative expenses                              1,083,000      2,121,000
Research and development expenses                                            64,000        232,000
                                                                        -----------    -----------
Income from operations                                                      544,000         35,000
Interest income                                                              25,000        374,000
Interest expense                                                            (48,000)       (53,000)
                                                                        -----------    -----------
Income before taxes                                                         521,000        356,000
Income tax provision                                                         45,000        149,000
                                                                        -----------    -----------
Historical net income                                                   $   476,000    $   207,000
                                                                        ===========    ===========
Net income per share - basic                                                           $       .05
                                                                                       ===========
Net income per share - diluted                                                         $       .04
                                                                                       ===========
Historical net income                                                       476,000
Pro forma income taxes                                                      192,000
                                                                        -----------
Pro forma net income                                                    $   284,000
                                                                        ===========
Pro forma net income per share - basic                                  $       .08
                                                                        ===========
Pro forma net income per share - diluted                                $       .08
                                                                        ===========

Weighted average common shares outstanding - basic income per share       3,414,000      4,545,000
Effect of potential common shares from exercise of options                  365,000      1,021,000
                                                                        -----------    -----------

Weighted average common shares outstanding - diluted income per share     3,779,000      5,566,000
                                                                        ===========    ===========
</TABLE>


See notes to financial statements



                                       21
<PAGE>


                               I.D. Systems, Inc.
                  Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                Common Stock
                                                       ---------------------------
                                                                                        Additional
                                                        Number of                        Paid-in       Accumulated     Stockholders'
                                                          Shares          Amount          Capital        Deficit          Equity
                                                       ------------    ------------    ------------    ------------    -------------
<S>                                                       <C>               <C>         <C>             <C>              <C>
BALANCE - JANUARY 1, 1998                                 3,414,000         $34,000      $1,653,000     $(1,155,000)        $532,000
Net income for the year ended
   December 31, 1998                                                                                        476,000          476,000
                                                       ------------    ------------    ------------    ------------     ------------
BALANCE - DECEMBER 31, 1998                               3,414,000          34,000       1,653,000        (679,000)       1,008,000
Shares issued pursuant to initial public
   offering                                               2,300,000          23,000      13,898,000                       13,921,000
Shares issued pursuant to exercise of
   stock options                                              3,000                           3,000                            3,000
Net income for the year ended
   December 31, 1999                                                                                        207,000          207,000
                                                       ------------    ------------    ------------    ------------     ------------
BALANCE - DECEMBER 31, 1999                               5,717,000         $57,000     $15,554,000       $(472,000)     $15,139,000
                                                       ============    ============    ============    ============     ============
</TABLE>


See notes to financial statements


                                       22
<PAGE>


                               I.D. Systems, Inc.
                            Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                           ----------------------------
                                                                               1998            1999
                                                                           ------------    ------------
<S>                                                                            <C>           <C>
Cash flows from operating activities:
   Net income                                                                  $476,000        $207,000
   Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                            39,000          57,000
        Amortization of debt discount                                            14,000          44,000
        Deferred taxes                                                           45,000          18,000
        Deferred rent expense                                                    38,000           4,000
        Changes in:
           Accounts receivable                                                 (601,000)       (139,000)
           Unbilled receivables                                                                (962,000)
           Inventory                                                             33,000        (123,000)
           Prepaid expenses and other assets                                      1,000        (455,000)
           Accounts payable and accrued expenses                                266,000         222,000
           Income taxes payable                                                                  45,000
           Deferred revenue                                                     545,000        (545,000)
                                                                           ------------    ------------
              Net cash provided by (used in) operating activities               856,000      (1,627,000)
                                                                           ------------    ------------
Cash flows from investing activities:
   Purchase of fixed assets                                                     (76,000)       (213,000)
   Purchases of investments                                                                  (6,005,000)
                                                                           ------------    ------------
              Net cash used in investing activities                             (76,000)     (6,218,000)
                                                                           ------------    ------------
Cash flows from financing activities:
   Payment of lease obligations                                                  (6,000)        (11,000)
   Receipt of amount due from stockholder                                                        23,000
   Payment of stockholder loans                                                 (50,000)       (200,000)
   Proceeds from exercise of stock options                                                        3,000
   Net proceeds from sale of stock in initial public offering                                13,921,000
                                                                           ------------    ------------
              Net cash provided by (used in) financing activities               (56,000)     13,736,000
                                                                           ------------    ------------
Net increase in cash and cash equivalents                                       724,000       5,891,000
Cash and cash equivalents - January 1                                           406,000       1,130,000
                                                                           ------------    ------------
</TABLE>


See notes to financial statements


                                       23
<PAGE>


                               I.D. Systems, Inc.
                      Statements of Cash Flows (continued)


<TABLE>
<S>                                                           <C>          <C>
Cash and cash equivalents - December 31                       $1,130,000   $7,021,000
                                                              ==========   ==========
Supplemental disclosure of cash flow information:
   Cash paid for interest                                        $31,000      $37,000
   Cash paid for income taxes                                                 $98,000

Supplemental disclosure of noncash financing information:
   Equipment acquired pursuant to capital lease obligations      $19,000      $31,000
</TABLE>


See notes to financial statements


                                       24
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note A - The Company

I.D.  Systems,  Inc. (the  "Company") is a provider of wireless  solutions.  The
Company  designs,  develops  and produces  innovative  wireless  monitoring  and
tracking  products  that utilize its patented  radio-frequency-based  system and
Internet-based data management  systems.  The Company's products are designed to
enable users to improve operating efficiencies and reduce costs. The Company was
incorporated in Delaware in 1993 and commenced operations in January 1994.

Note B - Summary of Significant Accounting Policies

[1]  Use of estimates:

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

[2]  Stock split:

     On June 29,  1999,  the  Company  effected  a 1.25 for 1 stock  split.  The
     accompanying  financial statements and notes hereto give retroactive effect
     to the stock  split and  accordingly,  the number of shares for all periods
     are stated on a post split basis.

[3]  Cash and cash equivalents:

     The Company  considers all highly liquid investment  instruments  purchased
     with a maturity of three months or less to be cash equivalents.

[4]  Inventory:

     Inventory which consists of components for the Company's  systems is stated
     at cost using the first-in first-out method.

[5]  Fixed assets and depreciation:

     Fixed assets are recorded at cost and depreciated  using the  straight-line
     method over the estimated useful lives of the assets which range from three
     to ten  years.  Equipment  under  capital  leases are  amortized  using the
     straight-line  method  over the terms of the  respective  leases,  or their
     estimated useful lives, whichever is shorter.



                                       25
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note B - Summary of Significant Accounting Policies (continued)

[6]  Research and development:

     Research and development costs are charged to expense as incurred.

[7]  Patent costs:

     Costs incurred in connection  with  acquiring  patent rights are charged to
     expense as incurred.

[8]  Revenue recognition:

     The majority of 1998  revenues  (95%) and 1999  revenues  (55%) were earned
     pursuant  to  contracts  under which  revenues  have been  recognized  when
     related time and material  charges were  incurred.  All other revenues have
     been recognized  either when services were performed,  goods were delivered
     or as work progressed, measured by the percentage-of-completion  method, in
     accordance  with  conditions  of  related  contracts.   Amounts  billed  to
     customers  that  did not  meet  the  conditions  of the  Company's  revenue
     recognition  policy were recorded as deferred revenue until such conditions
     were met. Unbilled receivables were recorded if conditions of the Company's
     revenue recognition policy were met.

[9]  Benefit plan:

     The  Company  maintains  a  retirement  plan  under  Section  401(k) of the
     Internal  Revenue  Code which covers all  eligible  employees.  The Company
     contributed approximately $6,000 to the plan during the year ended December
     31, 1999.

[10] Rent expense:

     Expense  related  to  the  Company's   facility  lease  is  recorded  on  a
     straight-line  basis  over the lease  term.  The  difference  between  rent
     expense  incurred  and the amount paid is recorded as deferred  rent and is
     amortized over the lease term.

[11] Stock based compensation:

     The Company accounts for stock-based employee compensation under Accounting
     Principles  Board ("APB")  Opinion No. 25,  "Accounting for Stock Issued to
     Employees,"  and  related  interpretations.  The  Company  has  adopted the
     disclosure-only  provisions of Statement of Financial  Accounting Standards
     ("SFAS") No. 123, "Accounting for Stock-Based Compensation."


                                       26
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note B - Summary of Significant Accounting Policies (continued)

[12] Income taxes:

     The Company had elected to be treated as an S  corporation  for federal and
     state income tax purposes. As a result of this election,  the income of the
     Company was taxed  directly  to the  individual  stockholders.  The Company
     continued to be subject to New York City income tax. Subsequent to December
     31, 1998, the Company filed an election to be taxed as a C corporation and,
     effective  January 1, 1999,  became  subject  to  federal,  state and local
     income  taxes.  See  Note  G  for  pro  forma  information   regarding  the
     incremental  income tax  provisions  which would have been  recorded if the
     Company  had been a  taxable  corporation,  based on the tax laws in effect
     during the year ended  December  31, 1998.  The Company does not  currently
     intend to make any distributions of S corporation earnings.

[13] Net income per share:

     The Company  calculates its net income per share, and in 1998 pro forma net
     income  per  share in  accordance  with  the  provisions  of SFAS No.  128,
     "Earnings Per Share".  SFAS No. 128 requires a dual presentation of "basic"
     and "diluted" income per share on the face of the statements of operations.
     Basic  income  per share is  computed  by  dividing  the net  income by the
     weighted average number of shares of common stock  outstanding  during each
     period.  Diluted  income per share  includes the effect,  if any,  from the
     potential  exercise or conversion of securities,  such as stock options and
     warrants,  which  would  result in the  issuance of  incremental  shares of
     common stock.

[14] Financial instruments:

     The carrying  amounts of cash and cash  equivalents,  accounts  receivable,
     accounts  payable,  accrued  expenses,  capital lease obligations and notes
     payable  approximate  their fair values due to the short period to maturity
     of these instruments.

Note C - Investments

The Company's investments at December 31, 1999 consist principally of short-term
commercial  paper which  mature  within one year and are  classified  as held to
maturity. Accordingly, investments are carried at amortized cost.


                                       27
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note D - Fixed Assets

Fixed  assets are stated at cost and, at December 31, 1999,  are  summarized  as
follows:

     Laboratory equipment                                          $58,000
     Computer software                                              39,000
     Computer hardware                                             119,000
     Furniture and fixtures                                        120,000
     Leasehold improvements                                         25,000
     Equipment under capital lease                                  70,000
                                                                 ---------
                                                                   431,000
     Accumulated depreciation and amortization                    (124,000)
                                                                 ---------
                                                                  $307,000
                                                                 =========

Note E - Equipment Lease Obligations

The Company leases equipment under various  agreements with original terms of 36
to 60 months and accounts for these leases as capital leases. The net book value
of the equipment held under capital leases was approximately $27,000 at December
31, 1999.

Future lease payments as of December 31, 1999 are as follows:

              YEAR ENDING
              DECEMBER 31,
              ------------
                 2000                                           $    18,000
                 2001                                                17,000
                 2002                                                15,000
                 2003                                                 4,000
                                                                -----------

                                                                     54,000
           Amount representing interest                               8,000
                                                                -----------

           Present value of future lease payments                    46,000
           Amount due within one year                                14,000
                                                                -----------
                                                                $    32,000
                                                                ===========


                                       28
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note F - Stockholders' Equity

[1]  Common stock:

     In April 1997, the Company  completed a private  placement  whereby it sold
     167,000  shares of common  stock and issued  $200,000 of  promissory  notes
     maturing in April 2002 bearing  interest at 8% per annum for gross proceeds
     of $200,000.  The common  stock  issued was valued at $68,000  representing
     debt  discount  which is being  amortized  over the  five-year  term of the
     promissory  notes.  As a result,  the  effective  annual  interest rate was
     approximately  15%.  For the year ended  December  31,  1998,  $14,000  was
     amortized  and is included in interest  expense.  During 1999,  the Company
     repaid the notes  plus  $35,000 of  accrued  interest  pursuant  to payment
     provisions  of the notes.  Accordingly,  interest  expense in 1999 includes
     $44,000 related to the debt discount.

     In June 1999, the Company sold  2,300,000  shares of its common stock in an
     initial public offering. In connection therewith,  the Company received net
     proceeds of $13,921,000.

     In June 1999, the Company  increased the number of common shares authorized
     to 15,000,000.

[2]  Preferred stock:

     In June 1999,  the Company  authorized  5,000,000  shares of $.01 par value
     preferred  stock.  The  Company's  Board of Directors  has the authority to
     issue  shares of preferred  stock and to  determine  the price and terms of
     those shares.

[3]  Stock options:

     The Company has adopted the 1995 Stock Option  Plan,  pursuant to which the
     Company  may grant  options to  purchase up to an  aggregate  of  1,250,000
     shares of common stock.  The Company has also adopted the 1999 Stock Option
     Plan and the 1999  Director  Plan,  pursuant to which the Company may grant
     options to  purchase  up to 812,500  and  300,000  shares of common  stock,
     respectively.  The Plans are administered by the Board of Directors,  which
     has the  authority  to  determine  the term  during  which an option may be
     exercised (not more than 10 years), the exercise price of an option and the
     rate at which options may be exercised.

     A summary of the status of the  Company's  stock options as of December 31,
     1998 and 1999 and  changes  during  the  years  ending on those  dates,  is
     presented below:


                                       29
<PAGE>

                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note F - Stockholders' Equity (continued)


<TABLE>
<CAPTION>
                                                    1998                       1999
                                         ------------------------     ------------------------
                                                     Weighted                     Weighted
                                                      Average                       Average
                                         Shares    Exercise Price      Shares    Exercise Price
                                         ------    --------------      ------    --------------
<S>                                        <C>           <C>         <C>            <C>
Outstanding at beginning of year           800,000       $1.03       1,238,000      $1.09
Granted                                    438,000        1.20         275,000       5.18
Exercised                                                               (3,000)      1.20
Forfeited                                                              (31,000)      4.16
                                        ----------                   ---------
Outstanding at end of year               1,238,000        1.09       1,479,000       1.79
                                        ==========                   =========
Exercisable at end of year                 330,000        0.95         574,000       1.01
                                        ==========                   =========
</TABLE>

As of December 31, 1999,  there were 881,000  options  available for grant under
the Company's stock option plans.

The following table summarizes  information  about stock options at December 31,
1999:

<TABLE>
<CAPTION>
                                        Options Outstanding                       Options Exercisable
                            -------------------------------------------     --------------------------
                              Number         Weighted                          Number
                            Outstanding      Average         Weighted       Exercisable       Weighted
                                at          Remaining         Average            at            Average
          Exercise          December 31,   Contractual       Exercise       December 31,      Exercise
           Prices               1999          Life             Price             1999          Price
           ------           -----------    -----------       --------       -----------       -------
<S>        <C>                  <C>          <C>               <C>              <C>             <C>
           $0.80                338,000      6 years           $0.80            270,000         $0.80
            1.20                894,000      8 years            1.20            304,000          1.20
            4.13                167,000     10 years            4.13
            7.38 - 7.67          80,000     10 years            7.61
                              ---------                                       ---------
                              1,479,000      8 years            1.79            574,000          1.01
                              =========                                      ==========
</TABLE>


The Company applies APB Opinion 25 and related interpretations in accounting for
options.  Accordingly,  no  compensation  cost has been  recognized for employee
stock option grants. Had compensation cost for employee stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS No. 123, the


                                       30
<PAGE>

                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note F - Stockholders' Equity (continued)


     Company's  historical  net  income,  pro forma net income and pro forma net
     income per share (basic and  diluted) for the year ended  December 31, 1998
     would have been approximately $409,000, $217,000 and $.06 respectively. The
     Company's  historical  net income,  historical net income per share (basic)
     and historical  net income per share  (diluted) for the year ended December
     31,  1999  would  have  been   approximately   $131,000,   $.03  and  $.02,
     respectively.  The fair value of each option  grant on the date of grant is
     estimated using the Black-Scholes option-pricing model with a minimum value
     volatility of  effectively  0% for 1998 and 58% for 1999,  expected life of
     options of 5 to 7 years, risk free interest rate of 6% and a dividend yield
     of 0%. The weighted  average fair value of options granted during the years
     ended December 31, 1998 and 1999 were $.44 and $2.79, respectively.

[3]  Warrants:

     In connection  with the  Company's  initial  public  offering in June 1999,
     warrants  to  purchase  200,000  shares of common  stock were issued to the
     underwriter for nominal  consideration.  The warrants are exercisable for a
     period of four  years,  commencing  in June 2000,  at a price of $11.55 per
     share.

Note G - Income Taxes and Pro Forma Income Taxes

[1]  Historical:

     Through  December  31, 1998 the Company  was subject  only to local  income
     taxes.  Effective  January 1, 1999,  the  Company  elected to be taxed as a
     corporation and  accordingly is subject to federal,  state and local income
     taxes.  The  Company has a deferred  tax asset of $49,000 at  December  31,
     1999,  which  reflects the Company's net operating loss  carryforwards  for
     local income taxes of approximately $573,000 and which expire through 2012.
     The  Company is subject to an annual  limitation  on the  utilization  of a
     portion of its net operating loss carryforwards. Future stock issuances may
     subject the Company to additional limitations.

     The  difference  between  income taxes at the statutory  federal income tax
     rate  and  income  taxes  reported  in the  statements  of  operations  are
     attributable to the following:



                                       31
<PAGE>

                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note G - Income Taxes and Pro Forma Income Taxes (continued)

                                                             Year Ended
                                                            December 31,
                                                       ------------------------
                                                          1998          1999
                                                       ---------      ---------
Income taxes at the federal statutory rate              $177,000       $121,000
State and local income taxes, net of effect on
   federal taxes                                          60,000         33,000
Effect of S corporation status                          (192,000)
Other                                                                    (5,000)
                                                       ---------      ---------
                                                         $45,000       $149,000
                                                       =========      =========

[2]  Pro forma:

     As a result of the S corporation election,  the financial statements do not
     include a provision  for federal and state  income taxes for the year ended
     December  31,  1998.  Pro forma net income for the year ended  December 31,
     1998 in the  accompanying  statements  of  operations  includes  pro  forma
     adjustments  for  federal  and state  income  taxes  which  would have been
     provided had the S corporation election not been in effect and is comprised
     of the following:

     Deferred:
        Federal                                                    $145,000
        State                                                        47,000
                                                                   --------
     Pro forma taxes (benefit) on income                           $192,000
                                                                   ========


Note H - Commitments and Other Matters

[1]  Operating leases:

     The  Company's  current  facility  is  rented  pursuant  to a lease,  which
     provides  the  Company  with the  right to sublet  the  space,  subject  to
     approval from the landlord.  In November 1999,  the Company  entered into a
     lease on its new  facility,  which it expects to occupy in March 2000.  The
     Company's  operating  leases provide for minimum annual rental  payments as
     follows:


                                       32
<PAGE>

                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note H - Commitments and Other Matters (continued)


                          Current         New
                         Facility      Facility        Other         Total
                         --------      --------        -----         -----
               2000      $117,000      $311,000       $36,000      $464,000
               2001       126,000       373,000        16,000       515,000
               2002       129,000       373,000                     502,000
               2003        32,000       373,000                     405,000
               2004                     373,000                     373,000
         Thereafter                   2,255,000                   2,255,000
                       ----------    ----------    ----------    ----------
                         $404,000    $4,058,000       $52,000    $4,514,000
                       ==========    ==========    ==========    ==========

     The office  leases also  provide for  escalations  relating to increases in
     real estate  taxes and certain  operating  expenses.  Expenses  relating to
     operating  leases  aggregated  approximately  $141,000 and $113,000 for the
     years ended December 31, 1998 and 1999, respectively.

     When the  Company  vacates  its  current  premises,  it will be required to
     record a charge to operations for the current value of the anticipated loss
     if it has not sublet the space.  Additionally,  pursuant  to the new lease,
     the Company  has issued a letter of credit in the amount of $317,703  which
     remains open as of December 31, 1999.

[2]  Employment agreements:

     In June 1999, the Company  entered into  three-year  employment  agreements
     with four  executives  which provide for aggregate  annual  compensation of
     $408,000 and entitle the executives to salary increases,  bonuses and stock
     options to be  determined by the Board of Directors.  The  agreements  also
     provide for severance payments through the end of the agreements.

[3]  Concentration of customers:

     One customer accounted for 95% and 70% of the Company's revenues during the
     years  ended  December  31,  1998 and  1999,  respectively.  This  customer
     accounted for 37% of the Company's  accounts  receivable balance and 35% of
     its unbilled receivables balance at December 31, 1999.

     One other customer accounted for 12% of the Company's revenues for the year
     ended December 31, 1999.  This customer  accounted for 49% of the Company's
     unbilled receivables balance at December 31, 1999.



                                       33
<PAGE>


                               I.D. Systems, Inc.
                          Notes to Financial Statements
                               December 31, 1999

Note H - Commitments and Other Matters (continued)

[4]  Related party transactions:

     During the years ended  December 31, 1998 and 1999,  the Company  purchased
     approximately  $33,000 and $262,000,  respectively,  of  components  from a
     company where two of the Company's directors were directors in 1998 and one
     of the Company's  directors  continues to be a director.  Additionally,  at
     December 31, 1999 $95,000  remained  open under a purchase  order issued in
     1998.

                                       34
<PAGE>


Item  8.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

            None



                                       35
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
        With Section 16(a) of the Exchange Act

                        Directors and Executive Officers

The following  table sets forth  certain  information  concerning  the Executive
Officers and Directors of the Company.

  Name                       Age       Position
  ----                       ---       --------
  Kenneth S. Ehrman           30       President and Director
  Jeffrey M. Jagid            31       Chief Operating Officer,  General Counsel
                                         and Director
  N. Bert Loosmore            30       Executive Vice President of Technology
                                         and Director
  Michael L. Ehrman           27       Executive Vice President of Engineering
  Ned Mavrommatis             29       Chief Financial Officer
  Bruce Jagid (1)             60       Director
  Martin G. Rosansky (1)      60       Director
  Lawrence Burstein (1)       56       Director

     (1) Member of the Compensation and Audit Committees

     Kenneth S. Ehrman is a founder of the  Company  and has been its  President
and Director since  inception in 1993. He graduated from Stanford  University in
1991 with a  Bachelor  of Science in  Industrial  Engineering,  where he studied
Management, Production and Finance. Upon his graduation, and until the inception
of the Company in 1993, Mr. Ehrman worked as a production manager with a Silicon
Valley networking company. Mr. Ehrman is Michael L. Ehrman's brother.

     Jeffrey M. Jagid has been Chief  Operating  Officer  and a Director  of the
Company,  as well as its General Counsel,  since he joined it in 1995. Mr. Jagid
received a Bachelor of Business Administration from Emory University in 1991 and
a Juris Doctor degree from the Benjamin N. Cardozo School of Law in 1994.  Prior
to joining the Company,  Mr. Jagid was a corporate  litigation  associate at the
law firm of Tannenbaum  Helpern Syracuse & Hirschtritt LLP, in New York City. He
is a member of the Bar of the States of New York and New  Jersey.  Mr.  Jagid is
Bruce Jagid's son.

     N.  Bert  Loosmore  is a  founder  of the  Company  and has  served  as its
Executive Vice President of Technology  since August 1999.  Prior to that, since
inception,  he served as the Company's  Executive Vice President of Engineering.
Mr.  Loosmore has been a Director of the Company since  inception.  He graduated
from  Stanford  University  in 1991 with a Bachelor  of


                                       36
<PAGE>


Science in Electrical  Engineering,  where he concentrated on computer  hardware
and software,  including  microprocessor design. From 1991 to 1992, he worked at
International Business Machines, Inc. as a Design and Test Engineer and later as
a  Production  Engineer.  From 1992  until the  Company's  1193  inception,  Mr.
Loosmore was a Production Engineer at a Silicon Valley networking company.

     Michael L. Ehrman has served as the Company's  Executive  Vice President of
Engineering  since August 1999.  Prior to that, he served as its Executive  Vice
President of Software Development since he joined the Company in 1995. He served
as a director  of the Company  from the date he joined the  Company  until April
1999.  Mr. Ehrman  graduated  from Stanford  University in 1994 with a Master of
Science in  Engineering  Economics  Systems as well as a Bachelor  of Science in
Computer  Systems  Engineering.  Upon his  graduation  in 1994,  Mr.  Ehrman was
employed as a Consultant  for Anderson  Consulting  in New York.  Mr.  Ehrman is
Kenneth Ehrman's brother.

     Ned Mavrommatis has served as the Chief Financial Officer since joining the
Company in August 1999. Prior to joining the Company, he was a Senior Manager at
the  accounting  firm of Richard A. Eisner & Company  L.L.P.  He was a member of
Eisner's  New  Media/Technology  Group  in  the  public  company  practice.  Mr.
Mavrommatis received a Bachelor of Business  Administration  degree from Bernard
M. Baruch  College,  The City  University of New York in 1993. He is a member of
The New York State  Society of  Certified  Public  Accountants  and The American
Institute of Certified Public Accountants.

     Bruce Jagid is a founder of the Company and has served as its Treasurer and
as a Director  since  inception.  Mr.  Jagid  served as Chairman of the Board of
Directors  of  Ultralife  Batteries,  Inc.,  a  public  company  devoted  to the
development  and manufacture of primary and secondary  lithium battery  systems,
from March 1991 to January  1999,  served as its Chief  Executive  Officer  from
January 1992 to January 1999 and  currently  serves as a director.  Prior to Mr.
Jagid's involvement with Ultralife,  he co-founded Power Conversion Inc. and was
its President  until January 1989. Mr. Jagid received his Bachelor of Science in
Mechanical  Engineering  from the City  College  of New  York and  obtained  his
masters degree in Mechanical  Engineering from Rensselaer Polytechnic Institute.
Mr. Jagid is Jeffrey M. Jagid's father.

     Martin  G.  Rosansky  is a founder  of the  Company  and has  served as its
Secretary and as a Director of the Company since  inception.  In March 1991, Mr.
Rosansky co-founded and served as the Vice Chairman of Ultralife Batteries, Inc.
Prior to Ultralife,  in 1970, Mr. Rosansky  co-founded Power  Conversion,  Inc.,
where he was Chairman of the Board, Secretary and Treasurer from 1970 to January
1989. Mr. Rosansky earned a Bachelor of Science in Mechanical  Engineering  from
Polytechnic Institute of Brooklyn in 1960.

     Lawrence  Burstein  has served as a Director of the  Company  since June of
1999.  Since March 1996,  Mr.  Burstein has served as President  and director of
Unity Venture  Capital  Associates,  Ltd., a private  investment  company.  From
January  1982 to March  1996,  Mr.  Burstein  was  Chairman  of the  Board and a
principal  stockholder  of Trinity  Capital  Corporation,  a private  investment
company.  Mr. Burstein is a director of THQ, Inc.,  Brazil Fast Food Corp.,


                                       37
<PAGE>


CAS  Medical   Systems,   Inc.,   Unity   First   Acquisition   Corp.,   Quintel
Communications, Inc. and Medical Nutrition Inc. Mr. Burstein received a Bachelor
of Arts in Economics from the University of Wisconsin and a Bachelor of Law from
Columbia Law School.

     All  directors  currently  hold  office  until the next  annual  meeting of
stockholders  and until their  successors  are duly elected and  qualified.  The
Company's  executive  officers serve at the discretion of the Board of Directors
and until their successors are duly elected and qualified.

Item 10.  Executive Compensation

Summary Compensation Table

     The following table sets forth the  compensation  paid or accrued,  for the
fiscal years ended December 31, 1999 and 1998,  for the Company's  President and
three most highly compensated executive officers other than its President, whose
salary and bonus were in excess of $100,000.


<TABLE>
<CAPTION>
                                                                               Long-Term
                                                  Annual Compensation          Compensation Awards ($)
                                                ---------------------------------------------------------------
                                                                                                 Securities
Name and  Principal                                                             Restricted        Underlying
Position                                  Year  Salary ($)  Bonus ($)          Stock Award     Options/SARs (#)
--------                                  ----  ----------  ---------          -----------     ----------------
<S>                                       <C>    <C>        <C>                    <C>               <C>
Kenneth S. Ehrman,                        1999   $114,500   $ 12,000               --                 --
President                                 1998   $ 80,000   $ 40,000               --                 --

Jeffrey M. Jagid, Chief                   1999   $114,500   $ 12,000               --                 --
 Operating Officer and                    1998   $ 80,000   $ 40,000               --                 --
 General Counsel

N. Bert Loosmore,                         1999   $109,000   $ 24,000               --                 --
Executive Vice President of               1998   $ 80,000   $ 40,000               --                 --
Technology

Michael L. Ehrman,                        1999   $109,000   $ 24,000               --                 --
Executive Vice President of               1998   $ 80,000   $ 40,000               --                 --
Engineering
</TABLE>


                        Option Grants in Last Fiscal Year

     No options  were granted to or exercised  by the  Company's  President  and
three most highly compensates  executive officers during the year ended December
31, 1999.


                                       38
<PAGE>

Employment Agreements

     In June 1999 the Company entered into three-year employment agreements with
Kenneth Ehrman, Jeffrey Jagid, N. Bert Loosmore and Michael Ehrman.  Pursuant to
the agreements,  Messrs.  Ehrman and Jagid are each entitled to base salaries of
$108,000 and Messrs.  Loosmore and Ehrman are each  entitled to base salaries of
$96,000.  Each employment  agreement also provides that the employee is entitled
to a bonus as  determined  by the board of  directors,  from  time to time,  and
options under the Company's 1999 Stock Option Plan.  Each  employment  agreement
provides for a term of three years and is renewable upon mutual consent.

     The employment  agreements may be terminated for cause and, in the event of
change in  control of the  Company,  each  employee  is  entitled  to a lump sum
payment  equal to the  greater  of one  year's  salary  or the base  salary  and
benefits  that would  have been  received  by the  employee  if he had  remained
employed by the Company the remainder of the three year term.

     The employment agreements also contain  confidentiality and non-competition
provisions  prohibiting  the  employee  from  competing  against the Company and
disclosing trade secrets and other proprietary information.

Director Compensation

     The  Company  reimburses  its  directors  for  reasonable  travel  expenses
incurred in connection  with their  activities on behalf of the Company but does
not pay its directors any fees for board participation.

     Non-employee  directors  are entitled to  participate  in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan has a term of ten years, unless terminated
sooner  by the  board.  A total of  300,000  shares of  common  stock  have been
reserved for issuance under this plan.

     This plan provides for the automatic grant of 15,000 shares of common stock
to each  non-employee  director  at the time he or she is first  elected  to the
board of directors.  He or she will automatically be granted a subsequent option
to purchase  5,000  shares on the first day of each fiscal  quarter,  if on such
date he or she has  served on the board for at least  six  months.  Each  option
grant under this plan will have a term of 10 years and will vest on a cumulative
monthly basis over a four-year period. The exercise price of all options will be
equal to the fair market value of the common stock on the date of grant.


                                       39
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The  following  table  sets forth  information  with  respect to the  beneficial
ownership of shares of common stock as of March 27, 2000:

     o    each person or entity who is known by The Company to beneficially owns
          five percent or more of the common stock;

     o    each director and executive officer of The Company; and

     o    all directors and executive officers of The Company as a group.


<TABLE>
<CAPTION>
Name of Beneficial Owners (l)                        Number of Shares    Percent (2)
-----------------------------                        ----------------    -----------
<S>                                                     <C>               <C>
Kenneth Ehrman .................................         565,213(3)        9.74%

N. Bert Loosmore ...............................         581,875(4)        0.03%

Bruce Jagid ....................................         532,825(5)        9.22%

Martin Rosansky ................................         568,663(6)        9.84%

Michael Ehrman .................................         209,650(7)        3.58%

Jeffrey M. Jagid ...............................         255,375(8)        4.37%

All directors and executive officers
as a group (6 persons) .........................       2,713,601(9)       43.38%
</TABLE>

----------
(1)  Unless otherwise indicated,  the address for each named individual or group
     is  in  care  of  the  Company,  Inc.,  One  University  Plaza,  6th  Floor
     Hackensack, NJ 07601.

(2)  Unless otherwise  indicated,  the Company believe that all persons named in
     the table have sole voting and investment  power with respect to all shares
     of common  stock  beneficially  owned by them. A person is deemed to be the
     beneficial  owner of securities  that can be acquired by such person within
     60 days  from the date of March  31,  2000 upon the  exercise  of  options,
     warrants or convertible  securities.  Each  beneficial  owner's  percentage
     ownership is determined by assuming that options,  warrants or  convertible
     securities  that are held by such  person  (but not those held by any other
     person) and which are  exercisable  within 60 days of the date of March 27,
     2000 have been exercised and converted.

(3)  Includes  81,250 shares of common stock  underlying  options granted to Mr.
     Ehrman  pursuant  to the  Company's  1995  Employee  Stock  Option Plan and
     exercisable within sixty days of March 27, 2000.


                                       40
<PAGE>


(4)  Includes  81,250 shares of common stock  underlying  options granted to Mr.
     Loosmore  pursuant to the  Company's  1995  Employee  Stock Option Plan and
     exercisable within sixty days of March 27, 2000.

(5)  Includes  58,125 shares of common stock  underlying  options granted to Mr.
     Jagid  pursuant  to the  Company's  1995  Employee  Stock  Option  Plan and
     exercisable within sixty days of March 27, 2000.

(6)  Includes  58,125 shares of common stock  underlying  options granted to Mr.
     Rosansky  pursuant to the  Company's  1995  Employee  Stock Option Plan and
     exercisable within sixty days of March 27, 2000.

(7)  Includes 128,125 shares of common stock  underlying  options granted to Mr.
     Ehrman  pursuant  to the  Company's  1995  Employee  Stock  Option Plan and
     exercisable within sixty days of March 27, 2000.

(8)  Includes 128,125 shares of common stock  underlying  options granted to Mr.
     Jagid exercisable within sixty days of March 27, 2000.

(9)  Includes 535,000 shares of common stock underlying  options granted to such
     individuals  pursuant to the Company's  1995 Employee Stock Option Plan and
     exercisable within sixty days of March 27, 2000.

1995 Employee Stock Option Plan

     In July 1995,  the Company's  board of directors  adopted the 1995 Employee
Stock Option Plan.  This plan  authorizes the granting of options to purchase up
to  an  aggregate  1,250,000  shares  of  common  stock  to  key  employees  and
consultants.  The options are non-qualified stock options and vest over a period
of five years. This plan terminates at the close of business on July 8, 2005.

     As of December 31,  1999,  options to purchase  1,233,750  shares of common
stock were outstanding  under this plan.  Options to purchase 337,500 shares (of
which an aggregate of 250,000  options are held by directors) are exercisable at
$0.80 per share and options to purchase 896,250 shares (of which an aggregate of
546,875 options are held by directors) are exercisable at $1.20 per share.

1999 Stock Option Plan

     In April 1999, the Company's  board of directors and  stockholders  adopted
the  Company's  1999 Stock Option  Plan,  pursuant to which,  812,500  shares of
common stock are reserved for issuance  upon the exercise of options.  This plan
is designed to serve as an  incentive  for  retaining  qualified  and  competent
employees, directors and consultants.

     The Company's board of directors, or a committee,  administers the plan and
is authorized,  in its discretion, to grant options to all eligible employees of
this plan including  officers and directors of, and consultants to, the Company.
The  plan  provides  for  the  granting  of both


                                       41
<PAGE>


incentive stock options and non-qualified stock options.  Options can be granted
under the plan on terms and at prices as  determined  by the board of directors,
or a committee  of the board of  directors,  except that the  exercise  price of
incentive options will not be less than the fair market value of common stock on
the date of  grant.  In the  case of an  incentive  stock  option  granted  to a
stockholder  who owns more than 10% of the total  combined  voting  power of all
classes of the Company's stock, the per share exercise proceeds will not be less
than 110% of the fair  market  value on the date of grant.  The  aggregate  fair
market  value,  determined  on the  date of  grant,  of the  shares  covered  by
incentive  stock  options  granted under the plan that become  exercisable  by a
grantee for the first time in any calendar year is subject to a $100,000 limit.

     As of December 31, 1999, options to purchase 232,500 shares of common stock
are  outstanding  under  this  plan.  Options  to  purchase  65,000  shares  are
exercisable  at $7.67 per share and  options  to  purchase  167,500  shares  are
exercisable at $4.125 per share. All options are held by non-director employees.

1999 Director Option Plan

     Non-employee  directors  are entitled to  participate  in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan has a term of ten years, unless terminated
sooner  by the  board.  A total of  300,000  shares of  common  stock  have been
reserved for issuance under this plan.

     This plan provides for the automatic grant of 15,000 shares of common stock
to each  non-employee  director  at the time he or she is first  elected  to the
board of directors.  He or she will automatically be granted a subsequent option
to purchase  5,000  shares on the first day of each fiscal  quarter,  if on such
date he or she has  served on the board for at least  six  months.  Each  option
grant under this plan will have a term of 10 years and will vest on a cumulative
monthly basis over a four-year period. The exercise price of all options will be
equal to the fair market value of the common stock on the date of grant.

     As of December 31, 1999,  options to purchase 15,000 shares of common stock
at $7,375 per share are outstanding under this plan.

Item 12.  Certain Relationships and Related Transactions

     During the years ended  December 31, 1998 and 1999,  the Company  purchased
approximately $33,000 and $262,000,  respectively,  of components from a company
where  two of the  Company's  directors  were  directors  in 1998 and one of the
Company's  directors continued to be a director.  Additionally,  at December 31,
1999 $95,000 remained open under a purchase order issued in 1998.


                                       42
<PAGE>


     The Company believe that this transaction was fair and reasonable to it and
was on terms no less favorable  than could have been obtained from  unaffiliated
third  parties.  The  Company  cannot  offer  assurance,  however,  that  future
transactions  or  arrangements  between it and  affiliates  will  continue to be
advantageous  to the Company,  that  conflicts  of interest  will not arise with
respect  thereto,  or that if  conflicts  do arise,  they will be  resolved in a
manner favorable to the Company.  Any such future  transactions will be on terms
no less  favorable  to the  Company  than could be  obtained  from  unaffiliated
parties and will be approved by the Company's compensation committee.

Item 13.  Exhibits, Lists and Reports on Form 8-K

     (a) Exhibits

     The following  exhibits are filed  herewith or are  incorporated  herein by
reference, as indicated.

Number            Description of Exhibit

3.1    Amended and Restated Certificate of Incorporation.

3.2    Amended and Restated By-Laws.

4.1    Specimen Certificate of the Company's Common Stock.

4.2    Form of  Underwriter's  Warrant  Agreement,  including  Form  of  Warrant
       Certificate.

10.1   Agreement between the Company and the United States Postal Service: Offer
       and Award  Standard  dated August 22, 1997,  as modified on May 12, 1998,
       September  8,  1998 and  March  5,  1999.  10.2  Federal  Supply  Service
       Information Technology Schedule Award effective April 15, 2005.

10.3   Form of  Employment  Agreement  between  the  Company  and its  executive
       officers.

10.5   1995 Non-Qualified Stock Option Plan.

10.6   1999 Stock Option Plan.

10.7   Form of Indemnification Agreement.

10.8   1999 Director Stock Option Plan.

10.9   Office  Lease  dated  November  4, 1999  between  the Company and Venture
       Hackensack Holding, Inc.


                                       43
<PAGE>


23.1   Consent of Richard A. Eisner & Company, LLP.

27.1   Financial Data Schedule.

(b)  Reports on Form 8-K

     None


                                       44
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



                               I.D. SYSTEMS, INC.


                               By:      /s/ Kenneth S. Ehrman
                                        ---------------------------------------
                                        Kenneth S. Ehrman
                                        President (Principal Executive Officer)

                               By:      /s/ Ned Mavrommatis
                                        ---------------------------------------
                                        Ned Mavrommatis
                                        Chief   Financial   Officer
                                        (Principal Accounting Officer)


     Pursuant to the  requirements  of the Securities  Act of 1934,  this Annual
Report on Form 10-KSB is signed below by the following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


Signature                         Title                           Date

 /s/ Kenneth S. Ehrman            President and Director          March 27, 2000
---------------------------
Kenneth S. Ehrman

 /s/ Jeffrey M. Jagid             Chief Operating Officer         March 27, 2000
---------------------------       and Director
Jeffrey M. Jagid

 /s/ N. Bert Loosmore             Executive VP of Technology      March 27, 2000
---------------------------        and Director
N. Bert Loosmore

 /s/  Bruce Jagid                 Director                        March 27, 2000
---------------------------
Bruce Jagid

 /s/ Martin G. Rosansky           Director                        March 27, 2000
---------------------------
Martin G. Rosansky

/s/ Lawrence Burstein             Director                        March 27, 2000
----------------------------
Lawrence Burstein


                                       45


<PAGE>


                                  EXHIBIT INDEX


Number                       Description                                    Page
------                       -----------                                    ----
3.1    Amended and Restated Certificate of Incorporation of
       the Company (incorporated herein by reference to the
       Company's Form SB-2 filed with the Commission on June
       30, 1999).                                                              X

3.2    Amended and Restated By-Laws of the Company
       (incorporated herein by reference to the Company's
       Form SB-2 filed with the Commission on June 30, 1999).                  X

4.1    Specimen Certificate of the Company's Common Stock
       (incorporated herein by reference to the Company's
       Form SB-2 filed with the Commission on June 30, 1999).                  X

4.2    Form of Underwriter's Warrant Agreement, including
       Form of Warrant Certificate (incorporated herein by
       reference to the Company's Form SB-2 filed with the
       Commission on June 30, 1999).                                           X

10.1   Agreement between the Registrant and the United
       States Postal Service: Offer and Award Standard dated
       August 22, 1997, as modified on May 12, 1998,
       September 8, 1998, and March 5, 1999 (incorporated
       herein by reference to the Company's Form SB-2 filed
       with the Commission on June 30, 1999).                                  X

10.2   Federal Supply Service Information Technology
       schedule Award effective April 16, 1999 through April
       15, 2004 (incorporated herein by reference to the
       Company's Form SB-2 filed with the Commission on June
       30, 1999).                                                              X

10.3   Form of Employment Agreement between the Company and
       its executive officers (incorporated herein by
       reference to the Company's Form SB-2 filed with the
       Commission on June 30, 1999).                                           X

10.5   1995 Non-Qualified Stock Option Plan (incorporated
       herein by reference to the Company's Form SB-2 filed
       with the Commission on June 30, 1999).                                  X

10.6   1999 Stock Option Plan (incorporated herein by
       reference to the Company's Form SB-2 filed with the
       Commission on June 30, 1999).                                           X

10.7   Form of Indemnification Agreement (incorporated
       herein by reference to the Company's Form SB-2 filed
       with the Commission on June 30, 1999).                                  X

10.8   1999 Director Option Plan (incorporated herein by
       reference to the Company's Form SB-2 filed with the
       Commission on June 30, 1999).                                           X


                                       46
<PAGE>


10.9   Office Lease dated November 4, 1999 between the
       Company and Venture Hackensack Holding, Inc.                           48

23.1   Consent of Richard A. Eisner & Company, LLP.                           49

27.1   Financial Data Schedule.                                               50



                                       47