UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-QSB
(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, 2003
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 0-26455
ISECURETRAC CORP.
(Exact name of small business issuer as specified in its charter)
(formerly Advanced Business Sciences, Inc.)
DELAWARE 87-0347787
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5022 S. 114th Street, Suite #103
OMAHA, NEBRASKA 68137
(402) 537-0022
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
The number of issuer's shares outstanding as of April 18, 2003, was
38,203,097.
Transitional Small Business Disclosure Form (Check One): YES [ ] NO [X]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ISECURETRAC CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2003 2002
------------ ------------
(Unaudited)
Current Assets
Cash $ 41,433 $ 47,374
Receivables:
Trade accounts 78,230 18,493
Employees 1,000 --
Other -- 75,111
Inventories 289,456 51,460
Prepaid expenses and other 95,302 15,872
------------ ------------
Total current assets 505,421 208,310
Leasehold Improvements and Equipment, net 307,557 217,822
Product Development Costs, net 603,485 682,200
Other Assets 8,703 9,081
------------ ------------
Total assets $ 1,425,166 $ 1,117,413
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Notes payable 2,873,027 2,168,318
Outstanding checks in excess of bank balance 6,423 121,694
Current maturities of long-term debt 458,517 443,438
Accounts payable and accrued expenses 815,971 672,130
Deferred gain on sale-leaseback transatcion 39,571 --
Accrued interest payable 76,055 46,113
Preferred dividends payable 203,463 203,121
------------ ------------
Total Current Liabilities 4,473,027 3,654,814
------------ ------------
Long-term Debt, less current maturities 47,956 --
------------ ------------
Commitments and Contingency
Stockholders' (Deficit)
Series A Preferred stock 8,685,783 8,482,662
Series B Preferred stock 295,000 145,000
Common stock 38,143 34,919
Additional paid-in capital 22,138,140 21,510,819
Deficit accumulated during the development stage (34,252,883) (32,710,801)
------------ ------------
Total stockholders' (deficit) (3,095,817) (2,537,401)
------------ ------------
Total liabilities and stockholders' (deficit) $ 1,425,166 $ 1,117,413
============ ============
See Notes to Condensed Consolidated Financial Statements.
Page 2
ISECURETRAC CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31
2003 2002
------------ ------------
Revenues:
Equipment $ 44,307 $ 16,400
Hosting 21,355 --
Service 2,057 59,058
------------ ------------
Total revenues 67,719 75,458
------------ ------------
Costs and expenses:
Cost of equipment and hosting revenue 126,098 51,556
Cost of service revenue 458 16,978
Research and development 180,487 126,767
Sales, general and administrative 1,034,139 1,075,374
------------ ------------
Total costs and expenses 1,341,182 1,270,675
------------ ------------
Operating (loss) (1,273,463) (1,195,217)
------------ ------------
Other income (expense):
Interest income 109 332
Interest expense (65,265) (61,444)
Loan acquisition expense, stockholders -- (536,734)
------------ ------------
Total other income (expense) (65,156) (597,846)
------------ ------------
(Loss) before provision for income taxes (1,338,619) (1,793,063)
Provision for income taxes -- --
------------ ------------
Net (loss) $ (1,338,619) $ (1,793,063)
Preferred dividends (203,463) (204,483)
------------ ------------
Net (loss) available to common stockholders $ (1,542,082) $ (1,997,546)
============ ============
Net (loss) per share of common stock - basic and diluted $ (0.04) $ (0.08)
============ ============
Weighted average shares of common stock outstanding 35,973,163 26,147,706
============ ============
See Notes to Condensed Consolidated Financial Statements.
Page 3
ISECURETRAC CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31
2003 2002
----------- -----------
Cash flow from operating activities:
Depreciation and amortization $ 114,958 $ 42,135
Other (993,218) (994,773)
----------- -----------
Net cash (used in) operating activities (878,260) (952,638)
----------- -----------
Net cash (used in) investing activities (5,600) (212,035)
----------- -----------
Cash flows from financing activities:
Increase in notes payable 622,000 21,080
Net proceeds from issuance of common stock 428,155 1,689,096
Other (172,236) (204,042)
----------- -----------
Net cash provided by financing activities 877,919 1,506,134
----------- -----------
Increase (decrease) in cash (5,941) 341,461
Cash, beginning of period 47,374 439
----------- -----------
Cash, end of period $ 41,433 $ 341,900
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $ 35,323 $ 80,178
Taxes -- --
Supplemental Disclosures of Noncash Investing and Financing Activities:
Issuance of common and preferred stock in payment of long-term debt $ 10,000 $ 2,476,763
Issuance of preferred stock in payment of preferred stock dividends 203,121 --
Preferred stock dividends declared but not paid 203,463 --
Equipment acquired through capital lease obligation 120,000 --
Accounts payable converted to notes payable 92,710 --
See Notes to Condensed Consolidated Financial Statements.
Page 4
ISECURETRAC CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The condensed consolidated balance sheet of iSECUREtrac Corp ("iST" or "we",
"us", or "our") at December 31, 2002 has been taken from audited consolidated
financial statements at that date and condensed. The condensed consolidated
financial statements for the three months ended March 31, 2003 and for the three
months ended March 31, 2002 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 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-KSB for the year ended December 31,
2002. The results of operations and cash flows for the three months ended March
31, 2003 are not necessarily indicative of the results for the entire fiscal
year ending December 31, 2003. Where appropriate, items within the condensed
consolidated financial statements have been reclassified from the previous
periods' presentation.
The accompanying financial statements of iSECUREtrac Corp have been prepared on
a going-concern basis, which contemplates profitable operations and the
satisfaction of liabilities in the normal course of business. There are
uncertainties that raise substantial doubt about the ability of iST to continue
as a going concern. As shown in the statements of operations, iST has not yet
achieved profitable operations. As of March 31, 2003, iST has insufficient
working capital to execute its business plan. These items raise substantial
doubt about the ability of iST to continue as a going concern. Management plans
to continue financing operations and development of our technology through the
plan described herein.
We are reporting as an operating company. For the first three quarters of 2002,
we reported as a development stage company. We transitioned to an operating
company during the fourth quarter of 2002 with the advent of direct sales and
the subsequent signing, in the first quarter of 2003, of five end-user agencies,
one service provider and three new distributors. During the first quarter of
2003, we also entered into a stock purchase agreement with Fusion Capital Fund
II, LLC that will provide us with capital for production of our tracking devices
and general corporate purposes.
2. CURRENT STOCKHOLDERS' EQUITY TRANSACTIONS
For the three-month period ending March 31, 2003, we issued 779,563 shares of
our common stock valued at $299,500 to various individuals and companies as
compensation for board participation, advisory services to the board and
consulting agreements. 1,438,733 shares of our common stock were also
issued as stock issuance costs in relation to our SB-2 registration statement
accepted in April 2003.
We also issued 1,005,098 shares of common stock in exchange for $278,155 in cash
and the elimination of a $10,000 promissory note to a corporation by exercise of
outstanding warrants.
In addition, we issued 150 Series B Convertible Preferred Shares to an
individual for $150,000 cash.
Page 5
During the quarter ended March 31, 2003, we granted options to purchase 70,000
shares of common stock to two employees and one outside consultant pursuant to
their stock option agreements. The exercise prices are at 85% of fair value of
iST's common stock and vest ratably over one month to two years. We had 91,666
options forfeited during the quarter ended March 31, 2003.
iSECUREtrac Corp., at March 31, 2003, had 7,576,909 outstanding stock options,
1,532,722 outstanding warrants, 8,685,783, 500,100 and 6,600 shares issuable
upon conversion of Series A convertible preferred stock, Series B convertible
preferred stock and convertible subordinated debentures, respectively, that
could potentially dilute basic EPS in the future that were not included in the
computation of diluted EPS because to do so would have been anti-dilutive for
the period presented.
3. STOCK-BASED COMPENSATION
Stock -based compensation: iST accounts for its various stock-based compensation
plans under the recognition and measurement principles of APB Opinion No. 25
(APB 25), Accounting for Stock Issued to Employee, and related interpretations,
which measures compensation as the difference between the fair value of the
stock at the date of award and the amount required to be paid for the stock.
Stock-based compensation of $36,077 and $83,583 has been reflected in net (loss)
for the three-month periods ended March 31, 2003 and 2002, respectively. The
following table illustrates the effect on net (loss) and (loss) per share for
the three-month periods ended March 31, 2003 and 2002, as if iST had applied the
fair value recognition provisions of SFAS No. 123 (FAS 123), Accounting for
Stock -Based Compensation, to stock-based compensation.
Three-Months Ended March 31
2003 2002
---- ----
Net (loss) available to common stockholders,
as reported $(1,338,619) $(1,997,546)
Add: Stock-based employee compensation
expense included in reported net (loss) 36,077 83,583
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards (84,803) (460,445)
----------- -----------
Pro forma net (loss) $(1,387,345) $(2,374,408)
=========== ===========
Basic and diluted (loss) per share:
Page 6
As reported $(0.04) $(0.08)
====== =====
Pro forma $(0.04) $(0.09)
====== =====
In determining the pro forma amounts above during 2003 and 2002, the
value of each grant is estimated at the grant date using the fair value method
prescribed in FAS 123 with the following assumptions: no dividends, risk free
interest rate of 5%; expected life of 3 and 4 years and; expected price
volatility of 80.93% and 126.22%.
The fair value of stock options and warrants issued to non-employees is being
accounted for using FAS 123. Related compensation expense is charged to income
when incurred.
Warrants and common stock issued in consideration for notes payable and debt
guarantee fees are expensed in the period incurred due to the short term nature
of the related notes.
4. MANAGEMENT'S PLANS
We plan to continue financing our technology and operations through external and
related party financing. We entered into a common stock purchase agreement on
March 7, 2003, as amended and restated on April 14, 2003, with Fusion Capital
Fund II, LLC, a Chicago based institutional investor. Under the agreement,
Fusion Capital will buy up to $12.0 million of our common stock over a period of
up to 40 months, subject to our right to extend the agreement for six months. We
have the right to control the timing and amount of stock sold to Fusion Capital
with the purchase price based upon the market price of the Company's common
stock at the time of sale without any discount. Under the common stock purchase
agreement, funding of the $12.0 million shall occur from time to time, and as
such, has already commenced as of April 23, 2003. In addition, we are working on
an additional private placement of $3,200,000 in equity financing to continue to
fund our operations and production of our tracking devices and related services
We are also in the process of obtaining additional bridge financing from a
financial institution to help cover some of our general operating expenses.
Management hired four professional sales and sales support staff in the third
and fourth quarters of 2002 and one sales professional in the first quarter of
2003 to expand iST's sales opportunities within the United States. We believe
that the addition of sales personnel will enable us to increase sales on an
accelerated basis.
Our continuation as a going concern is dependent upon our ability to
satisfactorily meet our debt obligations, meet our product development goals,
secure new financing and generate sufficient cash flows from operations. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Discussions of certain matters contained in this Quarterly Report on Form 10-QSB
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 Prospectus,
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 other risks
detailed in "ITEM 1. Description of Business contained in iST's Form 10-KSB
filed with the SEC March 31, 2003.
Page 7
The following discussion is intended to provide a better understanding of the
significant changes in trends relating to iST'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.
We have moved from a being developmental stage company to an operating company
during the fourth quarter of 2002. As such, the financial results of operations
reflect our primary activities transitioning from development and testing of our
GPS products to production and sales of our Model 2100NC units, principally for
offender monitoring in the criminal justice marketplace. We completed the final
design and began production of our series 2100 tracking unit in the first
quarter of 2002. During 2002, we sold and shipped 350 PTUs to our then-only
distributor for deployment. During the first three months of 2003, we have sold
or leased 161 PTUs through our direct sales force.
We have developed our computerized center for communication and data management
(tracNET24(TM) platform), staffed only to maintain the system. We anticipate
revenues will increase significantly in the second and third quarter's of 2003
as we continue to aggressively deliver our new products to the criminal justice
market. The tracNET24(TM) platform will be operated as an Application Service
Provider (ASP) service, allowing agents of our distributing partners at existing
monitoring centers to access and use the system to provide the monitoring
services. As we continue to roll out this new product offering, our customers
will have control and responsibility to monitor the movement of their
individuals or assets. Utilizing our GPS tracking products, customers, through a
secure internet connection, will access their information via our host website,
www.tracnet24.com. Our product will allow our customers greater flexibility,
ease of use and reduced operating costs when compared to our and our
competitor's current product offerings and pricing. At the same time, it will
allow us to partner with industry-specific service providers, wherein they will
provide the staffing and end-user interaction, and we will supply the tracking
technology and information reporting.
In addition, management plans to hire additional sales and sales support staff
to expand iST's sales opportunities within the United States. We believe that
the addition of sales personnel will enable us to increase sales on an
accelerated basis.
Equipment Revenue
Equipment Revenue is derived from the sale and leasing of our products. For the
three months ended March 31, 2003, equipment revenues were $44,307 compared to
$16,400 during the same period in 2002. The reason for the increase in the
comparable period is the onset of the leasing of our Series 2100 PTUs, coupled
with additional direct sales, as opposed to units just being sold in the prior
year period.
Hosting Revenue
Hosting Revenue is the fees charged to our customers for hosting data that
encompasses units being active or in use, fax charges, pages, and phone
call-ins. For the three months ended March 31, 2003, hosting revenues were
$21,355 compared to none during the same period in 2002. The reason for the
increase in the comparable period is the increase in activity of both directly
sold and company leased Series 2100 PTUs.
Service Revenue
For 2003, Service Revenue consisted of sales of non-core product that included
various ancillary computer equipment and the maintenance associated with such
equipment. For the three months ended March 31, 2003, Service Revenue was $2,057
compared to $59,058 for the comparable period of 2002. The main reason for the
decrease in the comparable period was a slow down in projects associated with
this type of Service Revenue.
Cost of Equipment and Hosting Revenue
Page 8
Cost of Equipment and Hosting Revenue represents the direct costs associated
with the generation of equipment and hosting revenue, and includes cost of goods
for our equipment that is sold and leased. It also includes the direct variable
communications and hardware equipment expenses associated with the web centric
hosting services provided by iST. A portion of our cost of equipment and hosting
revenue, which began in March 2002, consists of product development cost
amortization of $78,715 for the three months ended March 31, 2003 compared to
$26,238 during the same period in 2002. This amortization is associated with our
tracNET24 and our Series 2100 tracking unit. For the quarter ending March 31,
2003, Cost of Equipment and Hosting Revenue was $126,098, compared to $51,556
during the same period in 2002. The primary reason for this increase in the cost
of equipment and hosting revenue during the quarter was due to the related
increase in sales and leasing of our Series 2100 tracking units, as well as
increased product development cost amortization.
Cost of Service Revenue
Cost of Service Revenue represents the direct costs associated with the
generation of service revenue. This includes direct costs of distribution of
software and equipment and the maintenance expenses on equipment repaired under
service agreements. For the three-month period ended March 31, 2003, Cost of
Service Revenue decreased to $458, compared to $16,978 during the same period in
2002. The primary reason for the overall lower cost of service revenue for the
comparable period was due to the slow down of projects associated with this type
of service revenue.
Research and Development
Research and Development expenses are the direct costs associated with iST's
development of its proprietary products. Expenses in this category include the
cost of outside contracted engineering and design, staffing expenses for the
iST's own engineers and software developers, and the actual costs of components,
prototypes, and testing equipment and services used in the product development
functions. The Research and Development expenses increased to $180,487 for the
three months ended March 31, 2003, up from $126,767 for the same period in 2002.
The main reason for three-month increase was increases in salaries and wages due
to additional personnel added to iST for software development associated with
our Series 2100 tracking unit.
Sales, General and Administrative
Sales, General and Administrative expenses are all the expenses associated with
the operations and marketing of our company, outside of the expenses described
above. These expenses include executive, sales, administrative and accounting
staff payroll, taxes and benefits, rent on property, all travel, fixed telephone
expenses, office leases and supplies, marketing advertising in magazines and
periodicals, attendance at trade shows, production of marketing and related
collateral material, as well as recruiting and training expenses. For the three
months ended March 31, 2003, Sales, General and Administrative expense decreased
to $1,034,139, compared from $1,075,374 in the comparable period of 2002. The
main
reason for the decrease during the period was an increase in salaries and wages
due to additional sales personnel offset by decreases in stock option issue
expenses, legal expenses, board meeting expenses, office supplies and liability
insurance expenses.
Operating (Loss)
For the quarter ended March 31, 2003, operating (loss) was $(1,273,463),
compared to $(1,195,217) for the same period in 2002. The main reason for the
three-month increase was higher expenses in the period, as explained above.
Interest Expense
For the three months ended March 31, 2003, Interest expense totaled $65,265,
compared to interest expense of $61,444 in the comparable period of 2002. This
interest expense increase was due to larger outstanding balances in Company
borrowings in 2003 over 2002.
Page 9
Loan Acquisition Expense, Stockholders
For the quarter ended March 31, 2003, loan acquisition expense was $0, compared
to $536,734 for the comparable period of 2002. This expense in 2002 is due to
stock warrants issued to various stockholders or individuals for lending us
money. We raised more money in the latter part of 2002 and first three months of
2003 through equity financing than we did through personal loans and guarantees
on bank notes, thus keeping our loan acquisition expense at $0.
Net (Loss)
For the three months ended March 31, 2003, we had a Net Loss of $(1,338,619),
compared to a Net Loss of $(1,793,063), in the comparable period of 2002, for
the reasons described above.
Preferred Dividends
For the quarter ended March 31, 2003, preferred dividends totaled $203,463, as
compared to $204,483 for the comparable period of 2002. This decrease was due to
the conversion of 800 shares of our Series A Convertible Preferred Stock during
2002, coupled with an increase in preferred stock dividends.
Net (loss) Available to Common Stockholders
For the three months ended March 31, 2003, we had a net (loss) available to
common stockholders of $(1,542,082) compared to a net (loss) available to common
stockholders of $(1,997,546) in the comparable period of 2002. The reasons for
the difference are described above.
Liquidity and Capital Resources
For the quarter ended March 31, 2003, we used $(878,260) in cash in operating
activities, another $(5,600) in investing activities, and we generated
$877,919 in cash from financing activities. The total of all cash flow
activities resulted in a decrease in the balance of cash for the three months
ended March 31, 2003 of $(5,941). For the same period of 2002, we used
$(952,638) of cash in operating activities and $(212,035) in investing
activities. We generated $1,506,134 in cash from financing activities. The total
of all cash flow activities resulted in an increase in the balance of cash of
$341,461.
In January 2003, we entered into a sale/leaseback agreement with a third party
leasing company. The sale of 100 series 2100 tracking units generated $120,000
of cash with a corresponding $120,000 capital legal obligation. We
are pursuing other sale/leaseback opportunities with various
third party leasing companies. We believe that lease funding of our tracking
units can be an additional source of cash to meet our financial needs.
We entered into a common stock purchase agreement on March 7, 2003, as amended
and restated on April 14, 2003, with Fusion Capital Fund II, LLC, a Chicago
based institutional investor. Under the agreement, Fusion Capital will buy up to
$12.0 million of our common stock over a period of up to 40 months, subject to
our right to extend the agreement for six months. We have the right to control
the timing and amount of stock sold to Fusion Capital with the purchase price
based upon the market price of the Company's common stock at the time of sale
without any discount. Under the common stock purchase agreement, funding of the
$12.0 million shall occur from time to time, and as such, has already commenced
as of April 23, 2003. In addition, 1,438,733 shares of our common stock were
issued in connection with the common stock purchase agreement. We are
also in the process of obtaining additional bridge financing from a financial
institution to help cover some of our general operating expenses. In addition,
we are working on an additional private placement of $3,200,000 in equity
financing to continue to fund the operations and production of our tracking
devices and related services.
Page 10
As of April 25, 2003, we had the following borrowing facilities in place, all of
which are guaranteed by various directors of iST:
We have a $750,000 note payable from U.S. Bank N.A. of Omaha, Nebraska. iST is
repaying this loan in 35 monthly payments of $16,557 and one last payment
estimated at $369,376 due June 30, 2003. The interest rate is a variable rate
based on the U.S. Bank N.A. Reference Rate (the "Index Rate") plus one-fourth
(0.25) percent. As of March 31, 2003, the Index Rate was currently four and
one-fourth (4.25) percent, and the outstanding loan balance was $360,140. This
loan is secured by a security interest in our tangible and intangible assets and
the personal guarantees of various stockholders. We intend to negotiate with the
bank to renew and extend this note payable.
We have a $1,000,000 note payable from Wells Fargo Bank. Interest only payments
are due monthly. The note matures on July 31, 2003 and carries an interest rate
per annum equal to the prime rate. As of March 31, 2003, the prime rate is four
and one-fourth (4.25)%. This loan is secured by the personal guarantee of
various stockholders. We intend to negotiate with the bank to renew and extend
this note payable.
We have a $98,318 unsecured note payable from Nebraska State Bank of Omaha. This
short-term note matured on January 21, 2003 and has since been renewed until
June 5, 2003 and carries an interest rate of seven and one-fourth (7.25)% due at
maturity.
We have a $92,710 unsecured note payable from Merrill Corporation resulting from
the Conversion of accounts payable. This short-term note matures on July 30,
2003 and requires monthly principal only payments. It carries an interest rate
of zero (0)%. As of March 31, 2003, the outstanding loan balance was $89,710.
The majority of our remaining $1,685,000 in notes payable consists of amounts
owed to individuals, primarily directors of iST, which mature within one year
and carry interest rates ranging from 5.5% to 10%. We borrowed $625,000 during
the three months ended March 31, 2003 from Total Tech, LLC, an entity made up
of various board members and stockholders. This amount is included in the
$1,685,000 previously mentioned.
We lack sufficient operating capital, and we intend to fund our ongoing
development and operations through a combination of additional equity capital
and further borrowings. As of March 31, 2003, we did not have commitments for
either debt or share purchases to meet its planned 2003 operating capital
requirements.
ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed of the effectiveness of the design and
operation of our disclosure controls and procedures as of November 6, 2002. This
evaluation was conducted under the supervision and with the participation our
management, including our Chief Executive Officer and our Chief Financial
Officer. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer each concluded that our disclosure controls and procedures
were effective as of November 6, 2002. There have been no significant changes in
our internal controls or in other factors that could significantly affect our
internal controls subsequent to November 6, 2002.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are subject to pending or threatened lawsuits that are ordinary
to our business. In the opinion of management, no material loss is expected from
any of such pending claims or lawsuits. We are also subject to a variety of
federal and state laws and regulations, especially those relating to electronic
devices and wireless
Page 11
communications.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
iST claims exemption under the Securities Act of 1933 Section 4(2) for the
following equity transactions which took place in the first quarter of 2003.
1. Board members were compensated in total with 25,396 shares of stock valued
at $13,000 for attending (2) first quarter board meetings. The 25,396
shares are comprised of seven board members receiving 2,500 shares each on
02/13/03 and six board members receiving 1,316 shares each on 03/31/03.
Ken Macke, retired Chairman and CEO of Dayton Hudson Corp., was also
compensated for being an Advisor to the Board of Directors. He received
20,833 shares on February 13th valued at $8,333 for attending (1) first
quarter board meeting.
2. On January 14th and February 13, 2003, we issued 16,667 shares of common
stock on each date valued at $12,167 in total to an individual for
services per his consulting agreement.
3. On January 14th and February 19, 2003, we issued 25,000 and 250,000 shares
of common stock valued at $5,000 and $50,000 respectively upon the
exercise of outstanding warrants.
4. On February 19, 2003, we issued 700,000 shares of common stock valued at
$266,000 to a corporation for services per its consulting agreement.
5. On February 19, 2003, we issued 25,602 shares of common stock valued at
$10,000 to Electronic Manufacturing Technology for extinguishing its
promissory note by exercising its warrants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Page 12
99.1 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.
(B) REPORTS ON FORM 8-K
Not Applicable
Page 13
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
Date: May 15, 2003 By: /s/ James E. Stark
------------------
James E. Stark
President
Page 14
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. May, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of iSECUREtrac Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
Page 15
other employees who have a significant role in registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date May 15, 2003 /s/ Michael P. May
------------------
Michael P. May
Chief Executive Officer
Page 16
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James E. Stark, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of iSECUREtrac Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in registrant's
internal controls; and
Page 17
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date May 15, 2003 /s/ James E. Stark
------------------
James E. Stark
Chief Financial Officer
Page 18