**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 SEPTEMBER 30, 2008**





**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. 111** **th** **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.


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 October 24, 2008 was
      10,791,090.










**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


***iSECUREtrac
        Corp. and SUBSIDIARIES***
 ***CONSOLIDATED
        BALANCE SHEETS***
 
 (Unaudited)September 30, 2008
              
              December 31, 2007**ASSETS**Current
                  AssetsCash
                  and cash equivalents (see Note 9)
              
              $
              590,839
              
              $
              3,442,712Accounts
                  receivable, net of allowance for doubtful accounts of $380,000
                  in 2008 and
                  $292,669 in 2007
              
              
              1,917,196
              
              
              1,941,902Inventories
              
              
              203,556
              
              
              135,376Prepaid
                  expenses and other
              
              
              113,006
              
              
              92,750Total
                  current assets
              
              
              2,824,597
              
              
              5,612,740Leasehold
                  improvements and equipment, net of accumulated depreciation of
                  $8,667,354
                  in 2008 and $7,041,272 in 2007
              
              
              4,416,153
              
              
              3,875,728Intangibles,
                  net of accumulated amortization of $881,637 in 2008 and $850,166
                  in 2007
              
              
              29,884
              
              
              61,356Goodwill
              
              
              2,302,179
              
              
              2,302,179Other
                  assets
              
              
              71,889
              
              
              88,425Total
                  assets
              
              $
              9,644,702
              
              $
              11,940,428**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)**Current
                  LiabilitiesAccounts
                  payable
              
              $
              436,989
              
              $
              1,069,577Accrued
                  expenses
              
              
              495,198
              
              
              609,083Current
                  maturities of long-term debt
              
              
              1,076,917
              
              
              622,340Deferred
                  revenues & gain on sale-leaseback transactions
              
              
              275,238
              
              
              314,090Accrued
                  interest payable
              
              
              598,855
              
              
              30,513Total
                  current liabilities
              
              
              2,883,197
              
              
              2,645,603Long-term
                  debt, less current maturities
              
              
              13,234,065
              
              
              12,381,598Redeemable
                  convertible Series C preferred stock
              
              
              12,821,696
              
              
              11,882,545Stockholders'
                  (deficit)Common
                  stock
              
              
              10,790
              
              
              10,779Additional
                  paid-in capital
              
              
              55,276,284
              
              
              55,109,333Accumulated
                  deficit
              
              
              (74,581,330
              )
              
              (70,089,430
              )Total
                  stockholders ' (deficit)
              
              
              (19,294,256
              )
              
              (14,969,318
              )Total
                  liabilities and stockholders' (deficit)
              
              $
              9,644,702
              
              $
              11,940,428
 
 See
        Notes
        to Consolidated Financial Statements (unaudited).


Page
          1





***iSECUREtrac
        Corp. and SUBSIDIARIES***
 ***CONSOLIDATED
        STATEMENTS OF OPERATIONS***
 ***(Unaudited)***
 
 Three Months Ended
              
              Nine Months EndedSeptember 30
              
              September 302008
              
              2007
              
              2008
              
              2007**Revenues:**Equipment
                  leasing
              
              $
              2,098,798
              
              $
              2,141,774
              
              $
              6,517,394
              
              $
              6,230,187Administrative,
                  field & support service revenues
              
              
              71,183
              
              
              21,918
              
              
              232,336
              
              
              39,939Equipment
                  sales
              
              
              0
              
              
              10,752
              
              
              45,890
              
              
              87,755Other
                  revenues
              
              
              8,163
              
              
              16,721
              
              
              227,324
              
              
              148,669Gain
                  on related party sale-leaseback transactions
              
              
              0
              
              
              39,828
              
              
              13,191
              
              
              129,534Total
                  revenues
              
              
              2,178,144
              
              
              2,230,993
              
              
              7,036,135
              
              
              6,636,084**Operating
                  expenses:**Cost
                  of revenues
              
              
              843,715
              
              
              852,406
              
              
              2,879,730
              
              
              2,607,090Research
                  and development
              
              
              275,513
              
              
              392,012
              
              
              944,071
              
              
              1,278,236Sales,
                  general and administrative
              
              
              1,817,153
              
              
              3,163,369
              
              
              6,115,488
              
              
              7,459,334Total
                  operating expenses
              
              
              2,936,381
              
              
              4,407,787
              
              
              9,939,289
              
              
              11,344,660Operating
                  loss
              
              
              (758,237
              )
              
              (2,176,794
              )
              
              (2,903,154
              )
              
              (4,708,576
              )**Other
                  income (expense):**Interest
                  income
              
              
              2,148
              
              
              18,091
              
              
              26,215
              
              
              97,743Interest
                  expense
              
              
              (289,824
              )
              
              (143,102
              )
              
              (823,196
              )
              
              (441,132
              )Total
                  other income (expense)
              
              
              (287,676
              )
              
              (125,011
              )
              
              (796,981
              )
              
              (343,389
              )Loss
                  before provision for income taxes
              
              
              (1,045,913
              )
              
              (2,301,805
              )
              
              (3,700,135
              )
              
              (5,051,965
              )Provision
                  for income taxes
              
              
              0
              
              
              0
              
              
              0
              
              
              0**Net
                  loss**
              
              $
              (1,045,913
              )
              $
              (2,301,805
              )
              $
              (3,700,135
              )
              $
              (5,051,965
              )Preferred
                  stock dividends and accretion
              
              
              (328,771
              )
              
              (308,003
              )
              
              (939,151
              )
              
              (877,844
              )**Net
                  loss available to common stockholders**
              
              $
              (1,374,684
              )
              $
              (2,609,808
              )
              $
              (4,639,286
              )
              $
              (5,929,809
              )**Basic
                  and diluted loss per common share**
              
              $
              (0.13
              )
              $
              (0.24
              )
              $
              (0.43
              )
              $
              (0.55
              )**Weighted
                  average shares of common stock outstanding**
              
              
              10,789,701
              
              
              10,777,305
              
              
              10,783,169
              
              
              10,775,556
 
 See
        Notes
        to Consolidated Financial Statements (unaudited).


Page
          2





***iSECUREtrac
        Corp. AND SUBSIDIARIES***
 ***STATEMENT
        OF STOCKHOLDERS' (DEFICIT)***
 ***For
        the Nine Months Ended September 30, 2008***
 ***(unaudited)***
 
 **Additional****Common Stock**
              
              **Paid -in**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Total****Balance,
                  December 31, 2007**
              
              
              10,779,680
              
              $
              10,779
              
              $
              55,109,333
              
              $
              (70,089,430
              )
              $
              (14,969,318
              )Shares
                  issued for director's fees
              
              
              11,410
              
              
              11
              
              
              4,989
              
              
              -
              
              
              5,000Stock
                  based compensation
              
              
              -
              
              
              -
              
              
              309,350
              
              
              -
              
              
              309,350Series
                  C preferred stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              (791,765
              )
              
              (791,765
              )Accretion
                  to redemption value of preferred stock
              
              
              -
              
              
              -
              
              
              (147,388
              )
              
              -
              
              
              (147,388
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,700,135
              )
              
              (3,700,135
              )**Balance,
                  September 30, 2008**
              
              
              10,791,090
              
              $
              10,790
              
              $
              55,276,284
              
              $
              (74,581,330
              )
              $
              (19,294,256
              )
 
 See
        Notes
        to Consolidated Financial Statements (unaudited).


Page
          3





***iSECUREtrac
        CORP. AND SUBSIDIARIES***
 ***CONSOLIDATED
        STATEMENTS OF CASH FLOWS***
 ***Nine
        Months Ended September 30, 2008 and 2007***
 ***(unaudited)***
 
 **2008**
              
              **2007****Cash
                  Flows From Operating Activities**Net
                  loss
              
              $
              (3,700,135
              )
              $
              (5,051,965
              )Depreciation
                  and amortization
              
              
              1,657,553
              
              
              1,376,141Stock
                  based compensation
              
              
              314,350
              
              
              255,641Decrease
                  in accounts receivable
              
              
              24,706
              
              
              178,797(Increase)
                  in inventories
              
              
              (68,180
              )
              
              (143,513
              )(Increase)
                  in prepaid expenses
              
              
              (20,256
              )
              
              -Increase
                  (Decrease) in accounts payable
              
              
              (632,589
              )
              
              355,700(Decrease)
                  in accrued expenses
              
              
              (113,885
              )
              
              925,158(Decrease)
                  in deferred revenues and gain on sale - leaseback transactions
              
              
              (38,852
              )
              
              (118,834
              )Increase
                  in accrued interest payable
              
              
              568,342
              
              
              314,137Other
              
              
              -
              
              
              3,269**Net
                  cash (used in) operating activities**
              
              
              (2,008,946
              )
              
              (1,905,469
              )**Cash
                  Flows From Investing Activities**Purchases
                  of leasehold improvements and equipment
              
              
              (2,166,507
              )
              
              (873,991
              )(Increase)
                  Decrease in other assets
              
              
              16,537
              
              
              (6,343
              )**Net
                  cash (used in) investing activities**
              
              
              (2,149,971
              )
              
              (880,334
              )**Cash
                  Flows From Financing Activities**Principal
                  proceeds from long-term debt
              
              
              2,100,000
              
              
              500,000Principal
                  payments on long-term debt
              
              
              (792,956
              )
              
              (755,315
              )**Net
                  cash provided by (used in) financing activities**
              
              
              1,307,044
              
              
              (255,315
              )**(Decrease)
                  in cash**
              
              
              (2,851,873
              )
              
              (3,041,118
              )**Cash
                  at beginning of period**
              
              
              3,442,712
              
              
              4,341,685**Cash
                  at end of period**
              
              $
              590,839
              
              $
              1,300,567**Supplemental
                  Disclosure of Cash Payments for**Interest
              
              
              254,856
              
              
              126,995
 
 See
        Notes
        to Consolidated Financial Statements (unaudited).


Page
          4




**iSECUREtrac
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**Note
      1. General**




The
      consolidated balance sheet of iSECUREtrac Corp. (“iSECUREtrac”, or the
“Company”) at December 31, 2007, has been taken from audited consolidated
      financial statements at that date. The condensed consolidated financial
      statements for the three and nine months ended September 30, 2008 and September
      30, 2007 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 audited
      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-KSB for the year ended December 31,
      2007. The results of operations and cash flow for the three and nine months
      ended September 30, 2008 are not necessarily indicative of the results for
      the
      entire fiscal year ending December 31, 2008. Where appropriate, items of an
      insignificant nature within the condensed consolidated financial statements
      have
      been reclassified from the previous periods’ presentation to conform to the
      presentation employed in the current year.




Management
      believes that the new credit facility, as described in Note 9, and the Company’s
      existing credit facilities described in Note 5, in combination with lower
      operating expenses and anticipated increase in revenue, will be sufficient
      to
      meet the liquidity needs of the Company until the Company can achieve positive
      cash flow from operations, which the Company expects to achieve in 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”) and which were issued under employment agreements with executive
      officers.




During
      the three and nine months ended September 30, 2008, the Company granted options
      to purchase a total of 2,000 and 563,000 shares of common stock to one and
      sixty-nine employees, respectively, pursuant to the 2006 Plan. During the three
      and nine months ended September 30, 2008, 39,712 and 104,910 options issued
      under the 2006 Plan were forfeited, 18,100 and 18,875 options issued under
      the
      2001 Plan were forfeited and 19,792 and 55,792 options issued under employment
      agreements outside the 2006 Plan and the 2001 Plan were forfeited. No options
      were exercised during the three or nine months ended September 30, 2008. The
      following table shows stock option activity during the nine month period ended
      September 30, 2008:





**Weighted Average****Weighted Average**
              
              **Remaining****Number of**
              
              **Exercise Price Per**
              
              **Contractual Life**
              
              **Aggregate****Options**
              
              **Shares**
              
              **Share**
              
              **(Years)**
              
              **Intrinsic Value**Outstanding at December
                  31, 2007
              
              
              1,817,580
              
              $
              2.30Granted
              
              
              563,000
              
              
              0.61Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (179,577
              )
              
              1.75Outstanding
                  at September 30, 2008
              
              
              2,201,003
              
              $
              1.91
              
              
              5.92
              
              $
              -Exercisable
                  at September 30, 2008
              
              
              1,672,143
              
              $
              2.17
              
              
              4.97
              
              $
              -


Page
          5




As
      of
      September 30, 2008, the aggregate intrinsic value of all outstanding options
      and
      exercisable options, which is the actual value of the options if exercised,
      was
      $0 and $0, respectively.




During
      the three and nine month periods ended September 30, 2008, respectively, 20,000
      and 315,890 warrants expired and no warrants were granted or exercised by
      warrant holders.




At
      September 30, 2008, the Company had 2,201,003 outstanding stock options,
      6,287,045 shares issuable upon exercise of warrants to be issued upon exchange
      of the Company’s Series C 8% Cumulative, Compounding Exchangeable Preferred
      Stock, par value $0.01 per share (the “Series C Preferred Stock”), and 3,607,035
      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.




On
      January 1, 2006, the Company adopted 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:





**Nine Months Ended**
              
              **Year Ended****September 30, 2008**
              
              **December 31, 2007**Risk free
                  interest rate
              
              
              4.27
              %
              
              4.65
              %Expected
                  volatility factor
              
              
              84.83
              %
              
              86.59
              %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
              
              
              19%
                  and 20
              %
              
              19%
                  and 20
              %




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 seven years.




Expected
      volatilities are based on historical stock prices over the two years prior
      to
      the stock option award.




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 is compared to the options
      forfeited prior to having vested. For option years in which the two year vesting
      period has not passed, past experience is used to project future forfeitures.
      The total of pro forma forfeitures is then compared to total options awarded
      and
      the resultant percentage is used as the forfeiture rate. The estimated
      forfeiture rate for senior executive and non-senior executive option grants
      is
      19% and 20%, respectively. This rate is recalculated on an annual basis.




The
      annual rate of quarterly dividends is 0% since iSECUREtrac has historically
      not
      paid dividends on its common stock and does not expect to pay dividends in
      the
      foreseeable future.


Page
          6




The
      Company recorded compensation expense of $98,798 and $309,350 for the three
      and
      nine month periods ended September 30, 2008, respectively, compared to $89,402
      and $249,641 for the same periods in 2007 related to share-based compensation
      awards.




As
      of
      September 30, 2008, there was approximately $376,292 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:


2008
              
              $
              97,0462009
              
              
              268,7062010
              
              
              10,540Total
              
              $
              376,292




**Note
      3. Leasehold Improvements and Equipment**




The
      cost
      and accumulated depreciation of our leasehold improvements and equipment as
      of
      September 30, 2008 and December 31, 2007 are as follows:





**September 30, 2008**
              
              **December 31, 2007****Accumulated**
              
              **Net Book**
              
              
              
              **Accumulated**
              
              **Net Book****Cost**
              
              **Depreciation**
              
              **Value**
              
              **Cost**
              
              **Depreciation**
              
              **Value**Equipment
              
              $
              970,666
              
              $
              561,794
              
              $
              408,872
              
              $
              844,307
              
              $
              446,991
              
              $
              397,316Leasehold
                  improvements
              
              
              232,331
              
              
              98,661
              
              
              133,669
              
              
              227,229
              
              
              54,047
              
              
              173,182Monitoring
                  equipment
              
              
              11,880,510
              
              
              8,006,899
              
              
              3,873,611
              
              
              9,845,464
              
              
              6,540,234
              
              
              3,305,230Total
                  leasehold improvements and equipment
              
              $
              13,083,507
              
              $
              8,667,354
              
              $
              4,416,153
              
              $
              10,917,000
              
              $
              7,041,272
              
              $
              3,875,728




**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.  The Company
      determined that there was no impairment of goodwill as of December 31,
      2007.




The
      Company also separately records other intangible assets that can be identified
      and assigned a value.  At September 30, 2008, 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 $10,490 and $31,471 for the three and nine month periods ended September
      30, 2008, respectively and $20,642 and $61,927 for the comparable periods in
      2007. These intangible assets are also tested for impairment on an annual basis.
      The Company determined that there was no impairment of intangible assets as
      of
      December 31, 2007.




The
      composition of goodwill and intangible assets at September 30, 2008 and December
      31, 2007, is as follows:




Page
          7


**September 30, 2008**
              
              **December 31, 2007****Intangibles, subject**
              
              
              
              **Intangibles, subject****Goodwill**
              
              **to Amortization**
              
              **Goodwill**
              
              **to Amortization**Gross Carrying Amount
              
              $
              2,302,179
              
              $
              911,522
              
              $
              2,302,179
              
              $
              911,522Accumulated
                  Amortization
              
              
              -
              
              
              (881,638
              )
              
              -
              
              
              (850,166
              )Balance
              
              $
              2,302,179
              
              $
              29,884
              
              $
              2,302,179
              
              $
              61,356




The
        estimated aggregate amortization expense of the intangibles is as
        follows:
 
 2008
              
              $
              10,4912009
              
              
              19,393Total
              
              $
              29,884


**Note
      5. 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 Leasing,
      LLC
      (“AHK”), a company controlled by three stockholders, one of which is a current
      director. Maturity dates on these capital leases run from June 2009 to May
      2011.
      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
      10.00% to 12.50%. As of September 30, 2008, the aggregate balance on these
      capital leases totaled $2,433,507. The aggregate balance on capital leases
      at
      December 31, 2007 was $1,126,463. For the three and nine months ended September
      30, 2008 interest expense to AHK was $72,008 and $154,286, respectively, as
      compared to $29,471 and $111,136 for the three and nine months ended September
      30, 2007, respectively. There was no accrued interest at September 30, 2008
      and
      December 31, 2007 to AHK. As of September 30, 2008, the Company had unused
      capital lease facilities in place with AHK to finance the future acquisition
      of
      approximately $650,000 of monitoring equipment. Subsequent to September 30,
      2008, the Company utilized $300,000 of its remaining capital lease facility
      as
      described in Note 9.





As
      of
      September 30, 2008, the Company had outstanding borrowings of $11,877,475 under
      a secured Promissory Note payable to, and an associated Credit and Security
      Agreement (the “Crestpark Note”) with, Crestpark LP, Inc. (the “Lender”). The
      Lender is an affiliate of the sole holder of our Series C Preferred Stock.
      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 September 30, 2008
      and December 31, 2007, equaled $598,855 and $30,513, respectively.





Total
      interest expense for the Company for the three and nine months ended September
      30, 2008 was $289,824 and $823,196, respectively, compared to $143,102 and
      $441,132 during the same periods in 2007. Of that amount, $284,483 and $804,865
      was expensed to related parties under the AHK Capital Leases and the Crestpark
      Note for the three and nine months ended September 30, 2008, respectively,
      compared to $136,971 and $425,110 during the same periods in
      2007.


Page
          8




**Note
      6. 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 by the Company on the tenth anniversary
      of the original issue date, unless exchanged by the holder for shares of common
      stock prior to such redemption. The redemption price per share of the Series
      C
      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. As of September 30, 2008, the Company had accrued
      Series C Preferred Stock dividends totaling $3,147,724 and accretion to
      redemption value of the Series C Preferred Stock totaling $638,681. Of these
      amounts, $279,641 and $49,129, respectively, were the amounts accrued during
      the
      three months ended September 30, 2008.




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%.




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 holders of Series C Preferred
      Stock have the ability to appoint a majority of directors.




**Note
      7. Recent Accounting Pronouncements**




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


Page
          9





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





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





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





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities* (“Statement No. 161”) *.* The new
      standard is intended to improve financial reporting about derivative instruments
      and hedging activities by requiring enhanced disclosures to enable investors
      to
      better understand their effects on an entity’s financial condition, financial
      performance, and cash flows. It is effective for financial statements issued
      for
      fiscal years and interim periods beginning after November 15, 2008.
      Statement No. 161 will impact disclosures only and will not have an impact
      on the Company’s consolidated financial condition, results of operations or cash
      flows.


Page
          10





In
      May
      2008, the FASB issued Statement of Financial Accounting Standards No. 162,
      The
      Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). This
      Standard identifies the sources of accounting principles and the framework
      for
      selecting the principles to be used in the preparation of financial statements
      of nongovernmental entities that are presented in conformity with generally
      accepted accounting principles. SFAS 162 directs the hierarchy to the entity,
      rather than the independent auditors, as the entity is responsible for selecting
      accounting principles for financial statements that are presented in conformity
      with generally accepted accounting principles. The Standard is effective
      November 15, 2008. SFAS 162 is not expected to have an impact on the financial
      statements.




**Note
      8. Contingencies**




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




Pursuant
      to the Settlement Agreement, Pro Tech has caused the dismissal of its lawsuit
      against the Company. In consideration, the Company paid Pro Tech $800,000 in
      cash upon execution of the Settlement Agreement and agreed to, and did purchase
      $600,000 worth of sobriety monitoring equipment from Pro Tech prior to December
      31, 2007. The $800,000 was included in sales, general and administrative
      expenses for the year ended December 31, 2007. In addition, the Company has
      agreed to make a modification to its GPS tracking equipment to eliminate or
      disable a component that allegedly infringed on Pro Tech’s patent. On January
      27, 2008, the Company became subject to royalty payments, which escalate over
      time, on activated, unmodified equipment in the field. As of September 30,
      2008,
      the Company has expensed $80,648 and accrued $7,291 of settlement royalty costs.
      The Company entered into the Settlement Agreement without admission of liability
      and solely to avoid the expense and uncertainty of litigation.





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




**Note
      9. Subsequent Events**




On
      October 3, 2008, the Company executed a $300,000 sale-leaseback arrangement
      with
      AHK consistent with the terms outlined in Note 5. The effect of the transaction
      was an increase to cash and long-term debt of $300,000. The execution of this
      lease reduced the remaining capital lease facilities in place for future
      monitoring equipment purchases to $350,000.




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.




Page
          11




The
      proceeds of the Revolving Credit Commitment of $750,000 are to be 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
      fee of 0.25% per annum on the average daily unused amount of 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 fee of 0.25% oer annum on the average
      daily
      unused amount of the Equipment Term Loan.




The
      Lender is an affiliate of Mykonos 6420 LP (“Mykonos”). As the sole holder of the
      Company’s Series C Preferred Stock, Mykonos has the right to elect a majority of
      the Company’s Board of Directors. The terms of the lean were approved by a
      Special Committee of the Board of Directors consisting solely of disinterested
      directors.




**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 the risks detailed in *“ITEM
      6. Management’s Discussion and Analysis or Plan of Operation”* contained in the Company’s Form 10-KSB filed for the year ended December 31,
      2007.




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 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 are generated by the daily leasing of
      electronic monitoring equipment including access to the corresponding web-based
      monitoring software, and by providing administrative, field and support
      services, generally charged on a per offender basis.




**Results
      of Operations**





***Revenues***


For
      the
      three month and nine month periods ended September 30, 2008, the Company had
      total revenue of $2,178,144 and $7,036,135, respectively compared to $2,230,993
      and $6,636,084 for the same periods in 2007, which represent a decrease of
      2.3%
      for the three months ended September 30,  2008
      and
      an increase of 6.0% for the nine months ended September 30,  2008.


Page
          12





The
      Company’s principal sources of revenue (equipment leasing and administrative,
      field and support services) for the three and nine months ended September 30,
      2008 increased 0.3% and 7.6% over the comparable periods in 2007. This increase
      in revenue is a result of an increase in the number of units under lease and
      an
      increase in the number of units utilizing the Company’s administrative, field
      and support services.





Over
      the
      past quarter, the Company has entered into several new contracts and in
      November, the Company has been notified of new commitments that are expected
      to
      result in contracts. We believe that activities under these new contracts and
      commitments will be implemented over the next several quarters. If these
      contracts and commitments are implemented as anticipated, the Company expects
      to
      experience growth in revenue that may be significant by the three month period
      ending March 31, 2009.





***Operating
      Expenses***





Operating
      expenses during the nine months ended September 30, 2008 have declined
      significantly as management has implemented a series of cost reductions as
      well
      as expense control measures. As reflected in the table below, these efforts
      have
      resulted in the operating expenses for the three months ended September 30,
      2008
      being 20.2% less than operating expenses for the three months ended March 31,
      2008.


***Quarterly
        Operating Expenses***
  **2008****Three Months**
                
                **Three Months**
                
                **Three Months****Ended**
                
                **Ended**
                
                **Ended****March 31**
                
                **June 30**
                
                **September 30****Cost
                    of Revenues**
                
                $
                1,088,000
                
                $
                948,000
                
                $
                844,000**Research
                    and development expenses**
                
                
                340,000
                
                
                329,000
                
                
                275,000**Sales,
                    general and administrative expenses**
                
                
                2,252,000
                
                
                2,047,000
                
                
                1,817,000***Total
                    Operating Expenses***
                
                $
                3,680,000
                
                $
                3,324,000
                
                $
                2,936,000





This
      trend of declining operating expenses is not expected to continue beyond 2008.
      While management expects Research and Development expenses and Sales, General
      and Administrative expenses during the three months ending December 31, 2008
      to
      be at or about the levels reflected during the three months ended September
      30,
      2008, the Company is likely to realize an increase in Cost of Revenues during
      the three months ending December 31, 2008 in advance of anticipated revenue
      growth during the three months ending March 31, 2009.





**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, settlement royalty costs,
      communication costs associated with the equipment, as well as costs to upgrade
      existing units for advancements in technology. Certain costs such as freight,
      repairs and supplies decreased during the three months ended September 30,
      2008,
      while costs related to freight, communications and amortization increased during
      the nine months ended September 30, 2008 compared to the same periods for 2007,
      primarily as a result of additional units under lease. Royalty payments, which
      are recorded as cost of revenues, began during the three months ended March
      31,
      2008 as a result of the settlement signed with ProTech Monitoring (see Note
      8 to
      the Financial Statements). Total cost of revenues for the three months ended
      September 30, 2008 decreased $8,691 while cost of revenues for the nine months
      ended September 30, 2008 increased $272,640 compared to the same periods in
      2007.


Page
          13





**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.





Research
      and Development expenses for the three and nine months ended September 30,
      2008
      were $275,513 and $944,071, respectively, which represents a decrease of
      $116,499 and $334,165 compared to the same periods in 2007. The main reason
      for
      the decrease in R&D costs over the comparable periods was the completion of
      the development and testing of the Company’s next generation product, the System
      5000, in the fourth quarter of 2007 and the capitalization of costs outlined
      below.





The
      Company is currently in the process of redesigning several major software
      systems and, in accordance with Statement of Position (SOP) 98-1, has
      capitalized certain payroll and related costs associated with the development
      of
      the applications.  For the three and nine months ended September 30, 2008,
      the capitalized expenses totaled $59,330 and $111,776, respectively.  No
      costs associated with this redesign were incurred prior to 2008.




**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.





The
      Company’s SG&A expenses for the three and nine months ended September 30,
      2008 and 2007 are detailed in the following table:





**Three Months**
              
              **Three Months**
              
              **Nine Months**
              
              **Nine Months****Ended**
              
              **Ended**
              
              **Ended**
              
              **Ended****September 30, 2008**
              
              **September 30,2007**
              
              **September 30, 2008**
              
              **September 30,2007****Detail of Sales, General &
                  Administrative expenses (SG&A)**Litigation
                  and settlement expenses
              
              $
              -
              
              $
              941,535
              
              $
              -
              
              $
              1,032,010Management
                  restructuring expenses
              
              
              -
              
              
              -
              
              
              -
              
              
              59,511Consulting
                  expenses - Sarbanes-Oxley
              
              
              -
              
              
              4,258
              
              
              -
              
              
              62,703Other
                  sales, general and administrative expenses
              
              
              1,817,153
              
              
              2,217,576
              
              
              6,115,488
              
              
              6,305,110**Total
                  SG&A**
              
              $
              1,817,153
              
              $
              3,163,369
              
              $
              6,115,488
              
              $
              7,459,334


Page
          14





***3rd
      Quarter 2008 vs. 3rd Quarter 2007***





For
      the
      three months ended September 30, 2008, SG&A expenses decreased $1,346,216 to
      $1,817,153 from $3,163,369 incurred in the comparable period in 2007.
      Significant increases and decreases of SG&A expense in the comparable
      periods are highlighted below:




o
            Litigation
                and settlement expenses decreased approximately $942,000, representing
                the
                settlement of the ProTech litigation during the three months ended
                September 30, 2007.




o
            Compensation
                expense decreased approximately $154,000 due to the decrease in staffing
                levels made during 2008.




o
            Travel
                & Entertainment decreased approximately $112,000 due to cost controls
                implemented during the three months ended June 30,
                2008.




o
            Consulting
                expense decreased approximately $99,000 due to cost controls implemented
                during the three months ended June 30,
                2008.




o
            Various
                other expenses including recruiting and office supplies decreased
                an
                aggregate of approximately $39,000.




***Year-to-date
      2008 vs. Year-to-date 2007:***





For
      the
      nine months ended September 30, 2008, SG&A expenses decreased $1,343,846 to
      $6,115,488 from $7,459,334 incurred in the comparable period in 2007.
      Significant increases and decreases of SG&A expense in the comparable
      periods are highlighted below:




o
            Litigation
                and settlement expenses, management restructuring expenses, and consulting
                fees in connection with Sarbanes-Oxley decreased approximately $1,154,000.




o
            Compensation
                expense including benefits increased approximately $291,000 due to
                the
                increase in staffing levels made in mid 2007 in customer facing areas
                such
                as sales, repair and our monitoring center.




o
            Travel
                & Entertainment decreased approximately $173,000.




o
            Stock
                option expenses increased approximately $60,000 primarily due to
                the stock
                options issued by the Company in January 2008.  There were fewer
                stock options issued in the first half of
                2007.




o
            Recruiting
                costs decreased by approximately
                $89,000.




o
            Consulting
                costs, non Sarbanes-Oxley related, decreased by approximately
                $138,000.




o
            Office
                supplies decreased by approximately $41,000.




o
            Various
                other expenses including Bad Debt Expense, Insurance Expense, and
                other
                expenses and fees declined an aggregate of approximately
                $100,000.


Page
          15





***Other
      Income (expense)***





**Interest
      Expense, Net**


Net
      interest expense represents the total interest expense incurred by the Company
      reduced by the interest income earned by the Company during the year. Net
      interest expense for the three and nine months ended September 30, 2008 was
      $287,676 and $796,981, respectively compared to $125,011 and $343,389 for the
      same periods in 2007. 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 2007. 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 to
      grow.





***Net
      Loss***


The
      Company’s net loss for the three and nine months ended September 30, 2008 was
      $1,045,913 and $3,700,135, respectively, compared to $2,301,805 and $5,051,965
      for the same periods in 2007, for the reasons described above.





***Preferred
      Stock Dividends and Accretion***


For
      the
      three and nine months ended September 30, 2008, preferred stock dividends and
      accretion totaled $328,771, and $939,151, respectively, as compared to $308,003
      and $877,844 for the same periods in 2007. 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
      nine months ended September 30, 2008, the Company used $2,008,946 of cash in
      operating activities, used another $2,149,971 in investing activities, and
      generated $1,307,044 in cash from financing activities. The total of all cash
      flow activities resulted in a decrease in the balance of cash for the nine
      months ended September 30, 2008 of $2,851,873. For the same period of 2007,
      the
      Company used $1,905,469 of cash in operating activities, used another $880,334
      in investing activities, and used $255,315 in cash from financing activities.
      The total of all cash flow activities through the first three quarters of 2007
      resulted in a decrease in the balance of cash of $3,041,118.




As
      shown
      in the following chart, the amount of cash used by the Company in operating
      activities, as adjusted to exclude the purchase price of the monitoring
      equipment that was eventually financed under long-term sale/leaseback
      arrangements with AHK, decreased quarter by quarter during the first nine months
      of 2008.  As adjusted, the total decrease from the three months ended March
      31, 2008 to the three months ended September 30, 2008 was $631,000, or
      83%.  Management believes that this adjusted measure of cash used during
      the first nine months of 2008 more accurately reflects the trend of decreasing
      cash used in operations during this period.


Page
          16





**2008****Three Months**
              
              **Three Months**
              
              **Three Months**
              
              **Nine Months****Ended**
              
              **Ended**
              
              **Ended**
              
              **Ended****March 31**
              
              **June 30**
              
              **September 30**
              
              **September 30****Net
                  loss**
              
              $
              (1,422,957
              )
              $
              (1,231,263
              )
              $
              (1,045,915
              )
              $
              (3,700,135
              )Depreciation
                  and amortization
              
              
              580,012
              
              
              563,782
              
              
              513,759
              
              
              1,657,553Stock
                  based compensation
              
              
              107,128
              
              
              107,219
              
              
              100,003
              
              
              314,350(Increase)
                  decrease in accounts receivable
              
              
              (194,462
              )
              
              (27,032
              )
              
              246,200
              
              
              24,706(Increase)
                  decrease in inventories
              
              
              (76,205
              )
              
              18,524
              
              
              (10,499
              )
              
              (68,180
              )(Increase)
                  decrease in prepaid expenses
              
              
              29,985
              
              
              (856
              )
              
              (49,385
              )
              
              (20,256
              )Increase
                  (decrease) in accounts payable
              
              
              209,801
              
              
              (821,034
              )
              
              (21,356
              )
              
              (632,589
              )(Decrease)
                  in accrued expenses
              
              
              (17,922
              )
              
              (5,703
              )
              
              (90,260
              )
              
              (113,885
              )(Decrease)
                    increase in deferred revenues and gain on sale - leaseback
                    transactions
              
              
              (24,573
              )
              
              1,728
              
              
              (16,007
              )
              
              (38,852
              )Increase
                  in accrued interest payable
              
              
              199,735
              
              
              183,845
              
              
              184,762
              
              
              568,342**Net
                  cash (used in) operating activities**
              
              $
              (609,458
              )
              $
              (1,210,790
              )
              $
              (188,698
              )
              $
              (2,008,946
              )Monitoring
                  Equipment invoices in Accounts Payable
              
              
              (149,000
              )
              
              609,000
              
              
              62,000
              
              
              522,000***Adjusted
                  cash used in operating activities***
              
              $
              (758,458
              )
              $
              (601,790
              )
              $
              (126,698
              )
              $
              (1,486,946
              )




The
      Company’s principal uses of cash are the payment of operating expenses, the
      acquisition of monitoring equipment and the financing of its receivables. In
      general, the Company meets its liquidity needs from its current revenues, from
      cash and cash equivalents, and through capital leasing arrangements. As of
      September 30, 2008, the Company had approximately $590,839 in cash and cash
      equivalents. These resources are what remain of the additional amount borrowed
      by the Company in the fourth quarter of 2007 under its secured loan from
      Crestpark LP, Inc. (“Crestpark”) an affiliate of Mykonos 6420 LP (“Mykonos”),
      the sole holder of the Company’s Series C Preferred Stock (the “Crestpark
      Note”). The total amount of the Crestpark Note is $11,877,475. 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. Borrowings under the Crestpark Note are secured by a first
      security interest in all of the assets of the Company except that Crestpark’s
      security interest in certain monitoring equipment is subordinate to the interest
      of AHK under capital lease facilities described below. The terms of the
      Crestpark Note were approved by a Special Committee of the Board of Directors
      consisting solely of disinterested directors.




As
      of
      September 30, 2008, the Company had remaining capital lease facilities in place
      to finance the future acquisition of approximately $650,000 of monitoring
      equipment with AHK Leasing, LLC (“AHK”), a company controlled by three
      stockholders, one of which is a current director. Subsequent to September 30,
      2008, the Company executed an additional $300,000 lease as described in Note
      9
      to the Financial Statements included in this report. Under these sale-leaseback
      arrangements, the Company sells the inventory to AHK and then leases the
      equipment back. AHK has indicated that it will continue to provide lease
      financing for additional monitoring equipment throughout 2008. Maturity dates
      on
      these capital leases run from June 2009 to May 2011. 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 10.00% to 12.50%. As
      of
      September 30, 2008, the aggregate balance on these capital leases totaled
      $2,433,507, of which $1,076,917 is current and the balance of $1,356,590 is
      classified as long-term debt.


Page
          17





Subsequent
      to the quarter end, as indicated in Note 9, management was successful in
      negotiating a $2,500,000 credit facility with an institutional investor who
      is
      an affiliate of the sole holder of the Series C Preferred Stock, which facility
      provides for operating funds of up to $750,000 as well as interim equipment
      financing of up to $1,750,000.





Management
      believes that this new credit facility and the Company’s existing credit
      facilities described in Note 5, in combination with lower operating expenses
      and
      anticipated increase in revenue, will be sufficient to meet the liquidity needs
      of the Company until the Company can achieve positive cash flow from operations.
      We anticipate that revenue increases will allow the Company to become cash
      flow
      positive in 2009.




**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. Periodically, 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” to the Consolidated Financial Statements in our
      Annual Report on Form 10-KSB for the fiscal year ended December 31,
      2007.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Management
      does not believe that there is any material market risk exposure with respect
      to
      derivative or other financial instruments that would require disclosure under
      this item.





**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.




Page
          18




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
          19




**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
      Applicable




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




On
      August
      11, 2008, the Company issued a total of 2,778 shares of common stock to one
      director in partial payment of directors’ fees. The shares had a market value on
      the date of the board meeting of $1,000. 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
          20




**SIGNATURE**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, 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. Michel*President
                & CEO*Dated:
                November 13, 2008By:
            /s/
                Lincoln ZehrLincoln
                Zehr*Chief
                Financial Officer*Dated:
                November 13, 2008




Page
          21