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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

For the fiscal year ended December 31, 2004.

or

Commission File No. 001-08439

LOJACK CORPORATION

(Exact name of registrant as specified in its charter)

(781) 251-4700

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Preferred Share Purchase Rights

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of our common stock, $.01 par value held by non-affiliates was approximately $133,037,000 as of June 30, 2004. The aggregate market value of common stock indicated is based upon the last traded price of the common stock as reported by NASDAQ on June 30, 2004.

As of March 8, 2005, there were 16,584,719 shares of our common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

LOJACK CORPORATION

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In this Annual Report on Form 10-K, the terms “LoJack”, or “the Company”, or “we”, or “us”, or “our”, include LoJack Corporation and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

In as much as the calculation of shares of our voting stock held by non-affiliates requires a calculation of the number of shares held by affiliates, such figure, as shown on the cover page hereof, represents our best good faith estimate for purposes of this Annual Report on Form 10-K. All outstanding shares beneficially owned by our executive officers and directors or by any shareholder beneficially owning more than 10% of our common stock, as disclosed herein, were considered for purposes of this disclosure to be held by affiliates.

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PART I

ITEM 1 - BUSINESS

OVERVIEW

LoJack is a leading global provider of technology products and services for tracking and recovering valuable mobile assets. LoJack was organized as a Massachusetts corporation in 1978. Our proprietary technology, wireless network and unique integration with law enforcement agencies have provided an effective means for tracking and recovering stolen vehicles and construction equipment. LoJack products are sold in 22 states and the District of Columbia in the United States, and in 25 countries internationally. Our technology has led to the recovery of more than 150,000 vehicles globally.

In October 2004 we acquired Boomerang Tracking Inc., or Boomerang, a dominant marketer and provider of stolen vehicle recovery technology in Canada. We believe that there may be opportunities for future introductions of new products using the resources and knowledge of both the LoJack and Boomerang engineering organizations and there is potential to leverage the companies’ complementary brands and distribution channels for more effective market penetration globally.

We have three separately managed and reported business segments: domestic, international, and Boomerang.

THE LOJACK AND BOOMERANG SYSTEMS

The LoJack System

The LoJack System is based on radio frequency, or RF, technology. In the United States, the network is comprised of a Registration System, which we maintain and operate; a Sector Activation System, or SAS, and Vehicle Tracking Units, operated by law enforcement officials or the Law Enforcement Components; and a LoJack Unit. The LoJack System is designed to be integrated into existing law enforcement computer systems and telecommunication systems and procedures. If a car equipped with a LoJack Unit is stolen, its owner reports the theft to the local police department. If the theft involves a vehicle equipped with a LoJack Unit and is reported in a jurisdiction where the LoJack System is operational, a unique radio signal is automatically transmitted to the LoJack Unit in the stolen vehicle, activating its tracking signal. The Vehicle Tracking Unit, installed in police patrol cars and aircraft throughout the coverage areas (for detail see Global Presence section below) is used to lead law enforcement officers to the stolen vehicle, using sophisticated direction-finding technology to locate the source of the tracking signal emitted from the LoJack Unit in the stolen vehicle.

Under agreements with state agencies, we generally furnish the Law Enforcement Components to state, county and municipal law enforcement agencies for a nominal rental fee or at no cost. The installation, testing and maintenance of the Law Enforcement Components are primarily our responsibility. The local law enforcement agency operates the Law Enforcement Components as required during the term of each state, county or municipality’s agreement with us. The agreements with the applicable law enforcement agencies generally are for initial terms of up to five years. To date, substantially all such agreements that have expired have been renewed or are in the process of renewal. Renewal or extension of any such agreement may be subject to competitive bidding. We have no legal obligation to customers to provide ongoing systems support and maintenance or to refund any of the purchase price if these agreements expire and are not renewed, or are terminated either by us or by the local law enforcement agencies.

We believe that the benefits to consumers from the LoJack System include the following:

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The Boomerang System

The Boomerang System is based on cellular technology and uses the wireless networks of major regional telecommunications companies for tracking stolen assets in Canada’s Advanced Mobile Phone System, or A.M.P.S., cellular coverage area. The Boomerang network consists of the Boomerang Tracking System that is installed in a purchaser’s vehicle, a cellular network operator, the Boomerang Security Center and Boomerang Vehicle Tracking Units. If a car equipped with a Boomerang Unit is stolen, the vehicle owner should report the theft to the local police department and the Boomerang Security Center. When the Boomerang Security Center is advised of a theft after a police report has been filed, it generally locates the Boomerang Unit on the A.M.P.S. network anywhere in North America via a secure connection with the cellular carrier and then activates a unique code causing the Boomerang Unit to transmit a tracking signal. Then a Boomerang Tracking Vehicle is dispatched to the approximate location of the Boomerang Unit. The Vehicle Tracking Units installed in Boomerang tracking vehicles use sophisticated direction-finding technology to locate the source of the tracking signal emitted from the Boomerang Unit which, with the integration and/or assistance of local law enforcement personnel, can lead to the recovery of the stolen vehicle.

THE LOJACK/BOOMERANG ADVANTAGE OVER GPS FOR STOLEN VEHICLE RECOVERY

Unlike systems based on Global Positioning System, or GPS, technology such as OnStar^®, our technologies can penetrate buildings and containers for the effective tracking and recovery of stolen mobile assets. We differ from such products in that our products are covert without any visible antennas or markings on the vehicle indicating presence of the system. Additionally, the direct integration of the LoJack System with law enforcement results in the automatic activation of the LoJack Unit upon the vehicle owner’s report of the theft to police; no third party intermediaries are involved in the activation or tracking process.

PRODUCTS AND TECHNOLOGY

LoJack

The LoJack Unit is the component of the LoJack System that is installed in a purchaser’s vehicle. The LoJack Unit consists of a very high frequency, or VHF, transponder with antenna, microprocessor and power supply and contains a set of codes unique to the unit. The LoJack Unit’s transmitter is activated upon receipt of its unique activation code from the Sector Activation System. The routine entry of a stolen vehicle report into domestic law enforcement information systems in jurisdictions where the LoJack System is operational causes the Sector Activation System to broadcast the unique activation code to the LoJack Unit in the stolen vehicle, in turn causing the LoJack Unit to transmit a signal. An activated LoJack Unit will continue to broadcast until it receives a properly coded message to stop. The activation and deactivation commands are automatically sent to the LoJack Unit upon entry of theft or recovery information in the law enforcement computer system. All transmissions are made on a nationwide radio frequency allocated by the Federal Communications Commission, or FCC, as a law enforcement radio service.

LoJack Early Warning^™, sold as an optional component to the LoJack System, provides early notification to a vehicle owner in the event an unauthorized user is operating the vehicle. LoJack Early Warning consists of a uniquely coded key pass and a motion sensor that works with the LoJack Unit to monitor vehicle movement and detect the presence of the registered owner’s key pass. Should the vehicle move without the presence of the registered owner’s key pass, a communication from the LoJack Unit in the vehicle is transmitted to the LoJack Control Center, a company-maintained database that provides automatic notification via e-mail, pager, and/or home, work or cell phone call to the vehicle owner.

LoJack for Construction Equipment is a unit designed specifically for installation on heavy equipment. It functions similarly to the traditional LoJack Unit, but has been modified to meet the Society of Automotive Engineers design standards for use on heavy-duty vehicles.

LoJack for Motorcycles, a new product that was launched in select markets in the first quarter of 2005, is designed specifically for installation in “on road” motorcycles. It functions similarly to the traditional LoJack Unit, but has been modified and reduced in size so it can be covertly installed in the limited space of a motorcycle.

We also offer warranty products that may be purchased to supplement the original purchaser’s warranty. These warranty products include: LoJack Extended Limited Recovery Warranty, LoJack Guarantee Plus 5000 (all states but New York state), and LoJack Protection Plus 5000 (New York state only). For more information on our warranty products see Product Warranty section below.

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Boomerang

The Boomerang Unit is the component of the Boomerang Tracking System that is installed in a purchaser’s vehicle. The Boomerang Unit consists of a cellular band RF transponder with antenna, microprocessor and power supply.

If a car equipped with a Boomerang Unit is stolen, the vehicle owner reports the theft to the local police department and the Boomerang Security Center. When the Security Center is advised of a theft after a police report has been filed, the Security Center locates the Boomerang Unit on the A.M.P.S. network via a secure connection with the cellular carrier network and will then activate a unique code causing the Boomerang Unit to transmit a tracking signal. A tracking vehicle is dispatched in the general area reported by the Boomerang Unit. The Vehicle Tracking Units, installed in Boomerang tracking vehicles use sophisticated direction-finding technology to locate the source of the tracking signal emitted from the Boomerang Unit. Upon location of the stolen vehicle, Boomerang Vehicle Tracking personnel notify local law enforcement, who recover the vehicle.

The Boomerang2 Unit is a product that builds upon the Boomerang Unit by integrating two-way communication and diagnostics to provide automatic theft notification by sending a signal upon any unauthorized vehicle movements. The Boomerang2 Unit key fob contains a uniquely coded key pass. A motion sensor, which monitors vehicle movement and detects the presence of the registered owner’s key pass, is incorporated in the Boomerang2 Unit. The Boomerang2 Unit also monitors any tampering with the car battery. Should the motion sensor detect that the vehicle is moving without the presence of the registered owner’s key pass, an automatic call is made by the Unit to the Boomerang Security Center indicating an alarm on the customer car. The Security Center will then contact the client to verify the status of the vehicle. If it is determined the vehicle has been stolen, the Security Center will proceed with the same tracking and recovery steps as noted for the Boomerang System.

The Water Resistant Boomerang Unit is designed specifically for installation on construction equipment and marine craft. It functions similarly to the traditional Boomerang Unit, but is enclosed in a water resistant housing.

The Portable Boomerang Unit is designed for installation in special applications such as cargo. It functions similarly to the traditional Boomerang Unit, but is equipped with a larger battery, enabling its operation without connection to an independent power source.

GLOBAL PRESENCE

The LoJack System presently operates in all or a portion of 22 states and the District of Columbia in the United States. We have statewide coverage, defined as coverage of at least 80% of the state population, in Arizona, California, Connecticut, the District of Columbia, Maryland, Massachusetts, Michigan, New Jersey and Rhode Island. We have coverage available in major metropolitan areas, cities and high crime areas in Colorado, Delaware, Florida, Georgia, Illinois, Louisiana, Nevada, New Hampshire, New York, North Carolina, Pennsylvania, Texas, Virginia, and Washington. We identify and define coverage areas based on a qualitative analysis of population density, new car sales, geography and distribution of LoJack Units.

Internationally, our licensed stolen vehicle recovery technology is operational in 25 countries and territories around the world including: Argentina, Brazil, Colombia, Costa Rica, Ecuador, France, Germany, Guatemala, Hong Kong, Kenya, Lesotho, Mexico, the Mozambique, Nigeria, Panama, Poland, Puerto Rico, Russia, South Africa, Spain, Swaziland, Trinidad and Tobago, Uganda, United Kingdom and Venezuela. In 2004, we signed agreements with government agencies in China and Italy to initiate, pending certain approvals, the process for operation of the LoJack System in these countries. We are also pursuing similar licensing agreements in other countries.

With the acquisition of Boomerang in October 2004, we added the leading provider of stolen vehicle recovery in Canada to our organization.

BUSINESS MODEL

Domestic Segment

Our revenues in the United States are derived primarily from the sale of LoJack Units, LoJack Early Warning Units, related products, and extended product and non-recovery warranties directly to consumers and through automobile dealers. Approximately 90% of domestic revenues originate through a distribution network of automobile dealers. Expansion into additional channels beyond the automotive channel through the introduction of new products, such as LoJack for Motorcycles, leverages the existing network and requires no additional infrastructure. In previous years, this was evidenced by the introduction of LoJack for Construction Equipment. We derive approximately 5% of revenues from the sale of units of LoJack for Construction Equipment directly to fleet and heavy-duty equipment owners. In the first quarter of 2005, we introduced LoJack for Motorcycles and entered the motorcycle distribution channel in a limited number of states.

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In 2002, we initiated a program to decrease fixed costs related to product installation by contracting with, and certifying, dealers and other third parties to install our products. In 2004, 27% of our LoJack Unit sales relating to our domestic dealer business were installed by our third party sales and installation partners. We monitor the quality of these alternative installations through the use of an expanded quality control process. For all installations, whether we perform them or they are performed by a third party, we maintain full warranty service of LoJack products, both for the convenience of our automobile dealers through which the LoJack products are marketed and for us to maintain a high degree of quality control and security over our technology.

LoJack has a brand awareness of over 90% in the United States based on an awareness study conducted in 2004. We feel this brand awareness is beneficial to all existing sales channels including: automotive, commercial and motorcycle, and will prove beneficial to any new channels we may decide to enter.

International Segment

We began international operations in 1993 and our technology is operational in 25 countries and territories. We have developed our technology such that the LoJack System can be used either by local law enforcement, by the licensee’s own security organization, or by a combination of both. Revenues from the international segment comprised approximately 21% of our consolidated revenues for the year ended December 31, 2004. International revenues are derived from the sale of LoJack Units and system infrastructure components, royalties and licensing fees. Licensing agreements with international parties have thus far been primarily denominated in U.S. dollars and are structured with up-front licensing fees, which may be substantial and are non-recurring. The agreements provide that we will supply components and products at prices to be determined from time to time and/or receive royalties based upon licensees’ revenues. In 2004, 86% of international revenues were from the sale of LoJack Units.

We focus primarily on the top 30 global markets. Markets are ranked based on high per capita thefts, high annual recurring sales of new vehicles and large numbers of vehicles operating in the area. Our expansion strategy in the international segment may include investments in new or existing international licensees and markets and/or the formation of new international subsidiaries.

We also have made direct investments in selected international licensees that we believe offer significant market opportunity for LoJack Unit sales. At December 31, 2004, we held a 13.37% equity investment, with a carrying value of $2,454,000, in our French licensee and a 12.5% equity investment, with a carrying value of $1,502,000, in our Mexican licensee. At December 31, 2004, we held a loan receivable from our Argentine licensee of approximately $757,000 resulting from the 2002 conversion of the licensee’s existing accounts receivable into a long term financing agreement. This loan is secured by a pledge of all of the stock of the Argentine licensee as well as a personal guarantee by the licensee’s principal. In 2002, a reserve for 100% of this loan was established due to the uncertainty of collection. As additional consideration for the loan, we received 10% of the common stock of the Argentine licensee and agreed to return half of this stock to the licensee upon repayment of the loan at maturity.

We have identified the following inherent risks attendant to our international operations:

Many of our licensees are emerging businesses and face the normal constraints of a start-up business including: the need to invest in infrastructure, hire and train employees, and obtain sufficient funding, as well as uncertainties related to product acceptance. There can be no assurance that the licensees will be able to execute fully on their existing business plans, which could adversely impact our forecasted growth in revenues.

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Boomerang Segment

Boomerang revenues in Canada are derived primarily from the sale of Boomerang and Boomerang2 Units, related products, and service contracts. Approximately 28% of segment revenues are derived from the sale of Boomerang and Boomerang2 Units through auto accessory retailers and automobile dealers. Approximately 70% of segment revenues are derived from service contracts. More than 45 insurance companies based in Quebec and Ontario offer rebates to customers who install a Boomerang Unit in their high priced or high risk of theft vehicles, and in many instances require installation of a Boomerang Unit.

Purchasers of Boomerang Units are required to purchase a service contract with Boomerang. The terms of service contracts offered range from 12 to 36 months and are payable in full upon activation of the related unit or renewal of a previous service contract. As of December 31, 2004, there was approximately $11,882,000 of deferred revenue resulting from approximately 146,000 active service contracts.

VEHICLE AND ASSET THEFT

United States

According to the Federal Bureau of Investigation, or FBI Uniform Crime Report, 1.2 million vehicles were stolen in 2003, with an estimated value of $8.6 billion. Most auto theft is carried out by sophisticated professional thieves, rather than amateur thieves. Thieves typically steal vehicles because of the profit potential of the vehicle’s components on the black market. The National Insurance Crime Bureau reported that motorcycle theft, totaling 55,657 stolen motorcycles, in the United States and Canada, increased more than 55 percent from 2002 to 2003.

International

Interpol, which provides services for the law enforcement community to optimize the international effort to combat crime, indicated in a 2001 press release that more than 3 million vehicles are stolen globally each year with an estimated value of approximately $21 billion.

Canada

According to the Insurance Bureau of Canada, vehicle theft costs Canadians approximately CAN$1 billion annually. In 2003, 171,000 vehicles were stolen in Canada according to Statistic Canada. The Canadian Construction Association in a 1998 report estimated the cost of equipment theft to be CAN$32 million annually.

SALES AND MARKETING

Domestic Segment

Our sales and marketing approach in the domestic segment focuses on the United States automotive channel, through which automobile dealerships offer the LoJack Unit as an option for both their new and used car sales. We also market LoJack Early Warning, conventional vehicle security devices and extended warranties through automobile dealers. We market primarily through a national sales force that routinely visits new and used car dealers to educate and train dealership personnel on the benefits of the LoJack Unit and related products. In addition, to supplement distribution efforts, we have entered into cooperative arrangements with third parties specializing in after-market sales and installation of vehicle accessories to increase penetration in existing markets in a cost effective manner. The LoJack Unit and related products can ordinarily be financed conveniently as a part of the purchase price of the vehicle. We also use direct advertising to consumers to generate product awareness.

We also market our products directly to owners of commercial vehicles and to consumers using, (i) a national sales force that calls on construction equipment owners and manufacturers, (ii) through telemarketing representatives and (iii) direct mail.

International Segment

Sales and marketing efforts in the international segment are typically controlled and funded by our international licensees and their respective management teams.

Boomerang Segment

Our Boomerang segment’s sales and marketing efforts are concentrated in Quebec and Ontario. In Quebec, we work with insurance companies that mandate a stolen vehicle recovery system as a condition for insurance coverage on high priced or high risk of theft vehicles. We maintain a direct sales force in Quebec, which works with automotive accessory retailers and automobile dealers who sell and install Boomerang products to vehicle owners. We also sell products directly to consumers through two company owned distribution centers. Unit sales in Quebec account for most of our unit sales in Canada.

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In Ontario, we sell through the automotive channel using automobile dealers and automotive accessory retailers. We utilize third party distributors to service the dealers and retailers. Approximately 50% of Boomerang Unit sales in Ontario are made through the commercial channel primarily to construction equipment owners. The commercial business is supported by a direct sales force as well as an infrastructure of dealers who are available to sell and install Boomerang Units.

GROWTH STRATEGY

Our overall goal is to strengthen our leadership position in the vehicle and mobile asset tracking and recovery market through technology leadership, financial strength, market expansion, partnerships with new and established distributors, potential mergers and/or acquisitions, and development of our brands globally.

Domestic Segment

Our domestic strategy is to use internal resources and partnerships with third party installation partners to increase unit sales and profitability in the automotive and commercial channels, while developing and introducing new products that leverage our brand recognition and reputation for vehicle recovery to enter new sales channels.

To drive more aggressive business growth through our automotive channel in the United States, we plan to focus on high volume dealers who maintain a large market share in their geographic areas, and dealers that are part of large dealer groups. We will continue to expand our varied distribution and installation programs to more cost effectively sell and install LoJack Systems.

In the first quarter of 2005, we introduced LoJack for Motorcycles and entered the motorcycle distribution channel. It is our expectation that the motorcycle channel will contribute to both our revenue and profit in 2005. The motorcycle product leverages our existing network for tracking and recovery.

We have developed the next generation LoJack Unit and have received our first shipments from our supplier in the first quarter of 2005. The new unit, which offers the same features as the current LoJack Unit, is smaller in size and is expected to result in decreased manufacturing costs. (For more information on the next generation LoJack Unit, see Research and Product Development section below.)

To effectively and efficiently enter the retail channel and market a LoJack or Boomerang branded product, we are exploring sales and distribution partnerships. We may partner with established distributors who have an existing market presence and relationships with retailers.

The LoJack system now is operating in 22 states and the District of Columbia representing about two-thirds of the U.S. population and two-thirds of car theft. Expansion into many of the remaining contiguous states using our traditional tower network is not cost effective. For those states, we intend to deploy a hybrid system offering alternative activation utilizing the cellular telephone network combined with tracking and recovery using our proprietary RF technology. Although unit cost and operating cost will be higher with such a system, the cost of building out the network is avoided. In addition, fewer tracking units would be required, since approximate location can be determined by the cell network and tracking units can be sent to a known area for tracking and recovery.

We believe that national coverage will open up markets for LoJack that we cannot currently serve, for example, cargo and original equipment manufacturers.

We believe that the required equipment will be based on proprietary technology now owned by LoJack and by Boomerang. Product definition and development is underway.

Implementation of the hybrid system requires an amendment to the FCC Rule and Order governing use of the frequency used for LoJack tracking, and a petition for that amendment has been filed.

Domestic expansion also requires the negotiation of an agreement for system integration and tracking with each jurisdiction. While this process is now underway, it is hard to predict how long it will take to complete. We do not expect a hybrid system to be operational before late in 2006, at the earliest.

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We also plan to expand our network system to a small number of additional states, two or three of them during calendar year 2005 and a similar number in 2006.

International Segment

Our international strategy is to drive more aggressive unit sales growth in countries where the LoJack System is operating through our licensees, including leveraging their strategic relationships with insurance companies and automobile manufacturers. In addition we expect to expand into new geographic markets. We intend to drive unit sales growth through existing licensees by helping them to develop their business models, developing a global technology roadmap and expanding system infrastructure. From time to time, we may make direct strategic investments in international licensees, some of which may be substantial, in order to enable them to gain market share. Our investment strategy has focused on those markets which either represent the best opportunities for significant generation of revenue or where we can positively impact time to market or revenue growth.

We may enter new markets in which the combination of new vehicle sales, population density and incidence of vehicle theft is high. Market expansion may be in the form of (i) continuing to license the use of the LoJack System technology, (ii) securing agreements with the host government and gaining rights to the frequency to operate the system as is in process in China and Italy, and/or (iii) in the form of strategic investments and/or acquisitions.

With the introduction of the next generation LoJack Unit beginning in the first quarter of 2005, we will have a common global platform which utilizes the same basic unit to operate on the varying radio frequencies used globally for stolen vehicle recovery. We believe that this new unit may contribute to international business growth, because it is expected to result in manufacturing efficiencies.

Boomerang Segment

Our Boomerang segment strategy is to focus sales and marketing efforts in Quebec and Ontario in 2005. In Quebec, we intend to continue to work with insurance companies to maintain and extend mandates for the Boomerang System as a condition for consumers to obtain insurance coverage. We intend to continue to train insurance companies and insurance brokers about the services that we offer. We intend to maintain a direct sales force in Quebec, which works with the automotive accessory retailers and automobile dealers who sell and install Boomerang products. We intend to continue to utilize our two distribution centers, which sell and install directly to consumers.

In Ontario, we intend to continue to sell through the automotive channel using automobile dealers and automotive accessory retailers. We work with third party distributors and have our own direct sales force. We intend to continue to work with our existing third party distributors while leveraging our domestic segment experience in marketing directly to the automobile dealers. We believe that the automotive market in Ontario represents a substantial growth opportunity. We will focus on increasing penetration in the commercial channel using our direct sales force to call on equipment dealers and equipment owners.

RESEARCH AND PRODUCT DEVELOPMENT

We concentrate research and development activities on enhancing our proprietary stolen vehicle recovery network and creating new products that meet market needs for the tracking and recovery of valuable mobile assets. Our product development efforts utilize knowledge of law enforcement processes and systems to provide products that integrate into law enforcement operations and facilitate the tracking and recovery process. Our engineering staff develops products internally or in conjunction with third parties.

In the first quarter of 2005, we received the first units of the next generation LoJack Unit. We worked with a third party, Plextek, Ltd., to develop the product and secure manufacturing. The next generation LoJack Unit is expected to decrease manufacturing costs and to reduce the size of the component, enabling installation in more covert locations in the consumer’s vehicle than at present. The unit is scalable and flexible, with connectivity features that may allow us to develop new products combining Global Positioning System, or GPS, and/or cellular based communications with our existing RF based stolen vehicle recovery technology. The unit provides a common platform for both domestic and international operations by utilizing the same basic unit to operate on the varying radio frequencies used in the countries where our technology is utilized for stolen vehicle recovery. We believe this common platform may result in further manufacturing and distribution efficiencies. With the introduction of this unit, we are adding a second supplier and transitioning from a single source relationship for our LoJack Units with our current supplier, Motorola, Inc.

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We expect that we will coordinate our Boomerang segment’s research and development efforts with our domestic segment’s research and development efforts to offer new products that meet a market need for the tracking and recovering of stolen mobile assets.

We are investigating the development of a product that will combine our RF technology with GPS and cellular technologies to facilitate complete coverage in the continental United States and address various market needs, such as the cargo industry. We expect that this project will be a multi-year effort.

Costs for product development are expensed as incurred and include salaries, fees to consultants, and other related costs associated with the development of new products. Total product development expenses totaled $4,661,000, $3,534,000, and $2,300,000 for the years ended December 31, 2004, 2003 and 2002, respectively. A portion of our product development efforts has been outsourced to third parties. The contracts with third parties require payments based upon completion of defined milestones. Expenses related to milestone achievements, included in the above-mentioned expenses, amounted to $1,260,000, $540,000 and $85,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

GOVERNMENT REGULATION AND APPROVAL

Domestic Segment

The FCC-allocated frequency 173.075 MHz, used by the LoJack System in the United States, is for nationwide use by state and local law enforcement agencies for stolen vehicle recovery systems. Law enforcement agencies in jurisdictions where we operate have been granted authority by the FCC to use this frequency.

In connection with our domestic operations, we must obtain the approval of law enforcement agencies for implementation of the LoJack System before sales of LoJack Units will commence in a given jurisdiction. The approval process may be time consuming and costly and is subject to considerations generally affecting the process of governmental decision-making. In some jurisdictions, governmental approval may be terminable at the convenience of the executive or legislative body. Any such termination could have a material adverse effect on future sales in such jurisdictions.

If we were to seek to charge more than nominal prices for the Law Enforcement Components, governmental appropriation of funds would be required. Most government agencies have established, by policy, statute or regulation, a process requiring competitive bidding for all acquisitions of products and equipment. This process may cause us additional delay and expense. To date, we have not sought to charge law enforcement agencies more than nominal prices for the Law Enforcement Components and do not expect to do so in the near future.

Our international licensees are subject to risks similar to those in our domestic segment with respect to government regulation and approval.

Boomerang Segment

The Boomerang tracking beacon operates on an unlicensed frequency and does not require specific government approval. Tracking of stolen Boomerang-equipped vehicles is performed by our personnel or by private parties under contract with us.

Although specific governmental licensing and approval are not required, once a Boomerang-equipped stolen vehicle is located by our tracking team, we rely on police and other law enforcement agencies for the actual recovery. Establishing and maintaining a good relationship with law enforcement agencies is important to our business.

PRODUCT WARRANTY

Domestic Segment

LoJack Parts & Labor Warranty. We warrant to original purchasers of LoJack Units that the LoJack Unit and LoJack Early Warning will be free from defects in material or workmanship for a period of two years from the date of installation. If the product proves to be defective in material or workmanship, we will, at our option, either replace or repair the product.

LoJack Extended Limited Recovery Warranty. We also warrant to original purchasers of LoJack Units that if their LoJack equipped vehicle is stolen and reported in a covered jurisdiction within two years of installation and not recovered within 24 hours from the time that the theft is reported to the police, we will pay the consumer an amount equal to the full purchase price paid for the LoJack Unit up to a maximum of $695 (up to $995 if the consumer also purchased LoJack Early Warning). For an additional charge, the original purchaser of the LoJack Unit can elect to extend the warranty period from two years to a period equal to the time they own their LoJack equipped vehicle.

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LoJack Guarantee Plus 5000 (Sold in all states we do business other than New York State). Consumers may purchase an additional five year warranty in which we, or in most jurisdictions an independent third party insurer, warrant to original purchasers of LoJack Units that if the vehicle becomes a total loss due to theft or is not recovered within 30 days from the time the theft is reported to the police, the consumer could receive up to $2,500 to cover theft related expenses plus up to an additional $2,500 towards the purchase or lease of a replacement vehicle if the consumer returns to the original dealer. We have insured the risk relating to these warranty claims.

LoJack Protection Plus 5000 (Sold in New York State only). Consumers may purchase an additional five year warranty in which we, through an independent third party insurer, warrant to original purchasers of LoJack Units that if the vehicle becomes a total loss due to theft or is not recovered within 30 days from the time the theft is reported to the police, the consumer could receive up to $2,500 to cover theft related expenses such as insurance deductible, substitute vehicle rental, airfare if the vehicle is stolen more than 100 miles away from home, or nightly accommodations and meals. In addition, the consumer may be eligible to receive $2,500 towards the purchase or lease of a replacement vehicle if the consumer returns to the original dealer. We have insured the risk relating to these warranty claims.

Boomerang Segment

Boomerang Parts & Labor Warranty. We warrant to original purchasers of Boomerang Units that the units will be free from defects in material or workmanship for a period of five years from the date of purchase. If the product proves to be defective in material or workmanship, we will, at our option, replace or repair the product or reimburse the purchase price paid.

Boomerang Limited Recovery Warranty. We warrant to purchasers of the Boomerang Units that if the Boomerang equipped vehicle is stolen and not recovered, we will pay the consumer an amount equal to the full purchase price of the unit up to a maximum of CAD$1,000 for the Boomerang Unit and CAD$2,000 for the Boomerang2 Unit.

PATENTS AND TRADEMARKS

Domestic Segment

We hold a patent portfolio that covers vehicle tracking, security and recovery. The portfolio includes United States Patents No. 4,818,998, 4,908,629, 5,917,423 and 6,229,988BI, which expire in 2006, 2007, 2015 and 2018, respectively, covering portions of the LoJack System. Each of these patents builds on the predecessor patents by adding additional functionality that we believe yields a competitive advantage. In addition, we hold proprietary information that is not patented, but is integral to the operation of the LoJack System. We believe that protection of that intellectual property continues beyond the expiration of the stated patents.

We hold United States Patent No. 6,522,698 covering LoJack Early Warning which expires in 2020.

Although management believes the patents have value, there can be no assurance such patents will effectively deter others from manufacturing and marketing a competitive stolen vehicle recovery system.

The LoJack name and logo are registered trademarks in the United States and many other countries. We believe the LoJack trademark and other trademarks have sufficient recognition to give us a competitive advantage.

We also hold patents similar to our domestic segment patents in various countries where we either currently do business or intend to do business.

Boomerang Segment

Boomerang holds a patent portfolio that covers location, tracking and recovery using an existing network, our two-way tracking beacon and anti-jamming technology. The portfolio includes United States Patent No. 5,895,436 which expires in 2016 and Canadian patent No. 2,395,843 (corresponding to United States Patent 6,498,565B2) which expires in 2021.

We also hold patents similar to our Boomerang segment patents in various countries where we either currently do business or intend to do business.

Although management believes the patents have value, there can be no assurance such patents will effectively deter others from manufacturing and marketing a stolen vehicle recovery system.

We have registered or filed for the registration of our trademarks Boomerang, Boomerang2 and Boomerang & Design in all our major actual or potential markets. We believe these trademarks have sufficient recognition to confer a competitive advantage upon our Company.

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Our Boomerang segment strategy is to apply for trademarks and for patents for our inventions whenever appropriate.

Our Boomerang segment is actively involved in protecting its intellectual property and has undertaken administrative and legal measures against companies, which, in our opinion, have infringed on our rights.

COMPETITION

Competitive Advantages

We believe that we have several competitive advantages including: our proprietary RF technology and two way tracking beacon, our distribution networks, well-known brands, and integration with police. Our technology is proven effective for the recovery of stolen vehicles and mobile assets. We hold a patent portfolio that covers vehicle tracking, security and recovery. We hold proprietary information that is not patented, but is integral to the operation of the LoJack System. Additionally, we have developed a network in the United States that would be very expensive to replicate. We have an established distribution network in the automotive and construction channels in the United States, and an established operating network, through our licensees, in 25 countries internationally. We have a well-known brand with a brand awareness of over 90% in the United States. The LoJack System is directly integrated with law enforcement in the United States and, as a result, we have a detailed understanding of law enforcement systems and procedures. We are unaware of any competitor who proposes a system capable of being operated or actively monitored exclusively by law enforcement agencies, as is the LoJack System. We believe these competitive advantages present substantial barriers to competitive entry into our markets.

We believe that our Boomerang segment products and technology have several competitive advantages including: its proprietary cellular tracking and location technology, established relationships with insurance companies in Quebec and Ontario, and well-known brand in Canada.

Domestic Segment

Several competitors or potential competitors are marketing or have announced the development of products, including those that are based on GPS technology, which claim to have stolen vehicle-tracking features that may compete directly with the LoJack System. To our knowledge, none of these products is directly integrated with law enforcement systems or operated and monitored exclusively by law enforcement agencies, as is the LoJack System.

We market the LoJack System as a stolen vehicle recovery device. Our management believes, however, that makers of auto theft prevention devices and GPS devices view the LoJack System as competitive, and, consequently, we believe we face competition from companies that sell vehicle security devices. Some of the competitors and potential entrants into the vehicle tracking market have greater resources than we do. In addition, there can be no assurance that a competitor will not develop a system of theft detection or recovery, including other stolen vehicle recovery systems that may not require government approvals, which would compete with or be superior to the LoJack System.

We believe that we face competition from companies selling vehicle alarms, GPS products and third party warranty and insurance products; not because the products are comparable to the products we offer, but because they are competing for available consumer funds in the automobile security products after-market. Known providers of alarms include Directed Electronics Incorporated and Audiovox while known providers of GPS products include OnStar^® and Mobile Guardian. There are numerous smaller companies selling extended warranties and other insurance based products.

International Segment

Several competitors or potential competitors are marketing or have announced the development of products, including those that are based on radio frequency technology, cellular technology, GPS technology or some combination of these technologies, which claim to have stolen vehicle tracking features that may compete directly with the LoJack System. Our international competitors include a number of companies including Ituran, ChevyStar, and Netstar, operating in various regions around the world. The competitive environment in regions with relatively high rates of auto theft, such as many countries in South America and parts of Africa is generally more intense than in regions where lower rates of theft prevail.

Boomerang Segment

We believe we face competition in the Boomerang segment from companies selling GPS systems which claim stolen vehicle recovery as a service. Known providers of GPS services in the Boomerang segment are Datacom Wireless, Vigil Locating Systems, and AirIQ.

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CONTRACT MANUFACTURING ARRANGEMENTS

We have contract manufacturing arrangements for the current and anticipated next generation LoJack Unit and other LoJack System components sold in the domestic and international segments. We believe that several companies have the capability to manufacture LoJack Units.

We believe we can now purchase LoJack Units in sufficient volumes to support two suppliers. In December 2003, we entered into an agreement with Plextek Limited, communications technology consultants, to design and supply, through a third party contract manufacturer, a next generation LoJack Unit. In the first quarter of 2005, we received our first units of the next generation LoJack Unit.

With the introduction of this unit, we are adding a second supplier and transitioning from a single source relationship with our current supplier, Motorola, Inc.

We believe this will reduce the risks associated with having only a single supplier and expect that it may result in more competitive pricing from both suppliers. We expect the next generation LoJack Unit to have a neutral impact on gross margins in 2005 due to the reduction of volume variable pricing rebates with our current supplier, but expect a favorable impact on gross margins thereafter as volumes are shifted between manufacturers to maximize volume variable pricing rebates.

INVENTORY

We seek to maintain a 90-day domestic supply of LoJack Units, which we believe is in line with sales levels and sufficient to rapidly fulfill orders. We also maintain finished goods inventory in LoJack do Brasil, to supply our Brazilian licensee.

Our Boomerang segment maintains a 135-day supply of inventory, of which, as of December 31, 2004, 66% was raw materials, 11% was work in process and 23% was finished goods. We produce the Boomerang Unit in our own facilities.

We fill orders as they are received and maintain no order backlog.

We maintain an inventory of certain LoJack System Law Enforcement Components beyond our current requirements in order to facilitate expansion into additional domestic and international markets.

EMPLOYEES

As of December 31, 2004, we had a total of 805 full-time employees, 662 of whom were working in the domestic segment, 7 of whom were working in the international segment and 136 of whom were working in the Boomerang segment.

SEGMENT OPERATIONS

We divide our operations into three separately managed and reported business segments: domestic, international, and Boomerang. For financial information about our segments, and by geographic area, see notes 1 and 13 to our consolidated financial statements contained herein at Item 8.

INTERNET ADDRESS AND SEC REPORTS

We maintain a website with the address www.lojack.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission. We also include on our website our corporate governance guidelines and the charters for each of the major committees of our board of directors. In addition, we intend to disclose on our website any amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed pursuant to rules of the SEC.

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EXECUTIVE OFFICERS

Information concerning our executive officers is set forth below.

Mr. Rossi is Chairman of the Board. He joined the Company in November 2000 as Chief Executive Officer, became a director, and was elected Chairman of the Board, effective March 1, 2001. He retired as Chief Executive Officer in February 2005. Prior to joining the Company, Mr. Rossi spent 35 years with The Gillette Company, progressing through a variety of management positions in sales, marketing, and general management in the United States, Canada and Puerto Rico. Mr. Rossi served as President of Oral-B Worldwide, a subsidiary of the Gillette Company, from 1998 to 2000. From 1988 to 1998 he was President of Gillette North America; previous positions include President of Gillette Canada and President of Braun/Canada and chairman of the Canadian Cosmetic and Toiletry Fragrance Association in 1987. He also served on the Executive Board of the Massachusetts Bay Red Cross from 1993 to 1998 and the Board of the New England Sports Museum from 1993 to 1998. Mr. Rossi has been a member of the Board of Mentor Corporation since January 2000 and of UST, Inc. since June 2004.

Mr. Abely became Chief Executive Officer of the Company in February 2005. He joined the Company in October 1988 as Senior Vice President and Chief Financial Officer and was named President and Chief Operating Officer in January 1996. He became a director in November 2000. Mr. Abely joined the accounting firm of Deloitte Haskins & Sells in 1976 and served as a partner from 1985 until October 1988. Mr. Abely is a Certified Public Accountant. Mr. Abely serves as a member of the Board of Carroll Center for the Blind, Inc., a non-profit organization.

Mr. Riley has served as President and Chief Operating Officer and member of the Board of Directors of the Company since February 2005. Prior to joining the Company, Mr. Riley served as an officer of New England Business Service, Inc., or NEBS, a public company listed on the New York Stock Exchange, from 1997 to 2004 and as a director of that company from 2002 to 2004. He served as President and Chief Operating Officer from 2002 to 2003 and as President, Chief Executive Officer and Chief Operating Officer from 2003 to 2004. Prior to that, he served as a Senior Vice President 1998 to 2002, as President, NEBS Direct Marketing from 2001 to 2002, as President, Integrated Marketing Services from 2000 to 2001, and as President of Rapidforms (acquired by NEBS in 1997) from 1992 to 2000. Mr. Riley is a Certified Public Accountant. He serves as a member of the Board of Directors of VistaPrint USA Incorporated, a printing and graphic arts business, and Micro-Coax, Inc., a manufacturer of microwave and cable products, both of which are privately held companies.

Mr. Duvall joined LoJack in 1985 and is Executive Vice President and Chief Technology Officer. From 1993 to 2003, he was Senior Vice President. From 1984 to 1985, he was a part owner and manager of Rich’s Car Tunes, a company engaged in the sale and installation of consumer electronic products in the automotive aftermarket. For six years prior to 1984, Mr. Duvall was Vice President of Marketing and Sales for Analog and Digital Systems, Inc., a manufacturer of consumer electronic products.

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Mr. Wooters joined LoJack in December 2003 as Executive Vice President and General Counsel. He has over 40 years of legal experience representing public and private companies and investors in such companies in a range of businesses, including more than 25 years as outside counsel to LoJack. Mr. Wooters practiced law with the law firm of Sullivan & Worcester LLP and for his last 4 years there was “of counsel.” Mr. Wooters is a Director of Storage Computer Corporation, a manufacturer of high performance fault tolerant storage subsystems, and several other private technology companies.

Mr. Farris joined LoJack in October 2000 as Vice President of Finance and Chief Financial Officer. From 1996 to 2000, Mr. Farris served as Vice President of Finance and Chief Financial Officer of Arkwright, Inc., a manufacturer of digital imaging supplies. From 1981 to 1996, Mr. Farris held various financial management positions at Digital Equipment Corporation. From 1978 to 1981, Mr. Farris served as Director of Internal Audit at Modular Computer Systems, Inc. and from 1974 to 1978 was employed by the accounting firm of Ernst & Young. Mr. Farris is a Certified Public Accountant.

Mr. Mullins joined LoJack in February 1996 and is Senior Vice President and General Manager of U.S. Sales. From June 2001 to January 2005 Mr. Mullins served as Vice President of Sales and from February 1996 until May 2001 Mr. Mullins served as Vice President of Sales and Marketing of LoJack. From 1976 until joining LoJack, Mr. Mullins served in a variety of positions at Proctor & Gamble Company, Inc., including District Sales Manager, Customer Business Development Manager, and Northeast Operation Manager.

Mr. Camp joined LoJack in May 2002 and is Senior Vice President and General Manager, International. He served as Vice President of Corporate Development from May 2002 to September 2004. From 1999 until joining LoJack, Mr. Camp held executive positions with InfoSpace from 1999 to 2000 and Go2Net from 2000 to 2001. He was a partner with the law firm Hutchins, Wheeler and Dittmar from 1990 to 1999.

Ms. Driscoll joined LoJack in May 2001 and is Vice President and General Manager of New Business Lines. From May 2001 until February 2005, Ms. Driscoll served as Vice President of Marketing. From 1999 to 2000, she was Chief Marketing Officer for Roxy.com, an on-line retailer of consumer electronics. From 1987 until joining LoJack, Ms. Driscoll served in a variety of executive positions at various companies including Citigroup from 1997 to 1999; AT&T Capital Corp from 1994 to 1997; Fidelity Investments from 1992 to 1994; and Citigroup Point of Sale Information Services Inc. from 1987 to 1992.

Mr. Conner joined LoJack in 1985 and is Vice President of Government Relations. From 1982 to 1985, he was a franchise director for Continental Cablevision of Boston, Massachusetts. From 1980