As
      filed
      with the Securities and Exchange Commission on March 19, 2008.





UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549









**FORM
      10-KSB**




(Mark
      One)


xANNUAL
      REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





For
      the
      fiscal year ended December 31, 2007




OR




oTRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934




For
      the
      transition period from _____________ to _____________.




Commission
      file number: 000-26455




**iSecureTrac
      Corp.**


(Name
      of
      small business issuer in its charter)





DELAWARE
            
            87-0347787(State
                or other jurisdiction
            
            (I.R.S.
                Employerof
                incorporation or organization)
            
            Identification
                No.)





5078
      South 111 th Street


Omaha,
      Nebraska 68137


(Address
      of principal executive offices)(Zip Code)


Issuer’s
      telephone number: (402) 537-0022





Securities
      registered under Section 12(b) of the Exchange Act: None




Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $0.001 per share





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) 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 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 xNo o




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 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. o





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).


Yes
oNo
x





State
      issuer's revenues for its most recent fiscal year: $8,785,712.





The
      aggregate market value of the common stock of the registrant held by
      non-affiliates, all of which is voting, was approximately $5,527,141, based
      on
      the closing sale price reported on March 17, 2008.





As
      of
      March 17, 2008, there were 10,782,756 shares of the registrant’s common stock
      outstanding.




DOCUMENTS
      INCORPORATED BY REFERENCE




Portions
      of the definitive Proxy Statement for the Registrant’s 2008 Annual Meeting of
      Stockholders to be filed within 120 days of the fiscal year ended December
      31,
      2007, are incorporated by reference in Items 9, 10, 11, 12 and 14 of Part III
      of
      this Annual Report on Form 10-KSB.




Transitional
      Small Business Disclosure format (check one): YES oNO x












**PART
      I**




**Regarding
      Forward-Looking Statements**




This
      Form
      10-KSB contains forward-looking statements including statements about the future
      of iSECUREtrac Corp.’s (“iSECUREtrac” or the “Company” or “we” or “our”)
      products and the industry, statements about future business plans and
      strategies, and most other statements that are not historical in nature. In
      this
      Form 10-KSB, forward-looking statements are generally identified by the
      words “believes,” “intends,” “expects,” “may,” “will,” “should,” “plan,”
“projected,” “contemplates,” “anticipates,” “estimates,” “predicts,”
“potential,” “continue,” or similar terminology. Readers of this Form 10-KSB
      should understand that a number of factors could cause the Company’s actual
      results to differ materially from those expressed in the forward-looking
      statements contained herein. Many of these factors are described in Item 6
      Managements’ Discussion and Analysis or Plan of Operating under the heading
“Risk Factors”. Other factors discussed elsewhere in this report, in filings
      with the Securities and Exchange Commission or in materials incorporated herein
      or therein by reference may also affect the Company’s future financial condition
      and results of operations.




**Item
      1. Description of Business**




**Background**




The
      Company is a Delaware corporation that is the successor in interest to a
      Colorado corporation initially incorporated in 1983. For more than a decade,
      the
      Company has been engaged in its current business of providing electronic
      monitoring products and services for individuals under community supervision
      with the objective of “monitoring compliance and modifying behavior.” In 1997
      the Company introduced its first GPS tracking system (1600 series), followed
      by
      the 2000 Series in 2003, and the latest generation system - the System 5000
      in
      the fourth quarter of 2007.




**Market
      Overview**




According
      to the U.S. Bureau of Justice Statistics, over 7.0 million adults were under
      some form of correctional supervision as of June 30, 2006. The number of
      prisoners under the jurisdiction of federal or state correctional authorities
      on
      that date reached a record high of 2.4 million. Moreover, 5.0 million
      adults were under parole or probation supervision and approximately two out
      of
      every three people released from prison were rearrested within three years
      of
      their release.




Over
      the
      past decade, the general population in the U.S. has increased approximately
      13%
      whereas the U.S. correctional population has increased by more than twice the
      general population - approximately 28%. This growth in the correction population
      has resulted in stresses on the correctional system in terms of both management
      and costs which in turn has led to increased use of probation and parole as
      alternatives to incarceration.




Electronic
      monitoring systems (e.g. GPS, House Arrest, and Visual Breath Alcohol) enable
      an
      agency to monitor, at a greater level of supervision, the activities of a
      growing number of probationers and parolees without having to allocate
      additional labor resources to such monitoring efforts. Community supervision
      programs give corrections and law enforcement agencies more flexibility in
      solving budget-related problems. Since public safety is maintained or improved
      by linking alternative sentencing programs with electronic monitoring, programs
      like work release become viable, cost-effective tools for today’s correctional
      system.




In
      summary, the use of products and services offered by iSECUREtrac offer three
      distinct advantages over incarceration:




(1)
            it
                reduces the public's tax burden by allowing the offender to work
                and,
                subsequently, to meet their financial
                obligations,




2




(2)
            it
                reduces prison and jail overcrowding by providing a viable alternative
                to
                incarceration at a significantly lower cost to the community,
                and




(3)
            it
                helps to reduce the rate of recidivism (re-offense) when combined
                with
                regular rehabilitation/reintegration counseling.




**Industry/Technology
      Advancements**




The
      electronic monitoring market remains an emerging, early stage
      industry.   Accordingly, new technology is being developed and
      introduced at a rapid pace.  In general, the technological advancements of
      the new products are able to demand a higher price point.  However, the
      industry has historically demonstrated that in most instances, there remains
      a
      steady and consistent demand for the existing technology and products.




**Business**




iSECUREtrac
      develops, markets, leases and services products that assist in “monitoring
      compliance and modifying behavior” of individuals who are under the supervision
      of the criminal justice system and social service agencies, primarily in the
      United States.




The
      Company’s principal sources of revenue are daily leasing of electronic
      monitoring equipment including access to the corresponding web-based monitoring
      software, and providing administrative, field and support services, generally
      charged on a per offender basis.




**Our
      Products and Services**




iSECUREtrac
      has a full suite of electronic monitoring products and services consisting
      of:




·
            GPS
                Tracking Systems




·
            House
                Arrest




·
            Visual
                Breath Alcohol Testing




·
            Supplemental
                Monitoring Center Services




In
      order
      to position the Company to remain competitive in the electronic monitoring
      industry, in 2007   we invested in both the GPS (System 5000) and
      Visual Breath Alcohol( MEMS 3000) technology.   The Company sees a
      continued demand for its existing product offerings and remains committed to
      continuing to provide and support all product lines.




***GPS
      Tracking Systems***




GPS
      tracking systems enable law enforcement agencies to continuously monitor an
      individual’s location, and thereby compliance, with pre-determined terms.




Operated
      by the United States Department of Defense and provided free of charge, the
      Global Positioning System consists of at least 24 operational satellites that
      orbit the Earth every 12 hours. Eight to twelve GPS satellites are visible
      from
      any point on Earth at any given moment in time. A position fix can be acquired
      when a GPS receiver receives signals from at least three of these satellites.




Our
      GPS
      tracking products use this state-of-the-art positioning technology to monitor
      the movements of individuals under community supervision to a degree not
      previously possible or cost efficient.




The
      Company’s Series 2000 and Series 5000 GPS systems are manufactured in the United
      States and consist of:




·
            An
                ankle cuff that is worn continuously by the offender. The cuff emits
                a
                radio frequency (RF) signal to the PTU (described
                below).




3




·
            Personal
                Tracking Unit (PTU) that is carried by the offender when not in the
                charging base. The PTU may include cellular communication capabilities.
                The reception of the RF signal from the ankle cuff indicates the
                cuff and
                PTU are in proximity. The absence of that RF signal indicates a possible
                violation.




·
            A
                charging base that re-charges the PTU battery and in some systems
                contains
                traditional land line communication
                capability.




Our
      GPS
      unit tracks an individual by collecting data points regarding their location
      and
      time, at intervals as short as every 10 seconds. All data processing and
      compliance assessments take place in the PTU, a capability we call on-board
      intelligence. When operating in an “active” mode, this feature provides officers
      with near real-time compliance reporting and potentially quicker response to
      violations by high risk offenders.




Our
      GPS
      systems offer:




·
            Tracking
                units equipped with on-board intelligence allowing them to compute
                GPS
                locations and discern violation status without the assistance of
                a
                monitoring center or other secondary
                sources




·
            Advanced
                circumvention sub-systems to identify, report and log attempts by
                the
                offender to tamper with the equipment or render it
                inoperable




·
            The
                latest generation GPS chip sets for greater accuracy and sensitivity
                in
                areas that typically have weak GPS signals (e.g., urban canyons,
                terrain
                under dense foliage)




·
            Secure,
                web-based management reporting through any Internet-ready device,
                anywhere
                in the world




·
            Geo-fencing
                to control entrance and/or egress from geographically defined locations
                (e.g., home, work, spouse’s residence, elementary schools, etc.)




·
            Automated
                voice notification with escalation to an unlimited number of parties
                including but not limited to supervising officers, law enforcement
                officials, judicial personnel and potential
                victims




·
            Equipment
                designed and manufactured specifically for the corrections market
                that is
                hypoallergenic (ankle bracelet or cuff), tamper and shock resistant
                and
                water resistant or water proof (ankle bracelet or
                cuff)




·
            Crime
                scene analysis (Crime Scene Inquiry) to assist agencies in identifying
                or
                eliminating potential suspects based upon their proximity to a specific
                crime location within a specified time
                period.




All
      of
      the Company’s GPS products collect data points regarding the individual’s time
      and location and provide the individual immediate feedback regarding compliance
      violations. Depending on the specifications of the law enforcement or social
      services agency, the agency or monitoring center is notified of compliance
      violations based on the modes of operations outlined below:




·
            *Active
                GPS*-
                uses on-board intelligence anda
                cellular communications network to report locations and violation
                status
                in near real time (Series 2000 and Series
                5000)




·
            *Ultra-active
                GPS*-
                uses on-board intelligence but also includes the ability to report
                locations and violation status viaa
                traditional land-line when the PTU is returned to the charging base.
                This
                service is particularly useful in areas where cellular coverage is
                weak or
                non-existent (Series 5000 only)




·
            *Passive
                GPS*-uses
                on-board intelligence but reports the locations and violation status
                only
                when the PTU is returned to the charging base(Series
                2000 only)




4




***House
      Arrest***




House
      Arrest is a system that enables law enforcement agencies to verify an offender’s
      presence at a particular location (house, residence, work release facility,
      etc.). Equipment and features of the iSECUREtrac House Arrest System
      include:




·
            The
                ability to move from House Arrest to Active or Passive GPS remotely
                and
                with the flip of a switch




·
            A
                hypoallergenic and water proof ankle bracelet or cuff worn continuously
                by
                the offender which is equipped with tamper-detecting sub-systems
                and a
                radio frequency (RF) transmitter




·
            A
                shock resistant monitoring base with enhanced signal reception to
                ensure
                superior signal monitoring at range of
                distances




·
            Reporting
                through a single, secure, web-based platform utilizing common management
                software for monitoring offenders on House Arrest, Active or Passive
                GPS




The
      agency can set a schedule for each offender corresponding to the rules of
      release. For example, the offender must be at home between 6:00 p.m. and 7:00
      a.m. every day. Offender deviation from the schedule results in a violation
      notification sent to the agency. **** If
      the
      offender takes off the ankle bracelet or tampers with it, it sends out a unique
      signal alerting the monitoring base of the violation. The base then communicates
      with the monitoring center which, in turn, automatically alerts the appropriate
      authorities.




***Visual
      Breath Alcohol Testing***




Our
      breath alcohol monitoring system enables an offender’ breath alcohol levels to
      be tested remotely and at the offender’s residence. The system calls the
      offender on a scheduled, random, or on-demand basis, giving him clear
      instructions. The offender blows into a drinking straw inserted in the
      HomeStation while a camera on the unit photographs the offender. Breath Alcohol
      Test data and photographs are sent electronically to our data center. Our
      personnel confirm the offender’s identity by comparing the event verification
      photo with original reference picture provided by the agency. Deviation from
      program parameters, as defined by the agency, results in monitoring center
      staff
      contacting appropriate agency personnel.




Advantages
      of the iSECUREtrac Alcohol Testing System include:




·
            In-home
                testing of individuals who may not have convenient access to a central
                testing facility





·
            A
                proven alcohol testing methodology that yields court admissible
                evidence





·
            The ability to customize a testing schedule (fixed,
              random or on-demand) to fit an individual’s supervision/corrections
              plan


·
            The
                use of a time-tested reliable system designed to meet agency program
                parameters and budget




Many
      agency programs use a combination of iSECUREtrac systems to better monitor
      compliance and shape more socially responsible behavior. For example, it is
      not
      unusual for individuals accused or convicted of domestic violence to be
      supervised with both active GPS and remote alcohol monitoring.




***Supplemental
      Monitoring Center Services***




To
      effect
      a more seamless integration with agency protocols and programs, iSECUREtrac
      provides supplemental services. These optional services include:




·
            *Direct
                Monitoring Center Intervention*in
                which iSECUREtrac will attempt to resolve common compliance issues
                through
                direct contact with the monitored individual. If iSECUREtrac cannot
                resolve the issue, the situation is escalated in accordance with
                agency
                protocols.




5




·
            *Equipment
                Install and Removal*frees agents from the task of fitting their clients and retrieving
                the
                equipment at the end of the
                program.




·
            *Automated
                Voice Notification*****provides
                voice alerts to officers in addition to text, pager and email
                notifications when those individuals under community supervision
                violate
                the terms of their release. These automated voice alerts can be customized
                by offender, violation and content. Voice messages can be automatically
                and simultaneously sent to a virtually unlimited number of recipients
                including potential victims.




·
            *On-Site
                Inventory Management*provides precise control and safeguarding of equipment. An on-site
                iSECUREtrac administrator maintains accurate inventory records including
                data pertaining to equipment receipt, the movement of equipment within
                and
                between locations and inventory assignments that match equipment
                serial
                numbers with client case numbers.




·
            *Extended
                Training*****includes
                follow-up training and refresher courses to ensure agents, officers
                and
                supervisors are comfortable with the operation of the equipment and
                proficient in reading and interpreting electronic monitoring
                reports.




·
            *Program
                Development and Consulting*can help fine tune protocols and procedures to reduce program “noise”,
                annoyance alerts and unnecessary
                data.




·
            *Financial
                Services and Administration*****provides
                agencies several options in the financial administration of community
                supervision programs. For example, iSECUREtrac provides client billing
                services in which the offender/client is directly invoiced by iSECUREtrac
                for the cost of their electronic
                supervision.




·
            *Day
                Reporting Services*****includes
                the provision by iSECUREtrac of a reporting center and staff to
                effectively supervise release compliance by those individuals under
                community supervision.




***Web-Based
      Software/System Interface (tracNET24)***




Our
      web-based software/system interface, known as tracNET24, is provided to end-user
      agencies through the Internet. Probation or corrections officers with a secure
      log-in can access the system and know where his or her clients have been over
      any given time period. With GPS monitoring, the officer can create or modify
      a
      schedule of locations where the offender must be at certain times of the day,
      week or month (e.g., a place of work, medical appointments, counseling
      appointments, meetings with the probation officer, etc.). He/she merely enters
      a
      drop down menu for the schedule and either enters an address or points to a
      spot
      on the map and specifies a radius. He/she thereby creates “inclusion zones” for
      the offender. Similarly, the officer can create “exclusion zones” (e.g.,
      schools, home of an ex-spouse, etc.). Once the parameters are entered, the
      officer clicks “synchronize with Personal Tracking Unit” which causes the
      scheduling and zone information to be downloaded to the tracking unit.




Features
      of iSECUREtrac’s proprietary reporting and management software include but are
      not limited to:




·
            The
                ability to establish boundaries or geo-fences via “inclusion” and
                “exclusion” zones, either for individual clients or entire caseload
                populations




·
            The
                flexibility to change the content, delivery method and timing of
                alert
                notifications to best fit agency needs




·
            Access
                to all reports and key events pertaining to monitored individuals
                through
                a secure, web-based program




·
            Utilization
                of Microsoft’s Virtual Earth® as a mapping system overlay as well as
                recognizable and easy-to-read names of countries, states, counties,
                cities, municipalities, landmarks, points of interest, and street
                names




6




·
            The
                ability to present mapping and monitoring information for all enrolled
                clients in the vicinity of a crime at the time the crime was committed,
                enabling the officer to research multiple clients
                simultaneously




**Customers**




Our
      principal customers are federal, state, county, and municipal law enforcement
      and corrections agencies in the United States. Our customers also include social
      service agencies dealing with curbing juvenile delinquency and domestic
      violence/abuse.




**Sales
      and Distribution Channels**




The
      Company markets and sells its products and services to governmental and
      not-for-profit agencies throughout the United States directly through its
      in-house sales force and indirectly through third party distributors. We also
      market our products and services through other service providers that have
      direct relationships with law enforcement and correction agencies and other
      end
      users of our products and who integrate iSECUREtrac systems with their own
      localized offender management services.




**Competition**




The
      Company competes for GPS-based offender monitoring with a number of different
      companies, including ProTech Monitoring, Inc., BI Incorporated, Omnilink
      Systems, STOP LLC and RemoteMDx. Neither the Company nor any of these
      competitors has attained a dominant market position, however, several of the
      Company’s principal competitors have access to financial, technical, marketing,
      distribution and procurement resources that are greater than those of the
      Company. In addition, there are several other companies that use GPS, electronic
      mapping and Internet technologies to provide tracking and monitoring products
      and services.  The markets served by these companies include vehicle and
      rail car tracking, vehicle fleet management, container tracking as well as
      cell
      phones and 911 emergency response services.  While the companies serving
      these markets do not currently sell products or services to the corrections
      and
      social services markets, these companies or others may enter this market in
      the
      future.




In
      general, contracts with our targeted customer base in the offender tracking
      market are awarded through a competitive bid process in which we must
      demonstrate the ability to provide services meeting stated customer
      specifications at competitive prices. We compete by providing state-of-the-art
      equipment, a proprietary web-based reporting solution, and customer support
      that
      we believe offers the highest value to our customers. In addition, we are the
      only provider that offers Active GPS, Passive GPS, and traditional House Arrest
      products that are integrated into a single web application.




**Principal
      Suppliers**




The
      Company’s products are manufactured in the United States by third party contract
      manufacturers in accordance with manufacturing specifications set by the
      Company. The PTUs and other hardware components are designed to use
      off-the-shelf electronic components available for any standard electronic
      assembly. The Company works in partnership with contract manufacturers to manage
      the supply chain of electronic components for the manufacture of the Company’s
      products. In January of 2003, the Company contracted with Altron Inc. of Anoka,
      Minnesota, an ISO-9002 qualified electronics manufacturer, to be the primary
      manufacturer of PTUs.




**Intellectual
      Property Rights**




We
      have
      been issued four patents to date by the United States Patent Office: (i) No.
      6,072,396 for an "Apparatus and Method for Continuous Electronic Monitoring
      and
      Tracking of Individuals" was issued on June 6, 2000 and will expire on December
      30, 2014; (ii) No. 6,100,806, also for an "Apparatus and Method for Continuous
      Electronic Monitoring and Tracking of Individuals" was issued on August 8,
      2000
      and will expire on December 30, 2014; (iii) No. 6,337,665 was issued on January
      8, 2002 for an "Antenna Orientation Maintaining System in a System for Tracking
      Individuals and Method of Use" and will expire on April 24, 2017; and (iv)
      No.
      6,646,617 was issued on November 11, 2003, for an "Antenna Orientation
      Maintaining System in a System for Tracking Individuals and Method of Use"
      and
      will expire on April 24, 2017.




7




We
      have
      been issued patent rights in Australia, patent No. 2000235013, issued November
      17, 2005 relating to an “Apparatus and Method for Continuous Electronic
      Monitoring and Tracking of Individuals”.




We
      have
      been granted a non-exclusive software license from SiRF Technology Incorporated
      (“SiRF”) allowing us to embed SiRF’s patented GPS technology into our products.




We
      assert
      common law copyright and statutory trade secret protection to our proprietary
      software. Our logo, the words “tracNET24”, Reg No. 3114715, “iSECUREtrac”, Reg
      No. 3159632, “IntelliCuff”, Reg No. 3313220 and the word "iSecureTrack”, Reg.
      No. 2520981 are registered trademarks.




In
      addition, we have applied for several additional patents and
      trademarks.




**Regulation**




The
      manufacture, sale and use of devices that utilize any part of the radio
      frequency radiation spectrum are subject to regulation. The Federal
      Communications Commission (the "FCC") is the principal agency responsible for
      regulations relating to the manufacture, sale and use of devices that transmit
      radio frequency radiation. All of our equipment utilizing radio frequency has
      each received full FCC compliance certification.




Similarly,
      insofar as GPS remains funded and controlled by the U.S. government, devices
      utilizing GPS must conform to government specifications.




**Research
      and Development**




The
      electronic monitoring market remains an emerging, early stage industry.
      Accordingly, new technology is being developed and introduced at a rapid pace.
      In order to maintain our competitive position, we must constantly improve our
      products and services. Our research and development staff designs and develops
      products incorporating GPS technology, wireless communications, web-based
      reporting and data storage and transmission. Our research and development
      activities are primarily related to our GPS products.  During 2007, these
      activities were mainly related to the development of the System 5000, and most
      recently the improvement in the functionality of the related web-based software
      and interfaces including the development and enhancement of crime scene inquiry.
      During 2007 and 2006, our research and development expenses totaled $1,891,820
      and $1,325,076, respectively.




**Employees**




As
      of
      December 31, 2007, the Company had 92 full-time employees on staff. Of the
      92
      full-time employees, three are executives, six are administrative personnel,
      14
      are in sales, 14 are in customer support, 20 operate the monitoring center,
      three are in technology services, 15 are in operations and 17 are in engineering
      and development.




**General
      Information**




The
      Company’s principal office is located at 5078 South 111th Street, Omaha,
      Nebraska, 68137 (telephone: 402-537-0022) and its internet address is
      www.isecuretrac.com. The Company’s annual report on Form 10-KSB, quarterly
      reports on Form 10-QSB, current reports on Form 8-K and amendments to those
      reports are available free of charge through its website as soon as reasonably
      practicable after these documents are filed with the Securities and Exchange
      Commission. The information contained in the Company’s website is not part of
      this Report on Form 10-KSB.




8




**Item
      2. Description of Property**




The
      Company leases approximately 11,477 square feet of office space located at
      5078
      South 111th Street, Omaha, Nebraska where most of the Company’s administrative,
      service, and other business operations are conducted. The lease was amended
      on
      December 18, 2006 to extend the term of the lease to December 31, 2009. The
      base
      rent for this property was $6,848 per month through October 31, 2007 when it
      increased to $7,053 per month. Beginning in November 2008, the base rent on
      this
      property will increase to $7,265 for the remaining term of the lease. In
      addition to base rent, the Company pays a pro rata share of the operating
      expenses of the building. The Company’s pro rata share of operating expenses on
      the leased premises is $3,447 per month.




The
      Company also leases approximately 1,800 square feet of office space located
      at
      11132 Q Street, Omaha, Nebraska where its monitoring center is located. The
      lease term commenced on January 1, 2007, and ends on December 31, 2009. The
      base
      rent for this property is $1,125 per month. In addition to base rent, the
      Company pays a pro rata share of the operating expenses of the building. The
      Company’s pro rata share of operating expenses on the leased premises is $514
      per month.




In
      the
      opinion of management, each of the leased properties is adequate for the
      Company’s current and reasonably foreseeable needs. The Company does not own any
      real property.




**Item
      3. Legal Proceedings**





On
      November 27, 2007, iSecureTrac Corp. (the “Company”) and Pro Tech
      Monitoring, Inc. (“Pro Tech”) entered into a Confidential Settlement Agreement
      (the “Settlement Agreement”), pursuant to which the parties agreed to compromise
      and settle all claims and disputes related to a lawsuit filed by Pro Tech
      against the Company in the United States District Court for the Middle District
      of Florida in which Pro Tech alleged that the Company had infringed on a U.S.
      patent held by Pro Tech relating to GPS tracking and monitoring apparatus and
      systems. Pro Tech was seeking an injunction and substantial monetary damages
      from the Company.





Pursuant
      to the Settlement Agreement, Pro Tech has caused the dismissal of its lawsuit
      against the Company. In consideration, the Company paid Pro Tech $800,000 in
      cash upon execution of the Settlement Agreement and agreed to, and did purchase
      $600,000 worth of sobriety monitoring equipment from Pro Tech prior to December
      31, 2007. The $800,000 is included in sales, general and administrative expenses
      for the year ended December 31, 2007. In addition, the Company has agreed to
      make a modification to its GPS tracking equipment to eliminate or disable a
      component that allegedly infringed on Pro Tech’s patent. To the extent this
      component is not removed or disabled from the Company’s equipment by January 27,
      2008, the Company will be subject to royalty payments on unmodified equipment
      in
      the field which escalate over time. The amount of such royalty payments, if
      any,
      cannot be estimated at this time. The Company entered into the Settlement
      Agreement without admission of liability and solely to avoid the expense and
      uncertainty of litigation.




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




No
      matters were submitted to a vote of the Company’s shareholders during the fourth
      quarter of 2007.




**PART
      II**




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




*Market
      Information.* iSECUREtrac’s
      common stock is listed on the OTC Bulletin Board under the trading symbol
“ISEC”. The following table sets forth the high and low sale prices for the
      Company’s common stock during each calendar quarter of 2006 and 2007:


Year
              
              Quarter
              
              High
              
              Low1st
              
              $
              2.77
              
              $
              1.752006
              
              2nd
              
              $
              3.10
              
              $
              2.013rd
              
              $
              2.59
              
              $
              2.054th
              
              $
              2.25
              
              $
              0.851st
              
              $
              1.57
              
              $
              0.902007
              
              2nd
              
              $
              1.55
              
              $
              0.973rd
              
              $
              1.50
              
              $
              1.054th
              
              $
              1.28
              
              $
              0.62




9




The
      source of the foregoing information is Bloomberg, LP Quotations and reflects
      inter-dealer prices, without retail markup, markdown or commission and may
      not
      represent actual transactions.




*Holders.* As
      of
      December 31, 2007 there were approximately 369 stockholders of record for the
      Company’s common stock.




*Dividends.* The
      Company has not declared any dividends on shares of Common Stock and has no
      plans to do so in the foreseeable future.




*Recent
      Sales of Unregistered Securities* .
      The
      Company issued 6,226, 3,582 and 7,599 shares of common stock without
      registration under the Securities Act of 1933 during 2007, 2006 and 2005,
      respectively, to non-management directors as payment of director fees. The
      number of shares of common stock issued in each case was based on the fair
      market value of the Company’s common stock as of the date of the meetings to
      which such fees related. All previously unreported, unregistered sales of common
      stock during 2007 are as follows:




**Date**
                  **Issued**
              
              **Title**
              
              **Amount
                    of**
                  **Securities
                    Sold**
              
              **Security
                  Holder**
              
              **Description
                    of Transaction**
              
              **Cash
                    to**
                  **Company**03/30/07
              
              Common
                  Stock
              
              1,324
              
              Various
                  Directors
              
              Shares
                  issued for directors' fees
              
              N/A05/23/07
              
              Common
                  Stock
              
              1,818
              
              Various
                  Directors
              
              Shares
                  issued for directors' fees
              
              N/A08/24/07
              
              Common
                  Stock
              
              1,418
              
              Various
                  Directors
              
              Shares
                  issued for directors' fees
              
              N/A12/04/07
              
              Common
                  Stock
              
              1,666
              
              Various
                  Directors
              
              Shares
                  issued for directors' fees
              
              N/A




All
      of
      the foregoing sales of common stock were exempt from registration under the
      Securities Act of 1933 pursuant to Section 4(2) of such Act. All such shares
      are
      subject to restrictions on resale.




*Company
      Purchases of its Equity Securities.* No
      purchases of the Company’s common stock were made by the Company or any
“affiliated purchaser” (as defined in Rule 10b-18 under the Securities Exchange
      Act of 1934) during the  fourth
      quarter of 2007.




10




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





**Highlights
      of 2007 Operations**





The
      following are highlights of 2007 activities that are not otherwise detailed
      in
      the balance of the MD&A:





***System
      5000***




Commercial
      production of the Company’s System 5000 GPS units commenced during the fourth
      quarter of 2007. The System 5000 utilizes the Company’s most advanced GPS
      components and provides faster signal acquisition, superior signal reception,
      and more reliable tracking in terrains where GPS signal reception is more
      difficult (e.g. under dense foliage, urban “canyons”, etc..) than our previous
      GPS units. The new technology compliments our existing System 2000 product
      lines
      which remain a valuable and viable cost-effective alternative where the advanced
      capabilities of the System 5000 are not required.





The
      introduction of the System 5000 was delayed as a result of engineering and
      design issues. As a result, we believe revenues in 2007 were negatively affected
      due to many of the Company’s customers deferring orders for additional GPS units
      until the System 5000 was available.





***Expansion
      of Monitoring Center Services***




The
      Company has historically provided limited monitoring services as part of the
      standard support services for the visual breath alcohol product. In May 2007,
      the Company opened its state-of-the-art monitoring center facility which allowed
      the Company to build a recurring revenue stream by offering an expanded suite
      of
      services to its entire line of products.





The
      expanded services generated $80,487 of revenue for 2007 of which more than
      50%
      was generated in the fourth quarter of 2007.





**Summary
      of Financial Information**




The
      following table provides a comparison of selected financial highlights for
      the
      years ended December 31, 2007 and 2006:




***CONDENSED
                  CONSOLIDATED FINANCIAL HIGHLIGHTS******Years
                  Ended December 31, 2007 and
                  2006***
  2007
              
              2006
              
              Change**Total
                  revenues**
              
              $
              8,785,712
              
              $
              8,063,843
              
              $
              721,869**Cost
                  of revenues**
              
              
              3,640,219
              
              
              3,574,126
              
              
              66,093Gross
                  profit
              
              
              5,145,493
              
              
              4,489,717
              
              
              655,776**Research
                  and development expenses**
              
              
              1,891,820
              
              
              1,325,076
              
              
              566,744**Sales,
                  general and administrative expenses:**Litigation
                  and settlement expenses
              
              
              1,117,966
              
              
              -
              
              
              1,117,966Management
                  restructuring expenses
              
              
              206,726
              
              
              149,399
              
              
              57,327Consulting
                  expenses - Sarbanes-Oxley
              
              
              70,059
              
              
              -
              
              
              70,059Other
                  sales, general and administrative expenses
              
              
              8,530,691
              
              
              8,308,484
              
              
              222,207Total
                  sales, general and administrative expenses
              
              
              9,925,442
              
              
              8,457,883
              
              
              1,467,559Total
                  R&D and sales, general and administrative expenses
              
              
              11,817,262
              
              
              9,782,959
              
              
              2,034,303**Operating
                  loss**
              
              
              (6,671,769
              )
              
              (5,293,242
              )
              
              (1,378,527
              )Interest
                  expense, net
              
              
              (529,958
              )
              
              (158,394
              )
              
              (371,564
              )**Net
                  loss**
              
              $
              (7,201,727
              )
              $
              (5,451,636
              )
              $
              (1,750,091
              )Preferred
                  stock dividends and accretion
              
              
              (1,185,848
              )
              
              (1,112,299
              )
              
              (73,549
              )**Net
                  loss available to common stockholders**
              
              $
              (8,387,575
              )
              $
              (6,563,935
              )
              $
              (1,823,640
              )




11




***Total
      Revenues***




For
      the
      year ended December 31, 2007, the Company had total revenue of $8,785,712,
      an
      increase of 9% over the total revenue of $8,063,843 recorded for the year ended
      December 31, 2006. The Company’s principal sources of revenue (daily leasing of
      electronic monitoring equipment and administrative, field and support services)
      grew 13% over 2006. The increase in revenue is a result of an increase in the
      number of units under lease and the expansion of monitoring center services
      revenue to include GPS equipment.




***Cost
      of revenues***




Cost
      of
      revenues represents all direct costs related to delivery of monitoring equipment
      including amortization of the acquisition costs, repairs and maintenance of
      the
      monitoring equipment, transportation costs, communication costs associated
      with
      the equipment, as well as costs to upgrade existing units for advancements
      in
      technology. Certain costs such as communication costs and amortization increased
      in 2007 as a result of additional units under lease. However, these increases
      were offset by reductions in other costs such as third party service costs
      and
      equipment upgrade costs resulting in total cost of revenues increasing only
      $66,093 from the year 2006 to 2007.




***Gross
      Profit***




As
      a
      result higher revenues, combined with the minimal increase in cost of revenues,
      the Company’s gross profit for 2007 improved 14.6% to $5,145,493 from $4,489,717
      in 2006, an increase of $655,776. Gross profit, as a percentage of total
      revenue, improved from 55.7% to 58.6% for 2006 and 2007
      respectively.




12




***Research
      and Development Expenses***




Research
      and Development expenses represent the on-going direct costs associated with
      the
      development of the Company’s proprietary hardware and software including
      staffing expenses for the Company’s own engineers and software developers, the
      cost of outside contracted engineering and design, and the actual costs of
      components, prototypes, and testing equipment and services used in the product
      development functions.





Research
      and Development expenses for 2007 were $1,891,820, an increase of $566,744
      (42.8%) over the $1,325,076 expensed in 2006. Of the $566,744 increase, $199,500
      was attributable to the hiring and relocation of a new senior manager and
      severance costs associated with the previous manager.  See comments below
      in Sales, General and Administrative regarding management restructuring. 
The remainder of the increase was the result of the final development and
      testing involved in the production of our next generation product, the System
      5000, which began commercial production in the fourth quarter of 2007.





***Sales,
      General and Administrative Expenses***




Sales,
      General and Administrative (SG&A) expenses are all the expenses associated
      with the operations of the Company, other than the expenses described above.
      These expenses include payroll, taxes and benefits and related travel for
      executive, sales, administrative, customer support and accounting staff. In
      addition these costs include rent on property, corporate communications, office
      leases and supplies, marketing, advertising, trade shows, recruiting and
      training expenses, professional fees and bad debt expense.





For
      the
      year ended December 31, 2007, SG&A expenses increased $1,467,559 or 17.4%,
      to $9,925,442 from $8,457,883 incurred in 2006. Significant components of
      SG&A expense in 2007 are highlighted below:




·
            ***Litigation
                and settlement expenses:***We
                incurred $1,117,966 in legal fees and settlement costs in connection
                with
                the lawsuit brought by Pro Tech Monitoring, Inc. described in Item 3
                “Legal Proceedings.” Although we do not anticipate the incurrence of
                additional legal fees in connection with this matter, we may incur
                escalating royalty payments if our GPS units continue to incorporate
                the
                function allegedly infringing on Pro Tech’s patent after various dates.
                Any such royalty costs will be charged to Cost of Revenues as
                incurred.




·
            ***Management
                restructuring expenses:***We
                incurred compensation expenses of $206,726 and $149,399 during 2007
                and
                2006, respectively, relating to hiring and relocation of new executive
                officers and severance costs associated with the previous officers.
                The
                actions referred to here in and above in “Research and Development
                Expenses” represent a transition of the Company’s entire executive and
                senior management team. The Company does not anticipate that it will
                incur
                similar costs of this magnitude going
                forward.




·
            ***Consulting
                expenses - Sarbanes-Oxley:***We
                incurred consulting costs of $70,059 for assisting management in
                the
                initial design and evaluation of the Company’s internal controls and
                procedures over financial reporting and disclosure. These costs are
                expected to be substantially less in
                2008.




·
            ***Other
                sales, general and administrative expenses:***Other sales, general and administrative expenses increased $222,207
                or
                2.7% from $8,308,484 in 2006 to $8,530,691 in 2007. The significant
                increases and decreases from 2006 to 2007 are as
                follows:




·
            Compensation
                expense increased $355,241 primarily due to the increase in staffing
                levels related to customer support and monitoring center services.




·
            Consulting
                fees increased $122,903 as the Company relied more heavily on outside
                consultants and lobbyists to respond to an increasing number of requests
                for proposals and changes in
                legislation.




13




·
            Bad
                debt expense decreased $472,508 primarily due to higher than normal
                write-offs of delinquent accounts in 2006.




***Interest
      Expense, Net***




Net
      interest expense represents the total interest expense incurred by the Company
      reduced by the interest income earned by the Company during the year. The net
      interest expense increased $371,564 from $158,394 in 2006 to $529,958 in 2007.
      The increase is attributable to the increase in equipment purchased under
      capital leases, as well as the additional $3,300,000 borrowings from Crestpark
      LP, Inc in late 2007. As a result of the additional borrowing from Crestpark
      LP
      and the Company’s continuing use of capital leases to finance its equipment
      purchases, we expect to see net interest expense continue to grow in 2008.





***Net
      Loss***




The
      Company’s net loss for 2007 was $7,201,727, an increase of $1,750,091 over 2006
      for the reasons described above.





***Preferred
      Stock Dividends and Accretion***




For
      the
      year ended December 31, 2007, preferred stock dividends and accretion totaled
      $1,185,848, as compared to $1,112,299 for 2006. This increase was due to
      compounding interest on accrued but unpaid dividends on our Series C Preferred
      Stock. The Series C Exchangeable Preferred Stock accrues interest at a
      cumulative compounded rate of 8.0% per annum.




**Liquidity
      and Capital Resources**




For
      the
      year ended December 31, 2007, the Company used $4,009,395 of cash in operating
      activities, used another $2,308,344 in investing activities, and generated
      $5,418,766 in cash from financing activities.  The total of all cash flow
      activities resulted in a decrease of $898,973 in the balance of cash for the
      year ended December 31, 2007.  During the year ended December 31, 2006, the
      Company used $3,599,456 of cash in operating activities, generated $1,293,626
      in
      investing activities and generated $5,904,889 in cash from financing
      activities.  The total of all cash flow activities in 2006 resulted in an
      increase in the balance of cash of $3,599,059.





The
      Company converted $0 and $189,420 of its long-term debt, notes payable and
      accrued interest into common stock during 2007 and 2006, respectively.  The
      Company made principal payments on long-term debt and notes payable totaling
      $958,709 and $1,348,200 during 2007 and 2006, respectively.  At December
      31, 2007, the Company had $0 in short-term and $11,877,475 in long-term debt.





On
      December 18, 2007, the Company amended its Promissory Note and Credit and
      Security Agreement with Crestpark LP, Inc. (“Lender”) in order to increase the
      amount loaned (the “Loan”) from the Lender to the Company by the amount of
      $3,300,000. As a result of these amendments, the principal amount outstanding
      under the Loan increased from $8,491,864 to $11,877,475, consisting of the
      $3,300,000 in additional borrowings plus accrued but unpaid interest on the
      existing Loan. The additional borrowings are to be used for general working
      capital purposes. Principal on the Loan is due on the earlier of (i) July
      1, 2010 or (ii) the first date on which the Company either issues equity
      securities or arranges for additional indebtedness (other than trade
      indebtedness incurred in the ordinary course of its business) in a transaction
      or series of transactions which generates aggregate net proceeds to the Company
      of not less than the then current principal amount outstanding under this Loan,
      plus all accrued but unpaid interest. The Company may prepay the Loan at any
      time without premium or penalty. The terms of the Amended and Restated
      Promissory Note evidencing the Loan (the “Note”) provide, among other things,
      that $6,455,250 of the borrowings thereunder shall bear interest at 7.0% per
      annum and that such interest will be due and payable at maturity of the Note.
      The remaining $5,422,225 of borrowings (the “Floating Tranche”) under the Note
      (which includes the $3,300,000 of additional borrowings) will bear interest
      at a
      floating rate equal to 2% over the prime rate (the “Base Rate”). The portion of
      the interest on the Floating Tranche determined by the Base Rate will be payable
      at maturity, but the remaining portion of the interest representing the 2%
      premium over the Base Rate will be payable monthly.




14





The
      borrowings under the Note are secured by a first priority security interest
      in
      all of the assets of the Company except that Lender’s security interest in
      certain monitoring equipment is subordinate to the interest of AHK Leasing
      under
      its sale leaseback arrangements. The Lender is an affiliate of Mykonos 6420
      LP
      (“Mykonos”). As the sole holder of the Company’s Series C Preferred Stock,
      Mykonos has the right to elect a majority of the Company’s Board of Directors.
      The terms of the Loan were approved by a Special Committee of the Board of
      Directors consisting solely of disinterested directors.





As
      of
      December 31, 2007, the Company had capital lease facilities in place which
      were
      used to finance the acquisition of approximately $2,150,000 of monitoring
      equipment with AHK Leasing, LLC (“AHK”), a company controlled by three
      stockholders, one of which is a current director. Under these sale-leaseback
      arrangements, the Company sells the inventory to AHK and then leases the
      equipment back. AHK has indicated that it will continue to provide lease
      financing for our monitoring equipment throughout 2008. All capital leases
      are
      treated as financing transactions with one of the leases carrying an interest
      rate of 9.50% per annum, five of them carrying interest rates of 12.00% per
      annum and one of them carrying an interest rate of 12.50% per annum. Maturity
      dates on these capital leases run from March 2008 to September 2010. As of
      December 31, 2007, the aggregate balance on the capital leases totaled
      $1,126,463, of which $622,340 is current and the balance of $504,123 is
      classified as long-term debt.





By
      the
      end of 2007, the Company was incurring approximately $300,000 in recurring
      monthly costs of revenues and $875,000 in recurring monthly operating
      expenses.  Approximately 65% of the recurring monthly operating expenses
      consisted of salaries, wages, payroll taxes, health insurance and other employee
      benefits.  In addition to these recurring monthly operating expenses, the
      Company’s other principal uses of cash are the payment of other recurring
      monthly operating expenses, the acquisition of monitoring equipment and the
      financing of its receivables. In general, the Company meets its liquidity needs
      from its current revenues, from cash and cash equivalents (including the
      proceeds of the additional borrowings from Crestpark LP, Inc., as described
      above), and through capital leasing arrangements. As of December 31, 2007,
      the
      Company had $3,442,712 in cash and cash equivalents.


The
        Company believes that its current working capital, combined with the expected
        amounts available through lease financing for our monitoring equipment described
        above are sufficient to meet its liquidity needs through 2008.   In the
        early part of 2009, depending on the results of operations for 2008, it is
        probable the Company will need additional equity or debt financing to have
        sufficient capital to satisfy liquidity needs  in
        2009.  The Company does not have any irrevocable commitments to provide any
        such additional capital at this time and there is no assurance that such
        additional equity or debt financing will be available.  If the Company is
        unable to obtain additional capital, it will need to take other steps, including
        imposition of significant cost reductions, in order to maintain
        operations.




**Critical
      Accounting Policies**




The
      Company prepares its consolidated financial statements in conformity with
      generally accepted accounting principles in the United States of America (“U.S.
      GAAP”). This requires management to make estimates and judgments that affect
      reported amounts and related disclosures. Actual amounts will differ from those
      estimates. The significant accounting policies are described in Note 1 to the
      audited Consolidated Financial Statements. Of those policies, the following
      have
      been identified as the most critical because they are the most important to
      the
      portrayal of the Company’s results of operations and financial condition and
      they require subjective or complex management judgments:




***Revenue
      recognition and deferred revenue***




The
      Company derives revenue primarily from the leasing of monitoring equipment,
      as
      well as providing administrative, field and support services. The amounts
      charged by the Company for equipment leasing and administrative, field and
      support services are calculated on a daily basis - (e.g. per day/per individual
      being monitored) and billed monthly in arrears. Revenues are recognized upon
      invoicing. Any amounts invoiced in advance of equipment and services being
      provided are recorded as deferred revenue and recognized as equipment and
      services are provided.




15





***Stock-based
      compensation***




The
      Company accounts for its stock-based compensation in accordance with FASB
      Statement No. 123 (revised 2004), “ *Share-Based
      Payment* ”
(“FAS#
      123(R)” or the “Statement”). FAS# 123(R), which it adopted as of January 1,
      2006, requires that the compensation cost relating to share-based payment
      transactions, including grants of employee stock options, be recognized in
      financial statements based on the fair value of the equity or liability
      instruments issued. FAS# 123(R) covers a wide range of share-based compensation
      arrangements including stock options, restricted share plans, performance-based
      awards, share appreciation rights, and employee share purchase plans. Under
      FAS#
      123(R), the Company is required to measure the cost of its employee services
      received in exchange for stock options based on the grant-date fair value of
      the
      award, and to recognize the cost over the period the employee is required to
      provide services for the award.





The
      Company adopted FAS# 123(R) using the modified prospective transition method
      for
      valuing stock options. Under this method, stock based compensation expense
      is
      recognized using the fair-value based accounting method for all employee awards
      granted, modified, or settled during a period. See Note 1 of the financial
      statements for critical assumptions related to stock based
      compensation.




***Research
      and Development
      Expenses***




The
      Company expenses research and development
      expenses as incurred.





***Impairment
      of Long-Lived Assets***




The
      Company evaluates goodwill for impairment on an annual basis. The Company
      assesses the recoverability of long-lived assets whenever events or changes
      in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. These computations utilize judgments and assumptions inherent
      in
      management’s estimate of future undiscounted and discounted cash flows to
      determine recoverability of these assets. If management’s assumptions about
      these assets were to change as a result of events or circumstances, the Company
      may be required to record an impairment loss. The Company recorded no impairment
      charges for the years ended December 31, 2007 and December 31,
      2006.





**Off-Balance
      Sheet Arrangements**




The
      Company has no off-balance sheet arrangements that have or are reasonably likely
      to have a current or future material effect on its financial condition, changes
      in financial condition, revenues or expenses, results of operations, liquidity,
      capital expenditures or capital resources.




**Risks
      Relating to Our Business**




The
      Company’s business and financial condition are subject to a number of risks and
      uncertainties, many of which are beyond the control of the Company. These risks
      and uncertainties include the following:




***We
      have incurred significant losses and expect losses to
      continue.***




Our
      revenues have not been sufficient to cover our cost of operations and other
      expenses, and we have yet to establish profitable operations. We incurred net
      losses of $7,201,727 for the year ending December 31, 2007 and $5,451,636 for
      the year ended December 31, 2006. As a result, on December 31, 2007,
      we had an accumulated deficit of $70,089,430. There is no assurance that we
      will
      be able to increase our revenues or manage our operating expenses so that our
      revenues will be sufficient to cover our operating expenses or that we will
      achieve profitability in the future.




***We
      have incurred a substantial amount of secured debt and may not have enough
      cash
      to repay it at maturity.***




We
      have
      borrowed a total of $11.9 million under a Credit and Security Agreement with
      Crestpark LP, Inc., an affiliate of our controlling shareholder. The entire
      principal of this loan, plus an estimated $2,075,000 of accrued interest, will
      be due and payable no later than July 1, 2010. The loan is secured by all of
      the
      assets of the Company other than certain monitoring equipment that we financed
      with capital leases. To the extent that the Company is not able to retain
      sufficient cash flow from operations to repay principal and interest on this
      loan, we will need to refinance the loan through additional debt or equity
      financings. There is no assurance that the Company will be able to generate
      sufficient cash flow from operations to service this loan and there is no
      assurance that we will be able to refinance this loan or otherwise raise capital
      in order to repay all amounts that will be due and payable on the loan. If
      we
      cannot repay all principal and interest on this loan as due, we will be subject
      to all of the remedies available to the lender upon default, including
      foreclosure of virtually all of our assets. It is unlikely that the holders
      of
      our common stock would recover any of their investment if that were to
      occur.




16




***Markets
      for our products and services may develop slowly.***




The
      long-term financial viability of our company depends on our ability to attract
      additional customers for our GPS tracking system in order to increase revenues.
      There are many factors that affect the demand for our products and services
      that
      we cannot control. In particular, we sell our products to governmental agencies,
      such as state corrections departments. Accordingly, the acquisition and
      continued use of our products by these types of customers is generally subject
      to legislative appropriation of funds which is subject to budgetary and
      political considerations that change over time. Adoption of our GPS tracking
      system may represent a significant expenditure by these types of customers
      which
      often face restrictive budgetary constraints. In addition, contracts with
      governmental agencies are generally subject to a competitive bid process which
      is often time consuming and does not assure that we will be successful in
      selling our products and services or that we will be able to do so at prices
      that are economically beneficial for us. In addition, our industry is relatively
      new and many of our target customers are only now becoming aware of our products
      and services and the possible advantages they may provide. As a result, there
      is
      often a long sales cycle involved with sales of our products and services.
      Due
      to these market factors, the demand for GPS tracking systems is difficult to
      forecast and may develop slowly or sporadically. Accordingly, we may not be
      able
      to commercialize our products on the scale necessary to achieve
      profitability.




***We
      face significant competition and this may make it difficult to achieve
      profitability.***




We
      compete with a number of other companies that offer GPS solutions for offender
      tracking. In addition, many companies use GPS, electronic mapping and Internet
      technologies to provide tracking and monitoring products and services in other
      markets such as vehicle and rail car tracking, vehicle fleet management,
      container tracking and emergency response services. Companies serving these
      other markets may enter the offender tracking market in the future. Some of
      the
      companies with which we currently compete, or may compete against in the future,
      may have access to greater financial, technical, marketing, distribution and
      procurement resources than we have. There can be no assurance that we will
      be
      able to continue to successfully compete in our market. Accordingly, we may
      not
      be able to commercialize our products on the scale necessary to achieve
      profitability.




***Our
      technology may become obsolete which could materially adversely affect our
      ability to sell our products and services.***




If
      our
      technology, products and services become obsolete, our business operations
      would
      be materially adversely affected. The market in which we compete is
      characterized by technological change, evolving industry standards,
      introductions of new products, and changes in customer demands that can render
      existing products obsolete and unmarketable. We must continuously improve our
      product as the market demands smaller, lighter and more versatile PTUs. Faster
      and more accurate mapping software may make the mapping software currently
      used
      in our tracNET24 application obsolete. Future releases of Windows may also
      compel us to upgrade our application software. Our current application servers
      will require continuous upgrading with newer and faster models or our technology
      will become obsolete. Our future success will depend upon our ability to address
      the increasingly sophisticated needs of our customers by supporting existing
      and
      emerging hardware, software, database, and networking platforms and by
      developing and introducing enhancements to our existing products and new
      products on a timely basis that keep pace with technological developments,
      evolving industry standards, and changing customer requirements. Accordingly,
      we
      have and expect to continue to incur significant research and development
      expenses in the future.




17




***We
      rely on third party vendors to manufacture our products and if these vendors
      are
      unable to timely supply us with required components our business will be
      materially adversely affected.***




While
      we
      acquire the components used in our products from various electronics
      manufacturers, we currently rely on a single electronics manufacturer to
      manufacture most of our PTUs. We have not qualified or contracted with other
      manufacturers for our PTUs. Accordingly, if our vender encounters difficulties
      with meeting our demand for PTUs, alternative components may not be available
      quickly enough to avoid delaying production and shipment of customer orders.
      Any
      such delays may hamper our ability to service existing customers or market
      our
      products and services to new customers. Also, if the agreement with our current
      manufacturer is terminated or expires, our search for additional or replacement
      manufacturers could result in significant delays, added expense and our
      inability to maintain or expand our customer base.




***We
      face the risk of systems interruptions and capacity constraints, possibly
      resulting in adverse publicity, revenue loss and erosion of customer
      trust.***




The
      satisfactory performance, reliability and availability of our network
      infrastructure are critical to our reputation and our ability to attract and
      retain customers and to maintain adequate customer service levels. We may
      experience temporary service interruptions for a variety of reasons, including
      telecommunications or power failures, fire, water damage, vandalism, computer
      bugs or viruses or hardware failures. We may not be able to correct a problem
      in
      a timely manner. Any service interruption that results in the unavailability
      of
      our system or reduces its capacity could result in real or perceived public
      safety issues that may affect customer confidence in our services and result
      in
      negative publicity that could cause us to lose customer accounts or fail to
      obtain new accounts. Any inability to scale our systems may cause unanticipated
      system disruptions, slower response times, degradation in levels of customer
      service, or impaired quality and speed of transaction processing. We are not
      certain that we will be able to project the rate or timing of increases, if
      any,
      in the use of our services to permit us to upgrade and expand our systems
      effectively or to integrate smoothly any newly developed or purchased modules
      with our existing systems.




***If
      we were denied access to GPS technology, our business will be materially
      adversely affected.***




Our
      services rely on signals from GPS satellites built and maintained by the U.S.
      Department of Defense. GPS satellites and their ground support systems are
      subject to electronic and mechanical failures and sabotage. If one or more
      satellites malfunction, there could be a substantial delay before they are
      repaired or replaced, if at all, and our services may cease and customer
      satisfaction would suffer. In addition, the U.S. government could decide not
      to
      continue to operate and maintain Global Positioning System satellites over
      a
      long period of time or to charge for the use of the Global Positioning System.
      Furthermore, because of increasing commercial applications of the Global
      Positioning System, other U.S. government agencies may become involved in the
      administration or the regulation of the use of Global Positioning System signals
      in the future. If the foregoing factors affect the availability and pricing
      of
      Global Positioning System technology, our business will suffer. Global
      Positioning System technology is also dependent on the use of radio frequency
      spectrum. An international organization known as the International
      Telecommunications Union controls the assignment of spectrum. If the
      International Telecommunications Union reallocates radio frequency spectrum,
      our
      services may become less useful or less reliable. This would, in turn, harm
      our
      business. In addition, emissions from mobile satellites and other equipment
      using other frequency bands may adversely affect the utility and reliability
      of
      our services.




***If
      we are not able to protect our intellectual property rights, our business may
      be
      materially adversely affected.***




In
      order
      to protect the technology and other intellectual property underlying our
      products and services, we rely on a combination of patents, license agreements,
      copyrights, trade secrets, and trademarks. We also rely on confidentiality
      procedures and contractual provisions to protect our intellectual property
      rights. There can be no assurance that any of the measures we take to protect
      our intellectual property rights will be adequate. There is a risk that any
      patents issued to us may be invalidated, circumvented, or challenged; that
      the
      rights granted thereunder will not provide competitive advantages to us; or
      that
      none of our future patent applications will be issued with the scope of
      protection sought by us, if at all. Furthermore, there is a risk that others
      may
      develop technologies that are similar or superior to our technology or design
      around any patents issued to us. Despite our efforts to protect our intellectual
      property rights, unauthorized parties may attempt to copy aspects of our
      products or to obtain and use information that we regard as
      proprietary.




18




***The
      protection of our intellectual property in foreign countries is
      uncertain.***




We
      have
      not registered our patents with most foreign countries and may have no legal
      recourse to proceed against entities in such countries that choose to copy
      its
      hardware and/or software. In addition, the laws of some foreign countries do
      not
      protect proprietary information rights as fully as do the laws of the United
      States.




***We
      depend on licensed technologies and may need to obtain additional licenses
      in
      the future to remain competitive.***




We
      have
      been granted a nonexclusive software license from a technology company that
      has
      designed GPS chip sets and software solutions that allow us to embed GPS
      technology into our products. This license has an indefinite term; however,
      it
      may be terminated if the licensor loses any of its rights to the software
      products encompassed therein or by either party upon thirty (30) days written
      notice in the event of a material breach of the license by the other party.
      Termination of this license could have a material adverse effect on our
      business. In addition, we may need to obtain licenses to additional technologies
      in the future in order to keep our products competitive. If we fail to license
      or otherwise acquire necessary technologies, we may not be able to develop
      new
      products or services needed to remain competitive.




***Our
      products could infringe on the intellectual property rights of
      others.***




There
      are
      other U.S. patents and patent applications submitted for technologies in, or
      related to, our principal area of business, and it is possible that foreign
      patents are also in existence or have been applied for by others. As a result,
      any application or exploitation of our technology could infringe on patents
      or
      proprietary rights of others and any licenses required as a result of such
      infringement might not be available on commercially reasonable terms, if at
      all.
      This may lead others to assert patent infringement or other intellectual
      property claims against us. In 2007, we were a party to a lawsuit filed by
      a
      competitor which alleged that certain functionality built into our PTUs
      infringed on a patent held by the competitor. The settlement of this litigation
      resulted in significant cash payments by the Company to the competitor and
      will
      require us to remove the allegedly infringing functionality from our PTUs or
      pay
      the competitor an escalating royalty on each PTU that incorporates this
      functionality after January 27, 2008. There is no assurance that similar claims
      will not be made in the future by other parties.




***We
      may not be able to effectively manage the growth of our company.***




If
      our
      business grows in the manner that we currently project, we must continue to
      implement and improve our operational, financial and management information
      systems and expand, train and manage our employees. We may not have made
      adequate allowances for the costs and risks associated with this expansion,
      and
      our systems, procedures or controls may not be adequate to support the growth
      of
      our operations. Our failure to manage growth effectively could cause us to
      incur
      substantial additional costs, lose opportunities to generate sales or impair
      our
      ability to maintain our customers.




**Risks
      Relating to the Ownership of Our Common Stock**




***The
      price for our common stock is volatile and may drop.***




The
      trading price for our common stock has fluctuated significantly over recent
      years. The volatility in the price of our stock is attributable to a number
      of
      factors, not all of which relate to our operating results and financial
      position. Nevertheless, continued volatility in the market price for our stock
      should be expected and we cannot assure you that the price of our stock will
      increase in the future. Fluctuations or further declines in the price of our
      stock may affect our ability to sell shares of our stock and to raise capital
      through future equity financing.




19




***We
      may issue a large number of shares to holders of preferred stock and warrants
      and the issuance and sale of these shares may depress the market price of our
      common stock.***




We
      currently have warrants outstanding which entitle the holders thereof to acquire
      3,922,925 shares of common stock. 6,287,045 shares of our common stock are
      issuable upon exercise of warrants to be issued upon exchange of our Preferred
      Stock. In addition, the holder of our Series C 8% Exchangeable Preferred
      Stock may convert this Preferred Stock into 4,782,609 shares of common stock.
      The issuance and sale of these shares is likely to result in substantial
      dilution to the proportionate equity interest and voting power of holders of
      our
      common stock. The sale of these shares also has potential to cause significant
      downward pressure on the price of our common stock. This is particularly the
      case if the shares being placed into the market exceed the market's ability
      to
      absorb the increased stock. Such an event could place further downward pressure
      on the price of our common stock. This presents an opportunity for short sellers
      to contribute to the further decline of our stock price. If there are
      significant short sales of our stock, the price decline that would result from
      this activity will cause the share price to decline more so, which, in turn,
      may
      cause long holders of the stock to sell their shares thereby contributing to
      sales of stock in the market.




***In
      2005, we issued a significant number of shares of Preferred Stock as part of
      a
      refinancing transaction and the holder of these shares has the ability to
      acquire a majority position in our common stock and appoint a majority of our
      Board.***




On
      June
      27, 2005, we issued 1,000,000 shares of our Series C 8% Cumulative Compounding
      Exchangeable Preferred Stock plus warrants to acquire 3,234,248 shares of the
      Company’s common stock at exercise prices ranging from $2.30 to $16.50 per
      share. The Preferred Stock is exchangeable for 4,782,609 shares of Common Stock
      and warrants to acquire 6,287,045 shares of Common Stock at an exercise price
      of
      $2.30 per share. Upon conversion of the Preferred Stock into common stock,
      and
      exercise of its warrants, the holder of the Preferred Stock will control a
      majority of the shares of our common stock. Prior to that time, the holder
      of
      the Preferred Stock has the right to appoint a majority of our Board of
      Directors. In addition, each share of Preferred Stock will have 11 votes on
      all
      other matters submitted to the vote of the Company’s stockholders. Accordingly,
      the holder of our Preferred Stock holds a majority of the voting power held
      by
      all stockholders of the Company. If the holder of the Preferred Stock exchanges
      its Preferred Stock for shares of the Company’s common stock and exercises all
      of its warrants, it would own approximately 56% of the issued and outstanding
      shares of the Company’s common stock.




***Our
      common stock is deemed to be "penny stock," which may make it more difficult
      for
      investors to sell their shares due to suitability
      requirements.***




The
      Securities and Exchange Commission has adopted Rule 3a51-1 which establishes
      the
      definition of a "penny stock," for the purposes relevant to us, as any equity
      security that has a market price of less than $5.00 per share or with an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      For
      any transaction involving a penny stock, unless exempt, Rule 15g-9 require:




·
            that
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and




·
            that
                the broker or dealer receives from the investor a written agreement
                to the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.




In
      order
      to approve a person's account for transactions in penny stocks, the broker
      or
      dealer must:




·
            obtain
                financial information and investment experience objectives of the
                person;
                and




·
            make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.




20




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:




·
            sets
                forth the basis on which the broker or dealer made the suitability
                determination; and




·
            that
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.




Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
      "penny stock" rules. This may make it more difficult for investors to dispose
      of
      our common stock and cause a decline in the market value of our stock.




Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.




**Item
      7. Financial Statements.**




See
“Item
      13 Exhibits” for the Consolidated Financial Statement and the notes thereto
      filed as part of this report.




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




None.




**Item
      8A(T). Controls and Procedures.**




The
      Company maintains disclosure controls and procedures designed to ensure that
      the
      information the Company must disclose in its filings with the Securities and
      Exchange Commission is recorded, processed, summarized and reported on a timely
      basis. The Company's chief executive officer and chief financial officer have
      reviewed and evaluated the Company's disclosure controls and procedures as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended (the "Exchange Act") as of the end of the period covered by
      this report (the "Evaluation Date"). Based
      upon that evaluation, the chief executive officer and the chief financial
      officer concluded that, as of the Evaluation Date, the Company's disclosure,
      controls and procedures are effective, providing them with information relating
      to the Company as required to be disclosed in the reports the Company files
      or
      submits under the Exchange Act on a timely basis.





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting. Internal control over financial reporting
      is
      defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a
      process designed by, or under the supervision of, the Company’s principal
      executive and principal financial officers and effected by the Company’s Board,
      management and other personnel to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with Accounting Principles Generally
      Accepted in the U.S. and includes those policies and procedures
      that:




·
            pertain to the maintenance of records that in reasonable
              detail accurately and fairly reflect the transactions and dispositions
              of
              the assets of the Company; ·
                provide reasonable assurance that transactions
                  are
                  recorded as necessary to permit preparation of financial statements
                  in
                  accordance with GAAP, and that receipts and expenditures of the
                  Company
                  are being made only in accordance with authorizations of management
                  and
                  Directors of the
                  Company; and


21
  ·
              provide reasonable assurance regarding prevention
                or
                timely detection of unauthorized acquisition, use or disposition
                of the
                Company’s assets that could have a material effect on the financial
                statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risks that controls may become inadequate
      because of changes in conditions or that the degree of compliance with the
      policies or procedures may deteriorate.




The
      Company’s management assessed the effectiveness of the Company’s internal
      control over financial reporting as of December 31, 2007. In making this
      assessment, the Company’s management used criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO) in *Internal
      Control-Integrated Framework.* Based on
      its assessment, the Company’s management believes that, as of December 31,
      2007, the Company’s internal control over financial reporting was effective
      based on that criteria.




Management’s
      report was not subject to attestation by the Company’s registered public
      accounting firm pursuant to temporary rules of the Securities and Exchange
      Commission that permit the Company to provide only management’s report in this
      annual report. Accordingly, this annual report does not include an attestation
      report of the Company’s registered public accounting firm regarding internal
      control over financial reporting.




There
      have not been any changes in the Company's internal control over financial
      reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
      occurred during the Company's most recent fiscal quarter that have materially
      affected, or are reasonably likely to materially affect, the Company's internal
      control over financial reporting.




**Item
      8B. Other Information.**




None




**PART
      III**




Incorporated
      by reference in Items 9 to 12, and 14 below are certain sections of the
      definitive proxy statement, to be filed pursuant to Regulation 14A with the
      SEC
      within 120 days after December 31, 2007 (the “Proxy Statement”).




**Item
      9. Directors and Executive Officers of the Registrant.**




*Directors
      and Executive Officers* - Item
      401 of Regulation S-B calls for certain disclosures relating to the Company’s
      Directors and Executive Officers. Information regarding non-director executive
      officers of the Company is set forth below. The remaining information required
      by Item 401 is incorporated by reference to the Proxy Statement.




**Lincoln
      Zehr,** age 43,
      was appointed Chief Financial Officer February 1, 2008.  Prior
      to
      his employment with the Company, Mr. Zehr held several positions over a 13
      year
      period beginning in 1995 with MDS Pharma Services. MDS
      Pharma Services is a business unit of MDS Inc. (TSX: MDS; NYSE: MDZ), a global
      life sciences company (“MDS”).   His most recent position with MDS was
      that of Controller - North American Operations beginning in 2006.  From
      2003 to 2006, Mr. Zehr was the Director of Financial Operations for the Pharma
      Division of MDS.  Prior to 2003, Mr. Zehr held various positions with MDS
      and Harris Laboratories, Inc (acquired by MDS in 1996). From
      1986
      to 1995 Mr. Zehr was a practicing CPA with BKD LLP, one of the ten largest
      CPA
      and advisory firms in the U.S.  His most recent position with BKD was that
      of Audit Manager.  Mr. Zehr has a Bachelor of Science degree from Nebraska
      Wesleyan University and holds a Certified Public Accountant certificate from
      the
      State of Nebraska.




**Robert
      Bierman,** age 48,
      was appointed Vice President, Sales & Marketing in May 2007. Mr.
      Bierman has 21 years experience in sales and law enforcement including eight
      years selling information technology solutions into government agencies. Prior
      to joining iSECUREtrac, Mr. Bierman was employed by Microsoft Corporation from
      December 2004 to May 2007 and worked with a team dedicated to the Department
      of
      Homeland Security and US intelligence agencies. Prior to his employment with
      Microsoft, Mr. Bierman was Director of Corporate Sales for Zones, Inc., from
      August 1999 to December 2004. Holding an Associates Degree in Criminal Justice,
      Mr. Bierman began his career in law enforcement and corrections as a member
      of
      the NYPD where he received 42 citations for bravery and the Medal of Honor
      from
      the Elmont Fire Department, NY.




22




*Section
      16(a) Beneficial Ownership Reporting Compliance* - Item
      405 of Regulation S-B calls for disclosure of any known late filing or failure
      by an insider to file a report required by Section 16 of the Securities Exchange
      Act. The information required by Item 405 is incorporated by reference to the
      Proxy Statement.




*Code
      of Ethics* - Item
      406 of Regulation S-B calls for disclosure of whether the Company has adopted
      a
      code of ethics. The information required by Item 406 is incorporated by
      reference to the Proxy Statement.




*Audit
      Committee and Audit Committee Financial Expert* - Items
      407 of Regulation S-B calls for certain disclosures related to whether the
      Company has a separately designated standing audit committee and whether the
      Company has an audit committee financial expert. The information required by
      Item 407 is incorporated by reference to the Proxy Statement.




**Item
      10. Executive Compensation.**




The
      discussion under the heading “Executive Compensation” in the Proxy Statement is
      incorporated herein by reference.




**Item
      11. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.**




The
      discussion under the heading “Security Ownership of Certain Beneficial Owners
      and Management” in the Proxy Statement is incorporated herein by reference.




23




*Equity
      Compensation Plan Information.* Information
      regarding shares of the Company’s common stock under equity compensation plans
      and executive employment agreements maintained by the Company as of
      December 31, 2007 is set forth in the following table:


Plan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted
                      average exercise price of outstanding options, warrants and
                      rights
              
              Number
                      of securities remaining available for future issuance under
                      equity
                      compensation plans *(a)
              
              (b)
              
              (c)Equity
                  compensation plans approved by security holders
              
              
              860,520
              
              $
              1.98
              
              
              2,240,255Equity
                  compensation plans not approved by security holders
              
              
              957,060
              
              $
              2.60
              
              
              0Total
              
              
              1,817,580
              
              $
              2.30
              
              
              2,240,255




*Excludes
      securities reflected in column (a).




Equity
      compensation plans approved by security holders consist of our 2006 Omnibus
      Equity Incentive Plan and 2001 Omnibus Equity Incentive Plan. The exercise
      prices for options issued under these plans range from $0.90 to $2.95 per share.
      Equity compensation plans not approved by security holders consist of options
      issued to employees per their employment agreements or performance bonuses.
      Exercise prices for these options range from $2.01 to $4.90 per
      share.




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




The
      discussion under the heading “Certain Relationships and Related Transactions” in
      the Proxy Statement is incorporated herein by reference.




**Item
      13. Exhibits.**




(a)  The
      following documents are filed as part of this report:




1.
            Financial
                Statements of the Company. Reference is made to the Index to Financial
                Statements on Page F-0.




2.
            Exhibits.




3.01
            Amended
                and Restated Certificate of Incorporation of the Company, as amended
                (13)




3.02
            Restated
                Bylaws of the Company (1)




3.03
            Certificate
                of Designations, Preferences and Rights of Series A Convertible Preferred
                Stock of the Company (3)




3.04
            Certificate
                of Designations, Preferences and Rights of Series B Convertible Preferred
                Stock of the Company (9)




3.05
            Certificate
                of Designations, Preferences and Rights of Series C Exchangeable
                Preferred
                Stock of the Company (12)




4.01
            Form
                of Common Stock Certificate (1)




10.01
            License
                Agreement with SiRF Technology, Inc.
                (1)




10.02
            ADT
                Distribution Agreement (3)




10.03
            ADT
                Hosting Agreement (3)




10.04
            Preferred
                Distributor Agreement with Premier Geografix LTD.
                (7)




24




10.05
            Employment
                Agreement between the Company and Thomas E. Wharton, Jr.
                (6)




10.06
            Employment
                Agreement between the Company and David G. Vana
                (5)




10.07
            Employment
                Agreement between the Company and Edward J. Sempek
                (5)




10.08
            Employment
                Agreement between the Company and David G. Sempek
                (5)




10.09
            Employment
                Agreement between the Company and Peter A. Michel
                (17)




10.10
            Agreement
                Among Noteholders (10)




10.11
            Debt
                Conversion between the Company and Roger Kanne
                (11)




10.12
            Debt
                Conversion between the Company and Martin Halbur
                (11)




10.13
            Debt
                Conversion between the Company and Kenneth Macke
                (11)




10.14
            Debt
                Conversion between the Company and Buckshot Capital, LLC
                (11)




10.15
            Business
                Office Lease (11)




10.16
            Business
                Office Lease Amendment (20)




10.17
            Securities
                Purchase Agreement (14)




10.18
            Registration
                Rights Agreement (15)




10.19
            Warrant
                Agreement (16)




10.20
            2001
                Omnibus Equity Incentive Plan (4)




10.21
            2006
                Omnibus Equity Incentive Plan (18)




10.22
            Indemnification
                Agreement in favor of AHK Leasing, LLC
                (19)




10.23
            Credit
                and Security Agreement in favor of Crestpark LP, Inc.
                (21)




10.24
            First
                Amendment to Credit and Security Agreement in favor of Crestpark
                LP, Inc.
                (22)




10.25
            Amended
                and Restated Promissory Note in favor of Crestpark LP, Inc.
                (22)




10.26
            Employment
                Agreement between the Company and Lincoln
                Zehr




10.27
            Employment
                Agreement between the Company and Robert
                Bierman




10.28
            Confidential
                Settlement Agreement1




21.01
            Subsidiaries
                of the Company




23
            Consent
                of McGladrey & Pullen, LLP, Independent Registered Public Accounting
                Firm




24
            Powers
                of Attorney




31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.




31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.




32
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.




1
              Certain
                  confidential portions of this Exhibit were omitted by means of
                  redacting a
                  portion of the text. This Exhibit has been
                  filed separately with the Secretary of the Commission with the
                  redacted
                  text pursuant to the Company’s Application Requesting Confidential
                  Treatment under Rule 24b-2 of the Securities Exchange Act of
                  1934.




25




*(1)*
            *Incorporated
                by reference from the registrant’s registration statement under Form
                10-SB, filed on June 22, 1999 (Commission File No.
                0-26455).*




*(2)*
            *Not
                Used*




*(3)*
            *Incorporated
                by reference from the registrant’s registration statement under Form SB-2
                filed on November 30, 2001 (Commission File No. 333-74762).*




*(4)*
            *Incorporated
                by reference from the Notice of Annual Meeting of Stockholders and
                Proxy
                Statement contained in Registrant’s Definitive Proxy Statement under
                Schedule 14A, filed with the SEC on May 14, 2001 (Commission File
                No.
                0-26455).*




*(5)*
            *Incorporated
                by reference from the registrant’s current report under Form S-8 filed on
                May 22, 2002 (Commission File No.
                333-88798).*




*(6)*
            *Incorporated
                by reference from the registrant’s current report under Form S-8 filed on
                April 16, 2004 (Commission File No. 333-114513).*




*(7)*
            *Incorporated
                by reference from the registrant’s current report under Form 8-K filed on
                March 18, 2003 (Commission File No.
                0-26455).*




*(8)*
                *Not
                    Used*




*(9)*
                *Incorporated
                    by reference from the registrant’s registration statement under Form SB-2
                    filed on August 11, 2004 (Commission File No. 333-118135).*




*(10)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    February 10, 2005 (Commission File No.
                    0-26455)*




*(11)*
                *Incorporated
                    by reference from the registrant’s current report under Form 10-KSB filed
                    on March 31, 2005 (Commission File No.
                    0-26455).*




*(12)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    June 23, 2005. (Commission File No. 0-26455).*




*(13)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    December 14, 2006. (Commission File No.
                    0-26455).*




*(14)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    June 23, 2005. (Commission File No.
                    0-26455).*




*(15)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    June 29, 2005. (Commission File No.
                    0-26455).*




*(16)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    June 29, 2005. (Commission File No.
                    0-26455).*




*(17)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed
                    August 8, 2006 (Commission File No.
                    0-26455).*




*(18)*
                *Incorporated
                    by reference from the registrant’s current report under Form 10-QSB filed
                    on August 11, 2006. (Commission File No.
                    0-26455).*




*(19)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed
                    February 22, 2007 (Commission File No.
                    0-26455).*




*(20)*
                *Incorporated
                    by reference from the registrant’s current report under Form 10-KSB filed
                    on March 12, 2006 (Commission File No.
                    0-26455).*




*(21)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    November 2, 2007 (Commission File No.
                    0-26455).*




*(22)*
                *Incorporated
                    by reference from the registrant’s current report under Form 8-K filed on
                    December 20, 2007 (Commission File No.
                    0-26455).*




26




**Item
      14. Principal Accountant Fees and Services**




The
      discussion under the heading “Principal Accountant Fees and Services” in the
      Proxy Statement is incorporated herein by reference.




27




**SIGNATURES**





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


ISecureTrac
                Corp.By:
            /s/
              Peter A. MichelPeter
              A. Michel*Chief
                Executive Officer*Dated:
                March 19, 2008




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.


**Signature**
              
              **Title**
              
              **Date**/s/
                  Roger J. Kanne *
              
              Chairman
                  of the Board of Directors,
              
              March
                  19, 2008Roger
                  J. Kanne
              
              Director/s/
                  Peter A. Michel
              
              President,
                  Chief Executive Officer, Director
              
              March
                  19, 2008Peter
                  A. Michel
              
              (Principal
                  Executive Officer)/s/
                  Lincoln Zehr
              
              Chief
                  Financial Officer
              
              March
                  19, 2008Lincoln
                  Zehr
              
              (Principal
                  Financial and Accounting Officer)/s/
                  Joseph A. Ethridge *
              
              Director
              
              March
                  19, 2008Joseph
                  A. Ethridge/s/
                  Robert W. Korba *
              
              Director
              
              March
                  19, 2008Robert
                  W. Korba/s/
                  Bruce Leadbetter *
              
              Director
              
              March
                  19, 2008Bruce
                  Leadbetter/s/
                  Ravi Nath *
              
              Director
              
              March
                  19, 2008Ravi
                  Nath*
                  Peter A. Michel, by signing his name hereto, signs this annual
                  report on
                  behalf of each person indicated. A Power-of-Attorney authorizing
                  Peter A.
                  Michel to sign this annual report on Form 10-KSB on behalf of each
                  of the
                  indicated Directors of iSECUREtrac Corp. has been filed herein
                  as Exhibit
                  24.
  By:/s/
                  Peter A. MichelPeter
                  A. MichelAttorney-In-Fact








28




**iSECUREtrac
      Corp. and Subsidiaries**


**Consolidated
      Financial Report**




Table
      of
      Contents


Report
                  of Independent Registered Public Accounting Firm
              
              
              F-1Consolidated
                  Financial Statements:Consolidated
                  Balance Sheets
              
              
              F-2Consolidated
                  Statements of Operations
              
              
              F-3Consolidated
                  Statements of Stockholders' Deficit
              
              
              F-4Consolidated
                  Statements of Cash Flows
              
              
              F-5Notes
                  to Consolidated Financial Statements
              
              
              F-6




*F-0*




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors


iSECUREtrac
      Corp.


Omaha,
      Nebraska





We
      have
      audited the accompanying consolidated balance sheets of iSECUREtrac Corp. and
      Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
      statements of operations, stockholders’ deficit, and cash flows for the years
      ended December 31, 2007 and 2006. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      the 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.





The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of iSECUREtrac Corp. and
      Subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for the years ended December 31, 2007 and 2006,
      in conformity with U.S. generally accepted accounting principles.





As
      described in Note 1 to the financial statements, on January 1, 2007 the Company
      changed its method of accounting for income taxes, as required by Financial
      Accounting Standards Board Interpretation (FIN) No. 48, *Accounting
      for Uncertainty in Income Taxes.*






/s/
      McGladrey & Pullen LLP


Kansas
      City, Missouri


March
      18,
      2008




*F-1*




***iSECUREtrac
                  Corp. and SUBSIDIARIES******CONSOLIDATED
                  BALANCE SHEETS******December
                  31, 2007 and 2006***
  2007
              
              2006**ASSETS
                  (Note 4)**Current
                  AssetsCash
                  and cash equivalents (Note 11)
              
              $
              3,442,712
              
              $
              4,341,685Accounts
                  receivable, net of allowance for doubtful accounts of $292,669
                  in 2007 and
                  $171,409 in 2006 (Note 11)
              
              
              1,941,902
              
              
              2,284,177Inventories
              
              
              135,376
              
              
              61,021Prepaid
                  expenses and other
              
              
              92,750
              
              
              74,608Total
                  current assets
              
              
              5,612,740
              
              
              6,761,491Leasehold
                  improvements and equipment, net of accumulated depreciation of
                  $7,041,272
                  in 2007 and $5,251,139 in 2006 (Notes 2, 4 & 8)
              
              
              3,875,728
              
              
              3,379,897Intangibles,
                  net of accumulated amortization and impairment charges of $850,166
                  in 2007
                  and $767,598 in 2006 (Note 3)
              
              
              61,356
              
              
              143,924Goodwill
                  (Note 3)
              
              
              2,302,179
              
              
              2,302,179Other
                  assets
              
              
              88,425
              
              
              66,045Total
                  assets
              
              $
              11,940,428
              
              $
              12,653,536**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)**Current
                  LiabilitiesCurrent
                  maturities of long-term debt (Notes 4, 8 & 10)
              
              $
              622,340
              
              $
              891,070Accounts
                  payable
              
              
              1,069,577
              
              
              457,481Accrued
                  expenses
              
              
              609,083
              
              
              390,284Deferred
                  revenues & gain on sale-leaseback transactions (Note
                  8)
              
              
              314,090
              
              
              423,349Accrued
                  interest payable (Note 4)
              
              
              30,513
              
              
              37,838Total
                  current liabilities
              
              
              2,645,603
              
              
              2,200,022Long-term
                  debt, less current maturities (Notes 4, 8 & 10)
              
              
              12,381,598
              
              
              6,694,102Redeemable
                  convertible Series C preferred stock, 5,000,000 shares designated
                  at $0.01
                  par value; 1,000,000 issued and outstanding (Note 7)
              
              
              11,882,545
              
              
              10,696,697Commitments
                  and contingency (Notes 8 & 12)Stockholders'
                  (Deficit) (Notes 6 & 7)Common
                  stock, 75,000,000 shares authorized at $0.001 par value;10,779,680
                  issued and outstanding in 2007; 10,773,454 issued and outstanding
                  in
                  2006
              
              
              10,779
              
              
              10,773Additional
                  paid-in capital
              
              
              55,109,333
              
              
              54,950,315Accumulated
                  deficit
              
              
              (70,089,430
              )
              
              (61,898,373
              )Total
                  stockholders' (deficit)
              
              
              (14,969,318
              )
              
              (6,937,285
              )Total
                  liabilities and stockholders' (deficit)
              
              $
              11,940,428
              
              $
              12,653,536
  See
          Notes
          to Consolidated Financial Statements.
  *F-2*


***iSECUREtrac
                  Corp. and SUBSIDIARIES******CONSOLIDATED
                  STATEMENTS OF OPERATIONS******Years
                  Ended December 31, 2007 and
                  2006***
  2007
              
              2006**Revenues:**Equipment
                  leasing (Note 11)
              
              $
              8,306,999
              
              $
              7,380,526Administrative,
                  field & support service revenues
              
              
              80,487
              
              
              -Equipment
                  sales
              
              
              94,613
              
              
              325,153Other
                  revenues
              
              
              154,318
              
              
              84,776Gain
                  on related party sale-leaseback transactions (Notes 8 &
                  10)
              
              
              149,295
              
              
              273,388Total
                  revenues
              
              
              8,785,712
              
              
              8,063,843**Operating
                  expenses:**Cost
                  of revenues
              
              
              3,640,219
              
              
              3,574,126Research
                  and development
              
              
              1,891,820
              
              
              1,325,076Sales,
                  general and administrative
              
              
              9,925,442
              
              
              8,457,883Total
                  operating expenses
              
              
              15,457,481
              
              
              13,357,085Operating
                  loss
              
              
              (6,671,769
              )
              
              (5,293,242
              )**Other
                  income (expense):**Interest
                  income
              
              
              121,926
              
              
              87,428Interest
                  expense (Note 4 & 10)
              
              
              (651,884
              )
              
              (245,822
              )Total
                  other income (expense)
              
              
              (529,958
              )
              
              (158,394
              )Loss
                  before provision for income taxes
              
              
              (7,201,727
              )
              
              (5,451,636
              )Provision
                  for income taxes (Note 5)
              
              
              -
              
              
              -**Net
                  loss**
              
              $
              (7,201,727
              )
              $
              (5,451,636
              )Preferred
                  stock dividends and accretion (Note 7)
              
              
              (1,185,848
              )
              
              (1,112,299
              )**Net
                  loss available to common stockholders**
              
              $
              (8,387,575
              )
              $
              (6,563,935
              )**Basic
                  and diluted loss per common share**
              
              $
              (0.78
              )
              $
              (0.61
              )**Weighted
                  average shares of common stock outstanding**
              
              
              10,776,240
              
              
              10,753,487
  See
          Notes
          to Consolidated Financial Statements.
  *F-3*


***iSECUREtrac
                  Corp. AND SUBSIDIARIES******STATEMENTS
                  OF STOCKHOLDERS' (DEFICIT)******Years
                  Ended December 31, 2007 and
                  2006***
  **Additional****Common
                  Stock**
              
              **Paid
                  -in**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Total****Balance,
                  December 31, 2005**
              
              
              10,684,529
              
              $
              10,685
              
              $
              54,551,133
              
              $
              (55,530,956
              )
              $
              (969,138
              )Shares
                  issued upon conversion of notes
              
              
              83,958
              
              
              83
              
              
              189,337
              
              
              -
              
              
              189,420Shares
                  issued upon exercise of options
              
              
              1,385
              
              
              1
              
              
              3,088
              
              
              -
              
              
              3,089Shares
                  issued for director's fees
              
              
              3,582
              
              
              4
              
              
              7,996
              
              
              -
              
              
              8,000Compensation
                  related to stock options issued
              
              
              -
              
              
              -
              
              
              395,279
              
              
              -
              
              
              395,279Series
                  C preferred stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              (915,781
              )
              
              (915,781
              )Accretion
                  to redemption value of preferred stock
              
              
              -
              
              
              -
              
              
              (196,518
              )
              
              -
              
              
              (196,518
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,451,636
              )
              
              (5,451,636
              )**Balance,
                  December 31, 2006**
              
              
              10,773,454
              
              $
              10,773
              
              $
              54,950,315
              
              $
              (61,898,373
              )
              $
              (6,937,285
              )Shares
                  issued for director's fees
              
              
              6,226
              
              
              6
              
              
              7,994
              
              
              -
              
              
              8,000Compensation
                  related to stock options issued
              
              
              -
              
              
              -
              
              
              347,542
              
              
              -
              
              
              347,542Series
                  C preferred stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              (989,330
              )
              
              (989,330
              )Accretion
                  to redemption value of preferred stock
              
              
              -
              
              
              -
              
              
              (196,518
              )
              
              -
              
              
              (196,518
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,201,727
              )
              
              (7,201,727
              )**Balance,
                  December 31, 2007**
              
              
              10,779,680
              
              $
              10,779
              
              $
              55,109,333
              
              $
              (70,089,430
              )
              $
              (14,969,318
              )
  See
          Notes
          to Consolidated Financial Statements.
  *F-4*
  ***iSECUREtrac
                  CORP. AND SUBSIDIARIES******CONSOLIDATED
                  STATEMENTS OF CASH FLOWS******Years
                  Ended December 31, 2007 and
                  2006***
  **2007**
              
              **2006****Cash
                  Flows From Operating Activities**Net
                  loss
              
              $
              (7,201,727
              )
              $
              (5,451,636
              )Depreciation
                  and amortization
              
              
              1,872,701
              
              
              1,719,549Stock
                  based compensation
              
              
              355,542
              
              
              403,279(Increase)
                  decrease in accounts receivable
              
              
              342,275
              
              
              (665,704
              )Increase
                  in interest receivable
              
              
              -
              
              
              3,555(Increase)
                  decrease in inventories
              
              
              (74,355
              )
              
              61,718(Increase)
                  decrease in prepaid expenses and other
              
              
              (18,142
              )
              
              8,752Increase
                  in accounts payable
              
              
              612,096
              
              
              97,753Increase
                  in accrued expenses
              
              
              218,799
              
              
              210,669(Decrease)
                  in deferred revenues and gain on sale - leaseback
                  transactions
              
              
              (109,259
              )
              
              (12,491
              )Increase
                  (decrease) in accrued interest payable
              
              
              (7,325
              )
              
              25,100**Net
                  cash (used in) operating activities**
              
              
              (4,009,395
              )
              
              (3,599,456
              )**Cash
                  Flows From Investing Activities**Purchases
                  of leasehold improvements and equipment
              
              
              (275,812
              )
              
              (295,901
              )Purchases
                  of monitoring equipment
              
              
              (2,010,152
              )
              
              (1,908,464
              )Proceeds
                  from maturity of investments
              
              
              -
              
              
              6,350,000Purchase
                  of investments
              
              
              -
              
              
              (2,904,224
              )(Increase)
                  decrease in other assets
              
              
              (22,380
              )
              
              52,215**Net
                  cash provided by (used in) investing activities**
              
              
              (2,308,344
              )
              
              1,293,626**Cash
                  Flows From Financing Activities**Principal
                  proceeds from long-term debt
              
              
              6,377,475
              
              
              7,250,000Principal
                  payments on long-term debt
              
              
              (958,709
              )
              
              (1,348,200
              )Proceeds
                  from the exercise of options and warrants
              
              
              -
              
              
              3,089**Net
                  cash provided by financing activities**
              
              
              5,418,766
              
              
              5,904,889**Increase
                  (decrease) in cash**
              
              
              (898,973
              )
              
              3,599,059**Cash
                  at beginning of period**
              
              
              4,341,685
              
              
              742,626**Cash
                  at end of period**
              
              $
              3,442,712
              
              $
              4,341,685**Supplemental
                  Disclosure of Cash Payments for**Interest
              
              
              659,210
              
              
              220,721**Supplement
                  Disclosure of Noncash Investing and Financing
                  Activities**Issuance
                  of Common and Preferred Stock in lieu of payment onlong-term
                  debt, notes payable and accrued interest payable
              
              
              -
              
              
              189,420Preferred
                  Stock dividends and accretion
              
              
              1,185,848
              
              
              1,112,299
  See
          Notes
          to Consolidated Financial Statements.
  *F-5*


**iSECUREtrac
      CORP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note 1.
      Nature of Business and Significant Accounting Policies**





*Nature
      of Business*





iSECUREtrac
      develops, markets, leases and services products that assist in “monitoring
      compliance and modifying behavior” of individuals who are under the supervision
      of  the criminal justice system and social service agencies, primarily in
      the United States.  The Company’s suite of services  (e.g. GPS
      tracking systems, house arrest, visual breath alcohol monitoring and
      supplemental monitoring services) are designed to offer an alternative to
      incarceration thereby reducing  the overall cost associated with
      individuals under correctional or community supervision.





*Significant
      Accounting Policies*





*Principles
      of consolidation:* The
      consolidated financial statements include the accounts of iSECUREtrac and its
      wholly-owned subsidiaries, iSt Services, Inc., formed September 25, 2002, and
      Tracking Systems Corporation (“TSC”), acquired on August 28, 2003. TSC was a
      wholly-owned subsidiary of the Company and the results of its operations from
      August 29, 2003, are included in the Company’s consolidated financial
      statements. On October 16, 2007, the Company dissolved TSC. All material
      intercompany balances and transactions have been eliminated in
      consolidation.




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




*Cash
      and cash equivalents:* For
      financial statement purposes, the Company considers all highly liquid debt
      instruments purchased with an original maturity of three months or less to
      be
      cash equivalents. The carrying value of these investments approximates fair
      value due to the nature of the maturity period.




*Trade
      accounts receivable:* Trade
      accounts receivable are carried at original invoice amount less an estimate
      made
      for doubtful receivables based on a review of all outstanding amounts on a
      monthly basis. Management determines the allowance for doubtful receivables
      by
      regularly evaluating individual customer receivables and considering a
      customer’s financial condition, credit history and current economic conditions.
      Trade accounts receivable are written off when deemed uncollectible. Recoveries
      of trade accounts receivable previously written off are recorded when received.
      The Company offers credit terms to select customers of up to 45 days.
      Additionally, the Company reserves the right to assess finance charges on
      delinquent accounts where such charges are permitted. Accounts are considered
      delinquent after 45 days. There was $185,565 of bad debt expenses for 2007
      and
      $658,073 for 2006.




*Inventories:* Inventories
      consist of repair parts or components that will be used in the production of
      new
      revenue producing equipment.




*Leasehold
      improvements, equipment, and monitoring equipment:* Leasehold improvements, equipment, and monitoring equipment are recorded at
      cost. Equipment and monitoring equipment are depreciated on the straight-line
      method over the estimated useful lives of the related assets ranging from 3
      to 7
      years. The cost of leasehold improvements is amortized over the lesser of the
      estimated lives of the assets or the lease term. Amortization of assets acquired
      under capital leases is included with depreciation expense on the owned assets.
      These assets are reviewed for impairment under Statement of Financial Accounting
      Standard (SFAS) No. 144 when events indicate the carrying amount may not be
      recoverable.




*F-6*




*Notes
      to Consolidated Financial Statements*




The
      Company assesses the recoverability of long-lived assets whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. These computations utilize judgments and assumptions inherent
      in
      management’s estimate of future undiscounted and discounted cash flows to
      determine recoverability of these assets. If management’s assumptions about
      these assets were to change as a result of events or circumstances, the Company
      may be required to record an impairment loss. With respect to the Company’s long
      lived assets, the Company recorded no impairment charges for the years ended
      December 31, 2007 and December 31, 2006.




*Product
      development:* The
      Company capitalized software and hardware development costs in accordance with
      the SFAS No. 86, *Accounting
      for the Costs of Computer Software to be Sold, Leased or Otherwise
      Marketed* .
      Capitalization begins when a product's technological feasibility has been
      established and ends when the product is available for general release to
      customers. All software and hardware development costs are amortized on a
      straight-line basis over 36 months.




*Research
      and development expenses:* Research
      and development expense of $1,891,820 and $1,325,076 were charged to operations
      for the years ended December 31, 2007 and 2006, respectively.




*Goodwill:* Goodwill
      represents the excess of purchase price paid over the net identifiable assets
      of
      the acquired business. It is subject to annual tests for impairment. The Company
      has recorded no impairment charges related to goodwill for the years ended
      December 31, 2007, and 2006.




*Intangibles,
      subject to amortization:* Amortizable intangibles represent the value assigned to the future net income
      stream attributable to customer monitoring contracts assumed by the Company
      in a
      prior acquisition based on their capacity to generate such income. The
      intangible asset is being amortized over seven years, which is the estimated
      life of the monitoring contracts to which they relate. Amortization is based
      on
      the ratio of projected annual revenue streams to total projected revenue per
      existing customer monitoring contracts.




*Earnings
      (loss) per share:* Basic
      Earnings (Loss) Per Common Share is computed by dividing income (loss) available
      to common stockholders by the weighted average number of common shares
      outstanding during the period. Diluted Earnings (Loss) Per Common Share shall
      be
      computed by including contingently issuable shares with the weighted average
      shares outstanding during the period. When inclusion of the contingently
      issuable shares would have an antidilutive effect upon earnings per share,
      no
      diluted earnings (loss) per share shall be presented. The following potentially
      dilutive shares were not included in diluted earnings (loss) per common share
      as
      they would have an antidilutive effect upon earnings (loss) per
      share:




December
                  31, 2007
              
              December
                  31, 2006Shares
                  issuable upon conversion of Series C Exchangeable Preferred
                  Stock
              
              
              4,782,609
              
              
              4,782,609Common
                  stock options outstanding
              
              
              1,817,580
              
              
              1,969,116Common
                  stock warrants outstanding
              
              
              3,922,925
              
              
              4,742,386




*Revenue
      recognition and deferred revenue:*  The
      Company derives revenue primarily from the leasing of monitoring equipment
      as
      well as providing administrative, field and support services. The amounts
      charged by the Company for equipment leasing and administrative, field and
      support services are calculated on a daily basis - (e.g. per day/per individual
      being monitored) and billed monthly in arrears. Revenues are recognized upon
      invoicing. The majority of the Company’s customers are invoiced in arrears. Any
      amounts invoiced in advance of equipment and services being provided are
      recorded as deferred revenue and recognized as equipment and services are
      provided.




*Income
      taxes:* Deferred
      taxes are provided for by a liability method wherein deferred tax assets are
      recognized for deductible temporary differences and operating loss and tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their tax bases. Deferred tax
      assets are reduced by a valuation allowance when, in the opinion of management,
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. Deferred tax assets and liabilities are adjusted for
      the
      effects of changes in tax laws and rates on the date of enactment.




*F-7*




Notes
      to Consolidated Financial
      Statements




*Stock-based
      compensation:* The
      Company accounts for its stock-based compensation in accordance with FASB
      Statement No. 123 (revised 2004), “ *Share-Based
      Payment* ”
(“FAS#
      123(R)” or the “Statement”). FAS# 123(R), which it adopted as of January 1,
      2006, requires that the compensation cost relating to share-based payment
      transactions, including grants of employee stock options, be recognized in
      financial statements based on the fair value of the equity or liability
      instruments issued. FAS# 123(R) covers a wide range of share-based compensation
      arrangements including stock options, restricted share plans, performance-based
      awards, share appreciation rights, and employee share purchase plans. Under
      FAS#
      123(R), the Company is required to measure the cost of its employee services
      received in exchange for stock options based on the grant-date fair value of
      the
      award, and to recognize the cost over the period the employee is required to
      provide services for the award.




The
      Company adopted FAS# 123(R) using the modified prospective transition method
      for
      valuing stock options. Under this method, stock based compensation expense
      is
      recognized using the fair-value based accounting method for all employee awards
      granted, modified, or settled during a period.




The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions: The significant assumptions used in the Black Scholes model to
      estimate compensation expense are as follows:




**2007**
              
              **2006**Risk
                  free interest rate
              
              
              4.65
              %
              
              4.63
              %Expected
                  volatility factor
              
              
              86.59
              %
              
              86.27
              %Expected
                  option term
              
              
              3.5
                  to 6.5 years
              
              
              3.5
                  to 6.5 yearsDividends
              
              $
              0
              
              $
              0Forfeitures
                  for senior executives
              
              
              19
              %
              
              0
              %Forfeitures
                  for non-senior executives
              
              
              20
              %
              
              21
              %




The
      risk-free interest rate is determined on the date the grant is issued. This
      rate
      is equal to the rates based on yields from U.S. Treasury zero-coupon issues
      with
      maturity of 3.5 years to 6.5 years. Expected volatilities are based upon looking
      back at historical stock prices over the two years prior to the stock option
      award. The Company performs a two-year look back for the following reasons:
      (i)
      the stock price prior to two years ago is not reflective of Company’s expected
      future stock price; and (ii) the change in stock price prior to two years ago
      is
      considered abnormal with respect to the Company’s current state.




Under
      FAS# 123(R), the Company is required to estimate forfeitures. The forfeiture
      rate is the rate at which options are expected to be forfeited prior to full
      vesting. The forfeiture rate is determined based on actual forfeiture rate
      experience as follows: For each historical year of option issuance, the total
      options issued for the year is compared to the options forfeited prior to having
      vested. For option years in which the two year vesting period has not passed,
      past experience is used to project future forfeitures. The total of pro forma
      forfeitures is then compared to total options awarded and the resultant
      percentage is used as the forfeiture rate. The estimated forfeiture rate for
      senior executive and non-senior executive option grants is 19% and 20%,
      respectively. This rate is recalculated on an annual basis.




*F-8*




Notes
      to Consolidated Financial
      Statements




The
      annual rate of quarterly dividends is 0% since iSECUREtrac has historically
      not
      paid dividends on its common stock.




The
      Company recorded pre-tax compensation expense for stock options issued to its
      employees of $347,542 and $395,279 for the years ended December 31, 2007 and
      2006, respectively. The Company has recorded a full valuation allowance on
      deferred tax assets and, therefore, no tax benefit is recognized.




The
      fair
      value of stock warrants issued to non-employees is also accounted for using
      FAS
      # 123(R). Related compensation expense is charged to income when
      incurred.





*Advertising
      costs* :
      Advertising costs are expensed as incurred. Advertising expense for the years
      ended December 31, 2007 and 2006, was $97,922 and $50,581, respectively.





*Uncertain
      Tax Positions* .
      In June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      ("FIN") No.48, *Employers'
      Accounting for Uncertainty in Income Taxes* .
      This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise's financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes* (SFAS
      109). This Interpretation prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. This Interpretation
      also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. The Company adopted
      FIN No.48 as of January 1, 2007. The adoption of FIN No.48 had no impact on
      the
      Company’s financial statements for the year ended December 31, 2007.





The
      Company recognizes interest and penalties related to uncertain tax positions
      in
      general and administrative expense. As of December 31, 2007, the Company has
      not
      recorded any provisions for accrued interest and penalties related to uncertain
      tax positions.





**Recent
      Accounting Pronouncements:**





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value under generally accepted accounting principles and expands
      disclosure about fair value measurements. SFAS No. 157 emphasizes that fair
      value is a market-based measurement, not an entity-specific measurement.
      Therefore, a fair value measurement should be determined based on the
      assumptions that market participants would use in pricing the asset or
      liability. This statement clarifies that market participant assumptions include
      assumptions about risk. A fair value measurement should include an adjustment
      for risk if market participants would include one in pricing the related asset
      or liability, even if the adjustment is difficult to determine. This statement
      also clarifies that market participant assumptions should also include
      assumptions about the effect of a restriction on the sale or use of an asset.
      This statement clarifies that fair value measurement for a liability should
      reflect nonperformance risk (the risk that the obligation will not be
      fulfilled). This statement expands disclosures about the use of fair value
      to
      measure assets and liabilities in interim and annual periods subsequent to
      initial recognition. The disclosures focus on the inputs used to measure fair
      value and for recurring fair value measurements using significant unobservable
      inputs and the effect of the measurements on earnings (or changes in net assets)
      for the period. SFAS No. 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007. However, the effective date
      for
      nonfinancial assets and liabilities was deferred to fiscal years beginning
      after
      November 15, 2008 by FASB Staff Position No. FAS 157-2. The adoption of this
      statement is not expected to have a material effect on the Company's future
      reported financial position or results of operations.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“SFAS
      No. 159”). SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value and establishes presentation
      and disclosure requirements designed to facilitate comparisons between entities
      that choose different measurement attributes for similar types of assets and
      liabilities. The statement is effective for fiscal years beginning after
      November 15, 2007. The Company does not anticipate that the adoption of this
      statement will have a material effect on the Company’s financial condition or
      results of operations.




*F-9*




Notes
      to Consolidated Financial
      Statements




In
      December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
      consolidated Financial Statements - an Amendment of ARB No. 51." This statement
      requires that noncontrolling or minority interests in subsidiaries be presented
      in the consolidated statement of financial position within equity, but separate
      from the parents' equity, and that the amount of the consolidated net income
      attributable to the parent and to the noncontrolling interest be clearly
      identified and presented on the face of the consolidated statement of income.
      SFAS No. 160 is effective for the fiscal years beginning on or after December
      15, 2008. Currently the Company does not anticipate that this statement will
      have an impact on its financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”.
      SFAS No. 141 (Revised) establishes principles and requirements for how the
      acquirer of a business recognizes and measures in its financial statements
      the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree. The statement also provides guidance for recognizing
      and measuring the goodwill acquired in the business combination and determines
      what information to disclose to enable users of the financial statements to
      evaluate the nature and financial effects of the business combination. The
      guidance will become effective for the fiscal year beginning after December
      15,
      2008. Management does not anticipate that SFAS No. 141 (Revised) will have
      an
      impact on the Company’s financial statements upon adoption.




*F-10*




*Notes
      to Consolidated Financial Statements*




**Note 2.
      Leasehold Improvements and Equipment**




The
      cost
      and accumulated depreciation of our leasehold improvements and equipment for
      the
      years ended December 31, 2007 and 2006, are as follows:


**2007**
              
              **2006****Cost**
              
              **Accumulated
                  Depreciation**
              
              **Net
                  Book Value**
              
              **Cost**
              
              **Accumulated
                  Depreciation**
              
              **Net
                  Book Value**Equipment
              
              $
              844,307
              
              $
              446,991
              
              $
              397,316
              
              $
              718,793
              
              $
              336,721
              
              $
              382,072Leasehold
                  improvements
              
              
              227,229
              
              
              54,047
              
              
              173,182
              
              
              76,931
              
              
              9,535
              
              
              67,396Monitoring
                  equipment
              
              
              9,845,464
              
              
              6,540,234
              
              
              3,305,230
              
              
              7,835,312
              
              
              4,904,883
              
              
              2,930,429Total
                  leasehold improvements and equipment
              
              $
              10,917,000
              
              $
              7,041,272
              
              $
              3,875,728
              
              $
              8,631,036
              
              $
              5,251,139
              
              $
              3,379,897




**Note
      3.  Goodwill and Intangibles, Subject to Amortization**




Goodwill
      is the excess of the cash paid over the net fair value of assets acquired and
      liabilities assumed in an acquisition, less the amount of identifiable
      intangible assets.  Goodwill is not amortized, but is tested for impairment
      on an annual basis at the end of each calendar year.  The Company has
      determined that there is no impairment of goodwill as of December 31,
      2007.




The
      Company also separately records other intangible assets that can be identified
      and assigned a value.  At December 31, 2007, such intangible assets
      consisted solely of customer monitoring contracts assumed in a prior
      acquisition. The Company amortizes the initial carrying value attributable
      to
      these monitoring contracts based on the projected revenue stream of the
      monitoring contracts. This amortization expense is included in sales, general
      and administrative expenses in the consolidated statements of operations and
      was
      $82,569 in 2007 and $92,706 in 2006. These intangible assets are also tested
      for
      impairment on an annual basis, but the Company determined that there was no
      impairment of these intangible assets as of December 31, 2007.




The
      composition of goodwill and intangible assets at December 31, 2007 and 2006,
      is
      as follows:


**2007**
              
              **2006****Goodwill**
              
              **Intangibles,
                  Subject to Amortization**
              
              **Goodwill**
              
              **Intangibles,
                  Subject to Amortization**Gross
                  Carrying Amount
              
              $
              2,302,179
              
              $
              911,522
              
              $
              2,302,179
              
              $
              911,522Accumulated
                  Amortization
              
              
              -
              
              
              (850,166
              )
              
              -
              
              
              (767,598
              )Balance
              
              $
              2,302,179
              
              $
              61,356
              
              $
              2,302,179
              
              $
              143,924The
                  estimated aggregate amortization expense of the intangibles is
                  as
                  follows:2008
              
              
              
              
              $
              41,9632009
              
              
              
              
              
              19,393Total
              
              
              
              
              $
              61,356




*F-11*


*Notes
        to Consolidated Financial Statements*




**Note 4.
      Long Term Debt**




The
      Company had the following long-term debt at December 31, 2007 and 2006:


2007
              
              2006Long
                  Term DebtSecured
                  note payable maturing on July 1, 2010, with an interest rate of
                  7% for
                  $6,455,250 of the borrowings and 2% over prime, which was 7.25%
                  at
                  December 31, 2007, for $5,422,225 of the borrowings. The borrowings
                  under
                  this note are secured by a first priority security interest in
                  all of the
                  assets of the Company except that Lender's security interest in
                  certain
                  monitoring equipment is subordinate to the capital leases noted
                  below.
              
              $
              11,877,475
              
              $
              -Capital
                  leases with related parties that are carrying interest rates at
                  9.50% to
                  12.50% and maturing September 2007 to September 2010 (see Note
                  8).
              
              
              1,126,463
              
              
              1,585,172Unsecured
                  notes payable due to one entity maturing on July 1, 2008, with
                  an interest
                  rate of 7% payable at maturity. These notes were paid in full on
                  October
                  29, 2007 from the proceeds of the secured note payable discussed
                  above.
              
              
              -
              
              
              6,000,000Total
                  long term debt
              
              
              13,003,938
              
              
              7,585,172Less
                  current maturities
              
              
              (622,340
              )
              
              (891,070
              )Total
                  long term debt less current maturities
              
              $
              12,381,598
              
              $
              6,694,102




Accrued
      interest on the secured note payable at December 31, 2007 equaled $30,513 and
      was included in interest expense during the year. Total interest expense for
      the
      years ended December 31, 2007, and 2006, was $651,884 and $245,822,
      respectively. Of that amount, $633,152 and $181,015 was expensed to related
      parties for the years ended December 31, 2007 and 2006, respectively.




The
      carrying value of the secured note payable and the capital leases approximates
      their fair value in each case due to the short-term nature of the borrowings
      and, in the case of the capital leases, a guarantee from a stockholder.




The
      following is a schedule of aggregate maturities required on long-term debt
      due
      in future years as of December 31, 2007:


2008
              
              $
              622,3402009
              
              
              393,2102010
              
              
              11,988,388Total
              
              $
              13,003,938




*F-12*


*Notes
          to Consolidated Financial Statements*


**Note 5.
      Income Taxes**




Net
      deferred tax asset includes the following components as of December 31,
      2007 and 2006:


**2007**
              
              **2006**Deferred
                  tax assets (liabilities):Net
                  operating loss carryforward
              
              $
              27,221,375
              
              $
              24,345,316Allowance
                  for doubtful accounts
              
              
              99,507
              
              
              58,279Leasehold
                  improvements and equipment
              
              
              (86,497
              )
              
              (216,242
              )Intangible
                  assets
              
              
              (37,455
              )
              
              (110,377
              )Other,
                  net
              
              
              11,370
              
              
              24,811Subtotal
                  deferred tax assets (liabilities)
              
              
              27,208,300
              
              
              24,101,787Valuation
                  allowance
              
              
              (27,208,300
              )
              
              (24,101,787
              )$
              -
              
              $
              -




The
      income tax provision differs from the amount of income tax determined by
      applying the statutory federal income tax rate to pretax loss for the years
      ended December 31, 2007, and 2006 due to the following:


**2007**
              
              **2006**Computed
                  "expected" tax benefit
              
              $
              (2,448,587
              )
              $
              (1,853,556
              )Increase
                  (decrease) in income taxes (benefits) resulting from:Benefit
                  from state taxes
              
              
              (432,104
              )
              
              (327,098
              )Nondeductible
                  expenses and other
              
              
              (36,596
              )
              
              57,559Other
                  timing differences
              
              
              (189,226
              )
              
              (189,226
              )Increase
                  in valuation allowance
              
              
              3,106,513
              
              
              2,312,321Total
                  provision for income taxes
              
              $
              -
              
              $
              -




As
      of
      December 31, 2007, the Company had federal net operating loss carryforwards
      of
      approximately $68,176,000 for future tax purposes that expire from 2010 to
      2027.
      The Company believes that Section 382 of the Internal Revenue Code and the
      associated U.S. Treasury regulations will significantly limit the amount of
      net
      operating loss carryforward that the Company will be able to utilize in any
      tax
      year. All losses incurred prior to the Company’s change of ownership event on
      June 27, 2005 totaled approximately $53,835,000. The utilization of these losses
      is limited (by Internal Revenue Code Section 382) to approximately $950,000
      per
      year through 2025.




A
      valuation allowance was established due to the uncertainty relating to the
      future utilization of net operating loss carryforwards. As a result of that
      uncertainty, the valuation allowance was further increased by $3,106,513 and
      $2,312,321 for 2007 and 2006, respectively. The amount of the deferred tax
      assets considered realizable could be adjusted in the future based upon changes
      in circumstances that result in a change in our assessment of our ability to
      realize those deferred tax assets through the generation of taxable income
      or
      other tax events.




On
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109, Accounting for Income Taxes”. FIN
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. It requires that we recognize in our
      consolidated financial statements, only those tax positions that are
“more-likely-than-not” of being sustained as of the adoption date, based on the
      technical merits of the position. As a result of the implementation of FIN
      48,
      we performed a comprehensive review of our material tax positions in accordance
      with recognition and measurement standards established by FIN 48.




*F-13*


*Notes
        to Consolidated Financial Statements*




As
      a
      result of the adoption, there were no unrecognized tax benefits in the financial
      statements as of January 1, 2007. We
      do not
      expect that the amount of unrecognized benefits will change significantly within
      the next 12 months.





The
      Company files income tax returns in the U.S. federal jurisdiction and various
      state and local jurisdictions. As the Company has a federal Net Operating Loss
      carryforward from the year ended December 31, 1995 forward, all tax years
      from 1995 forward are subject to examination. As states have varying
      carryforward periods, and the Company has recently entered into additional
      states, the states are generally subject to examination for the previous 15
      years or less.





The
      Company recognizes interest accrued, net of tax and penalties, related to
      unrecognized tax benefits as components of income tax provision as applicable.
      As of December 31, 2007, the Company did not have any accrued interest or
      penalties.




**Note 6.
      Common Stock, Stock Options, Warrants and Benefit Plan**




*Common
      Stock*




In
      2007
      and 2006, the Company issued 6,226 and 3,582 shares of common stock,
      respectively, to non-management directors in lieu of director fees. The number
      of shares of common stock issued in each case was based on the fair market
      value
      of the Company’s common stock as of the date of the meetings to which such fees
      related. Expense related to these director’s fees totaled $8,000 for each of the
      years ended December 31, 2007, and 2006, respectively.




*Stock
      Options*




The
      Company has issued options to acquire shares of its common stock under two
      equity incentive plans and pursuant to certain employment agreement with current
      and former executive officers. The terms of these equity incentive plans and
      non-plan option grants are described below.




*2001
      Omnibus Equity Incentive Plan*




In
      June
      2001, the stockholders of iSECUREtrac approved the 2001 Omnibus Equity Incentive
      Plan (the “2001 Plan”). As of May 31, 2006, the Company’s 2001 Plan expired. The
      2001 Plan provided for the granting of stock options and other equity incentives
      for up to 100,000 shares of the Company’s Common Stock to the Company’s
      officers, directors, and consultants who provided services to the Company and
      key employees at an exercise price 85% of the average daily closing price of
      the
      Company’s common stock for the week prior to when the options were granted. The
      options are to vest on a monthly basis over a one month to a 36-month period
      of
      time from the date of grant. As of January 1 of each year, commencing with
      the
      year 2002, the aggregate number of options that were awarded under the 2001
      Plan
      was automatically increased by a number equal to the lesser of 1% of the total
      number of Common Shares then outstanding or 20,000. During the year ended
      December 31, 2006, (i) grants of options for 71,175 shares of Common Stock
      under the 2001 Plan were made, (ii) options were exercised under the 2001
      Plan for 1,385 shares of common stock and (iii) options for 46,150 shares were
      forfeited. No options were granted under the 2001 Plan during the year ended
      December 31, 2007 nor were there any exercises of options previously granted.
      However a total of 50,217 2001 Plan options were forfeited during 2007. At
      December 31, 2007 and 2006, there were 100,775 and 150,992 outstanding options,
      respectively, in conjunction with the 2001 Plan. No further options may be
      issued under this plan.




*2006
      Omnibus Equity Incentive Plan*




On
      May 4,
      2006, at the Company’s annual meeting of stockholders, the stockholders approved
      the adoption of the Company’s newly created 2006 Omnibus Equity Incentive Plan
      (the “2006 Plan”). The 2006 Plan became effective on May 31, 2006. The 2006 Plan
      provides for the granting of stock options and other equity incentives to the
      Company’s officers, employees, directors and consultants who provide services to
      the Company. The 2006 Plan has a term of ten years unless terminated by the
      board of directors. Stock options are granted with an exercise price not less
      than fair market value of the common stock on the date of the grant. Vesting
      schedules and expiration dates for the grants issued under this plan are
      specified at the time of grant. During the years ended 2007 and 2006, grants
      for
      142,475 and 658,356 shares of Common Stock were made, respectively, under the
      2006 Plan. No options were exercised under the 2006 Plan during the years ended
      December 31, 2007 or 2006. Options forfeited under the 2006 Plan during the
      years ended December 31, 2007 and 2006, were 39,419 and 1,667, respectively.
      At
      December 31, 2007 and 2006, there were 759,745 and 656,689 outstanding options,
      respectively, in conjunction with the 2006 Plan.




*F-14*


*Notes
        to Consolidated Financial Statements*


*Non-Plan
      Stock Options*




The
      Company has granted options to purchase common stock outside of the 2001 Plan
      and 2006 Plan to various executive officers pursuant to the terms of their
      employment agreements. These options have exercise prices ranging from $2.01
      to
      $4.90 per share and have terms expiring from May 31, 2007 to April 30, 2014.
      These options vest on a monthly basis over two year periods from their grant
      date. During the years ended 2007 and 2006, grants for 0 and 183,000 shares
      of
      Common Stock were made, respectively, outside the 2001 Plan and 2006 Plan.
      None
      of these options have been exercised, but a total of 204,375 and 15,625,
      respectively, of these options were forfeited during the years ended December
      31, 2007 and 2006 as a result of the terminations of certain of these executive
      officers before the options had fully vested. As of December 31, 2007 and 2006,
      a total of 957,060 and 1,161,435, respectively, of these non-plan options
      remained outstanding, all of which have vested.




A
      summary
      of employee stock option activity during the years ended December 31, 2007,
      and
      2006, is as follows:


**For
                  the Year Ended December 31, 2007**
              
              **For
                  the Year Ended December 31, 2006****Weighted
                  Average**
              
              
              
              **Weighted
                  Average****Options**
              
              **Shares**
              
              **Exercise
                  Price**
              
              **Shares**
              
              **Exercise
                  Price**Outstanding
                  at beginning of year
              
              
              1,969,116
              
              $
              2.35
              
              
              1,121,412
              
              $
              2.62Granted
              
              
              142,475
              
              
              1.15
              
              
              912,531
              
              
              2.08Exercised
              
              
              -
              
              
              -
              
              
              (1,385
              )
              
              2.23Forfeited
              
              
              (294,011
              )
              
              2.06
              
              
              (63,442
              )
              
              3.23Outstanding
                  at end of year
              
              
              1,817,580
              
              $
              2.30
              
              
              1,969,116
              
              $
              2.35Exercisable
                  at end of year
              
              
              1,390,808
              
              $
              2.43
              
              
              1,314,707
              
              $
              2.49Weighted-average
                  fair value for options granted during the year
              
              
              142,475
              
              $
              0.77
              
              
              912,531
              
              $
              1.45




*F-15*


*Notes
        to Consolidated Financial Statements*




Additional
      information regarding options outstanding at December 31, 2007, is as
      follows:


**Options
                    Outstanding**
              
              **Options
                  Exercisable****Range
                  of Exercise Prices**
              
              **Number**
                  **Outstanding**
              
              **Weighted
                    Average**
                  **Remaining
                    Life**
              
              **Weighted
                    Average**
                  **Exercise
                    Price**
              
              **Number**
                  **Exercisable**
              
              **Weighted
                    Average**
                  **Exercise
                    Price**$0.50
                  to 2.00
              
              
              294,677
              
              
              7
                  years
              
              $
              1.24
              
              
              115,914
              
              $
              1.29$2.01
                  to 3.00
              
              
              1,357,443
              
              
              4
                  years
              
              
              2.40
              
              
              1,109,434
              
              
              2.40$3.01
                  to 4.00
              
              
              125,418
              
              
              5
                  years
              
              
              3.09
              
              
              125,418
              
              
              3.09$4.01
                  to 5.00
              
              
              40,042
              
              
              1
                  year
              
              
              4.55
              
              
              40,042
              
              
              4.55$5.01
                  to 10.00
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -Totals
              
              
              1,817,580
              
              
              5
                  years
              
              $
              2.30
              
              
              1,390,808
              
              $
              2.43




The
      aggregate intrinsic value of outstanding and exercisable options at December
      31,
      2007 and 2006, was $0 and $0 and $185 and $0, respectively.




The
      intrinsic value of options exercised in 2006 was
      $908.




As
      of
      December 31, 2007, there was approximately $497,000 of total unrecognized
      compensation costs related to non-vested share based compensation agreements
      granted to the Company’s executives and employees. The weighted average period
      in which the unrecognized compensation costs will be recognized into income
      is
      1.5 years.




*Common
      Stock Warrants*




Prior
      to
      2006, iSECUREtrac issued warrants to purchase 184,837 shares of common stock to
      stockholders and non-employees in connection with various services these
      individuals provided the Company. No such warrants were issued during 2007
      or
      2006. During 2007 and 2006, none of these warrants were exercised, but 100,000
      and 6,250, respectively, of these warrants expired unexercised. At December
      31,
      2007, 78,587 of these warrants remained outstanding.




Prior
      to
      2006, iSECUREtrac issued detachable warrants to purchase 413,049 shares of
      common stock in connection with obtaining convertible debt. No such warrants
      were issued during 2007 or 2006. During 2007 and 2006, none of these warrants
      were exercised and none of these warrants expired. At December 31, 2007, 413,049
      of these warrants remained outstanding.




Prior
      to
      2006, iSECUREtrac issued warrants to purchase a total of 1,173,021 shares of
      common stock in connection with various equity financing transactions, as well
      as warrants to purchase 3,234,248 shares of common stock that were issued by
      the
      Company in 2005 to Mykonos 6420, LP in conjunction with issuance of 1,000,000
      shares of Series C Exchangeable Preferred Stock to Mykonos.. No such warrants
      were issued during 2007 or 2006. During 2007 and 2006, none of these warrants
      were exercised, but 719,461 and 256,519, respectively, of these warrants expired
      unexercised. At December 31, 2007, 3,431,289 of these warrants remained
      outstanding.




*F-16*


*Notes
        to Consolidated Financial Statements*


A
      summary
      of the status of all the warrants outstanding at December 31, 2007, and
      2006 and changes during the years ended on those dates is as follows:


**For
                  the Year Ended December 31, 2007**
              
              **For
                  the Year Ended December 31, 2006****Weighted
                  Average**
              
              
              
              **Weighted
                  Average****Warrants**
              
              **Shares**
              
              **Exercise
                  Price**
              
              **Shares**
              
              **Exercise
                  Price**Outstanding
                  at beginning of year
              
              
              4,742,386
              
              $
              3.62
              
              
              5,005,155
              
              $
              3.67Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              (819,461
              )
              
              3.49
              
              
              (262,769
              )
              
              4.61Outstanding
                  at end of year
              
              
              3,922,925
              
              
              3.65
              
              
              4,742,386
              
              
              3.62Exercisable
                  at end of year
              
              
              3,922,925
              
              $
              3.65
              
              
              4,742,386
              
              $
              3.62




No
      warrants were issued in 2007 or 2006.




A
      further
      summary about warrants outstanding at December 31, 2007, is as follows:


**Number
                  Outstanding**
              
              **Weighted
                  Average**
              
              **Weighted
                  Average****Range
                  of Exercise Prices**
              
              **and
                  Exercisable**
              
              **Remaining
                  Life**
              
              **Exercise
                  Price**$1.00
                  to 2.50
              
              
              815,426
              
              
              2.50
                  years
              
              $
              2.30$2.51
                  to 5.00
              
              
              3,062,499
              
              
              1.50
                  years
              
              
              3.99$5.01
                  to 7.50
              
              
              45,000
              
              
              1.25
                  years
              
              
              5.24Total
              
              
              3,922,925
              
              
              2.00
                  years
              
              $
              3.65




*Benefit
      Plan*





The
      “iSECUREtrac Corporation Retirement Plan” offers all regular full-time
      employees, 21 years of age and older, to participate in a 401k savings
      plan.  The plan offers either a pre-tax contribution option or the Roth,
      after-tax contribution option.   iSECUREtrac provides a match of 25%
      up to 10% of the contribution, with a maximum match of $2,500.  The
      employer contribution vests over a 4-year graded schedule. The total expense
      related to the plan was $36,780 and $34,494 for the years ended December 31,
      2007 and 2006, respectively.




**Note 7.
      Convertible Preferred Stock**





The
      Company is authorized to issue up to 5,000,000 shares of preferred stock from
      time to time with such rights and privileges as the Board of Directors may
      determine. The Company has issued the following shares of preferred
      stock:





*Series
      C Exchangeable Preferred Stock*





On
      June
      27, 2005, the Company issued 1,000,000 shares of its $0.01 par value Series
      C 8%
      Cumulative Compounding Exchangeable Preferred Stock. The Preferred Stock is
      exchangeable for 4,782,609 shares of Common Stock and warrants to acquire
      6,287,045 shares of Common Stock at an exercise price of $2.30 per share.




If
      after
      June 27, 2010, the closing price of the common stock exceeds $20.00 per share
      for at least 120 consecutive trading days, the Company can require the
      conversion of the Series C Preferred Stock into Common Stock in accordance
      with
      the above exchange provisions.




The
      Preferred Stock is redeemable on the tenth anniversary of the original issue
      date. The redemption price per share of the Preferred Stock will equal the
      per
      share original issue price ($11 per share) plus an amount equal to all accrued
      but unpaid dividends thereon (and any interest payable thereon). The interest
      method will be utilized to accrete the carrying amount of the Preferred Stock
      over the ten year period to the earliest redemption date so that the carrying
      amount will equal the redemption amount at the earliest possible redemption
      date. Due to the accumulated deficit position of the Company, the periodic
      accretion will be charged to Additional Paid-In Capital.




*F-17*


*Notes
        to Consolidated Financial Statements*


As
      of
      December 31, 2007, the Company had accrued Series C Preferred Stock dividends
      totaling $2,355,961 and accretion to redemption value of the Series C Preferred
      Stock totaling $491,294. Of these amounts, $989,330 and $196,518, respectively,
      were the amounts accrued in 2007.





Upon
      any
      liquidation of the Company, no distribution shall be made to the holders of
      shares of Common Stock or other stock ranking junior to the Series C Preferred
      Stock unless, prior thereto, the holders of shares of Series C Preferred Stock
      shall have received an amount per share equal to the Per Share Original Issue
      Price plus an amount equal to accrued and unpaid dividends and distributions
      thereon, whether or not declared, to the date of such payment, multiplied by
      a
      factor of 105%.




Except
      as
      otherwise required by law, the holders of shares of Series C Preferred Stock
      vote together with the holders of shares of the Common Stock of the Company
      on
      all matters submitted to the stockholders of the Company and not as a separate
      class, and each share of Series C Preferred Stock entitles the holder thereof
      to
      11 votes or the equivalent amount of voting power thereof as determined by
      the
      Board of Directors. In addition, until such time that less than 500,000 shares
      of Series C stock are outstanding, the Series C holders have the ability to
      appoint a majority of the Company’s directors.




**Note 8.
      Lease Obligations**




In
      2007
      and 2006, the Company financed the acquisition of approximately $500,000 and
      $1,250,000 of monitoring equipment, respectively, through sale-leaseback
      agreements with a related party. Under these sale-leaseback arrangements, the
      Company purchases the monitoring equipment from the manufacturer, sells it
      to
      the leasing company at a gain or at cost and then leases the equipment back.
      If
      the monitoring equipment is sold to the leasing company at a gain, this gain
      is
      recorded as a liability and amortized into income over the life of the lease
      (typically 2-3 years). The Gain on Sale-leaseback Transactions consists of
      amortization of this deferred gain. The Company’s capital leases in conjunction
      with these transactions expire from March 2008 to September 2010. The assets
      and
      the related liabilities under the leases have been recorded at the present
      value
      of the future minimum lease payments using discount rates of 9.50% to 12.50%.




The
      Company also has two noncancelable operating leases for its facilities in Omaha,
      NE and an operating lease for office equipment. Future minimum lease payments,
      by year and in aggregate, under the capital leases and noncancelable operating
      leases, with initial terms of one year or more, are due as follows:


**Capital
                  Leases**
              
              **Operating****Related
                  Party**
              
              **Lease**2008
              
              $
              730,374
              
              $
              103,5902009
              
              
              428,850
              
              
              104,8682010
              
              
              115,881
              
              
              -Total
                  approximate minimum lease payments
              
              $
              1,275,105
              
              $
              208,458Less
                  the amount representing interest
              
              
              (148,642
              )
              
              -Approximate
                  present value of minimum lease payments
              
              $
              1,126,463
              
              $
              208,458




*F-18*


*Notes
        to Consolidated Financial Statements*


The
      cost
      and accumulated depreciation of assets acquired under capital leases is as
      follows:


**2007**
              
              **2006**Equipment
              
              $
              2,143,867
              
              $
              3,107,829Less
                  accumulated depreciation
              
              
              (1,056,184
              )
              
              (1,795,440
              )Total
              
              $
              1,087,683
              
              $
              1,312,389




The
      total
      rent expense under the operating leases was $103,206 and $88,905 for the years
      ended December 31, 2007 and 2006, respectively.




**Note
      9. Common Shares Issued for Cash**




A
      summary
      of common stock issued for cash is as follows:


**2007**
              
              **2006****Per
                  Share**
              
              **Total**
              
              **Per
                  Share**
              
              **Total**Gross
                  Proceeds
              
              
              
              
              $
              -
              
              $
              1.53
                  - $2.30
              
              $
              3,089Offering
                  costs
              
              
              
              
              
              -
              
              
              
              
              
              -Net
                  proceeds
              
              
              
              
              $
              -
              
              
              
              
              $
              3,089




**Note
      10. Related Party Transaction**





AHK
      Leasing, LLC, a company controlled by three stockholders, one of which is a
      current director, lent the Company money during 2007 and 2006. These loans
      were
      in the form of capital leases with 36 month terms and bearing interest at a
      rate
      of 9.50% to 12.50% per annum. The Company has capital leases which expire from
      March 2008 to September 2010. As of December 31, 2007 and 2006, the aggregate
      balance on these capital leases totaled $1,126,463 and $1,585,172, respectively.
      The interest expense to AHK Leasing in 2007 and 2006 was $152,835 and $143,177,
      respectively. See Notes 4 and 8.





During
      the fourth quarter of 2006, iSecureTrac Corp. (the “Company”) received two
      unsecured loans totaling $6,000,000 from a private investment company that
      is an
      affiliate of the Mykonos 6420 LP (“Mykonos”), the sole holder of the Company’s
      Series C Preferred Stock (the “2006 Notes”). Interest on the 2006 Notes accrued
      at a rate of 7% per annum. Principal and interest on the loans was due at the
      earlier of (i) July 1, 2009 or (ii) the first date on which the Company
      either issues equity securities or arranges for additional indebtedness (other
      than trade indebtedness incurred in the ordinary course of its business) in
      a
      transaction or series of transactions which generates aggregate net proceeds
      to
      the Company of not less than $6,000,000. The interest expense to the private
      investment company in 2007 and 2006 was $354,026 and $37,838,
      respectively.





On
      October 29, 2007, the Company refinanced the 2006 Notes and borrowed an
      additional $2,100,000 under the terms of a Credit and Security Agreement with
      Crestpark LP, Inc. (“Lender”), another affiliate of Mykonos. Borrowings from the
      Lender are evidenced by a promissory note (the “Crestpark Note”) in the
      principal amount of $8,491,864 which is equal to the aggregate principal and
      accrued interest on the 2006 Notes as of October 29, 2007 plus an additional
      $2,100,000. Principal on the Crestpark Note is due on the earlier of
      (i) July 1, 2010 or (ii) the first date on which the Company either issues
      equity securities or arranges for additional indebtedness (other than trade
      indebtedness incurred in the ordinary course of its business) in a transaction
      or series of transactions which generates aggregate net proceeds to the Company
      of not less than the amount lent to the Company by Crestpark.





On
      December 18, 2007, the Company amended its Promissory Note and Credit and
      Security Agreement with the Lender in order to increase the amount loaned
      (the “Loan”) from the Lender to the Company by the amount of $3,300,000. As
      a result of these amendments, the principal amount outstanding under the Loan
      increased from $8,491,864 to $11,877,475, consisting of the $3,300,000 in
      additional borrowings plus accrued but unpaid interest on the existing Loan.
      The
      additional borrowings are to be used for general working capital purposes.
      Interest expense to the Lender in 2007 and 2006 was $126,291 and $0,
      respectively.




*F-19*


*Notes
        to Consolidated Financial Statements*





Principal
      on the Amended and Restated Promissory Note (the “Note”) is due on the earlier
      of (i) July 1, 2010 or (ii) the first date on which the Company either
      issues equity securities or arranges for additional indebtedness (other than
      trade indebtedness incurred in the ordinary course of its business) in a
      transaction or series of transactions which generates aggregate net proceeds
      to
      the Company of not less than the then current principal amount outstanding
      under
      this Loan, plus all accrued but unpaid interest. The Company may prepay the
      Loan
      at any time without premium or penalty. The Note provides, among other things,
      that $6,455,250 of the borrowings thereunder shall bear interest at 7.0% per
      annum and that such interest will be due and payable at maturity of the Note.
      The remaining $5,422,225 of borrowings (the “Floating Tranche”) under the Note
      (which includes the $3,300,000 of additional borrowings) will bear interest
      at a
      floating rate equal to 2% over the prime rate (the “Base Rate”). The
      portion of the interest on the Floating Tranche determined by the Base Rate
      will
      be payable at maturity, but the remaining portion of the interest representing
      the 2% premium over the Base Rate will be payable monthly.





The
      borrowings under the Note are secured by a first priority security interest
      in
      all of the assets of the Company except that Lender’s security interest in
      certain monitoring equipment is subordinate to the interest of AHK Leasing
      under
      its sale leaseback arrangements. The Lender is an affiliate of Mykonos 6420
      LP
      (“Mykonos”). As the sole holder of the Company’s Series C Preferred Stock,
      Mykonos has the right to elect a majority of the Company's Board of Directors.
      The terms of the Loan were approved by a Special Committee of the Board of
      Directors consisting solely of disinterested directors.





**Note
      11. Concentrations and Major Customer**





The
      Company maintains cash in excess of the Federal Deposit Insurance Corporation
      limit of $100,000. The Company has not experienced and does not anticipate
      such
      losses in these accounts.





For
      the
      year ended December 31, 2007 and 2006, the Company had one customer which
      accounted for 10.71% and 14.02%, respectively, of its total revenues for the
      year. The receivable balance for this customer at December 31, 2007 and
      2006 was $133,417 and $489,044, respectively.





**Note
      12. Legal Proceedings**





On
      November 27, 2007, iSecureTrac Corp. (the “Company”) and Pro Tech
      Monitoring, Inc. (“Pro Tech”) entered into a Confidential Settlement Agreement
      (the “Settlement Agreement”), pursuant to which the parties agreed to compromise
      and settle all claims and disputes related to a lawsuit filed by Pro Tech
      against the Company in the United States District Court for the Middle District
      of Florida in which Pro Tech alleged that the Company had infringed on a U.S.
      patent held by Pro Tech relating to GPS tracking and monitoring apparatus and
      systems. Pro Tech was seeking an injunction and substantial monetary damages
      from the Company.





Pursuant
      to the Settlement Agreement, Pro Tech has caused the dismissal of its lawsuit
      against the Company. In consideration, the Company paid Pro Tech $800,000 in
      cash upon execution of the Settlement Agreement and agreed to, and
      did purchase $600,000 worth of sobriety monitoring equipment from Pro Tech
      prior to December 31, 2007. The $800,000 is included in sales, general and
      administrative expenses for the year ended December 31, 2007. In addition,
      the
      Company has agreed to make a modification to its GPS tracking equipment to
      eliminate or disable a component that allegedly infringed on Pro Tech’s patent.
      To the extent this component is not removed or disabled from the Company’s
      equipment by January 27, 2008, the Company will be subject to royalty payments
      on unmodified equipment in the field which escalate over time. The amount of
      such royalty payments, if any, cannot be estimated at this time. The Company
      entered into the Settlement Agreement without admission of liability and solely
      to avoid the expense and uncertainty of litigation.




*F-20*


*Notes
        to Consolidated Financial Statements*


**Note
      13. Fair Value of Financial Instruments**





The
      following methods and assumptions were used to estimate fair value of each
      class
      of financial instruments for which it is practicable to estimate that
      value:





Accounts
      receivable: The carrying amount approximates fair value.





Long-term
      debt: Based on the borrowing rates available to the Company for bank loans
      with
      similar terms and maturities, the carrying value approximates fair value due
      to
      the short maturity dates.





Accounts
      payable and accrued expenses: The carrying amount approximates fair
      value.





Redeemable
      Exchangeable Series C Preferred Stock: The Company estimates the fair value
      of
      this instrument to be approximately $16,000,000 at December 31, 2007 using
      a
      discount rate of 6%.




*F-21*