As filed with the Securities and Exchange Commission on March 17, 2006.
================================================================================

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

                                ----------------

                                   FORM 10-KSB
                                   (Mark One)
            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2005

                                       OR

          |_| 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

                                iSecureTrac Corp.
                 (Name of small business issuer in its charter)

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

                             5078 South 111th Street
                              Omaha, Nebraska 68137
               (Address of principal executive offices)(Zip Code)
                    Issuer's telephone number: (402) 537-0022

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

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

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

State issuer's revenues for its most recent fiscal year: $5,589,783.

The aggregate market value of the common stock of the registrant held by
non-affiliates, all of which is voting, was approximately $15,973,860, based on
the closing sale price reported on March 1, 2006.

As of March 1, 2006, there were 10,684,529 shares of the registrant's common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's 2006 Annual
Meeting of Stockholders to be filed within 120 days of the fiscal year ended
December 31, 2005, are incorporated by reference in Items 9, 10, 11, 12 and 14
of Part III of this Annual Report on Form 10-KSB.

Transitional Small Business Disclosure format (check one): YES |_| NO |X|
================================================================================

<PAGE>

                                     PART I.

Regarding Forward-Looking Statements

This Form 10-KSB contains forward-looking  statements including statements about
the future of iSecureTrac  Corp.'s  ("iSECUREtrac"  or "iSt" or the "Company" or
"we" or "our") products and the industry, statements about future business plans
and strategies,  and most other statements that are not historical in nature. In
this Form 10-KSB,  forward-looking  statements  are generally  identified by the
words  "believes,"   "intends,"  "expects,"  "may,"  "will,"  "should,"  "plan,"
"projected,"    "contemplates,"    "anticipates,"    "estimates,"    "predicts,"
"potential,"  "continue,"  or similar  terminology.  Readers of this Form 10-KSB
should  understand  that a number of factors  could cause the  Company's  actual
results  to  differ  materially  from  those  expressed  in the  forward-looking
statements contained herein. Many of these factors are described in Item 1 under
the heading "Risk Factors". Other factors discussed elsewhere in this report, in
filings with the Securities and Exchange Commission or in materials incorporated
herein or therein by reference  may also affect the Company's  future  financial
condition and results of operations.

Item 1. Description of Business

Overview

The Company is a Delaware  corporation  that is the  successor  in interest to a
Colorado  corporation  that was initially  incorporated in 1983. The Company has
been  engaged in its  current  business  of  providing  GPS-based  products  and
services for the  tracking of criminal  offenders  since late 1997.  On June 19,
2001, the name of the Company was changed to iSecureTrac Corp.

On August 28, 2003, the Company acquired all of the outstanding capital stock of
Tracking Systems Corporation ("TSC"), a Pennsylvania  corporation  headquartered
in  Harrisburg,  Pennsylvania,  in exchange for  4,423,077  shares of iSt common
stock and the  assumption  of  $4,294,933 of TSC debt.  The  acquisition  of TSC
allowed  the  Company  to expand its  customer  base and its  product  line (see
"Products" below), including the MEMS breath alcohol monitoring technology.  TSC
is  now a  wholly-owned  subsidiary  of  the  Company  and  the  results  of its
operations  from August 29,  2003,  are included in the  Company's  consolidated
financial statements.

Business

The Company develops,  markets, and distributes  electronic  monitoring products
including those that employ global positioning  satellite ("GPS") technology and
related  services to criminal  justice  agencies,  both in the United States and
internationally,  for use in offender management  programs.  The Company's three
principal  sources of revenues are: (i) selling and leasing of monitoring  units
to criminal  justice  agencies,  (ii)  providing  agencies  the use of Company's
proprietary  software  including its web-based  tracking and  monitoring  system
known as tracNET24(TM) and (iii) providing  ancillary services such as training,
monitoring  and data  archiving.  At December  31,  2005,  the Company had 3,800
monitoring units under lease in 42 states.

By using the  Company's  products  and  services,  these  agencies can realize a
substantial  cost  savings  over  the  cost of  incarceration  and  improve  the
efficiency of probation and parole  officers and other  limited  resources.  The
Company's  products and services offer the backlogged  criminal justice system a
more secure  solution to the problems of rapidly growing  criminal  populations,
overcrowded  correctional  facilities and more lenient sentencing  alternatives.
Electronic  monitoring offers three 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;  (2) it reduces prison and jail
overcrowding  by providing a viable  alternative  to  incarceration  and; (3) it
helps to reduce the rate of recidivism  (re-offense)  when combined with regular
rehabilitation/reintegration sessions.

According to the U.S. Bureau of Justice  Statistics  latest report,  7.0 million
adults were under some form of  correctional  supervision  at December 31, 2004.
The number of prisoners under the jurisdiction of federal or state  correctional
authorities  on that date  reached a record high of 2.1 million.  Moreover,  4.9
million adults were under parole or probation  supervision and approximately two
out of every three people released from prison are rearrested within three years
of their release.  The total adult  correctional  population has increased 46.8%
from 1992 to 2004. This growth in the adult  correction  population has resulted
in stresses on the  correctional  system in terms of both  management and costs.
This has led to  increased  use of  probation  and  parole  as  alternatives  to
incarceration. Traditional methods used by agencies to monitor individuals under
their  supervision  do  not  allow  for  effective   supervision  of  offenders.
Electronic  monitoring  enables  an agency  to  monitor,  at a greater  level of
supervision,  the  activities of a growing number of  probationers  and parolees
without having to  proportionately  allocate  additional labor resources to such
monitoring  efforts.  Non-incarceration  programs can give  corrections  and law
enforcement agencies more flexibility in solving budget-related  problems. Since
public  safety is  maintained  or  improved  by linking  alternative  sentencing
programs with electronic  monitoring,  alternative sentencing programs like work
release become viable, cost-effective tools for today's correctional system.


                                       2
<PAGE>

Although  the  criminal  justice  market  is its  primary  market,  the  Company
continues to explore  opportunities  for  marketing  its tracking  technology to
users  in  other  markets  such as  transportation.  The  Company's  system  was
developed  to be readily  adaptable  to meet the needs of locating  and tracking
vehicles  and other  assets.  The  Company  also  maintains  the  capability  to
undertake special projects to help customers to meet their unique needs.

Our Products and Services

iSECUREtrac  offers law  enforcement  and  corrections  agencies  solutions  for
electronically  monitoring  persons that are  released to community  supervision
programs. This may include persons released on probation,  parole,  pretrial, or
any number of community  supervision  programs.  Agencies  utilizing  electronic
monitoring systems have shown substantial success in more effectively monitoring
offenders,  in reducing  re-offense,  and in  enhancing  the results of offender
re-entry  programs.  iSECUREtrac  has a full line of electronic  monitoring  and
services as described below.

GPS Tracking

The Global  Positioning  System  consists of at least 24 operational  satellites
that orbit the earth every 12 hours. Operated by the United States Department of
Defense and provided free of charge,  the GPS system  permits from five to eight
satellites  to be visible from any point on earth at any given moment in time. A
position fix can be acquired  when a GPS  receiver  sees at least three of these
satellites.   The   positioning   system  is   accurate   to  within  10  meters
(approximately 33 ft.) for horizontal  position and 15 meters  (approximately 50
ft;) for vertical position.  Our GPS tracking products use this state-of-the-art
positioning  technology to monitor the movements of parolees and other  criminal
offenders in a manner that was not previously possible or cost efficient.

We offer both active and  passive GPS  tracking  capabilities  to our  customers
which   continuously   monitor  an   offender's   movement  and   compliance  to
time/location  parameters  anywhere  in  the  world.  Our  GPS  unit  tracks  an
individual by logging their  location every 10 seconds along with time and speed
parameters.  Our active GPS device,  model 2250, has the ability to use wireless
communications  to send  offender  data to a central  data  center,  enabling  a
corrections  or law  enforcement  officer to  receive  updated  information  and
violations on a continuous  basis. All data processing and parameter  comparison
takes place in the tracking unit itself. This is known as "on-board  processing"
and is what gives our active systems the fastest  response time in the industry.
As soon as the individual is in violation,  the GPS unit  communicates  with our
data center which notifies the agency, updates our tracNET24 website, and stores
offender  information for the long term. The corresponding  officer can then use
any PC or other  Internet-ready  device to see where the  offender  has been and
when  he  was  there.  Our  website  provides  agencies  with  updated  offender
information  in  easy-to-understand  formats and does not require any additional
software.  Information  includes maps,  violation reports,  equipment  tampering
reports and more.

Our Passive GPS Personal Tracking Unit ("PTU"), model 2150, is also a system for
monitoring an offender's movement and compliance data anywhere in the world, but
typically  reports the information once a day when the PTU is returned to a base
unit.  The  corresponding  officer  can then  connect  to  tracNET24  and access
offender tracking, violation, and compliance information.


                                       3
<PAGE>

A PTU  is a  12-ounce,  compact,  electronic  device  which  can be  worn  on an
individual's  belt  or in a  coat  pocket.  The  PTU  contains  a GPS  receiver,
telephone modem, micro processors,  internal antennas, signal processors,  flash
memory,  other  electronic  components  and  rechargeable  batteries,  which  we
designed to be highly  reliable,  rugged and durable.  The PTU is designed to be
worn by the  participant and is  "electronically  tethered" to the subject via a
wireless cuff transmitter, which is about the size of a standard wristwatch. The
wireless  cuff,  worn on the  offender's  ankle,  transmits a radio signal every
20-30 seconds which is received by the tracking unit. The cuff transmitter,  and
hence  the  offender,  must  remain  within  150  feet of the PTU or the  signal
transmitted  by the cuff  transmitter  is not  received and the PTU will send an
alert to the appropriate authority.  Any attempts to remove the cuff generate an
alert signal and is a probation  violation.  The wireless cuff is waterproof and
shockproof; the 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
charging base (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 the following conditions:

            o     Status of radio  frequency  contact  between the wireless cuff
                  and the tracking unit,  including proximity  violations (i.e.,
                  failure to remain  within a specified  proximity  of the house
                  arrest monitor);

            o     Tampering with the wireless cuff or the tracking unit;

            o     Status of  communications  between the tracking device and the
                  operations center;

            o     Status of power connection to the charging base;

            o     Status of tracking unit battery;

            o     Inclusion  zone  violations  (i.e.,  subject  being  out  of a
                  designated area inappropriately);

            o     Exclusion zone violations (i.e.,  being in an area or location
                  from which the subject is prohibited); and

            o     Find Me Mapping (i.e., allows customers to locate the specific
                  location of the unit and the offender at any given time).

Our  tracNET24  automated  monitoring  system is provided  to end-user  agencies
through the Internet.  A probation or  corrections  officer with a secure log-in
can access the system and know exactly where any of his or her clients,  wearing
a PTU, have been over any given time period.  The officer can program a PTU worn
by any of the  offenders he or she is  monitoring to create or modify a schedule
of locations  where the offender  must be at certain  times of the day,  week or
month (e.g., a place of work,  medical  appointments,  counseling  appointments,
meetings with the  probation  officer,  etc.).  He/she merely enters a drop down
menu for the  schedule  and either  enters an address or points to a spot on the
map and specifies a radius.  He/she thereby  creates  "inclusion  zones" for the
offender.  Similarly,  the officer can create "exclusion zones" (e.g.,  schools,
home of an ex-spouse, etc.). Once the parameters are entered, the officer clicks
"synchronize  with PTU" which causes the scheduling  and zone  information to be
downloaded to the PTU.

House Arrest

House  Arrest is a system  that  enables law  enforcement  agencies to verify an
offender's  presence in a particular  building (house,  residence,  work release
facility,  etc.). The agency can set a schedule for each offender  corresponding
to the rules of release.  For example, the offender must be at home between 6:00
p.m. and 7:00 a.m. every day. Offender  deviation from the schedule results in a
violation  notification sent to the agency.  Our house arrest system consists of
two components:  a House Arrest Unit (HAU) and a wireless cuff transmitter.  The
cuff transmitter,  worn on the offender's ankle,  sends out a radio signal every
20-30 seconds.  The HAU is always  "listening"  for this signal and sends out an
alert to iSECUREtrac's host system if the transmitter's  signal is out of range.
The  transmitter's  signal  will go out of range  when the  offender  leaves the
premises or otherwise wanders off. The maximum range for a transmitter's  signal
is  approximately  150 feet. The HAU stores offender  information with time/date
stamps and relays data to our data center on a regular  basis.  If the  offender
takes off the transmitter or tampers with it, the transmitter sends out a unique
signal  alerting the HAU of the violation.  The HAU then  communicates  with the
host system which, in turn, automatically alerts the appropriate authorities.


                                       4
<PAGE>

Visual Breath Alcohol Testing

Our breath alcohol monitoring system enables offenders' breath alcohol levels to
be tested remotely, rather than requiring an on-site test. Additionally,  visual
verification  technology  enables  our  monitoring  center  staff to verify  the
offender's  location and  identity at the time of testing.  The system calls the
offender  on  a  scheduled,   random,  or  on-demand  basis,  giving  him  clear
instructions.  The offender  blows into a common  drinking straw inserted in the
2000VB  HomeStation while a camera on the unit photographs the offender.  Breath
Alcohol Test data and  photographs are sent  electronically  to our data center.
Our personnel confirm offender's  identity by comparing event verification photo
with original reference picture provided by agency.  Deviation from or violation
of program  parameters,  as defined by the agency,  results in monitoring center
staff contacting appropriate agency personnel.

Customers

Our  principal  customers  are  federal,   state,   county,  and  municipal  law
enforcement agencies in both the United States and in various foreign countries.
Currently, we provide offender tracking products and services to customers in 42
states and one foreign country. One customer,  the Tennessee Bureau of Probation
and Parole,  accounted for more than 5.5% of our total revenues  during 2005. No
other customer accounted for more than 5% of our total revenue in 2005 and total
revenues from our top ten customers accounted for only 28% of our total revenues
for 2005.

Sales and Distribution Channels

The Company  markets and sells its  products  and  services to criminal  justice
agencies  throughout the United States directly through its in-house sales force
and indirectly  through third party  distributors  and service  providers  (i.e.
private  companies  that  operate   monitoring  centers  for  state  and  county
agencies).  The  Company's  in-house  sales  force  is  made up of  eight  sales
professionals  who are  each  assigned  a  specific  geographic  region  and are
responsible for all direct state,  county,  and municipal  opportunities  within
their  region,  a channel  sales  manager  who is  responsible  for all  service
provider  sales,  and a federal sales  manager.  Part time sales support is also
provided by our executives  and technical  personnel.  Typical sales  activities
include participation in monthly trade shows,  frequent on-sight  demonstrations
of our PTU products and  replying to state and local RFPs.  The Company  markets
and sells its products and services  internationally through exclusive strategic
alliances that are formed on a country-by-country basis.

Agreements with  distributors and service  providers  typically take the form of
sales  agreements,  authorizing  resale and  leasing of  monitoring  units,  and
hosting  services  agreements,  which  provide  for  the  use of  the  Company's
web-based software or monitoring services.  Negotiated product volume discounts,
product shipping and delivery terms, pricing for training,  and extended product
warranties are also described in the distribution agreements.

Competition

We  compete  with a number of other  companies  that offer  offender  electronic
monitoring  ("EM")  products,   including  GPS-based  products.   The  following
companies are considered by the Company to be its main competitors:

Pro Tech  Monitoring,  Inc. - Founded in 1995,  Pro Tech is believed to have the
second largest market share for GPS offender monitoring behind  iSECUREtrac.  It
offers both active and passive GPS monitoring products and services.

BI  Incorporated  - BI is  believed  the  largest  installed  base  of  offender
electronic monitoring devices in the United States. BI has a passive GPS product
but has not yet developed and active GPS product.


                                       5
<PAGE>

Sentinel  Monitoring  Services - Sentinel  has a large base of EM units as well.
Its GPS  monitoring  device is a consumer  cell phone which has been modified to
include RF capabilities.

G4S Securicor - G4S is believed to have the second largest installed based of EM
units in the United States. G4S is a reseller of GPS monitoring devices

STOP LLC - STOP,  which is believed  to have the  smallest  market  share of the
competitors  discussed,  distributes a one-piece GPS monitoring device. STOP has
an active unit but has not yet developed a passive unit.

iSECUREtrac  competes favorably by offering a more reliable,  feature-rich,  and
intuitive GPS tracking and monitoring  system coupled with outstanding  customer
service and support. In addition, we are the only vendor that offers Active GPS,
Passive GPS, and traditional House Arrest on a single web application.

There are currently several other companies that use GPS, electronic mapping and
Internet  technologies to provide tracking and monitoring products and services.
The markets  served by these  companies  include  vehicle and rail car tracking,
vehicle fleet management,  container  tracking as well as 911 emergency response
services.  While the  companies  serving  these  markets do not  currently  sell
products or services to the criminal offender  tracking and monitoring  markets,
these companies or others may enter this market in the future.

In general,  contracts with our targeted  customer base in the offender tracking
market  are  awarded  through  a  competitive  bid  process  in  which  we  must
demonstrate   the  ability  to  provide   services   meeting   stated   customer
specifications   at  the  lowest   overall   cost.   We  compete  by   providing
state-of-the-art  equipment,  a proprietary  web-based  software  solution,  and
excellent  customer  support  that we believe  offers the  highest  value to our
customers.

Principal Suppliers

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

Intellectual Property Rights

We have been issued four patents to date by the United States Patent Office: (i)
No. 6,072,396 for an "Apparatus and Method for Continuous  Electronic Monitoring
and  Tracking  of  Individuals"  was  issued on June 6, 2000 and will  expire on
December 30, 2014;  (ii) No.  6,100,806,  also for an "Apparatus  and Method for
Continuous  Electronic  Monitoring  and Tracking of  Individuals"  was issued on
August 8, 2000 and will expire on December 30, 2014; 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 April 24,
2017 and (iv) No.  6,646,617  was issued on November 11,  2003,  for an "Antenna
Orientation  Maintaining System in a System for Tracking  Individuals and Method
of Use"  and will  expire  on April  24,  2017.  We are  currently  involved  in
litigation  in which,  among other  things,  the  validity of patents  have been
challenged. See item 3., Legal Proceedings, for a more complete discussion.

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

We assert  common law copyright  and  statutory  trade secret  protection to our
proprietary  software.  Our  logo  and the word  "iSecureTrack"  are  registered
trademarks and the marks  "tracNET24"and  "iSecureTrac"  have  applications  for
registration pending with the U.S. Patent and Trademark Office.


                                       6
<PAGE>

Regulation

The  manufacture,  sale and use of devices  that  utilize  any part of the radio
frequency   radiation   spectrum   are  subject  to   regulation.   The  Federal
Communications  Commission (the "FCC") is the principal  agency  responsible for
regulations  relating to the manufacture,  sale and use of devices that transmit
radio  frequency  radiation.  Our  Series  2150 and  Series  2250 PTUs have each
received full FCC compliance certification.

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

The  use  of  tracking  devices  as an  aid  to,  or  substitute  for,  physical
surveillance by law enforcement personnel is subject to federal, state and local
law.  Generally,  tracking  devices  may be attached  to or  installed  upon the
monitored  person or object  without court order as long as the person or object
remains in public  view.  All persons  presently  monitored  by our GPS tracking
system are subject to a court order  requiring such monitoring as a condition to
their release from incarceration.

Research and Development

In order to maintain our competitive  position,  we must constantly  improve our
products and services.  Our research and development  staff designs and develops
products  incorporating  GPS  technology,  wireless  communications,   web-based
reporting  and  data  storage  and   transmission.   Our  current  research  and
development efforts are focused on additional  functionality in our PTU products
for the  criminal  justice  industry.  We have also  focused  on  improving  the
functionality of our tracNET24 software.  During 2005 and 2004, our research and
development expenses totaled $929,835 and $687,914, respectively.

Employees

As of December  31,  2005,  iSt had 70  full-time  employees,  and one  contract
employee on staff. Of the 70 full-time employees,  four are executives,  six are
administrative  personnel,  12 are in sales,  nine are in customer  support,  11
operate  monitoring  center,  three  are  in  technology  services,  12  are  in
operations and 13 are in engineering and development.

General Information

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

Risks Relating to Our Business

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

We have incurred significant losses and expect losses to continue.

Our revenues have not been  sufficient to cover our cost of operations and other
expenses,  and we have yet to establish profitable  operations.  We incurred net
losses of $3,873,908  for the year ending  December 31, 2005 and  $9,696,164 for
the year ended  December 31, 2004. As a result,  on December 31, 2005, we had an
accumulated  deficit  of  $55,530,956.  We do  not  expect  our  revenues  to be
sufficient  to cover  operating  costs  until  later in  2006,  and  there is no
assurance that we will achieve  profitability  at that time or that we will ever
be profitable.


                                       7
<PAGE>

Markets for our products and services may develop slowly.

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

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

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

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

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

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

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


                                       8
<PAGE>

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

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

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

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

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

In order to protect the technology and other  intellectual  property  underlying
our  products  and  services,  we  rely on a  combination  of  patents,  license
agreements,   copyrights,  trade  secrets,  and  trademarks.  We  also  rely  on
confidentiality   procedures   and   contractual   provisions   to  protect  our
intellectual property rights. There can be no assurance that any of the measures
we take to protect our intellectual property rights will be adequate. There is a
risk  that  any  patents  issued  to us may  be  invalidated,  circumvented,  or
challenged;  that the rights  granted  thereunder  will not provide  competitive
advantages to us; or that none of our future patent  applications will be issued
with the scope of protection  sought by us, if at all.  Furthermore,  there is a
risk that  others may develop  technologies  that are similar or superior to our
technology  or design  around any patents  issued to us.  Despite our efforts to
protect our intellectual  property rights,  unauthorized  parties may attempt to
copy aspects of our products or to obtain and use information  that we regard as
proprietary.  We are currently a party to a lawsuit filed by Satellite  Tracking
of People, LLC ("STOP") which challenges the validity of certain of our patents.
We have  denied  all  allegations  claimed by STOP,  have  filed  counter-claims
thereagainst  and are  vigorously  defending the lawsuit.  There is no assurance
that we will be successful  with respect to this lawsuit or that similar  claims
will  not be  made  in the  future  by  other  parties.  Accordingly,  we may be
obligated to defend the validity of our patents at potentially  significant cost
to us.


                                       9
<PAGE>

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

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

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

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

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

There are other U.S. patents and patent applications  submitted for technologies
in, or related to, our  principal  area of  business,  and it is  possible  that
foreign  patents are also in existence or have been applied for by others.  As a
result,  any  application or  exploitation  of our technology  could infringe on
patents or proprietary rights of others and any licenses required as a result of
such infringement might not be available on commercially reasonable terms, if at
all. This may lead others to assert patent  infringement  or other  intellectual
property claims against us.

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

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

Risks Relating to the Ownership of Our Common Stock

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

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

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

We currently  have warrants  outstanding  which  entitle the holders  thereof to
acquire  3,234,248 shares of common stock.  6,287,045 shares of our common stock
are  issuable  upon  exercise  of  warrants  to be issued  upon  exchange of our
Preferred  Stock.  In  addition,  the  holder  of our  Series C 8%  Exchangeable
Preferred Stock may convert this Preferred Stock into 4,782,609 shares of common
stock.  Finally, the holders of our remaining  convertible debt may convert this
indebtedness  into 273,579 shares of our common stock.  The issuance and sale of
these shares is likely to result in  substantial  dilution to the  proportionate
equity  interest  and voting power of holders of our common  stock.  The sale of
these shares also has potential to cause  significant  downward  pressure on the
price of our common  stock.  This is  particularly  the case if the shares being
placed  into the market  exceed  the  market's  ability to absorb the  increased
stock.  Such an event could place further downward  pressure on the price of our
common stock.  This presents an  opportunity  for short sellers to contribute to
the further decline of our stock price. If there are significant  short sales of
our stock, the price decline that would result from this activity will cause the
share price to decline more so,  which,  in turn,  may cause long holders of the
stock to sell their shares thereby contributing to sales of stock in the market.


                                       10
<PAGE>

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

On June 27,  2005,  we issued  1,000,000  shares of our  Series C 8%  Cumulative
Compounding  Exchangeable  Preferred  Stock plus  warrants to acquire  3,234,248
shares of the Company's  common stock at exercise  prices  ranging from $2.30 to
$16.50 per share.  The Preferred Stock is exchangeable  for 4,782,609  shares of
Common  Stock and  warrants to acquire  6,287,045  shares of Common  Stock at an
exercise price of $2.30 per share.  Upon  conversion of the Preferred Stock into
common stock,  and exercise of its warrants,  the holder of the Preferred  Stock
will control a majority of the shares of our common  stock.  Prior to that time,
the holder of the  Preferred  Stock has the right to  appoint a majority  of our
Board of  Directors.  In addition,  each share of  Preferred  Stock will have 11
votes on all other matters submitted to the vote of the Company's  shareholders.
Accordingly,  the holder of our  Preferred  Stock holds a majority of the voting
power held by all  stockholders  of the Company.  If the holder of the Preferred
Stock exchanges its Preferred Stock for shares of the Company's common stock and
exercises all of its warrants,  it would own approximately 57% of the issued and
outstanding shares of the Company's common stock.

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

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

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

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

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

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

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

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

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

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


                                       11
<PAGE>

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

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

Item 2. Description of Property

The Company leases  approximately  11,477 square feet of office space located at
5078 South 111th  Street,  Omaha,  Nebraska.  The lease term ends on November 1,
2007.  The base rent for this  property is recorded on a straight  line basis at
$6,652 per month, and the Company's pro rata share of operating  expenses on the
leased  premises  is  $924  per  month.  Most of the  Company's  administrative,
service,  and other business  operations are conducted at this location.  In the
opinion of management, the property is adequately covered by insurance.

Item 3. Legal Proceedings

On December 22, 2004, a lawsuit was filed by Satellite  Tracking of People,  LLC
("STOP")  against the  Company in United  States  District  Court for the Middle
District  of  Tennessee.  STOP plans to enter into the market for  tracking  and
monitoring  individuals  using  GPS  technology  in the  United  States  and has
acquired U.S. rights to the BluTag(R) remote electronic monitoring, tracking and
surveillance  technologies.  Among other  things,  STOP alleges that the Company
notified  STOP's  predecessor  in interest that the  technology  underlying  the
BluTag(R) system  infringes on two U.S. patents held by the Company.  The action
filed by STOP seeks a declaratory  judgment that (i) STOP's BluTag(R) technology
does not  infringe on the  Company's  patents,  (ii) the  Company's  patents are
invalid  and/or (iii) the Company has granted STOP a license  under its asserted
patents.  The Company has denied all material  allegations  made by STOP and has
filed  a  counter-claim  against  STOP  for  patent  infringement,   seeking  an
injunction  and  damages.  The  Company is unable to predict the outcome of this
lawsuit at this time.

The Company is not subject to any other material pending or threatened lawsuits.

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

No matters were submitted to stockholders during the fourth quarter of 2005.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

iSt's common stock is listed on the OTC Bulletin  Board under the trading symbol
"ISEC".  Until September 19, 2005, the effective date of our recent  one-for-ten
reverse stock split, our common stock was quoted on the OTC Bulletin Board under
the symbol  "ISRE".  All prices have been  adjusted  to reflect the  one-for-ten
reverse  stock split that occurred on September  19, 2005.  The following  table
sets forth the high and low sale prices for the  Company's  common  stock during
each calendar quarter of 2004 and 2005:


                                       12
<PAGE>

       -------------------------------------------------------------
       Year              Quarter             High               Low
       -------------------------------------------------------------
                           1st              $6.90              $3.30
                         -------------------------------------------
       2004                2nd              $5.40              $2.50
                         -------------------------------------------
                           3rd              $3.50              $1.20
                         -------------------------------------------
                           4th              $2.80              $1.20
       -------------------------------------------------------------
                           1st              $3.70              $2.10
                         -------------------------------------------
       2005                2nd              $2.70              $1.60
                         -------------------------------------------
                           3rd              $2.90              $1.50
                         -------------------------------------------
                           4th              $2.90              $1.60
       -------------------------------------------------------------

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

As of March 1, 2006 there were  approximately 404 stockholders of record for the
Company's  common stock.  iSt has not declared any dividends on shares of Common
Stock and has no plans to do so in the foreseeable future.

No stock repurchases were made by the Company during the fourth quarter of 2005.

Information  regarding  shares  of  the  Company's  common  stock  under  equity
compensation plans and executive employment agreements maintained by the Company
as of December 31, 2005 is set forth in the following table:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
      Plan category                 Number of securities to be       Weighted average exercise      Number of securities remaining
                                     issued upon exercise of       price of outstanding options,    available for future issuance
                                  outstanding options, warrants         warrants and rights
                                            and rights
----------------------------------------------------------------------------------------------------------------------------------
                                                (a)                              (b)                               (c)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                 <C>                              <C>
Equity compensation plans                     127,354                           $2.78                            68,678
approved by security holders
----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not                 994,058                           $2.60                                 0
approved by security holders
----------------------------------------------------------------------------------------------------------------------------------
Total                                       1,121,412                           $2.62                            68,678
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Equity  compensation  plans not approved by security  holders consist of options
issued to employees per their employment  agreements or per performance bonuses.
Exercise prices range from $1.445 to $4.90.

All previously unreported, unregistered sales of common stock during 2005 are as
follows:

<TABLE>
<CAPTION>
    Date                            Amount of                                                                       Cash to
   Issued          Title         Securities Sold       Security Holder            Description of Transaction        Company
   ------          -----         ---------------       ---------------            --------------------------        -------
<S>            <C>                         <C>        <C>                     <C>                                     <C>
  02/16/05     Common Stock                1,923      Various Directors       Shares issued for directors' fees       N/A
  03/30/05     Common Stock                1,739      Various Directors       Shares issued for directors' fees       N/A
  06/08/05     Common Stock                2,500      Various Directors       Shares issued for directors' fees       N/A
  08/26/05     Common Stock                  527          Ravi Nath           Shares issued for directors' fees       N/A
  11/17/05     Common Stock                  910      Various Directors       Shares issued for directors' fees       N/A
</TABLE>

The  shares  of  common  stock  issued  in the  above  table  were  exempt  from
registration  under the  Securities Act of 1933 pursuant to Section 4(2) of such
Act.  The shares of common  stock were  issued to a limited  number of  persons.
There was no general solicitation and each purchaser  represented that they were
purchasing the shares for their own account.


                                       13
<PAGE>

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

The following  table provides a breakdown of selected  results of operations for
the years ended  December  31, 2005 and 2004 and is the basis for the  following
discussion of the results of operations:

                       iSECUREtrac Corp. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                            2005              2004              Change
---------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>               <C>
Revenues:
         Equipment sales                                $     38,605      $    377,509      $   (338,904)
         Equipment leasing & hosting                       4,821,632         3,575,032         1,246,600
         Gain on sale-leaseback transactions
            Related party                                    671,687           566,145           105,542
            Other                                                 --            22,612           (22,612)
         Service                                              57,859           138,188           (80,329)
---------------------------------------------------------------------------------------------------------
            Total revenues                                 5,589,783         4,679,486           910,297
---------------------------------------------------------------------------------------------------------
Operating expenses:
         Cost of revenues                                  2,876,779         4,403,047        (1,526,268)
         Research and development                            929,835           687,914           241,921
         Sales, general and administrative                 5,160,282         6,582,008        (1,421,726)
---------------------------------------------------------------------------------------------------------
            Total operating expenses                       8,966,896        11,672,969        (2,706,073)
---------------------------------------------------------------------------------------------------------
         Operating loss                                   (3,377,113)       (6,993,483)        3,616,370
---------------------------------------------------------------------------------------------------------
Other income (expense):
         Interest income                                     100,927                32           100,895
         Interest expense                                   (629,559)       (2,681,115)        2,051,556
         Financing fees                                           --           (21,598)           21,598
         Other, net                                           31,837                --            31,837
---------------------------------------------------------------------------------------------------------
         Total other income (expense)                       (496,795)       (2,702,681)        2,205,886
---------------------------------------------------------------------------------------------------------
         Loss before provision for income taxes           (3,873,908)       (9,696,164)        5,822,256
         Provision for income taxes                               --                --                --
---------------------------------------------------------------------------------------------------------
Net loss                                                $ (3,873,908)     $ (9,696,164)     $  5,822,256
=========================================================================================================
Preferred stock dividends and accretion                     (549,108)         (911,983)          362,875
---------------------------------------------------------------------------------------------------------
Net loss available to common stockholders               $ (4,423,016)     $(10,608,147)     $  6,185,131
=========================================================================================================
Basic and diluted loss per common share                 $      (0.45)     $      (1.82)
=========================================================================================================
Weighted average shares of common stock outstanding        9,910,337         5,827,510
=========================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                       14
<PAGE>

Equipment Sales Revenue

Equipment  Sales  Revenue  is  derived  from  the  sale of  offender  monitoring
equipment. For the year ended December 31, 2005, equipment revenues were $38,605
compared to $377,509 during the same period in 2004. The reason for the decrease
is the  reduction  in  units  sold  during  2005,  compared  to 2004  due to the
continual  shift in the  Company's  business  model  from  selling to leasing of
monitoring equipment. Revenues from equipment sold in conjunction with a hosting
agreement  for tracking and  monitoring  services on  tracNet24  are  recognized
ratably over the initial term of the hosting  agreement  which is typically  for
one  year.  Revenues  from  equipment  sold  without  a  hosting  agreement  are
recognized  when goods are  received by the  customer.  Equipment is shipped FOB
destination.

Equipment Leasing and Hosting Revenue

Equipment  Leasing  and  Hosting  Revenue  is derived  from the fees  charged to
customers for the use of the Company's  offender  monitoring  software including
tracNET24,  hosting offender data, the rental of offender monitoring  equipment,
and ancillary  charges directly related to the monitoring of offenders.  For the
year ended  December  31,  2005,  equipment  leasing and hosting  revenues  were
$4,821,632  compared to $3,575,032 during 2004. This increase is attributable to
the  increase in the number of units under  lease.  At December  31,  2005,  the
Company had 3,800 units under lease,  compared  with 2,800 at December 31, 2004.
Leasing,  hosting,  and service  revenues are recognized upon performance of the
respective  service.  Leasing and hosting contracts with customers are typically
for twelve months.

Gain on Sale-leaseback Transactions

The Company  finances much of its monitoring  equipment  through  sale-leaseback
agreements, primarily with a leasing company owned by an affiliated party. Under
these  agreements,  the Company  purchases  the  monitoring  equipment  from the
manufacturer, sells it to the leasing company at a gain, and then leases it back
from the leasing  company.  This gain is recorded as a liability  and  amortized
into  income  over the life of the  lease  (typically  2-3  years).  The Gain on
Sale-leaseback  Transactions consists of amortization of this deferred gain. For
the year ended December 31, 2005, the gain on  sale-leaseback  transactions with
related parties was $671,687  compared to $566,145 during 2004. This increase is
attributable to the rise in total amount under these  transactions.  The Gain on
Sale-leaseback  Transactions  with unrelated parties for the year ended December
31, 2005, was none compared to $22,612  during 2004.  This decrease is due to no
Sale-leaseback  Transactions  with  unaffiliated  parties  during  2005.  As  of
December 31, 2005,  the Company had seven  capital  leases in  conjunction  with
these transactions.

Service Revenue

For 2005,  Service  Revenue  consisted of sales of non-core  services  including
server maintenance  agreements and monitoring  equipment  repairs.  For the year
ended December 31, 2005,  Service  Revenue was $57,859  compared to $138,188 for
2004. This decrease is  attributable  to a fewer number of equipment  repairs of
deployed monitoring units.

Cost of Revenues

Cost of Revenues  represents all direct costs  associated with the generation of
equipment and hosting  revenue,  including  cost of goods for equipment  that is
sold and leased,  the direct  variable  communications  and  hardware  equipment
expenses  associated  with  the  webcentric  hosting  services,   the  costs  of
distribution  of  software  and  equipment,  and  the  maintenance  expenses  on
equipment repaired under service  agreements.  A portion of the cost of revenues
consists of the amortization of product  development costs, which began in March
2002.  For the year ended  December 31, 2005,  Cost of Revenues was  $2,876,779,
compared  to  $4,403,047  during  2004.  During the first  quarter of 2004,  the
Company initiated strategies of migrating away from the MEMS 2001 product to its
tracNET24 based House Arrest product and systematically  upgrading its MEMS 2000
product.  To reflect these  strategies,  the Company took impairment  charges of
$1,129,627   and  $211,624   against  the  MEMS  2001  and  MEMS  2000  product,
respectively.  After considering the effects of the impairment  charges taken in
2004,  Cost of Revenues  decreased by $185,017 from the year ended  December 31,
2005,  to the year ended  December 31, 2004,  primarily  due to the reduction of
amortization of certain product development costs, which ended in February 2005.


                                       15
<PAGE>

Research and Development

Research and  Development  expenses are the direct costs  associated  with iSt's
development of its proprietary  products.  Expenses in this category include the
cost of outside contracted  engineering and 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  were  $929,835 for the year
ended  December  31,  2005,  compared to  $687,914  for 2004.  This  increase in
research  and  development  expenses  was the result of  additional  testing and
configuration  expenses and increased  costs related to the  development  of our
next generation  product,  as well as an increase research and development staff
from nine employees at year end 2004 to 13 employees at year end 2005.

Sales, General and Administrative

Sales,  General  and  Administrative   (SG&A)  expenses  are  all  the  expenses
associated with the operations of the Company, other than the expenses described
above.  These expenses include executive,  sales,  administrative and accounting
staff payroll,  taxes and benefits,  rent on property,  travel,  communications,
office leases and supplies, marketing,  advertising,  attendance at trade shows,
production of marketing and related collateral  material,  as well as recruiting
and training  expenses.  For the year ended  December 31,  2005,  SG&A  expenses
decreased to $5,160,282 from  $6,582,008  during 2004. The twelve month decrease
was the result of  streamlining  of operations and other cost cutting  measures,
such as renegotiating communication contracts,  lowering rent expenses, reducing
headcount, and eliminating non-essential expenses.

Operating Loss

For the twelve months ended December 31, 2005,  operating  loss was  $3,377,113,
compared to  $6,993,483  for the same period in 2004.  The decrease is primarily
attributable  to decreases  in Cost of Revenues  and SG&A  expenses as described
above and increased equipment leasing and hosting revenues.

Interest Income

For the year ended December 31, 2005, interest income was $100,927,  compared to
interest  income of $32 in the comparable  period of 2004. This increase was due
the  investment  of the  cash  received  from the sale of  Preferred  Stock  and
warrants in June 2005, which was not needed for immediate  working capital needs
or debt repayment.  These funds have been invested in government  securities and
certificates of deposits with the Company's primary bank.

Interest Expense

For the year  ended  December  31,  2005,  interest  expense  totaled  $629,559,
compared to interest expense of $2,681,115 during 2004. This decrease was due to
a significant  reduction in the Company's debt in 2005 pursuant to the Company's
recapitalization  plan. During 2004, the Company recorded $1,900,000 of non-cash
interest  expense related to the issuance of convertible  debt  representing the
value of  detachable  warrants  pursuant to APB Opinion No. 14,  Accounting  for
Convertible Debt and Debt Issued with Stock Purchase Warrants.

Financing Fees

For the year  ended  December  31,  2005,  we did not incur any  financing  fees
compared to the $21,598 of financing fees incurred  during 2004. The decrease is
primarily  attributable  to  termination  of the  Company's  practice of issuing
warrants in conjunction with debt financing.


                                       16
<PAGE>

Net Loss

For the year ended  December 31, 2005,  the Company had a net loss of $3,873,908
compared to a net loss of $9,696,164 in 2004, for the reasons described above.

Preferred Stock Dividends and Accretion

For the year ended December 31, 2005,  preferred  stock  dividends and accretion
totaled  $549,108,  as compared to $911,983 for 2004. This change was due to all
Series A and Series B Convertible  Preferred  Stock being  converted into common
stock in  December  2004  and  January  2005,  respectively,  with  the  current
preferred  dividend  amount  accrued in regards  to the newly  created  Series C
Convertible Preferred Stock.

Net Loss Available to Common Stockholders

For the year ended  December 31, 2005,  there was a net loss available to common
stockholders  of $4,423,016  compared to  $10,608,147  in 2004.  The reasons for
these changes are described above.

Liquidity and Capital Resources

For the year ended  December 31, 2005,  the Company used  $4,021,753  of cash in
operating activities,  another $4,785,399 in investing activities, and generated
$9,504,781 in cash from  financing  activities,  which  included the sale of $11
million of Preferred  Stock and Warrants.  The total of all cash flow activities
resulted in an increase in the balance of cash for the year ended  December  31,
2005 of $697,629.  During the year ended  December  31,  2004,  the Company used
$4,249,912  of cash in operating  activities  and another  $156,525 in investing
activities.  The Company  generated  $4,326,035 from financing  activities.  The
total of all cash flow  activities in 2004 resulted in a decrease in the balance
of cash of $80,402.

By the  end of  2005,  the  Company  was  incurring  approximately  $550,000  in
recurring monthly operating expenses.  Approximately 69% of this total consisted
of salaries, wages, payroll taxes, health insurance and other employee benefits.
In addition to these ongoing operating expenses,  the Company also needs cash to
finance accounts  receivables and inventories and to make debt service payments.
The Company has met its liquidity  needs  through 2005 through a combination  of
operating revenues, debt and lease financings, and the sale of additional shares
of its capital stock.

On June 27, 2005,  the Company  closed on a Securities  Purchase  Agreement with
Mykonos  6420,  LP  ("Mykonos"),  an  affiliate of Sponsor  Investments,  LLC of
Dallas,  TX. As part of this  agreement,  Mykonos  invested  $11  million in the
Company  in  exchange  for  1,000,000  shares of its newly  created  Series C 8%
Cumulative  Compounding  Exchangeable  Preferred  Stock plus warrants to acquire
3,234,248  shares of the Company's  common stock at exercise prices ranging from
$2.30 to $16.50 per share.  The Preferred  Stock is  exchangeable  for 4,782,609
shares of Common Stock and warrants to acquire  6,287,045 shares of Common Stock
at an  exercise  price of $2.30 per share.  The  listed  share  amounts  reflect
post-reverse  split  amounts.  An opinion by an  independent  analyst deemed the
transaction as fair to the existing shareholders of the Company.

The  Company  converted  approximately  $3.9  million  and $3.0  million  of its
long-term debt into common stock during 2005 and 2004, respectively. The Company
made  principal   payments  on  long-term   debt  and  notes  payable   totaling
approximately $3.3 million and $2.7 million during 2005 and 2004,  respectively.
At December  31, 2005,  the Company had $0 in notes  payable and $1.9 million in
long term debt, $1.3 million of which represented current maturities.

As of December 31, 2005, the Company had seven capital lease facilities in place
which were used to finance  offender  monitoring  equipment.  All seven of these
capital leases were sale-leaseback  transactions with an affiliated party. Under
these  sale-leaseback  arrangements,  the Company sells the inventory to a third
party leasing  company (which is owned by a shareholder of the Company) and then
leases  the  equipment  back.  All  capital  leases  are  treated  as  financing
transactions  and  carrying  interest  rates of 9.50%.  Maturity  dates on these
capital  leases run from April 2006 to March 2008. As of December 31, 2005,  the
aggregate balance on these seven capital leases totaled $1,243,561.


                                       17
<PAGE>

As of December 31, 2005, the Company had notes payable totaling  $629,232 issued
to three institutional  lenders.  These notes carry an interest rate of 4% which
is payable semi-annually and mature on May 26, 2006. These notes are convertible
into shares of the Company's common stock at $2.30 per share.

After completing the sale of Preferred Stock and warrants in June, 2005, and the
conversion and payment of long-term debt, the Company believes it has sufficient
working capital to meet its liquidity needs for the foreseeable future.

Management does not anticipate further equity financings to fund operations.  It
does  anticipate,  however,  needing  additional  debt  financing to pay for new
product  deliveries from its manufacturer.  Management is currently  negotiating
with two finance  companies in an effort to secure a $5 million lease  financing
line. It is anticipated  that the line will be finalized and in place by the end
of March 2006.

Reverse Stock Split

On September  19, 2005,  the Company  effected a 1 for 10 reverse stock split of
the  Company's  common  stock.  Each  outstanding  ten (10) shares of our common
stock, par value $.001 per share, was automatically  combined and converted into
one (1) share of our common stock, par value $.001. There was no decrease in the
total number of shares of  authorized  capital  stock as a result of the Reverse
Stock Split and no  fractional  shares  resulted  from the Reverse  Stock Split,
rather  any  holder of shares  not evenly  divisible  by ten (10)  received  one
additional  whole share of common stock for such fractional share resulting from
the  combination  and  such  additional  share  duly  issued,   fully  paid  and
nonassessable. All share and per share amounts have been retro-actively restated
to reflect the reverse stock split.

Critical Accounting Policies

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

Revenue recognition

Revenue is  recognized  related to the sale and leasing of PTUs and for services
provided  through  tracNET24.  A daily service fee is charged for each PTU which
the customer  desires to have tracked from time to time. The customer  initiates
tracking by entering an activation  command on an appropriate  tracNET24  screen
and, similarly, stops the tracking by entering a deactivation command. The daily
fee for  tracNET24 is only charged  from the time of  activation  to the time of
deactivation  for each PTU.  These  services  are billed in arrears on a monthly
basis as the service is rendered to the customer.  Revenue  related to the daily
service fee for leasing and hosting our PTU's was  $4,821,632 and $3,575,032 for
the years  ended  December  31, 2005 and 2004,  respectively.  For PTUs that are
sold,  the  customer  is billed and revenue is  recognized  over the life of the
related contract. For PTUs that are leased, the customer is billed in arrears on
a monthly basis for all units under lease, and revenue is recognized.

Stock-based compensation

The Company has a stock-based  compensation  plan titled the 2001 Omnibus Equity
Incentive  Plan.  The  Company  can also grant  stock-based  compensation  under
executive employment agreements. iSt accounts for stock-based compensation under
the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock  Issued  to  Employees,  and  related   interpretations,   which  measures
compensation as the difference between the fair market value of the stock at the
date of award and the amount required to be paid for the stock  (intrinsic value
method).


                                       18
<PAGE>

During  2004,  the Company  reduced  the  exercise  price of certain  previously
awarded stock  options.  The Company  accounts for  modifications  of previously
issued  fixed  stock  option  awards  under  the  accounting   consequences   of
modifications to a fixed stock option or award of APB Opinion No. 25 and related
interpretations. Accordingly, the options are accounted for as variable from the
date of the  modification  to the date the option is  exercised,  forfeited,  or
expires unexercised.

Impairment of Long-Lived Assets.

The Company  evaluates  goodwill for impairment on an annual basis.  The Company
assesses the  recoverability  of long-lived assets whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  These computations  utilize judgments and assumptions  inherent in
management's  estimate  of future  undiscounted  and  discounted  cash  flows to
determine  recoverability  of these assets.  If management's  assumptions  about
these assets were to change as a result of events or circumstances,  the Company
may be required to record an impairment  loss.  For the year ended  December 31,
2005, the Company  recorded no impairment  charges.  For the year ended December
31, 2004,  the Company  recorded an impairment  charge of $1,341,251  related to
monitoring  equipment and an impairment  charge of $302,298  related to customer
monitoring contracts.

Off-Balance Sheet Arrangements

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

Item 7. Financial Statements.

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

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

None.

Item 8A. Controls and Procedures.

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

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

Item 8B. Other Information.

Not applicable


                                       19
<PAGE>

PART III

Incorporated by reference in Items 9 to 12, and 14 below are certain sections of
the definitive proxy statement,  to be filed pursuant to Regulation 14A with the
SEC within 120 days after December 31, 2005 (the "Proxy Statement").

Item 9. Directors and Executive Officers of the Registrant.

The information about directors required to be furnished pursuant to this Item 9
is incorporated by reference to the Proxy Statement under the heading  "ELECTION
OF DIRECTORS".  Information  regarding  non-director  executive  officers of the
Company is set forth below.

David G. Vana,  age 44, was appointed  Chief  Financial  Officer in August 2003.
From November, 2001 to August, 2003, Mr. Vana served as Senior Vice President of
Product  Development  where he led the  development  of the  Company's  offender
monitoring products. Mr. Vana was with Telemarket Resources International (TRI),
an Omaha,  Nebraska  company  that  provides  message  broadcasting  and  direct
marketing  products  to the  telecommunications  industry,  from May 2000  until
October  2001 where he served as a Board Member and CFO.  Prior to that,  he was
with Ernst & Young's Management  Consulting  Practice in Kansas City,  Missouri.
Mr. Vana  previously was the CFO for Pyramid  Computing  Solutions,  Director of
Financial  Systems for MFS  Communications  and  Accounting  Manager for America
First  Companies.  He has extensive  experience in strategic  planning,  project
management,  accounting  and  finance.  Mr.  Vana has a BSBA and an MBA from the
University of Nebraska at Omaha.

Edward J. Sempek,  age 44, was  appointed  Senior Vice  President,  Operations &
Business  Development in August 2003. From November,  2001 to August,  2003, Mr.
Sempek served as Senior Vice  President of Sales & Marketing.  Mr. Sempek served
as Executive Vice  President at Telemarket  Resources  International  (TRI) from
January 2000 to October  2001.  Mr.  Sempek is an  entrepreneur,  having owned a
number of  successful  businesses  over the past two decades  including  Pyramid
Computing Solutions,  Inc., which was acquired by TRI. Mr. Sempek was previously
employed with Sprint, a large global communications  company, from 1989 to 1995.
He served as Major Account Manager, National Account Manager, Area Sales Manager
and Regional Data Sales Manager with Sprint.  In 1994 he was the number two Area
Sales Manager in the country.

David G. Sempek,  age 43, was  appointed  Chief  Technology  Officer in November
2001.  Mr. Sempek  served as Chief  Technical  Officer at  Telemarket  Resources
International (TRI) from January 1999 to October 2001. Mr. Sempek also served as
Vice President of Information  Services at Pyramid Computing Solutions Inc. from
January  1993  to  December  1999.  Mr.  Sempek  has a  Bachelor  of  Electrical
Engineering with distinction from the University of Minnesota. He specializes in
computer  science  and  programming  and  has  written  thesis  material  on the
"Implementation of Algorithms for VLSI Layout."

Item 10. Executive Compensation.

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

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

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


                                       20
<PAGE>

Item 12. Certain Relationships and Related Transactions.

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

Item 13. Exhibits.

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

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

            2.    Exhibits.

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

                  3.02  Restated Bylaws of the Company (1)

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

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

                  3.05  Certificate of  Designations,  Preferences and Rights of
                        Series C Convertible Preferred Stock of iSt (12)

                  4.01  Form of Common Stock Certificate (1)

                  4.03  2001 Omnibus Equity Incentive Plan (4)

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

                  10.02 ADT Distribution Agreement (3)

                  10.03 ADT Hosting Agreement (3)

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

                  10.05 Share   Exchange   Agreement   with   Tracking   Systems
                        Corporation (8)

                  10.06 Employment  Agreement between iSt and Thomas E. Wharton,
                        Jr. (6)

                  10.07 Employment Agreement between iSt and David G. Vana (5)

                  10.08 Employment  Agreement  between  iSt and Edward J. Sempek
                        (5)

                  10.09 Employment Agreement between iSt and David G. Sempek (5)
                        10.10 Agreement Among Noteholders (10)

                  10.11 Debt Conversion between iSt and Roger Kanne (11)

                  10.12 Debt Conversion between iSt and Martin Halbur (11)

                  10.13 Debt Conversion between iSt and Kenneth Macke (11)

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

                  10.15 Business Office Lease (11)

                  10.16 Securities Purchase Agreement (14)

                  10.17 Registration Rights Agreement (15)


                                       21
<PAGE>

                  10.18 Warrant Agreement (16)

                  21.01 Subsidiaries of the Company

                  24    Powers of Attorney

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

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

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

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

                        (2)   Not used.

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

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

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

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

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

                        (8)   Incorporated  by reference  from the  registrant's
                              current  report  under Form 8-K filed on  November
                              12, 2003 (Commission File No. 0-26455).

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

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

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

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

                        (13)  Incorporated  by reference  from the  registrant's
                              current report under Form 10-QSB filed on November
                              9, 2005. (Commission File No. 0-26455).

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

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

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


                                       22
<PAGE>

Item 14. Principal Accountant Fees and Services

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


                                       23
<PAGE>

                                   SIGNATURES

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

                                        ISecureTrac Corp.

                                        By:  /s/ Thomas E. Wharton, Jr.
                                            ---------------------------
                                              Thomas E. Wharton, Jr.
                                            Chief Executive Officer


                                        By:  /s/ David G. Vana
                                            ---------------------------
                                              David G. Vana
                                            Chief Financial Officer

                                        Dated: March 17, 2006

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

<TABLE>
<CAPTION>

              Signature                                     Title                               Date

<S>                                         <C>                                            <C>
        /s/ Roger J. Kanne *                 Chairman of the Board of Directors,           March 17, 2006
--------------------------------------                    Director
           Roger J. Kanne

      /s/ Thomas E. Wharton Jr.         President, Chief Executive Officer, Director       March 17, 2006
--------------------------------------
        Thomas E. Wharton Jr.

          /s/ David G. Vana                        Chief Financial Officer                 March 17, 2006
--------------------------------------
            David G. Vana

      /s/ Joseph A. Ethridge *                            Director                         March 17, 2006
--------------------------------------
         Joseph A. Ethridge

        /s/ Robet W. Korba *                              Director                         March 17, 2006
--------------------------------------
           Robert W. Korba

       /s/ Bruce Leadbetter *                             Director                         March 17, 2006
--------------------------------------
          Bruce Leadbetter

           /s/ Ravi Nath *                                Director                         March 17, 2006
--------------------------------------
              Ravi Nath

    /s/ General Goh Yong Siang *                          Director                         March 17, 2006
--------------------------------------
       General Goh Yong Siang
</TABLE>


* Thomas E. Wharton Jr., by signing his name hereto, signs this annual report on
behalf of each  person  indicated.  A  Power-of-Attorney  authorizing  Thomas E.
Wharton Jr. to sign this  annual  report on Form 10-KSB on behalf of each of the
indicated Directors of iSECUREtrac Corp. has been filed herein as Exhibit 24.


                                  By:  /s/ Thomas E. Wharton Jr.
                                       -------------------------
                                       Thomas E. Wharton Jr.
                                       Attorney-In-Fact













                                       24
<PAGE>

                       iSECUREtrac Corp. and Subsidiaries
                          Consolidated Financial Report

                                Table of Contents

Report of Independent Registered Public Accounting Firm ..................   F-1

Consolidated Financial Statements:
  Balance Sheet ..........................................................   F-2
  Statements of Operations ...............................................   F-3
  Statements of Stockholders' Deficit ....................................   F-4
  Statements of Cash Flows ...............................................   F-5

Notes to Consolidated Financial Statements ...............................   F-6


                                     F - 0
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
iSECUREtrac Corp.
Omaha, Nebraska

We have audited the accompanying Consolidated Balance Sheet of iSECUREtrac Corp.
and  subsidiaries  as  of  December  31,  2005,  and  the  related  Consolidated
Statements  of  Operations,  Stockholders'  Deficit and Cash Flows for the years
ended  December  31,  2005,  and  2004.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
the significant estimates made by management,  as well as evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of iSECUREtrac Corp.
and  subsidiaries  as of December 31, 2005, and the results of their  operations
and their  cash  flows for the years  ended  December  31,  2005,  and 2004,  in
conformity with U.S. generally accepted accounting principles.


/s/ McGladrey & Pullen, LLP
Kansas City, Missouri
February 14, 2006


                                     F - 1
<PAGE>

                       iSECUREtrac Corp. and SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               December 31, 2005

<TABLE>
<S>                                                                                     <C>
-----------------------------------------------------------------------------------------------------
ASSETS (Note 5)
Current Assets
      Cash and cash equivalents  (Note 12)                                              $    742,626
      Investments  (Note 2)                                                                3,445,776
      Accounts receivable, net of allowance for doubtful accounts of $175,000 in 2005      1,618,473
      Investment interest receivable                                                           3,555
      Inventories                                                                            122,739
      Prepaid expenses and other                                                              83,360
-----------------------------------------------------------------------------------------------------
         Total current assets                                                              6,016,529
-----------------------------------------------------------------------------------------------------
Equipment, net of accumulated depreciation of $258,105                                       220,231
Leasehold improvements, net of accumulated depreciation of $2,537                             18,950
Monitoring equipment, net of accumulated depreciation of $3,456,803 (Notes 3 & 10)         2,563,193
Intangibles, net of accumulated amortization of $674,891 (Note 4)                            236,631
Goodwill (Note 4)                                                                          2,302,179
Other assets                                                                                 118,260
-----------------------------------------------------------------------------------------------------
         Total assets                                                                   $ 11,475,973
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
      Current maturities of long-term debt (Notes 5 and 10)                             $  1,326,502
      Accounts payable and accrued expenses                                                  539,343
      Deferred gain on sale-leaseback transaction (Note 10)                                  435,840
      Accrued interest payable (Note 5)                                                       12,738
-----------------------------------------------------------------------------------------------------
         Total current liabilities                                                         2,314,423
-----------------------------------------------------------------------------------------------------
Long-term debt, less current maturities (Notes 5 and 10)                                     546,290
-----------------------------------------------------------------------------------------------------
Redeemable convertible Series C preferred stock, 1,000,000 shares designated at
      $0.01 par value; 1,000,000 issued and outstanding  (Note 8)                          9,584,398
-----------------------------------------------------------------------------------------------------
Contingency (Note 12)                                                                             --
-----------------------------------------------------------------------------------------------------
Stockholders' Equity (Deficit) (Notes 7 and 8)
      Common stock, 150,000,000 shares authorized at $0.001 par value;
         10,684,529 issued and outstanding                                                    10,685
      Additional paid-in capital                                                          54,551,133
      Accumulated deficit                                                                (55,530,956)
-----------------------------------------------------------------------------------------------------
         Total stockholders'  equity (deficit)                                              (969,138)
-----------------------------------------------------------------------------------------------------
         Total liabilities and stockholders' equity (deficit)                           $ 11,475,973
=====================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                     F - 2
<PAGE>

                       iSECUREtrac Corp. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                2005              2004
------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>
Revenues:
         Equipment sales                                   $     38,605      $    377,509
         Equipment leasing & hosting                          4,821,632         3,575,032
         Gain on sale-leaseback transactions (Note 10)
            Related party                                       671,687           566,145
            Other                                                    --            22,612
         Service                                                 57,859           138,188
------------------------------------------------------------------------------------------
            Total revenues                                    5,589,783         4,679,486
------------------------------------------------------------------------------------------
Operating expenses:
         Cost of revenues  (Note 3)                           2,876,779         4,403,047
         Research and development                               929,835           687,914
         Sales, general and administrative                    5,160,282         6,582,008
------------------------------------------------------------------------------------------
            Total operating expenses                          8,966,896        11,672,969
------------------------------------------------------------------------------------------
         Operating loss                                      (3,377,113)       (6,993,483)
------------------------------------------------------------------------------------------
Other income (expense):
         Interest income                                        100,927                32
         Interest expense (Notes 5 and 7)                      (629,559)       (2,681,115)
         Financing fees                                              --           (21,598)
         Other, net                                              31,837                --
------------------------------------------------------------------------------------------
         Total other income (expense)                          (496,795)       (2,702,681)
------------------------------------------------------------------------------------------
         Loss before provision for income taxes              (3,873,908)       (9,696,164)
         Provision for income taxes (Note 6)                         --                --
------------------------------------------------------------------------------------------
Net loss                                                   $ (3,873,908)     $ (9,696,164)
==========================================================================================
Preferred stock dividends and accretion (Note 8)               (549,108)         (911,983)
------------------------------------------------------------------------------------------
Net loss available to common stockholders                  $ (4,423,016)     $(10,608,147)
==========================================================================================
Basic and diluted loss per common share                    $      (0.45)     $      (1.82)
==========================================================================================
Weighted average shares of common stock outstanding           9,910,337         5,827,510
==========================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                     F - 3
<PAGE>

                       iSECUREtrac Corp. AND SUBSIDIARIES
                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                               Series A               Series B
                                                                             Convertible             Convertible
                                                                           Preferred Stock         Preferred Stock
                                                                       -----------------------   -------------------
                                                                        Shares       Amount      Shares      Amount
---------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>             <C>      <C>
Balance, December 31, 2003                                               9,126    $  9,125,470      300    $ 295,000
   Shares issued for cash, net of offering costs                            --              --       --           --
   Shares issued upon conversion of notes                                   --              --       --           --
   Shares issued upon exercise of options                                   --              --       --           --
   Shares issued upon exercise of warrants                                  --              --       --           --
   Shares issued for director's fees                                        --              --       --           --
   Shares issued for services                                               --              --       --           --
   Amortization of unearned consulting expense                              --              --       --           --
   Compensation related to stock options issued                             --              --       --           --
   Warrants issued in conjunction for convertible notes                     --              --       --           --
   Warrants issued for consulting services                                  --              --       --           --
   Series A preferred stock dividends                                    1,130       1,130,496       --           --
   Shares issued upon conversion of Series A preferred stock           (10,256)    (10,255,966)      --           --
   Net loss                                                                 --              --       --           --
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004                                                  --              --      300      295,000
   Issuance of warrants, net of offering costs                              --              --       --           --
   Shares issued upon conversion of notes                                   --              --       --           --
   Shares issued upon exercise of options                                   --              --       --           --
   Shares issued upon exercise of warrants                                  --              --       --           --
   Shares issued for director's fees                                        --              --       --           --
   Compensation related to stock options issued                             --              --       --           --
   Registration offering costs                                              --              --       --           --
   Shares issued upon conversion of Series B preferred stock                --              --     (300)    (295,000)
   Shares issued in lieu of partial shares pursuant to reverse-split        --              --       --           --
   Series C preferred stock dividends                                       --              --       --           --
   Accretion to redemption value of preferred stock                         --              --       --           --
   Net loss                                                                 --              --       --           --
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005                                                  --    $         --    $  --    $      --
=====================================================================================================================

<CAPTION>
                                                                            Common Stock        Additional
                                                                        --------------------     Paid -in
                                                                          Shares      Amount      Capital
------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>       <C>
Balance, December 31, 2003                                               4,890,430   $ 4,890   $ 28,568,747
   Shares issued for cash, net of offering costs                         1,227,597     1,228      3,477,785
   Shares issued upon conversion of notes                                1,345,611     1,346      2,986,922
   Shares issued upon exercise of options                                  243,835       244        386,163
   Shares issued upon exercise of warrants                                  86,957        87        199,913
   Shares issued for director's fees                                        11,638        12         33,321
   Shares issued for services                                               33,491        33         76,347
   Amortization of unearned consulting expense                                  --        --             --
   Compensation related to stock options issued                                 --        --        534,336
   Warrants issued in conjunction for convertible notes                         --        --      1,900,000
   Warrants issued for consulting services                                      --        --        255,508
   Series A preferred stock dividends                                           --        --             --
   Shares issued upon conversion of Series A preferred stock             1,025,597     1,026     10,254,940
   Net loss                                                                     --        --             --
------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004                                               8,865,156     8,866     48,673,982
   Issuance of warrants, net of offering costs                                  --        --      1,543,396
   Shares issued upon conversion of notes                                1,679,254     1,679      3,942,371
   Shares issued upon exercise of options                                    6,100         6         17,169
   Shares issued upon exercise of warrants                                  76,087        76        174,924
   Shares issued for director's fees                                         7,599         8         16,992
   Compensation related to stock options issued                                 --        --         13,680
   Registration offering costs                                                  --        --        (28,073)
   Shares issued upon conversion of Series B preferred stock                50,010        50        294,950
   Shares issued in lieu of partial shares pursuant to reverse-split           323        --             --
   Series C preferred stock dividends                                           --        --             --
   Accretion to redemption value of preferred stock                             --        --        (98,258)
   Net loss                                                                     --        --             --
------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005                                              10,684,529   $10,685   $ 54,551,133
============================================================================================================

<CAPTION>
                                                                        Unearned
                                                                       Consulting    Accumulated
                                                                        Expense        Deficit         Total
----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>             <C>
Balance, December 31, 2003                                             $(357,000)   $(40,598,051)   $(2,960,944)
   Shares issued for cash, net of offering costs                              --              --      3,479,013
   Shares issued upon conversion of notes                                     --              --      2,988,268
   Shares issued upon exercise of options                                     --              --        386,407
   Shares issued upon exercise of warrants                                    --              --        200,000
   Shares issued for director's fees                                          --              --         33,333
   Shares issued for services                                                 --              --         76,380
   Amortization of unearned consulting expense                           357,000              --        357,000
   Compensation related to stock options issued                               --              --        534,336
   Warrants issued in conjunction for convertible notes                       --              --      1,900,000
   Warrants issued for consulting services                                    --              --        255,508
   Series A preferred stock dividends                                         --        (911,983)       218,513
   Shares issued upon conversion of Series A preferred stock                  --              --             --
   Net loss                                                                   --      (9,696,164)    (9,696,164)
----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004                                                    --     (51,206,198)    (2,228,350)
   Issuance of warrants, net of offering costs                                --              --      1,543,396
   Shares issued upon conversion of notes                                     --              --      3,944,050
   Shares issued upon exercise of options                                     --              --         17,175
   Shares issued upon exercise of warrants                                    --              --        175,000
   Shares issued for director's fees                                          --              --         17,000
   Compensation related to stock options issued                               --              --         13,680
   Registration offering costs                                                --              --        (28,073)
   Shares issued upon conversion of Series B preferred stock                  --              --             --
   Shares issued in lieu of partial shares pursuant to reverse-split          --              --             --
   Series C preferred stock dividends                                         --        (450,850)      (450,850)
   Accretion to redemption value of preferred stock                           --              --        (98,258)
   Net loss                                                                   --      (3,873,908)    (3,873,908)
----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005                                             $      --    $(55,530,956)   $  (969,138)
================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                     F - 4
<PAGE>

                       iSECUREtrac CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                       2005              2004
------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>
Cash Flows From Operating Activities
  Net loss                                                                         $ (3,873,908)     $ (9,696,164)
  Adjustments to reconcile net loss to net cash used in operating activities
     Depreciation and amortization                                                    1,822,629         1,911,843
     Impairment charge of monitoring equipment                                               --         1,341,251
     Impairment charge of intangibles subject to amortization                                --           302,298
     Interst expense related to convertible debt                                             --         1,900,000
     Expenses paid by issuance of stock, warrants, and options in lieu of cash           30,680           899,557
     Amortization of unearned consulting expense                                             --           357,000
     Accretion of investment discount                                                   (53,940)               --
     Gain on sale - leaseback transactions                                             (671,687)         (588,757)
     Changes in assets and liabilities, net of effects of acquisition
       Increase in accounts receivable                                                 (568,819)         (447,287)
       Increase in interest receivable                                                   (3,555)               --
       Decrease in inventories                                                           18,199             3,213
       (Increase) decrease in prepaid expenses                                           (7,626)           16,798
       Decrease in accounts payable and accrued expenses                               (584,058)         (196,483)
       Decrease in accrued interest payable                                            (129,668)          (53,181)
------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                                (4,021,753)       (4,249,912)
------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
  Purchases of leasehold improvements and equipment                                     (81,914)          (14,484)
  Purchases of monitoring equipment                                                  (1,367,040)             (878)
  Investments                                                                        (3,391,836)               --
  Decrease (increase) in other assets                                                    55,391          (141,163)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                (4,785,399)         (156,525)
------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
  Principal proceeds from notes                                                       1,700,000           270,000
  Principal payments on notes                                                        (1,915,654)         (817,435)
  Principal proceeds from long-term debt                                                400,000         1,940,000
  Principal payments on long-term debt                                               (1,422,353)       (1,913,965)
  Proceeds from the exercise of options and warrants                                    192,175         4,065,420
  Registration offering costs                                                           (28,073)               --
  Proceeds from sale-leaseback transaction                                                   --           782,015
  Proceeds from issuance of Series C preferred stock, net of offering costs          10,578,686                --
------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                             9,504,781         4,326,035
------------------------------------------------------------------------------------------------------------------
Increase in cash                                                                        697,629           (80,402)
Cash at beginning of period                                                              44,997           125,399
------------------------------------------------------------------------------------------------------------------
Cash at end of period                                                              $    742,626      $     44,997
==================================================================================================================
Supplemental Disclosure of Cash Payments for
  Interest                                                                              759,227           834,296
Supplement Disclosure Of Noncash Investing and Financing Activities
  Issuance of Common and Preferred Stock in lieu of payment on
     long-term debt, notes payable and accrued interest payable                       3,944,050         2,988,268
  Issuance of Preferred Stock in payment of Preferred Stock dividends                        --         1,130,496
  Issuance of Common Stock upon Conversion of Series A Preferred Stock                       --        10,255,966
  Issuance of Common Stock upon Conversion of Series B Preferred Stock                  294,500                --
  Preferred stock dividends and accretion                                               549,108                --
  Increase (decrease) in restricted cash and stockholders' escrow liability            (700,000)          700,000
  Deferred gain on sales-leaseback recorded on sale of monitoring equipment             237,144           659,918
</TABLE>

See Notes to Consolidated Financial Statements


                                     F - 5
<PAGE>

                        iSECUREtrac CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of Business

iSECUREtrac  Corp. and subsidiaries  ("iSt" or "the Company")  design,  develop,
produce,  sell, lease and support 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.
Today,  iSt primarily  markets to the criminal  justice  industry for continuous
electronic monitoring of criminal offenders.

Reverse Stock Split

On September  19, 2005,  the Company  effected a 1 for 10 reverse stock split of
the  Company's  common  stock.  Each  outstanding  ten (10) shares of our common
stock, par value $.001 per share, was automatically  combined and converted into
one (1) share of our common stock, par value $.001. There was no decrease in the
total number of shares of  authorized  capital  stock as a result of the Reverse
Stock Split and no  fractional  shares  resulted  from the Reverse  Stock Split,
rather  any  holder of shares  not evenly  divisible  by ten (10)  received  one
additional  whole share of common stock for such fractional share resulting from
the  combination  and  such  additional  share  duly  issued,   fully  paid  and
nonassessable. All share and per share amounts have been retro-actively restated
to reflect the reverse stock split.

Significant Accounting Policies

Principles of consolidation:  The consolidated  financial statements include the
accounts of iSt and its wholly-owned  subsidiaries,  iSt Services,  Inc., formed
September 25, 2002,  and Tracking  Systems  Corporation,  acquired on August 28,
2003. All material  intercompany  balances and transactions have been eliminated
in consolidation.

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

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

Investments:  iSt's investments are stated at amortized cost which  approximates
fair value.

Trade accounts  receivable:  Trade  accounts  receivable are carried at original
invoice amount less an estimate made for doubtful  receivables based on a review
of all  outstanding  amounts  on a  monthly  basis.  Management  determines  the
allowance for doubtful receivables by regularly  evaluating  individual customer
receivables and considering a customer's financial condition, credit history and
current  economic  conditions.  Trade  accounts  receivable are written off when
deemed uncollectible. Recoveries of trade accounts receivable previously written
off are  recorded  when  received.  The Company  offers  credit  terms to select
customers  of up to 45 days.  Additionally,  the Company  reserves  the right to
assess finance charges on delinquent  accounts where such charges are permitted.
Accounts are considered delinquent after 45 days. There was $161,131 of bad debt
expenses for 2005 and $6,131 for 2004.


--------------------------------------------------------------------------------
                                     F - 6
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Inventories: Inventories consist of Personal Tracking Units (PTUs) and parts and
are recorded at the lower of cost (first in - first out method) or market.

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

Because of the high costs  associated  with  maintaining  the MEMS 2000 and MEMS
2001 home arrest  product,  the Company began  development  in April,  2004 of a
tracNET24-based  replacement home arrest product. This development was completed
in the fourth quarter and the Company  immediately  commenced  moving  customers
from the MEMS 2001 to the  tracNET24  platform.  In  addition,  during the third
quarter of 2004,  the Company  released the iSt cuff RF  transmitter  and ceased
offering the Elmo Tech and Premier Geografix transmitters for use in its GPS and
home arrest offerings.

During the year ended  December 31, 2004,  the Company took  impairment  charges
totaling  $1,341,251 against its MEMS 2001 ($1,129,627) and MEMS 2000 ($211,624)
monitoring  equipment.  This impairment  charge has been included in the cost of
revenues in the  consolidated  statement  of  operations.  The Company  used the
discounted  cash  flow  method  for  revenues  generated  by this  equipment  to
determine the fair value of this  equipment.  There were no  impairment  charges
during the year ended December 31, 2005.

Product development:  iSt capitalized software and hardware development costs in
accordance with the SFAS No. 86,  Accounting for the Costs of Computer  Software
to be Sold, Leased or Otherwise Marketed. Capitalization begins when a product's
technological  feasibility  has been  established  and ends when the  product is
available for general release to customers.  No product  development  costs were
capitalized  in 2005 or 2004.  iSt  began  amortizing  these  costs in 2002 on a
straight-line basis over an estimated economic useful life of three years. Based
upon unit sales to date, and projected sales for the future, management believes
there is no impairment of product development costs and therefore,  there was no
charge to  expense  for  impairment  in the year ended  December  31,  2005,  or
December 31, 2004. Amortization of capitalized software and hardware development
costs  totaled  $52,477 and $314,862  for the years ended  December 31, 2005 and
2004,  respectively.  At December 31, 2005, the product  development  costs were
fully amortized.

Goodwill:  Goodwill  represents  the excess of purchase  price paid over the net
identifiable assets of the acquired business.  It is subject to annual tests for
impairment.  iSt has recorded no impairment  charges related to goodwill for the
years ended December 31, 2005, and 2004.

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

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


--------------------------------------------------------------------------------
                                     F - 7
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   December 31, 2005  December 31, 2004
   ------------------------------------------------------------------------------------
<S>                                                    <C>               <C>
   Shares issuable upon conversion of Series B
   Convertible Preferred Stock                                --            50,010

   Shares issuable upon conversion of Series C
   Exchangeable Preferred Stock                        4,782,609                --

   Shares issuable upon conversion of
   Subordinated Convertible Note                              --           263,158

   Shares issuable upon conversion of Other
   Convertible Notes                                     273,579           372,384

   Common stock options outstanding                    1,121,412         1,114,354

   Common stock warrants outstanding                   5,005,155         2,288,899

   Convertible subordinated debentures                        --               495
   ------------------------------------------------------------------------------------
</TABLE>

Revenue recognition:  Revenues from equipment sold in conjunction with a hosting
agreement are recognized ratably over the initial term of the hosting agreement.
Revenues from equipment sold  irrespective of a hosting agreement are recognized
when goods are received by the customer.  Equipment is shipped FOB  destination.
Leasing,  hosting,  and service  revenues are recognized upon performance of the
respective  service.  Gains on  sale-leaseback  transactions  are  recorded as a
liability  and  recognized  as income  ratably  over the term of the  respective
equipment  lease  (typically  2-3  years).  Costs of  revenues  are  recorded as
products are delivered or services are performed.  Leasing and hosting contracts
with customers are typically for twelve months.

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

Stock-based compensation: The Company has a stock-based compensation plan titled
the 2001 Omnibus  Equity  Incentive  Plan.  The Company also grants  stock-based
compensation under executive employment agreements. iSt accounts for stock-based
compensation under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations, which
measures  compensation  as the  difference  between the fair market value of the
stock at the date of award  and the  amount  required  to be paid for the  stock
(intrinsic value method).  Stock-based  compensation of $13,680 and $534,336 has
been  reflected  in net loss for the years ending  December 31, 2005,  and 2004,
respectively.  During 2004,  the Company  reduced the exercise  price of certain
previously  awarded stock options.  The Company  accounts for  modifications  of
previously issued fixed stock option awards under the accounting consequences of
modifications to a fixed stock option or award of APB Opinion No. 25 and related
interpretations. Accordingly, the options are accounted for as variable from the
date of the  modification  to the date the option is  exercised,  forfeited,  or
expires unexercised.  ($34,008) and $353,124 of the stock-based compensation for
the years ended December 31, 2005 and 2004,  respectively,  is  attributable  to
variable  accounting  for stock  options for which the  exercise  price had been
reduced.


--------------------------------------------------------------------------------
                                     F - 8
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

The  following  table  illustrates  the effect on net loss for the years  ending
December 31, 2005,  and 2004,  as if iSt had applied the fair value  recognition
provisions  of  SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,  to
stock-based compensation.

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                             2005              2004
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>               <C>
Net loss, as reported                                                                    $ (3,873,908)     $ (9,696,164)

Add: Stock-based employee compensation expense included in reported net loss                   13,680           534,336

Deduct:  Total stock-based employee compensation expense determined under fair value
based method for all awards                                                                  (130,792)       (1,263,470)
------------------------------------------------------------------------------------------------------------------------
Pro forma net loss                                                                         (3,991,020)      (10,425,298)

Preferred dividends and accretion                                                            (549,108)         (911,983)
------------------------------------------------------------------------------------------------------------------------
Pro forma net loss available to common stockholders                                      $ (4,540,128)     $(11,337,281)

Basic and diluted loss per share:

     As reported                                                                         $      (0.45)     $      (1.82)
========================================================================================================================
     Pro forma                                                                           $      (0.46)     $      (1.96)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

In  determining  the pro forma amounts above during 2005 and 2004,  the value of
each grant is estimated at the grant date using the fair value method prescribed
in SFAS No. 123 with the following assumptions: no dividends, risk free interest
rate of 5%; expected life of 3.5 years and; expected price volatility of 106.62%
and 79.30%.

The fair value of stock warrants issued to  non-employees is being accounted for
using SFAS No.  123.  Related  compensation  expense  is charged to income  when
incurred.

Segments of business: The Company currently has a single business segment.

Advertising  costs:  Advertising  costs are  expensed as  incurred.  Advertising
expense for the years ended December 31, 2005, and 2004 was $14,793 and $10,605,
respectively.

Recent  Accounting  Pronouncements:  In December 2004, the Financial  Accounting
Standards  Board  ("FASB")  published  FASB  Statement  No. 123 (revised  2004),
"Share-Based  Payment" ("FAS 123(R)" or the  "Statement").  FAS 123(R)  requires
that  the  compensation  cost  relating  to  share-based  payment  transactions,
including  grants  of  employee  stock  options,   be  recognized  in  financial
statements.  That cost will be measured based on the fair value of the equity or
liability  instruments  issued.  FAS 123(R)  covers a wide range of  share-based
compensation  arrangements  including  stock  options,  restricted  share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans.  FAS 123(R) is a replacement  of FASB  Statement No. 123,  Accounting for
Stock-Based  Compensation,  and  supersedes  APB Opinion No. 25,  Accounting for
Stock Issued to Employees, and its related interpretive guidance (APB 25).

The effect of the Statement  will be to require  entities to measure the cost of
employee services received in exchange for stock options based on the grant-date
fair value of the award,  and to recognize the cost over the period the employee
is required to provide  services for the award.  FAS 123(R) permits  entities to
use any  option-pricing  model  that  meets  the  fair  value  objective  in the
Statement.

The  Company  will be required  to apply FAS 123(R) as of the  beginning  of its
first  interim  period that begins after  December  15, 2005,  which will be the
quarter ending March 31, 2006.


--------------------------------------------------------------------------------
                                     F - 9
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

FAS 123(R) allows two methods for determining the effects of the transition: the
modified prospective  transition method and the modified retrospective method of
transition.  Under the modified  prospective  transition method, an entity would
use the fair value based  accounting  method for all  employee  awards  granted,
modified,  or  settled  after the  effective  date.  As of the  effective  date,
compensation cost related to the nonvested  portion of awards  outstanding as of
that  date  would be based  on the  grant-date  fair  value of those  awards  as
calculated  under the  original  provisions  of Statement  No. 123;  that is, an
entity would not remeasure the  grant-date  fair value  estimate of the unvested
portion  of awards  granted  prior to the  effective  date.  Under the  modified
retrospective method of transition, an entity would revise its previously issued
financial  statements to recognize employee  compensation cost for prior periods
presented in accordance with the original provisions of Statement No. 123.

The Company has not yet  completed its study of the  transition  methods or made
any decisions  about how it will adopt FAS 123(R).  The impact of this Statement
on the Company in fiscal 2006 and beyond will depend upon various factors, among
them being our future  compensation  strategy.  The pro forma compensation costs
presented  in the table above and in prior  filings  for the  Company  have been
calculated using a Black-Scholes  option pricing model and may not be indicative
of amounts which should be expected in future  years.  The Company will continue
using the Black-Scholes  option-pricing  model, and the impact is expected to be
consistent with the pro-forma disclosure amount.

Note 2. Investments

Securities are classified as held-to-maturity  and are recorded at cost based on
management's intent and ability to hold them to maturity.

To the  extent  management  determines  a  decline  in  value  in an  investment
held-to-maturity  to be other  than  temporary,  the  Company  will  adjust  the
carrying  value and  include  such  expense in the  consolidated  statements  of
income.  In  estimating   other-than-temporary   impairment  losses,  management
considers:  (1) the  length of time and the  extent to which the fair  value has
been less than cost, (2) the financial  condition and near-term prospects of the
issuer,  and (3) the intent and ability of the Company to retain its  investment
in the  issuer  for a period of time  sufficient  to allow  for any  anticipated
recovery in fair value.

Investments at December 31, 2005, consisted of the following:

<TABLE>
<CAPTION>
                                                              2005
                                     -------------------------------------------------------
                                                       Gross         Gross        Estimated
                                     Amortized      Unrealized     Unrealized        Fair
                                        Cost           Gains         Losses         Value
--------------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>            <C>
United States agency obligations     $3,245,776     $       --     $       --     $3,245,776
Certificates of deposits                200,000             --             --        200,000
                                     -------------------------------------------------------

                                     $3,445,776     $       --     $       --     $3,445,776
                                     =======================================================
</TABLE>

The Company had no realized gains or losses on investments in 2005.

All investments mature in 2006.

Note 3. Monitoring Equipment

Monitoring equipment at December 31, 2005, is as follows:


--------------------------------------------------------------------------------
                                     F - 10
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                       Active          Passive        MEMS 2000        Other           Total
   -------------------------------------------------------------------------------------------------------------
<S>                                 <C>             <C>             <C>             <C>             <C>
   Monitoring Equipment               1,633,378       2,995,599         964,896         426,123       6,019,996

   Less accumulated depreciation       (644,180)     (2,091,803)       (563,151)       (157,669)     (3,456,803)
   -------------------------------------------------------------------------------------------------------------
   Monitoring Equipment, net        $   989,198     $   903,796     $   401,745     $   268,454     $ 2,563,193
   =============================================================================================================
</TABLE>

Because of the high costs  associated  with  maintaining  MEMS 2001 home  arrest
product,  the Company  began  development  in April,  2004 of a  tracNET24-based
replacement  home arrest product.  This  development was completed in the fourth
quarter of 2004 and the Company immediately  commenced moving customers from the
MEMS 2001 to the tracNET24 platform.

During the year ended December 31, 2004,  the Company took an impairment  charge
of  $1,129,627  against  its MEMS  2001  monitoring  equipment  to  reflect  its
obsolescence.  At the same  time,  the  Company  took an  impairment  charge  of
$211,624  against its MEMS 2000 monitoring  equipment to reflect the uncertainty
of its viability as a profitable  offering.  These impairment  charges have been
included in the cost of revenues in the  consolidated  statement of  operations.
The Company used the discounted cash flow method for revenues  generated by this
equipment to determine its fair value. No impairment charges were taken in 2005.

Note 4. Goodwill and Intangibles, Subject to Amortization

Goodwill  is the  excess  of the cash  paid  over the net fair  value of  assets
acquired  and  liabilities  assumed  in  an  acquisition,  less  the  amount  of
identifiable  intangible  assets.  Goodwill is not amortized,  but is tested for
impairment  on an annual  basis.  The  Company has  determined  that there is no
impairment of goodwill as of December 31, 2005.

Intangible  assets are those that can be  separately  identified  and assigned a
value.  Intangible assets consist of customer monitoring contracts.  The Company
is amortizing the intangible  assets based on the revenue stream of the existing
contracts. Amortization expense is included in sales, general and administrative
expenses in the  consolidated  statements of operations and was $126,252 in 2005
and  $459,973,  including  a  $302,298  write  down of the  customer  monitoring
contracts on the MEMS 2001 and MEMS 2000  equipment to fair value,  in 2004. The
$302,298 write down was to reflect the uncertainty of customer  retention as the
Company began replacing the products with the tracNET24-based product.

The  composition of goodwill and  intangible  assets at December 31, 2005, is as
follows:


--------------------------------------------------------------------------------
                                     F - 11
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                     Intangibles, subject
                                                                          Goodwill      to Amortization
---------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>
Gross Carrying Amount                                                    $2,302,179       $  911,522

   Accumulated Amortization, including $302,298 of impairment loss               --         (674,891)
---------------------------------------------------------------------------------------------------------
Balance at December 31, 2005                                             $2,302,179       $  236,631
=========================================================================================================
</TABLE>

The estimated aggregate amortization expense of the intangibles is as follows:

  2006                                                                    92,707

  2007                                                                    82,569

  2008                                                                    41,962

  2009                                                                    19,393
--------------------------------------------------------------------------------
Total                                                                   $236,631
================================================================================

Note 5. Pledged Assets, Notes Payable, Long Term Debt, and Subsequent Event

iSt has the following long-term debt at December 31, 2005:

<TABLE>
<S>                                                                                                                 <C>
-------------------------------------------------------------------------------------------------------------------------------
Long Term Debt
    A Series of notes with three entities at 4% interest convertible into shares of the Company's common            $   629,232
    stock at $2.30 per share.  These convertible notes mature on May 28, 2006

    Seven separate capital leases with related parties that are carrying interest rates at 9.50% and maturing         1,243,560
    April 2006 to March 2008 (see Note 10)
-------------------------------------------------------------------------------------------------------------------------------
    Total long term debt                                                                                              1,872,792

    Less current maturities                                                                                          (1,326,502)
-------------------------------------------------------------------------------------------------------------------------------
    Total long term debt less current maturities                                                                    $   546,290
===============================================================================================================================
</TABLE>

Interest  expense to  stockholders  for the years ended  December 31, 2005,  and
2004, was approximately $210,860 and $391,000, respectively. Accrued interest to
stockholders at December 31, 2005 was $0.

The carrying value of fixed rate notes payable and long-term  debt  approximates
its fair value at December 31, 2005, due to the  stockholder  guarantees and the
relatively short-term nature of the borrowings.

The following is a schedule of aggregate  maturities  required on long-term debt
due in future years as of December 31, 2005:

  2006                                                                $1,326,502

  2007                                                                   508,451

  2008                                                                    37,839
--------------------------------------------------------------------------------
Total                                                                 $1,872,792
================================================================================


--------------------------------------------------------------------------------
                                     F - 12
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 6. Income Taxes

Net deferred  tax asset  includes the  following  components  as of December 31,
2005:

                                                                       Total
--------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforward                                    $ 22,221,000
Allowance for doubtful accounts                                          59,500
Valuation allowance                                                 (22,280,500)
--------------------------------------------------------------------------------
                                                                   $         --
================================================================================

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, 2005, and 2004 due to the following:

<TABLE>
<CAPTION>
                                                                      2005            2004
----------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
  Computed "expected" tax benefit                                 $(1,317,129)    $(3,296,699)

Increase (decrease) in income taxes (benefits) resulting from:

  Benefit from state taxes                                           (232,434)       (581,301)

  Nondeductible expenses                                               52,063              --

  Increase in valuation allowance                                   1,497,500       3,878,000
----------------------------------------------------------------------------------------------
Total provision for income taxes                                  $        --     $        --
==============================================================================================
</TABLE>

iSt has net operating  losses of  approximately  $55,553,000 to carryforward for
future tax purposes that expire from 2010 to 2025. It is reasonably possible the
Section 382 limitations of Internal  Revenue  Service  regulations may limit the
amount of net operating loss  carryforward.  Due to the uncertainty  surrounding
the  timing  of the  realization  of the  benefit  from the net  operating  loss
carryforward,  iSt has recorded a valuation allowance to offset the deferred tax
asset.

Note 7. Common Stock, Stock Options and Warrants

Common Stock

In 2005  and  2004,  iSt  issued  7,599  and  11,638  shares  of  common  stock,
respectively, to nonmanagement directors in lieu of director fees. The number of
shares of common stock issued in each case was based on the fair market value of
iSt common  stock as of the date of the  meetings  to which  such fees  related.
Expense  related to these  director's  fees totaled  $17,000 and $33,333 for the
years ended December 31, 2005, and 2004, respectively.

In 2004, iSt issued 33,491 shares of common stock to unrelated third parties for
services rendered.  These services  primarily related to consulting  activities.
The number of shares of common  stock  issued in each case was based on the fair
market  value of iSt common  stock on the date of  service.  Consulting  expense
related to these services  totaled $76,380 for the year ended December 31, 2004.
No such consulting fees were paid in common stock in 2005.

Stock Options

As of January 1, 2004,  iSt had  914,526  outstanding  options.  During 2004 the
Company  granted  563,425  options and 119,762  options  were  forfeited  by the
holders.  243,835  options were exercised in 2004 and 347,050 were cancelled and
reissued at a lower price. As of January 1, 2005, iSt had 1,114,354  outstanding
options.  During 2005 the Company granted 54,550 options and 41,392 options were
forfeited by the holders.  6,100 options were exercised in 2005. At December 31,
2005, iSt had 1,121,412 outstanding options.


--------------------------------------------------------------------------------
                                     F - 13
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2001 Omnibus Equity Incentive Plan

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 100,000  shares of the Company's
Common Stock to the Company's officers,  directors,  consultants or advisers who
provide  services to the Company and key  employees at an exercise  price 85% of
the average daily closing price of the Company's common stock for the week prior
to when the options  were  granted.  The options are to vest on a monthly  basis
over a one month to a  36-month  period  of time  from the date of grant.  As of
January 1 of each year,  commencing with the year 2002, the aggregate  number of
options  that may be  awarded  under the Plan is  automatically  increased  by a
number  equal to the  lesser of 1% of the total  number  of Common  Shares  then
outstanding or 20,000.  During the years ended 2005 and 2004,  grants for 19,550
and  73,175  shares  of  Common  Stock  have been  made,  respectively.  Options
exercised  under the Plan during the years ended  December 31,  2005,  and 2004,
were none and 2,635,  respectively.  Options forfeited for the same time periods
were 41,392 and 54,970, respectively.  As of December 31, 2005, 68,678 shares of
Common Stock remain available for new option grants under this plan.

Non-Plan Stock Options

In February  2004,  iSt granted  options to purchase in the aggregate of 125,000
shares of common stock to the  President of iSt at an exercise  price 85% of the
daily  closing  price of the  common  stock on the date  when the  options  were
granted.  These  options  vest on a monthly  basis over a twelve month period of
time which  began  February  9, 2004.  At December  31,  2005,  125,000 of these
options were fully vested.

In February  2004,  iSt granted  options to purchase in the  aggregate of 10,000
shares of common stock to the Senior Vice President  Corporate  Development  and
General  Counsel at an exercise  price 85% of the average daily closing price of
the  common  stock on the date when the  options  were  granted.  6,667 of these
options were forfeited in 2004. The remaining 3,334 options were fully vested at
December 31, 2005.

In March 2004, iSt granted options to purchase in the aggregate of 20,250 shares
of common stock to the President of Tracking Systems  Corporation at an exercise
price of 85% of the average  daily closing price of the common stock on the date
when the options  were  granted.  The options are fully  vested at December  31,
2005.

In April 2004, iSt granted  options to purchase 20,000 shares of common stock to
each of the Chief  Financial  Officer,  Senior  Vice  President  of Product  and
Project Development and Senior Vice President of Technology at an exercise price
85% of the daily  closing price of the common stock on the date when the options
were granted. The options vest on a monthly basis over a two year period of time
which began April 30,  2004.  In all,  50,000 of these  options had vested as of
December 31, 2005.

In December  2004,  iSt granted  options to purchase in the aggregate of 125,000
shares of common stock to the  President  of iSt at an exercise  price of $2.30.
These options were issued as a  performance  bonus by the Board of Directors and
were fully vested at December 31, 2005.  The options  expire five years from the
date of grant.

In December 2004, iSt granted  options to purchase 50,000 shares of common stock
each to the Chief  Financial  Officer,  Senior  Vice  President  of Product  and
Project Development and Senior Vice President of Technology at an exercise price
of $2.30.  These  options  were  issued as a  performance  bonus by the Board of
Directors.  They were fully vested at December  31, 2005,  and expire five years
from the date of grant.

In January  2005,  iSt granted  options to purchase in the  aggregate  of 15,000
shares of common  stock to the Director of Software  Engineering  at an exercise
price  85% of the  daily  closing  price of  common  stock on the date  when the
options were granted.  These  options were issued as a performance  bonus by the
Board of  Directors.  The options vest on a monthly basis over a two year period
of time which began January 3, 2005.  In all,  6,875 of these options had vested
as of December 31, 2005.


--------------------------------------------------------------------------------
                                     F - 14
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

In August  2005,  iSt granted  options to purchase  in the  aggregate  of 20,000
shares of common stock to the Vice  President of Sales at an exercise  price 85%
of the daily  closing  price of common  stock on the date when the options  were
granted.  The  options  vest on a monthly  basis over a two year  period of time
which  began  August 1, 2005.  In all,  3,333 of these  options had vested as of
December 31, 2005.

In 2004, 58,125 stock options that had previously been issued to the Senior Vice
President Corporate  Development and General Counsel,  the Senior Vice President
of Sales and the President of Tracking Systems, were forfeited.

In 2004,  241,200  stock  options  that had  previously  been issued to a former
employee were exercised.

In 2005,  6,100  stock  options  that had  previously  been  issued  to a former
employee were exercised.

Stock option  expense of $13,680 and  $534,336  has been  recorded for the years
ended December 31, 2005, and 2004, respectively for options issued.

During  2004,  the Company  reduced  the  exercise  price of certain  previously
awarded stock  options.  The Company  accounts for  modifications  of previously
issued  fixed  stock  option  awards  under  the  accounting   consequences   of
modifications to a fixed stock option or award of APB Opinion No. 25 and related
interpretations. Accordingly, the options are accounted for as variable from the
date of the  modification  to the date the option is  exercised,  forfeited,  or
expires unexercised.

A board  resolution was issued on December 3, 2004,  declaring that the exercise
price for  options  granted up to December 1, 2004 to  employees  and  directors
under the 2001 Omnibus Equity  Incentive Plan and options granted pursuant or in
reference to Executive  Employment  Agreements  between the  Corporation and the
President, Chief Financial Officer, Senior Vice President of Product and Project
Development and Senior Vice President of Technology be reset to the lower of the
existing exercise price or an exercise price being $2.30 per share. In addition,
during 2004,  options  previously  issued to a former  executive  were repriced.
Compensation expense related to the repricing of stock options was $(34,008) and
$353,124 for 2005 and 2004, respectively and is included in the respective total
stock option  expense of $13,680 and  $534,336 for the years ended  December 31,
2005 and 2004.

A summary of options  issued to  employees  during the years ended  December 31,
2005, and 2004, is as follows:


--------------------------------------------------------------------------------
                                     F - 15
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                For the Year Ended                For the Year Ended
                                                                                  December 31,2005                  December 31,2004
                                                                    ------------------------------   -------------------------------
                                                                                  Weighted Average                  Weighted Average
Options                                                              Shares        Exercise Price      Shares        Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>             <C>              <C>
Outstanding at beginning of year                                    1,114,354        $     2.70        914,526        $     3.90

Granted                                                                54,550              1.88        563,425              2.40

Repriced                                                                   --                --        347,050              2.30

Exercised                                                              (6,100)             2.82       (243,835)             1.60

Cancelled                                                                  --                --       (347,050)             7.00

Forfeited                                                             (41,392)             2.79       (119,762)             4.30
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                                          1,121,412        $     2.62      1,114,354        $     2.70
====================================================================================================================================
Exercisable at end of year                                          1,073,764        $     2.65      1,031,450        $     2.70
====================================================================================================================================

====================================================================================================================================
Weighted-average fair value for options granted during the year                      $     1.62                       $     2.40
====================================================================================================================================
</TABLE>

Additional information regarding options outstanding at December 31, 2005, is as
follows:

<TABLE>
<CAPTION>
                                                       Options Outstanding                Options Exercisable
                                               -----------------------------------  ------------------------------
                                    Number     Weighted Average   Weighted Average    Number      Weighted Average
Range of Exercise Prices         Outstanding    Remaining Life     Exercise Price   Exercisable    Exercise Price
------------------------------------------------------------------------------------------------------------------
<S>                               <C>              <C>               <C>             <C>             <C>
$1.00 to 2.50                       697,702         4 years          $    2.27         650,142       $    2.29

$2.51 to 5.00                       411,710         2 years               3.07         411,622            3.07

$5.01 to 7.50                         3,500        1/4 year               5.99           3,500            5.99

$7.51 to 10.00                        8,500        1/4 year               8.44           8,500            8.44

$10.01 to 15.00                          --                                 --              --              --
------------------------------------------------------------------------------------------------------------------
Totals                            1,121,412                                          1,073,764
==================================================================================================================
</TABLE>

Common Stock Warrants

iSt issued  178,587  warrants  to  purchase  common  stock to  stockholders  and
non-employees in connection with various services these individuals provided iSt
in 2004. No such warrants were issued during 2005.  The exercise  price of these
warrants  range from $2.30 to $6.40 per share and all such warrants had terms of
three to five years from the date of  issuance.  iSt accounts for the fair value
of the  warrants in  accordance  with SFAS No.  123.  The  compensation  expense
related to these  warrants was  $255,508  for the year ended  December 31, 2004.
None of these  warrants had expired as of December 31, 2005. In addition,  1,000
warrants  expired in 2005 in connection  with  warrants  issued prior to 2004 in
relation to services rendered.

In 2004,  iSt issued  826,087  detachable  warrants to purchase  common stock in
connection with obtaining convertible debt. The exercise price of these warrants
range from $2.30 to $3.69 per share and all such  warrants had terms of 120 days
to five years from the date of  issuance.  During the years ended  December  31,
2005 and December 31, 2004,  76,087 and 86,957 of these warrants,  respectively,
were exercised and 142,713 and 107,287 of these warrants, respectively, expired.
Interest expense in regards to these warrants was charged for $1,900,000 for the
year  ended  December  31,  2004.  Fair  value of the  detachable  warrants  was
calculated by using the Black-Scholes pricing model.


--------------------------------------------------------------------------------
                                     F - 16
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

In  connection  with equity  financing  obtained in 2004,  iSt issued  1,082,757
warrants.  No such warrants were issued during 2005. The exercise price of these
warrants  range from $2.30 to $4.80 per share and all such warrants had terms of
120 days to five years from the date of issuance.  201,087 of these warrants had
expired as of December 31, 2005. In addition, 97,105 warrants expired in 2005 in
connection with warrants issued prior to 2004 in relation to equity financing.

On June 27,  2005,  warrants to purchase  3,234,248  shares of common stock were
issued by the  Company to Mykonos  6420,  LP in  conjunction  with  issuance  of
1,000,000 shares of preferred stock to Mykonos.  These warrants mirror the terms
of the Company's outstanding warrants and options as of June 27, 2005, including
amounts  and  exercise  prices  ranging  from  $2.30 to $16.50  per  share.  The
applicable  expiration  date for  these  warrants  shall  be March  1of the year
following the calendar year of the expiration date of the mirrored  warrants and
options.

In addition,  25,200 warrants expired in 2004 in connection with warrants issued
prior to 2004 in relation to equity financing and consulting.

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 2005 and 2004: dividend rate of 0%; price volatility
of 87.00% and 98.76%;  risk-free  interest rate of 5%; and expected lives of one
to four years.

A summary of the status of all the warrants  issued at December  31,  2005,  and
2004 and changes during the years ended on those dates is as follows:

<TABLE>
<CAPTION>
                                                                              For the Year Ended                 For the Year Ended
                                                                               December 31, 2005                  December 31, 2004
                                                                  ------------------------------     ------------------------------
                                                                                Weighted Average                   Weighted Average
Warrants                                                            Shares       Exercise Price        Shares       Exercise Price
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>               <C>              <C>
Outstanding at beginning of year                                  2,288,899        $     3.90          420,912        $     5.60

Granted                                                           3,234,248              3.43        2,087,431              3.50

Exercised                                                           (76,087)             2.30          (86,957)             2.30

Forfeited                                                          (441,905)             3.19         (132,487)             3.90
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                                        5,005,155              3.67        2,288,899              3.90
===================================================================================================================================
Exercisable at end of year                                        5,005,155        $     3.67        2,288,899        $     3.90
===================================================================================================================================

===================================================================================================================================
Weighted-average fair value of warrants granted during the year                    $     1.70                         $     1.90
===================================================================================================================================
</TABLE>

A further  summary  about  warrants  outstanding  at December  31,  2005,  is as
follows:

<TABLE>
<CAPTION>
                              Number Outstanding      Weighted Average        Weighted Average
Range of Exercise Prices        and Exercisable        Remaining Life          Exercise Price
----------------------------------------------------------------------------------------------
<S>                                <C>                   <C>                    <C>
$1.00 to 2.50                      1,175,769             4.00 years             $     2.30

$2.51 to 5.00                      3,609,516             3.00 years                   3.95

$5.01 to 7.50                        197,870             1.50 years                   5.81

$7.51 to 16.50                        22,000                 1 year                  13.09
----------------------------------------------------------------------------------------------
Total                              5,005,155
==============================================================================================
</TABLE>


--------------------------------------------------------------------------------
                                     F - 17
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 8. Convertible Preferred Stock

The Company is  authorized  to issue up to 1,000,000  shares of preferred  stock
from time to time with such rights and  privileges as the Board of Directors may
determine. The Company has issued the following shares of preferred stock:

Series A Convertible Preferred Stock

In 2003,  the Company  issued 605 shares of its Series A  Convertible  Preferred
Stock,  par value  $0.01 per share  (the  "Series A  Preferred").  The  Series A
Preferred  provided that the holders thereof were entitled to an annual dividend
equal to 9.5% of the  stated  value  which can be paid in cash or in  additional
shares of Series A  Preferred.  The Company paid  dividends  payable in Series A
Preferred valued at $1,130,496  (including  $218,513 for dividends payable as of
December 31, 2003) on the Series A Preferred  during the year ended December 31,
2004.  During the year ended  December  31,  2003,  the Company  paid a dividend
payable in Series A Preferred  valued at $642,808 and cash dividends of $205,392
on the Series A Preferred.  All Series A Preferred was converted into a total of
1,025,597 shares of Common Stock on December 30, 2004, and no additional  shares
of Series A Preferred will be issued.

Series B Convertible Preferred Stock

During 2002 and 2003,  the Company  issued a total of 300 shares of its Series B
Convertible   Preferred  Stock,  par  value  $0.01  per  share  (the  "Series  B
Preferred").  The holders of Series B Stock are  entitled to receive  fixed-rate
dividends per annum at the following rates:

      10.0% months 1 - 6

      11.0% months 7-12

      12.0% months 13-24

      13.0% months 25-60

If declared,  dividends are payable quarterly and shall be payable in cash or in
additional  shares of Series B Preferred at the sole  discretion of the Board of
Directors.  If dividends  are paid in shares of Series B  Preferred,  each share
shall be valued for this  purpose at an amount  equal to the  original  price at
which the Series B Preferred was issued.  No Series B Preferred  dividends  were
paid in 2005 or 2004. On January 11, 2005,  all Series B Preferred was converted
into a total of 50,010  shares  of Common  Stock,  and no  additional  shares of
Series B Preferred will be issued.

Series C Exchangeable Preferred Stock

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

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

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


--------------------------------------------------------------------------------
                                     F - 18
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

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

Note 9. Restricted Cash

At December 31, 2004,  the Company had $700,000 of cash held in escrow  received
from certain  stockholders.  The  offsetting  liability  was included in accrued
expenses.  This cash was restricted for the use of certain  stockholders and had
been classified as restricted cash for report purposes.  On January 7, 2005, the
cash was removed from escrow and returned to the stockholders.

Note 10. Lease Obligations

In 2005,  the Company  financed the  acquisition  of  approximately  $400,000 of
monitoring   equipment   through  one   sale-leaseback   agreement   with  three
shareholders  of  the  Company.   The  Company   recorded  a  deferred  gain  on
sale-leaseback  transaction and is amortizing the gain into income over the life
of the related lease.

The Company has a total of seven capital  leases which expire from April 2006 to
March 2008.  The assets and the related  liabilities  under the leases have been
recorded  at the  present  value of the  future  minimum  lease  payments  using
discount rates of 9.50%. The Company also has one noncancelable operating lease,
which  expires  November  2007 for its  facility in Omaha,  NE.  Monthly  rental
payments  under this lease are $1,616  through  April 2005 and $4,839 from April
2005 through October 2005.  Monthly rental payments under this lease increase to
$9,879  from  November  2005  through  October  2006 and  decline to $6,847 from
November  2006 through  October  2007.  Rent expense is recorded on the straight
line basis at $6,652  per  month.  The  Company's  pro rata  share of  operating
expenses  on the  leased  premises  is $924  per  month.  Future  minimum  lease
payments,  by year and in aggregate,  under the capital leases and noncancelable
operating lease, with initial terms of one year or more, are due as follows:

The depreciated cost of monitoring equipment under capital leases is as follows:


--------------------------------------------------------------------------------
                                     F - 19
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              Capital Leases      Operating
                                                              Related Party         Lease
      --------------------------------------------------------------------------------------
<S>                                                            <C>               <C>
        2006                                                   $   781,971       $   112,484

        2007                                                       535,491            68,470

        2008                                                        38,440                --
      --------------------------------------------------------------------------------------
      Total approximate minimum lease payments                 $ 1,355,901       $   180,954

        Less the amount representing interest                     (112,341)               --
      --------------------------------------------------------------------------------------
      Approximate present value of minimum lease payments      $ 1,243,561       $   180,954
      ======================================================================================
</TABLE>

                                                  2005                 2004
--------------------------------------------------------------------------------
Equipment                                      $ 3,166,721          $ 4,148,817

Less accumulated depreciation                   (2,444,680)          (2,602,351)
--------------------------------------------------------------------------------
Total                                          $   722,041          $ 1,546,466
================================================================================

Lease payments  related to the above operating lease were $55,262 and $3,232 for
the years ended December 31, 2005, and 2004, respectively.  Total lease payments
on all operating  leases were $55,262 and $66,758,  for the years ended December
31, 2005, and 2004, respectively.

Note 11. Common and Preferred Shares Issued for Cash

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

<TABLE>
<CAPTION>
      For the Year Ended                     Common                          Preferred C
      December 31, 2004          Per Share             Total          Per Share          Total
      --------------------------------------------------------------------------------------------
<S>                            <C>                 <C>               <C>              <C>
      Gross Proceeds           $1.27 - $3.90       $ 4,075,420       $        --      $        --

        Offering costs                                 (10,000)                                --
      --------------------------------------------------------------------------------------------
      Net proceeds                                 $ 4,065,420                        $        --
      ============================================================================================

<CAPTION>
      For the Year Ended                     Common                         Preferred C*
      December 31, 2005          Per Share             Total          Per Share          Total
      --------------------------------------------------------------------------------------------
<S>                            <C>                 <C>               <C>              <C>
      Gross Proceeds           $2.30 - $2.815      $   192,175       $     11.00      $11,000,000

        Offering costs                                      --                           (421,314)
      --------------------------------------------------------------------------------------------
      Net proceeds                                 $   192,175                        $10,578,686
      ============================================================================================
</TABLE>

      *     Of the $11,000,000 of proceeds, $1,543,396 was allocated to warrants
            that were issued with the preferred shares.

Note 12. Concentrations

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


--------------------------------------------------------------------------------
                                     F - 20
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 13. Fair Value of Financial Instruments

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

Investments:  The  carrying  amount  approximates  fair  value  due to the short
maturity dates of the investments.

Accounts receivable: The carrying amount approximates fair value.

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

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

Redeemable  convertible  Series C preferred stock:  Based on the issuance during
2005, the carrying amount approximates fair value.

Note 14. Legal Proceedings

On December 22, 2004, a lawsuit was filed by Satellite  Tracking of People,  LLC
("STOP")  against the  Company in United  States  District  Court for the Middle
District  of  Tennessee.  STOP plans to enter into the market for  tracking  and
monitoring  individuals  using  GPS  technology  in the  United  States  and has
acquired U.S. rights to the BluTag(R) remote electronic monitoring, tracking and
surveillance  technologies.  Among other  things,  STOP alleges that the Company
notified  STOP's  predecessor  in interest that the  technology  underlying  the
BluTag(R) system  infringes on two U.S. patents held by the Company.  The action
filed by STOP seeks a declaratory  judgment that (i) STOP's BluTag(R) technology
does not  infringe on the  Company's  patents,  (ii) the  Company's  patents are
invalid  and/or (iii) the Company has granted STOP a license  under its asserted
patents.  The Company has denied all material  allegations  made by STOP and has
filed  a  counter-claim  against  STOP  for  patent  infringement,   seeking  an
injunction  and  damages.  The  Company is unable to predict the outcome of this
lawsuit at this time.

The Company is not subject to any other material pending or threatened lawsuits.


--------------------------------------------------------------------------------
                                     F - 21