UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549-1004





Form
10-Q





(Mark
One)


x  Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange


Act
of 1934





FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2009





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.


(Exact
name of registrant as specified in its charter)


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





5078
S. 111th
Street


OMAHA,
NEBRASKA 68137


(Address
of principal executive offices, Zip Code)





(402)
537-0022


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  x                      No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange
Act.    (Check one)


Large
accelerated filer  ̈       Accelerated
filer  ̈


Non-accelerated
filer  ̈ (Do not
check if a smaller reporting
company)        Smaller reporting
company x





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


Yes  ̈           No
x





The
number of shares of issuer’s common stock outstanding as of April 17, 2009 was
10,804,804.








PART
I.  FINANCIAL INFORMATION





Item 1.  Financial
Statements





iSECUREtrac
Corp. and SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS





(Unaudited)March
      31, 2009
                                    
                                    
                                    December
      31, 2008ASSETSCurrent
      AssetsCash
      and cash equivalents
                                    
                                    $
                                    1,212,444
                                    
                                    
                                    $
                                    423,361Accounts
      receivable, net of allowance for doubtful accounts of $553,350 in 2009 and
      $462,553 in 2008
                                    
                                    
                                    2,396,761
                                    
                                    
                                    
                                    2,445,505Inventories
                                    
                                    
                                    148,559
                                    
                                    
                                    
                                    193,820Prepaid
      expenses and other
                                    
                                    
                                    98,708
                                    
                                    
                                    
                                    84,224Total
      current assets
                                    
                                    
                                    3,856,472
                                    
                                    
                                    
                                    3,146,910Leasehold
      improvements and equipment, net of accumulated depreciation of
      $9,624,350 in 2009 and $9,125,376 in
2008
                                    
                                    
                                    5,025,223
                                    
                                    
                                    
                                    4,229,319Intangibles,
      net of accumulated amortization of $896,928 in 2009 and
      $892,128 in 2008
                                    
                                    
                                    14,594
                                    
                                    
                                    
                                    19,394Goodwill
                                    
                                    
                                    2,302,179
                                    
                                    
                                    
                                    2,302,179Other
      assets
                                    
                                    
                                    83,386
                                    
                                    
                                    
                                    83,386Total
      assets
                                    
                                    $
                                    11,281,854
                                    
                                    
                                    $
                                    9,781,188LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)Current
      LiabilitiesAccounts
      payable
                                    
                                    $
                                    1,157,072
                                    
                                    
                                    $
                                    403,399Accrued
      expenses
                                    
                                    
                                    864,252
                                    
                                    
                                    
                                    524,339Revolving
      Line of Credit
                                    
                                    
                                    750,000
                                    
                                    
                                    
                                    500,000Current
      maturities of long-term debt
                                    
                                    
                                    1,463,070
                                    
                                    
                                    
                                    1,272,508Deferred
      revenues & gain on sale-leaseback transactions
                                    
                                    
                                    173,571
                                    
                                    
                                    
                                    299,548Accrued
      interest payable
                                    
                                    
                                    929,568
                                    
                                    
                                    
                                    776,011Total
      current liabilities
                                    
                                    
                                    5,337,533
                                    
                                    
                                    
                                    3,775,805Long-term
      debt, less current maturities
                                    
                                    
                                    13,699,183
                                    
                                    
                                    
                                    13,280,368Redeemable
      convertible Series C preferred stock
                                    
                                    
                                    13,427,771
                                    
                                    
                                    
                                    13,106,407Commitments
      and contingencyStockholders'  (deficit)Common
      stock
                                    
                                    
                                    10,805
                                    
                                    
                                    
                                    10,799Additional
      paid-in capital
                                    
                                    
                                    55,427,042
                                    
                                    
                                    
                                    55,369,880Accumulated
      deficit
                                    
                                    
                                    (76,620,481
                                    )
                                    
                                    
                                    (75,762,071
                                    )Total
      stockholders' (deficit)
                                    
                                    
                                    (21,182,634
                                    )
                                    
                                    
                                    (20,381,392
                                    )Total
      liabilities and stockholders' (deficit)
                                    
                                    $
                                    11,281,854
                                    
                                    
                                    $
                                    9,781,188





See Notes
to Consolidated Financial Statements (unaudited).


Page |
1





iSECUREtrac
Corp. and SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three
Months Ended March 31, 2009 and 2008


(Unaudited)





2009
                          
                          
                          2008Revenues:Equipment
      leasing
                          
                          $
                          2,570,883
                          
                          
                          $
                          2,179,577Administrative,
      field & support service revenues
                          
                          
                          131,801
                          
                          
                          
                          74,453Equipment
      sales
                          
                          
                          54,420
                          
                          
                          
                          35,433Other
      revenues
                          
                          
                          346,612
                          
                          
                          
                          212,848Total
      revenues
                          
                          
                          3,103,716
                          
                          
                          
                          2,502,311Operating
      expenses:Cost
      of revenues
                          
                          
                          1,166,130
                          
                          
                          
                          1,087,894Research
      and development
                          
                          
                          318,475
                          
                          
                          
                          339,811Sales,
      general and administrative
                          
                          
                          1,916,044
                          
                          
                          
                          2,251,803Total
      operating expenses
                          
                          
                          3,400,649
                          
                          
                          
                          3,679,508Operating
      loss
                          
                          
                          (296,933
                          )
                          
                          
                          (1,177,197
                          )Other
      income (expense):Interest
      income
                          
                          
                          286
                          
                          
                          
                          19,224Interest
      expense
                          
                          
                          (288,201
                          )
                          
                          
                          (264,984
                          )Total
      other income (expense)
                          
                          
                          (287,914
                          )
                          
                          
                          (245,760
                          )Loss
      before provision for income taxes
                          
                          
                          (584,848
                          )
                          
                          
                          (1,422,957
                          )Provision
      for income taxes
                          
                          
                          0
                          
                          
                          
                          0Net
      loss
                          
                          $
                          (584,848
                          )
                          
                          $
                          (1,422,957
                          )Preferred
      stock dividends and accretion
                          
                          
                          (321,365
                          )
                          
                          
                          (305,190
                          )Net
      loss available to common stockholders
                          
                          $
                          (906,213
                          )
                          
                          $
                          (1,728,147
                          )Basic
      and diluted loss per common share
                          
                          $
                          (0.08
                          )
                          
                          $
                          (0.16
                          )Weighted
      average shares of common stock outstanding
                          
                          
                          10,800,042
                          
                          
                          
                          10,781,218





See Notes
to Consolidated Financial Statements (unaudited).


Page |
2





iSECUREtrac
Corp. AND SUBSIDIARY


STATEMENT
OF STOCKHOLDERS' (DEFICIT)


For
the Three Months Ended March 31, 2009





AdditionalCommon Stock
                      
                      
                      Paid
      -in
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      TotalBalance,
      December 31, 2008
                      
                      
                      10,799,090
                      
                      
                      $
                      10,799
                      
                      
                      $
                      55,369,880
                      
                      
                      $
                      (75,762,071
                      )
                      
                      $
                      (20,381,392
                      )Shares
      issued for director's fees
                      
                      
                      5,714
                      
                      
                      
                      6
                      
                      
                      
                      1,994
                      
                      
                      
                      -
                      
                      
                      
                      2,000Stock
      based compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      102,971
                      
                      
                      
                      -
                      
                      
                      
                      102,971Series
      C preferred stock dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (273,562
                      )
                      
                      
                      (273,562
                      )Accretion
      to redemption value of preferred stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (47,803
                      )
                      
                      
                      -
                      
                      
                      
                      (47,803
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (584,848
                      )
                      
                      
                      (584,848
                      )Balance,
      March 31, 2009
                      
                      
                      10,804,804
                      
                      
                      $
                      10,805
                      
                      
                      $
                      55,427,042
                      
                      
                      $
                      (76,620,481
                      )
                      
                      $
                      (21,182,634
                      )





See Notes
to Consolidated Financial Statements (unaudited).


Page |
3





iSECUREtrac
CORP. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Three
Months Ended March 31, 2009 and 2008





2009
                        
                        
                        2008Cash
      Flows From Operating ActivitiesNet
      loss
                        
                        $
                        (584,848
                        )
                        
                        $
                        (1,422,957
                        )Depreciation
      and amortization
                        
                        
                        503,774
                        
                        
                        
                        580,012Stock
      based compensation
                        
                        
                        104,971
                        
                        
                        
                        107,128Increase
      in Allowance for Doubtful Accounts
                        
                        
                        90,797
                        
                        
                        
                        34,097(Increase)
      in accounts receivable
                        
                        
                        (42,053
                        )
                        
                        
                        (228,559
                        )(Increase)
      Decrease in inventories
                        
                        
                        45,261
                        
                        
                        
                        (76,205
                        )(Increase)
      Decrease in prepaid expenses
                        
                        
                        (14,484
                        )
                        
                        
                        29,985Increase
      in accounts payable
                        
                        
                        148,451
                        
                        
                        
                        60,368Increase
      (Decrease) in accrued expenses
                        
                        
                        339,913
                        
                        
                        
                        (17,922
                        )(Decrease)
      in deferred revenues and gain on sale - leaseback
    transactions
                        
                        
                        (125,977
                        )
                        
                        
                        (24,573
                        )Increase
      in accrued interest payable
                        
                        
                        153,557
                        
                        
                        
                        199,735Net
      cash provided by (used in) operating activities
                        
                        
                        619,362
                        
                        
                        
                        (758,891
                        )Cash
      Flows From Investing ActivitiesPurchases
      of leasehold improvements and equipment
                        
                        
                        (689,655
                        )
                        
                        
                        (922,031
                        )(Increase)
      Decrease in other assets
                        
                        
                        -
                        
                        
                        
                        (26,079
                        )Net
      cash (used in) investing activities
                        
                        
                        (689,655
                        )
                        
                        
                        (948,110
                        )Cash
      Flows From Financing ActivitiesPrincipal
      proceeds from long-term debt
                        
                        
                        1,100,000
                        
                        
                        
                        500,000Proceeds
      from Revolving Line of Credit
                        
                        
                        250,000
                        
                        
                        
                        -Principal
      payments on long-term debt
                        
                        
                        (490,624
                        )
                        
                        
                        (209,566
                        )Net
      cash provided by financing activities
                        
                        
                        859,376
                        
                        
                        
                        290,434Increase
      (Decrease) in cash
                        
                        
                        789,083
                        
                        
                        
                        (1,416,567
                        )Cash
      at beginning of period
                        
                        
                        423,361
                        
                        
                        
                        3,442,712Cash
      at end of period
                        
                        $
                        1,212,444
                        
                        
                        $
                        2,026,145Supplemental
      Disclosure of Cash Payments forInterest
                        
                        
                        134,644
                        
                        
                        
                        65,249Supplemental
      Disclosure of Noncash TransactionsPurchase
      of leasehold improvements and equipment included in Accounts
      Payable
                        
                        
                        605,222
                        
                        
                        
                        706,929





See Notes
to Consolidated Financial Statements (unaudited).


Page |
4


iSECUREtrac
CORP. AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




Note
1.  General




The
unaudited interim condensed consolidated financial statements as of March 31,
2009 and for the three month periods ended March 31, 2009 and 2008, included
herein, have been prepared in accordance with accounting principals generally
accepted in the United States of America for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation
S-X.




The
consolidated balance sheet of iSECUREtrac Corp. (“iSECUREtrac”, or the
“Company”) and its wholly-owned subsidiary, iSt Services, Inc., at December 31,
2008, has been taken from audited consolidated financial statements at that
date.  The condensed consolidated financial statements for the three
months ended March 31, 2009 and March 31, 2008 are unaudited and reflect all
normal and recurring accruals and adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position,
operating results and cash flows for the interim periods presented in this
quarterly report.  The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management’s discussion and analysis
of financial condition and results of operations, contained in our Annual Report
on Form 10-K for the year ended December 31, 2008.  The results of
operations and cash flows for the three months ended March 31, 2009 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 2009.  Where appropriate, items of an insignificant nature within
the condensed consolidated financial statements have been reclassified from the
previous periods’ presentation.




The
Company believes that its current working capital, combined with the expected
amounts available through lease financing for its monitoring equipment described
in note 5, and positive cash flow expected to be generated from operating
activities will be sufficient to meet the Company’s liquidity needs through
2009.




Note
2.  Common Stock Options and Warrants




The
Company may issue stock options and other types of equity-based compensation
under its 2006 Omnibus Equity Incentive Plan (the “2006 Plan”) which was
implemented on May 31, 2006.  This is the only plan under which the
Company may now issue additional equity-based compensation.  The
Company also has outstanding stock options that were issued under its 2001
Omnibus Equity Incentive Plan (the “2001 Plan”) or which were issued under
employment agreements with executive officers.




During
the three months ended March 31, 2009, the Company granted options to purchase a
total of 3,500 shares of common stock to four employees pursuant to the 2006
Plan.  During the three months ended March 31, 2009, 32,427 options
issued under the 2006 Plan were forfeited, 6,775 options issued under the 2001
Plan were forfeited and 56,250 options issued under employment agreements
outside the 2006 Plan and the 2001 Plan were forfeited.  No options
were exercised during the three months ended March 31, 2009.  The
following table shows stock option activity during the three month period ended
March 31, 2009:


Page |
5




Options
                        
                        Number of
                          Shares
                        
                        
                        Weighted
                          AverageExercise
                          PricePer Share
                        
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life (Years)
                        
                        
                        Aggregate
                          Intrinsic
                          ValueOutstanding
      at December 31, 2008
                        
                        
                        2,734,376
                        
                        
                        $
                        1.59
                        
                        
                        
                        
                        
                        $
                        -Granted
                        
                        
                        3,500
                        
                        
                        
                        0.30Exercised
                        
                        
                        -
                        
                        
                        
                        -Forfeited
                        
                        
                        (95,452
                        )
                        
                        
                        2.17Outstanding
      at March 31, 2009
                        
                        
                        2,642,424
                        
                        
                        $
                        1.56
                        
                        
                        
                        6.47
                        
                        
                        $
                        22,269Exercisable
      at March 31, 2009
                        
                        
                        1,878,559
                        
                        
                        $
                        1.97
                        
                        
                        
                        5.33
                        
                        
                        $
                        2,807




As of
March 31, 2009, the aggregate intrinsic value of outstanding and exercisable
options, which is the actual value of the options if exercised, was $22,269 and
$2,807, respectively.




During
the three month period ended March 31, 2009, warrants to purchase up to 624,737
shares of common stock expired and no warrants were granted or exercised by
warrant holders.




At March
31, 2009, the Company had 2,642,424 outstanding stock options, 6,287,045 shares
issuable upon exercise of warrants to be issued upon exchange of Preferred
Stock, and 2,919,798 shares issuable upon the exercise of outstanding warrants
that were not included in the computation of diluted EPS because to do so would
have been anti-dilutive for the period presented.




The
Company accounts for its share-based compensation awards under Financial
Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS
No. 123(R)” or the “Statement”) which requires that the compensation cost
relating to share-based compensation awards, including grants of employee stock
options, be recognized in financial statements as these awards become vested,
based on the grant date fair value of the equity instruments
issued.




For
purposes of FAS No. 123(R), the Company estimated the grant date fair value of
each option granted during the periods set forth below using the Black-Scholes
option pricing model with the following weighted average
assumptions:




Three Months Ended
                                March 31, 2009
                              
                              
                              Year Ended
                                December 31, 2008Risk
      free interest rate
                              
                              
                              3.78
                              %
                              
                              
                              3.79
                              %Expected
      volatility factor
                              
                              
                              83.19
                              %
                              
                              
                              82.84
                              %Expected
      option term in years
                              
                              3.5
      to 6.5
                              
                              
                              3.5
      to 6.5Dividends
                              
                              $
                              0.00
                              
                              
                              $
                              0.00Forfeitures
      for senior executives and non-senior executives
                              
                              23%
      and 24%
                              
                              
                              23%
      and 24%


Page |
6




The
risk-free interest rate is determined on the date the grant is
issued.  This rate is equal to the rates based on yields from U.S.
Treasury zero-coupon issues with maturity of 3.5 years to 6.5
years.  Expected volatilities are based upon looking back at
historical stock prices since the date of adoption of the plan.




Under FAS
No. 123(R), the Company is required to estimate forfeitures of stock options.
The forfeiture rate is the rate at which options are expected to be forfeited
prior to full vesting.  The forfeiture rate is determined based on
actual forfeiture rate experience as follows:  For each historical
year of option issuance, the total options issued for the year are compared to
the options forfeited prior to having vested.  For option years in
which the two year vesting period has not passed, past experience is used to
project future forfeitures.  The total of pro forma forfeitures is
then compared to total options awarded and the resultant percentage is used as
the forfeiture rate.  The estimated forfeiture rate for senior
executive and non-senior executive option grants is 23% and 24%,
respectively.  This rate is recalculated on an annual
basis.




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




The
Company recorded compensation expense of $102,971 and $105,128 for the three
months ended March 31, 2009 and March 31, 2008, respectively, related to
stock-based compensation awards. All expenses related to stock-based
compensation awards are reflected in sales, general and administrative
expenses.




As of
March 31, 2009, there was approximately $280,404 of total unrecognized
compensation costs related to non-vested stock option agreements granted to the
Company’s executives and employees.  The future compensation expense
the Company will recognize if and as these options vest according to their
contractual terms is as follows:




2009
                      
                      $
                      215,6012010
                      
                      $
                      64,7262011
                      
                      $
                      77Total
                      
                      $
                      280,404




Note
3.  Leasehold Improvements and Equipment




The cost
and accumulated depreciation of our leasehold improvements and equipment as of
March 31, 2009 and December 31, 2008 are as follows:




March 31, 2009
                
                
                December 31, 2008Cost
                
                
                Accumulated
                  Depreciation
                
                
                Net Book
                  Value
                
                
                Cost
                
                
                Accumulated
                  Depreciation
                
                
                Net Book
                  ValueEquipment
                
                $
                1,009,260
                
                
                $
                625,408
                
                
                $
                383,851
                
                
                $
                969,624
                
                
                $
                592,072
                
                
                $
                377,552Leasehold
      improvements
                
                
                239,341
                
                
                
                129,578
                
                
                
                109,763
                
                
                
                239,341
                
                
                
                113,925
                
                
                
                125,416Monitoring
      equipment
                
                
                13,400,972
                
                
                
                8,869,364
                
                
                
                4,531,608
                
                
                
                12,145,730
                
                
                
                8,419,380
                
                
                
                3,726,350Total
      leasehold improvements and equipment
                
                $
                14,649,573
                
                
                $
                9,624,350
                
                
                $
                5,025,223
                
                
                $
                13,354,695
                
                
                $
                9,125,376
                
                
                $
                4,229,319


Page |
7




Note
4.  Goodwill and Intangible Assets Subject to
Amortization




Goodwill
is the excess of the cash paid over the fair value of the net assets acquired
and liabilities assumed in an acquisition, less the amount of identifiable
intangible assets.  Goodwill is not amortized, but is tested for impairment
on an annual basis at the end of each calendar year or if certain events or
circumstances occur.  The Company determined that there was no impairment
of goodwill as of December 31, 2008.




The
Company also separately records other intangible assets that can be identified
and assigned a value.  At March 31, 2009, such intangible assets consisted
solely of customer monitoring contracts acquired in a prior
acquisition.  The Company amortizes the initial carrying value
attributable to these monitoring contracts based on the projected revenue stream
of the monitoring contracts.  This amortization expense is included in
sales, general and administrative expenses in the consolidated statements of
operations and equaled $4,800 and $10,491 for the three month periods ended
March 31, 2009, and March 31, 2008, respectively.  These intangible
assets are also tested for impairment on an annual basis.




The
composition of goodwill and intangible assets at March 31, 2009 and December 31,
2008, is as follows:




March 31, 2009
                    
                    
                    December 31, 2008Intangibles,subject
                    
                    
                    
                    
                    
                    Intangibles,subjectGoodwill
                    
                    
                    to
      Amortization
                    
                    
                    Goodwill
                    
                    
                    to
      AmortizationGross
      Carrying Amount
                    
                    $
                    2,302,179
                    
                    
                    $
                    911,522
                    
                    
                    $
                    2,302,179
                    
                    
                    $
                    911,522Accumulated
      Amortization
                    
                    
                    -
                    
                    
                    
                    (896,928
                    )
                    
                    
                    -
                    
                    
                    
                    (892,128
                    )Balance
                    
                    $
                    2,302,179
                    
                    
                    $
                    14,594
                    
                    
                    $
                    2,302,179
                    
                    
                    $
                    19,394





The
      estimated aggregate amortization expense of the intangibles is as
      follows:2009
                          
                          
                          14,594Total
                          
                          $
                          14,594





Note
5.  Accounts Payable





The
Company has recorded accounts payable as follows for the three months ended
March 31, 2009 and December 31, 2008:





March
      31, 2009
                      
                      
                      December
      31, 2008Accounts
      Payable, trade
                      
                      
                      551,850
                      
                      
                      
                      403,399Accounts Payable, equipment
      manufacturer 1
                      
                      
                      274,190
                      
                      
                      
                      -Accounts Payable, equipment
      manufacturer 2
                      
                      
                      331,032
                      
                      
                      
                      -Total
      Accounts Payable
                      
                      
                      1,157,072
                      
                      
                      
                      403,399





1





2





The
Company expects to finance the acquisition of all monitoring equipment through
AHK Leasing, LLC (“AHK”) as described in Note 7 or via the Equipment Term Loan
as described in Note 6.


Page |
8


At March
31, 2009, the Company had completed the financing of $331,032 of equipment
through AHK but had not yet remitted payment to the manufacturer for all the
related equipment.  This $331,032 is included in the Company’s cash
balance at March 31, 2009 and will be paid to the manufacturer when the
underlying invoices become due.





Note
6.  Credit Facilities




On
November 10, 2008, the Company entered into a loan agreement (the “Loan
Agreement”) with Crestpark LP, Inc. (the “Lender”) and in connection with the
Loan Agreement executed two separate promissory notes.  The first note
is for $750,000 for working capital via a Revolving Credit Commitment and the
second note is for $1,750,000 for equipment financing via an Equipment Term
Loan.




The
proceeds of the Revolving Credit Commitment of $750,000 were used for working
capital needs and are anticipated to be repaid from cash flow generated by the
operations of the Company.  The Revolving Credit Commitment has a term
ending on July 1, 2010, is unsecured and bears interest at a fixed noncompounded
rate of 12% per annum.  The Company is also required to pay the Lender
an unused commitment fee of 0.25% per annum on the average daily unused amount
of the Revolving Credit Commitment.  For the three months ended March
31, 2009, interest expense for the Revolving Credit Commitment, including any
applicable unused commitment fee, was $17,836.  During the three
months ended March 31, 2009, the Company borrowed $250,000 from this Revolving
Credit Commitment.  As of March 31, 2009, the Company had drawn down
all of the funds available under the Revolving Credit Commitment.




The
proceeds of the $1,750,000 Equipment Term Loan are to be used to purchase
GPS-based offender tracking and monitoring equipment that is leased or sold by
the Company to its clients.  It is anticipated that borrowings under
the Equipment Term Loan will be repaid from permanent equipment financing
secured by the Company from time to time.  At the Lender’s discretion,
any borrowings under the Equipment Term Loan that remain outstanding more than
30 days can be converted into separate 36 Month Notes, which are notes payable
over 36 month terms.  The Equipment Term Loan has a term ending July
1, 2010, bears interest at a fixed rate of 12% per annum and is secured by the
monitoring equipment purchased with the proceeds of the Equipment Term
Loan.  The Company is also required to pay the Lender an unused
commitment fee of 0.25% per annum on the average daily unused amount of the
Equipment Term Loan.  For the three months ended March 31, 2009,
interest expense for the Equipment Term Loan, including any applicable unused
commitment fee, was $2,071.  During the three months ended March 31,
2009, the Company repaid the $50,000 borrowed during the fourth quarter of
2008.  As of March 31, 2009, the Company had $1,700,000 in proceeds
still available under the Equipment Term Loan, as amounts borrowed and repaid
are no longer available under the loan.




Note
7.  Long-Term Debt




Long-term
debt consists of capital leases used to finance the acquisition of monitoring
equipment and secured borrowings for working capital.





Under its
capital lease arrangements, the Company sells its equipment to AHK, a company
controlled by three stockholders of the Company, one of which is a current
director.  Maturity dates on these capital leases run from June 2009
to March 2012.  During the three months ended March 31, 2009, the
Company financed $1,100,000 under capital lease arrangements with
AHK.  As of March 31, 2009, the aggregate balance on these capital
leases totaled $3,284,778. For the three months ended March 31, 2009 and March
31, 2008, interest expense to AHK was $77,145 and $34,409,
respectively.  There was no accrued interest at March 31, 2009 and
December 31, 2008 to AHK.


Page |
9





As of
March 31, 2009, the Company had outstanding borrowings of $11,877,475 under a
secured Promissory Note payable and associated Credit and Security Agreement
(the “Crestpark Note”) with Crestpark LP, Inc. (the
“Lender”).  Principal on the Crestpark Note is due on the earlier of
(i) July 1, 2010 or (ii) the first date on which the Company either issues
equity securities or arranges for additional indebtedness (other than trade
indebtedness incurred in the ordinary course of its business) in a transaction
or series of transactions which generates aggregate net proceeds to the Company
of not less than the then current principal amount outstanding under the
Crestpark Note, plus all accrued but unpaid interest.  The Company may
prepay the Crestpark Note at any time without premium or penalty.  The
Crestpark Note provides, among other things, that $6,455,250 of the borrowings
thereunder bears interest at 7.0% per annum and that such interest will be due
and payable at maturity of the Crestpark Note.  The remaining
$5,422,225 of borrowings (the “Floating Tranche”) under the Crestpark Note bears
interest at a floating rate equal to 2% over the prime rate (the “Base
Rate”).  The portion of the interest on the Floating Tranche
determined by the Base Rate will be payable at maturity, but the remaining
portion of the interest representing the 2% premium over the Base Rate is
payable monthly.  Accrued interest on the Crestpark Note at March 31,
2009 and December 31, 2008, equaled $929,568 and $230,248,
respectively.





Total
interest expense for the Company for the three months ended March 31, 2009 and
March 31, 2008, was $288,201 and $264,984, respectively.  Of that
amount, $261,278 and $261,256 was expensed to related parties under the AHK
capital leases and the Crestpark Note for the three months ended March 31, 2009
and March 31, 2008, respectively.




Note
8.  Redeemable Exchangeable Series C 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 “Series C Preferred
Stock”).  The Series C 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 at anytime at the discretion of the preferred
stockholder.




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
Series C Preferred Stock is redeemable on the tenth anniversary of the original
issue date. The redemption price per share of the Series C Preferred Stock will
equal the per share original issue price ($11.00 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
Series C 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.  As of March 31, 2009, the Company had accrued Series C
Preferred Stock dividends totaling $3,700,928 and accretion to redemption value
of the Series C Preferred Stock totaling $691,553.  Of these amounts,
$273,562 and $47,802, respectively, were the amounts accrued during the three
months ended March 31, 2009.




Upon any
liquidation of the Company, no distribution can 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 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%.


Page |
10




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




Note
9.  Recent Accounting Pronouncements




In
September 2006 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurement.  SFAS No. 157 also emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and sets out a
fair value hierarchy with the highest priority being quoted prices in active
markets.  Under SFAS No. 157, fair value measurements are disclosed by
level within that hierarchy.  The Company adopted SFAS No. 157 for the
fiscal year beginning January 1, 2008, except for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis for which delayed application is
permitted until fiscal years beginning after November 15, 2008.  Under
the elected deferral, the following are assets and liabilities recognized or
disclosed at fair value for which the Company has not yet applied the provisions
of SFAS No. 157;  (non financial assets and
liabilities in business combinations, reporting units measured at fair value in
goodwill testing, indefinite lived intangibles measured at fair value for
impairment testing, long lived assets measured at fair value for impairment,
asset retirement obligations and liabilities for exit or disposal
activities.)  The Company adopted the remaining provisions of
SFAS No. 157 on January 1, 2009. The adoption of the remaining provisions of
SFAS No. 157 had no material impact on the Company’s financial position, results
of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
consolidated Financial Statements - an Amendment of ARB No. 51." This statement
requires that noncontrolling or minority interests in subsidiaries be presented
in the consolidated statement of financial position within equity, but separate
from the parents' equity, and that the amount of the consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income.
SFAS No. 160 is effective for the fiscal years beginning on or after December
15, 2008.  The Company adopted SFAS No. 160 for the fiscal year
beginning January 1, 2009.  The adoption of SFAS No. 160 had no
material impact on the financial statements of the Company.




In
December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”.
SFAS No. 141 (Revised) establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.The
Company adopted SFAS No. 141 for the fiscal year beginning January 1, 2009. SFAS
No. 141 (Revised) will have an impact on any future
acquisitions.


Page |
11




Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.




General




Discussions
of certain matters contained in this Quarterly Report on Form 10-Q may contain
statements that plan for or anticipate the future.  Forward-looking
statements include statements about the future of our products and the industry,
statements about our future business plans and strategies, and most other
statements that are not historical in nature. In this Form 10-Q, forward-looking
statements are generally identified by the words "anticipate," "plan,"
"believe," "expect," "estimate," and the like. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or
implied.  The actual outcomes of these matters may differ
significantly from the outcomes expressed or implied in these forward-looking
statements and are subject to certain risks and uncertainties that may affect
such outcomes, including without limitation the risks set forth in “ITEM 1A. Risk Factors”
contained in the Company’s Annual Report on Form 10-K filed for the year ended
December 31, 2008.




The
following discussion is intended to provide a better understanding of the
significant changes in trends relating to the Company’s financial condition and
results of operations.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the accompanying Condensed Consolidated Financial Statements and Notes
thereto.




Overview




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




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




The
Company’s Other Revenue consists primarily of royalties earned by the Company
under the terms of  a Patent License Agreement dated May 2006 (the
“Patent License Agreement”).




Results
of Operations





Highlights
of Operations for the three months ended March 31, 2009





As a
result of the deployment of the contracts signed in late 2008 and early 2009,
during the three months ended March 31, 2009, the Company reported record levels
of recurring revenue which includes Equipment Leasing and Administrative, Field
& Support Revenues.





The cost
reduction plan and cost control measures implemented in 2008 continue to return
benefits through lower costs in Research & Development (R&D) and Sales,
General and Administrative (SG&A) expenses.





The
combination of increased revenues and the lowered cost structure has resulted in
the Operating Loss for the three months ended March 31, 2009 being the lowest in
the Company’s history and the fifth consecutive quarter of improved (lower)
operating loss.





In
addition, as a result of increased revenues and decreased expenses, for the
first time since the Company began reporting measurable revenues, the Company
reported positive cash flow from operating activities for the three months ended
March 31, 2009.     Without the Patent License
Agreement payment, which is received annually during the first quarter, the
amount of positive cash flow from operating activities would have been
approximately $240,000.    The Company expects to continue
to generate positive cash flow from operating activities as the Company moves
towards becoming fully cash flow positive.


Page |
12


Summary
of  Financial Information


The
following table provides a comparison of selected financial highlights for the
three months ended March 31, 2009 and 2008:





CONDENSED
CONSOLIDATED FINANCIAL HIGHLIGHTS


Three
months ended March 31, 2009 and 2008


(Rounded
to nearest thousand)





2009
                        
                        
                        2008
                        
                        
                        ChangeRevenues:Recurring
      revenues
                        
                        $
                        2,703,000
                        
                        
                        $
                        2,254,000
                        
                        
                        $
                        449,000Other
      revenues
                        
                        
                        401,000
                        
                        
                        
                        248,000
                        
                        
                        
                        153,000Total
      revenues
                        
                        
                        3,104,000
                        
                        
                        
                        2,502,000
                        
                        
                        
                        602,000Costs
      of revenue
                        
                        
                        1,166,000
                        
                        
                        
                        1,087,000
                        
                        
                        
                        79,000Gross
      profit margin
                        
                        
                        1,938,000
                        
                        
                        
                        1,415,000
                        
                        
                        
                        523,000Gross
      profit margin % *
                        
                        
                        62.4
                        %
                        
                        
                        56.6
                        %Research
      and development expenses (R&D)
                        
                        
                        319,000
                        
                        
                        
                        340,000
                        
                        
                        
                        (21,000
                        )Sales,
      general and administrative expenses (SG&A)
                        
                        
                        1,916,000
                        
                        
                        
                        2,252,000
                        
                        
                        
                        (336,000
                        )Total
      R&D and SG&A
                        
                        
                        2,235,000
                        
                        
                        
                        2,592,000
                        
                        
                        
                        (357,000
                        )Operating
      loss
                        
                        
                        (297,000
                        )
                        
                        
                        (1,177,000
                        )
                        
                        
                        880,000Interest
      expense, net
                        
                        
                        (288,000
                        )
                        
                        
                        (246,000
                        )
                        
                        
                        (42,000
                        )Net
      loss
                        
                        $
                        (585,000
                        )
                        
                        $
                        (1,423,000
                        )
                        
                        $
                        838,000Preferred
      stock dividends and accretion
                        
                        
                        (321,000
                        )
                        
                        
                        (305,000
                        )
                        
                        
                        16,000Net
      loss available to common stockholders
                        
                        $
                        (906,000
                        )
                        
                        $
                        (1,728,000
                        )
                        
                        $
                        822,000





*
Gross profit margin divided by total revenues





Quarterly
Highlights




In
addition to the selected financial highlights above, the following selected
quarterly financial and non-financial data is important in understanding the
trend in the Company’s results of operations:


Page |
13





CONDENSED
CONSOLIDATED QUARTERLY  FINANCIAL HIGHLIGHTS


5
Quarter Trend


(Rounded
to nearest thousand)





Three
      Months
                              
                              
                              Three
      Months
                              
                              
                              Three
      Months
                              
                              
                              Three
      Months
                              
                              
                              Three
      MonthsEnded
                              
                              
                              Ended
                              
                              
                              Ended
                              
                              
                              Ended
                              
                              
                              EndedMarch
      31
                              
                              
                              June
      30
                              
                              
                              September
      30
                              
                              
                              December
      31
                              
                              
                              March
      312008
                              
                              
                              2008
                              
                              
                              2008
                              
                              
                              2008
                              
                              
                              2009Recurring
      RevenueEquipment
      leasing
                              
                              
                              2,180,000
                              
                              
                              
                              2,239,000
                              
                              
                              
                              2,099,000
                              
                              
                              
                              2,254,000
                              
                              
                              
                              2,571,000Administrative
      field & support service revenues
                              
                              
                              74,000
                              
                              
                              
                              87,000
                              
                              
                              
                              71,000
                              
                              
                              
                              102,000
                              
                              
                              
                              132,000Total
      Recurring Revenue
                              
                              
                              2,254,000
                              
                              
                              
                              2,326,000
                              
                              
                              
                              2,170,000
                              
                              
                              
                              2,356,000
                              
                              
                              
                              2,703,000Other
      Revenue
                              
                              
                              248,000
                              
                              
                              
                              30,000
                              
                              
                              
                              8,000
                              
                              
                              
                              310,000
                              
                              
                              
                              401,000Total
      Revenue
                              
                              
                              2,502,000
                              
                              
                              
                              2,356,000
                              
                              
                              
                              2,178,000
                              
                              
                              
                              2,666,000
                              
                              
                              
                              3,104,000Costs
      of Revenue
                              
                              
                              1,087,000
                              
                              
                              
                              948,000
                              
                              
                              
                              844,000
                              
                              
                              
                              989,000
                              
                              
                              
                              1,166,000Gross
      profit margin
                              
                              
                              1,415,000
                              
                              
                              
                              1,408,000
                              
                              
                              
                              1,334,000
                              
                              
                              
                              1,677,000
                              
                              
                              
                              1,938,000Gross
      profit margin %*
                              
                              
                              56.6
                              %
                              
                              
                              59.8
                              %
                              
                              
                              61.2
                              %
                              
                              
                              62.9
                              %
                              
                              
                              62.4
                              %Research
      & Development (R&D)
                              
                              
                              340,000
                              
                              
                              
                              329,000
                              
                              
                              
                              275,000
                              
                              
                              
                              296,000
                              
                              
                              
                              319,000Sales, General
      & Administrative (SG&A)
                              
                              
                              2,252,000
                              
                              
                              
                              2,047,000
                              
                              
                              
                              1,817,000
                              
                              
                              
                              2,001,000
                              
                              
                              
                              1,916,000Subtotal
      R&D and SG&A
                              
                              
                              2,592,000
                              
                              
                              
                              2,376,000
                              
                              
                              
                              2,092,000
                              
                              
                              
                              2,297,000
                              
                              
                              
                              2,235,000Operating
      Loss
                              
                              
                              (1,177,000
                              )
                              
                              
                              (968,000
                              )
                              
                              
                              (758,000
                              )
                              
                              
                              (620,000
                              )
                              
                              
                              (297,000
                              )Total
      Full-Time Employees at  Quarter End
                              
                              
                              91
                              
                              
                              
                              89
                              
                              
                              
                              80
                              
                              
                              
                              74
                              
                              
                              
                              73





*
Gross profit margin divided by total revenues





For
the three months ended March 31, 2009 compared to the three months ended March
31, 2008





Revenue





Total
Revenue


For the
three month period ended March 31, 2009, the Company had total revenue of
$3,104,000, an increase of 24% over the total revenue of $2,502,000 recorded for
the three months ended March 31, 2008.





Recurring
Revenue


The
Company’s principal sources of revenue (daily leasing of electronic monitoring
equipment and administrative, field and support services) which are reflected
above as Recurring Revenue, grew 20% during the comparable periods. The increase
in revenue is a result of an increase in the number of units under lease and the
expansion of monitoring center services revenue to include GPS
equipment.





Other
Revenue




For the
three month period ended March 31, 2009, the Company had other revenue of
$401,000, an increase of 62% over the other revenue of $248,000 recorded for the
three months ended March 31, 2008.  This income consists primarily of
royalties earned by the Company under the terms of the Patent License Agreement
and, accordingly, is dependent on the applicable revenue levels of the
licensee.




The
Company historically accounted for this revenue on a cash basis. During the
three months ended December 31, 2008, the Company began accounting for these
revenues on an accrual basis as the amount was estimable and probable of
collection.  Accordingly, within the limits of the Patent License
Agreement, the Company expects to continue to report this revenue on an accrual
basis, however, the level of income in future periods is not expected to
continue at the level reported in the three months ended March 31,
2009.


Page |
14


Cost
of Revenues


Cost of
revenues represents all direct costs related to delivery of monitoring equipment
including amortization of the acquisition costs, repairs and maintenance of the
monitoring equipment, transportation costs, communication costs associated with
the equipment, as well as costs to upgrade existing units for advancements in
technology.  The Company experienced an increase in cost of revenue
due to an increase in royalty expenses in connection with the Pro Tech
Settlement Agreement (“Settlement Agreement”) which were partly offset by a
reduction in amortization of equipment and equipment upgrade and supply
costs.  The net result is an increase in total cost of revenues of
$79,000, to $1,166,000 from $1,087,000.





With
respect to the royalty expense, the Company continues to bring GPS tracking
units into compliance with the Settlement Agreement.  As of March 31,
2009 9.0% of the Company’s GPS tracking units available to generate revenue were
subject to royalties; down from 13.5% at December 31, 2008.





Research
and Development Expenses


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





R&D
expenses for the three months ended March 31, 2009 were $319,000, a decrease of
$21,000 over the $340,000 expensed during the three months ended March 31,
2008.  The main reason for the decrease in R&D expenses over the
prior period was the cost reduction and cost control plans implemented in
2008.





The
Company is currently in the process of redesigning several major software
systems and has capitalized certain payroll and related costs associated with
the development of the applications.  For the three months ended March
31, 2009 and 2008, the Company capitalized $0 and $28,000,
respectively.  Resources for this redesign were engaged in other
non-capitalizable projects during the three months ended March 31,
2009.  We expect these capitalizable projects to resume later in
2009.





Sales,
General and Administrative Expenses


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





For the
three months ended March 31, 2009, SG&A expenses decreased $336,000 from the
$2,252,000 reported in 2008 to the $1,916,000 reported in
2009.   Significant increases and decreases of SG&A expense
in the comparable periods are highlighted below:




o
            Personnel
      related expenses including salaries, benefits, recruiting, and travel and
      decreased approximately $267,000 as a result of the implemented cost
      control measures.




o
            Consulting
      fees decreased approximately $50,000 as a result of the implemented cost
      control measures.




Page |
15




o
            Advertising
      expense decreased approximately $27,000 as a result of the implemented
      cost control measures.




o
            Various
      other expenses including legal fees, depreciation and office supplies and
      decreased an aggregate of approximately
$52,000.




o
            Bad
      debt expense increased approximately $60,000 in connection with the
      uncertainty of collectability of certain accounts
    receivable.




Interest
Expense, Net


Net
interest expense represents the total interest expense incurred by the Company
reduced by the interest income earned by the Company during the
period.  Net interest expense increased by $42,000 from $246,000
during the three months ended March 31, 2008 to $288,000 during the comparable
period in 2009.  The increase is attributable to the increase in
equipment purchased under capital leases, as well as the additional borrowings
from Crestpark LP, Inc. in late 2008 and the three months ended March 31,
2009.  As a result of the additional borrowing from Crestpark LP, Inc.
and the Company’s continuing use of capital leases to finance its equipment
purchases, we expect to see net interest expense continue at or slightly above
the levels recorded in the three months ended March 31, 2009.




Net
Loss


The
Company’s net loss for the three months ended March 31, 2009 was $585,000, a
decrease of $838,000 from $1,423,000 over the comparable period in 2008 for the
reasons described above.





Preferred
Stock Dividends and Accretion




For the
three months ended March 31, 2009, preferred stock dividends and accretion
totaled $321,000, as compared to $305,000 for the three months ended March 31,
2008.  This increase was due to compounding interest on accrued but
unpaid dividends on our Series C Preferred Stock.  The Series C
Preferred Stock accrues interest at a cumulative compounded rate of 8.0% per
annum.




Liquidity
and Capital Resources




For the
three months ended March 31, 2009, the Company generated $619,000 of cash in
operating activities, used $689,000 in investing activities, and generated
$859,000 in cash from financing activities.   The total of all
cash flow activities resulted in an increase in the balance of cash for the
three months ended March 31, 2009 of $789,000.




For the
same period of 2008, the Company used $759,000 of cash in operating activities,
used another $948,000 in investing activities, and generated $290,000 in cash
from financing activities.  The total of all cash flow activities in
the first quarter of 2008 resulted in a decrease in the balance of cash of
$1,417,000.




The
Company’s principal uses of cash are the payment of operating expenses, payments
on long-term leases, including interest, and working capital(e.g. accounts
receivable).   In general, the Company expects to meet these
liquidity needs by generating positive cash flow from operating
activities.   The Company utilizes long-term leases through AHK
Leasing, LLC (“AHK”) or the Equipment Term Loan with  Crestpark (Note
6) to finance the acquisition of monitoring equipment.




The
Company believes that its current working capital, combined with the expected
amounts available through lease financing for our monitoring equipment described
above are sufficient to meet its liquidity needs through 2009.


Page |
16




Application of Critical Accounting
Estimates




Management
uses estimates and assumptions in preparing our financial statements in
accordance with accounting principles generally accepted in the United States.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. On an on-going basis, we evaluate our estimates
and assumptions based upon historical experience and various other factors and
circumstances.  Management believes that our estimates and assumptions
are reasonable under the circumstances; however, actual results may vary from
these estimates and assumptions under different future circumstances. We do not
believe that any of the accounting estimates are critical at this time, however
we expect to continue to review our accounting estimates in order to determine
if any of these accounting estimates are critical.  For further
discussion of our significant accounting policies, refer to Note 1 – “Nature of
Business and Significant Accounting Policies” in the Notes to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.




Off-Balance Sheet
Arrangements





We do not
have any off-balance sheet arrangements.




Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.




Not
required for smaller reporting companies.





Item
4T.  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.




The
Company’s principal executive officer and principal financial officer determined
that 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.


Page |
17


PART
II. OTHER INFORMATION




Item
1.  Legal Proceedings.




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




Item
1A.  Risk Factors.




Not
required for smaller reporting companies.




Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.




On March
2, 2009, the Company issued an aggregate of 5,714 shares of common stock to two
directors in partial payment of directors’ fees.  The shares had a
market value on the date of the board meeting of $2,000.  The issuance
of these shares is exempt from registration under Section 4(2) of the Securities
Act of 1933.




Item
3.  Defaults Upon Senior Securities.




None




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




None




Item
5.  Other Information.




None




Item
6.  Exhibits.





3.1
            Amended
      and Restated Certificate of Incorporation of the Company, as amended
      (3)




3.2
            Restated
      Bylaws of the Company (1)




3.3
            Certificate
      of Designations, Preferences and Rights of Series C 8% Cumulative,
      Compounding Exchangeable Preferred Stock of the Company
  (2)




4.1
            Form
      of Common Stock Certificate (1)




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
            Certification
      of Chief Executive Officer and Chief Financial Officer 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 on Form 10-SB,
      filed on June 22, 1999 (Commission File No.
  0-26455).




(2)
            Incorporated
      by reference from the registrant’s current report on Form 8-K, filed on
      June 23, 2005 (Commission File No.
0-26455).




(3)
            Incorporated
      by reference from the registrant’s current report on Form 8-K, filed on
      December 14, 2006 (Commission File No.
  0-26455).




Page |
18


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934 the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





iSECUREtrac
      Corp.By:
                /s/ Peter A. MichelPeter A. MichelPresident & CEODated:  April
      28, 2009By:
                /s/Lincoln
      ZehrLincoln ZehrChief Financial OfficerDated:  April
      28, 2009


Page |
19