<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  Form 10-KSB

(Mark One)

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

                  For the Fiscal Year ended December 31, 1999

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

  For the transition period from  _________________ to _____________________

                         Commission File No. 001-14217

                      INDUSTRIAL DATA SYSTEMS CORPORATION
                 (Name of Small Business Issuer in its Charter)

          NEVADA                                         88-0322261
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

600 Century Plaza Drive, Suite 140, Houston, Texas                   77073-6013

            Issuer's telephone number                (281) 821-3200

     Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class              Name of each exchange on which registered
-------------------              -----------------------------------------
       Common                             American Stock Exchange

     Securities registered pursuant to Section 12(g) of the Exchange Act:
                                 Not applicable

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

   Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  [X].

  The issuer's revenues for fiscal year ended December 31, 1999 were
$12,238,449.

  The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 24, 2000 was $8,014,355.  The issuer has no authorized non-
voting stock.

  The number of shares outstanding of each of the registrant's classes of stock
on March 24, 2000 is as follows:

    $0.001 Par Value Common Stock........................12,964,918 shares

                      DOCUMENTS INCORPORATED BY REFERENCE

Responses to Items 9, 10, 11 and 12 of Part III of this report are incorporated
herein by reference to certain information contained in the Company's definitive
proxy statement for its 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2000.

  Transitional Small Business Disclosure Format: Yes    No  [X]
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                      INDUSTRIAL DATA SYSTEMS CORPORATION
                                1999 FORM 10-KSB
                               TABLE OF CONTENTS

                                     PART I

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

Item 2.   Description of Property........................................    13

Item 3.   Legal Proceedings..............................................    14

Item 4.   Submission of Matters to a Vote of Security Holders............    14


                                    PART II

Item 5.   Market for Common Equity and Related Stockholder Matters.......    15

Item 6.   Management's Discussion and Analysis or Plan of Operation......    16

Item 7.   Financial Statements...........................................    22

Item 8.   Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosure...........................................    36


                                    PART III

Item 9.   Directors and Executive Officers; Promoters and Control Persons,
          Compliance with Section 16(a) of the Exchange Act...............   36

Item 10.  Executive Compensation..........................................   36

Item 11.  Security Ownership of Certain Beneficial Owners and Management..   36

Item 12.  Certain Relationships and Related Transactions..................   36

                                    PART IV

Item 13.  Exhibits and Reports on Form 8-K................................   37

Signatures................................................................   43

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                                     PART I

     The following summary is qualified in its entirety by, and should be read
in connection with the more detailed information contained herein and in the
Company's Consolidated Financial Statements, and the Notes thereto, included
elsewhere in this Annual Report on Form 10-KSB.  The discussion in this Annual
Report on Form 10-KSB contains forward-looking statements which involve risks
and other uncertainties. In particular, the Company's business and financial
affairs could be adversely effected by decreases in oil prices, by inability to
get parts from vendors and by its inability to renew its line of credit.
References to the "Company" or to "IDSC" refer to Industrial Data Systems
Corporation.  References to "IDS" refer to the Company's wholly owned
subsidiary, Industrial Data Systems, Inc.  References to "IED" refer to the
Company's wholly owned subsidiary, IDS Engineering, Inc. References to "Thermal"
refer to the Company's wholly owned subsidiary, Thermaire, Inc. dba Thermal
Corp.  References to "CPM" refer to the Company's wholly owned subsidiary,
Constant Power Manufacturing, Inc.  References to "IDS FAB" refer to the
Company's previously wholly owned subsidiary, IDS Fabricated Systems, Inc. dba
Marine and Industrial Fire and Safety and dba Marine and Industrial Supply
Company.  The consolidated historical financial statements related to these
subsidiaries are included in this Annual Report on Form 10-KSB.

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     Industrial Data Systems Corporation (IDSC) was incorporated in the State of
Nevada in June 1994.  The Company's Common Stock trades on the American Stock
Exchange under the symbol "IDS."  Prior to June 16, 1998, the Company's Common
Stock was traded on the NASDAQ Electronic Bulletin Board under the symbol
"IDDS."

     The Company has never filed for protection under the bankruptcy protection
act, nor has the Company or any of its assets been in receivership or any other
similar proceedings.

     The Company's revenue is derived from its four wholly owned operating
subsidiaries.

Industrial Data Systems, Inc. (IDS)

     On October 15, 1997 the consulting engineering segment of the Company,
formerly known as Industrial Data Systems, Inc. doing business as IDS
Engineering, was split off from IDS, incorporated in the State of Texas, and
began operating as IDS Engineering, Inc. (IED).  For additional information on
IED see following section of this Item 1 Description of Business.

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IDS Engineering, Inc. (IED)

     On October 15, 1997 the consulting engineering segment of the Company,
formerly known as Industrial Data Systems, Inc. doing business as IDS
Engineering, was incorporated in the State of Texas and now operates as IDS
Engineering, Inc. (IED).  The Company issued all of its 1,000 shares of Common
Stock to Industrial Data Systems Corporation. William A. Coskey was appointed
Chairman of the Board, President and Treasurer of IED and Hulda L. Coskey was
appointed the positions of Director, Vice President and Secretary of the newly
formed corporation. The Company believes that the restructuring of IED has
clearly distinguished it from the Company's other operating segments.

Thermaire, Inc. dba Thermal Corp (THERMAL)

     The Company acquired Thermaire, Inc. dba Thermal Corp. (Thermal) on
February 14, 1997.  The Company issued 600,000 shares of Common Stock which were
held in an escrow account pending completion of the acquisition by the Company
exercising its option to pay $600,000 and obtain a release of the shares.  The
Company's option to acquire Thermal was later renegotiated and exercised on
February 14, 1997 with the exchange of 193,719 shares of Common Stock and
$212,563 in cash.  Upon completion of the acquisition, the 600,000 shares of
Common Stock previously included in the original Escrow Agreement were canceled.
In connection with this transaction, Thermal purchased its previously leased
facilities on February 28, 1997 for a cash consideration of $500,000, subject to
the completion of the contingent purchase transaction.  Bank financing in the
amount of $450,000 was obtained for the purpose of purchasing these facilities.

Constant Power Manufacturing, Inc. (CPM)

     On February 19, 1998, the Company signed a letter of intent to acquire CPM,
a Texas corporation formed in June 1989.  The acquisition was consummated on
March 25, 1998 with the exchange of $200,000 cash and 300,000 shares of the
Company's Common Stock for 100% of CPM's shares.  CPM's previous owner, Jack
Ripley, has remained with CPM as Vice President of Sales and Marketing under an
employment contract.  No other employment contracts exist between CPM and its
employees.

IDS Fabricated Systems, Inc. dba Marine and Industrial Fire and Safety and dba
Marine and Industrial Supply Company (IDS FAB)

     In November 1998, the Company acquired MLC Enterprises, Inc. (MLC), a Texas
corporation formed in August 1995, doing business as Marine and Industrial Fire
& Safety (MIFS) and Marine and Industrial Supply Company (MISC).  The Company
issued 50,000 shares of the Company's Common Stock for 100% of MLC's shares.
Cash consideration of $100,000 was paid to the previous principal as part of an
employment contract.  Goodwill in the amount of  $593,000 was generated as a
result of the acquisition.  Subsequent to the acquisition, MLC's name was
changed to IDS Fabricated Systems, Inc. (IDS FAB).  This transaction was
rescinded effective October 28, 1999 as the result of a final Settlement

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Agreement entered into by the Company and the former principal of MLC which is
incorporated by reference as Exhibit 10.31 on the Company's Form 10-QSB for the
quarter ended September 30, 1999.  As a result of the Settlement Agreement, all
claims of the parties, including counter-claims and third-party claims made by
the Company, have been dismissed.

     Terms of the settlement included rescission of the previously executed
Stock Acquisition Agreement of MLC Enterprises, Inc. and rescission of the
Company's Employment Agreement with the former principal.  The settlement also
called for the return of all stock issued and exchanged pursuant to the Stock
Acquisition Agreement.  As a result, MLC Enterprises, Inc. (which had been
renamed IDS Fabricated Systems, Inc.) is no longer a subsidiary of the Company.
The former principal has individually assumed all assets, inventory and
liabilities of MLC pursuant to the terms of the Settlement Agreement.

   As a result of the settlement and due to the magnitude of previous write-offs
associated with the MLC acquisition, the Company has recorded a one-time gain
during the fourth quarter ended December 31, 1999, since liabilities exceeded
assets at the date the rescission occurred.  These amounts have all been netted
and reflected as discontinued operations on the Company's Statement of
Operations for 1999.  See additional details in the MD&A section of this Report
on Form 10-KSB.

PRODUCTS AND SERVICES

     IDS

     IDS is a provider of specialized microcomputer systems that are targeted to
be sold to the industrial market. IDS provides systems integration and resells
industrial microcomputers and peripheral products. The microcomputer and
peripheral products are designed to be used in industrial applications, which
include manufacturing, process control, discrete manufacturing, data
acquisition, telecommunications and man-machine interfaces. The systems that are
provided by the Company are different from conventional, commercial desktop
computers by their architecture, packaging, functionality, integration services
and value-added software. The systems provided by IDS are "open systems" that
support "off-the-shelf" software operated primarily under Windows.

     IDS derives revenue from the systems integration and resale of industrial
computer products. IDS also seeks to add value by integrating and technically
supporting advanced microcomputer systems. These systems are typically designed
with enclosures that withstand tough environmental conditions or with enclosures
that have a special form factor which are based on the customer's specific
parameters. Industrial rackmount chassis are configured in several form factors
with a standard of 19 inches in width and a variation in height of 1.75 inches
to 12.5 inches to accommodate multiple drives and other various requirements.
These industrial rackmount chassis are then configured to meet the customer's
exact specifications with appropriate internal components such as hard drive,
processor, and memory. IDS also offers industrial rackmount solutions in
monitors and other peripherals such as industrial

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keyboards and mouse products that are specifically designed to withstand
demanding environments.

     IED

     IED offers engineering consulting services primarily to the pipeline and
process industries for the development, management and turnkey execution of
engineering projects. IED also performs the execution of capital projects for
its clients on a full service, turnkey basis.  IED's staff has the capability of
developing a project from the initial planning stages through detailed design
and construction management.

     IED has blanket service contracts in place with divisions of many energy-
related concerns. These blanket service agreements typically provide that IED
will furnish engineering, procurement and project management services for client
companies on a time and materials basis.  The services provided include
conceptual studies, project definition, cost estimating, engineering design, and
material procurement, in addition to project and construction management. These
services are performed on facilities that include cross-country pipelines,
pipeline pump stations, gas compressor stations, metering systems, product
storage facilities, product loading terminals, gas processing facilities,
chemical plants and crude oil refineries.

     IED offers its clients a wide range of services from a single source
provider.  Typical engineering projects involve modifications to existing
facilities as well as new construction.  IED develops new client business
relationships utilizing in-house personnel.

     THERMAL

     Thermal has manufactured quality air handling equipment since 1945.
Because Thermal stocks a large number of fans and manufactures coils, dampers,
curbs and most other accessories, the Company believes that it can achieve one
of the quickest deliveries available in the industry, usually six to eight
weeks, depending on order size and scope.  Thermal also reserves production
capacity to accomplish premium, expedited deliveries of two to four weeks, when
necessary.  Thermal is well known for its design and manufacturing expertise and
flexibility which is often required to meet the special needs for custom
installations.  Thermal's product lines consist of a variety of cooling, heating
and ventilating equipment.  The wide range of sizes and models in each product
line coupled with Thermal's manufacturing flexibility provides vast freedom in
air handling equipment choice.  Thermal's quality air handling products include
central plant air conditioners, multizone air conditioners, high pressure air
conditioners, and air cooled condensers. Thermal also manufactures fan coil
units, cooling and heating coils, and roof top air handlers. Popular custom unit
features include special modular construction, custom cabinet dimensions,
special insulation type and thickness, gas and electric heaters, humidifiers,
all types of fans, non-standard arrangements, motor and unit controls, unique
customer requirements, exotic materials of construction and severe service
applications, etc.

                                       4
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     Thermal distributes its products exclusively through its United States and
international network of non-stocking sales representatives.

     CPM

     CPM is a thirteen-year-old company established in the industrial and
commercial backup and conditioned power systems marketplace.  CPM designs,
manufactures and resells both standard and custom-designed products and systems
in a wide array of power ranges which include: battery chargers, battery
monitoring systems, DC power supplies, DC/AC inverters, uninterruptible power
systems (UPS), power conditioners, power distribution systems and solar photo-
voltaic systems.

     CPM provides field service support for installation and maintenance of
these products.  Most of the products manufactured by CPM are made pursuant to
specifications required for a particular order.  In mid 1999, CPM introduced a
new product line of switch-mode battery chargers.  These chargers have been
readily accepted where physical size constraints and heat are design factors.
Refineries, petrochemical plants, utilities, offshore platforms and other
commercial, industrial and governmental facilities utilize the products sold by
CPM.  CPM sells to industrial and commercial accounts across the United States.

PRODUCT DEVELOPMENT

     IDS

     IDS is currently not developing any new proprietary product designs. Being
an integrator and re-seller of industrial microcomputer systems, IDS is
continuously evaluating products in its marketplace in order to increase its
range of offerings and enhance its ability to sell systems to its customers. In
this activity, IDS evaluates microcomputer enclosures, CPU boards, components
and peripheral products from a variety of manufacturers.

     IED

     IED continues to provide engineering services primarily to the energy
industry as its base of business.  IED currently has 23 blanket service
contracts in place which provide that IED furnish clients with service on a time
and materials basis.  In February 1999, the Company opened an office in Tulsa,
Oklahoma that has facilitated the expansion of its market area.  IED plans to
increase its range of engineering capabilities and begin marketing its services
to new industries such as the refining, petrochemical and process industries.

     During 1999, IED began the development of a standard meter skid package
with modular, interchangeable components which will help to reduce project cost
and execution times.  It is expected that this new design will be ready for
sales implementation in the second quarter 2000.

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     THERMAL

     During 1999, Thermal concentrated its product development efforts toward
the development of a double wall fan coil unit which will be targeted for sales
to schools and hospitals.  In addition, design of a triple deck multizone unit
is currently being completed for use in the replacement market.  During 2000,
Thermal plans to add the in-house capability of manufacturing industry
certified, 5/8" plate-fin coils. Thermal believes the addition of this plate-fin
coil production line will improve its competitive position in the marketplace by
reducing product costs and production time. Thermal currently purchases all
plate-fin coils from outside sources.

     CPM

     CPM is in the final design phase of development of a proprietary battery
monitoring product, the BMR-280. This product will continuously monitor
parameters associated with battery systems, including current, voltage and
temperature. The BMR-280 will provide status and historical information about
the battery system to which it is connected, and will also have a feature to
optimize recharging. It is expected that this product design will be completed
and the new product introduced to the marketplace by the second quarter 2000.

     Also, in mid-2000, CPM plans to introduce a new product line of
microprocessor controlled battery chargers which will bring to the marketplace
state-of-the-art flexibility and features for the end user.  The new line of
chargers will give CPM substantial cost savings in the manufacturing process,
thus giving CPM the opportunity to enter new markets that have historically been
unavailable due to price competition.

COMPETITION

     IDS

     IDS competes against various companies across its different product lines.
IDS' industrial computer products which are mountable in a 19-inch equipment
rack compete with products from Advantek, Contec and Industrial Computer Source.
There is also competition from much larger suppliers of commercial grade
computers, such as Compaq, Dell and IBM. This commercial competition effectively
sets pricing for its product line, since IDS' customers are willing to pay a
premium for industrial grade computers which is usually limited to approximately
two times the equivalent of commercial grade products.

     Management believes that its industrial computer products compete
effectively based on the Company's responsiveness to specific industrial market
engineering requirements, the resulting functional specialization of its
products, and its strategy of focusing on relatively "sheltered" market niches
where major competitors have difficulty tailoring their offerings to specific
application requirements. These strategies help offset the greater name
recognition and broader service and support resources of IDS' major competitors.

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     IDS is engaged in business activities that are targeted to industrial
markets which are less competitive and typically generate greater profit
margins. Management believes that the principal competitive factors in the
business in which it operates are price and performance, product availability,
technical expertise, adherence to industry standards, financial stability,
service support and reputation. Pricing competition for IDS' products is from
large manufacturers of commercial grade computer products. IDS' pricing of its
computer product line is governed by pricing in the commercial market.

     Some of the IDS' current and potential competitors have longer operating
histories and financial, sales, marketing, manufacturing, distribution,
technical and other competitive resources which are substantially greater than
those of IDS.  As a result, IDS' competitors may be able to adapt more quickly
to changes in customer demands or to commit more resources to sales and service
of their products than IDS has available. Such competitors could also seek to
increase their presence in the markets where IDS is providing sales and services
by creating strategic alliances with other competitors, by offering new or
improved products and services to IDS' customers or by increasing their efforts
to gain and retain market share through competitive pricing.

     IED

     IED operates in a highly competitive environment with many other
organizations which are substantially larger and have greater financial and
other resources.  IED competes with other consulting engineering companies on
the basis of price, performance, and its experience as a provider of quality
personnel to perform projects.  The pricing competition of IED has intensified
as a result of an increase in temporary personnel contracting agencies who can
perform services at a higher volume level and lower profit margin.  Because the
engineering business may require small amounts of capital, market entry can be
rather effortless for a potential new competitor possessing acceptable
professional qualifications.  Therefore, IED competes with a wide array of both
national and regional specialty firms.

     THERMAL

     Thermal operates in a highly competitive environment with many other
organizations which are substantially larger and have greater financial
resources.  Management believes that the principal competitive factors in its
market include delivery time, flexibility and product design, breadth of product
features, product quality, customer service, and price.  Thermal competes with
other air handling equipment manufacturers on the basis of quality, quick
delivery and capability to provide custom applications.  Thermal is cost
competitive with many well-established manufacturers, such as Temtrol,
Governaire, Mammoth and Pace, and others.  Thermal has distinguished itself by
being responsive to customer requests for custom products and is able to
expedite delivery of units faster than many other commercial manufacturers due
to the flexibility of its engineering and manufacturing facility capabilities.

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     CPM

     CPM is engaged in a highly competitive business which is characterized by a
small number of larger companies that dominate the bulk of the market, and a
large number of similarly sized companies that compete for a limited share of
the market.  In the opinion of management, the competitive position of CPM will
be greatly enhanced by the introduction of its new microprocessor controlled
battery charger product line.  This additional product line, due to the cost
savings and the absence of a similarly priced product in the marketplace, should
enable CPM to better compete in the future against its competitors and thus
capture a larger market share.  CPM has long been known for quality products and
on-time deliveries in the custom packaged system markets.  It is the opinion of
management that CPM is now positioned to enter markets that are more
standardized in nature and volume oriented.


BUSINESS STRATEGY

     IDS intends to increase market penetration by focusing on systems
integration and the resale of industrial microcomputer products that are
manufactured by outside sources. IDS believes that it does not have the
personnel or financial resources to broaden its line of proprietary industrial
computer products. In addition, the Company believes that an effort to develop a
broad line of proprietary industrial computer products cannot be financially
justified, given the rapid pace of change and resulting short product lifetimes
typical of the computer industry. IDS will seek to add value by integrating and
technically supporting advanced microcomputer systems primarily comprised of
components from outside sources.  IDS has discontinued its efforts to develop
and expand its market presence in the eastern and mid-western portion of the
United States and has closed its remote sales office.

     IED's strategy is to increase revenues per employee by developing and
marketing the capability of performing full service turnkey or EPC (Engineering,
Procurement and Construction) projects. IED has traditionally only been
responsible for the engineering portion of its projects, which is normally
between five to fifteen percent of the project's total installed cost.  On the
majority of projects to date, IED has invoiced for its services on a time and
materials basis with billing rates that are specified in client generated
blanket services contracts.

     In order to execute its strategy with respect to EPC projects, IED has
added staff during 1999 with expertise in project proposal and bidding. While
executing this EPC strategy, IED plans to expand its area of engineering
expertise beyond its traditional focus on the pipeline industry.  IED plans to
market its services and submit proposals outside of the pipeline industry, which
over a period of time, will serve to diversify its client base.

     Thermal continues to focus on establishing and supporting a qualified sales
representative network within the U.S., and exploiting its niche for custom
products.  The addition of a plate-fin coil manufacturing line will help reduce
product costs and production time, and also generate additional revenues from
increased sales of replacement coils.

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     CPM has expanded its marketing activities beyond the Texas-Gulf Coast
region. In February 1999, CPM signed contracts with three sales representative
firms outside of this region. Management anticipates that additional sales
representatives will be added in 2000.  CPM has strategically placed advertising
for its batteries, battery chargers, and UPS systems in a well-known product
catalogue.  The Company plans to continue these advertisements through the year
2002.

     The Company intends to continue to pursue potential acquisitions of
complementary businesses. The success of this strategy depends not only upon the
Company's ability to acquire complementary businesses on a cost-effective basis,
but also upon its ability to integrate acquired operations into its organization
effectively, to retain and motivate key personnel and to retain customers of
acquired firms. There can be no assurance that the Company will be able to find
suitable acquisition candidates or be successful in acquiring or integrating
such businesses. Furthermore, there can be no assurance that financing required
for any such transactions will be available on satisfactory terms.

SALES AND MARKETING

     The Company's various subsidiaries derive revenues from in-house direct
sales, sales representatives and catalog distributor sales. Sales
representatives are teamed with in-house sales managers and are assigned to
territories within the United States.  Management believes that this method of
selling leads to increased account penetration, proper management of its
products, and enhanced customer service which creates and maintains the
foundation for long-term relationships with its customers. The Company's in-
house sales personnel are normally compensated utilizing incentive commissions
which are based on either a percentage of revenues or gross profitability which
can be attributed to their efforts.  Management believes that its past and
future growth depends in large measure on its ability to attract and retain
qualified sales representatives and sales management personnel.  Management is
of the opinion that its in-house marketing and selling of its products allows
for more freedom and control, thus increasing profitability.

     The Company's subsidiaries promote their products and services through
general and trade advertising, participation in trade shows, through
telemarketing and most recently through on-line Internet communication via
IDSC's corporate home page which provides links to each of the subsidiaries'
webpages.  The Company is currently in the process of updating each of its
subsidiaries' Internet web sites and expects to have updates completed by mid-
2000.  It is the opinion of management that the Internet is a powerful marketing
tool, and with the increasing e-commerce activity becoming evident, each
subsidiary must be positioned to capitalize on this trend.

     The Company's sales personnel focus on building long-term relationships
with customers and, through their product and industry expertise, providing
customers with product application, engineering and after-the-sale services.
Additionally, the sales personnel of IDSC subsidiaries seek to capitalize on
customer relationships that have been developed by each

                                       9
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subsidiary through cross-selling of the various products and services offered by
each subsidiary. Sales leads developed by this synergy are then jointly pursued.

        Much of the Company's business is repeat business, and the source of new
customers has been largely through word-of-mouth referrals from existing
customers and industry members, such as manufacturers representatives.

CUSTOMERS

        IDSC's customer base consists primarily of Fortune 500 companies in
numerous industry segments within the United States.

        The Company's largest ten customers (which varied from period to period)
accounted in the aggregate for approximately 63% and 65% of the Company's total
revenue during 1998 and 1999, respectively.

        Currently, the Company's major customers include:

IED:      EXXON Pipeline Co. Inc., Jacobs Engineering, Marathon Pipeline Co.,
          Equistar Chemicals, LP, EGP Fuels Company

THERMAL:  Hollingsworth Equipment, Inc., South Texas Equipment, Airmont, Inc.,
          Conditioning Components Company

CPM:      Brown and Root International

        Based upon historical results and existing relationships with customers,
the Company believes that, although efforts are being made to diversify its
client base, a substantial portion of its total revenue and gross profit will
continue to be derived from sales to existing customers. There are no long-term
commitments by such customers to purchase products or services from the Company.
Sales of IDSC's subsidiaries products are typically made on a purchase order
basis. A significant reduction in orders from any of the Company's largest
customers could have a material adverse effect on the Company's financial
condition and results of operations.  Similarly, the loss of any one of the
Company's largest customers or the failure of any one of such customers to pay
its accounts receivable on a timely basis could have a material adverse effect
on the Company's financial condition and results of operations.  There can be no
assurance that the Company's largest customers will continue to place orders
with the Company or that orders by such customers will continue at their
previous levels.  There can be no assurance that the Company's customers for its
engineering services will continue to enter into contracts with the Company for
such services or that existing contracts will not be terminated.

CUSTOMER SERVICE AND SUPPORT

        The Company provides service and technical support to its customers in
varying degrees depending upon the product line and on customer contractual
arrangements. The Company's support staff provides initial telephone
troubleshooting services for end-user customers and distributors. These services
include isolating and verifying reported product

                                       10
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failures, authorizing product returns and tracking completion of repaired goods
in support of customer requirements. Technical support also provides on-site
engineering support in the event that a technical issue can not be resolved over
the telephone. The Company provides limited warranty coverage for its products
for varying time periods depending on a variety of factors. On a routine basis,
IED provides start-up and commissioning services for projects in which it
provides engineering services.

DEPENDENCE UPON SUPPLIERS

     The Company's businesses depend upon the ability to obtain an adequate
supply of products and parts at competitive prices and on reasonable terms. The
Company's suppliers are not obligated to have products on hand for timely
delivery to the Company nor can they guarantee product availability in
sufficient quantities to meet the Company's demands. There can be no assurance
that such products will be available as required by the Company at prices or on
terms acceptable to the Company. The Company procures a majority of its
components from distributors in order to obtain competitive pricing, maximize
product availability and maintain quality control.

     IDS purchases from other manufacturers substantially all peripheral devices
and components used in its systems. A majority of the components and peripherals
are available from a number of different suppliers, although certain major items
are procured from single sources. Management believes that alternate sources
could be developed for such single source items, if necessary.  However, if
peripheral or component shortages were to occur, it could have an adverse effect
on IDS' operations.

     The business in which IDS competes is characterized by rapid technological
change and frequent introduction of new products and product enhancements.  IDS'
success depends in large part on its ability to identify and obtain products
that meet the changing requirements of the marketplace. IDS could experience
delays in the receipt of these integral products. There can be no assurance that
IDS will be able to identify and offer products necessary to remain competitive
or avoid losses related to obsolete inventory and drastic price reductions. IDS
attempts to maintain a level of inventory required to meet its near term
delivery requirements by relying on the ready availability of products from its
principal suppliers.  Accordingly, the failure of IDS' suppliers to maintain
adequate inventory levels of computer products demanded by its existing and
potential customers and to react effectively to new product introductions could
have a material adverse affect on the Company's financial condition and results
of operations.  Failure of IDS to gain sufficient access to new products or
product enhancements could also have a material adverse affect on the Company's
financial condition and results of operations.

     Thermal currently stocks key components due to long lead times.  Specialty
items are purchased as required for each job.  Thermal has increased its
stocking levels, because of the potential delays in manufacturing which would be
caused by its inability to procure critical components.

                                       11
<PAGE>

     All of CPM's products are manufactured using components and materials that
are available from numerous domestic suppliers.  CPM has approximately 10
principal suppliers of components and each of those could be replaced with
several competitors; therefore, CPM anticipates little or no difficulty in
obtaining components in sufficient quantities and in a timely manner to support
its manufacturing and assembly operations.

     There can be no assurance that IDSC's subsidiaries will be able to continue
to obtain the necessary components from any of its single sources on terms
acceptable to the Company, if at all. There can be no assurance that such
relationships will continue or that, in the event of a termination of any
relationship, it would be able to obtain alternative sources of supply without a
material disruption in the Company's ability to provide products to its
customers. Any material disruption in the Company's supply of products would
have a material adverse effect on the Company's financial condition and results
of operations.  No one manufacturer or vendor provides products that account for
10% or more of the Company's revenues.

PATENTS, TRADEMARKS, LICENSES

     The Company's success depends in part upon its proprietary technology, and
it relies primarily on trade secrecy and confidentiality agreements to establish
and protect its rights in its proprietary technology. The Company does not own
the rights to any U.S. or foreign patents. There can be no assurance that the
Company's present protective measures will be adequate to prevent unauthorized
use or disclosure of its technology or independent third party development of
the same or similar technology.  Although the Company's competitive position
could be affected by its ability to protect its proprietary and trade secret
information, the Company believes other factors, such as the technical expertise
and knowledge of the Company's management and technical personnel, and the
timeliness and quality of support services provided by the Company, to be more
significant in maintaining the Company's competitive position.

   The Company currently has no patents, trademarks, licenses or royalty
agreements.

GOVERNMENT REGULATIONS

     Certain of the Company's subsidiaries are subject to various laws and
regulations relating to its business and operations, and various health and
safety regulations as established by the Occupational Safety and Health
Administration.  The Company is not currently aware of any situation or
condition that it believes is likely to have a material adverse effect on its
results of operations or financial condition.

RESEARCH AND DEVELOPMENT

     Research and development cost for 1999 was approximately $79,000.
Expenditures for research and development in 1998 were approximately $25,000.
As of December 31, 1999, IDSC's subsidiaries  were involved in several active
research and development activities.  These projects included: a standard meter
skid package with modular,

                                       12
<PAGE>

interchangeable components predesigned by IED to reduce project cost and
execution times; Thermal's design of a double wall fan coil unit for hospitals
and schools and triple deck multizone units for the replacement market; and
CPM's development of its proprietary battery monitor product and its product
line of microprocessor controlled battery chargers.

EMPLOYEES

     As of December 31, 1999, the Company employed approximately 116 individuals
within its four subsidiaries; approximately nine were employed in sales,
marketing and customer services; 56 were employed in engineering; 36 were
employed in technical production positions; and 15 were employed in
administration, finance and management information systems. The Company believes
that its ability to recruit and retain highly skilled and experienced technical,
sales and management personnel has been, and will continue to be, critical to
its ability to execute its business plan. None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement. The Company believes that relations with its employees are good.

ITEM 2.  DESCRIPTION OF PROPERTY

FACILITIES

     Except as noted below, the Company leases its principal executive offices
in Houston, Texas, which consist of approximately 32,836 square feet in two
adjoining offices.  Approximately 12,000 square feet of this space is currently
utilized for production operations and warehouse space for the IDS and CPM
operations.

     On February 10, 1999, IED signed a lease for its newly established office
in Tulsa, Oklahoma.  This office space consists of 5,400 square feet in a one-
story office building.  The lease is for a term of two years, ending on February
28, 2001.  The base monthly rent is $2,925. with an additional common area fee
of $225 per month.  Modifications are currently being made to the existing
office space at IED's Tulsa facility in order to more efficiently utilize its
engineering and design areas.  Due to the recent successes of its business
development strategy, it is expected that an amended lease will be executed in
March 2000, to be commenced in August 2000, in order to secure an additional
2,700 square feet of abutting office space for the Tulsa operation.

     As a result of the acquisition of Thermal, land and property previously
leased by Thermal was purchased by Thermal for $500,000, consisting of $50,000
cash advance from the Company and a note payable in the amount of $450,000.  The
balance on this note at December 31, 1999 was $404,098.  This property consists
of 4.5995 acres of land improved with a 37,725 square foot concrete tiltwall
office/manufacturing facility located in Houston, Texas, of which approximately
2,500 square feet is used for office space and 35,200 square feet for
manufacturing.  Remodeling of 1,600 square feet of office and engineering space
was completed in February 2000 which allowed office personnel to vacate
temporary modular offices on the premises.

                                       13
<PAGE>

     The leased property associated with the previously acquired IDS FAB
subsidiary are no longer the responsibility of IDSC as a result of the
Settlement Agreement described in Item 1 - Description of Business and
incorporated by reference as Exhibit 10.31 on the Company's Form 10-QSB for the
quarter ended September 30, 1999.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. The Company is not currently
involved in any material legal proceedings and is not aware of any material
legal proceeding threatened against it.

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

     No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended December 31, 1999.

                                       14
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock, $.001 par value per share, is quoted on the
American Stock Exchange effective June 16, 1998, under the symbol "IDS".  Prior
to June 16, 1998, the Company's Common Stock was traded on the NASDAQ
Electronic Bulletin Board under the symbol "IDDS."

                                                           HIGH        LOW
                                                           ----       -----
     YEAR ENDED DECEMBER 31, 1998
     ----------------------------
     First Quarter...................................      6.750      3.125
     Second Quarter..................................      6.000      3.250
     Third Quarter...................................      8.688      6.000
     Fourth Quarter..................................      9.375      5.875

     YEAR ENDED DECEMBER 31, 1999
     ----------------------------
     First Quarter...................................      9.250      7.250
     Second Quarter..................................     10.750      1.750
     Third Quarter...................................      2.688      1.000
     Fourth Quarter..................................      1.188      0.750

     The foregoing figures are based on information published by NASDAQ/AMEX, do
not reflect retail markups or markdowns and may not represent actual trades.

     As of December 31, 1999, the Common Stock was held by approximately 181
stockholders of record.

                                DIVIDEND POLICY

     The Company has never declared or paid a cash dividend on the Common Stock.
The payment of dividends in the future will depend on the Company's earnings,
capital requirements, operating and financial position and general business
conditions. The Company intends to retain any future earnings for reinvestment
in its business and does not intend to pay cash dividends in the foreseeable
future. The Company has not entered into any agreement which restricts its
ability to pay dividends on its Common Stock in the future.  See "Management's
Discussion and Analysis or Plan of Operation."

                                       15
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following discussion is qualified in its entirety by, and should be
read in conjunction with, the Company's Consolidated Financial Statements
including the Notes thereto, included elsewhere in this Annual Report on Form
10-KSB. Footnote 12 to the Financial Statements contains segment information.

OVERVIEW

     Since the Company's formation in 1985, its major source of revenues has
been the provision of engineering consulting services to the pipeline divisions
of major integrated oil and gas companies. The Engineering segment accounted
48.8% of total revenues for 1999.  The Company has made a concentrated effort to
expand upon the engineering consulting services and has actively pursued more
turn-key projects which requires full service of jobs in the engineering,
procurement and construction phases.  In spite of reduced sales revenues during
1999, the Air Handling segment has been able to maintain a stable gross margin
percentage by controlling labor and material costs. The Company believes that
tight market conditions prevalent during most of 1999 in the oil and gas related
markets contributed to the decline in sales revenues within its three production
segments.

     The overall consolidated gross margin decreased in 1999.  This is
attributable to the lower revenues reported during the year not being
accompanied by lower labor and material costs.  The overall gross margin
decreased from 25.4% in 1998 to 23.3% in 1999.

     The Company reclassified the activity pertaining to the Fabricating segment
as discontinued for the years ended December 31, 1998 and 1999.  This resulted
in a loss from discontinued operations in 1998 of  $221,457 and of $1,972 in
1999.  The acquisition of IDS FAB was rescinded, effective October 28, 1999 and
as a result of the rescission, the Company recorded a one-time loss on the
disposal of discontinued operations of $481,085, net of tax of approximately
$146,000.

     YEAR 2000 (Y2K) ISSUES AND CONSEQUENCES

     The Company's program to address its Year 2000 issues was successful and
the Company experienced no down-time or stoppage of normal business activities
due to Y2K issues.  The Company did not experience any adverse or detrimental
effects from Y2K issues effecting the ability to transact business with any of
its major suppliers or customers. All normal banking and business transactions
have been conducted without incident. The Company believes it experienced some
effects of the Y2K concerns, resulting in lower revenues due to the redirection
of capital expenditures toward the identification and remediation of Y2K issues.
The Company expects no adverse effects on its ability to conduct business from
Y2K issues in the future.

                                       16
<PAGE>

FORWARD-LOOKING STATEMENTS

      Certain information contained in this Form 10-KSB Annual Report, the
Company's Annual Report to Shareholders, as well as other written and oral
statements made or incorporated by reference from time to time by the Company
and its representatives in other reports, filings with the Securities and
Exchange Commission, press releases, conferences, or otherwise, may be deemed to
be forward-looking statements with the meaning of Section 21E of the Securities
Exchange Act of 1934.  This information includes, with limitation, statements
concerning the Company's future financial position, and results of operations;
planned capital expenditures; business strategy and other plans for future
operations; the future mix of revenues and business; commitments and contingent
liabilities; Year 2000 issues; and future demand and industry conditions.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.  When used in this report, the
words "anticipate," "believe," "estimate," "expect," "may," and similar
expressions, as they relate to the Company and its management, identify forward-
looking statements could differ materially from the results described in the
forward-looking statements due to the risks and uncertainties set forth with
this Annual Report on Form 10-KSB generally.

                                       17
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, certain
financial data derived from the Company's consolidated statements of operations
and indicates percentage of total revenue for each item.

                                                Years ended December 31,
                                                ------------------------
                                                 1998                 1999
                                                 ----                 -----
                                          Amount       %        Amount      %
                                          ------      --        ------     --
Revenue:
   Engineering.......................  $ 4,406,585    34.8   $ 5,978,180   48.8
   Air Handling......................    3,707,672    29.3     3,151,295   25.7
   Power Systems.....................    3,016,286    23.8     2,372,889   19.4
   Products..........................    1,535,915    12.1       736,084    6.1
                                       -----------   -----   -----------  =====
  Total Revenue......................  $12,666,458   100.0   $12,238,449  100.0

Gross Profit:
  Engineering........................    1,263,454    28.7     1,599,722   26.8
  Air Handling.......................      715,547    19.3       598,766   19.0
  Power Systems......................      926,760    30.7       478,905   20.2
  Products...........................      309,637    20.2       171,048   23.2
                                       -----------   -----   -----------  -----
 Total Gross Profit..................  $ 3,215,398    25.4   $ 2,848,440   23.3
Selling, general and administrative
 expenses............................    2,277,711    18.0     2,615,922   21.4
                                       -----------   -----   -----------  -----
     Operating Income................      937,687     7.4       232,518    1.9

Other income (expense)...............      (11,022)   (0.1)       78,436    0.6
Income from continuing operations
     before provision for income
     taxes...........................      926,665     7.6       310,954    2.5
Provision for income taxes...........      285,376     2.3       151,212    1.2
                                       -----------   -----   -----------  -----
Income from continuing operations....      641,289     5.2       159,742    1.3
                                       -----------   -----   -----------  -----
Loss from discontinued operations....     (221,457)   (1.8)       (1,972)   0.0
                                       -----------   -----   -----------  -----
Loss on disposal of discontinued
     operations, net of tax of
     approximately $146,000 in 1999..            0     0.0      (481,085)  (3.9)
                                       -----------   -----   -----------  -----
Net Income (Loss)....................  $   419,832     3.4   $  (323,315)  (2.6)
                                       ===========   =====   ===========  =====

                                       18
<PAGE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

   In October 1999, the acquisition of IDS FAB, which took place in November
1998 was rescinded.  As a result of this, the operating results of  IDS FAB were
reclassified as discontinued operations for 1998 and 1999.  The following
comparisons reflect these reclassifications.

     TOTAL REVENUE. Total revenue decreased by $428,009 or 3.4% from $12,666,458
in 1998 to $12,238,449 in 1999. Revenue from the Engineering segment, which
comprised 34.8% and 48.8% of total revenue in 1998 and 1999, respectively,
increased by $1,571,595 or 35.7%. This increase was due to the segment adding
several sizable lump-sum projects to its existing revenue base and to additional
revenues generated by its Tulsa operation. Revenue from the Air Handling segment
comprised 29.3% and 25.7% of total revenue in 1998 and 1999, respectively,
decreased by $556,377 or 15.0%. The Power Systems segment contributed revenue in
nine months ended December 31,1998 of $3,016,286, which comprised 23.8% of total
revenues and for the year ended December 31,1999 it generated 19.4% of total
revenues. Revenue from the Products segment comprised 12.1% and 6.1% of total
revenues for 1998 and 1999, respectively.  The Company believes the decrease in
revenues in the Air Handling, Power Systems and Products segments was
attributable to an overall decline in the market as a result of Y2K concerns and
the redirection of capital expenditure funds to identify and remedy Y2K issues.

     GROSS PROFIT. Gross profit decreased by $366,958 or 11.4% from $3,215,398
in 1998 to $2,848,440 in 1999. The gross margin for the Engineering segment
increased by $336,268 or 26.6% from 1998 to 1999. This was attributable to the
increase in revenues in 1999. The gross margin for the Air Handling segment
decreased by $116,781 or 16.3% from 1998 to 1999. This decrease was due to the
decrease in 1999 revenues as explained above. The Power Systems segment gross
margin declined by an amount of $447,855 from 30.7% in 1998 to 20.2% in 1999 due
to a decrease in revenues not accompanied by offsetting reductions direct
material and labor costs.  The Products segment gross margin decreased by
$138,589 or 44.8% from 1998 to 1999, which was attributable to lower revenues.
The gross margin generated in 1999, as a percentage of sales, was slightly
higher than what was generated in 1998 due to the reduction in direct material
and labor costs, which were brought about by management as a result of decreased
revenues.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $338,211 or 14.8% from $2,277,711 in 1998
to $2,615,922 in 1999. As a percentage of total revenue, selling, general and
administrative expenses increased from 18.0% in 1998 to 21.4% in 1999. The
increase was attributable to additional expense related to the establishment of
the Tulsa office and related increases in personnel and benefit costs.

     OPERATING PROFIT. Operating profit decreased by $705,169 or 75.2% from
$937,687 in 1998 to $232,518 in 1999. Operating profit decreased as a percentage
of total revenue from 7.4% in 1998 to 1.9% in 1999. This decrease was brought
about by the lower combined

                                       19
<PAGE>

revenues, lower gross margins in the Air Handling, the Power Systems and
Products segment and to the increase in selling, general and administrative
expense.


     INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
decreased by $481,547 or 75.1% from $641,289 in 1998 to $159,742 in 1999.  This
was attributable to the overall decline in revenues and gross margins
accompanied by an increase in selling, general and administrative costs.  The
Company's attempt to maintain a stable workforce base for future growth and
additional expenses to maintain the Tulsa operations contributed to the
increased expenses.


     DISCONTINUED  OPERATIONS. Discontinued operations contributed a loss of
$221,457 in 1998.  In 1999, discontinued operations generated a loss of $1,972.
The loss on disposal of discontinued operations, as a result of the rescission
of the IDS FAB acquisition generated a one-time loss of $481,085.


LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company has satisfied its cash requirements principally
through operations and, as needed, by borrowings under its line of credit. As of
December 31, 1998, the Company's cash position, was in management's judgment,
sufficient to meet its working capital requirements. The Company had, as of
December 31, 1999, approximately $835,000 in additional advances available under
its line of credit with a bank. This line of credit provides for maximum
borrowings of $1,150,000, which bears interest at prime plus 1%, is for a term
of one year and matures on May 12, 2000. The Company expects the line of credit
will be renewed at that time. The line of credit is secured by accounts
receivable, inventory and the personal guarantees of certain stockholders and
officers of the Company.  As of December 31, 1999, the Company had $315,660
outstanding against the line of credit note.  Interest on the outstanding
balance of this note is paid on a monthly basis. At its maturity on May 12,
2000, the Company expects that the line of credit term note will be renewed.

     The Company believes that it has sufficient working capital and does not
intend to sell shares of its Common Stock within the next 12 months.

     The Company's working capital was $3,047,291 and $3,306,316 at December 31,
1998 and December 31, 1999, respectively.

     CASH FLOW

     Operating activities provided net cash totaling $773,432 and $93,703 during
1998 and 1999, respectively. The Company has not generated significant cash flow
from operating activities due to the working capital requirements resulting from
its rapid growth in the engineering segment.

                                       20
<PAGE>

     Investing activities generated cash totaling $208,515 and $114,020
respectively, during the years ended December 31, 1998 and 1999. In 1998, the
Company's investing activities that used cash were primarily related to the
acquisition of CPM and IDS FAB and capital expenditures. In 1999, the Company's
investing activities consisted primarily of capital expenditures.

     Financing activities provided cash totaling $7,630 and used cash totaling
$196,514 during 1998 and 1999, respectively. The Company has additional
financing amounts available on its line of credit ($835,000 at December 31,
1999). The line of credit has been used principally to finance accounts
receivable and inventory purchases.

     ASSET MANAGEMENT

     The Company's cash flow from operations has been affected primarily by the
timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing credit checks and conducting its own collection
efforts. The Company had trade accounts receivable of $2,913,128 and $2,540,835
at December 31, 1998 and 1999, respectively. The number of days' sales
outstanding in trade accounts receivable was 70 days and 76 days, at December
31, 1998 and 1999, respectively. Bad debt expenses have been insignificant
(approximately .01%) for each of these periods.

                                       21
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

      The audited consolidated financial statements for Industrial Data Systems
Corporation, as of December 31, 1999 and 1998 are attached hereto and made part
hereof.

                                     INDEX
                                                                    Page
                                                                    ----
INDEPENDENT AUDITOR'S REPORT....................................     23

CONSOLIDATED BALANCE SHEET - December 31, 1999..................     24
CONSOLIDATED STATEMENTS OF OPERATIONS
     Years Ended December 31, 1999 and 1998.....................     25

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
     Years Ended December 31, 1999 and 1998.....................     26

CONSOLIDATED STATEMENTS OF CASH FLOWS
     Years Ended December 31, 1999 and 1998.....................     27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................     28

                                       22
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


Board of Directors and Stockholders
Industrial Data Systems Corporation

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

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Industrial Data Systems Corporation and Subsidiaries as of December  31, 1999,
and the results of their operations and their cash flows for the years ended
December 31, 1998 and 1999, in conformity with generally accepted accounting
principles.

/s/Hein + Associates llp

Houston, Texas
March 17, 2000

                                       23
<PAGE>

                      INDUSTRIAL DATA SYSTEMS CORPORATION
                               AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                               DECEMBER 31, 1999

                                    ASSETS
                                    ------
CURRENT ASSETS:
  Cash and cash equivalents                                           $  663,972
  Municipal bond, at cost                                                300,000
  Accounts receivable - trade, less allowance for doubtful             2,540,835
   accounts of approximately $6,500
  Inventory                                                              771,808
  Notes receivable from stockholders                                     150,000
  Federal income tax receivable                                           53,000
  Prepaid and other                                                      329,441
                                                                      ----------
       Total current assets                                            4,809,056

PROPERTY AND EQUIPMENT, net                                            1,070,218

GOODWILL                                                                  34,650
                                                                      ----------
       Total assets                                                   $5,913,924
                                                                      ==========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------

CURRENT LIABILITIES:
  Notes payable                                                       $  342,010
  Current maturities of long-term debt                                    39,259
  Accounts payable                                                       779,017
  Deferred income taxes                                                   45,000
  Accrued expenses and other current liabilities                         297,454
                                                                      ----------
       Total current liabilities                                       1,502,740

LONG-TERM DEBT                                                           384,658

DEFERRED INCOME TAXES                                                     52,000

COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 16)

STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value; 75,000,000 shares authorized;
    12,964,918 shares issued and outstanding                              12,965
  Additional paid-in capital                                           2,640,154
  Retained earnings                                                    1,321,407
                                                                      ----------

       Total stockholders' equity                                      3,974,526
                                                                      ----------
       Total liabilities and stockholders' equity                     $5,913,924
                                                                      ==========



      SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       24
<PAGE>

                      INDUSTRIAL DATA SYSTEMS CORPORATION
                               AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                            -----------------------------------------
                                                                                  1998                    1999
                                                                            -----------------       -----------------
<S>                                                                            <C>                     <C>
OPERATING REVENUES:
  Engineering services                                                            $ 4,406,585             $ 5,978,180
  Product sales                                                                     8,259,873               6,260,269
                                                                                  -----------             -----------
                                                                                   12,666,458              12,238,449
OPERATING EXPENSES:
  Cost of engineering services                                                      3,143,131               4,378,459
  Cost of product sales                                                             6,307,929               5,011,550
  Selling, general and administrative                                               2,277,711               2,615,922
                                                                                  -----------             -----------
                                                                                   11,728,771              12,005,931
                                                                                  -----------             -----------
       Operating profit                                                               937,687                 232,518

OTHER INCOME (EXPENSE):
  Realized gains on marketable securities, net                                         14,510                  50,909
  Net unrealized gains (losses) on marketable securities                                3,772                       -
  Interest income                                                                      49,542                  46,963
  Interest expense                                                                    (78,846)                (68,067)
  Other income                                                                              -                  48,631
                                                                                  -----------             -----------
                                                                                      (11,022)                 78,436
                                                                                  -----------             -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAX (BENEFIT) EXPENSE                                     926,665                 310,954

PROVISION FOR INCOME TAX (BENEFIT) EXPENSE:
  Federal                                                                             412,810                 141,632
  State                                                                                24,900                  14,580
  Deferred                                                                            (80,334)                 (5,000)
                                                                                  -----------             -----------
                                                                                      357,376                 151,212
                                                                                  -----------             -----------
INCOME FROM CONTINUING OPERATIONS                                                     569,289                 159,742

LOSS FROM DISCONTINUED OPERATIONS, net of tax of
 approximately $72,000 in 1998                                                       (149,457)                 (1,972)

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net of tax of
 approximately $146,000 in 1999                                                             -                (481,085)
                                                                                  -----------             -----------
NET INCOME (LOSS)                                                                 $   419,832             $  (323,315)
                                                                                  ===========             ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE:
  Continuing operations                                                                 $0.05                   $0.01
  Discontinued operations                                                              $(0.02)                 $(0.03)
                                                                                  -----------             -----------
  Net income (loss)                                                                     $0.03                  $(0.02)
                                                                                  ===========             ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                         12,947,280              13,055,535
                                                                                  ===========             ===========
</TABLE>

       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENT.


                                       25
<PAGE>

                      INDUSTRIAL DATA SYSTEMS CORPORATION
                               AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1999


<TABLE>
<CAPTION>
                                                           Common Stock        Additional                                Total
                                                      ---------------------      Paid-in      Retained    Treasury   Stockholders'
                                                        Shares       Amount      Capital      Earnings      Stock        Equity
                                                      ----------    -------    ----------    ----------   ---------  ------------
<S>                                                   <C>           <C>        <C>           <C>          <C>         <C>
BALANCES, December 31, 1997                           12,723,718    $12,724    $2,176,713    $1,224,890    $(15,323)   $3,399,004
 Stock issuances in conjunction with acquisitions        350,000        350       589,450             -           -       589,800
 Net income                                                    -          -             -       419,832           -       419,832
                                                      ----------    -------    ----------    ----------   ---------  ------------
BALANCES, December 31, 1998                           13,073,718     13,074     2,766,163     1,644,722     (15,323)    4,408,636
 Treasury stock
   Acquisition:
     Received 50,000 shares in rescission agreement            -          -             -             -     (43,750)      (43,750)
     Purchased 40,000 shares                                   -          -             -             -     (67,045)      (67,045)
   Retirement                                           (108,800)      (109)     (126,009)            -     126,118             -
 Net loss                                                      -          -             -      (323,315)          -      (323,315)
                                                      ----------    -------    ----------    ----------   ---------  ------------
BALANCES, December 31, 1999                           12,964,918    $12,965    $2,640,154    $1,321,407    $      -    $3,974,526
                                                      ==========    =======    ==========    ==========   =========  ============
</TABLE>

      See accompanying notes to these consolidated financial statements.

                                       26
<PAGE>

                      INDUSTRIAL DATA SYSTEMS CORPORATION
                               AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                           ------------------------------------
                                                                                               1998                      1999
                                                                                            ----------                ----------
<S>                                                                                    <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                                         $  419,832                $ (323,315)
  Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities:
    Depreciation and amortization                                                              170,564                   144,304
    Deferred income tax expense from continuing operations                                     (32,334)                   (5,000)
    Gain on sale of trading securities                                                         (14,510)                  (50,909)
    Loss from discontinued operations                                                          221,457                   483,057
    Changes in operating assets and liabilities, net of assets acquired in
     business combinations:
       Accounts receivable - trade                                                             660,162                  (583,747)
       Inventory                                                                               177,745                    91,289
       Trading securities                                                                     (287,092)                  427,556
       Accounts payable                                                                       (832,867)                  436,699
       Income taxes payable                                                                     77,302                  (210,000)
       Accrued expenses and other current liabilities                                          270,488                  (214,905)
       Other, net                                                                              (57,315)                 (101,326)
                                                                                            ----------                ----------
         Net cash provided by operating activities                                             773,432                    93,703
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                                         (84,707)                 (208,923)
  Purchase of IDS Fabricated Systems, Inc., net of cash received                               125,387                         -
  Purchase of Constant Power Manufacturing, Inc., net of cash received                         112,289                         -
  Payments (advances) on note receivable from stockholder                                       50,000                         -
  Repayments from affiliate                                                                      5,546                         -
                                                                                            ----------                ----------
         Net cash provided by investing activities                                             208,515                  (208,923)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term repayments                                                                        (12,470)                 (146,014)
  Long-term borrowings (repayments)                                                             20,100                    16,545
  Purchases of treasury stock                                                                        -                   (67,045)
                                                                                            ----------                ----------
         Net cash provided by (used in) financing activities                                     7,630                  (196,514)
                                                                                            ----------                ----------
NET CASH USED IN DISCONTINUED OPERATIONS                                                    $ (221,457)               $ (250,115)
                                                                                            ----------                ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS                                                        768,120                  (561,849)
CASH AND CASH EQUIVALENTS, at beginning of year                                                457,701                 1,225,821
                                                                                            ----------                ----------
CASH AND CASH EQUIVALENTS, at end of year                                                   $1,225,821                $  663,972
                                                                                            ==========                ==========
SUPPLEMENTAL DISCLOSURES:
  Interest paid                                                                             $   81,000                $   68,709
  Income taxes paid                                                                         $  232,632                $  415,580
                                                                                            ==========                ==========
NON-CASH TRANSACTIONS:
  Purchase price adjustment - adjustment to liabilities and goodwill                        $        -                $  121,649
  Issuance of common stock in conjunction with purchase of IDS Fabricated
   Systems, Inc.                                                                            $  289,800                $        -
  Issuance of common stock in conjunction with purchase of Constant Power
   Manufacturing, Inc.                                                                      $  300,000                $        -
  Assumption of $200,000 note payable in conjunction with purchase of IDS
   Fabricated Systems, Inc.                                                                 $  200,000                $        -
  Treasury stock received in rescission transaction (See Note 15)                           $        -                $   43,750
</TABLE>

      SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       27
<PAGE>
                      INDUSTRIAL DATA SYSTEMS CORPORATION
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Organization - The accompanying consolidated financial statements include
    the accounts of Industrial Data Systems Corporation ("IDSC" or the
    "Company"), a Nevada corporation, and its wholly owned subsidiaries
    Industrial Data Systems, Inc., a Texas corporation, ("IDS"); Thermaire,
    Inc., a Texas corporation, dba Thermal Corporation ("Thermal"); Constant
    Power Manufacturing, Inc. ("CPM"), a Texas corporation, and IDS Engineering,
    Inc. ("IED"), a Texas corporation. The 1998 amounts include the accounts of
    IDS Fabricated Systems, Inc. ("IDS FAB"), a Texas corporation which was
    disposed of in 1999 (see Note 15). All significant intercompany balances and
    transactions have been eliminated in consolidation.

    Cash and Cash Equivalents - Cash and cash equivalents include cash in bank
    and investments in highly liquid money market mutual funds.

    Inventory - Inventory is composed primarily of raw materials and component
    parts (computer components, sheet metal, copper tubing, blower fans and fan
    motors) and is carried at the lower of cost or market value, with cost
    determined on the first-in, first-out ("FIFO") method of accounting.

    Revenue Recognition - The Company's revenues are composed of product sales
    and engineering service revenue. The Company recognizes service revenue when
    such services are performed and product sales upon shipment to the customer.

    Marketable Securities - Marketable securities to be held to maturity are
    stated at amortized cost. Marketable securities classified as available-for-
    sale are stated at market value, with unrealized gains and losses reported
    as a separate component of stockholders' equity, net of deferred income
    taxes. If a decline in market value is determined to be other than
    temporary, any such loss is charged to earnings. Trading securities are
    stated at fair value, with unrealized gains and losses recognized in
    earnings. The Company records the purchases and sales of marketable
    securities and records realized gains and losses on the trade date. Realized
    gains or losses on the sale of securities are recognized on the specific
    identification method.

    Property and Equipment - All property and equipment is stated at cost,
    adjusted for accumulated depreciation. Depreciation on all property and
    equipment, other than land, building and improvements, is calculated using
    an accelerated method over the estimated useful lives of the related assets,
    which is five years. Depreciation  on the building is calculated using a
    straight-line method over the useful life, which is 40 years. Leasehold
    improvements are amortized over the term of the related lease.

                                       28
<PAGE>

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Goodwill - The Company capitalizes the excess purchase price over the fair
    value of net assets acquired ("goodwill") and amortizes this intangible
    asset on a straight-line basis over 5-10 years.

    Long-lived Assets - The Company reviews for the impairment of long-lived
    assets and certain identifiable intangibles whenever events or changes in
    circumstances indicate that the carrying amount of an asset may not be
    recoverable. An impairment loss would be recognized when estimated future
    cash flows expected to result from the use of the asset and its eventual
    disposition is less than its carrying amount. The Company has not identified
    any such impairment losses.

    Income Taxes - The Company accounts for deferred income taxes in accordance
    with the asset and liability method, whereby deferred income taxes are
    recognized for the tax consequences of temporary differences by applying
    enacted statutory tax rates applicable to future years to differences
    between the financial statement and tax bases of its existing assets and
    liabilities. The provision for income taxes represents the current tax
    payable or refundable for the period plus or minus the tax effect of the net
    change in the deferred tax assets and liabilities during the period.

    Earnings Per Share - Basic earnings per share was computed by dividing net
    income by the weighted average common shares outstanding as of December 31,
    1998 and 1999. The options outstanding at December 31, 1999 (see Note 8)
    were not considered in the computation of diluted EPS for the year ended
    December 31, 1999 since their effect would have been antidilutive.

    Use of Estimates - The preparation of the Company's consolidated financial
    statements in conformity with generally accepted accounting principles
    requires the Company's management to make estimates and assumptions that
    affect the amounts reported in these financial statements and accompanying
    results. Actual results could differ from these estimates.

    Fair Value of Financial Instruments - The fair value of financial
    instruments, primarily accounts receivable, notes receivable, bonds,
    accounts payable and notes payable, closely approximate the carrying values
    of the instruments due to the short-term maturities of such instruments.

    Comprehensive Income - Comprehensive income is defined as all changes in
    stockholders' equity, exclusive of transactions with owners, such as capital
    investments. Comprehensive income includes net income or loss, changes in
    certain assets and liabilities that are reported directly in equity, such as
    translation adjustments on investments in foreign subsidiaries and certain
    changes in minimum pension liabilities. The Company's comprehensive income
    (loss) is equal to net income (loss) for all periods presented in these
    financial statements.

    Reclassifications - Amounts in prior years' financial statements are
    reclassified as necessary to conform with the current year's presentation.
    Such reclassifications had no effect on net income.

                                       29
<PAGE>

2.  AFFILIATE RECEIVABLES

    The Company has several notes receivable due from officers of the Company
    totaling $150,000 at December 31, 1999. The notes receivable are unsecured,
    due on demand and bear interest at a rate of 9% per annum. Interest on the
    notes is due annually. During the years ended December 31, 1998 and 1999,
    the Company recognized interest income of approximately $18,000 and $13,500,
    respectively, on these notes.


3.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following at December 31, 1999:

             Land                                             $   90,000
             Furniture and fixtures                              128,666
             Computer equipment                                  364,073
             Building                                            605,000
             Shop equipment                                      161,169
             Leasehold improvements                               72,618
             Building improvements                                77,538
                                                              ----------
                                                               1,499,064
             Accumulated depreciation and amortization          (428,846)
                                                              ----------
                                                              $1,070,218
                                                              ==========

4.  NOTES PAYABLE

    The Company entered into a Revolving Credit Note with a bank on May 12, 1999
    in the amount of $1,150,000, bearing interest at prime + 1% (9.75% at
    December 31, 1999) and maturing on May 12, 2000. The outstanding balance due
    at December 31, 1999 was $315,660. This note is collateralized by the
    accounts receivable and inventory of the Company. The agreement contains
    certain covenants, the most restrictive of which requires the Company to
    maintain consolidated tangible net worth, as defined, of at least
    $3,600,000.

    The Company is financing a portion of its insurance each year on a short-
    term basis, with a balance of $26,350 at December 31, 1999.


5.  LONG TERM DEBT

    The Company has a term note payable with a bank of $450,000 at 8.88%. The
    loan, which expires on February 28, 2002, is collateralized by land and
    building. There was $404,098 outstanding under this note at December 31,
    1999. Interest on the outstanding amount is due and payable monthly.

    The Company is financing a portion of its insurance over 23 months bearing
    interest at 7.95% with a remaining balance of $19,819 at December 31, 1999.

                                       30
<PAGE>

5. LONG TERM DEBT (Continued)

    Future maturities of long-term debt are as follows:

           Years Ending December 31,
           -------------------------
                 2000                                      $ 39,259
                 2001                                        21,238
                 2002                                       363,420
                                                           --------
          Total                                             423,917
          Less current portion                              (39,259)
                                                           --------
          Long-term debt                                   $384,658
                                                           ========

6. LEASES

    The Company leases office space under two non-cancelable operating leases.
    Total rent expense for the years ended December 31, 1998 and 1999 was
    approximately $109,000 and $275,000, respectively. Future minimum rentals
    due under the non-cancelable operating leases with an original term of at
    least one year are approximately as follows:


           Years Ending December 31,
           -------------------------
                 2000                                      $154,000
                 2001                                       246,000
                 2002                                       170,000
                                                           --------
                                                           $570,000
                                                           ========

7.  PROFIT SHARING PLAN

    The Company has a 401(k) profit sharing plan (the "Plan") covering
    substantially all employees. Under the terms of the Plan, the Company will
    make matching contributions equal to 50% of employee contributions up to 6%
    of employee compensation, as defined. Employees may make contributions up to
    15% of their compensation, subject to certain maximum contribution
    limitations. The employer's contributions vest on a schedule of 25% per year
    for four years. The Company made contributions to the Plan of approximately
    $93,000 and $120,000 for the years ended December 31, 1998 and 1999,
    respectively.


8.  STOCK OPTION PLAN

    In June 1998, the Company created the Industrial Data Systems Corporation
    1998 Incentive Plan (the "Option Plan"). The Option Plan provides for grants
    of nonstatutory options, incentive stock options, restricted stock awards
    and stock appreciation rights. The Company has adopted the disclosure-only
    provisions of the Statement of Financial Accounting Standards ("SFAS") No.
    123, Accounting for Stock-Based Compensation. The Company elected to
    continue following Accounting Principles Board Opinion No. 25 and recognize
    compensation expense, if any, based on the intrinsic value method of the
    equity instrument at the measurement date. Accordingly, no compensation cost
    has been recognized for grants under the Option Plan because the exercise
    price of the options equals the market price of the stock on the date of the
    grants. Had compensation cost of the Option Plan been determined based on
    the fair
                                       31
<PAGE>

8.  STOCK OPTION PLAN  (Continued)

    value at the grant date for awards in 1998 and 1999 consistent with the
    provisions of SFAS No. 123, the Company's pre-tax income in 1998 and 1999
    would not have changed.

    The fair value of each option granted is estimated on the date of grant
    using the Black-Scholes option-pricing model with the following weighted
    average assumptions used for grants in 1999 dividend yield of 0%, expected
    volatility of 94%, risk-free interest rates of 6%, and expected lives of two
    years.

    Under the Option Plan, the total number of shares of common stock that may
    be granted is 1,200,000. Each option granted in 1999 has an exercise price
    of $1.25 per share and vests over 48 months. The maximum term of the options
    is ten years.

    The following table summarizes stock option activity:

               Outstanding, January 1, 1999                            -
               Granted                                           200,000
               Canceled or expired                                     -
               Exercised                                               -
                                                               ---------
               Outstanding, December 31, 1999                    200,000
                                                               =========
               Exercisable at December 31, 1999                    5,000
                                                               =========
               Available for grant at December 31, 1999        1,000,000
                                                               =========
               Weighted-average fair value of options,
                granted during the year                        $     .42
                                                               =========
               Weighted-average fair value of options at
                December 31, 1999                              $     .42
                                                               =========


9.  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

    The Company manufactures and distributes industrial and portable computers
    and computer monitors, power systems and battery chargers, and air handling
    equipment for air conditioning and heating systems to commercial companies
    primarily in the southern states and provides pipeline engineering and
    fabricated systems and services primarily to major integrated oil and gas
    companies. The Company performs ongoing credit evaluations of its customers
    and generally does not require collateral. The Company assesses its credit
    risk and provides an allowance for doubtful accounts for any accounts which
    it deems doubtful for collection.

    The Company maintains deposits in banks which may exceed the amount of
    federal deposit insurance available. Management periodically assesses the
    financial condition of the institutions and believes that any possible
    deposit loss is minimal.

    For the years ended December 31, 1998 and 1999, the Company had sales to one
    major customer in the Engineering segment totaling approximately $2,533,000
    and $3,460,000, respectively, which represent 19% and 24%, respectively, of
    total revenues. At December 31, 1999, amounts due from two customers who
    individually had amounts due in excess of 10% of trade receivables totaled
    $793,000.

                                       32
<PAGE>

10.  STOCKHOLDERS' EQUITY

    In 1998, the Company issued 300,000 shares of common stock as part of the
    CPM acquisition and 50,000 shares as part of the IDS FAB acquisition (see
    Note 14).

    In 1999, the Company purchased 40,000 shares of its own stock for $67,045
    under a program approved by the Board of Directors to repurchase up to
    400,000 shares of Company common stock at no more than $5 per share. Also in
    1999, as part of a rescission agreement, the Company received back 50,000
    shares of the Company common stock that had been issued during 1998 in the
    acquisition of IDS FAB (see Note 15). All treasury shares were retired in
    1999.


11. FEDERAL INCOME TAXES

    The following is a reconciliation of expected to actual income tax expense
    from continuing operations:

                                                   YEARS ENDED DECEMBER 31,
                                                  -------------------------
                                                    1998             1999
                                                  ---------       ---------
                Federal income tax expense
                  (benefit) at 34%                 $315,066        $105,724
                State and foreign taxes              16,434           9,622
                Nondeductible expenses               16,775           3,400
                Other                                 9,101          32,466
                                                   --------        --------
                                                   $357,376        $151,212
                                                   ========        ========

    The components of the Company's deferred tax liability consisted of the
    following at December 31, 1999:

                Deferred tax asset:
                  Allowance for doubtful accounts                  $  2,500
                Deferred tax liabilities:
                  Tax accounting change from cash basis
                    to accrual basis -  CPM Acquisition             (95,000)
                  Depreciation                                       (4,500)
                                                                  ---------
                       Deferred tax liability, net                 $(97,000)
                                                                  =========


12.  SEGMENT INFORMATION

    The Company operates in four business segments: (1) the manufacture and
    distribution of industrial computer systems to industrial and commercial
    companies; (2) engineering consulting services primarily to major integrated
    oil and gas companies; (3) the manufacture and distribution of air handling
    equipment for HVAC systems to commercial companies; and (4) the manufacture
    and distribution of uninterruptible power systems and battery chargers.
    Sales, operating income, interest income and expense, identifiable assets,
    capital expenditures and depreciation set forth in the following table are
    the results of the four segments. The amount in corporate and eliminations
    includes amounts to eliminate intercompany items, including notes receivable
    and notes payable.

                                       33
<PAGE>

12.  SEGMENT INFORMATION  (CONTINUED)

    Segment information for the years 1998 and 1999 was as follows:

<TABLE>
<CAPTION>
                                                                 (Thousands)
------------------------------------------------------------------------------------------------------------------------------------
                                                                    1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Disposed
                                                                     Air          Power                      Segment
                                         Products   Engineering    Handling      Systems      Corporate       Assets         Total
                                         --------   -----------    --------      ------       ---------       --------       -----
<S>                                        <C>           <C>          <C>         <C>          <C>             <C>          <C>
Net sales from external customers       $ 1,535      $   4,407     $  3,708    $ 3,016     $      -       $      -      $ 12,666
Operating earnings                         (363)           603           60        638            -              -           938
Interest income                               -             -            -          -            50              -            50
Interest expense                              -             -            -          -            79              -            79
Depreciation and amortization                29             47           79         -            16              -           171
Total assets                                536          2,100        1,755      1,677          215          1,646         7,929
Capital expenditures                    $    25      $      19     $     32    $     -     $      9       $      -      $     85
------------------------------------------------------------------------------------------------------------------------------------
                                                                    1999
------------------------------------------------------------------------------------------------------------------------------------

Net sales from external customers       $   736      $   5,978     $  3,151    $ 2,373     $      -              -      $ 12,238
Operating earnings                          (36)           428          (38)      (121)                          -           233
Interest income                               -              -            -          -           47              -            47
Interest expense                              -              -            -          -           68              -            68
Depreciation and amortization                36             50           58          -            -              -           144
Total assets                              1,342          1,735        1,719      1,067           51              -         5,914
Capital expenditures                    $     -      $     121     $     88    $     -     $      -       $      -      $    209
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



13.  TRANSACTION WITH AFFILIATE

    In July 1997, the Company entered into a management contract with BHC
    Management Corporation ("BHC"), a Texas corporation. As compensation for
    services provided hereunder, IDS agreed to pay BHC the sum of $4,000 per
    month plus expenses not to exceed $500 per month. The principals of BHC are
    stockholders of IDS. The total payments made to BHC during 1998 and 1999
    were approximately $48,000 and $8,000, respectively.


14.  ACQUISITIONS

    In April 1998, the Company acquired CPM in a stock purchase. The Company
    paid $500,000, consisting of $200,000 in cash and 300,000 shares of the
    Company's common stock, which may be put back to the Company for $1 per
    share at the option of the holder. This acquisition has been accounted for
    on the purchase method of accounting. No goodwill was generated in this
    transaction. The operating results of CPM have been included in the
    Company's consolidated financial statements since the date of acquisition.

                                       34
<PAGE>

    In November 1998, the Company acquired IDS FAB in a stock purchase. The
    Company paid $389,800, consisting of $100,000 in cash and 50,000 shares of
    the Company's common stock, whose fair market value at the date of exchange
    was $289,800. This acquisition has been accounted for on the purchase method
    of accounting. The purchase price exceeded the fair value of the net assets
    acquired by approximately $593,000. The operating results of IDS FAB have
    been included in the Company's consolidated financial statements since the
    date of acquisition (see Note 15 for discussion regarding rescission of this
    agreement in 1999).

    The following unaudited proforma consolidated results of operations of the
    year ended December 31, 1998 assumes the CPM and IDS FAB acquisitions
    occurred as of January 1, 1998.

        (thousands, except per share data)                            1998
        -----------------------------------------------------------------------
        Net sales                                                   $19,488
        Net earnings                                                    306
        Basic earnings per share                                        .02
        -----------------------------------------------------------------------

    In management's opinion, the unaudited proforma combined results of
    operations are not indicative of the actual results that would have occurred
    had the acquisitions been consummated at the beginning of fiscal 1998 or of
    future operations of the combined companies under the ownership and
    management of the Company.

15.  DISCONTINUED OPERATIONS

    On October 28, 1999, the Company entered into a settlement agreement with
    the former owner of IDS FAB to rescind the original acquisition agreement
    dated November 1, 1998. As a result of the settlement agreement, the Company
    received the originally issued 50,000 shares of its common stock, valued at
    $43,750 at the date of the rescission, back from the former owner of IDS FAB
    and transferred the stock of IDS FAB to the former owner. All assets and
    liabilities of IDS FAB were transferred back to and assumed by the former
    owner of IDS FAB.

    In the first two fiscal quarters of the year ended December 31, 1999, prior
    to determination to dispose of the segment, the Company had recognized a
    loss of approximately $765,000 related to impairment of assets of IDS FAB.
    In the fourth quarter, this impairment charge was reclassified to be
    included in the loss on disposal of discontinued operations.

    The discontinued segment recognized sales revenues of approximately $750,000
    in 1998 and none in 1999. Additionally, included in the loss on disposal of
    discontinued operations is approximately $85,000 of legal fees related to
    the disposition.


16.  CONTINGENCIES

    The Company is subject to legal proceedings and claims which have arisen in
    the ordinary course of its business. These actions when ultimately concluded
    and determined will not, in the opinion of management, have a material
    effect on results of operations or the financial condition of the Company.

                                       35
<PAGE>

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

     There are no changes in and disagreements with the Company's accountants on
accounting and financial disclosure.

                                    PART III

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

     Incorporated herein by reference in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2000.

ITEM 10.  EXECUTIVE COMPENSATION

     Incorporated herein by reference in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2000.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2000.

ITEM 12.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

     Incorporated herein by reference in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2000.

                                       36
<PAGE>

                                    PART  IV


ITEM 13.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

A.  FINANCIAL STATEMENTS

     The consolidated financial statements are contained herein as listed on the
"Index" on page 22 hereof.

B.    REPORTS ON FORM 8-K

     There were no Current Reports on Form 8-K filed by the Company during the
quarter ended December 31, 1999 that have not been previously reported in the
Company's Quarterly Reports on Form 10-QSB.

C.    DESCRIPTION AND INDEX OF EXHIBITS

Number    Description
------    -----------
2         Agreement and Plan of Reorganization for the Purchase of Industrial
          Data Systems, Incorporated, dated August 1, 1994 (1)

2.1       Action by Written Consent of the Board of Directors for the Purchase
          of Industrial Data Systems, Incorporated, a Texas corporation, dated
          August 1, 1994 (1)

2.2       Action by Written Consent of the Stockholders for the Purchase of
          Industrial Data Systems, Incorporated, a Texas corporation, dated
          August 1, 1994 (1)

2.3       Stock Acquisition Agreement for the Purchase of Thermaire
          Incorporated, dba Thermal Corp., dated August 15, 1995 (1)

2.4       Escrow Agreement for the Purchase of Thermaire Incorporated, dba
          Thermal Corp., dated August 15, 1995 (1)

2.5       Earnest Money Contract for the Purchase of Thermaire Incorporated, dba
          Thermal Corp.'s Manufacturing Facility, dated August 15, 1995 (1)

2.6       Offering Memorandum, 504D Offering of 500,000 Shares of Common Stock
          in the State of Nevada, dated July 26, 1994 (1)

2.7       Action by the Board of Directors regarding the 504D Stock Offering of
          2,499,999 Shares of Common Stock, dated July 10,1996 (1)

2.8       Agreement for Amendment and Substitution of Subscription Agreement and
          Notes, dated July 10, 1996 (1)

                                       37
<PAGE>

2.9       Deleted

2.10      Deleted

2.11      Deleted

2.13      Deleted

2.14      Deleted

2.15      Stock Acquisition Agreement, dated March 25, 1998, by and among
          Industrial Data Systems Corporation, John L. "Jack" Ripley, and
          Constant Power Manufacturing Incorporated.  Previously filed as
          Exhibit 2.1 on (8).

2.16      Deleted

2.17      Deleted

2.18      Deleted

2.19      Deleted

2.20      Deleted

2.21      Deleted

2.21.a    Deleted

2.22      Deleted

3         Articles of Incorporation, Industrial Data Systems Corporation, dated
          June 20, 1994 (1)

3.1       Corporate Charter, Industrial Data Systems Corporation, dated June 22,
          1994 (1)

3.2       Corporate Bylaws, Industrial Data Systems Corporation, dated June 22,
          1994 (1)

3.3       Articles of Incorporation, IDS Engineering, Inc., dated October 15,
          1997.  Previously filed as Exhibit 3 on (7)

3.4       Corporate Charter, IDS Engineering, Inc., dated October 15, 1997.
          Previously filed as Exhibit 3.1 on (7)

3.5       Corporate Bylaws, IDS Engineering, Inc., dated October 15, 1997.
          Previously filed as Exhibit 3.2 on (7)

3.6       Deleted

3.7       Deleted

3.8       Deleted

                                       38
<PAGE>

3.9       Deleted

4.1       Revolving Credit Line with Texas Commerce Bank, N.A., dated June 11,
          1996 (1)

4.2       Deleted

4.3       Deleted

4.4       Deleted

4.5       Deleted

4.6       Deleted

4.7       Deleted

4.8       Deleted

10        Deleted

10.1      Deleted

10.2      Deleted

10.3      Deleted

10.4      Deleted

10.5      Adoption Agreement for Nonstandardized Code 401(k) Profit Sharing
          Plan, dated January 1, 1993 (1)

10.6      Blanket Service Contract - Exxon Pipeline Company (3)

10.7      Blanket Service Contract - Marathon Oil Company (3)

10.8      Deleted

10.9      Deleted

10.10     Deleted

10.11     Blanket Service Contract - ARCO Pipe Line Company (3)

10.12     Deleted

10.13     Deleted

10.14     Deleted

                                       39
<PAGE>

10.15  Deleted

10.16  Deleted

10.17  Lease between Industrial Data Systems, Incorporated, a Texas corporation,
       and 319 Century Plaza Associates, Ltd., dated August 18, 1997. Previously
       filed as Exhibit 10 on (7)

10.18  First Amendment to Lease Agreement between Industrial Data Systems,
       Incorporated, a Texas corporation, and 319 Century Plaza Associates,
       dated September 19, 1997. Previously filed as Exhibit 10.1 on (7)

10.19  Second Amendment to Lease Agreement between Industrial Data Systems,
       Incorporated, a Texas corporation, and 319 Century Plaza Associates,
       dated November 19, 1997. Previously filed as Exhibit 10.2 on (7)

10.20  Employment Agreement, dated March 25, 1998, by and between Constant Power
       Manufacturing Incorporated and Jack Ripley. Previously filed as Exhibit
       10.19 on (8)

10.21  First Amendment to Employment Agreement, dated April 3, 1998, by and
       between Jack Ripley and Constant Power Manufacturing Incorporated.
       Previously filed as Exhibit 10.20 on (8)

10.22  Deleted

10.23  Pledge Agreement, dated March 25, 1998, by and between Industrial Data
       Systems Corporation and John L. "Jack" Ripley. Previously filed as
       Exhibit 10.22 on (8)

10.24  Fourth Amendment to Lease between Industrial Data Systems, Inc., a Texas
       corporation and 600 C.C. Business Park Ltd., dated September 1, 1998 (10)

10.25  Lease Agreement between IDS Engineering, Inc. and d/b/a Wilshire Square,
       dated February 8, 1999 (10)

10.26  Deleted

10.27  Deleted

10.28  Deleted

10.29  Deleted

10.30  Blanket Service Contract with Texaco Pipeline Company.  Previously filed
       as Exhibit 10.18 on (4)

10.31  Settlement Agreement between the Company and Michael L. Moore (14)

10.32  Blanket Service Contract with Caspian Consortium-R (15)

                                       40
<PAGE>

10.33     Blanket Service Contract with Caspian Consortium-K (15)

11        Statement Regarding Computation of Per Share Earnings (4) (5)

21        Subsidiary of the Registrant (11)

23        Deleted

24        Power of Attorney (2)

27        Financial Data Schedule (11) (12)

99        Deleted

99.1      Deleted

(1)  Exhibits incorporated by reference on the Company's Registration
          Statement on Form 10-SB filed with the Securities and Exchange
          Commission on January 27, 1997.
(2)  Exhibits incorporated by reference on the Company's Annual Report on
          Form 10-KSB for the year ended December 31, 1996 filed with the
          Securities and Exchange Commission on April 14, 1997.
(3)  Exhibits incorporated by reference on the Company's Annual Report on Form
          10-KSB/A for the year ended December 31, 1996 filed with the
          Securities and Exchange Commission on May 14, 1997
(4)  Exhibits incorporated by reference on the Company's Quarterly Report on
          Form 10-QSB for the quarter ended June 30, 1997 filed with the
          Securities and Exchange Commission on August 14, 1997
(5)  Exhibits incorporated by reference on the Company's Quarterly Report on
          Form 10-QSB for the quarter ended September 30, 1997 filed with the
          Securities and Exchange Commission on November 14, 1997
(6)  Deleted
(7)  Exhibits incorporated by reference on the Company's Annual Report on
          Form 10-KSB/A for the year ended December 31, 1997 filed with the
          Securities and Exchange Commission on April 10, 1998
(8)  Exhibits incorporated by reference on the Company's Form 8-K filed April
          10, 1998 and Form 8-K/A filed April 29, 1998
(9)  Deleted
(10) Exhibits incorporated by reference on the Company's Annual Report on Form
          10-KSB/A for the year ended December 31, 1998
(11) Exhibit incorporated by reference on the Company's Annual Reports on Form
          10-KSB.
(12) Exhibit incorporated by reference on the Company's Annual Reports on Form
          10-QSB.
(13) Exhibit incorporated by reference on the Company's Quarterly Report on Form
          10-QSB for the quarter ended March 31, 1999 filed with the Securities
          and Exchange commission on May 17, 1999

                                       41
<PAGE>

(14) Exhibit incorporated by reference on the Company's Quarterly Report on Form
          10-QSB for the quarter ended September 30, 1999 filed with the
          Securities and Exchange commission on November 15, 1999
(15) Exhibits incorporated by reference on this Annual Report on Form 10-KSB for
          the year ended December 31, 1999

                                       42
<PAGE>

                                   SIGNATURES


     In accordance with Section 12 of the Securities Exchange act of 1934, the
Registrant has caused this Annual Report on Form 10 KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.



                         INDUSTRIAL DATA SYSTEMS CORPORATION

Dated:  March 28, 2000

                         By: /s/  William A. Coskey
                             ----------------------------
                            William A. Coskey, P.E., Chairman of the Board,
                            President and Chief Executive Officer


                         By:  /s/  Hulda L. Coskey
                             ----------------------------
                            Hulda L. Coskey, Chief Financial Officer,
                            Secretary, Treasurer, Director


                         By:  /s/  David W. Gent
                             ----------------------------
                            David W. Gent, P.E., Director


                         By:  /s/  Gordon R. Wingate
                             ----------------------------
                            Gordon R. Wingate, Director


                         By:  /s/  Ken J. Hedrick
                             ----------------------------
                            Ken J. Hedrick, Controller, Director

                                       43