As filed with the Securities and Exchange Commission on March 27, 2002.

---

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-KSB

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001
OR

|o | TRANSITION 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

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iSecureTrac Corp.

(Exact name of Registrant as specified in its charter)

DELAWARE(State or other jurisdiction
of incorporation or organization)

87-0347787(I.R.S. Employee
Identification No.)


5022 South 114th Street, Suite 103
Omaha, Nebraska 68137(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(402) 537-0022Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share(Title of Class)

---

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

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

State
issuer's revenues for the fiscal year ended December 31, 2001 $52,652.

As
of February 28, 2002, the aggregate market value of the voting stock held by non-affiliates was approximately $15,115,243.

The
number of shares outstanding of each of the issuer's classes of common stock, as of February 28, 2002: 25,866,664 (one class).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's 2001 Annual Meeting of Stockholders to be filed within 120 days of the fiscal year ended
December 31, 2001 are incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-KSB.

---

---

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PART I.

Item 1. Description of Business

This Form 10-KSB contains statements that plan for or anticipate the future. Forward-looking statements include statements about the future of
our products and the industry, statements about our 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 "anticipate," "plan," "believe," "expect," "estimate," and the like.

Readers
should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the
forward-looking statements and from historical trends. The following cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this report, in our filings
with the Securities and Exchange Commission or in materials incorporated herein or therein by reference.

Because
we have a limited operating history, it is difficult to evaluate our business. Factors that may cause us to fail to meet our business goals include the following; our ability to
successfully complete additional financing; our future financial condition, liquidity and business prospects generally; our inability to respond to competitive market conditions; marketplace
acceptance of our products and market demand for our products; perceived opportunities in the marketplace for our products and our other products under development; future sales levels and other
business plans for the future.



iSecureTrac
Corp. ("iST") is a development stage company. We develop, produce, market and support solutions relating to the wireless electronic tracking, monitoring and reporting of
individuals and objects. Our products are designed to enhance productivity, reduce costs, and improve overall response using on-line access to information previously maintained on a
variety of media. Today, we primarily market to the criminal justice application for continuous electronic monitoring.

We
were incorporated under the laws of the State of Colorado on June 13, 1983 under the name Sage Institute International, Inc. A Delaware corporation under the name Sage
Analytics International, Inc. was incorporated on July 17, 1986; and, on September 2, 1986, we reincorporated as a Delaware corporation by merging the Colorado Corporation with
and into the Delaware Corporation.

On
December 17, 1997, the stockholders of Advanced Business Sciences, Inc., a Nebraska corporation, concluded a share exchange with our Company (the "Share Exchange")
whereupon the Nebraska corporation became the wholly owned subsidiary of our Company and control of was transferred to the former stockholders of the Nebraska Corporation. We subsequently changed our
name to Advanced Business Sciences, Inc. We changed our name to iSecureTrac Corp., effective June 19, 2001. This name change was made to better reflect our current and future business
activities of providing advanced tracking solutions for the monitoring of individuals and assets via a secure web hosted application.



We
were initially engaged in the commercial application of a form of decision support technology, which incorporated proprietary methodology and software. This technology involved the
identification of potential failures facing an organization or project, ranking such failures in order of significance and determining their root causes. This technology was marketed to both
government and private industry. We conducted no business operations from in or about April 1996, until the completion of the Share Exchange on December 17, 1997. Upon completion of the
Share Exchange, our Company commenced operations once again as described in this Form 10-KSB.

1

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We
now design, develop, produce, sell and support wireless products and services relating to the tracking, monitoring and reporting of individuals and tangible assets. Currently, our
business primarily concerns criminal justice applications for electronic monitoring.

The
iSecureTrack product, which utilizes GPS technology, wireless communications and proprietary computer software, provides real time monitoring, tracking and reporting of
adult and juvenile offenders as a criminal justice rehabilitative alternative. Our iSecureTrack product is the next generation of software and products based on our patented technology.
Through customer staffed operations centers, the system tracks the geographic location of every offender in the system, reports specific activities and identifies violations against
customer-established parameters. This information is then delivered to the appropriate authorities using various methods, including telephone calls, paging and internet-based e-mail and
web-based reports. We believe use of our system can offer substantial cost
savings over the cost of incarceration and improve the efficiency of probation and parole officers. It also offers the backlogged criminal justice systems a more secure solution to the problems of
rapidly growing criminal populations, overcrowded correctional facilities and more lenient sentencing alternatives.

In
addition to the criminal justice market, we have had discussions and marketed to additional industries where we believe our products and services offer attractive solutions to current
problems. One market that we have marketed to is the transportation industry. This market would include (1) automatic vehicle tracking and (2) through the installation of tracking units
at strategic locations, monitoring the status of freight cargo (whether loaded or unloaded on the trailer or other container).



According
to the U.S. Bureau of Justice Statistics latest report, 6.5 million adults were under some form of correctional supervision at December 31, 2000. The number of
prisoners under the jurisdiction of federal or state correctional authorities on that date reached a record high of 1.9 million. Moreover, 4.5 million adults were under parole or
probation supervision. The total adult correctional population has increased 48.7% from 1990 to 2000. The Department of Justice has projected an annual growth equal to this historical rate.

This
growth has resulted in stresses on the correctional system in terms of both management and costs. While this has led to increased use of probation and parole as alternatives to
incarceration, caseworkers are unable to monitor probationers and parolees effectively. Electronic monitoring enhances the ability of caseworkers to monitor the activities of probationers and
parolees, as well as affording house arrest as an economic alternative to incarceration.

According
to the National Institute of Justice, electronic monitoring offers two distinct advantages over incarceration, 1) it reduces the public's tax burden by allowing the
offender to work and, subsequently, to pay for electronic monitoring costs, and 2) it reduces prison and jail overcrowding by providing a viable alternative to incarceration.

The
traditional house arrest application utilizes (1) a fixed location radio frequency device connected to a power source and telephone line (a "house arrest unit") and
(2) a tamper-proof transmitter cuff worn by the offender. The individual under house arrest must remain within a specified distance of the house arrest unit. When they leave that proximity, the
house arrest unit transmits a notification over the telephone line to a monitoring center. The monitoring center software and operators determine if this is a permitted or authorized departure, using
tables of individual schedules provided by the contracting authorities. If they determine it is a violation of the programmed schedule, a violation notice is created and the appropriate authorities
are contacted using pre-established protocols. These protocols can include voice calls, paging, faxing, e-mail or some combination. Additionally, reports are created for
transmission as required by the customer organization.

House
arrest monitoring equipment first became commercially available in 1984. In 1987, twenty-one (21) states reported using this electronic monitoring as a
sentencing alternative. By 1995, all

2

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fifty states were using at least limited amounts of house arrest electronic monitoring. Experts estimate that as many as 300,000 individuals now incarcerated could be supervised more
cost-effectively and safely using appropriate electronic supervision. [Source: Journal of Offender Monitoring, January 1998 and March 1999 issues]
Also, the Journal of Offender Monitoring estimated 95,000 individuals under electronic house arrest at the beginning of 1999. These individuals were monitored primarily through third party service
providers under contract to the appropriate local, state and federal agencies.

We
believe there is a substantial opportunity to provide a system to allow offenders to be tracked and monitored away from the fixed house arrest location. In early 1994, our Company
began looking into the feasibility of utilizing GPS receivers and wireless communications technologies in a device which could be worn by offenders and thus allow electronically supervised release
from house arrest. In December of 1994, we described our concepts in a patent application filed with the United States Patent and Trademark Office for an "Apparatus and Method for Continuous
Electronic Monitoring and Tracking of Individuals." Over the next seven years, we continued to pioneer the development of a system of continuous monitoring of mobile offenders by creating smaller and
lighter personal tracking units (PTUs) and refining the software to track and monitor the location of the PTUs. In late 1995, we were the first company to field test PTUs. Our lunch pail sized units
were extensively tested by the Nebraska Department of Corrections and the concept was proven. In 1997, size had been reduced and functionality was increased. Our 1702 model PTU, the size and shape of
a "bag phone", had been made capable of changing inclusion and exclusion zones while mobile through parameters downloaded from central monitoring computers, another first for the industry. The 1702
model was used by state probation officers in Texas, Arizona and Illinois. In the meantime, we filed two additional patent applications, in 1997 and 1998. In 2000, we were issued two patents for the
apparatus and method of tracking persons or mobile objects with the use of GPS and wireless communications.

We
derive our revenue from the sale of PTUs and related products and services and from the use of our web based tracking and monitoring system, known as tracNet24. tracNet24
is a hosted application, accessible to our distributors and their justice agency customers through secured logins and allows tracking and monitoring of all electronically activated PTUs. For each PTU
monitored through tracNet24, we charge a daily hosting fee. Additional revenue is generated for data archiving services and custom reporting. Our typical agreements with established distributors in
the criminal justice marketplace consist of (i) product purchase and distribution agreements and (ii) hosting services agreements.

The
usual term of the agreements is from three to five years, with automatic one year renewals thereafter. We warrant our products to be free from defects and to operate in accordance
with our published product specifications for a period of one year. Negotiated product volume discounts, product shipping and delivery terms, and pricing for training, and extended product warranties
are also described in our distribution agreements. Our standard hosting services agreements with our distributors contain terms for guaranteed system availability and capacity, accessibility through
the Internet with standard browsing software and charges for data archiving.



iST
believes that only one other company, Pro Tech Monitoring, Inc., has a GPS-based product in the field today. We compete with ProTech Monitoring on the basis of
price, quality of product and quality of service



The
key elements of our business strategy are to:



3

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To
date, we have had limited revenue from operations and have accumulated significant losses. Consequently, we have had difficulty in obtaining funding from commercial lenders, thereby
requiring us to obtain funding from private sources. We may not be able to find adequate sources of funding to implement our strategic goals. Moreover, there is no assurance that we will ever generate
significant revenues or profits.



Our
recent introduction of our next generation product, our Series 2100 Personal Tracking Unit, is targeted to replace the previous product offering, the ABS<ComTrak(R)
solution. The Series 2100 Personal Tracking Unit provides our customers with real-time monitoring of any individual or thing on either a continuous or periodic basis through the
Internet, whether the person or object is moving or is at a fixed location.

The
Series 2100 Personal Tracking Unit offering consists of the following components:

A
tracking unit is worn by or placed near the subject. The tracking unit is secured to the subject via a wireless cuff, which is about the size of many wristwatches. The wireless cuff is
waterproof and shockproof; our case and strap are designed to be tamper resistant. The tracking unit utilizes information from the GPS to triangulate the subject's physical position. The tracking unit
then transmits this and other information to the tracNET24 hosting center. In addition, the tracking unit can be used in a docking station (which is similar to a cradle for a cordless
telephone) as a house arrest monitor.

The
tracking unit monitors the status of the wireless cuff and itself and reports (see below) the following conditions:



4

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Each
customer will access and maintain their offender information and will also monitor the movement of offenders through our host software on the Internet. The customer can build daily
schedules and program inclusion and exclusion zones via their Internet connection. We provide various levels of service to meet the specific needs of our customers.



(A)    Wireless
communications are transmitted through the space via radio frequency radiation, one of several types of electromagnetic radiation. The radio frequency part of
the electromagnetic spectrum is generally defined as electromagnetic radiation with frequencies in the range of 3 kilohertz to 300 gigahertz. One "hertz" equals one cycle per second. A kilohertz
("kHz") is one thousand-hertz, a megahertz ("MHz") is one million-hertz and a gigahertz ("GHz") is one billion-hertz. Microwave radiation is a high-frequency form of radio frequency
radiation usually defined as from about 300 MHz to 300 GHz.

Familiar
uses of radio frequency radiation involving telecommunications include AM and FM radios, television, citizens band radio, hand-held walkie-talkies, amateur radio,
short-wave radio, cordless
telephones and microwave point-to-point and ground-to-satellite telecommunications links. Non-telecommunications applications include
microwave ovens and radar.

The
manufacture, sale and use of devices, which 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 such regulation within the United States. State and local governments, however, exercise some control respecting the siting of wireless facilities. While many
transmitters (such as radio stations) must be individually licensed, certain low-power transmitters need not be. These would include such devices as cordless telephones, baby monitors,
garage door openers, wireless home security systems, and keyless automobile entry systems. Before such a device may be marketed, however, it must first be tested to determine if the device meets FCC
specifications and then receive authorization from the FCC. The devices that iST markets fit within this regulatory scheme.



The
Global Positioning System consists of at least 24 operational satellites that orbit the earth every 12 hours. Operated by the Department of Defense, this constellation
typically permits from five to eight satellites to be visible from any point on earth at any given moment in time. A master control facility located at Schriever Air Force Base in Colorado monitors
signals from the satellites and uploads orbital and clock data. A position fix is acquired when a GPS receiver is "seeing" at least three of these satellites. Since the discontinuation of selective
availability on May 1, 2000, the positioning system is accurate to within 10 meters, approximately 33 ft, for horizontal position, 15 meters, approximately 50 ft, for vertical position and 110
nanoseconds time accuracy. In a statement from the White House, the president said "The decision to discontinue selective availability ("SA") is the latest measure in an on-going effort to
make GPS more responsive to civil and commercial users worldwide. The government will continue to provide all GPS capabilities to worldwide users free of charge." Furthermore, he stated that the
government ". . . realized that worldwide transportation safety, scientific, and commercial interests could best be served by discontinuation of SA. It benefits users
around the world in many different applications, including air, road, marine, and rail navigation, telecommunications, emergency response, oil exploration, mining, and many more."

5

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GPS
satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites have design lives of
7.5 years and are subject to damage by the hostile space environment in which they operate. To repair damaged or malfunctioning satellites is not economically feasible. If a significant number
of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites would impair the current
utility of the GPS system and the growth of current and additional market opportunities. In addition, there can be no assurance that the U.S. government will remain committed to the operation and
maintenance of GPS satellites over a long period, or that the policies of the U.S. Government for the use of GPS without charge will remain unchanged. However, the Presidential Directive marks the
first time in the evolution of GPS that access for consumer, civilian and commercial use has a solid foundation in government policy. Because of ever-increasing commercial applications of
GPS, other U.S. Government agencies may become involved
in the administration or the regulation of the use of GPS signals. Any of the foregoing factors could affect the willingness of buyers of our products to select GPS-based systems instead
of products based on competing technologies. Any resulting change in market demand for GPS products could have a material adverse effect on our financial results.



iST
has been issued three 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 June 6, 2017; (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 July 7, 2018; and (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 October 18, 2020.

We
have been granted a nonexclusive software license from SiRF Technology Incorporated ("SiRF"). SiRF has designed GPS chip sets and software solutions that allow iST to embed GPS
technology into our products. This license is for an indefinite term; however, it may be terminated if SiRF loses any of our rights as 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.



The
FCC regulates the manufacture, sale and use of radio frequency radiation devices. Similarly, insofar as GPS remains funded and controlled by the U. S. government, devices utilizing
GPS must conform to government specifications. Our 1702 model PTU received full FCC compliance certification. Our current 2100 model PTU received FCC Part 2, Part 22 and Part 15,
Class B approval in August, 2001 following FCC required testing at Intertek Testing Services NA, Inc., an FCC designated testing laboratory. A remaining test for spurious emission
attenuation failed and the product was redesigned with additional shielding to block electro-magnetic interference (EMI). It is currently undergoing additional EMI testing and we expect to have the
product fully FCC compliance certified within thirty days.

The
use of tracking devices as an aid to, or indeed substitute for, physical surveillance by law enforcement personnel is subject to federal, state and local law. Generally stated,
tracking devices may be attached to or installed upon the monitored person or object without court order as long as the person or objects remain in public view. Once the person or object is withdrawn
from public view, a court order is required. But, where a tracking device has been placed with contraband (e.g., stolen goods), rather than with a lawfully possessed item, warrantless monitoring can
continue to occur even after the monitored object has been taken onto private premises. As a rule, all persons presently monitored by iST are subject to a court order requiring such monitoring as a
condition to their release.

6

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The
use of tracking devices by private persons is also subject to applicable law. The monitoring of persons without their consent or of objects without their owners' or lawful
possessors' consent may be a violation of laws protecting privacy and property rights.



During
2000 and 2001, we expended $371,858 and $496,727, respectively, toward research and development. The costs of such research and development are borne by us and not by any of our
customers. We have been a pioneer in the development of GPS tracking as it relates to use in the criminal justice industry. The research and development staff designs and develops products
incorporating GPS technology, wireless communications, and data storage and transmission. Our current research and development efforts are focused on completion of the 2100 series product for the
criminal justice industry. This platform of technology has been designed to cross over into over market segments including the transportation industry.



Because
we are a development stage company, we have to date sustained significant losses. The loss of any customer could further worsen our prospects and business. There is no material
backlog of orders for the products we sell.



Our
business is not seasonal.

Employees

As
of February 28, 2002, we had 16 full-time employees and 2 contract employees on staff.

Item 2. Description of Property

We lease approximately 6,000 square feet of office space located at 5022 South 114th Street, Suite 103, Omaha, Nebraska. All of our administrative, sales,
service and other business operations are conducted at this location. This lease is for a term commencing on December 1, 2001 and ending on November 30, 2005. The base rent is
approximately $5,262 per month. The lease also requires us to pay $865 per month as our pro rata share of the operating expenses respecting the leased premises.

We
lease office equipment from several sources. The rent for such items is in excess of $1,200 per month.

In
our opinion, our properties are adequately covered by insurance.

Item 3. Legal Proceedings

We are subject to pending or threatened lawsuits that are ordinary to our business. We are also subject to a variety of federal and state laws and regulations,
especially those relating to electronic devices and wireless communications.

On
December 20, 2000, iST, a Nebraska corporation, filed a patent infringement lawsuit against the Defendant, Pro Tech Monitoring, Inc. (Pro Tech), a Delaware corporation
located in Palm Harbor, Florida. The case was filed in Omaha, Nebraska in the United States Federal District Court, Case No. 8:00-CV-624. iST contends that Pro Tech, who
provides product to the criminal justice industry, is infringing on the iST patents covering our Company's proprietary GPS based tracking system. On January 31, 2001, Pro Tech filed a
declaratory judgment action against iST in the United States Federal District Court for the Middle District of Florida, Tampa Division, Case
No. 8:01-CV-216-T-17MSS. Pro Tech claims in this action that its product and methods do not infringe upon the iST patents. iST and Pro Tech
dispute the proper venue between Nebraska and Florida for purposes of determining infringement of the iST patents. We will vigorously defend against the complaint filed by Pro Tech and we will
aggressively protect our Intellectual Property.

7

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On
July 16, 2001 the United States Federal District Court dismissed Case No. 8:00-CV-624 without prejudice. As a result of this dismissal, we filed
a response and counter claim to Case No. 8:01-CV-216-T-17MSS in the Federal District Court for the Middle District of Florida.

As
of February 28, 2002, there is no material update to the pending litigation. The parties are currently engaged in discovery.

On
January 2, 2002, iSecureTrac Corp., a Delaware corporation, filed a complaint against LEDvision Inc, an Iowa corporation, d/b/a Electronic Manufacturing
Technologies, Inc. ("EMT"), in the U.S. District Court, District of Nebraska(Case No. 8:02CV5). iSecureTrac Corp. alleges that EMT breached its contract with iSecureTrac by
its failure to manufacture and deliver production units of iSecureTrac's Model 2100 Series products. Consequently, iSecureTrac has had to utilize other manufacturers to produce such products, causing
a delay in our customer deliveries. iSecureTrac seeks to recover monies previously paid to EMT plus lost profits and incidental and consequential damages, and the cost of pursuing the action. In an
additional claim, iSecureTrac alleges that EMT's conduct concurrent with and subsequent to EMT's breach of contract amounted to trade disparagement and interference with our business relationships. We
seek damages to compensate us for damage to its reputation caused by EMT's conduct.

On
March 4, 2002 LEDvision Holding, Inc. d/b/a Electronics Manufacturing Technology, answered and made a counterclaim in the United States District Court for the District
of Nebraska Case No. 8:02CV5. The defendant, EMT, alleges that iSecureTrac Corp. breached its agreement with EMT and that such alleged breach excused EMT's non-performance. EMT's
counterclaim seeks monies for services allegedly provided to iST and for the loss of manufacturing profits. iST intends to vigorously contest any claims that it breached its agreement with EMT and
that such breach excused EMT's non-performance and contest any claims for monies for alleged services provided to iST for which iST received no value.

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

Incorporated by reference from our current report under Form 8-K filed on July 10, 2001.

8

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PART II

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

On February 29, 2000, our Company's common stock was relisted on the OTC Bulletin Board under the trading symbol ABSH. Effective June 27, 2001, our
trading symbol changed to ISRE.

Year

Quarter

High

Low1999

1st

$
2.1250

$
0.75002nd

$
1.1875

$
0.53133rd

$
1.0000

$
0.12504th

$
0.6250

$
0.12502000

1st

$
1.7000

$
0.25012nd

$
0.5625

$
0.18753rd

$
0.5312

$
0.28124th

$
0.5312

$
0.25002001

1st

$
0.4375

$
0.18752nd

$
1.0000

$
0.20003rd

$
1.2000

$
0.65004th

$
1.1100

$
0.8000


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

As
of February 28, 2002, there were outstanding 25,866,664 shares of Common Stock held of record by 398 stockholders and 8,609.1 Series A Shares held by eight
(8) stockholders. iST has not declared any dividends on shares of Common Stock.

Board
members were compensated in total with 9,110 shares of stock valued at $9,000 for attending (2) fourth quarter board meetings. The 9,110 shares are comprised of five board
members receiving 1,014 shares each on 10/18/01, and four board members receiving 1,010 each on 12/10/01. Ken Macke, retired Chairman and CEO of Dayton Hudson Corp., was also compensated for being an
Advisor to the Board of Directors. He received 9,115 shares of common stock on 10/18/01 valued at $8,988, and 9,249 shares of common stock on 12/10/01 valued at $9,156 for attending (2) fourth
quarter board meetings.

On
October 31, 2001, the Company issued 1,780,727 shares of its common stock valued at $546,872 to (1) individual for extinguishing his promissory note by exercising his
warrants.

On
November 02, 2001, November 20, 2001 and November 30, 2001, the Company issued 155,926, 50,100 and 151,899 warrants to purchase 357,925 shares of its common stock to
stockholders for loans to the Company and charged $202,694 to loan acquisition expense.

The
Company claims exemption under the Securities Act of 1933 Section 4(2) for the equity transactions, which took place in the fourth quarter of 2001.

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

We experienced a decline in the number of individuals being monitored in the year ending 2001 when compared to the previous year activity. By the fourth quarter
of 2001, we no longer provided monitoring services or leased equipment directly to the end user. Our primary efforts towards the end of 2001 were focused on the delivery of our tracNET
platform. As a result, support for our products that were in the field in the first six months of 2001 were phased out in the third quarter of 2001. This product change resulted in our Company
incurring significant asset write-offs as discussed herein. This product change also resulted in a significant reduction in our revenues for the last six months of 2001.

9

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We
are in the process of deploying our computerized center for communication and data management, staffed only to maintain the system. We anticipate revenues will increase in the first
six months of 2002 as we begin to deliver our new products to the criminal justice market. The tracNET platform will be operated as an Application Service Provider (ASP) service, allowing agents of
our distributing partners at existing monitoring centers to access and use the system to provide the monitoring services. We intend to complete the final design and begin production of the
series 2100 tracking unit in the first quarter of 2002. As we roll out this new product offering, our customers will have control and responsibility to monitor the movement of their individuals
or assets. Utilizing our GPS tracking products, customers, through a secure Internet connection, will access their information via our host website, www.isecuretrac.net. This product changeover will
allow our customers greater flexibility, ease of use and reduced operating costs when compared to our and our competitor's current product offerings and pricing. At the same time, it will allow us to
partner with industry-specific service providers, wherein they will provide the staffing and end-user interaction, and we will supply the tracking technology and information reporting.

We
are a developmental stage company. As such, the financial results of operations reflect our primary activities directed toward development and testing of our GPS products, principally
for offender monitoring in the criminal justice marketplace. We have been a developmental stage company since 1992. We anticipate that we will move from a development stage company to an operating
company in the coming year of 2002. The following table sets forth the number of tracking units monitored or leased for the period indicated. iST monitored and leased 384 units in the year of 2001.
For the year of 2000, iST monitored and leased 1,773 units. As stated above, the reduction of the number of units monitored and leased during the course of 2001 when compared to 2000, is a result of
managements decision to phase out our current products in the field.

Year

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year-to-Date2000

627

594

285

267

1,7732001

310

70

4

0

384


10

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The
following table provides a breakdown of selected results of operations for the years ended December 31, 2001 and 2000 and is the basis for the following discussion of the
results of operations:

|                                            |                                          | Year Ended
December 31,
2001 |            | Year Ended
December 31,
2000 |  
|------------------------------------------- | ---------------------------------------- | ---------------------------- | ---------- | ---------------------------- | -
|Revenues                                    |                                          |                              | 52,652     |                              |  
|Cost of sales                               |                                          |                              | 110,198    |                              |  
|                                            |                                          |                              |            |                              |  
|Gross (loss)                                |                                          |                              | (57,546    | )                            |  
|Expenses:                                   |                                          |                              |            |                              |  
|                                            | Research and development                 |                              |            | 496,727                      |  
|                                            | Sales and marketing                      |                              |            | 120,391                      |  
|                                            | General and administrative               |                              |            | 2,991,764                    |  
|                                            |                                          |                              |            |                              |  
|                                            |                                          |                              | 3,608,882  |                              |  
|                                            |                                          |                              |            |                              |  
|Operating (loss)                            |                                          |                              | (3,666,428 | )                            |  
|Other income and (expense):                 |                                          |                              |            |                              |  
|                                            | Interest income                          |                              |            | 43                           |  
|                                            | Interest expense                         |                              |            | (671,042                     | )
|                                            | Loan acquisition expense, stockholders   |                              |            | (2,047,259                   | )
|                                            | Other, net                               |                              |            | 199,875                      |  
|                                            |                                          |                              |            |                              |  
|                                            |                                          |                              | (2,518,383 | )                            |  
|                                            |                                          |                              |            |                              |  
|                                            | (Loss) before provision for Income taxes |                              |            | (6,184,811                   | )
|                                            | Provision for income taxes               |                              |            |                             |  
|                                            |                                          |                              |            |                              |  
|Net (loss)                                  |                                          | $                            | (6,184,811 | )                            | $
|Preferred dividends in arrears              |                                          |                              | (68,161    | )                            |  
|                                            |                                          |                              |            |                              |  
|Net (loss) available to common stockholders |                                          | $                            | (6,252,972 | )                            | $
|                                            |                                          |                              |            |                              |  

We
derive revenue from billable services for monitoring, equipment and software leasing, and charges for maintenance and repair of equipment. For the year ended December 31, 2001,
revenues decreased 70% to $52,652 compared to $175,237 during the same period in 2000. The reason for the decrease in the comparable period is less units being monitored and leased in the year ended
December 31, 2001 (384), as compared to (1,773) the same period in 2000.

Cost
of sales represents the direct costs associated with the generation of revenue, and includes cost of goods for products which are sold, direct costs of distribution of software and
equipment, maintenance expenses on equipment repaired under service agreements, and the direct variable communications expenses associated with the monitoring services provided by iST. For the year
ended December 31, 2001, cost of sales decreased 72% to $110,198 compared to $396,985 during the same period in 2000. The primary reason for the lower cost of sales in 2001 was decreased
utilization of the monitoring units in the field, due to the business plan change discussed herein.

For
the year ended December 31, 2001, Gross (Loss) for iST was $(57,546) compared to a Gross (Loss) of $(221,748) for the same period of 2000. The reason for the decrease was
decreased revenues as discussed above.

Research
and Development expenses are the direct costs associated with iST's development of our proprietary products. Expenses in this category include the cost of outside contracted
engineering and

11

---

design, staffing expenses for iST's own engineers and software developers, and the actual costs of components, prototypes, and testing equipment and services used in the product development
functions. The Research and Development expenses increased to $496,727 for the year ended December 31, 2001, up from $371,858 for the same period in 2000. The reasons for this increase were an
increase in research and development salaries of $68,249 due to the addition of staff in the fourth quarter, and a $37,295 increase in development costs associated with the development of the
series 2100 tracking unit. We capitalized software and hardware development costs in accordance with the Statement of Financial Accounting Standard No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. The capitalization of these costs begins when a product's
technological feasibility has been established and we have a detailed product design. The capitalization of these costs ends when the product is available for general release to customers. We will
amortize these costs on a straight-line basis over an estimated economic useful life of three years or on the ratio of current revenue to total projected product revenues, whichever is
shorter once the product is available to customers. It is reasonably possible that those estimates of projected product revenues, the remaining estimated economic life of the product or both would be
reduced significantly in the near term due to competitive pressures or technological changes. As a result, the carrying amount of the capitalized software and hardware costs may be reduced materially
in the near term. $133,833 and none of capitalized software and hardware development costs were charged to expense in the years ended December 31, 2001 and 2000, respectively.

Sales
and Marketing expenses represent the costs of our sales and marketing staff, travel and related expenses associated with sales to iST's customers and prospects, the costs of
advertising in magazines and periodicals, attendance at trade shows, and production of marketing and related collateral material. Sales and Marketing expenses were $120,391 for the year ended
December 31, 2001 compared to $184,192 during the same period in 2000. The decrease is the result of a decrease in Sales and Marketing labor costs of $37,576, less travel expenses of $9,941,
and a decrease in advertising expenses of $6,934.

General
and Administrative expenses are all the indirect and overhead expenses associated with the operations of our company, outside of those expenses described above. These expenses
include executive, administrative and accounting staff payroll, taxes and benefits, rent on property, all travel not included in the Sales and Marketing expense, fixed telephone expenses, office
leases and supplies, and recruiting and training expense. For the year ended December 31, 2001, General and Administrative expense increased to $2,991,764 from $1,861,221. The main reasons for
the increase were due to increases in professional and legal fees of $190,961, a $593,388 increase in compensation and consulting costs incurred related to contract agreements, a $108,034 increase in
damaged and scrapped components associated with the discontinuation of our previous product offering, as well as an increase of $279,782 due to an allowance on deposits for inventory in association
with our dispute with EMT. See Item 3. Legal Proceedings of this Form 10-KSB.

12

---

For
the year ended December 31, 2001, operating (loss) was $(3,666,428), compared to $(2,639,019) for the same period in 2000. The main reason for this increase was higher general
and administrative expenses in the period offset by a lower gross loss as explained above.

For
the year ended December 31, 2001, interest expense totaled $671,042, compared to interest expense of $672,544 in the comparable period of 2000. This slight decrease in
interest expense in 2001 over 2000 was due to a reduction of debt in the third and fourth quarter of 2001, coupled with lower interest rates throughout the year.

For
the twelve months ended December 31, 2001, loan acquisition expense totaled $2,047,259 compared to $2,953,511 for the comparable period of 2000. This expense is due to stock
warrants issued to various stockholders or individuals for lending us money, and for their personal guarantees on the notes payable with certain banks. This expense fluctuates based on the cash needs
of iST.

For
the year ended December 31, 2001, we had other income of $199,875 compared to $0 for the comparable period of 2000. This income was the initial license fee payment from
DMATEK, LTD of Israel for entering into a worldwide non-exclusive license agreement with us allowing DMATEK the rights to use our patents in people tracking applications.

For
the year ended December 31, 2001, we had a Net Loss of $(6,184,811), compared to a Net Loss of $(6,264,335), in the comparable period of 2000, for the reasons described above.

For
the year ended December 31, 2001, dividends in arrears totaled $68,161 as compared to $0 for the year ended December 31, 2000. The increase was due to the issue of
Series A Convertible Preferred Stock on November 30, 2001. The $68,161 represents one month of dividends for the month of December 2001.

For
the year ended December 31, 2001, we had a net (loss) available to common stockholders of $(6,252,972) compared to a net (loss) available to common stockholders of
$(6,264,335) for the period ended December 31, 2000. The reasons for the difference are described above.

We
are a development stage business and have not yet achieved profitable operations. We lack sufficient operating capital. We intend to fund our ongoing development and operations
through a
combination of additional equity capital and borrowings. As of December 31, 2001, we did not have commitments for either debt or share purchases to meet our planned 2002 operating capital
requirements. No assurance can be given that we will be able to obtain such additional funding or financing, or a renewal of our note payable to Wells Fargo Bank or be able to obtain financing on
satisfactory terms. We will continue to seek additional financing sources but the failure to do so could materially adversely affect our liquidity, operating results and financial condition.

For
the year ended December 31, 2001, we used $(2,463,068) of cash in operating activities and another $(557,409) in investing activities. We generated $2,965,889 in cash from
financing activities. The total of all cash flow activities resulted in a decrease in the balance of cash for the twelve month period of $(54,588). For the same period of 2000, our Company used
$(2,123,727) of cash in operating

13

---

activities and another $(104,193) in investing activities. We generated $2,275,104 in cash from financing activities. The total of all cash flow activities resulted in an increase in the balance of
cash of $47,184.

We
secured approximately $2,850,000 in debt through the twelve months of 2001 to fund the operations through the final stages of development. We are seeking to raise $3,600,000 in equity
capital through the sale of the 4 million shares we are registering in the Form SB-2 registration statement to fund product production, provide working capital, and pay down short
term debt for 2002.

In
an agreement, dated as of November 7, 2001, Total Tech, LLC, Roger Kanne, Dennis Anderson, Martin Halbur, Macke Partners, Robert Badding and James and Patricia Pietig as
trustees of the James L. Pietig 1992 Revocable Trust U/TA 3-13-92 (collectively, the "Investors"), acquired 8,609.80 shares of our Series A Convertible Preferred
Stock (the "Series A Preferred"). Each share of Series A Preferred is convertible into 1,000 shares of Common Stock, subject to adjustment for stock splits and similar events. The
Series A Stock has a liquidation preference of $1,000 per share (the "Stated Value") and a dividend preference equal to 9.5% per annum of the Stated Value. Preferred dividends in arrears
totaled $68,181 at December 31, 2001. Dividends are payable at the option of the Board of Directors, in cash or in additional shares of Series A Stock (valued at $1,000 per share). A
group of disinterested directors determines whether such dividends are paid in cash or in-kind. Holders of Series A Stock have no voting rights except with respect to any action
which (1) alters or changes the rights, preferences or privileges of the Series A Stock materially and adversely, (2) increases the authorized number of shares of Series A
Stock, (3) creates any new class of shares having preference over or being on a parity with the Series A Stock or (4) involves sales by the Company of a substantial portion of its
assets, any merger of the Company with another entity, or any amendment of the Company's certificate of incorporation. The Series A Preferred was issued in consideration of the forgiveness of
indebtedness owed to Investors in the aggregate of $1,497,915, the assumption of $1,000,000 of bank debt by certain investors, the cancellation of 11,071,716 stock purchase warrants held by Investors
(having an aggregate value of $1,932,887) and the assumption by Total Tech, LLC of $4,178,989 of iST's indebtedness with financial institutions. As of December 31, 2001 $1,702,226 of this
indebtedness had been assumed by Total Tech, LLC. Subsequent to December 31, 2001 the remaining $2,476,763 of indebtedness had been transferred to Total Tech, LLC.

As
of February 22, 2002, our Company had the following borrowing facilities in place, all of which are guaranteed by various directors of our Company.

We
have a $750,000 note payable from U.S. Bank N.A. of Omaha, Nebraska. Our Company is repaying this loan in 35 monthly payments of $16,557 and one last payment estimated at
$369,376 payments began on July 15, 2000. The interest rate is a variable rate based on the U.S. Bank N.A. Reference Rate (the "Index Rate") plus two (2) percent. As of
December 31, 2001, the Index Rate was currently four and three-fourths (4.75) percent. This loan is secured by a security interest in our tangible and intangible assets.

We
have a $1,000,000 note payable from Wells Fargo Bank. Interest only payments are due monthly beginning May 23, 2001. The note matures on April 23, 2002 and carries an
interest rate per annum equal to the prime rate. As of December 31, 2001, the prime rate is four and three-fourths (4.75)%. We are actively seeking to renew this note with Wells Fargo Bank.

The
majority of our remaining notes payable and long-term debt consists of amounts owed to individuals, primarily directors of our Company, which mature within one year and
carry interest rates ranging from 6% to 12.00%.

Item 7. Financial Statements.

See "Item 13 Exhibits, Financial Statement Schedules and Reports on Form 8-K" for our 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.

Not applicable.

14

---



PART III

Incorporated by reference in Items 9 to 12 below are certain sections of our definitive proxy statement, to be filed pursuant to Regulation 14A with the
SEC within 120 days after December 31, 2001.

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

The information relating to our directors, nominees for election as directors and executive officers under the headings "Election of Directors" and "Executive
Officers" in our definitive proxy statement for the 2001 Annual Meeting of Shareholders is incorporated herein by reference to such proxy statement.

Item 10. Executive Compensation.

The discussion under the heading "Executive Compensation" in our definitive proxy statement for the 2001 Annual Meeting of Shareholders is incorporated herein by
reference to such proxy statement.

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

The discussion under the heading "Security Ownership of Certain Beneficial Owners and Management"in our definitive proxy statement for the 2001 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.

Item 12. Certain Relationships and Related Transactions.

The discussion under the heading "Certain Relationships and Related Transactions"in our definitive proxy statement for the 2001 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement.

Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.





|      |  |                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------
|3.01  |  | Restated Certificate of Incorporation of the Company (1)                                                            
|3.02  |  | Certificate of Amendment to Restated Articles of Incorporation (2)                                                  
|3.03  |  | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of iSecureTrac Corp. (5)
|3.04  |  | Restated Bylaws of the Company (2)                                                                                  
|4.01  |  | Form of Common Stock Certificate (1)                                                                                
|4.02  |  | Form of Subscription Agreement (5)                                                                                  
|4.03  |  | 2001 Omnibus Equity Incentive Plan (3)                                                                              
|10.01 |  | Business Office Lease (5)                                                                                           
|10.02 |  | Loan Agreement with US Bank, N.A. (1)                                                                               
|10.04 |  | License Agreement with SiRF Technology, Inc. (1)                                                                    
|10.05 |  | Agreement between iST and Telemarket Resources International (5)                                                    
|10.07 |  | ADT Distribution Agreement (5) Confidential Treatment Requested                                                     
|10.08 |  | ADT Hosting Agreement (5) Confidential Treatment Requested                                                          
|10.09 |  | Employment Agreement between iST and Michael P. May (4)                                                             
|10.10 |  | Employment Agreement between iST and James E. Stark (4)                                                             

15

---

|10.11 |  | Stock Purchase Agreement *                                                    
|----- |  | ------------------------------------------------------------------------------
|10.12 |  | Registration Rights Agreement *                                               
|10.13 |  | Consulting Services Agreement with Salzwedel Financial Communications, Inc.(5)
|21.01 |  | Subsidiaries of the Company *                                                 

---



16

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our
behalf by the undersigned, thereunto duly authorized.

| |  | iSecureTrac Corp.    
| |  | ---------------------
| |  | By:                  
| |  | Dated: March 22, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, 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/MICHAEL P. MAYMichael P. May           |  | Chairman of the
Board of Directors,
Chief Executive Officer
(Principal Executive Officer)    |  | March 22, 2002
|/s/JAMES E. STARKJames E. Stark           |  | Director, President and
Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 22, 2002
|/s/ROBERT E. BADDINGRobert E. Badding     |  | Director                                                                                     |  | March 22, 2002
|/s/MARTIN J. HALBURMartin J. Halbur       |  | Director                                                                                     |  | March 22, 2002
|/s/ROGER J. KANNERoger J. Kanne           |  | Director                                                                                     |  | March 22, 2002
|/s/RONALD W. MUHLBAUERRonald W. Muhlbauer |  | Director                                                                                     |  | March 22, 2002
|/s/RAVI NATHRavi Nath                     |  | Director                                                                                     |  | March 22, 2002
|/s/DONALD R. SMITHDonald R. Smith         |  | Director                                                                                     |  | March 22, 2002
|/s/TOM WHARTONTom Wharton                 |  | Director                                                                                     |  | March 22, 2002

17

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iSecureTrac Corp. and Subsidiary
(A Development Stage Company)
Consolidated Financial Report

F-1

---

INDEPENDENT AUDITOR'S REPORT

To
the Board of Directors
iSecureTrac Corp.
Omaha, Nebraska

We
have audited the accompanying consolidated balance sheet of iSecureTrac Corp. and subsidiary, as of December 31, 2001, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 2001 and 2000 and the period from January 5, 1992 (date of inception) to December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of iSecureTrac Corp. and subsidiary, as of December 31, 2001, and the
results of their operations and their cash flows for the years ended December 31, 2001 and 2000 and the period from January 5, 1992 (date of inception) to December 31, 2001, in
conformity with accounting principles generally accepted in the United States of America.

The
accompanying financial statements have been prepared assuming that iSecureTrac Corp. will continue as a going concern. As discussed in Note 9 to the financial statements, iSecureTrac Corp.
has suffered recurring losses and its total liabilities exceeds its total assets. These factors raise substantial doubt about iSecureTrac Corp.'s ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/
McGladrey & Pullen, LLP
Des Moines, Iowa
January 25, 2002, except for
(E) and (F) in Note 5
as to which the date
is February 22, 2002

F-2

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED BALANCE SHEET
December 31, 2001

ASSETS (Note 5)

|                                                       |                                                                                                                                                  | December 31,
2000             |          
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | ---------
|CURRENT ASSETS                                         |                                                                                                                                                  |                               |          
|                                                       | Cash                                                                                                                                             |                               | $        
|                                                       | Receivables:                                                                                                                                     |                               |          
|                                                       |                                                                                                                                                  | Trade accounts                |          
|                                                       |                                                                                                                                                  | Employees                     |          
|                                                       | Prepaid expenses                                                                                                                                 |                               |          
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  | Total current assets          |          
|LEASEHOLD IMPROVEMENTS AND EQUIPMENT (Note 3)          |                                                                                                                                                  |                               | 103,704  
|PRODUCT DEVELOPMENT COSTS                              |                                                                                                                                                  |                               | 964,340  
|OTHER ASSETS                                           |                                                                                                                                                  |                               | 11,673   
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  |                               |          
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)         |                                                                                                                                                 
|CURRENT LIABILITIES                                    |                                                                                                                                                  |                               |          
|                                                       | Notes payable (Note 5)                                                                                                                           |                               | $        
|                                                       | Checks outstanding in excess of bank balance                                                                                                     |                               |          
|                                                       | Current maturities of long-term debt (Note 5)                                                                                                    |                               |          
|                                                       | Accounts payable and accrued expenses                                                                                                            |                               |          
|                                                       | Deferred revenue                                                                                                                                 |                               |          
|                                                       | Accrued interest payable                                                                                                                         |                               |          
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  | Total current liabilities     |          
|                                                       |                                                                                                                                                  |                               |          
|LONG-TERM DEBT, less current maturities (Note 5 and 8) |                                                                                                                                                  |                               | 2,903,425
|                                                       |                                                                                                                                                  |                               |          
|STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2, 4, 7 and 8)   |                                                                                                                                                  |                               |          
|                                                       | Series A Convertible Preferred stock, 1,000,000 shares authorized at $.01 par value; 8,610 issued and outstanding, stated value $1,000 per share |                               |          
|                                                       | Common stock, 50,000,000 shares authorized at $.001 par value; 25,598,003 issued and outstanding                                                 |                               |          
|                                                       | Additional paid-in capital                                                                                                                       |                               |          
|                                                       | Deficit accumulated during the development stage                                                                                                 |                               |          
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  | Total stockholders' (deficit) |          
|                                                       |                                                                                                                                                  |                               |          
|                                                       |                                                                                                                                                  | $                             | 1,129,739
|                                                       |                                                                                                                                                  |                               |          

See
Notes to Consolidated Financial Statements

F-3

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000 and the Period from January 5, 1992
(Date of Inception) to December 31, 2001

|                                                                                    |                            | Year Ended
2001                        |            | Year Ended
2000 |            | January 5, 1992
to December 31,
2001 |           
|----------------------------------------------------------------------------------- | -------------------------- | -------------------------------------- | ---------- | --------------- | ---------- | ------------------------------------ | ----------
|Revenues                                                                            |                            |                                        | 52,652     |                 |            | 175,237                              |           
|Cost of sales                                                                       |                            |                                        | 110,198    |                 |            | 396,985                              |           
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|                                                                                    | Gross (loss)               |                                        |            | (57,546         | )          |                                      | (221,748  
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|Expenses:                                                                           |                            |                                        |            |                 |            |                                      |           
|                                                                                    | Research and development   |                                        |            | 496,727         |            |                                      | 371,858   
|                                                                                    | Sales and marketing        |                                        |            | 120,391         |            |                                      | 184,192   
|                                                                                    | General and administrative |                                        |            | 2,991,764       |            |                                      | 1,861,221 
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|                                                                                    |                            |                                        | 3,608,882  |                 |            | 2,417,271                            |           
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|                                                                                    | Operating (loss)           |                                        |            | (3,666,428      | )          |                                      | (2,639,019
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|Other income (expense):                                                             |                            |                                        |            |                 |            |                                      |           
|                                                                                    |                            | Interest income                        |            |                 | 43         |                                      |           
|                                                                                    |                            | Interest expense (Note 5)              |            |                 | (671,042   | )                                    |           
|                                                                                    |                            | Loan acquisition expense, stockholders |            |                 | (2,047,259 | )                                    |           
|                                                                                    |                            | Other, net                             |            |                 | 199,875    |                                      |           
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|                                                                                    |                            |                                        | (2,518,383 | )               |            | (3,625,316                           | )         
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|(Loss) before extraordinary item and provision for income taxes                     |                            |                                        | (6,184,811 | )               |            | (6,264,335                           | )         
|Extraordinary item, gain from extinguishment of debt, net of income taxes (Note 10) |                            |                                        |           |                 |            |                                     |           
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|(Loss) before provision for income taxes                                            |                            |                                        | (6,184,811 | )               |            | (6,264,335                           | )         
|Provision for income taxes (Note 6)                                                 |                            |                                        |           |                 |            |                                     |           
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|Net (loss)                                                                          |                            |                                        | (6,184,811 | )               |            | (6,264,335                           | )         
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|Preferred dividends in arrears (Note 8)                                             |                            |                                        | (68,161    | )               |            |                                     |           
|Net (loss) available to common stockholders                                         |                            | $                                      | (6,252,972 | )               | $          | (6,264,335                           | )         
|                                                                                    |                            |                                        |            |                 |            |                                      |           
|Basic and diluted (loss) per common share:                                          |                            |                                        |            |                 |            |                                      |           
|                                                                                    | Before extraordinary item  |                                        | $          | (0.29           | )          | $                                    | (0.41     
|                                                                                    | Extraordinary item         |                                        |            |                |            |                                      |          
|                                                                                    | After extraordinary item   |                                        |            | (0.29           | )          |                                      | (0.41     
|Weighted average shares of common stock outstanding                                 |                            |                                        | 21,307,617 |                 |            | 15,253,736                           |           

See
Notes to Consolidated Financial Statements

F-4

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period From January 5, 1992 (Date of Inception) to December 31, 2001

|                           |                                                                                                                                                                                     | Series A
Convertible  |   |   |   |   |           |           |           |       |       |       |          
|-------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | - | - | - | --------- | --------- | --------- | ----- | ----- | ----- | ---------
|
|
|
|
|Balance, January 5, 1992   |                                                                                                                                                                                     |                      |   | $ |  |   |          |           | $         |      |       | $     |         
|                           | Issuance of stock for cash at $.0012 per share                                                                                                                                      |                       |  |   |   |  |           | 3,300,000 |           |       | 3,300 |       |          
|                           | Net (loss)                                                                                                                                                                          |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                                                                                     |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1992 |                                                                                                                                                                                     |                      |   |   |  |   | 3,300,000 |           |           | 3,300 |       |       | 700      
|                           | Net (loss)                                                                                                                                                                          |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                                                                                     |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1993 |                                                                                                                                                                                     |                      |   |   |  |   | 3,300,000 |           |           | 3,300 |       |       | 700      
|                           | Net income                                                                                                                                                                          |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                                                                                     |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1994 |                                                                                                                                                                                     |                      |   |   |  |   | 3,300,000 |           |           | 3,300 |       |       | 700      
|                           | Issuance of stock for services and the assignment, rights, title and interest in an invention disclosed in the Company's patent application on January 1, 1995, at $.0012 per share |                       |  |   |   |  |           | 583,688   |           |       | 584   |       |          
|                           | Capital contributed by a shareholder                                                                                                                                                |                       |  |   |   |  |           |          |           |       |      |       |          
|                           | Issuance of stock through a private placement memorandum at $3.64 per share, net of offering costs                                                                                  |                       |  |   |   |  |           | 294,360   |           |       | 294   |       |          
|                           | Net (loss)                                                                                                                                                                          |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                                                                                     |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1995 |                                                                                                                                                                                     |                      |   |   |  |   | 4,178,048 |           |           | 4,178 |       |       | 1,019,937
|                           | Issuance of stock through a private placement memorandum at $3.64 per share, net of offering costs                                                                                  |                       |  |   |   |  |           | 118,140   |           |       | 118   |       |          
|                           | Cancellation of stock at $.001 per share                                                                                                                                            |                       |  |   |   |  |           | (577,500  | )         |       | (577  | )     |          
|                           | Issuance of stock at $.01 per share in connection with notes payable                                                                                                                |                       |  |   |   |  |           | 412,500   |           |       | 412   |       |          
|                           |                                                                                                                                                                                     |                       |   |   |   |   |           |           |           |       |       |       |          
|                           |                                                                                                                                                                                     | Subtotal carryforward |   |  |   |   |          |           | 4,131,188 |       |       | 4,131 |          

(Continued)

F-5

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Period From January 5, 1992 (Date of Inception) to December 31, 2001

|                           |                                                                                                                        | Series A
Convertible  |   |   |   |   |           |           |           |       |       |       |          
|-------------------------- | ---------------------------------------------------------------------------------------------------------------------- | --------------------- | - | - | - | - | --------- | --------- | --------- | ----- | ----- | ----- | ---------
|
|
|
|
|                           |                                                                                                                        | Subtotal carryforward |   |  |   | $ |          |           | 4,131,188 |       | $     | 4,131 |          
|                           | Issuance of stock related to the conversion of 10% convertible subordinate debenture at $6.06 per share                |                       |  |   |   |  |           | 41,250    |           |       | 41    |       |          
|                           | Net (loss)                                                                                                             |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                        |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1996 |                                                                                                                        |                      |   |   |  |   | 4,172,438 |           |           | 4,172 |       |       | 1,643,112
|                           | Issuance of stock in connection with notes payable and accrued interest                                                |                       |  |   |   |  |           | 976,882   |           |       | 977   |       |          
|                           | Cost of private placement                                                                                              |                       |   |   |   |   |           |          |           |       |      |       |          
|                           | Issuance of stock for services at $.01 per share                                                                       |                       |  |   |   |  |           | 82,500    |           |       | 82    |       |          
|                           | Issuance of stock related to conversion of subordinated debentures, notes and accrued interest                         |                       |  |   |   |  |           | 1,366,117 |           |       | 1,367 |       |          
|                           | Payment of stock bonuses                                                                                               |                       |  |   |   |  |           | 2,063     |           |       | 2     |       |          
|                           | Shares issued to shareholders of Sage Analytical International, Inc., prior to "reverse acquisition takeover" (Note 2) |                       |  |   |   |  |           | 437,099   |           |       | 437   |       |          
|                           | Issuance of shares as finder fees for "reverse acquisition takeover" Sage Analytical International, Inc. (Note 2)      |                       |  |   |   |  |           | 450,000   |           |       | 450   |       |          
|                           | Net (loss)                                                                                                             |                       |  |   |   |  |           |          |           |       |      |       |          
|                           |                                                                                                                        |                       |   |   |   |   |           |           |           |       |       |       |          
|Balance, December 31, 1997 |                                                                                                                        |                      |   |   |  |   | 7,487,099 |           |           | 7,487 |       |       | 5,310,477

(Continued)

F-6

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Period From January 5, 1992 (Date of Inception) to December 31, 2001

|                           |                                                                              | Series A
Convertible  |       |   |    |    |            |            |           |        |        |       |          
|-------------------------- | ---------------------------------------------------------------------------- | --------------------- | ----- | - | -- | -- | ---------- | ---------- | --------- | ------ | ------ | ----- | ---------
|
|
|
|
|                           |                                                                              | Subtotal carryforward |       |  |    | $  |           |            | 7,487,099 |        | $      | 7,487 |          
|                           | Shares issued for Comguard Leasing and Financial, Inc., acquisition (Note 4) |                       |      |   |    |   |            | 2,191,145  |           |        | 2,191  |       |          
|                           | Consultation fees Comguard acquisition at $0.44 per share (Note 4)           |                       |      |   |    |   |            | 242,500    |           |        | 243    |       |          
|                           | Shares issued for employee bonuses at $0.30 per share                        |                       |      |   |    |   |            | 457,750    |           |        | 458    |       |          
|                           | Private placement memorandum proceeds at $2.00 per share                     |                       |      |   |    |   |            | 1,250,000  |           |        | 1,250  |       |          
|                           | Shares issued for line of credit guarantor fees at $0.25 per share           |                       |      |   |    |   |            | 1,000,000  |           |        | 1,000  |       |          
|                           | Shares sold pursuant to warrant exercise at $1.00 per share                  |                       |      |   |    |   |            | 5,000      |           |        | 5      |       |          
|                           | Net (loss)                                                                   |                       |      |   |    |   |            |           |           |        |       |       |          
|                           |                                                                              |                       |       |   |    |    |            |            |           |        |        |       |          
|Balance, December 31, 1998 |                                                                              |                      |       |   |   |    | 12,633,494 |            |           | 12,634 |        |       | 8,306,546
|                           | Shares issued for employee bonuses at $0.30 per share                        |                       |      |   |    |   |            | 152,000    |           |        | 152    |       |          
|                           | Shares issued for line of credit guarantor fees at $0.17 per share           |                       |      |   |    |   |            | 500,000    |           |        | 500    |       |          
|                           | Shares returned from rescission of Comguard acquisitions (Note 4)            |                       |      |   |    |   |            | (2,191,145 | )         |        | (2,191 | )     |          
|                           | Shares issued for services                                                   |                       |      |   |    |   |            | 1,443,275  |           |        | 1,443  |       |          
|                           | Shares issued for loan guarantees at $.015 per share                         |                       |      |   |    |   |            | 850,000    |           |        | 850    |       |          
|                           | Paid in capital for cost of options issued (Note 7)                          |                       |      |   |    |   |            |           |           |        |       |       |          
|                           | Shares issued for cash at $0.60 per share                                    |                       |      |   |    |   |            | 121,334    |           |        | 122    |       |          
|                           | Shares issued for cash at $100 per share                                     |                       | 1,000 |   |    | 10 |            |           |           |        |       |       |          
|                           | Net (loss)                                                                   |                       |      |   |    |   |            |           |           |        |       |       |          
|                           |                                                                              |                       |       |   |    |    |            |            |           |        |        |       |          
|Balance, December 31, 1999 |                                                                              | 1,000                 |       |   | 10 |    | 13,508,958 |            |           | 13,510 |        |       | 8,978,667

(Continued)

F-7

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Period From January 5, 1992 (Date of Inception) to December 31, 2001

|                           |                                                                                   | Series A
Convertible  |        |       |   |     |            |           |            |        |       |        |           
|-------------------------- | --------------------------------------------------------------------------------- | --------------------- | ------ | ----- | - | --- | ---------- | --------- | ---------- | ------ | ----- | ------ | ----------
|
|
|
|
|                           |                                                                                   | Subtotal carryforward |        | 1,000 |   | $   | 10         |           | 13,508,958 |        | $     | 13,510 |           
|                           | Exchange preferred stock for debt                                                 |                       | (1,000 | )     |   | (10 | )          |          |            |        |      |        |           
|                           | Shares issued for services                                                        |                       |       |       |   |    |            | 3,033,318 |            |        | 3,033 |        |           
|                           | Shares issued in connection with stockholder loans                                |                       |       |       |   |    |            | 200,000   |            |        | 200   |        |           
|                           | Shares issued for loan guarantees                                                 |                       |       |       |   |    |            | 1,380,024 |            |        | 1,380 |        |           
|                           | Shares issued for cash at $0.60 per share                                         |                       |       |       |   |    |            | 116,668   |            |        | 117   |        |           
|                           | Shares issued for directors fees                                                  |                       |       |       |   |    |            | 180,101   |            |        | 180   |        |           
|                           | Shares issued for debt restructure at $0.30 per share                             |                       |       |       |   |    |            | 281,077   |            |        | 281   |        |           
|                           | Shares issued upon exercise of warrants at $0.43 per share                        |                       |       |       |   |    |            | 46,500    |            |        | 46    |        |           
|                           | Warrants issued in connection with stockholder loans and loan guarantees (Note 7) |                       |       |       |   |    |            |          |            |        |      |        |           
|                           | Options issued to employees (Note 7)                                              |                       |       |       |   |    |            |          |            |        |      |        |           
|                           | Net (loss)                                                                        |                       |       |       |   |    |            |          |            |        |      |        |           
|                           |                                                                                   |                       |        |       |   |     |            |           |            |        |       |        |           
|Balance, December 31, 2000 |                                                                                   |                      |        | $     |  |     | 18,746,646 |           | $          | 18,747 |       | $      | 12,532,907

(Continued)

F-8

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Period From January 5, 1992 (Date of Inception) to December 31, 2001

|                           |                                                                                                         | Series A
Convertible  |       |   |           |           |            |           |            |        |       |        |           
|-------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------- | ----- | - | --------- | --------- | ---------- | --------- | ---------- | ------ | ----- | ------ | ----------
|
|
|
|
|                           |                                                                                                         | Subtotal carryforward |       |  |           | $         |           |           | 18,746,646 |        | $     | 18,747 |           
|                           | Shares issued upon exercise of warrants at $0.43 per share                                              |                       |      |   |           |          |            | 12,500    |            |        | 12    |        |           
|                           | Shares issued for directors fees                                                                        |                       |      |   |           |          |            | 248,861   |            |        | 249   |        |           
|                           | Shares issued to existing stockholders in payment of notes payable and long-term debt                   |                       |      |   |           |          |            | 471,191   |            |        | 471   |        |           
|                           | Shares issued for services                                                                              |                       |      |   |           |          |            | 356,110   |            |        | 356   |        |           
|                           | Shares issued to existing stockholders in exchange for cancellation of notes payable and long-term debt |                       |      |   |           |          |            | 5,762,695 |            |        | 5,763 |        |           
|                           | Options issued to employees
(Note 7)                                                                    |                       |      |   |           |          |            |          |            |        |      |        |           
|                           | Warrants issued in connection with stockholder loans and loan guarantees                                |                       |      |   |           |          |            |          |            |        |      |        |           
|                           | Shares issued upon surrender of warrants, assumption of bank notes and forgiveness of debt              |                       | 6,133 |   |           | 6,133,027 |            |          |            |        |      |        |           
|                           | Shares issued in anticipation of assumption of bank debt                                                |                       | 2,477 |   |           |          |            |          |            |        |      |        |           
|                           | Net (loss)                                                                                              |                       |      |   |           |          |            |          |            |        |      |        |           
|                           |                                                                                                         |                       |       |   |           |           |            |           |            |        |       |        |           
|Balance, December 31, 2001 |                                                                                                         | 8,610                 |       | $ | 6,133,027 |           | 25,598,003 |           | $          | 25,598 |       | $      | 15,125,671
|                           |                                                                                                         |                       |       |   |           |           |            |           |            |        |       |        |           

See Notes to Consolidated Financial Statements.

F-9

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000 the Period From
January 5, 1992 (Date of Inception) to December 31, 2001

|                                     |                                                                                 | 2001                                                                     |                                                              | 2000                                    |           | January 5, 1992
(Date of Inception)
to December 31,
2001 |           
|------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------------ | --------------------------------------- | --------- | -------------------------------------------------------- | ----------
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           
|                                     | Net (loss)                                                                      |                                                                          | $                                                            | (6,184,811                              | )         | $                                                        | (6,264,335
|                                     | Adjustments to reconcile net (loss) to net cash
(used in) operating activities: |                                                                          |                                                              |                                         |           |                                                          |           
|                                     |                                                                                 | Loss on asset abandonment                                                |                                                              |                                         | 247,164   |                                                          |           
|                                     |                                                                                 | Loss on inventory obsolence                                              |                                                              |                                         |          |                                                          |           
|                                     |                                                                                 | Depreciation and amortization                                            |                                                              |                                         | 131,053   |                                                          |           
|                                     |                                                                                 | Loss on sale of leasehold improvements and equipment                     |                                                              |                                         | 86,893    |                                                          |           
|                                     |                                                                                 | Expenses paid by issuance of stock, warrants and options in lieu of cash |                                                              |                                         | 2,768,953 |                                                          |           
|                                     |                                                                                 | Gain from forgiveness of debt                                            |                                                              |                                         |          |                                                          |           
|                                     |                                                                                 | Provision for bad debts                                                  |                                                              |                                         | 3,100     |                                                          |           
|                                     |                                                                                 | Changes in operating assets and liabilities:                             |                                                              |                                         |           |                                                          |           
|                                     |                                                                                 |                                                                          | (Increase) decrease in trade accounts receivable             |                                         |           | 8,499                                                    |           
|                                     |                                                                                 |                                                                          | (Increase) decrease in employee receivables                  |                                         |           | (700                                                     | )         
|                                     |                                                                                 |                                                                          | (Increase) decrease in inventories                           |                                         |           | 77,000                                                   |           
|                                     |                                                                                 |                                                                          | (Increase) in prepaid expenses                               |                                         |           | (32,598                                                  | )         
|                                     |                                                                                 |                                                                          | Increase (decrease) in accounts payable and accrued expenses |                                         |           | 170,485                                                  |           
|                                     |                                                                                 |                                                                          | Increase in accrued interest payable                         |                                         |           | 185,331                                                  |           
|                                     |                                                                                 |                                                                          | Increase in deferred revenue                                 |                                         |           | 76,563                                                   |           
|                                     |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           
|                                     |                                                                                 |                                                                          |                                                              | Net cash (used in) operating activities |           |                                                          | (2,463,068
|                                     |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           
|CASH FLOWS FROM INVESTING ACTIVITIES |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           
|                                     | Purchase of leasehold improvements and equipment                                |                                                                          |                                                              | (29,918                                 | )         |                                                          | (27,890   
|                                     | Proceeds from sale of leasehold improvements and equipment                      |                                                                          |                                                              | 15,872                                  |           |                                                          |          
|                                     | Purchase of intellectual property                                               |                                                                          |                                                              |                                        |           |                                                          |          
|                                     | (Increase) decrease in due from Comguard, net                                   |                                                                          |                                                              |                                        |           |                                                          | 77,086    
|                                     | Product development costs                                                       |                                                                          |                                                              | (557,458                                | )         |                                                          | (152,087  
|                                     | Acquisition/disposal of other assets                                            |                                                                          |                                                              | 14,095                                  |           |                                                          | (1,302    
|                                     |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           
|                                     |                                                                                 |                                                                          |                                                              | Net cash (used in) investing activities |           |                                                          | (557,409  
|                                     |                                                                                 |                                                                          |                                                              |                                         |           |                                                          |           

F-10

---

iSecureTrac Corp. and Subsidiary
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000 the Period From
January 5, 1992 (Date of Inception) to December 31, 2001

|                                                                    |                                                                                                                         | 2001 |   | 2000                                      |   | January 5, 1992
(Date of Inception)
to December 31,
2001 |          
|------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---- | - | ----------------------------------------- | - | -------------------------------------------------------- | ---------
|CASH FLOWS FROM FINANCING ACTIVITIES                                |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    | Notes payable, net                                                                                                      |      | $ | 2,959,082                                 |   | $                                                        | 2,192,296
|                                                                    | Proceeds from long-term debt                                                                                            |      |   |                                          |   |                                                          | 95,000   
|                                                                    | Principal payments on long-term debt                                                                                    |      |   | (142,638                                  | ) |                                                          | (83,836  
|                                                                    | Proceeds from issuance of common stock                                                                                  |      |   | 5,375                                     |   |                                                          | 89,996   
|                                                                    | Increase (decrease) in checks outstanding in excess of bank balance                                                     |      |   | 144,070                                   |   |                                                          | (18,352  
|                                                                    | Proceeds from issuance of preferred stock                                                                               |      |   |                                          |   |                                                          |         
|                                                                    |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    |                                                                                                                         |      |   | Net cash provided by financing activities |   |                                                          | 2,965,889
|                                                                    |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    |                                                                                                                         |      |   | Increase (decrease) in cash               |   |                                                          | (54,588  
|CASH                                                                |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    | Beginning                                                                                                               |      |   | 55,027                                    |   |                                                          | 7,843    
|                                                                    |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    | Ending                                                                                                                  |      | $ | 439                                       |   | $                                                        | 55,027   
|                                                                    |                                                                                                                         |      |   |                                           |   |                                                          |          
|SUPPLEMENTAL DISCLOSURE OF CASH
PAYMENTS FOR                        |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    | Interest                                                                                                                |      | $ | 485,711                                   |   | $                                                        | 954,322  
|                                                                    | Income taxes                                                                                                            |      |   |                                          |   |                                                          |         
|SUPPLEMENT DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |                                                                                                                         |      |   |                                           |   |                                                          |          
|                                                                    | Exchange of preferred stock for notes payable                                                                           |      | $ |                                          |   | $                                                        | 100,000  
|                                                                    | Conversion of note payable to long-term debt                                                                            |      |   |                                          |   |                                                          | 750,000  
|                                                                    | Issuance of common and preferred stock in lieu of payment on long-term debt, notes payable and accrued interest payable |      |   | 5,958,314                                 |   |                                                          |         
|                                                                    | Product development costs purchased on account                                                                          |      |   | 156,943                                   |   |                                                          |         

See
Notes to Consolidated Financial Statements.

F-11

---



iSecureTrac Corp. and Subsidiary  (A Development Stage Company)        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of business:iSecureTrac Corp. ("iST")(formerly Advanced Business Sciences, Inc.) was incorporated under the
laws of the state of Colorado on June 13, 1983. On June 19, 2001, Advanced Business Sciences, Inc.'s name was changed to iSecureTrac Corp. This name change was made to better
reflect iST's current and future business activities of providing advanced tracking solutions for the monitoring of individuals and assets via a secure web hosted application.

The
Company is considered to be a development stage company.

iST
designs, develops, produces, sells, leases and supports wireless products and services relating to the tracking, monitoring, and reporting of individuals and objects. iST products
are designed to enhance productivity, reduce costs, and improve overall response using on-line access to information previously maintained on a variety of media. iST primarily markets to
the criminal justice application for continuous electronic monitoring.

Significant accounting policies:

Revenue recognition:Product revenues and cost of goods sold are recognized when shipments are made. Service revenues and
related expenses are recognized once the service has been performed. Other revenues and directly related expenses are recognized ratably over the life of the agreement commencing when products are
delivered to the customer. Deferred revenue relates to payments received for product that has not been shipped. License fee payments have been recorded as other income when payment had been received
and the Company has no other obligations under the license fee arrangement.

Earnings per share:Basic Earnings Per Common Share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted Earnings 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 per share shall be presented.

The
following contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share:

2001

2000Shares issuable upon conversion of Series A Convertible Preferred Stock

8,609,800

Common stock options outstanding

8,439,158

1,674,158Common stock warrants outstanding

1,058,154

13,454,549Convertible subordinated debentures

13,201

13,201


Leasehold improvements and equipment:Leasehold improvements and equipment are recorded at cost. Equipment is depreciated on
the straight-line method over the estimated useful lives of the related assets. The cost of leasehold improvements is amortized over the lesser of the estimated lives of the assets or the
lease term.

F-12

---

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, 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.

Principles of consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary ABS Nebraska, Inc. The subsidiary is inactive. All material intercompany balances and transactions have been eliminated in consolidation.

Income taxes:Deferred taxes are provided on a liability method whereby 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.

Advertising costs:Advertising costs are expensed as incurred.

Stock options and warrants:Compensation expense for stock issued to an employee through a stock options plan is accounted
for using the intrinsic value based method of accounting prescribed by APB Opinion No. 25,Accounting for Stock Issued to Employees. Under this
method, compensation is measured as the difference between the fair value of the stock at the date of award and the amount required to be paid for the stock. The cost is charged to expense over the
periods of service.

The
fair value of stock options and warrants issued to nonemployees is being accounted by FASB Statement No. 123,Accounting for Stock Based
Compensation. Related compensation expense is charged to income.

Warrants
and common stock issued in consideration for notes payable and debt guarantee fees is expensed in the period incurred due to the short term nature of the related notes.

Product development:iST capitalized software and hardware development costs in accordance with the Statement of Financial
Accounting Standard No. 86,Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. The capitalization of these
costs begins when a product's technological feasibility has been established and the Company has a detailed product design and ends when the product is available for general release to customers. iST
will amortize these costs on a straight-line basis over an estimated economic useful life of three years or on the ratio of current revenue to total projected product revenues, whichever
is shorter once the product is available to customers. It is reasonably possible that those estimates of projected product revenues, the remaining estimated economic life of the product or both would
be reduced significantly in the near term due to competitive pressures or technological changes. As a result, the carrying amount of the capitalized software and hardware costs may be reduced
materially in the near term. $133,833 and none of capitalized software and hardware development costs were charged to expense in the years ended December 31, 2001 and 2000, respectively.

F-13

---

Patents:Patents are included in other assets at cost less accumulated amortization. Amortization is by the
straight-line method over ten years.

Segments of business:The Company currently only has one segment line of business.

New accounting pronouncements:

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These
statements prohibit pooling-of-interests accounting for transactions initiated after June 30, 2001, require the use of the purchase method of accounting for all
combinations after June 30, 2001, and establish new standards for accounting for goodwill and other intangibles acquired in business combinations. Goodwill will continue to be recognized as an
asset, but will not be amortized as previously required by APB Opinion No. 17, "Intangible Assets." Certain other intangible assets with indefinite lives, if present, may also not be amortized.
Instead, goodwill and other intangible assets will be subject to periodic (at least annual) tests for impairment, and recognition of impairment losses in the future could be required based on a new
methodology for measuring impairments prescribed by these pronouncements. The revised standards include transition rules and requirements for identification, valuation and recognition of a much
broader list of intangibles as part of business combinations than prior practice, most of which will continue to be amortized. iST is required to be in conformity with the provisions of SFAS
No. 142 no later than the fiscal year beginning January 1, 2002. The adoption of SFAS No. 142 is not expected to have a material effect on the Company's financial position or
results of operations.

In
August 2001, the FASB released SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. SFAS No. 144 establishes a
single accounting model for long-lived assets disposed of by sale. iST is required to be in conformity with the provisions of SFAS No. 144 no later than the fiscal year beginning
January 1, 2002. The adoption of SFAS No. 144 is not expected to have a material effect on the Company's financial position or results of operations.

Note 2. Reverse Takeover and Recapitalization

Pursuant to a Plan and Agreement of Reorganization dated November 3, 1997, Advanced Business Sciences, Inc., a Nebraska Corporation, (the legal
acquiree) and Sage Analytics International, Inc., a Delaware Corporation, (the legal acquirer) exchanged common stock to give the stockholders of the legal acquiree control of the legal
acquirer.

Stockholders
of the legal acquiree surrendered 100% of the outstanding shares of common stock (80,000 shares) in exchange for 6,600,000 shares of the legal acquirer. Each share of the
legal acquiree was exchanged for 82.5 shares of the legal acquirer's previously unissued common stock. As part of the agreement the legal acquirer issued 450,000 shares to persons as finders fees.

F-14

---

Following
the exchange the stockholders of the legal acquiree held 6,600,000 shares of the 7,487,099 issued shares of the legal acquirer (88.2%).

On
December 18, 1997, Sage Analytics International, Inc., the legal acquirer, filed a Certificate of Amendment with the Secretary of State of the state of Delaware changing
its name to Advanced Business Sciences, Inc.

The
share exchange of a private operating Company, (Advanced Business Sciences, Inc.) into a non-operating public shell corporation (Sage Analytics
International, Inc.), with no assets or liabilities resulted in the stockholders of the private company having actual operating control of the combined company after the transaction, and the
stockholders of the former public shell continuing only as passive investors.

This
transaction is considered to be a capital transaction in substance, rather than a business combination. That is, the transaction is equivalent to the issuance of stock by the
private company for the net monetary assets of the shell corporation, accompanied by a recapitalization. The accounting is identical to that resulting from a reverse acquisition, except no goodwill or
other intangible is recorded.

In
accordance with this guideline the outstanding shares of iST, have been retroactively restated on the Balance Sheet, and the Statement of Stockholders' Equity to give effect to the
82.5 shares for 1 share exchange. The retroactively restated shares have been used in the Computations for Earnings (Losses) Per Share to preserve comparability of those figures.

Note 3. Leasehold Improvements and Equipment

Leasehold improvements and equipment at December 31, 2001, are as follows:

Leasehold improvements

$
10,000Furniture and equipment


406,493416,493Less accumulated depreciation


312,789$
103,704


Note 4. Acquisition and Rescission of Comguard Leasing and Financial, Inc.

On
August 24, 1998, iST entered into a Plan and Agreement of Reorganization, pursuant to which iST acquired all of the issued and outstanding shares of capital stock of Comguard
Leasing and Financial, Inc., an Illinois Corporation. On June 1, 1999, iST, Comguard Leasing and Financial, Inc., and the shareholders of Comguard Leasing and
Financial, Inc., entered into an agreement whereby the 2,191,145 shares of the Company's shares issued to acquire Comguard Leasing and Financial, Inc., would be returned to iST and iST
would receive a note from Comguard Leasing and Financial, Inc., in the amount of $88,514 which represents the expenditures made by iST on behalf of Comguard Leasing and Financial, Inc.
Subsequent to December 31, 1999, iST accepted an offer of Settlement from Comguard Leasing to settle the amount owed for $77,086. In 1999, the note receivable was adjusted to the amount
received upon settlement.

F-15

---

Note 5. Pledged Assets, Notes Payable and Long Term Debt at December 31, 2001

iST has the following notes payable and long-term debt at December 31, 2001:

Notes
payable:

|Unsecured notes payable due to certain stockholders, principal and interest are due at maturity (January 2002 to November 2002). Interest rate vary from 10-12%.(A)                                                                |  | $ | 653,920  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------
|Unsecured note payable due to a stockholder, principal and interest are due January 2002. Interest rate is prime plus 1.25% (6.0% at December 31, 2001). (A)                                                                       |  |   | 40,000   
|Note payable bank, interest is due monthly at prime (4.75% at December 31, 2001) through April 2002, when all remaining principal and interest are due. The note is secured by the personal guarantees of various
stockholders.(B) |  |   | 1,000,000
|Other                                                                                                                                                                                                                              |  |   | 10,000   
|                                                                                                                                                                                                                                   |  |  
|                                                                                                                                                                                                                                   |  | $ | 1,703,920
|                                                                                                                                                                                                                                   |  |  

Long-term
debt:

Notes
payable to be assumed by stockholders:

|Note payable bank, 2 monthly payments of $12,307 due beginning November 5, 2001, with a final payment of unpaid principal and accrued interest due on January 5, 2002. The interest rate is seven and one-half
(7.50)% per annum. The note is secured by personal guarantees of various stockholders. (C)(D) |                                                                                                                                                                                                                                                                                                                                                       |   | 976,763  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------
|Note payable bank, due August 2, 2002. The interest rate is six (6.00)% per annum. The note is secured by personal guarantees of various stockholders. (B)(E)                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                       |   | 1,000,000
|Note payable bank, due October 05, 2002. The interest rate is eight (8.00)% per annum. (A)(F)                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                       |   | 500,000  
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |  
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       | $ | 2,476,763
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |  
|Other long-term debt:                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                       |   |          
|                                                                                                                                                                                                                                                                                                             | Note payable bank, due in monthly installments of $16,557 including interest at the Bank's prime rate plus 2.00% (6.75% at December 31, 2001) through June 2003, when all remaining principal and interest are due. The note
is collateralized by substantially all the assets of the Company and the personal guarantees of various stockholders.(C) |   |          
|                                                                                                                                                                                                                                                                                                             | 10% convertible subordinated debentures, due June 2002, convertible into shares of common stock at $6.06 per share.                                                                                                                                                                                                                                   |   |          
|                                                                                                                                                                                                                                                                                                             | Other                                                                                                                                                                                                                                                                                                                                                 |   |          
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |  
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |   | 661,197  
|                                                                                                                                                                                                                                                                                                             | Less current portion                                                                                                                                                                                                                                                                                                                                  |   |          
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |  
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       | $ | 426,662  
|                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                       |  

F-16

---

Interest
expense to stockholders for the years ended December 31, 2001 and 2000, was approximately $227,000 and $170,000, respectively.

---

The
aggregate maturities of long-term debt as of December 31, 2001, are as follows:

|Years Ending December 31, |      |   |        
|------------------------- | ---- | - | -------
|                          | 2002 |   | $      
|                          | 2003 |   |        
|                          |      |  
|                          |      | $ | 661,197
|                          |      |  

The
carrying value of fixed rate bank debt payable approximates its fair value at December 31, 2001 due to the stockholder guarantees and the relatively short-term
nature of the borrowings. It was not practical to determine the fair value of all other debt but, its fair value is believed to be substantially less than its carrying value.

Note 6.    Income Taxes

Net deferred taxes in the accompanying balance sheets include the following components as of December 31, 2001:

Net operating loss carryforward


10,160,000Other


10,00010,170,000Valuation allowance


(10,170,000
)Net deferred tax asset

$



F-17

---

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, 2001
and 2000, and the period from January 5, 1992 (date of inception) to December 31, 2001 due to the following:

2001

2000

Date of Inception
to December 31,
2001Computed "expected" tax (benefit)

$
(2,043,336
)
$
(2,129,874
)
$
(8,794,504
)Increase (decrease) in income taxes (benefits) resulting from:Benefit from state taxes


(360,589
)

(375,860
)

(1,551,971
)Nondeductible expenses


131,925


(151,266
)

176,475Increase in the valuation allowance


2,272,000


2,657,000


10,170,000$


$


$



iST
has net operating losses of approximately $25,400,000 to carryforward for future tax purposes that expire from 2010 to 2021. Due to the uncertainty surrounding the timing of the
realization of the benefit from the net operating loss carryforward, the Company has recorded a valuation allowance to offset the deferred tax asset.

Note 7.    Stock Options and Warrants

Stock options

Sage Analytics International, Inc., the legal acquirer, (see Note 2) has 140,825 options. All of these options expire no later than
November 2003. As permitted under generally accepted accounting principles, these options were accounted for following APB No. 25, and accordingly, no compensation expense was
recognized.

In
2001 iST issued options to purchase in the aggregate of 5,000,000 shares of common stock at an exercise price 85% of the average daily closing price of the common stock for the week
prior to when the options were granted to the Chairman of the Board of Directors. The options are to vest on a monthly basis over a two year period of time which began January 1, 2001. The
President was also issued options to purchase in the aggregate of 1,000,000 shares of common stock 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 two year period of time which began February 1, 2001. Both of these option grants contain
provisions that accelerate vesting if the common stock price meets various thresholds or if various working capital requirements are met. 1,800,000 options vested according to the common stock price
thresholds.

In
November 2001, iST granted options to purchase in the aggregate of 600,000 shares of common stock at an exercise price 85% of the average daily closing price of the common stock for
the week prior to when the options were granted to the Senior Vice President of Technology, Senior Vice President of Sales and Marketing and the Senior Vice President of Product and Project
Development. The options are to vest on a monthly basis over a two year period of time which began November 5, 2001.

F-18

---

In
June 2001, the shareholders of iST approved the 2001 Omnibus Equity Incentive Plan. The 2001 Omnibus Equity Incentive Plan provides for the granting of stock options and other equity
incentives for up to 1,000,000 shares of the Company's Common Stock to the Company's officers 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. As of December 31, 2001, grants for 165,000 shares of Common Stock have been made, none of which were made to the Company's directors
or executive officers, and 835,000 shares of Common Stock remain available for new option grants under this plan. The options are to vest on a monthly basis over a two year period of time from the
date of grant.

In
1999, iST issued stock options to two key employees to purchase shares of common stock of iST (4,000,000 options and 500,000 options, respectively). The options vest
(1/3 of the options, 1st block) beginning at the earlier of anniversary date (December 31, 1999 and July 30, 2000, respectively) or when the closing price of the common
stock exceeds $3.00 per share for at least five consecutive days. The options are exercisable ($0.10 per share and $0.20 per share, respectively) for a period of three years from date of vesting. The
second and third (1/3 blocks of options) vest one year and two years after the first block of options or when the closing price of the common stock exceeds $4.00 (2nd block of options)
or $6.00 (3rd block of options) for at least five consecutive days. The options are exercisable ($0.10 per share and $0.20 per share, respectively) for a period of three years from the date of
vesting. The fair value at the date of grants were $0.18 and $0.20, respectively. Of the 4,000,000 options, 1,333,333 (1st block) are vested and outstanding as of December 31, 2001 and 2000.
The other blocks of options did not vest as the employee is no longer with iST. None of the 500,000 options vested as the employee was not employed as of the first anniversary date (July 30,
2000).

As
permitted under generally accepted accounting principles, these options were accounted for following APB Opinion No. 25. Accordingly, compensation expense for the years ended
December 31, 2001 and 2000 is $253,193 and none, respectively, based on the difference between the exercise price and the fair value price of the common stock at the grant date. Had
compensation cost been determined based on the fair value method prescribed in FASB Statement No. 123, reported net loss and net loss per share would have been:

Year Ended December 31,

Net (Loss)

Per Share2001

$
(7,683,992
)
$
(0.36
)2000

$
(6,178,234
)
$
(0.41
)


In
determining the pro forma amounts above during 2001 and 2000, the value of each grant is estimated at the grant date using the fair value method prescribed in Statement No. 123
with the following assumptions: no dividends, risk free interest rate of 5% and 6%; expected life of 5.0 and 4.5 years and; expected price volatility of 84.52% to 174.34% and 204%.

F-19

---

A
summary of the status of options issued to employees at December 31, 2001 and 2000, and changes during the years ended on those dates is as follows:

2001

2000Options

Shares

Weighted-
Average Exercise Price

Shares

Weighted-
Average Exercise PriceOutstanding at beginning of year

1,474,158

$
3.08

1,474,158

$
3.08Granted

6,765,000


0.34




Exercised









Forfeited









Outstanding at end of year

8,239,158


0.83

1,474,158

$
3.08Exercisable at end of year

6,322,913

$
0.94

1,474,158

$
3.08Weighted-average fair value per option for options granted during the year

$0.35




$


A
further summary about options outstanding at December 31, 2001 is as follows:

Options ExercisableRange of Exercise Prices

Number

Weighted-
Average
Remaining
Contractual
Life

Weighted-
Average
Exercise
Price$0.01 to 0.25

1,333,333

1.0

$
0.100.26 to 0.50

4,758,337

9.0


0.280.76 to 1.00

90,418

9.5


0.831.01 and up

140,825

2.0

$
31.256,322,913


In
addition iST issued 200,000 options in 1999 to a consultant to purchase 200,000 shares of common stock. 50,000 of the options vested on July 8, 1999, another 50,000 options
vested on January 11, 2000 and the remaining 100,000 options vested on February 8, 2000. All of the 200,000 options are exercisable for a three-year period from the date of
vesting. The exercise price is $0.88/share. iST accounts for the fair value of the options in accordance with FASB Statement No. 123. The compensation cost that has been expensed is none and
$6,053 and for the years ended December 31, 2001 and 2000, respectively. No options were exercised in 2001 or 2000.

The
fair value of each option is estimated at the grant date using the Black-Scholes option pricing model with the following assumptions: zero dividends; risk free interest rate of 5%;
expected life of the options three years; no forfeiture rate and; a price volatility of 210.63%.

Common Stock Warrants

iST issues warrants to stockholders and nonemployees in connection with various services these individuals provide iST. iST accounts for the fair value of the
warrants in accordance with FASB

F-20

---

Statement No. 123. Compensation expense that has been charged to income for these warrants was approximately $2,055,000 and $2,242,000 for the years ended December 31, 2001 and 2000,
respectively.

The
fair value of each warrant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for warrants in 2001 and 2000:
dividend rate of 0.0; price volatility of 26.82% to 150.58% and 114.85% to 359.64%, risk-free interest rate of 5%; and expected lives of three years.

A
summary of the status of all the warrants issued at December 31, 2001 and 2000 and changes during the years ended on those dates is as follows:

2001

2000Warrants

Shares

Weighted-
Average
Exercise
Price

Shares

Weighted-
Average
Exercise
PriceOutstanding at beginning of year


13,454,549

$
0.46


1,824,000

$
3.74Granted


8,153,421


0.44


13,493,299


0.40Exercised


(5,775,195
)

0.26


(46,500
)

0.43Exchange for preferred stock


(11,071,716
)

0.39





Forfeited


(3,752,905
)

2.25


(1,816,250
)

3.74Outstanding at end of year


1,058,154


0.44


13,454,549


0.46Exercisable at end of year


1,058,154





13,454,549Weighted-average fair value per warrant for warrants granted during the year

$
0.25




$
0.20


A
further summary about warrants outstanding at December 31, 2001 is as follows:

Warrants Outstanding and ExercisableRange of Exercise Prices

Number
Outstanding

Weighted-
Average
Remaining
Contractual
Life

Weighted-
Average
Exercise
Price$0.01 to 0.25

600,000

1.25

$
0.200.26 to 0.50

206,155

1.75


0.3250.76 to 1.50

251,999

2.75


1.090.01 to 1.50

1,058,154


Note 8.    Series A Convertible Preferred Stock

In
an agreement, dated as of November 7, 2001, Total Tech, LLC (Entity made up of various board members and stockholders) and other Board of Director members and stockholders
(collectively, the "Investors"), acquired 8,609.80 shares of our Series A Convertible Preferred Stock (the "Series A Preferred"). Each share of Series A Preferred is convertible
into 1,000 shares of Common Stock, subject to adjustment for stock splits and similar events.

F-21

---

The
Series A Preferred was issued in consideration of the forgiveness of indebtedness owed to certain Investors in the aggregate of $1,497,915, the assumption of $1,000,000 in
bank debt by certain investors, the cancellation of 11,071,716 stock purchase warrants held by certain Investors (having an aggregate value of $1,932,887) and the assumption by Total Tech, LLC of
$4,178,989 of iST's indebtedness with financial institutions. As of December 31, 2001 $1,702,226 had been assumed by Total Tech, LLC. Subsequent to December 31, 2001, the
remaining $2,476,763 of indebtedness had been transferred to Total Tech, LLC.

The
Board of Directors has the authority, without any further vote or action by the stockholders, to provide for the issuance of up to 1,000,000 shares of Preferred Stock from time to
time in one or more series with such designations, rights, preferences and limitations as the Board of Directors may determine, including the consideration received therefore. The Board also has the
authority to determine the number of shares comprising each series, dividend rates, redemption provisions, liquidation preferences, sinking fund provisions, conversion rights and voting rights without
approval by the holders of Common Stock. Although it is not possible to state the effect that any issuance of Preferred Stock might have on the rights of holders of Common Stock, the issuance of
Preferred Stock may have one or more of the following effects (i) to restrict Common Stock dividends if Preferred Stock dividends have not been paid, (ii) to dilute the voting power and
equity interest of holders of Common Stock to the extent that any Preferred Stock series has voting rights or is convertible into Common Stock or (iii) to prevent current holders of Common
Stock from participating in the Company's assets upon liquidation until any liquidation preferences granted to holders of Preferred Stock are satisfied. In addition, the issuance of Preferred Stock
may, under certain circumstances, have the effect of discouraging a change in control of the Company by, for example, granting voting rights to holders of Preferred Stock that require approval by the
separate vote of the holders of Preferred Stock for any amendment to the Certificate of Incorporation or any reorganization, consolidation, merger or other similar transaction involving the Company.
As a result, the issuance of such Preferred Stock may discourage bids for the Company's Common Stock at a premium over the market price therefore, and could have a materially adverse effect on the
market value of the Common Stock.

The
Board of Directors has designated 10,000 shares of the Company's Preferred Stock as "Series A Convertible Preferred Stock" (the "Series A Stock"). Each share of
Series A Stock is convertible into 1,000 shares of Common Stock, subject to adjustment for stock splits and similar events. The Series A Stock has a liquidation preference of $1,000 per
share (the "Stated Value") and a dividend preference equal to 9.5% per annum of the Stated Value. Preferred dividends in arrears totaled $68,161 at December 31, 2001. Dividends are payable at
the option of the Board of Directors, in cash or in additional shares of Series A Stock (valued at $1,000 per share). Holders of Series A Stock have no voting rights except with respect
to any action which (1) alters or changes the rights, preferences or privileges of the Series A Stock materially and adversely, (2) increases the authorized number of shares of
Series A Stock, (3) creates any new class of shares having preference over or being on a parity with the Series A Stock or (4) involves sales by the Company of a
substantial portion of its assets, any merger of the Company with another entity, or any amendment of the Company's certificate

F-22

---

of incorporation. The Company may redeem all, or any part, of the Series A Stock at any time or from time to time. The base redemption price is calculated as follows:

|Redemption Date                                                  |  | Base Redemption Price
|---------------------------------------------------------------- |  | ---------------------
|If prior to September 30, 2002                                   |  | 103% of Stated Value 
|If on or after September 30, 2002,
but before September 30, 2003 |  | 102% of Stated Value 
|If on or after September 30, 2003,
but before September 30, 2004 |  | 101% of Stated Value 
|After September 30, 2004                                         |  | 100% of Stated Value 

Holders
of Series A Stock have been granted certain registration rights. The Series A Stock is subject to mandatory conversion after September 30, 2004, at the election of the
Board of Directors.

Note 9.    Going Concern

The accompanying financial statements of iST have been prepared on a going-concern basis, which contemplates profitable operations and the satisfaction of
liabilities in the normal course of business. There are uncertainties that raise substantial doubt about the ability of iST to continue as a going concern. As shown in the statements of operations,
iST has not yet achieved profitable operations. As of January 31, 2002, iST has insufficient working capital. These items raise substantial doubt about the ability of the Company to continue as
a going concern.

Management
presently believes that iST is in the final stages of production of its electronic tracking and monitoring devices and the delivery of services relating to these devices.
Although there has been substantial progress in the development of this technology, iST does not have any significant sales and there can be no assurance that iST will have any significant sales.

Management
plans to continue financing iST's technology and operations through external and related party financing. iST is attempting to secure an additional $3,600,000 of equity
financing to fund the operations and production of through the final stages of product development.

iST's
continuation as a going concern is dependent upon its ability to satisfactorily meet its debt obligations, meet its product development goals, secure new financing and generate
sufficient cash flows from operations. The financial statements do not include any adjustments that might result from outcome of these uncertainties.

F-23

---

Note 10.    Lease Obligations

The Company leases its facilities under a noncancelable lease agreement expiring November 2005. The future minimum lease payments under the operating lease
as of December 31, 2001 are as follows:

Year Ending December 31,2002

$
61,0342003


66,2752004


69,3002005


63,525$
260,134


Rent
expense related to the above leases was $84,940 and $70,020 for the years ended December 31, 2001 and 2000, respectively.

Note 11.    Extraordinary Item

iST was a beneficiary of the stock agreement dated May 6, 1997, between the majority stockholder, and ABS Holding Co., Inc. The terms and conditions of
this stock agreement resulted in the majority stockholder assuming several notes payable to American Interstate Bank totaling $452,608 including interest. The majority stockholder also assumed a term
note payable to Norwest Bank totaling $102,055
including interest. Additionally, iST was released of the notes payable to a related party to the majority stockholder including interest totaling $108,000.

In
return, iST released the majority stockholder of his obligation to the Company totaling $82,981 and $9,781, respectively. Furthermore, iST co-signed an ABS Holding
Co., Inc., note payable to majority stockholder in the amount of $300,000. Finally, the majority stockholder resigned their positions as Board of Director members, officers, agents and
employees of the Company. As a result of this stock agreement, iST recognized a gain of $569,901 resulting from the extinguishment of debt. Due to the Company's accumulated losses, no tax effect was
recognized.

Note 12.    Legal Proceedings

On January 2, 2002, iST, a Delaware corporation, filed a complaint against LEDvision Inc, an Iowa corporation, d/b/a Electronic Manufacturing Technologies,
Inc. ("EMT"), in the U.S. District Court, District of Nebraska(Case No. 8:02CV5). iST alleges that EMT breached its contract with iST by its failure to manufacture and deliver production
units of iST's Model 2100 Series products. Consequently, iST has had to utilize other manufacturers to produce such products, causing a delay in its customer deliveries. iST seeks to recover monies
previously paid to EMT plus lost profits and incidental and consequential damages, and the cost of pursuing the action. In an additional claim, iST alleges that EMT's conduct concurrent with and
subsequent to EMT's breach of contract amounted to trade disparagement and interference with its business relationships. iST seeks damages to compensate it for damage to its reputation caused by EMT's
conduct. iST advanced EMT $279,782 in 2001 for the manufacture and delivery of production units. As of December 31, 2001, iST has taken a charge-off of $279,782 due to the uncertainty of the
collection of these amounts owed to iST.

F-24

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