<PAGE>

                       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, 2002  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 = $5,544,000.

The  aggregate  market  value of the Common Stock held by  nonaffiliates  of the
Issuer was  approximately  $25,820,000  based upon the last sales  price of such
stock on March 21, 2003, 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 21, 2003 was 6,810,461.

                       DOCUMENTS INCORPORATED BY REFERENCE
    Part III incorporates information by reference from the definitive proxy
       statement to be filed in connection with the issuer`s 2003 annual
                            meeting of stockholders.

<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                              PAGE

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

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

         Item 2.           Description of Properties............................................................9

         Item 3.           Legal Proceedings....................................................................9

         Item 4.           Submission of Matters to a Vote of Security Holders.................................10

PART II. ......................................................................................................11

         Item 5.           Market for Registrant`s Common Equity and Related Stockholder Matters...............11

         Item 6.           Management`s Discussion and Analysis of Financial Condition and Results of
                           Operations..........................................................................11

         Item 7.           Financial Statements................................................................17

         Item 8.           Changes In and Disagreements with Accountants on Accounting and Financial
                           Disclosure..........................................................................18

PART III.......................................................................................................19

         Item 9.           Directors, Executive Officers, Promoters and Control Persons, Compliance With
                           Section 16(a) of the Exchange Act...................................................19

         Item 10.          Executive Compensation..............................................................19

         Item 11.          Security Ownership of Certain Beneficial Owners and Management......................19

         Item 12.          Certain Relationships and Related Transactions......................................19

         Item 13.          Exhibits, Lists and Reports on Form 8-K.............................................19

         Item 14.          Controls And Procedures.............................................................21

</TABLE>

                                       i
<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
Archer  Daniels  Midland, Avis Rent A Car System, Inc., DaimlerChrysler, Deere &
Co.,  Federal  Aviation  Administration,  Ford Motor Company, Golub Corporation,
Hallmark  Cards, Target Corporation, Toyota Motor Company, the U.S. Navy and the
U.S.  Postal  Service  among  others.

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  RF  transmissions  with no ongoing
communication costs.

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

                                       1
<PAGE>

     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.

     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  utilization
and  justify  fleet  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

                                       2
<PAGE>

equipment by linking vehicle ignition to a personal identification system and/or
biometrics.  The system  requires an  operator  to present an access  control ID
badge to the system`s  intelligent  vehicle-mounted  hardware (and,  optionally,
enter a PIN code) prior to operating a vehicle that services aircraft.  A person
must be authorized and trained for a particular vehicle, in a particular area of
the  airport,  at a particular  time of day, in order to use the  vehicle.  This
driver tracking and control technology not only prevents the unauthorized use of
equipment, but it also allows equipment to be instantly and remotely deactivated
via radio frequency in the event of an emergency.

     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  Archer  Daniels  Midland, DaimlerChrysler, Deere & Co., Federal
Aviation  Administration, Ford Motor Company, Golub Corporation, Hallmark Cards,
Target  Corporation,  Toyota  Motor  Company,  the U.S. Navy and the U.S. Postal
Service  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 Company`s customers.

     We  believe  that there are many benefits offered by the Company`s solution
to car rental companies. However, two are 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 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  process.  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.

     In January 2003, the Company and Avis Rent A Car System,  Inc., commenced a
pilot  program to implement the Company`s  Wireless  Asset Net fleet  management
technology on Avis` fleet of approximately  2,000 rental vehicles in Puerto Rico
by mid 2003. 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.


                                       3
<PAGE>

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, 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 Company
has also 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.

         RAILCAR INDUSTRY APPLICATIONS. The Company`s wireless tracking solution
has the potential to improve the rail industry`s  customer service  capabilities
and fundamentally change the way freight railroads operate in North America.

     The Company  believes  that Class I railroads  and their  customers  have a
vested interest in finding a cost-effective way to track the location and status
of railcars in real time.  The  Company`s  real-time  location  system maps each
train`s  location  against its expected  routes and schedules,  averts delays by
rapidly  identifying  unplanned stops, and ensures that the correct railcars are
delivered to the correct locations in a timely manner. The Company believes that
this can  translate  directly  into both  customer  satisfaction  and  increased
revenues for the  railroads.

     The Company`s solution for real-time railcar tracking is a unique hybrid of
its patented RF communications  architecture,  GPS location tracking, a cellular
or satellite link, and proprietary  web-based graphical software.  The Company`s
system  can  communicate  data from an entire  train of  railcars  with just one
cellular or  satellite  link.  Compared to other  systems that rely on satellite
transmitters  on every  railcar,  the  Company`s  approach can save  millions of
dollars  in  ongoing  communications  fees.  Compared  to  systems  that rely on
fixed-location  reading  devices,  the  system  provides  information  from  any
location at any time,  eliminating  "black holes" between readers.  In addition,
the  Company  believes  its  approach  provides  the  ability  to  generate  and
communicate significantly more information than the railroads` existing tracking
system.

     PACKAGE  AND LETTER  APPLICATIONS.  The  Company  has been  focused in this
market  primarily on the U.S. Postal Service (USPS).  During 2000, the Company`s
solution  was  deployed  and began  collecting  data used to analyze the flow of
mail. In this application, the Company`s Asset Communicator is configured to fit
inside a standard  business  envelope and withstand the rigors of automated mail
processing  machinery.  The Company`s system allows the USPS, for the first time
in its history, to track test mail in real time and identify  bottlenecks in the
mail delivery chain.

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.  The  Company  has  not,  however,  entered  into an  agreement
providing for a long term commitment with its  subcontractors to manufacture the
Company`s products.

                                       4
<PAGE>

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.

RESEARCH AND DEVELOPMENT

     The Company completed the development of a "universal  system" which allows
widespread  use  of  the  Company`s  hardware  and  software.  To  maintain  its
competitive advantage in the current target markets, and to penetrate additional
markets,  the Company plans to continue its research and development  efforts to
reduce  the  size  and the  cost  of the  Company`s  system  and to  expand  the
flexibility of the Company`s products.

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.,  Remote Equipment Systems, Inc., Media Recovery, Inc., and companies with
longer  operating  histories,  greater  name  recognition  and/or  significantly
greater  financial,  technical and marketing resources than the Company, such as
Savi  Technology, Symbol Technologies, Inc., and Intermec 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 technology.  It
also has a  corresponding  patent and pending  patent  applications  in selected
foreign  countries.  The  patents  and patent  applications  may not provide the
Company  with any  competitive  advantage.  Many of the  Company`s  current  and
potential competitors dedicate substantially greater resources to protection and
enforcement of intellectual property rights.

     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

                                       5
<PAGE>

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-five full time employees, of which ten are
engaged  in  product  development  (which  includes  engineering),  thirteen  in
operations,  six  in  sales  and  marketing  and  six  in  finance  and  general
administration.

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

                                       6
<PAGE>

our revenues  will not increase and our  financial  condition  may be materially
adversely affected.

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 24, 2003, there were warrants to
purchase  307,125  shares  of  common  stock  outstanding. Additionally, we have
granted  options  to  employees  and directors for the purchase of approximately
2,400,000  shares of our common stock, and 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.

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


                                       7
<PAGE>

     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, 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.


                                       8
<PAGE>

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, 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.

ITEM 3.  LEGAL PROCEEDINGS

     None.

                                       9
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                       10
<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
---------------                              ----                 ---

2001
----
March 31, 2001                             $  5.000              $2.000
June 30, 2001                              $  6.700              $3.375
September 30, 2001                         $  6.000              $3.700
December 31, 2001                          $ 10.850              $4.450

2002
----
March 31, 2002                             $ 11.650              $6.650
June 30, 2002                              $  8.300              $2.690
September 30, 2002                         $  6.000              $3.250
December 31, 2002                          $  4.590              $3.480

2003
----
January 1, 2003 - March 24, 2003           $  5.190             $4.020

     There were 28 registered holders and approximately  1,400 beneficial owners
of the  Company`s  Common Stock of record as of March 25, 2003.  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.


                                       11
<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 $784,000 of system sales
during  the  year  ended  December 31, 2002 pursuant to such arrangements. These
arrangements  provide  for  sixty  equal  monthly payments and interest has been
imputed  at  6%.

     The Company recognized $1,536,000 of systems 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%  and
approximately  $5,000 of  maintenance,  which is recognized as revenue  monthly.

                                       12
<PAGE>

$589,000  of the system sales  is   classified   as  accounts  receivable  and
$867,000  is  classified  as  installment  receivable  -  noncurrent  portion at
December 31, 2002.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                     Year  Ended
                                                                                     December  31,
                                                                                2001               2002

<S>                                                                            <C>          <C>
Revenues                                                                          100.0%         100.0%
Cost of revenues                                                                   59.4           43.8
                                                                              ------------- --------------

Gross profit                                                                       40.6           56.2
Selling, general and administrative expenses                                      384.8           69.2
Research and development expenses                                                 112.5           16.9
                                                                              ------------- --------------

Loss from operations                                                             (456.7)         (29.9)
Net interest income                                                                33.3            4.9
                                                                              ------------- --------------

Net loss                                                                         (423.4)         (25.0)
                                                                              ============= ==============
</TABLE>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

REVENUES. Revenues were $5,544,000 for the year ended December 31, 2002 compared
to $923,000 in the year ended  December 31,  2001.  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 Archer Daniels Midland, DaimlerChrysler, Deere & Co.,
Federal Aviation Administration, Ford Motor Company, Golub Corporation, Hallmark
Cards,  Target  Corporation,  Toyota Motor  Company,  the U.S. Navy and the U.S.
Postal Service among others.

COST OF REVENUES.  Cost of revenues were  $2,430,000 for the year ended December
31,  2002  compared  to  $548,000  in the year ended  December  31,  2001.  As a
percentage  of revenues,  cost of revenues  decreased to 43.8% in the year ended
December  31,  2002  from  59.4% in the  year  ended  December  31,  2001.  This
percentage  decrease was primarily  attributable  to the sale of certain  higher
margin  services during the year ended December 31, 2002 and lower product costs
due to continuing research and development efforts.  Gross profit was $3,114,000
in the year ended  December  31,  2002  compared  to  $375,000 in the year ended
December 31, 2001. As a percentage of revenues,  gross profit increased to 56.2%
in the year ended  December  31, 2002 from 40.6% in the year ended  December 31,
2001.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses  were  $3,835,000  in the year ended  December 31, 2002
compared to  $3,552,000  in the year ended  December 31, 2001.  The increase was

                                       13
<PAGE>

primarily  attributable  to an increase in payroll  expenses  and an increase in
insurance premiums for the Company`s director and officer liability policy. As a
percentage of revenues,  selling,  general and administrative expenses decreased
to 69.2% in the year  ended  December  31,  2002 from  384.8% in the year  ended
December 31, 2001.

RESEARCH AND  DEVELOPMENT  EXPENSES.  Research  and  development  expenses  were
$938,000 in the year ended  December 31, 2002 compared to $1,038,000 in the year
ended December 31, 2001. 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,  2002 were  devoted  primarily  to product
enhancements and  manufacturing  cost  reductions.  As a percentage of revenues,
research and development  expenses decreased to 16.9% in the year ended December
31, 2002 from 112.5% in the year ended December 31, 2001.

NET INTEREST INCOME AND EXPENSE.
Interest  income was $279,000 in the year ended December 31, 2002 as compared to
$310,000 in the year ended December 31, 2001. This decrease was  attributable to
the reduction in interest  rates.  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 earned  interest  income in connection  with sales
type lease arrangements.

INTEREST EXPENSE
Interest  expense was $4,000 in the year ended  December 31, 2002 as compared to
$3,000 in the year ended December 31, 2001.

NET  LOSS.  Net loss was  $1,384,000  in the year  ended  December  31,  2002 as
compared to net loss of  $3,908,000  in the year ended  December 31, 2001.  This
decrease was due primarily to the reasons described above.


                                       14
<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

     As of  December  31,  2002,  the  Company had cash,  cash  equivalents  and
investments  of  $7,757,000  and working  capital of  $8,295,000  as compared to
$5,465,000 and $5,970,000,  respectively, at December 31, 2001.

     Net cash used in operating  activities  was  $3,683,000  for the year ended
December  31,  2002  as  compared  to  net  cash used in operating activities of
$3,185,000  for  the  year  ended  December 31, 2001. 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 operating activities in the year ended December 31, 2001 was
primarily  due  to  a net loss of $3,908,000  and a decrease in accounts payable
and  accrued expenses of $125,000 partially offset by a decrease in accounts and
unbilled  receivables  of $412,000, an increase in other liabilities of $200,000
and  a  decrease  in  income  taxes  receivable  of  $111,000.

     Net cash used in investing  activities for the year ended December 31, 2002
was $1,424,000 as compared to cash provided by investing activities for the year
ended  December 31, 2001 of $2,478,000. 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  investing
activities  in the year ended December 31, 2001 was primarily from maturities of
short-term  investments  of  $12,000,000  partially  offset  by  the purchase of
investments  of  $9,242,000  and amortization of debt discount on investments of
$209,000.

     Net cash provided by financing  activities  for the year ended December 31,
2002  was $6,439,000 as compared to net cash provided in financing activities of
$48,000  for  the  year  ended December 31, 2001. 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.  Net cash provided by
financing activities for the year ended December 31, 2001, resulted from $70,000
of  proceeds received from exercise of employee stock options, offset by $22,000
paid  for  capital  lease  obligations.

     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.

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


                                       15
<PAGE>

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


                                       16
<PAGE>


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.

ITEM 7.  FINANCIAL STATEMENTS

I.D. SYSTEMS, INC.

CONTENTS

<TABLE>
<CAPTION>

ITEM 7 FINANCIAL STATEMENTS

<S>                                                                                                <C>
   Independent auditors` report                                                                    F-2

   Balance sheet as of December 31, 2002                                                           F-3

   Statements of operations for the years ended December 31, 2001 and 2002                         F-4

   Statements of changes in stockholders` equity for the years ended December 31, 2001 and 2002    F-5

   Statements of cash flows for the years ended December 31, 2001 and 2002                         F-6

   Notes to financial statement                                                                    F-7

</TABLE>

                                       17
<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,  2002  and  the  related  statements  of  operations,  changes  in
stockholders`  equity and cash flows for the years ended  December  31, 2001 and
2002.  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,  2002 and the  results  of its  operations  and its cash flows for the years
ended  December 31, 2001 and 2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.



Eisner LLP (formerly Richard A. Eisner & Company, LLP)

New York, New York
January 30, 2003


                                                                            F-2
<PAGE>

I.D. SYSTEMS, INC.

<TABLE>
<CAPTION>

BALANCE SHEET
DECEMBER 31, 2002

ASSETS
<S>                                                                                                           <C>
Current assets:
   Cash and cash equivalents                                                                                   $     3,758,000
   Investments                                                                                                       3,031,000
   Accounts receivable                                                                                               1,114,000
   Inventory                                                                                                         1,471,000
   Investment in sales type leases                                                                                     159,000
   Interest receivable                                                                                                  73,000
   Officer loan                                                                                                         10,000
   Prepaid expenses and other current assets                                                                           147,000
                                                                                                               ---------------

      Total current assets                                                                                           9,763,000

Investments                                                                                                            968,000
Fixed assets, net                                                                                                      679,000
Investment in sales type leases                                                                                        522,000
Installment receivable - noncurrent portion                                                                            867,000
Officer loan                                                                                                            41,000
Other assets                                                                                                           107,000
                                                                                                               ---------------

                                                                                                               $    12,947,000
                                                                                                               ===============
LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses                                                                       $     1,205,000
   Line of credit                                                                                                      137,000
   Deferred revenue                                                                                                     26,000
   Other current liabilities                                                                                           100,000
                                                                                                               ---------------

      Total current liabilities                                                                                      1,468,000

Deferred rent                                                                                                           66,000
                                                                                                               ---------------

                                                                                                                     1,534,000
                                                                                                               ---------------
Commitments and other matters (Note I)

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
   6,799,000 shares                                                                                                     68,000
Additional paid-in capital                                                                                          22,042,000
Treasury stock; 40,000 shares at cost                                                                                 (113,000)
Accumulated deficit                                                                                                (10,584,000)
                                                                                                               ---------------

                                                                                                                    11,413,000
                                                                                                               ---------------

                                                                                                               $    12,947,000
                                                                                                               ===============
</TABLE>

See notes to financial statements                                        F-3

<PAGE>


I.D. SYSTEMS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                     YEAR ENDED DECEMBER 31,
                                                                                                -------------------------------
                                                                                                      2001             2002
                                                                                                -------------     -------------
<S>                                                                                             <C>               <C>
Revenue                                                                                         $     923,000     $   5,544,000
Cost of revenue                                                                                       548,000         2,430,000
                                                                                                -------------     -------------

Gross profit                                                                                          375,000         3,114,000
                                                                                                -------------     -------------

Operating expenses:
   Selling, general and administrative expenses                                                     3,552,000         3,835,000
   Research and development expenses                                                                1,038,000           938,000
                                                                                                -------------     -------------

                                                                                                    4,590,000         4,773,000
                                                                                                -------------     -------------

Loss from operations                                                                               (4,215,000)       (1,659,000)
Interest income                                                                                       310,000           279,000
Interest expense                                                                                       (3,000)           (4,000)
                                                                                                -------------     -------------

NET LOSS                                                                                        $  (3,908,000)    $  (1,384,000)
                                                                                                =============     =============

NET LOSS PER SHARE - BASIC AND DILUTED                                                               $(.67)           $(.21)
                                                                                                     =====            =====

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
   BASIC AND DILUTED LOSS PER SHARE                                                                 5,840,000         6,711,000
                                                                                                =============     =============
</TABLE>


 See notes to financial statements                                        F-4
<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, 2001               5,721,000       57,000      15,558,000    (5,292,000)                      10,323,000
Shares issued pursuant to exercise
   of stock options                       145,000        2,000         181,000                                        183,000
Shares received as consideration
   for exercise of stock options                                                                $   (113,000)        (113,000)
Net loss for the year ended
   December 31, 2001                                                              (3,908,000)                      (3,908,000)
                                       ----------   ----------   -------------  ------------    ------------   --------------

BALANCE - DECEMBER 31, 2001             5,866,000       59,000      15,739,000    (9,200,000)       (113,000)       6,485,000
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
                                       ==========    =========   =============  ============    ============    =============
</TABLE>



See notes to financial statements                                          F-5


<PAGE>

I.D. SYSTEMS, INC.

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                   YEAR ENDED DECEMBER 31,
                                                                                              --------------------------------
                                                                                                   2001              2002
                                                                                              ---------------  ---------------
<S>                                                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                                   $    (3,908,000) $    (1,384,000)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                                   163,000          201,000
      Deferred rent expense                                                                            23,000           24,000
      Deferred revenue                                                                                                  26,000
      Changes in:
        Accounts receivable                                                                            63,000         (880,000)
        Unbilled receivables                                                                          349,000
        Inventory                                                                                     (96,000)        (627,000)
        Income tax receivable                                                                         111,000
        Prepaid expenses and other assets                                                              43,000          (26,000)
        Investment in sales type leases                                                                               (681,000)
        Installment receivable - noncurrent portion                                                                   (867,000)
        Accounts payable and accrued expenses                                                        (125,000)         631,000
        Taxes payable                                                                                  (8,000)
        Other liabilities                                                                             200,000         (100,000)
                                                                                              ---------------  ---------------

              Net cash used in operating activities                                                (3,185,000)      (3,683,000)
                                                                                              ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                                                           (71,000)        (340,000)
   Purchases of investments                                                                        (9,242,000)      (4,603,000)
   Maturities and sales of investments                                                             12,000,000        3,600,000
   Increase in interest receivable                                                                                     (73,000)
   Amortization of (discount) premium on investments                                                 (209,000)          43,000
   Officer loan, net of repayment                                                                                      (51,000)
                                                                                              ---------------  ---------------

              Net cash provided by (used in) investing activities                                   2,478,000       (1,424,000)
                                                                                              ---------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of lease obligations                                                                       (22,000)         (10,000)
   Proceeds from exercise of stock options                                                             70,000          169,000
   Proceeds from line of credit                                                                                        137,000
   Net proceeds from private placement                                                                               6,143,000
                                                                                              ---------------  ---------------

              Net cash provided by financing activities                                                48,000        6,439,000
                                                                                              ---------------  ---------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                 (659,000)       1,332,000
Cash and cash equivalents - January 1                                                               3,085,000        2,426,000
                                                                                              ---------------  ---------------

CASH AND CASH EQUIVALENTS - DECEMBER 31                                                       $     2,426,000  $     3,758,000
                                                                                              ===============  ===============


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid for:
      Interest                                                                                $         3,000  $         4,000

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION:
   Treasury shares received as consideration for exercise of stock options                    $       113,000
</TABLE>



See notes to financial statements                                          F-6

<PAGE>



I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002

NOTE A - THE COMPANY

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


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]    USE OF ESTIMATES:

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

[2]    CASH AND CASH EQUIVALENTS:

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

[3]    INVENTORY:

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

[4]    FIXED ASSETS AND DEPRECIATION:

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

[5]    LONG-LIVED ASSETS:

       The Company  evaluates its long-lived  assets in accordance with SFAS No.
       144,  "Accounting  for the Impairment or Disposal of Long-Lived  Assets,"
       ("SFAS No. 144"),  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.

[6]    RESEARCH AND DEVELOPMENT:

       Research and development costs are charged to expense as incurred.

                                                                           F-7
<PAGE>



I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[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  $784,000
       of system sales during the year ended  December 31, 2002 pursuant to such
       arrangements. These arrangements provide for sixty equal monthly payments
       and interest has been imputed at 6%.

       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% and  approximately  $5,000  of  maintenance,  which is  recognized  as
       revenue  monthly.  $589,000 of the system sales is classified as accounts
       receivable  and  $867,000 is  classified  as  "installment  receivable  -
       noncurrent  portion" at December 31, 2002 in the  accompanying  financial
       statements.

[9]    BENEFIT PLAN:

       The  Company  maintains a  retirement  plan under  Section  401(k) of the
       Internal Revenue Code, which covers all eligible  employees.  The Company
       did not make  any  contributions  to the  plan  during  the  years  ended
       December 31, 2001 and 2002.

[10]   RENT EXPENSE:

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

                                                                           F-8
<PAGE>

I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[11]   STOCK-BASED COMPENSATION:

       The  Company  accounts  for  stock-based   employee   compensation  under
       Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
       Issued to  Employees",  and  related  interpretations.  The  Company  has
       adopted  the   disclosure-only   provisions  of  Statement  of  Financial
       Accounting  Standards  ("SFAS")  No.  123,  "Accounting  for  Stock-Based
       Compensation" and SFAS No. 148, "Accounting for Stock-Based  Compensation
       - Transition and  Disclosure",  which was released in December 2002 as an
       amendment of SFAS No. 123. 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,
                                                                                ---------------------------------
                                                                                      2001               2002
                                                                                --------------     --------------
<S>                                                                             <C>                <C>
       Reported net loss                                                        $   (3,908,000)    $   (1,384,000)
       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                         (596,000)          (925,000)
                                                                                --------------     --------------

       Pro forma net loss                                                       $   (4,504,000)    $   (2,309,000)
                                                                                ==============     ==============

       Loss per share (basic and diluted):
          As reported                                                                $(0.67)           $(0.21)
                                                                                     ======            ======
          Pro forma                                                                  $(0.77)           $(0.34)
                                                                                     ======            ======
</TABLE>

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

                                                   YEAR ENDED DECEMBER 31,
                                                   -----------------------
                                                      2001          2002
                                                   ---------     ---------
         Volatility                                   93%              65%
         Expected life of options                  5 years        5 YEARS
         Risk free interest rate                       5%               4%
         Dividend yield                                0%               0%

       The weighted average fair value of options granted during the years ended
       December 31, 2001 and 2002 was $3.40 and $3.52, respectively.

[12]   INCOME TAXES:

       The  Company  uses the  asset and  liability  method  of  accounting  for
       deferred  income  taxes.  Deferred  income taxes are measured by applying
       enacted  statutory rates to net operating loss  carryforwards  and to the
       differences  between the financial  reporting and tax bases of assets and
       liabilities.  Deferred  tax  assets  are  reduced,  if  necessary,  by  a
       valuation  allowance  for any tax  benefits  which are not expected to be
       realized.
                                                                           F-9

<PAGE>

I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[13]   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, 2001 and 2002 the basic and diluted weighted
       average  shares  outstanding  are the  same  since  the  effect  from the
       potential  exercise of outstanding  stock options and warrants would have
       been anti-dilutive (see Note G).

[14]   FINANCIAL INSTRUMENTS:

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


NOTE C - INVESTMENTS

The Company`s  investments at December 31, 2002 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, 2002, are summarized as follows:

       Equipment                                                 $    418,000
       Computer software                                              138,000
       Computer hardware                                              189,000
       Furniture and fixtures                                         250,000
       Leasehold improvements                                         275,000
                                                                 ------------

                                                                    1,270,000
       Accumulated depreciation and amortization                      591,000
                                                                 ------------

                                                                 $    679,000
                                                                 ============

During 2002 various capital leases expired and the Company purchased the related
equipment  for nominal  consideration.  The original  cost of the  equipment was
$51,000.

                                                                          F-10

<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


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, 2002,  $51,000 is due to the Company,  $10,000 of which is
due in 2003. 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.


NOTE F - LINE OF CREDIT

During 2002, the Company secured a working capital line of credit,  with maximum
borrowings of $500,000.  Interest at the 30 day LIBOR Market Index Rate (1.4% at
December 31,  2002) plus 1.75% is payable  monthly.  At December  31, 2002,  the
Company owed $137,000 under this line of credit.  Outstanding  principal amounts
are payable by May 1, 2003.


NOTE G - STOCKHOLDERS` EQUITY

[1]    COMMON STOCK:

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

       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.

[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  (which  was
       increased  during 2001 from 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 rate at which options may be exercised.

                                                                          F-11
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE G - STOCKHOLDERS` EQUITY (CONTINUED)

[3]    STOCK OPTIONS:  (CONTINUED)

       A  summary  of the  status  of the  Company`s  stock  option  plans as of
       December  31, 2001 and 2002 and  changes  during the years ended on those
       dates, is presented below:
<TABLE>
<CAPTION>

                                                                  2001                               2002
                                                   -------------------------------     -------------------------------
                                                                       WEIGHTED                            WEIGHTED
                                                                        AVERAGE                            AVERAGE
                                                      SHARES        EXERCISE PRICE        SHARES        EXERCISE PRICE
                                                   ------------     --------------     ------------     --------------
<S>                                                   <C>               <C>               <C>               <C>
         Outstanding at beginning of year             1,975,000         $2.76             2,222,000         $3.32
         Granted                                        664,000          4.64               122,000          6.05
         Exercised                                     (145,000)         1.26              (112,000)         1.51
         Forfeited                                     (272,000)         3.59               (32,000)         5.66
                                                   ------------                        ------------

         Outstanding at end of year                   2,222,000          3.32             2,200,000          3.53
                                                   ============                        ============

         Exercisable at end of year                     970,000          1.80             1,240,000          2.47
                                                   ============                        ============
</TABLE>

       As of December 31, 2002 there were 900,000  options  available  for grant
       under the Company`s stock option plans.

       The  following  table  summarizes  information  about  stock  options  at
       December 31, 2002:
<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                       213,000          3 years         $0.80                 213,000         $0.80
            1.20                       708,000          5 years          1.20                 637,000          1.20
            2.31 -  3.81               362,000          8 years          2.95                  89,000          3.09
            4.07 -  6.70               603,000          8 years          5.36                 176,000          5.04
            7.38 - 10.25               314,000          7 years          7.75                 125,000          7.67
                               ---------------                                       ----------------

                                     2,200,000          6 years          3.53               1,240,000          2.47
                               ===============                                       ================
</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  107,125  shares of common  stock were issued to the
       placement  agent and a finder.  The warrants are exercisable for a period
       of five years, commencing in January 2002 at a price of $9.58 per share.


                                                                          F-12
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE H - INCOME TAXES

The Company has a deferred tax asset of approximately $4,171,000 at December 31,
2002.  The  Company  has a net  operating  loss  carryforward  of  approximately
$10,481,000 for federal income tax purposes,  substantially all of which expires
from  2020  through  2022 and,  certain  state  and  local  net  operating  loss
carryforwards.  There were no significant timing  differences  between financial
and tax reporting.  $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  carryforward.  The
Company has provided a valuation allowance, which increased during 2001 and 2002
by  $1,481,000  and  $838,000,  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,
                                                                                -------------------------------
                                                                                      2001             2002
                                                                                --------------     ------------
<S>                                                                             <C>                <C>
       Income tax benefit at the federal statutory rate                         $   (1,329,000)    $   (471,000)
       State and local income taxes, net of effect on federal taxes                   (193,000)         (69,000)
       Increase in valuation allowance                                               1,481,000          838,000
       Stock options                                                                                   (292,000)
       Other                                                                            41,000           (6,000)
                                                                                --------------     ------------

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


NOTE I - 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,
               ---------------
                 2003                 $     373,000
                 2004                       373,000
                 2005                       410,000
                 2006                       410,000
                 2007                       410,000
                 Thereafter               1,025,000
                                      -------------

                                      $   3,001,000
                                      =============

       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
       $580,000  and  $499,000  for the years ended  December 31, 2001 and 2002,
       respectively.

                                                                          F-13
<PAGE>

I.D. SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


NOTE I - COMMITMENTS AND OTHER MATTERS  (CONTINUED)

[2]    CONCENTRATION OF CUSTOMERS:

       One customer  accounted for 15% of the Company`s revenue and sales to a
       vendor of components from inventory accounted for 11% of the Company`s
       revenue  during  the  year  ended  December  31,  2001.  One  customer
       accounted for 59% of the Company`s accounts receivable at December 31,
       2001.

       Four customers accounted for 28%, 20%, 13% and 12%, respectively,  of the
       Company`s  revenue  during the year ended December 31, 2002. One of these
       customers  accounted for 44% of the Company`s  accounts  receivable as of
       December 31, 2002.

[3]    OTHER LIABILITIES:

       In  December  2001,  the  Company  settled a claim in  connection  with a
       contract and recorded a charge of $250,000,  which is included in general
       and  administrative  expenses in the accompanying  financial  statements.
       Pursuant  to the terms of the  settlement  agreement,  the  Company  paid
       $50,000 in December 2001 and is obligated to pay $50,000 every six months
       from June 2002 through December 2003. Accordingly,  $100,000 is reflected
       as other current liabilities in the accompanying financial statements.

[4]    OTHER:

       In September  2002, the Company was notified by a non-core  supplier that
       they had been undercharging the Company and they requested  reimbursement
       in the amount of  approximately  $386,000.  The matter  was  settled  for
       $250,000, which was paid by the Company in December 2002.


NOTE J - SUBSEQUENT EVENT:

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.


                                                                          F-14


<PAGE>


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

   None.


                                       18
<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 2003 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 2003 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 2003 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 2003 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).

                                       19
<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 (formerly Richard A. Eisner & Company, LLP)

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

     B)  REPORTS ON FORM 8-K

         None.


                                       20
<PAGE>

ITEM 14. CONTROLS AND PROCEDURES

     a.  EVALUATION OF DISCLOSURE 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.  Within the 90 days prior to the filing of 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.

     b.   CHANGES IN INTERNAL CONTROLS:

     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.


                                       21
<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 24, 2003


                                  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.

<TABLE>
<CAPTION>
<S>                                                <C>                                         <C>
             SIGNATURE                                      TITLE                                   DATE

      /s/ Jeffrey M. Jagid                         Chief Executive Officer                     March 24, 2003
     -------------------------------------
     Jeffrey M. Jagid                              and Director

      /s/ Kenneth S. Ehrman                        Chief Operating Officer                     March 24, 2003
     ----------------------------------
     Kenneth S. Ehrman                             and Director

      /s/ Beatrice Yormark                         Director                                    March 24, 2003
     -----------------------------------
     Beatrice Yormark

      /s/ Martin G. Rosansky                       Director                                    March 24, 2003
     -----------------------------------
     Martin G. Rosansky

     /s/ Lawrence Burstein                         Director                                    March 24, 2003
     -----------------------------------
     Lawrence Burstein

      /s/ Michael Monaco                           Director                                    March 24, 2003
     ----------------------------------
     Michael Monaco
</TABLE>

                                       22
<PAGE>


                                 CERTIFICATIONS

I, Jeffrey M. Jagid, as Chief Executive Officer (Principal  Executive  Officer),
certify that:

1. I have reviewed this annual report on Form 10-KSB of I.D. Systems;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant`s  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) Designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b) Evaluated the effectiveness of the registrant`s  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         c)  Presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant`s other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant`s auditors and the audit committee of
registrant`s   board  of  directors  (or  persons   performing   the  equivalent
functions):

         a) All significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant`s  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant`s auditors any material weaknesses in internal controls; and

         b) Any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant`s  internal
controls; and

6. The  registrant`s  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in

                                       23
<PAGE>

other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 24, 2003                 /s/ Jeffrey M. Jagid
      --------------                 --------------------------------------
                                     Name: Jeffrey M. Jagid
                                     Title:  Chief Executive Officer
                                             (Principal Executive Officer)



                                       24
<PAGE>




                                 CERTIFICATIONS

I, Ned Mavrommatis,  as Chief Financial Officer (Principal  Financial  Officer),
certify that:

1. I have reviewed this annual report on Form 10-KSB of I.D. Systems;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant`s  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) Designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b) Evaluated the effectiveness of the registrant`s  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         c)  Presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant`s other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant`s auditors and the audit committee of
registrant`s   board  of  directors  (or  persons   performing   the  equivalent
functions):

         a) All significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant`s  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant`s auditors any material weaknesses in internal controls; and

         b) Any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant`s  internal
controls; and

6. The  registrant`s  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in

                                       25
<PAGE>

other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 24, 2003            /s/ Ned Mavrommatis
      ----------------          --------------------------------------------
                                Name: Ned Mavrommatis
                                Title:  Chief Financial Officer
                                       (Principal Financial Officer)


                                       26
<PAGE>