SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-KSB

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

For the fiscal year ended: December 31, 2003     Commission file number: 1-15087


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


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


One University Plaza, Hackensack, New Jersey                            07601
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)
       Issuer's telephone number, including area code:  (201) 996-9000
       Securities registered pursuant to Section 12(b) of the Act: None
       Securities registered pursuant to Section 12(g) of the Act: Common Stock,
       par value $0.01

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

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

State issuer's revenues for its most recent fiscal year = $7,959,000.

The  aggregate  market  value of the Common Stock held by  nonaffiliates  of the
Issuer was  approximately  42,257,000  based  upon the last sales  price of such
stock on March 17, 2004, as disclosed on The NASDAQ Small Cap Market (IDSY).

The number of shares of common stock, par value $0.01 per share,  outstanding as
of March 17, 2004 was 7,227,000.

                       DOCUMENTS INCORPORATED BY REFERENCE
    Part III incorporates information by reference from the definitive proxy
       statement to be filed in connection with the issuer's 2004 annual
                            meeting of stockholders.


<PAGE>

                                                   TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                     PAGE

<S>             <C>               <C>                                                                                 <C>
PART I. ...............................................................................................................1

                Item 1.           Description of Business..............................................................1

                Item 2.           Description of Properties...........................................................11

                Item 3.           Legal Proceedings...................................................................11

                Item 4.           Submission of Matters to a Vote of Security Holders.................................11

PART II. .............................................................................................................12

                Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters...............12

                Item 6.           Management's Discussion and Analysis of Financial Condition and Results of
                                  Operations..........................................................................12

                Item 7.           Financial Statements................................................................18

                Item 8.           Changes In and Disagreements with Accountants on Accounting and Financial
                                  Disclosure..........................................................................19

                Item 8A.          Controls and Procedures.............................................................19

PART III. ............................................................................................................20

                Item 9.           Directors, Executive Officers, Promoters and Control Persons, Compliance
                                  With Section 16(a) of the Exchange Act..............................................20

                Item 10.          Executive Compensation..............................................................20

                Item 11.          Security Ownership of Certain Beneficial Owners and Management......................20

                Item 12.          Certain Relationships and Related Transactions......................................20

                Item 13.          Exhibits, Lists and Reports on Form 8-K.............................................20

                Item 14.          Principal Accountant and Fees.......................................................23
</TABLE>


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<PAGE>

                                    PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

         I.D. Systems, Inc. (the "Company"), a Delaware corporation incorporated
in 1993,  is a leading  provider of advanced  wireless  solutions  for tracking,
managing,  and securing  enterprise  assets.  The  Company's  patented RF (radio
frequency)  technology  and  proprietary  software,  The Wireless  Asset Net(TM)
System, enables real-time,  automated,  cost-effective monitoring,  control, and
analysis of a broad range of objects.  The Company's solutions can benefit users
by reducing operating costs, increasing security and revenues, improving safety,
enhancing  service,  and increasing  profits.  The Company's  customers  include
American Axle,  Archer Daniels Midland,  Avis Rent A Car System,  Inc.,  Daimler
Chrysler,  Deere & Co., Ford Motor Company,  Hallmark Cards, Target Corporation,
3M Company,  Walgreen Co., the U.S. Navy, the U.S. Postal Service,  and the U.S.
Transportation Security Administration, among others.

2003 HIGHLIGHTS

            o   We commenced a new program with Avis Rent A Car System,  Inc. to
                implement I.D.  Systems'  Wireless Asset Net technology on Avis'
                fleet of approximately 2,000 rental vehicles in Puerto Rico. The
                system is designed to automate various aspects of the car rental
                and return  process,  in order to improve  customer  service and
                increase the efficiency of rental fleet  operations.  We believe
                this program represents a significant new market opportunity for
                I.D. Systems' technology.

            o   Ford Motor  Company  expanded its  deployment  of I.D.  Systems'
                wireless  Industrial  Vehicle  Electronic Control System (IVECS)
                corporate-wide,  which we  believe  reflects  the wide  array of
                material  benefits  that  the  system  is  providing  to  Ford's
                manufacturing operations.

            o   We obtained an additional automotive industry customer, American
                Axle  &  Manufacturing  Holdings,   Inc.,  an  automotive  parts
                producer  with 14 locations in the United  States and 2002 sales
                of $3.5 billion.

            o   We entered into two additional  contracts  with the U.S.  Postal
                Service (USPS),  which  ordered I.D. System's Wireless Asset Net
                system for fleets of  industrial  vehicles at the USPS  Buffalo,
                New  York,  Processing  and  Distribution  Center  and the  USPS
                Northern New Jersey Metro  Processing and  Distribution  Center.
                The Wireless  Asset Net System is  currently  installed at eight
                USPS facilities.

            o   We continued our teamwork with the U.S.  Transportation Security
                Administration  and  the  Port  Authority  of New  York  and New
                Jersey,  under a grant  initiated  in 2002,  to deploy  Wireless
                Asset  Net   technology  on  key  vehicles  at  Newark   Liberty
                International Airport.


                                       1
<PAGE>

            o   We entered  into a new contract  with the National  Shipbuilding
                Research  Program  (NSRP) to develop  and  implement a "Wireless
                Equipment   Monitoring  and  Control  System"  for  select  U.S.
                shipyards.  This  project is one of only seven  selected  by the
                NSRP to receive U.S. Navy  co-funding and the Company is leading
                a team that includes Northrop Grumman Corporation's Ship Systems
                sector,  the National Steel and Shipbuilding  Company (NASSCO, a
                subsidiary of General Dynamics Corporation),  and the Portsmouth
                Naval Shipyard.

            o   We added several  significant  new retail  customers,  including
                Walgreen Co., WinCo Foods, Inc., and Price Chopper supermarkets.

            o   We commenced a new program with 3M Company.

THE TECHNOLOGY

         The primary  hardware  components of the Company's  system are wireless
programmable  "Asset  Communicators"  installed  on each  asset  and one or more
fixed-position  "System  Monitors"  which form a coverage  area.  These  devices
communicate with each other via low-power radio frequency  transmissions with no
ongoing communication costs.

         Asset Communicators are miniature  programmable  computers that provide
significantly  more  functionality than conventional asset tracking "RFID tags".
For   example,   Asset   Communicators   can  control   access,   detect   asset
movement/location,  monitor asset  utilization,  provide two-way text messaging,
and store a large amount of dynamic,  configurable  asset data.  The firmware in
the devices can also be readily customized to meet specific customer needs.

         The system does not require a central or  controlling  computer to make
decisions.  Asset Communicators and System Monitors make decisions autonomously,
which  significantly  reduces  the  overall  system  cost  and  improves  system
reliability.  System Monitors  incorporate a computer network connection as well
as a two-way radio frequency transceiver, and are capable of linking to both the
mobile assets being monitored and to management software on the network.

         The Company  designs and implements  software as well as hardware.  Its
modular  software  systems  are  user-friendly,   utilizing  a  robust  database
platform, a Windows-style browser-based graphical user interface and options for
both client-server and web-based delivery.

CURRENT TARGET MARKETS

         While there are diverse applications for its technology, the Company is
currently  focused  on  companies  that  need to  monitor,  control  and  manage
industrial vehicles and rental fleet vehicles.

         INDUSTRIAL VEHICLE  APPLICATIONS.  The Company's WIRELESS ASSET NET(TM)
fleet  management  system is designed to address the safety,  security  and cost
issues of the material handling industry.


                                       2
<PAGE>

         To improve fleet safety and security, the system provides:

            o   wireless  vehicle access control to restrict access of equipment
                to  trained  and  authorized  personnel,   as  required  by  the
                Occupational Safety and Health Administration ("OSHA");

            o   electronic vehicle inspection  checklists for paperless proof of
                OSHA compliance;

            o   early detection of emerging vehicle safety issues; and

            o   impact sensing to assign responsibility for accidents.

         The Company's system is designed to prevent unauthorized personnel from
operating  equipment,  which we believe  results  in  optimizing  fleet  health,
eliminating  anonymous accidents and reducing  damage-related  costs. To further
reduce fleet  maintenance  costs,  the  Wireless  Asset Net also  automates  and
enforces preventative maintenance scheduling by:

            o   wirelessly uploading true "drive-time" data from each individual
                vehicle;

            o   automatically  prioritizing maintenance events based on weighted
                variables; and

            o   enabling  remote lock-out of vehicles  overdue for  maintenance.
                The  system  can  also   interface   seamlessly   with  existing
                maintenance databases.

         To generate  perhaps  the most  significant  impact on fleet  operating
costs,  the Wireless  Asset Net  provides a set of tools to measure  vehicle and
operator utilization and justify fleet and or personnel  reductions.  The system
automatically records the actual usage-time against idle-time of each individual
vehicle/operator  to benchmark  productivity,  compare  performance,  and enable
informed  decisions about vehicle  allocation,  disposal,  and replacement.  The
system also visually  monitors the location of vehicles -- both in real time and
historically  -- to locate  vehicles  that are idle or due for  maintenance,  to
instantly track vehicle inventory,  and to monitor vehicle travel-paths in order
to optimize  labor  efficiencies.  In  addition,  the system  communicates  work
instructions   to  vehicle   operators   via  two-way  text  paging  to  improve
productivity.

         The Company  believes  its  Wireless  Asset Net  technology  can have a
significant  impact on the  security of airports and  military  bases.  Aircraft
ground support equipment includes aircraft tow tractors,  cargo loaders, baggage
tractors,  fuel trucks,  and catering trucks. The Company believes there are few
systems that effectively  control and monitor the use of these vehicles.  In the
absence of such  controls,  a  perpetrator  who gains access to the ramp area at
airports  could  access  ground  support  equipment  without  restriction.   The
Company's wireless solution prevents unauthorized use of aircraft ground support
equipment by linking vehicle ignition to a personal identification system and/or
biometrics.  The system  requires an  operator  to present an access  control ID
badge to the system's  intelligent  vehicle-mounted  hardware (and,


                                       3
<PAGE>

optionally,  enter a PIN  code)  prior to  operating  a  vehicle  that  services
aircraft. A person must be authorized and trained for a particular vehicle, in a
particular area of the airport, at a particular time of day, in order to use the
vehicle.  This driver  tracking  and control  technology  not only  prevents the
unauthorized use of equipment,  but it also allows equipment to be instantly and
remotely deactivated via radio frequency in the event of an emergency.

         The   industrial   vehicle  market  is  the  Company's  most  developed
application.  Customers that have piloted and/or deployed the Company's Wireless
Asset Net  system  include,  American  Axle,  Archer  Daniels  Midland,  Daimler
Chrysler,  Deere & Co., Ford Motor Company,  Hallmark Cards, Target Corporation,
3M Company,  Walgreen Co., the U.S. Navy, the U.S. Postal Service,  and the U.S.
Transportation Security Administration, among others.

         RENTAL FLEET APPLICATIONS. The Company's wireless rental car monitoring
system automatically uploads mileage and fuel data from rental vehicles,  and is
designed  to produce a  significant  impact on rental  revenues  and  quality of
customer service to the user's customers.

         There are many benefits offered by the Company's solution to car rental
companies,  with  two  such  benefits  being  the most  significant.  First,  by
accurately  reporting  fuel  levels,  without  human  intervention,  rental  car
companies can potentially  increase revenues by accurately billing customers for
fuel used.  Second,  by utilizing the Company's  system,  the average car return
transaction,  including  customer wait time,  can be reduced as well.  This time
savings  can  allow the  rental  company  to reduce  staff  and/or  devote  more
attention  to  customer  service  or  vehicle  inspections,  which may result in
detecting damage that would otherwise go unnoticed and uncharged.

         The system also automates the car rental and car handling processes. As
a customer approaches the exit gate, the system recognizes the identification of
the car and validates the rental for security purposes. In addition,  the system
prints the rental  agreement  for the  customer as he/she  leaves the lot.  This
functionality  eliminates the need to pre-assign  vehicles and pre-print  rental
contracts. The system is also designed to optimize fleet usage by automating the
inventory process and monitoring the flow of vehicles.

         The  Company and Avis Rent A Car  System,  Inc.  commenced a program to
implement the Company's Wireless Asset Net fleet management  technology on Avis'
fleet of  approximately  2,000 rental  vehicles in Puerto Rico.  Puerto Rico was
selected  because it allows the use of the  Company's  system on a captive fleet
which is intended to be  representative of benefits that can also be achieved as
a result of broader based implementation.

FUTURE APPLICATIONS AND OTHER MARKETS

         Deployment  of  the  Company's  system   infrastructure  in  customers'
facilities creates many new revenue opportunities.  The Company's system enables
virtually any asset owned, operated or maintained by a customer to be monitored.
With relatively simple  customizations,  the Company can create and deploy asset
"tags" to track pallets and containers, control the use of machinery, cranes and
manage other assets. Once these tags are deployed,  the customer can utilize one
integrated  system for all of its asset tracking and monitoring  needs. To date,
the


                                       4
<PAGE>

Company delivered effective systems that have demonstrated  significant benefits
by providing companies with the ability to monitor, control and manage railcars,
as well as letters and packages.

MANUFACTURING

         The Company outsources its hardware manufacturing operations to leading
contract  manufacturers  including Flextronics  International Ltd. and NuVisions
Manufacturing  Inc.  This  strategy  enables  the  Company  to focus on its core
competency - designing hardware and software systems and delivering solutions to
customers   -  and  to  avoid   investing   in   capital-intensive   electronics
manufacturing  infrastructure.  Outsourcing  also  provides the Company with the
ability to ramp up deliveries  to meet  increases in demand  without  increasing
fixed expenses.

SALES AND MARKETING

         The Company's sales and marketing  objective is to achieve broad market
penetration through targeted sales activities. The Company currently markets its
system directly to large corporations and government agencies. In addition,  the
Company is  developing  strategic  relationships  with key  companies  in target
markets,  including  original  equipment  manufacturers  (OEMs),   complementary
hardware and software vendors, and service providers.

         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 further  competitive  bidding,  until April
2004.  The  Company  believes  that this  contract  provides  significant  sales
opportunities with government agencies.


                                       5
<PAGE>

RESEARCH AND DEVELOPMENT

         In the past,  we focused our  research and  development  efforts on the
development and deployment of a "universal  system," which allows widespread use
of the Company's hardware and software on a broad and diverse base of industrial
equipment assets without requiring multiple or custom versions.

         In  addition,   the  Company   customized  its  core  fleet  management
technology to meet the needs of several emerging  markets,  including the rental
car market and the airport ground service  equipment  market. As a result of the
important  security  implications  of the  Company's  technology  in the airport
environment,  our internal research and development funding was partially offset
by the Transportation Security Administration.

         We  intend  to  continue  our  commitment  to  leading-edge  technology
development.  Current research and development  efforts have  transitioned to:

            o   further   expanding   the  list  of  features  and  benefits  to
                customers;

            o   meeting the requirements of new classes of assets;

            o   reducing the size and cost of the Company's core products; and

            o   simplifying product manufacturing and deployment.

Additionally,  we believe that the Company's core digital, wireless and software
systems have and will continue to expand on cutting-edge technologies.

COMPETITION

         The market for wireless tracking and management of enterprise assets is
relatively new,  constantly  evolving,  and competitive.  Although the Company's
current  competitors  do not provide the precise  capabilities  of the Company's
systems, they do offer subsets of the Company's system capabilities or alternate
approaches to the issues the Company's products address. Those companies include
both  emerging  companies  with limited  operating  histories,  such as WhereNet
Corp.,  Media  Recovery,  Inc., and companies with longer  operating  histories,
greater name recognition and/or significantly  greater financial,  technical and
marketing  resources  than  the  Company,   such  as  Savi  Technology,   Symbol
Technologies,  Inc., and Intermec  Technologies  Corp. The Company  expects that
competition  will intensify in the near future.  However,  the Company  believes
there are significant barriers to entry for the Company's potential competitors.

INTELLECTUAL PROPERTY

         The Company  currently has one United States patent and pending  patent
applications  relating  to the  Company's  system  architecture  and  rental car
technology.  It also has a corresponding  patent and pending patent applications
in selected  foreign  countries.  The patents  and patent  applications  may not
provide  the  Company  with any  competitive  advantage.  Many of


                                       6
<PAGE>

the Company's current and potential  competitors dedicate  substantially greater
resources to protection and enforcement of intellectual property rights.

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

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

            o   reengineer  the  Company's   products   successfully   to  avoid
                infringement;

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

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

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

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

EMPLOYEES

         The Company  currently has thirty-seven  full time employees,  of which
nine are engaged in product  development  (which includes  engineering),  six in
operations, nine in customer satisfaction, six in sales and marketing, and seven
in finance and general administration.


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<PAGE>

RISK FACTORS

THE MARKET FOR OUR TECHNOLOGY MIGHT NOT CONTINUE TO DEVELOP, CAUSING OUR
REVENUES TO DECREASE

         Our success is highly dependent on the continued  market  acceptance of
our wireless  monitoring and tracking system. The market for wireless monitoring
and  tracking  products  and  services is new and rapidly  evolving.  We are not
certain that our future target  customers will purchase our wireless  monitoring
and  tracking  system.  Additionally,  we cannot  assure you that the market for
wireless  monitoring and tracking  technology  will continue to emerge or become
sustainable.  If the market for our products fails to grow, develops more slowly
than we expect or becomes  saturated with competing  products or services,  then
our revenues  will not increase and our  financial  condition  may be materially
adversely affected.

OUR CONCENTRATION OF REVENUE TO ONE MAJOR CUSTOMER, FORD MOTOR COMPANY, MAY
ADVERSELY AFFECT OUR BUSINESS IF FORD DECIDES TO DISCONTINUE PURCHASING OUR
PRODUCTS.

         During 2003,  net sales to our largest  customer,  Ford Motor  Company,
represented  58% of  total  revenue  and 54% of our  accounts  receivable  as of
December 31, 2003. Our revenue and our profitability would be adversely affected
if this customer  ceased  purchasing from us. We would have no guarantee that we
would be able to replace the loss of such revenue with existing or new customers
or in a timely manner to avoid an adverse financial impact to our business.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, LIMITING OUR ABILITY
TO DEVELOP AND EXPAND OPERATIONS

         Based on our current estimates, we believe that we have sufficient cash
to continue  operations for at least the next 12 months.  Unplanned  expenses or
development  opportunities may require us to raise additional capital. We cannot
be certain that additional financing will be available when we require it and to
the extent that we require it. If additional funds are unavailable to us, or are
not available to us on acceptable terms, we may be unable to fund our expansion,
develop or enhance our products or respond to competitive pressures.

IF WE RAISE ADDITIONAL CAPITAL THROUGH THE SALE OF COMMON STOCK, PREFERRED STOCK
OR CONVERTIBLE DEBT SECURITIES, THE PERCENTAGE OWNERSHIP OF OUR THEN EXISTING
STOCKHOLDERS WILL BE DILUTED

         We have  issued  common  stock,  options and  warrants to purchase  our
common stock, and in the future we may issue additional  shares of common stock,
options,  warrants,  preferred  stock or  other  securities  exercisable  for or
convertible  into our common  stock.  At March 17, 2004,  there were warrants to
purchase 307,125 shares of common stock  outstanding.  Additionally,  there were
options to employees and directors outstanding for the purchase of approximately
2,551,000  shares of our common stock.  We expect to continue to grant employees
stock  options.  Holders  of our  common  stock do not have  preemptive  rights.
Therefore,  issuances  of  additional  securities  will  dilute  the  percentage
ownership of our stockholders.


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<PAGE>

OUR FAILURE TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY IMPAIR OUR COMPETITIVE
POSITION

         We believe that we have a competitive advantage due to our intellectual
property rights.  Although we seek to protect our  intellectual  property rights
through  patents,  copyrights,  trade secrets and other  measures,  we cannot be
certain that: we will be able to adequately protect our technology;  our patents
will not be  successfully  challenged by one or more third parties,  which could
result in our loss of the right to prevent others from exploiting the technology
described  in the  patent;  competitors  will  not be  able to  develop  similar
technology  independently;  and  intellectual  property laws will be adequate to
protect our intellectual property rights. Furthermore, policing the unauthorized
use of our products is difficult,  and expensive  litigation may be necessary to
enforce our intellectual property rights. Accordingly, we cannot be certain that
we will be able to protect our  proprietary  rights against  unauthorized  third
party  copying or use. If we are  unsuccessful  in protecting  our  intellectual
property, we may lose the technological advantage we have over competitors.

WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM A
CLAIM OF INFRINGEMENT BY A THIRD PARTY

         In recent years,  there has been  significant  litigation in the United
States   involving   claims  of  alleged   infringement  of  patents  and  other
intellectual  property rights.  We could incur  substantial  costs to defend any
such  litigation.  Although we are not  currently  involved in any  intellectual
property  litigation,  we may be a party to litigation in the future as a result
of an alleged  infringement of another's  intellectual  property.  If a claim of
infringement of intellectual property rights was decided against us, we could be
required to: cease  selling,  incorporating  or using  products or services that
incorporate the challenged intellectual property;  obtain from the holder of the
infringed  intellectual  property  right a license  to sell or use the  relevant
technology,  which license may not be available on reasonable terms; or redesign
those products or services that incorporate such technology.

IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, WE MAY BE UNABLE TO
MEET THE NEEDS OF OUR CUSTOMERS

         Our market is characterized by rapid technological  change and frequent
new product  announcements.  Significant  technological changes could render our
existing technology obsolete.  If we are unable to successfully respond to these
developments  or do not  respond in a  cost-effective  way, we will be unable to
satisfactorily meet the needs of our customers. To be successful,  we must adapt
to  rapidly   changing   market   conditions   by   continually   improving  the
responsiveness,  services and features of our  products  and by  developing  new
features to meet customer needs. Our inability to meet customer needs would lead
to a loss of customers.

IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL, OUR
BUSINESS MAY SUFFER

         We are dependent on the continued  employment  and  performance  of our
executive  officers  and key  employees,  particularly  Jeffrey M. Jagid,  Chief
Executive Officer,  Kenneth S. Ehrman, Chief Operating Officer, Ned Mavrommatis,
Chief Financial Officer,  Michael Ehrman,


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<PAGE>

Executive  Vice  President  Engineering  and  Frederick  Muntz,  Executive  Vice
President Sales and Marketing.  We currently do not have  employment  agreements
with our key employees.  Like other  companies in our industry,  we face intense
competition  for  qualified  personnel.  Many of our  competitors  for qualified
personnel have greater resources than we have. We cannot be certain that we will
be able to maintain salaries at market levels.  Therefore,  we cannot be certain
that we will be successful in attracting or retaining qualified personnel in the
future.

WE MIGHT NOT BE ABLE TO OBTAIN THE SERVICES OF QUALIFIED SUBCONTRACTORS TO
PRODUCE OUR PRODUCTS LEADING TO DISRUPTION IN PRODUCTION AND DISTRIBUTION OF OUR
PRODUCTS TO OUR CUSTOMERS

         In order to meet our requirements  under our contracts,  we rely on the
efforts and skills of subcontractors for the manufacture of our products and the
delivery of our products to our customers.  There is great  competition  for the
most qualified and competent subcontractors.  If we are unable to afford or hire
qualified subcontractors the quality of our services and products could decline.
Such conditions would limit our ability to perform our contracts with customers.

THE FEDERAL GOVERNMENT MIGHT IMPLEMENT SIGNIFICANT REGULATIONS WHICH MIGHT
REQUIRE US TO INCUR SIGNIFICANT COMPLIANCE COSTS

         Our products  transmit radio frequency waves, the transmission of which
is  governed  by  the  rules  and  regulations  of  the  Federal   Communication
Commission.  Our ability to design,  develop and sell our products will continue
to be  subject  to  the  rules  and  regulations  of the  Federal  Communication
Commission  for  the  foreseeable  future.  The  implementation  of  unfavorable
regulations, or unfavorable interpretations of existing regulations by courts or
regulatory bodies, could require us to incur significant  compliance costs cause
the  development  of the  affected  markets to become  impractical  or otherwise
adversely affect our ability to produce or market our products.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH WE WILL BE UNABLE TO
SUCCESSFULLY OPERATE OUR BUSINESS IN THE FUTURE

         Our rapid  growth has placed,  and is expected to continue to place,  a
significant  strain on our  managerial,  technical,  operational  and  financial
resources.  To manage our expected growth, we will have to implement and improve
our operational and financial systems,  and we will have to train and manage our
growing   employee   base.  We  will  also  need  to  maintain  and  expand  our
relationships with customers,  subcontractors and other third parties. If we are
unable to effectively manage our growth, our business may become inefficient and
we might not be able to effectively compete with competitors.

OUR NEW PRODUCTS MAY CONTAIN TECHNOLOGICAL FLAWS AND WE MAY INCUR SUBSTANTIAL
LIABILITY DUE TO THESE FLAWS

         Complex  technological  products  like ours  often  contain  undetected
errors or failures  when first  introduced  or when new versions of the products
are introduced.  Despite our every effort to eliminate these flaws,  there still
may be flaws in our new  products,  even after the  commencement  of  commercial
shipments. These flaws could result in a delay of, or failure to,


                                       10
<PAGE>

achieve market acceptance of our products, which, since our products are used in
business  critical  applications  could lead to  substantial  product  liability
claims.  Such claims could not only  adversely  affect our  immediate  financial
condition, but could permanently injure our reputation in our industry.

ITEM 2.  DESCRIPTION OF PROPERTIES

         In November  1999,  the Company  entered  into a lease that  expires on
March 31, 2010 for a facility in Hackensack,  New Jersey, covering approximately
22,500 square feet,  which the Company first occupied in March 2000. The rent is
currently $31,060 per month and will increase to $34,835 per month from the 61st
month  until the end of the lease.  During  2003,  the Company  entered  into an
agreement  to  sublease  6,270  square feet  through  the end of the lease.  The
sublease  provides  for  monthly  payments  of  $11,619  and also  provides  for
escalations  relating to increases  in real estate  taxes and certain  operating
expenses.

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

QUARTER ENDING:                                          HIGH               LOW

2002
March 31, 2002                                          $11.65             $6.65
June 30, 2002                                           $ 8.30             $2.69
September 30, 2002                                      $ 6.00             $3.25
December 31, 2002                                       $ 4.59             $3.48

2003
March 31, 2003                                          $ 5.19             $4.02
June 30, 2003                                           $ 8.20             $4.54
September 30, 2003                                      $ 9.24             $7.08
December 31, 2003                                       $10.00             $5.77

2004
January 1, 2004 - March 17, 2004                        $ 8.50             $6.05

         There were 26 registered  holders and  approximately  1,500  beneficial
owners  of the  Company's  Common  Stock of  record as of March  17,  2004.  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.


                                       12
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         This discussion and analysis of our financial  condition and results of
operations are based on our financial  statements  that have been prepared under
accounting  principles  generally accepted in the United States of America.  The
preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States of America  requires our  management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  and the reported  amounts of revenue and expenses
during the reporting  period.  Actual results could materially differ from those
estimates.  We have disclosed all significant  accounting  policies in note B to
the financial  statements included in this Form 10-KSB. The financial statements
and the related notes thereto should be read in  conjunction  with the following
discussion of our critical accounting policies. Our critical accounting policies
are:

REVENUE RECOGNITION

         The Company's revenues are derived from contracts with multiple element
arrangements,  which  include  the  Company's  system,  training  and  technical
support. Revenues are recognized as each element is earned based on the relative
fair value of each element and when there are no  undelivered  elements that are
essential to the functionality of the delivered  elements.  The Company's system
is  typically  implemented  by the  customer  or a third party and, as a result,
revenue is recognized  when title passes to the customer,  which usually is upon
delivery of the system, provided all other revenue recognition criteria are met.
Training and  technical  support  revenue are  generally  recognized  at time of
performance.

         The  Company  also enters into  post-contract  maintenance  and support
agreements.  Revenue  is  recognized  over the  service  period  and the cost of
providing these services is expensed as incurred.

         During  2002  the  Company  began   deriving   revenues  under  leasing
arrangements. Such arrangements provide for monthly payments covering the system
sale,  maintenance  and  interest.  These  arrangements  meet the criteria to be
accounted for as sales-type leases pursuant to Statement of Financial Accounting
Standards  No. 13,  "Accounting  for  Leases".  Accordingly,  the system sale is
recognized upon delivery of the system,  provided all other revenue  recognition
criteria are met. Upon the  recognition of revenue,  an asset is established for
the "investment in sales-type  leases".  Maintenance revenue and interest income
are recognized monthly over the lease term. The Company recognized  $618,000 and
$784,000  of system  sales  during the years ended  December  31, 2003 and 2002,
respectively,  pursuant to such  arrangements.  These  arrangements  provide for
sixty equal monthly  payments and interest has been imputed at 6% per annum.  In
June 2003 the Company received  approximately  $1,231,000 in connection with the
assignment  of  certain  sales type  leases to a  third-party  leasing  company.
$211,000 of the proceeds from these assignments  related to maintenance that the
Company is  obligated to perform and which is being  recognized  as revenue over
the remaining terms of the related maintenance agreements.  At December 31, 2003
approximately $186,000 is included in deferred revenue.


                                       13
<PAGE>

         The Company recognized $1,536,000 of system sales in 2002 in connection
with an  installment  sale.  The  arrangement  provided  for a $470,000  upfront
payment and equal monthly  payments of  approximately  $26,000 through  November
2007,  which include  principal,  imputed interest at approximately 7% per annum
and approximately $5,000 of maintenance, which is recognized as revenue monthly.
In November 2003, the Company  received  approximately  $1,070,000 in connection
with the assignment of the  installment  sale to a third party leasing  company.
$196,000 of the proceeds from this  assignment  relates to maintenance  that the
Company is  obligated to perform and which is being  recognized  as revenue over
the remaining term of the related maintenance  agreement.  At December 31, 2003,
approximately $188,000 is included in deferred revenue.

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,
                                                  ------------------------------
                                                     2002                2003
                                                  ----------          ----------

Revenues                                            100.0%              100.0%
Cost of revenues                                     43.8                51.2
                                                  ----------          ----------

Gross profit                                         56.2                48.8
Selling, general and administrative expenses         69.2                56.0
Research and development expenses                    16.9                11.2
                                                  ----------          ----------

Loss from operations                                (29.9)              (18.4)
Net interest income                                   4.9                 2.6
Other income                                         --                   0.7
                                                  ----------          ----------

Net loss                                            (25.0)              (15.1)
                                                  ==========          ==========

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

REVENUES. Revenues were $7,959,000 for the year ended December 31, 2003 compared
to $5,544,000 in the year ended  December 31, 2002. The increase in revenues for
the year is attributable to increased sales of the Company's  Wireless Asset Net
system for tracking and managing fleets of industrial  equipment.  The Company's
customer  base now includes  American  Axle,  Archer  Daniels  Midland,  Daimler
Chrysler,  Deere & Co., Ford Motor Company,  Hallmark Cards, Target Corporation,
3M Company,  Walgreen Co., the U.S. Navy, the U.S. Postal Service,  and the U.S.
Transportation Security Administration, among others.

COST OF REVENUES.  Cost of revenues were  $4,075,000 for the year ended December
31, 2003  compared to  $2,430,000  in the year ended  December  31,  2002.  As a
percentage  of


                                       14
<PAGE>

revenues,  cost of revenues  increased  to 51.2% in the year ended  December 31,
2003 from 43.8% in the year ended December 31, 2002.  This  percentage  increase
was primarily  attributable to the sale of certain higher margin services during
the year ended December 31, 2002 and the write-off of approximately  $150,000 of
obsolete  components  during the year ended December 31, 2003.  Gross profit was
$3,884,000  in the year ended  December 31, 2003  compared to  $3,114,000 in the
year ended  December  31,  2002.  As a  percentage  of  revenues,  gross  profit
decreased  to 48.8% in the year ended  December  31, 2003 from 56.2% in the year
ended December 31, 2002.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses  were  $4,456,000  in the year ended  December 31, 2003
compared to  $3,835,000  in the year ended  December 31, 2002.  The increase was
primarily  attributable  to an increase in payroll  expenses  and an increase in
insurance  premiums for the  Company's  insurance  policies.  As a percentage of
revenues, selling, general and administrative expenses decreased to 56.0% in the
year ended December 31, 2003 from 69.2% in the year ended December 31, 2002.

RESEARCH AND  DEVELOPMENT  EXPENSES.  Research  and  development  expenses  were
$891,000 in the year ended  December  31, 2003  compared to $938,000 in the year
ended December 31, 2002. This decrease was attributable to the completion of the
Company's  "universal system" of hardware and software for tracking and managing
fleets of industrial  vehicles.  The Company's research and development  efforts
during  the year ended  December  31,  2003 were  devoted  primarily  to product
enhancements and  manufacturing  cost  reductions.  As a percentage of revenues,
research and development  expenses decreased to 11.2% in the year ended December
31, 2003 from 16.9% in the year ended December 31, 2002.

INTEREST  INCOME.  Interest  income was $269,000 in the year ended  December 31,
2003 as compared to $279,000 in the year ended  December 31,  2002.  The Company
invests in commercial  paper and corporate bonds which are classified as held to
maturity.  During the year ended  December  31, 2002 the Company  began  earning
interest income in connection with sales type lease  arrangements.  During 2003,
the  majority of the sales type leases  were  assigned to a third party  leasing
company.

INTEREST  EXPENSE.  Interest  expense was $59,000 in the year ended December 31,
2003 as compared to $4,000 in the year ended  December 31, 2002.  This  increase
was  attributable  to the Company's  working capital line of credit and its five
year term loan.

OTHER  INCOME.  Other  income of  $54,000 in the year ended  December  31,  2003
reflects rental income from a sublease arrangement.

NET  LOSS.  Net loss was  $1,199,000  in the year  ended  December  31,  2003 as
compared to net loss of  $1,384,000  in the year ended  December 31, 2002.  This
decrease was due primarily to the reasons described above.


                                       15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2003,  the Company had cash,  cash  equivalents  and
investments  of  $8,618,000  and working  capital of  $8,180,000  as compared to
$7,757,000 and $8,295,000, respectively, at December 31, 2002.

         Net cash used in operating  activities  was $235,000 for the year ended
December  31,  2003 as  compared  to net cash used in  operating  activities  of
$3,640,000  for the year ended  December  31,  2002.  Net cash used in operating
activities  in the year ended  December 31, 2003 was primarily due to a net loss
of $1,199,000,  an increase in accounts receivable of $1,110,000, an increase in
deferred contract costs of $675,000,  a decrease in accounts payable and accrued
expenses of $150,000 and a decrease in other  liabilities of $100,000  partially
offset by a decrease  in  installment  receivable  of  $867,000,  a decrease  in
inventory  of  $795,000,  a  decrease  in  investment  in sales  type  leases of
$571,000,  an increase in deferred revenue of $348,000,  amortization of premium
on investments of $174,000 and depreciation  and  amortization of $173,000.  Net
cash used in  operating  activities  in the year  ended  December  31,  2002 was
primarily due to a net loss of $1,384,000, an increase in accounts receivable of
$880,000,  an increase in  installment  receivable  of $867,000,  an increase in
investment  in sales type  leases of  $681,000,  an  increase  in  inventory  of
$627,000 and a decrease in other  liabilities of $100,000  partially offset by a
an  increase  in  accounts   payable  and  accrued   expenses  of  $631,000  and
depreciation and amortization of $201,000.

         Net cash used in investing  activities  for the year ended December 31,
2003 was  $1,945,000  as compared to net cash used in  investing  activities  of
$1,467,000  for the year ended  December  31,  2002.  Net cash used in investing
activities in the year ended  December 31, 2003 was primarily  from purchases of
investments  of  $5,698,000  and the  purchases  of  fixed  assets  of  $339,000
partially  offset by maturities of investments  of $4,084,000.  Net cash used in
investing  activities  in the year ended  December 31, 2002 was  primarily  from
purchases of  investments  of  $4,603,000  and the  purchases of fixed assets of
$340,000 partially offset by maturities of investments of $3,600,000.

         Net cash provided by financing  activities  for the year ended December
31, 2003 was $1,601,000 as compared to net cash provided in financing activities
of  $6,439,000  for the year ended  December  31,  2002.  Net cash  provided  by
financing  activities for the year ended December 31, 2003,  resulted  primarily
from the proceeds of  $1,000,000  received in connection  with  obtaining a five
year term loan and $765,000 of proceeds received from exercise of employee stock
options,  partially  offset by $164,000 of repayments  made under the term loan.
Net cash provided by financing  activities for the year ended December 31, 2002,
resulted  primarily  from  $6,143,000  received in  connection  with the sale of
821,250 shares of common stock,  $169,000 of proceeds  received from exercise of
employee stock options, and $137,000 of borrowings under a line of credit.

         In  January  2003,  the  Company  closed on a  five-year  term loan for
$1,000,000 with a financial institution. Interest at the 30 day LIBOR plus 1.75%
and principal are payable monthly. To hedge the loan's floating interest expense
the  Company  entered  into an  interest  rate


                                       16
<PAGE>

swap  contemporaneously  with the  closing  of the loan  and  fixed  the rate of
interest at 5.28% for the five year term.

         The Company  believes it has  sufficient  cash,  cash  equivalents  and
investments for the next twelve months of operations.

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

FORWARD LOOKING STATEMENTS

Certain  statements  in this Annual  Report on Form  10-KSB,  under the sections
"Management  Discussion  and  Analysis  of  Financial  Condition  and Results of
Operations,"  "Business" and elsewhere  relate to future events and expectations
and as such constitute  "forward-looking  statements"  within the meaning of the
Private  Securities  Litigation  Reform  Act  of  1995.  The  words  "believes,"
"anticipates,"  "plans,"  "expects,"  and similar  expressions  are  intended to
identify  forward-looking  statements.  Such forward-looking  statements involve
known and unknown  risks,  uncertainties,  and other factors which may cause the
actual  results,  performance  or  achievements  of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied  by  such  forward-looking  statements  and to vary  significantly  from
reporting  period to reporting  period.  These forward  looking  statements were
based  on  various  factors  and  were  derived  utilizing   numerous  important
assumptions  and  other  factors  that  could  cause  actual  results  to differ
materially  from those in the forward  looking  statements,  including,  but not
limited  to:  uncertainty  as to the  Company's  future  profitability  and  the
Company's ability to develop and implement  operational and financial systems to
manage rapidly  growing  operations,  competition in the Company's  existing and
potential  future  lines of  business,  and other  factors.  Other  factors  and
assumptions  not identified  above were also involved in the derivation of these
forward  looking  statements,  and the failure of such other  assumptions  to be
realized,  as well as other  factors,  may also cause  actual  results to differ
materially  from those  projected.  The Company  assumes no obligation to update
these  forward  looking  statements  to  reflect  actual  results,   changes  in
assumptions  or  changes  in  other  factors   affecting  such  forward  looking
statements.


                                       17
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

         <S>                                                                              <C>
         CONTENTS                                                                         PAGE

         Independent auditors' report                                                     F-1

         Balance sheet as of December 31, 2003                                            F-2

         Statements of operations for the years ended December 31, 2002 and 2003          F-3

         Statements of changes in stockholders' equity for the years ended
         December 31, 2002 and 2003                                                       F-4

         Statements of cash flows for the years ended December 31, 2002 and 2003          F-5

         Notes to financial statements                                                    F-6
</TABLE>


                                       18
<PAGE>

INDEPENDENT AUDITORS' REPORT

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



We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 2003 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 2002 and
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of I.D. Systems, Inc. as of December
31, 2003 and the results of its operations and its cash flows for the years
ended December 31, 2002 and 2003, in conformity with accounting principles
generally accepted in the United States of America.



/s/ Eisner LLP
--------------
New York, New York
February 20, 2004


                                      F-1
<PAGE>

I.D. SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 2003

ASSETS
Current assets:
   Cash and cash equivalents                                        $ 3,179,000
   Investments                                                        3,339,000
   Accounts receivable, net                                           2,204,000
   Inventory                                                            676,000
   Investment in sales type leases                                       37,000
   Interest receivable                                                   75,000
   Officer loan                                                          10,000
   Prepaid expenses and other current assets                            129,000
                                                                   -------------

         Total current assets                                         9,649,000

Investments - noncurrent                                              2,100,000
Fixed assets, net                                                       845,000
Investment in sales type leases                                          73,000
Officer loan                                                             31,000
Deferred contract costs                                                 675,000
Other assets                                                             97,000
                                                                   -------------

                                                                    $13,470,000
                                                                   =============

LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses                            $ 1,055,000
   Long term debt - current portion                                     188,000
   Line of credit                                                       137,000
   Deferred revenue                                                      89,000
                                                                   -------------

         Total current liabilities                                    1,469,000

Long term debt                                                          648,000
Deferred revenue                                                        285,000
Deferred rent                                                            89,000
                                                                   -------------

                                                                      2,491,000
                                                                   -------------
Commitments (Note J)

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
   7,097,000 shares                                                      71,000
Additional paid-in capital                                           22,804,000
Treasury stock; 40,000 shares at cost                                  (113,000)
Accumulated deficit                                                 (11,783,000)
                                                                  --------------

                                                                     10,979,000
                                                                  --------------

                                                                   $ 13,470,000
                                                                  ==============


                                      F-2
<PAGE>

I.D. SYSTEMS, INC.
STATEMENTS OF OPERATIONS

                                                      YEAR ENDED DECEMBER 31,
                                                   -----------------------------
                                                       2002             2003
                                                   -------------    ------------

Revenue                                             $5,544,000       $7,959,000
Cost of revenue                                      2,430,000        4,075,000
                                                   -------------    ------------

Gross profit                                         3,114,000        3,884,000
                                                   -------------    ------------

Operating expenses:
    Selling, general and administrative expenses     3,835,000        4,456,000
    Research and development expenses                  938,000          891,000
                                                   -------------    ------------

                                                     4,773,000        5,347,000
                                                   -------------    ------------

Loss from operations                                (1,659,000)      (1,463,000)
Interest income                                        279,000          269,000
Interest expense                                        (4,000)         (59,000)
Other income                                                             54,000
                                                   -------------    ------------

NET LOSS                                           $(1,384,000)     $(1,199,000)
                                                   =============    ============

NET LOSS PER SHARE - BASIC AND DILUTED                   $(.21)           $(.17)
                                                   =============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
    BASIC AND DILUTED LOSS PER SHARE                 6,711,000        6,905,000
                                                   =============    ============


                                      F-3
<PAGE>

I.D. SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                 COMMON STOCK
                                           ------------------------     ADDITIONAL
                                           NUMBER OF                      PAID-IN      ACCUMULATED    TREASURY      STOCKHOLDERS'
                                            SHARES          AMOUNT        CAPITAL        DEFICIT        STOCK          EQUITY
                                           ---------        -------    -----------    -------------   ----------    -------------

<S>                                        <C>              <C>        <C>            <C>             <C>             <C>
BALANCE - JANUARY 1, 2002                  5,866,000        $59,000    $15,739,000    $(9,200,000)    $(113,000)      $6,485,000
Shares issued pursuant to exercise
   of stock options                          112,000          1,000        168,000                                       169,000
Shares issued pursuant to
   private placement                         821,000          8,000      6,135,000                                     6,143,000
Net loss for the year ended
   December 31, 2002                                                                    (1,384,000)                   (1,384,000)
                                           ---------        -------    -----------    -------------   ----------    -------------

BALANCE - DECEMBER 31, 2002                6,799,000         68,000     22,042,000     (10,584,000)    (113,000)      11,413,000
Shares issued pursuant to exercise
   of stock options                          298,000          3,000        762,000                                       765,000
Net loss for the year ended
   December 31, 2003                                                                    (1,199,000)                   (1,199,000)
                                           ---------        -------    -----------    -------------   ----------    -------------

BALANCE - DECEMBER 31, 2002                7,097,000        $71,000    $22,804,000    $(11,783,000)   $(113,000)     $10,979,000
                                           =========        =======    ===========    =============   ==========    =============
</TABLE>


                                      F-4
<PAGE>

I.D. SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                    YEAR ENDED DECEMBER 31,
                                                                                               --------------------------------
                                                                                                    2002              2003
                                                                                                -------------      ------------
<S>                                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                                      $(1,384,000)       $(1,199,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                                 201,000            173,000
      Deferred rent expense                                                                          24,000             23,000
      Deferred revenue                                                                               26,000            348,000
      Bad debt expense                                                                                                  20,000
      Amortization of premium on investments                                                         43,000            174,000
      Changes in:
           Accounts receivable                                                                     (880,000)        (1,110,000)
           Inventory                                                                               (627,000)           795,000
           Prepaid expenses and other assets                                                        (26,000)            28,000
           Investment in sales type leases                                                         (681,000)           571,000
           Installment receivable - noncurrent portion                                             (867,000)           867,000
           Deferred contract costs                                                                                    (675,000)
           Accounts payable and accrued expenses                                                    631,000           (150,000)
           Other liabilities                                                                       (100,000)          (100,000)
                                                                                                -------------      ------------

                  Net cash used in operating activities                                          (3,640,000)          (235,000)
                                                                                                -------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                                                                         (340,000)          (339,000)
  Purchase of investments                                                                        (4,603,000)        (5,698,000)
  Maturities and sales of investments                                                             3,600,000          4,084,000
  Increase in interest receivable                                                                   (73,000)            (2,000)
  Officer loan, net of repayment                                                                    (51,000)
  Collection of officer loan                                                                                            10,000
                                                                                                -------------      ------------

                  Net cash used in investing activities                                          (1,467,000)        (1,945,000)
                                                                                                -------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of lease obligations                                                                      (10,000)
  Proceeds from exercise of stock options                                                           169,000            765,000
  Proceeds from term loan                                                                                            1,000,000
  Repayment of term loan                                                                                              (164,000)
  Proceeds from line of credit                                                                      137,000

  Net proceeds from private placement                                                             6,143,000
                                                                                                -------------      ------------

                  Net cash provided by financing activities                                       6,439,000          1,601,000
                                                                                                -------------      ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              1,332,000           (579,000)
Cash and cash equivalents - January 1                                                             2,426,000          3,758,000
                                                                                                -------------      ------------

CASH AND CASH EQUIVALENTS - DECEMBER 31                                                          $3,758,000         $3,179,000
                                                                                                =============      ============


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for:
      Interest                                                                                       $4,000            $59,000
</TABLE>


                                      F-5
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE A - THE COMPANY

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

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]      USE OF ESTIMATES:

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

[2]      CASH AND CASH EQUIVALENTS:

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

[3]      INVENTORY:

         Inventory, which consists of components for the Company's products and
         finished goods to be shipped to customers under existing orders, is
         stated at the lower of cost or market using the first-in first-out
         method.

[4]      FIXED ASSETS AND DEPRECIATION:

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

[5]      LONG-LIVED ASSETS:

         The Company evaluates its long-lived assets in accordance with
         Statement of Financial Accounting Standards ("SFAS") No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets,"
         pursuant to which an impairment loss is recognized if the carrying
         amount of a long-lived asset is not recoverable and exceeds its fair
         value.


                                      F-6
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

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 Company's revenues are derived from contracts with multiple element
         arrangements, which include the Company's system, training and
         technical support. Revenues are recognized as each element is earned
         based on the relative fair value of each element and when there are no
         undelivered elements that are essential to the functionality of the
         delivered elements. The Company's system is typically implemented by
         the customer or a third party and, as a result, revenue is recognized
         when title passes to the customer, which usually is upon delivery of
         the system, provided all other revenue recognition criteria are met.
         Training and technical support revenue are generally recognized at time
         of performance.

         The Company also enters into post-contract maintenance and support
         agreements. Revenue is recognized over the service period and the cost
         of providing these services is expensed as incurred.

         During 2002 the Company began deriving revenues under leasing
         arrangements. Such arrangements provide for monthly payments covering
         the system sale, maintenance and interest. These arrangements meet the
         criteria to be accounted for as sales-type leases pursuant to Statement
         of Financial Accounting Standards No. 13, "Accounting for Leases".
         Accordingly, the system sale is recognized upon delivery of the system,
         provided all other revenue recognition criteria are met. Upon the
         recognition of revenue, an asset is established for the "investment in
         sales-type leases". Maintenance revenue and interest income are
         recognized monthly over the lease term. The Company recognized $618,000
         and $784,000 of system sales during the years ended December 31, 2003
         and 2002, respectively, pursuant to such arrangements. These
         arrangements provide for sixty equal monthly payments and interest has
         been imputed at 6% per annum. In June 2003 the Company received
         approximately $1,231,000 in connection with the assignment of certain
         sales type leases to a third-party leasing company. $211,000 of the
         proceeds from these assignments relates to maintenance that the Company
         is obligated to perform and which is being recognized as revenue over
         the remaining terms of the related maintenance agreements. At December
         31, 2003 approximately $186,000 is included in deferred revenue.


                                      F-7
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[8]      REVENUE RECOGNITION: (CONTINUED)

         The Company recognized $1,536,000 of system sales in 2002 in connection
         with an installment sale. The arrangement provided for a $470,000
         upfront payment and equal monthly payments of approximately $26,000
         through November 2007, which include principal, imputed interest at
         approximately 7% per annum and approximately $5,000 of maintenance,
         which is recognized as revenue monthly. In November 2003 the Company
         received approximately $1,070,000 in connection with the assignment of
         the installment sale to a third party leasing company. $196,000 of the
         proceeds from this assignment relates to maintenance that the Company
         is obligated to perform and which is being recognized as revenue over
         the remaining term of the related maintenance agreement. At December
         31, 2003, approximately $188,000 is included in deferred revenue.

[9]      DEFERRED CONTRACT COSTS:

         During 2003, the Company entered into a contract with a customer
         pursuant to which the Company's system will be implemented on a portion
         of the customer's fleet of vehicles. The Company will be entitled to
         issue sixty monthly invoices of up to $40,000 per month, each of which
         is contingent upon certain conditions being met. Costs directly
         attributable to this contract, consisting principally of engineering
         and manufacturing costs, are being deferred until implementation of the
         system is completed. The capitalized costs will be charged to cost of
         revenue in accordance with the cost recovery method, pursuant to which
         the capitalized contract costs will be reduced in each period by an
         amount equal to the revenue recognized until all of the capitalized
         costs are written off. During 2003, the Company capitalized $675,000 of
         such contract costs and expects to incur additional costs until the
         installation is complete. The Company will continue to evaluate the
         carrying amount of the capitalized contract costs for potential
         impairment.

[10]     BENEFIT PLAN:

         The Company maintains a retirement plan under Section 401(k) of the
         Internal Revenue Code, which covers all eligible employees. The Company
         did not make any contributions to the plan during the years ended
         December 31, 2002 and 2003.

[11]     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.


                                      F-8
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[12]     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 SFAS No. 123, "Accounting
         for Stock-Based Compensation" and SFAS No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure." The following
         table illustrates the effect on net income and earnings per share if
         the fair value based method had been applied to all awards.

<TABLE>
<CAPTION>

                                                                                          YEAR ENDED DECEMBER 31,
                                                                                      ------------------------------
                                                                                          2002              2003
                                                                                      ------------      ------------

           <S>                                                                        <C>               <C>
           Reported net loss                                                          $(1,384,000)      $(1,199,000)
           Stock-based employee compensation expense included in
               reported net loss, net of related tax effects                                    0                 0
           Stock-based employee compensation determined under the
               fair value based method, net of related tax effects                       (925,000)         (862,000)
                                                                                      ------------      ------------

           Pro forma net loss                                                         $(2,309,000)      $(2,061,000)
                                                                                      ============      ============

           Loss per share (basic and diluted):
              As reported                                                                  $(0.21)           $(0.17)
                                                                                      ============      ============

              Pro forma                                                                    $(0.34)           $(0.30)
                                                                                      ============      ============
</TABLE>


                                      F-9
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[12] STOCK-BASED COMPENSATION: (CONTINUED)

         The fair value of each option grant on the date of grant is estimated
         using the Black-Scholes option-pricing model reflecting the following
         weighted average assumptions:

                                                        YEAR ENDED DECEMBER 31,
                                                      --------------------------
                                                         2002            2003
                                                      ---------        ---------

           Volatility                                      65%              44%
           Expected life of options                    5 years          5 years
           Risk free interest rate                          4%               3%
           Dividend yield                                   0%               0%

         The weighted average fair value of options granted during the years
         ended December 31, 2002 and 2003 were $3.52 and $2.19, respectively.

[13]     INCOME TAXES:

         The Company uses the asset and liability method of accounting for
         deferred income taxes. Deferred income taxes are measured by applying
         enacted statutory rates to net operating loss carryforwards and to the
         differences between the financial reporting and tax bases of assets and
         liabilities. Deferred tax assets are reduced, if necessary, by a
         valuation allowance if it is more likely than not that some portion or
         all of the deferred tax assets will not be realized.

[14]     NET INCOME (LOSS) PER SHARE:

         The Company calculates net income (loss) per share in accordance with
         the provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128
         requires a dual presentation of "basic" and "diluted" income (loss) per
         share on the face of the statements of operations. Basic income (loss)
         per share is computed by dividing the net income (loss) by the weighted
         average number of shares of common stock outstanding during each
         period. Diluted income (loss) per share includes the effect, if any,
         from the potential exercise or conversion of securities, such as stock
         options and warrants, which would result in the issuance of incremental
         shares of common stock. For the years ended December 31, 2002 and 2003,
         the basic and diluted net loss per share are the same since the effect
         from the potential exercise of 2,507,000 and 2,436,000 outstanding
         stock options and warrants as of December 31, 2002 and 2003,
         respectively, would have been anti-dilutive (see Note H).


                                      F-10
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[15]     FINANCIAL INSTRUMENTS:

         The carrying amounts of cash equivalents, accounts receivable,
         investments and other liabilities approximate their fair values due to
         the short period to maturity of these instruments. The carrying amounts
         of investment in sales-type leases and "installment receivable -
         noncurrent portion" approximate their fair value due to the market rate
         of interest charged to customers.

NOTE C - INVESTMENTS

The Company's investments at December 31, 2003 consist principally of corporate
bonds and are classified as held to maturity. Accordingly, investments are
carried at amortized cost.

NOTE D - FIXED ASSETS

Fixed assets are stated at cost, less accumulated depreciation and amortization,
and at December 31, 2003, are summarized as follows:

       Equipment                                             $441,000
       Computer software                                      186,000
       Computer hardware                                      285,000
       Furniture and fixtures                                 250,000
       Leasehold improvements                                 447,000
                                                           -----------

                                                            1,609,000
       Accumulated depreciation and amortization              764,000
                                                           -----------

                                                             $845,000
                                                           ===========

NOTE E - OFFICER LOAN

In June 2002, the Company loaned $56,000 to an officer. The loan is payable
together with interest of 4% in semi-monthly installments of $500 through August
2007. At December 31, 2003, $41,000 is due to the Company, $10,000 of which is
due in 2004. The loan is fully payable upon demand and is due if the employee is
terminated from the Company for any reason. This loan was made prior to the
release of the Sarbanes-Oxley Act of 2002. The Company is prohibited from making
any loans to officers in the future.


                                      F-11
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE F - LINE OF CREDIT

The Company has a working capital line of credit, with maximum borrowings of
$500,000. Interest at the 30 day LIBOR Market Index Rate (1.2% at December 31,
2003) plus 1.75% is payable monthly. At December 31, 2003, the Company owed
$137,000 under this line of credit. Outstanding principal amounts are payable by
May 1, 2004.

NOTE G - LONG-TERM DEBT

In January 2003, the Company closed on a five-year term loan for $1,000,000 with
a financial institution. Interest at the 30-day LIBOR plus 1.75% and principal
are payable monthly. To hedge the loan's floating interest expense the Company
entered into an interest rate swap contemporaneously with the closing of the
loan and fixed the rate of interest at 5.28% for the five-year term.

Maturities of long-term debt are as follows:

            YEAR ENDING
            DECEMBER 31,

                2004               $188,000
                2005                199,000
                2006                209,000
                2007                221,000
                2008                 19,000
                                   --------

                                   $836,000
                                   ========

NOTE H - STOCKHOLDERS' EQUITY

[1]      COMMON STOCK:

         In January 2002, the Company sold 821,000 shares of its common stock in
         a private placement. In connection therewith, the Company received net
         proceeds of $6,143,000.

[2]      PREFERRED STOCK:

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


                                      F-12
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE H - STOCKHOLDERS' EQUITY  (CONTINUED)

[3]      STOCK OPTIONS:

         The Company has adopted the 1995 Stock Option Plan, pursuant to which
         the Company may grant options to purchase up to an aggregate of
         1,250,000 shares of common stock. The Company has also adopted the 1999
         Stock Option Plan and the 1999 Director Option Plan, pursuant to which
         the Company may grant options to purchase up to 1,813,000 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 vesting provisions.

         A summary of the status of the Company's stock option plans as of
         December 31, 2002 and 2003 and changes during the years ended on those
         dates, is presented below:

<TABLE>
<CAPTION>

                                                                    2002                               2003
                                                      ------------------------------      ------------------------------
                                                                         WEIGHTED                            WEIGHTED
                                                                          AVERAGE                            AVERAGE
                                                        SHARES        EXERCISE PRICE        SHARES        EXERCISE PRICE
                                                      ----------      --------------      ----------      --------------

<S>                                                   <C>                 <C>             <C>                 <C>
           Outstanding at beginning of year           2,222,000           $3.32           2,200,000           $3.53
           Granted                                      122,000            6.05             485,000            4.81
           Exercised                                   (112,000)           1.51            (298,000)           2.57
           Forfeited                                    (32,000)           5.66            (258,000)           5.35
                                                      ----------                          ----------

           Outstanding at end of year                 2,200,000            3.53           2,129,000            3.74
                                                      ==========                          ==========

           Exercisable at end of year                 1,240,000            2.47           1,258,000            2.89
                                                      ==========                          ==========

         As of December 31, 2003 there were 672,000 options available for grant
         under the Company's stock option plans.
</TABLE>


                                      F-13
<PAGE>

 I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE H - STOCKHOLDERS' EQUITY

[3]      STOCK OPTIONS: (CONTINUED)

         The following table summarizes information about stock options at
         December 31, 2003:
<TABLE>
<CAPTION>

                                                   OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                                   -----------------------------------------------       ------------------------------
                                                         WEIGHTED
                                                         AVERAGE          WEIGHTED                             WEIGHTED
                                                        REMAINING         AVERAGE                              AVERAGE
              EXERCISE               NUMBER             CONTRACTUAL       EXERCISE         NUMBER              EXERCISE
               PRICES              OUTSTANDING             LIFE            PRICE         OUTSTANDING            PRICE
           -------------           -----------          -----------       --------       -----------           --------

<S>        <C>                      <C>                   <C>              <C>            <C>                   <C>
           $0.80                      133,000             2 years          $0.80            133,000             $0.80
            1.20                      652,000             4 years           1.20            652,000              1.20
            2.31 -  3.81              203,000             7 years           2.89             59,000              2.97
            4.07 -  6.70              787,000             8 years           4.76            229,000              5.06
            7.38 - 10.25              354,000             7 years           7.71            185,000              7.65
                                    ---------                                             ---------

                                    2,129,000             6 years           3.74          1,258,000              2.89
                                    =========                                             =========
</TABLE>

[4]      WARRANTS:

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

         In connection with the Company's private placement in January 2002,
         warrants to purchase 107,000 shares of common stock were issued to the
         placement agent and a finder. The warrants are exercisable for a period
         of five years, commencing in January 2002 at a price of $9.58 per
         share.

NOTE I - INCOME TAXES

The Company has a deferred tax asset of approximately $4,960,000 at December 31,
2003 primarily relating to net operating loss carryforward. The Company has a
net operating loss carryforward of approximately $12,508,000 for federal income
tax purposes, substantially all of which expires from 2020 through 2023 and,
certain state and local net operating loss carryforwards. There were no
significant timing differences between financial and tax reporting.


                                      F-14
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE I - INCOME TAXES (CONTINUED)

$1,741,000 of the net operating loss carryforwards relates to stock options for
which there were no compensation charges for financial reporting. Accordingly,
any future benefit would be credited to additional paid-in capital. Future stock
issuances may subject the Company to annual limitations on the utilization of
its net operating loss carryforwards. The Company has provided a valuation
allowance, which increased during 2002 and 2003 by $838,000 and $789,000,
respectively, against the full amount of its deferred tax asset, since the
likelihood of realization cannot be determined.

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:
<TABLE>
<CAPTION>

                                                                                     YEAR ENDED DECEMBER 31,
                                                                                      2002             2003

       <S>                                                                         <C>              <C>
       Income tax benefit at the federal statutory rate                            $(471,000)       $(408,000)
       State and local income taxes, net of effect on federal taxes                  (69,000)         (59,000)
       Increase in valuation allowance                                               838,000          789,000
       Stock options                                                                (292,000)        (302,000)
       Other                                                                          (6,000)         (20,000)
                                                                                   ----------       ----------

                                                                                          $0               $0
                                                                                   ==========       ==========
</TABLE>


                                      F-15
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE J - COMMITMENTS AND OTHER MATTERS

[1]      OPERATING LEASES:

         The Company is obligated under operating leases for its facility, which
         it occupied in March 2000. The Company's operating leases provide for
         minimum annual rental payments as follows:

               YEAR ENDING
               DECEMBER 31,
              --------------

              2004                        $373,000
              2005                         410,000
              2006                         410,000
              2007                         410,000
              2008                         410,000
              Thereafter                   615,000
                                        ----------

                                        $2,628,000
                                        ==========

         The office lease, which expires in 2010, also provides for escalations
         relating to increases in real estate taxes and certain operating
         expenses. Expenses relating to operating leases aggregated
         approximately $499,000 and $396,000 for the years ended December 31,
         2002 and 2003, respectively.

         During 2003, the Company entered into an agreement to sublease a
         portion of its space through the end of the lease. The sublease
         provides for monthly payments of approximately $12,000 and also
         provides for escalations relating to increases in real estate taxes and
         certain operating expenses. Other income of $54,000 for the year ended
         December 31, 2003 reflects rent received by the Company under the
         sublease.

[2]      CONCENTRATION OF CUSTOMERS:

         Four customers accounted for 28%, 20%, 13% and 12%, respectively, of
         the Company's revenue during the year ended December 31, 2002.

         One customer, which is one of the largest automobile manufacturers in
         the United States, accounted for 58% of the Company's revenue during
         the year ended December 31, 2003 and 54% of the Company's accounts
         receivable as of December 31, 2003.


                                      F-16
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

ITEM 8A. CONTROLS AND PROCEDURES

         Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. As of the end of the period covered by
this report, the Company carried out an evaluation, under the supervision and
with the participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.

         There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.


                                       19
<PAGE>
                                    PART III.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed for its 2004
Annual Meeting of Stockholders.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed for its 2004
Annual Meeting of Stockholders.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed for its 2004
Annual Meeting of Stockholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed for its 2004
Annual Meeting of Stockholders.

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

         A)  EXHIBITS

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



     Number    Description


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

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

     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).


                                       20
<PAGE>

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

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

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

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

     10.4      1995 Non-Qualified Stock Option Plan (incorporated herein by
               reference to the Company's Form SB-2 filed with the Commission on
               June 30, 1999).

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

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

     10.7      1999 Director Option Plan (incorporated herein by reference to
               the Company's Form SB-2 filed with the Commission on June 30,
               1999).

     10.8      Office Lease dated November 4, 1999 between the Company and
               Venture Hackensack Holding, Inc.(incorporated herein by reference
               to the Company's Annual Report on Form 10-KSB for the fiscal year
               ended December 31, 1999 filed with the Commission on March 29,
               2000)

     23.1      Consent of Eisner LLP

     31.1      Written Certification of Chief Executive Officer Pursuant to
               Section 302 of The Sarbanes-Oxley Act of 2002

     31.2      Written Certification of Chief Financial Officer Pursuant to
               Section 302 of The Sarbanes-Oxley Act of 2002

     32        Written Certification of Chief Executive Officer Pursuant to
               Section 906 of The Sarbanes-Oxley Act of 2002


                                       21
<PAGE>

B)  REPORTS ON FORM 8-K

         On November 10, 2003, we filed a report on Form 8-K, under Items 7 and
12 to disclose the issuance of a press release announcing our results of
operations and financial condition for the three and nine months ended September
30, 2003, and attached the press release as an exhibit.

ITEM 14. PRINCIPAL ACCOUNTANT AND FEES

         The information required by this Item is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed for its 2004
Annual Meeting of Stockholders.


                                       22
<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.

Date:  March 17, 2004


                                    I.D. SYSTEMS, INC.


                                    By:    /s/ Jeffrey M. Jagid
                                           --------------------
                                           Jeffrey M. Jagid
                                           Chief Executive Officer
                                           (Principal Executive Officer)


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

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


           SIGNATURE                         TITLE                     DATE
           ---------                         -----                     ----

    /s/ Jeffrey M. Jagid            Chief Executive Officer       March 17, 2004
   --------------------------       and Director
   Jeffrey M. Jagid

    /s/ Kenneth S. Ehrman           Chief Operating Officer       March 17, 2004
   --------------------------       and Director
   Kenneth S. Ehrman

   /s/ Lawrence Burstein            Director                      March 17, 2004
   --------------------------
   Lawrence Burstein

    /s/ Michael Monaco              Director                      March 17, 2004
   --------------------------
   Michael Monaco

    /s/ Beatrice Yormark            Director                      March 17, 2004
   --------------------------
   Beatrice Yormark