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

FORM 10-K

(Mark One)
x
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               For the fiscal year ended September 30, 20122014
or
o
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               For the transition period from   ___________________   ____________  to   __________________                         ___________
 
Commission file number: 0-23153000-23153

SECUREALERT, INC.
(Exact name of registrant as specified in its charter)

Utah 87-0543981
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

150 West Civic Center Drive,405 S. Main, Suite 100, Sandy,700, Salt Lake City, Utah, 8407084111
(Address of principal executive offices, Zip Code)
 
(801) 451-6141
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o[  ]   No x[X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o[  ]   No x[X]

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[X]   No o[  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x[X]   No o[  ]


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

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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated Filer		[  ]
Non-Accelerated Filer
[  ]
Accelerated filer oFiler[  ]
Non-accelerated filer o
Smaller Reporting Company
Smaller reporting company x
[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o[  ]   No x[X]

The aggregate market value of voting and non-votingthe registrant’s common equitystock held by non-affiliates of the registrant was approximately $21,793,000 as of March 30, 2012 based uponcomputed by reference to the closing price on the Over-the-Counter Bulletin Board Market reported for such date. This calculation does not reflect a determination that certain persons are affiliatesMarch 28, 2014 was $68,983,528 million. As of the registrant for any other purpose.  ThereDecember 12, 2014, there were 529,730,666 shares of the registrant’s common stock outstanding as of March 31, 2012.  In addition, the registrant also had issued and outstanding at March 31, 2012, 48,783 shares of Series D Convertible Preferred Stock, each share of which may be voted on an as-converted basis with the common stock of the registrant at the rate of 6,00010,131,629 shares of common stock per share,issued and which represented 292,698,000 common share equivalents as of such date.

As of December 28, 2012, the registrant had outstanding 640,088,850 shares of common stock and 48,763 shares of Series D Convertible Preferred Stock, convertible into 292,578,000 shares of common stock, which may be voted on an as-converted basis with the registrant’s common stock.outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE:  NONE

 
 
 
 
SecureAlert, Inc.
FORM 10-K
For the Fiscal Year Ended September 30, 20122014
INDEX
 
INDEX
        Page
PART I
        
Item 1
Business
2
Item 1A
Risk Factors
12
Item 2
Properties
19
Item 3
Legal Proceedings
19
Item 4
Mine Safety Disclosures
 
Item 1Business             2
Item 1ARisk Factors           10
Item 2Properties           14
Item 3Legal Proceedings           14
Item 4Mine Safety Disclosures [Not Applicable]           14
        
PART II
   
Item 5 
Item 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20
Item 6Selected Financial Data            15
Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations  1722
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
           2228
Item 8
Financial Statements and Supplementary Data
           2229
Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  2229
Item 9A
Controls and Procedures
           2329
Item 9B
Other Information
           2330
        
PART III
Item 10 
Item 10
Directors, Executive Officers and Corporate Governance
           2431
Item 11
Executive Compensation
           2735
Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  3038
Item 13Certain Relationships and Related Transactions, and Director Independence           3240
Item 14
Principal Accounting Fees and Services
           3443
        
PART IV
Item 15 
Item 15
Exhibits and Financial Statement Schedules
           3545
        
Signatures
           3848
 
1-i-

PART I
FORWARD LOOKING STATEMENTS
Item 1.    Business

This Annual Report on Form 10-K contains "forward-looking statements"forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, (the "Exchange Act")relating to our operations, results of operations, and Section 27A of the Securities Act of 1933,other matters that are based on our current expectations, estimates, assumptions, and projections.  Words such as amended (Securities Act). All statements contained in this Form 10-K, other than statements of historical fact, are forward-looking statements. When used in this report or elsewhere by management from time to time, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project,” “may,” “will,” “should,” “seeks”“likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements.  Such forward-looking statements are based on current expectations, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-lookingThese statements are not guarantees of future performance and involve risks, uncertainties, and uncertainties.assumptions that are difficult to predict.  Forward-looking statements are based upon assumptions as to future events that might not prove to be accurate.  Actual events oroutcomes and results maycould differ materially from thosewhat is expressed or forecast in these forward-looking statements.  Risks, uncertainties, and other factors that might cause such differences, some of which could be material, include, but are not limited to the factors discussed inunder the forward-looking statements as a result of various factors. For a more detailed discussion of such forward-looking statements and the potential risks and uncertainties that may have an impact upon their accuracy, see Item 1A,“Risk Factors” and the “Overview” and “Liquidity and Capital Resources” sections of Item 7  “Management’s Discussion and Analysis of Financial Condition and Results of Operations”section of this Form 10-K. These forward-looking statements reflect our view only as of the date of this report. Except as required by law, we undertake no obligations to update any forward-looking statements. Accordingly, you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission (SEC).Annual Report entitled “Risk Factors.”
 
Background
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SecureAlert was originally formed to manufacture and market medical diagnostic stains, solutions and related equipment.  In July 2001, we expanded our product sales and monitoring services related to the Personal Emergency Response Systems (“PERS”) and mobile Global Positionaing System ("GPS") tracking for the elderly.  In 2006, we introduced the GPS tracking technology and monitoring business for the incarceration industry, which includes manufacturing, distributing, and monitoring mobile emergency and interactive GPS tracking products worn on the body that focus on the defendant and offender tracking, monitoring and intervention marketplace.PART I
 
In fiscal year 2010, ITEM 1. BUSINESS

SecureAlert, Inc. dba Track Group was incorporated in 1995 as a Utah corporation. Our principal place of business is located at 405 South Main Street, Suite 700, Salt Lake City, Utah, 84111. Our telephone number is (801) 451-6141. We maintain a corporate website at www.trackgrp.com. Our common stock, par value $0.0001 (“Common Stock”), is currently listed for quotation on the OTCQB marketplace (“OTCQB”) under the symbol SCRA.  Unless specified otherwise, as used in this Form 10-K, “we spun off ,” “us,” “our medical diagnostic stain,” “SecureAlert”, “Track Group” or the “Company” refer to SecureAlert, Inc. and PERS business in an entity known as ActiveCare, Inc., a Delaware corporation.  At the end of fiscal year 2012, we sold our interest in Midwest Monitoringits subsidiaries.

Overview
The Company markets and Surveillance, Inc. (“Midwest”) to focus our resources on further developing our foreign markets.  We originally purchased an interest in Midwest in December of 2007,deploys offender management programs, combining patented GPS tracking technologies, fulltime 24/7/365 intervention-based monitoring capabilities and subsequently acquired full ownership of Midwest.  Under the terms of the December 2007 purchase agreement we owed a group of the previous owners of Midwest approximately $300,000, plus a percentage of future revenue, estimatedcase management services.  Our vision is to be approximately $350,000,the global market leader for delivering the most reliable offender management solutions, which leverage superior intervention capabilities and integrated communication technologies.  We currently deliver the only offender management technology that effectively integrates GPS, Radio Frequency (“RF”) and an interactive 3-way voice communication system into a total of $650,000.  In October 2012, the group of former Midwest owners agreedsingle piece device, deployable worldwide.  Through our patented electronic monitoring technologies and services, we empower law enforcement, corrections and rehabilitation professionals with offender, defendant, probationer and parolee programs, which grant convicted criminals and pre-trial suspects an accountable opportunity to repurchase Midwestbe “free from SecureAlertprison.”  This provides for greater public safety at a price equallower cost compared to all sums owedincarceration or potentially owedtraditional resource-intensive alternatives.

Our flagship product line, ReliAlert, Shadow, and R.A.D.A.R., consists of devices and services customizable to them under the December 2007 agreement, as amended.  In addition, $100,000 currently held asprovide secure reintegration solutions for various offender types, including domestic abusers, sexual predators, gang members, pre-trial defendants, alcohol abusers, or juvenile offenders. Our proprietary software, device firmware and processes accommodate agency-established monitoring protocols, victim protection imperatives, geographic boundaries, work environments, school attendance, rehabilitation programs and sanctioned home restrictions. Our devices are intelligent devices with integrated computer circuitry.  They are constructed from case-hardened materials and are designed to promptly notify intervention monitoring centers of attempts to breach applicable electronic supervision terms or to remove or otherwise tamper with device elements. They are securely attached around an offender’s ankle with a tamper resistant strap (steel cabling with optic fiber).  We also have a unique patented, dual-steel banded SecureCuff for high risk or high flight risk offenders who have qualified for electronic monitoring supervision, but who require an incremental level of security for a performance bond known as the “Moose Lake Bond” will be returned to SecureAlert when it is released.  During fiscal year 2012, we also sold certain territories in the state of Florida previously serviced by our wholly-owned subsidiary, Court Programs of Florida, Inc. to various independent distributors.and supervision.
 
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business, including, without limitation, “Mobile911”, “Mobile911 Siren with 2-Way Voice Communication & Design”, “ActiveTrace,” “MobilePAL”, “HomePAL”,“MobilePAL,” “HomePAL,” “HomeAware,” “PAL Services”, “TrackerPAL”, “Mobile911”, “TrackerPAL”, “TrackerPAL”, “ReliAlert”, “HomeAware”,Services,” “TrackerPAL,” “ReliAlert,” “SecureAlert”“SecureAlert,” “SecureCuff,” “TrueDetect,” “Track Group,” “R.A.D.A.R., “SecureCuff”, “TrueDetect”,” and the stylized “SecureAlert” logo.  Solely for convenience, some of the trademarks, service marks and trade names referred to in this report are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this memorandumreport are, to our knowledge, the property of their respective owners.

UnlessRecent Developments
Contract with the context otherwise requires, all references in this reportGendarmeria de Chile
On November 15, 2013, we entered into a 41-month agreement with the Gendarmeria de Chile (the Republic of Chile’s uniformed prison service) to "registrant," "we," "us," "our," “SecureAlert” orprovide GPS and residential electronic monitoring of offenders and other services to the "Company" referChilean government. The agreement required us to SecureAlert, Inc.,post a Utah corporationperformance bond of $3,382,082 and its subsidiary corporations.

Our Business

SecureAlert marketsanticipates that we will put into service up to 9,400 GPS electronic monitoring devices over the contract term. In addition, we agreed to design and deploys offender management programs, combining patented GPS tracking technologies, fulltime 24/7/365 intervention-basedconstruct a real-time monitoring capabilities and case management services.  Our vision isdata center to be staffed by Chilean government employees and to train the global market leader for delivering the most reliable offender management solutions, which leverage superior intervention capabilities and integrated communication technologies.  We believe that we currently deliver the only offender management technology, which effectively integrates GPS, RF (Radio Frequency) and an interactive 3-way voice communication system into a single piece device, deployable worldwide.  Through our patented electronic monitoring technologies and services, we empower law enforcement, corrections and rehabilitation professionals with offender, defendant, probationer and parolee programs, which grant convicted criminals and pre-trial suspects an accountable opportunitycenter personnel. The maximum sum to be “free from prison”.  This providespaid for greater public safetythe services provided by us under the agreement is approximately $70,000,000, at a lower cost comparedcurrent exchange rates. Subsequent to incarceration or traditional resource-intensive alternatives.September 30, 2014, we have deployed approximately 500 devices to date. An additional 4,500 individuals have been approved to utilize our devices by the Chilean government. We are working with the Chilean government on additional deployments and continuation of the project.

 
2-2-
 
By wayFacility Agreement with Tetra House Pte. Ltd.

On January 3, 2014, we entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by our Chairman, Guy Dubois.  Under this agreement, we may borrow up to $25,000,000 for working capital and acquisitions purposes. The loan bears interest at a rate of explanation,8% per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on January 3, 2016. In addition, we agreed to pay Tetra House an arrangement fee equal to 3% of the aggregate maximum amount under the loan. On January 14, 2014 Tetra House assigned the Facility Agreement to Conrent Invest S.A.  Since January 3, 2014, we have borrowed $25,000,000 under the Facility Agreement. The borrowed funds have been used for acquisitions and for general corporate purposes.  

Acquisition of GPS technology utilizes highly accurate clocksGlobal Tracking and Surveillance System Ltd.

Effective April 1, 2014, we acquired all of the issued and outstanding equity of GPS Global Tracking and Surveillance System Ltd., an Israeli corporation (“GPS Global”), for a total purchase price of approximately $7.8 million (the “GPS Global Acquisition”), under the terms and conditions set forth in the Share Purchase Agreement (the “GPS Global Purchase Agreement”) by and between the Company and Eli Sabag, the sole shareholder of GPS Global (the “Seller”). In accordance with the GPS Global Purchase Agreement, approximately $1.9 million was paid at the closing of the GPS Global Acquisition in a combination of cash and 84,078 shares of Common Stock. An additional $2.9 million was paid on 24 satellites orbitingOctober 1, 2014 by the earth ownedissuance of 152,391 shares of Common Stock. The remaining $3.0 million is payable by the issuance of an aggregate total of 157,646 shares of Common Stock upon the achievement of certain performance milestones.

Acquisition of Emerge Monitoring, Inc. and operatedSubsidiaries
On June 2, 2014, we entered into a Stock Purchase Agreement (the “Emerge Purchase Agreement”) to purchase from BFC Surety Group, Inc., (“BFC”), all of the issued and outstanding shares and equity interests of Emerge Monitoring, Inc., a Florida corporation (“Emerge”), for $7,360,000, which amount was paid in cash to BFC at closing (the “Emerge Acquisition”). Emerge is the direct owner of all of the issued and outstanding equity interests of Emerge Monitoring II, LLC, a Florida limited liability company and wholly-owned subsidiary of Emerge (“Emerge LLC”), and a majority of the equity interest of Integrated Monitoring Systems, LLC, a Colorado limited liability company and subsidiary of Emerge LLC (“Integrated Monitoring Systems”) (Emerge, Emerge LLC and Integrated Monitoring Systems collectively referred to as the “Emerge Entities”). During the year ended September 30, 2014, the Company also purchased the remaining 35% minority equity interest of Integrated Monitoring Systems, LLC for $350,000.
Acquisition of G2 Research Ltd.
On November 26, 2014, the Company entered into a Share Purchase Agreement (the “G2Agreement”) to purchase from the existing shareholders (the “Shareholders”) of G2 Research Limited (“G2”) all issued and outstanding shares and equity interests of G2 (collectively the “Shares”) for an aggregate purchase price of up to CAD$4.6 million (the “G2Acquisition”), of which CAD$2.0 million was paid in cash to the Shareholders at closing.

See Note 3, “Acquisitions” in the notes to our Consolidated Financial Statements for further descriptions of the GPS Global Acquisition and the Emerge Acquisition, and Note 14, “Subsequent Events” in the notes to our Consolidated Financial Statements for a further description of the G2 Acquisition.

Our Products and Services
Our monitoring and intervention centers act as an important link between offenders and their supervising officers. Track Group intervention specialists initiate contact at the direction of the supervising agency or when an offender violates any established restriction or protocol. The monitoring that is enabled by our state-of-the-art devices, which give us the unique ability to conduct live, three-way voice communication with monitored individuals and officers, provides the situational context that is the basis for behavior management and modification. And, if necessary, it allows us to provide interaction details to law enforcement officers, giving them greater insights prior to intervention.
ReliAlert, Shadow and R.A.D.A.R.

Our ReliAlert, Shadow and R.A.D.A.R. devices are designed in the United States, Department of Defense.  These satellites are designed to transmit their identity, orbital parametersIsrael, and the correct time to earthbound GPS receivers at all times.  Supporting the satellites are several radar-ranging stations maintaining exact orbital parameters for each satellite and transmitting that information to the satellites for rebroadcast at frequencies between 1500 and 1600 MHz. A GPS receiver (or engine) scans the frequency range for GPS satellite transmissions. If the receiver can detect three satellite transmissions, algorithms within the engine deduce its location, usually in terms of longitude and latitude, on the surface of the earth as well as the correct time. If the receiver can detect four or more GPS satellite transmissions, it can also deduce its own elevation above sea level.China. The effectiveness of GPS technology is limited by obstructions between the device and the satellites and, therefore, service can be interrupted or may not be available at all if the user is located in the lower floors of high-rise buildings or underground.

SecureAlert’s ReliAlert and ReliAlert XC devices are manufactured in the United StatesChina and include a portfolio of products, e-Arrest Beacons and monitoring services designed to create “Jails without Walls”,Walls,” while re-socializing offender populations.populations and providing alcohol monitoring.  The products and services are customizable by offender types (e.g., domestic abusers, sexual predators, alcohol abusers, gang members, pre-trial defendants, or juvenile offenders) and offer practical solutions and options for the reintegration and effective re-socialization of select offenders safely back into society.  Additionally, our proprietary software and device firmware support the dynamic accommodation of agency-established monitoring protocols, victim protection imperatives, geographic boundaries, work environments, school attendance, rehabilitation programs and sanctioned home restrictions.  Our technologies are designed for domestic or international, federal, state and local agencies to provide location tracking of designated individuals within the criminal justice system and throughout a restricted geography.   

Our GPS tracking devices are securely attached around the offender'soffender’s ankle with a tamper resistant strap (steel cabling with optic fiber) that can be adjusted or removed without detection only by a supervising officer, and which is activated through services provided by our SecureAlertTrack Group Monitoring Center (or other agency-based monitoring centers).  During fiscal yearsyear 2011, and 2012, we continued to deploy ouralso deployed an upgraded, patented, dual-steel banded SecureCuff strap for “at-risk” offenders who have qualified for electronic monitoring supervision, but who require an incremental level of security and supervision, provided through both hardware and monitoring services.  Our monitoring and intervention centers act as an important link between the offender and the supervising officer, as intervention specialists persistently track and monitor the offender, initiating contact at the direction of the supervising agency and/or when the offender is in violation of any established restrictions or protocols.  The ReliAlert and ReliAlert XCShadow units are intelligent devices with integrated computer circuitry and constructed from case-hardened plastics designed to promptly notify the intervention centers of any attempt made to breach applicable protocols, or to remove or otherwise tamper with the device or optical strap housing.

According to the Bureau of Justice Bulletin published November 2012, 4,814,200 adults were under community supervision at the end of 2011.  At year end 2010, 4,887,900 adults were on probation, resulting in a 2 percent decline from a year ago.  Additionally, an estimated 853,900 adults were on parole during 2011.  The Bureau of Justice statistics define “probation” and “parole” as follows:
Probation Our alcohol monitoring device (R.A.D.A.R.) is a court-ordered period of correctional supervision in the community, generally as an alternative to incarceration.  In some cases, probation can be a combined sentence of incarceration followed by a period of community supervision.
Parole is a period of conditional supervised release in the community following a prison term.  It includes parolees released through discretionary or mandatory supervised release from prison, those released through other types of post-custody conditionalcomprehensive alcohol offender supervision and those sentencedmonitoring system with a fuel-cell based, breath-alcohol testing system that incorporates a number of safeguards to prevent tampering and provides accurate, actionable, and alcohol alerts. All breath-alcohol tests are time stamped and include a term of supervised release.
ElectronicGPS fix. The web-enabled Track Group monitoring provides for significantly enhanced probation and parole supervision, while also rationalizing the increased or earlier release of expensive-to-house low-risk, at-risk or moderate risk offender populations.  From a budgetary perspective, reports on file with the Company indicate that the average daily cost of incarcerating an inmate ranges from $65 to $475, or more, depending upon facility type, adult or juvenile, security level, services rendered, available amenities and jurisdiction.  We market our services on the basis that electronic monitoring and other supervisory programs provide cost-effective alternatives to incarceration or specific solutions for at-risk juveniles, domestic violence perpetrators and/or sexual predators, all of whom need careful monitoring and situational intervention to thwart repeat crimes.  Due to the continuing economic crisis domestically and globally, it is our view that these incarceration costs are unsustainable, given ongoing state and federal budget reductions, facility-specific overcrowding concerns, increased rehabilitation imperatives and politicized re-socialization agendas.
In our view, electronic monitoring provides reliable, public safety-centric alternatives to incarceration for low and moderate risk offenders (adult and juvenile), early release for good behavior initiatives, work release programs, sentencing diversions and accelerated halfway house deployments.  Furthermore, we estimate that for between 10 to 20 percent of the traditional costs of incarceration or for roughly one-third the variable costs (which include, for example, inmate daily food, laundry, uniforms, medical, and guard overtime), our electronic monitoring solutions can provide reliable alternatives to incarceration, supporting real-time location tracking, interactive voice access and intervention-based contact, thus reducing the potential for subsequent or repeat offenses. Importantly, the price of our monitoring and intervention solutions ranges from $4.50 to $15.00 per day or up to a 90 percent reduction from the costs of incarceration.  The ongoing budget crisis and the lingering impact of “the Great Recession” continue to move many jurisdictions to adopt or reconsider adopting “pay-to-stay,” “offender pay,” “parent pay,” or “partial pay” programs with the effect of shifting the burden of incarceration or tracking and monitoring costs in whole or part directly to the offender and defraying some or all of the costs to the public.
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In support of these continually evolving rehabilitation and re-socialization initiatives, which extend to law enforcement and justice agencies beyond the U.S and into other global markets, we have made the strategic decision to adopt and pursue a broader services charter than most electronic monitoring companies.  Our “C.A.R.E.” programs support “Corrections” and “Accountability” objectives in concert with “Rehabilitation” and “Empowerment” agendas.  Specifically, our technology is deployed to facilitate a stringent protocol enforcement capability which incorporates restricted movement provisions coupled with enablement of positive reinforcement communications to support of social worker interactions, ongoing ministry options and proactive access by authorized counselors and sponsors.  We design our programs to be uniquely positioned to allow for regular, frequent, and positive interaction and daily affirmations with monitored offenders with the goal that they will become responsible and contributing members of society, even while living within the virtual “electronic fence” boundaries established through our proprietary technologies.center assures testing compliance.

Our Strategy

Our global growth strategy is to continue to expand offerings that empower worldwide nationalprofessionals in security, officials, law enforcement, corrections departments and rehabilitation professionalsorganizations worldwide with sole-sourcedsingle-sourced offender management solutions whichthat integrate reliable intervention technologies supportingto support re-socialization or mandatedand monitoring initiatives.  The use of our interactive services and intervention products is intended to provide law enforcement and judiciaries alike, with the ability to provide offendersTo accomplish this objective, we are implementing a level of unmatched “real-time” accountability, while preserving public safety costs that are lower than with the cost of traditional incarceration or other transitional service offerings.

We intend to accomplish our global strategy through the “value-driven” yet profitable deployment of agrowing portfolio of proprietary and non-proprietary GPS/RF real-time monitoring and intervention products and services, which can alsoservices.  These include GPS, RF, predictive analytics, drug and alcohol testing for defendants and drug trackingoffenders as well other individuals and testing on behalf ofassets in the corrections, probation, law enforcement and rehabilitation personnel worldwide, allarena.
In addition, our product and service offerings will expand upon our exception-based reporting, analytical capabilities and behavioral-monitoring knowledge. These customizable solutions will be available through Web portals and mobile device platforms, in supportaddition to traditional desktops, to leverage our real-time monitoring data, best-practice monitoring, interaction protocols and analytics capabilities. Customer insights will be increased further by aggregating real-time data from additional monitoring device types and technologies, regardless of offender reformation, re-socialization and recidivism reduction initiatives.manufacturer, as well as other critical data sources.

Our exclusive portfolio of products and services balances the need to dynamically track and monitor offenders with the opportunity to positively encourage and transform offenders, with the aim of reducing recidivism rates through our proprietary C.A.R.E programs and client-adapted initiatives.

We will continue to innovate, develop and deploy adaptive, cost-effective and reliable interactive technologies, which meet the ever-changing needs of our global clients, while providing value-driven and enhanced public safety services.  Our goal is to continue to manufacture proprietary technologies, while also procuring complementary, best-in-class technologies through world-class companies such as Alcohol Monitoring Services (AMS), which markets SCRAM continuous alcohol monitoring devices and/or 3M, which markets the E3 Presence Monitoring, MEMS Alcohol Monitoring and TRaCE Inmate Tracking products.

In summary, SecureAlert iswe are committed to delivering a superior proprietary and non-proprietary portfolio of reliable, intervention monitoring products and services for the global offender management marketplace, where we are currently targeting pilotsmarketplace. We will continue to work with agencies to increase public safety and deployments throughout the world in various regions (North America, Latin America, the Caribbean, Australasia, Africaofficer productivity, mitigate budgetary constraints through cost-effective monitoring alternatives, increase early-release compliance and Europe).  We have shown meaningful international growth since fiscal year 2010, which we anticipateimprove monitoring program success rates, all while offering defendants and offenders opportunities for accountable freedom and an alternative to continue during this next fiscal year and which will remain a concerted focus for the Company.incarceration.

Marketing

DuringOur strategic purpose is to produce or acquire, and globally deploy leading edge tracking technology, monitoring and analytic services in the criminal justice and corrections arenas.  In addition to the recent acquisitions, we worked to meet this objective by improved research and development and expanding sales and marketing activities domestically and internationally through the addition of sales resources and increased marketing efforts such as trade show participation during fiscal year 2012, we continued to expand our electronic monitoring operations, both domestically as well as internationally.  Growthyears 2014.  As in past years, new account acquisition was aided by the lack of public funding for law enforcement and corrections agencies, the need to expand prisons, as well asreduce jail operating and expansion expenses, and a wideningdesire for greater control of monitoring of high risk and high flight risk device wearers.  Also, the view continues to widen that society needs to look at alternative ways of sentencing offenders, as well as keeping track of certain types of offenders, such as those convicted of sexual, or domestic violence, or alcohol offenses that have been released from custody.  TheseSeveral countries, including the United States, began or continued the process of evaluating sentencing laws that would release sentenced felons to GPS monitoring after partially serving their incarceration sentences. We foresee that these views and the harsh economic and funding realities gave risewill continue to thefuel wider implementation of electronic monitoring programs globally.

Withglobally, increasing demand for our products and services. Our products’ unique and patented functionality we are poised to take advantage ofmake us a good match for these opportunities.  In particular demand was the patented two and three-way voice communication of our ReliAlert device, and our SecureCuff steel reinforced band.  These two features contributed heavily to a 50 percent increase in active devices in the United States and its territories from both existing and new customers, particularly for high risk and juvenile populations.  Other SecureAlert features, including the real-time posting of location traces and flexible mapping, were instrumental in winning other key accounts.

Fiscal year 2012 also sawIn October, the Company rebranded itself as Track Group.  With the adoption of its new operating name and rebranded website http://www.trackgrp.com, the Company believes that the new brand identity will unite our recent acquisitions into a continuation ofsingle brand that will reflect our commitment to continuous enhancements to both the ReliAlert device lineinnovative technologies, tracking capabilities, real time data, best practice monitoring and our TrackerPAL tracking and monitoring software.  Device enhancements centered on componentry designed to expand the life span and robustness of the devices, enhance GPS sensitivity, and increase battery operation time.  The life expectancy of a ReliAlert device is now expected to be longer than predecessor devices under normal operating conditions.  The latest ReliAlert devices also have greater GPS sensitivity which enables better GPS coverage in impaired reception environments.  Initial battery operation time of the latest ReliAlert devices has tested at 48-49 hours versus the prior time of 41-42 hours, at 5 minute tracking.analytics.

4
TrackerPAL software was also enhanced in several areas.  Key among these enhancements were changes to security and password conventions.  We take the security of our systems and data seriously.  We have established a program to make such changes on a periodic basis to help ensure the utmost security.  We also added new features to the software designed to assist our distributor and multi-location customers more easily manage their multiple locations.  Additionally, we provided enhancements and options in the areas of participant registration functionality, device activation and deactivation, alarm notification and reporting.
It is our intention to continually upgrade existing solutions and work with customers and partners to develop next generation ideas and solutions.  In order to better enable such initiatives, we transitioned several of our Court Programs offices from company-owned operations to distributorships in fiscal year 2012.  The Court Programs model is fundamentally a services business, while our strategic purpose is to produce and globally deploy leading edge offender tracking technology and monitoring services. While the Court Programs approach served as a good outlet for our core offerings, like any business, it requires management attention and investment to continue to grow.  Rather than continuing to divert executive management attention and investment dollars from core SecureAlert operations, we converted the offices to distributorships owned by local operators who know and are part of the communities they serve.  The distributorships will continue to distribute SecureAlert offerings, but will also independently continue to grow by leveraging the strong customer, office and employee bases already in place.

Research and Development Program
 
During the fiscal year ended September 30, 2012,2014, we spent $1,248,654expended $1,605,662 on research and development, compared to research and development expenditures of $1,453,994$987,934 in the fiscal year ended September 30, 2011.2013. These costs of $1,248,654$1,605,662 were to further develop our TrackerPAL and ReliAlert portfolio of products and services.

Monitoring Center
During fiscal year 2012, we continued to realize productivity enhancements and additions to our key core competency and differentiator, our Intervention Monitoring Center.  Even though the number of monitored devices grew by 50 percent, 2012 staffing levels remained little changed from the previous year.  Productivity gains were achieved through monitoring software enhancementsservices, as well as continuous optimization of processesother research and procedures and ongoing training.

The Intervention Monitoring Center employs bilingual Spanish-speaking staff who provide 24/7 Spanish-language coverage.  The bilingual staff addresses the needs of both domestic and international Spanish-speaking customers and grew approximately 50 percent indevelopment costs incurred by a new subsidiary acquired during fiscal year 2012 compared to fiscal year 2011.

Strategic Relationships2014.
 
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Inovar, Inc.
Inovar, located in Logan Utah, is a leading contract electronics manufacturer dedicated to providing flexible solutions to OEMs (original equipment manufacturers) in the fast growing segments of the electronics, medical, and aerospace industries and the military.  Inovar is ISO 9001:2000 and ISO 13485:2003 certified to provide the most comprehensive and value-added services to our customers. Inovar currently manufactures our ReliAlert products.

3M Electronic Monitoring
3M Track & Trace Division, headquartered in St. Paul, Minnesota, is a global provider of leading electronic monitoring solutions, which provides presence and location verification technologies, designed for monitoring individuals in the law enforcement, corrections and security markets.  SecureAlert is currently a proud and leading, value-added reseller of the 3M-ElmoTech MEMS remote alcohol monitoring system and TRaCE prison solutions throughout the United States of America.

Competition
 
During fiscal year 2012,2014, as in past years, we continued to encounter GPS, house arrest and case managementelectronic offender monitoring competition from the following traditional and evolving competitors and also sawcertain new entrants into the continuation of industry consolidation as follows:

5
United States market.  Traditional competition includes:
 
·●BI Incorporated, Denver Colorado, subsidiary of GEO Care, Inc. –, Boca Raton, Florida (purchased and consolidated BI Incorporated, Boulder, Colorado in 2011) –  This international company provides a wide variety of private correctional services from facilities operation and management to correctional health care services.  BI Incorporated, which was purchased by GEO Care, Inc. in 2011, has been providing intensive community supervision services and technologies for more than 20 years to criminal justice agencies throughout the United States.
·G4S plc – Crawley, Sussex, England – This international company is reportedly the world’s leading international security solutions group.
·iSECUREtrac Corp., Omaha, Nebraska – This company supplies electronic monitoring equipment for tracking and monitoring persons on pretrial release, probation, parole, or work release.
·●Omnilink Systems, Inc., Alpharetta, Georgia – This company provides a one-piece device combined with GPS and Sprint cellular networks to electronically track an individual. In fiscal year 2013, Omnilink completed an agreement with Alcohol Monitoring Systems, Inc. (AMS) for AMS to distribute Omnilink GPS devices as “SCRAM One-Piece GPS™”, to extend AMS’ product line for those agencies looking for a one-stop shop for their monitoring needs.
·●3M Electronic Monitoring, Odessa, Florida (purchased and consolidated Attenti Group, (ElmoTech and ProTech) in 2011) – This company has satellite tracking software technology that operates in conjunction with GPS and wireless communication networks.
·●Satellite Tracking of People, LLC, – Houston, Texas – This company provides a broad line of GPS tracking systems and services to government agencies. Satellite Tracking of People, LLC was purchased by Securus Technologies, Inc. in December of 2013.

·●Sentinel Offender Services, LLC, Augusta, Georgia (purchased and consolidated G4S’ USUnited States Offender Monitoring operation in 2012) – This company supplies monitoring and supervision solutions for the offender population. Through their acquisition and consolidation of G4S’ USUnited States Offender Monitoring operation, they expanded their customer base to whomwhich they provide electronic monitoring of offenders, prison and detention center management and transitional support services. Through this acquisition, it is believed that they also now resell Omnilink’s active GPS device.device, in addition to their own.

The following companies entered the United States market in fiscal year 2013:
●Buddi, Ltd., Aylesbury, Binkghamshire, United Kingdom – This company was started in 2005 to provide consumer tracking for consumers such as the elderly or Alzheimer’s sufferers.    Their major launch into offender monitoring was via an award of a United Kingdom Ministry of Justice contract.  They also announced plans to enter the United States offender monitoring market by headquartering United States operations in Tampa, FL and hiring Steve Chapin, former Protech President and CEO.
●Corrisoft, LLC, Lexington, Kentucky – This company produces offerings for the monitoring of low and medium risk offenders, and distributes other companies’ products for higher risk offenders.  They have announced that they will be developing additional products for the monitoring of all offender types. Corrisoft, LLC acquired iSECUREtrac Corp in December 2013.
We also continue to face competition from small and regional companies that provide electronic monitoring technology along with localized case management and/or monitoring services.  Some of these entities utilize less well-known technologies or are resellers of the above competitors’ products.  We do not believe there is reliable publicly available information to indicate our relative market share or that of our competitors.
 
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Dependence on Major Customers
 
One customer accounted for $2,450,984 (12 percent)We had sales to entities which represent more than ten percent of our totalgross revenues as follows for the fiscal yearyears ended September 30, 2012 and the same customer accounted for $2,265,805 (13 percent) of our total revenues for the fiscal year ended September 30, 2011.  No30. Except as indicated below, no other customer represented more than 10ten percent of the Company’s total revenues for the fiscal years ended September 30, 20122014 or 2011.2013.  
 
The table below reflects our top three customers by revenue for the fiscal year ended September 30, 2012 and their respective revenues for 2011:
  2014  %  2013  % 
             
Customer A $-   0% $5,252,960   33%
                 
Customer B $1,501,940   12% $1,622,327   10%
                 
Customer C $1,431,854   12% $1,514,581   9%
  2012  %  2011  % 
             
Customer A $2,450,984   12% $2,265,805   13%
                 
Customer B $1,876,285   9% $712,803   4%
                 
Customer C $1,369,610   7%  $19,701   * 
* Amount represents less than one percent of total revenues
 
Concentration of credit risk associated with the Company’sour total and outstanding accounts receivable as of September 30, 20122014 and 2011,2013, respectively, isare shown in the table below:

  2012  %  2011  % 
             
Customer A $681,781   24% $-   - 
                 
Customer B $475,800   17% $347,553   7%
                 
Customer C $-   -  $1,995,804   39%
  2014  %  2013  % 
             
Customer A $-   0% $892,897   24%
                 
Customer B $499,040   13% $732,163   20%
                 
Customer C $419,523   11% $887,233   24%
 
Dependence on Major Suppliers

We purchase cellular services from a variety of providers.several suppliers. The cost to us for these services during the fiscal years ended September 30, 20122014 and 2011,2013 was approximately $961,994$897,386 and $650,230,$964,354, respectively. OurThe 7% decrease in cellular costs increased by approximately 48 percentservice expense in 20122014 compared to 2011, due to the increase in the number of monitoring devices assigned under new and existing contracts.2013 resulted from utilizing different service providers who offered similar service with more favorable rates.

Product Returns

During fiscal year 2012,2014, we made improvements to the ReliAlert and ReliAlert XCour GPS tracking devices as well as internal processes to improve product reliability and reduce product returns including some ofreturns. These improvements include the following:

•●Improving case designWe refined our assembly and inspection processes (outgoing and incoming inspections) to enhance waterproofing for our ReliAlert and ReliAlert XC devices.ensure continued quality improvements.
  
•●StrengtheningWe instituted a formal change control process to ensure that we have a structured, strategic, and documented approach to addressing and implementing changes.  This also includes improvements in our inspectioninternal communications processes to ensure that different groups within the Company have visibility into current issues, and everyone has input into the process of continual improvement of our processes and developing new tests for incoming parts from suppliers.design.
  
•●Designing new softwareWe cross-trained technical support staff and returns analysis staff to programenable them to have improved visibility of the customer experience.  This has helped our staff to quickly and test devices, reducingcorrectly diagnose issues in the risk of “user error” while configuring units for deployment;field.
 
 
6-7-

Intellectual Property

Trademarks.  We have developed and use trademarks in our business, particularly relating to our corporate and product names. We own sevensix trademarks that are registered with the United States Patent and Trademark Office, plus one trademark registered in Mexico and one in Canada. We are in the process of applying for four additional trademarks.  Federal registration of a trademark in the United States enables the registered owner of the mark to bar the unauthorized use of the registered mark in connection with a similar product in the same channels of trade by any third-party anywhere in the United States, regardless of whether the registered owner has ever used the trademark in the area where the unauthorized use occurs. We may file additional applications for the registration of our trademarks in foreign jurisdictions as our business expands under current and planned distribution arrangements.  Protection of registered trademarks in some jurisdictions may not be as extensive as the protection provided by registration in the United States.

The following table summarizes our trademark registrations and applications:
 
Trademark
 
Application
Number
 Registration Number 
Status/
Next Action
Mobile911®
75/615,1182,437,673Registered
Mobile911 Siren with 2-Way Voice Communication & Design®
Design®		 76/013,886 2,595,328 Registered
MobilePAL®
78/514,0313,035,577Registered
HomePAL®
78/514,0933,041,055Registered
PAL Services®
Services®		 78/514,514 3,100,192 Registered
TrackerPAL®
TrackerPAL®		 78/843,035 3,345,878 Registered
Mobile911®
Mobile911®		 78/851,384 3,212,937 Registered
TrackerPAL®
TrackerPAL®		 CA 1,315,487 749,417 Registered
TrackerPAL®
TrackerPAL®		 MX 805,365 960954 Registered
Foresight®77/137/8223481509Registered
ReliAlert™ 85/238,049 In process4200738 PendingRegistered
HomeAware™ 85/238,064 In process4111064 PendingRegistered
SecureCuff™ 85/238,058 In process4271621 PendingRegistered
TrueDetect™ 85/237,202 In process4365120 PendingRegistered
SecureAlert™86/031,5504623370Registered
 
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Patents. We have 1215 patents issued and threetwo patents pending in the United States.  At foreign patent officesoffice’s we have one patentfour patents issued and 1311 patents pending.  We are also preparing patents that will be filed in other countries in the coming year.

The following tables summarize information regarding our patents and patent applications.  There is no assurance given that the pending applications will be granted or that they will, if granted, contain all of the claims currently included in the applications. 

Domestic Patents Application#  Date Filed Patent#  Issued Status
Emergency Phone for Automatically Summoning Multiple Emergency Response Services 09/173645 16-Oct-98 6226510 1-May-01 Issued
Combination Emergency Phone and Personal Audio Device
 09/185191 `3-Nov-98 6285867 4-Sep-01 Issued
Panic Button Phone 09/044497 19-Mar-98 6044257 28-Mar-00 Issued
Interference Structure for Emergency Response System Wristwatch
 09/651523 29-Aug-00 6366538 2-Apr-02   Issued
Emergency Phone With Alternate Number Calling Capability
09/68483110-Oct-00709269515-Aug-06Issued
Remote Tracking and Communication Device 11/202427 10-Aug-05 7330122 12-Feb-08 Issued
Remote Tracking System and Device With Variable Sampling and Sending Capabilities Based on Environmental Factors
 11/486991 14-Jul-06 7545318 9-Jun-09 Issued
Alarm and Alarm Management System for Remote Tracking Devices
 11/486992 14-Jul-06 7737841 15-Jun-10 Issued
Remote Tracking and Communication Device 12/028088 8-Feb-08 7804412 28-Sep-10 Issued
A Remote Tracking System with a Dedicated Monitoring Center
 11/486976 14-Jul-06 7936262 3-May-11 Issued
Alarm and Alarm Management System for Remote Tracking Devices
 12/792572 2-Jun-10 8013736  6-Sep-11 Issued
Remote Tracking and Communication Device 12/875988 3-Sep-10 8031077 4-Oct-11 Issued
Tracking Device Incorporating Enhanced Security Mounting Strap
12/818,45318-Jun-10851407020-Aug-13Issued
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device12/3991516-Mar-09��823287631-Jul-12Issued
Emergency Phone with Single-Button Activation11/17419130-Jun-05725147131-Jul-07Issued
A Remote Tracking Device and a System and Method for Two-Way Voice Communication Between the Device and a Monitoring Center 11/486989 14-Jul-06  -8797210  -5-Aug-14  PendingIssued
A Remote Tracking Device and a System and Method for Two-Way Voice Communication Between the Device and a Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device
12/3991516-Mar-09- Center  -14/323,83103-Jul-14  ----Pending
Tracking Device Incorporating Enhanced Security Mounting Strap
12/818,45318-Jun-10 - - Pending


7
International PatentsApplication# Date FiledPatent# IssuedStatus
Remote Tracking and Communication Device - MexicoMX/a/2008/1932  4-Aug-06  278405  6-Oct-10   Issued
Remote Tracking and Communication Device - EPO6836098.14-Aug-06 - - Pending
Remote Tracking and Communication Device - Brazil
PI0614742.94-Aug-06 - - Pending
Remote Tracking and Communication Device - Canada
26179234-Aug-06 - - Pending
A Remote Tracking System withDevice and a Dedicated Monitoring Center - EPO
78125963-Jul-07-  - Pending
A Remote Tracking System with a Dedicated Monitoring Center - Brazil
PI0714367.23-Jul-07 - - Pending
Secure Strap Mounting System For an Offender Tracking Device - EPO
 10 009 091.91-Sep-10 - - Pending
Secure Strap Mounting System For an Offender Tracking Device - Brazil
Filed. Number not yet available28-Feb-11 - - Pending
Secure Strap Mounting System For an Offender Tracking Device - Mexico
X/a/2011/00228328-Feb-11 - - Pending
Secure Strap Mounting System For an Offender Tracking Device - Canada
273265428-Feb-11 - - Pending
A System and Method for Two-Way Voice Communication Between the Device and a Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Brazil
PI0909172-61-Sep-10Center  -14/307,26017-Jul-14  ---  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Mexico
--		 
MX/a/2010/9680
2-Sep-10 --  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Canada
27178663-Sep-10 --  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - EPO
9716860.36-Oct-10 -- Pending
 
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International Patents Application#  Date Filed Patent#  Issued Status
           
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - EPO
 9716860.3 6-Oct-10 2260482 1/9/2013 Issued
Remote Tracking and Communication Device - Mexico
 
MX/a/2008/1932
 4-Aug-06 278405 24-Aug-10 Issued
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Mexico
 
MX/a/2010/001932
 2-Sep-10 306920 1/22/2013 Issued
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Canada
 2717866 3-Sep-10 - -  Pending
Remote Tracking and Communication Device - EPO 6836098.1 4-Aug-06 - -  Pending
Remote Tracking and Communication Device - Brazil
 PI0614742.9 4-Aug-06 - -  Pending
Remote Tracking and Communication Device - Canada
 2617923 4-Aug-06 - -  Pending
A Remote Tracking System with a Dedicated Monitoring Center - EPO
 7812596 3-Jul-07 - -  Pending
A Remote Tracking System with a Dedicated Monitoring Center - Brazil
 PI0714367.2 3-Jul-07 - -  Pending
Secure Strap Mounting System For an Offender Tracking Device - EPO
  10 009 091.9 1-Sep-10 - -  Pending
Secure Strap Mounting System For an Offender Tracking Device - Brazil
 PI11001593 28-Feb-11 - -  Pending
Secure Strap Mounting System For an Offender Tracking Device - Mexico
 MX/a/2011/002283 28-Feb-11  319057  14-Sep-14 Issued
Secure Strap Mounting System For an Offender Tracking Device - Canada
 2732654 23-Feb-11 - -  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Brazil
 PI0909172-6 1-Sep-10 - -  Pending
Secure Strap Mounting System For an Offender Tracking Device - Mexico - DIV
 MX/a/2013/12524 25-Oct-13 - -  Pending
 
8-10-
Royalty Agreement.  On August 4, 2011, with an effective date of July 1, 2011, we entered into an agreement (the “Royalty Agreement”) with Borinquen Container Corp., a corporation organized under the laws of the Commonwealth of Puerto Rico (“Borinquen”) pursuant to which we purchased Borinquen’s wholly-owned subsidiary, International Surveillance Services Corporation, a Puerto Rico corporation (“ISS”) in consideration of 62,000,000 shares of our common stock, valued at the market price on the date of the Royalty Agreement at $0.082 per share, or $5,084,000, and the grant to Borinquen of a royalty in the amount of 20 percent of our net revenues from the sale or lease of our monitoring devices and monitoring services within a territory comprised of South and Central America, the Caribbean, Spain and Portugal, for a term of 20 years.  The royalty payments are due quarterly through June 30, 2031.  In the event we fail to make the royalty payments when due, in cash or in shares of our common stock, at our discretion, the royalty rate is increased to 50 percent in certain portions of the territory, and 30 percent in others. 
On September 5, 2012, we entered into an agreement to redeem the royalty held by Borinquen, subject to certain terms, based upon expected funding from Sapinda Asia Limited (“Sapinda Asia”).  We have capitalized the total cost of the royalty purchase commitment, $10,768,555, as a non-current asset and recorded a loan payable to Borinquen to reflect the obligations under that agreement. We will amortize the asset over the remaining term of the Royalty Agreement (19 years), subject to periodic tests for impairment.  Subsequent to the end of fiscal year 2012, we entered into a Loan and Security Agreement with Sapinda Asia, the proceeds of which are to be used, in part, to redeem and terminate the royalty held by Borinquen.  Our obligations under the Loan and Security Agreement are secured by our international patents and in the event of default, Sapinda Asia may acquire the royalty rights under conditions contained in the Loan and Security Agreement as a reduction to the loan. Subsequent to September 30, 2012, we defaulted in the payment of the full purchase price of the royalty under the amended terms of the September 5, 2012 agreement because the full funding had not been provided under the Loan and Security Agreement.  Due to default under the terms of the royalty buy-back agreement, Borinquen terminated the agreement on December 26, 2012.  As of the date of this report, Sapinda Asia and Borinquen are negotiating to resolve the default and complete the purchase of the royalty on behalf of the Company.
Trade Secrets.  We own certain intellectual property, including trade secrets that we seek to protect, in part, through confidentiality agreements with employees and other parties, although some employees who are involved in research and development activities have not entered into these agreements.parties. Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.

We intend to protect our legal rights concerning intellectual property by all appropriate legal action. Consequently, we may become involved from time to time in litigation to determine the enforceability, scope, and validity of any of the foregoing proprietary rights. Any patent litigation could result in substantial cost and divert the efforts of management and technical personnel.

Seasonality

Given the consistency in recurring domestic monitoring revenues by customer throughout 2012,2014, we detected no apparent seasonality in our business.  However, as in previous years, incremental domestic deployment opportunities slow downslowdown in the months of July and August.  We believe that this is due to the unavailability of many judges, probation directorsjudicial and other key parolecorrections officials, who observe a traditional vacation season during these two months.this period.

Environment

We are not aware of any instance in which we have contravened federal, state, or local laws relating to protection of the environment or in which we otherwise may be subject to liability for environmental conditions that could materially affect operations.

Employees

As of December 28, 2012,2, 2014, we had 119206 full-time employees and 20four part-time employees.  None of the employees are represented by a labor union or subject to a collective bargaining agreement.  We have never experienced a work stoppage and management believes that the relations with employees are good.

Additional Available Information

We maintain our principal executive offices and facilities at 150 West Civic Center Drive, Suite 100, Sandy, Utah 84070.  Our telephone number is (801) 451-6141. We maintain a World Wide Web site at www.securealert.com.  The information found on, or otherwise accessible through, our website, is not incorporated information, and does not form a part of, this Form 10-K.  We make available, free of charge at our corporate website copies of our annual reports filed with the United States Securities and Exchange Commission (“SEC”SEC”) on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act. We also provide copies of our Forms 8-K, 10-K, 10-Q, and proxy statements and annual reports at no charge to investors upon request.

All reports filed by SecureAlertus with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials we have filed with the SEC at the SEC's public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549.  

 
9-11-

Item Item 1A.    Risk Factors

Our business is subject to significant risks. You should carefully consider the risks described below and the other information in this Annual Report on Form 10-K, including our financial statements and related notes, before you decide to invest in our common stock.Common Stock. If any of the following risks or uncertainties actually occurs, our business, results of operations or financial condition could be materially harmed, the trading price of our common stockCommon Stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are those that we currently believe may materially affect us; however, they may not be the only ones that we face. Additional risks and uncertainties of which we are unaware or currently deem immaterial may also become important factors that may harm our business. Except as required by law, we undertake no obligations to update any risk factors.

Risks Related to Our Business, Operations and Industry

The financial statements contained in this Annual Report on Form 10-K for the fiscal year ended September 30, 2012 have been prepared on the basis that we will continue as a going concern, notwithstanding the fact that our financial performance and condition during the past few years raise substantial doubt as to our ability to do so. There is no assurance we will ever be profitable.  In fiscal year 2012, we incurred a net loss of $17,458,107, we had negative cash flows from operating activities of $1,709,388, and as of September 30, 2012 we have an accumulated deficit of $248,513,626 and several of our debts are currently in default.  These factors raise substantial doubt about our ability to continue as a going concern.  The financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.  Our plan with respect to this uncertainty is to focus on increasing the number of TrackerPAL and ReliAlert devices in the market place from which we will generate monitoring service revenue, reducing operating costs and raising capital through additional borrowings and or the sale of our equity securities.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay indebtedness.  If we are unable to increase cash flows from operating activities or obtain additional financing, we will be unable to continue the development of our products and will likely cease operations.
We are primarily dependent on additional capital from one source. Our business plan is dependent upon raising sufficient capital to supplement operational income.  On December 3, 2012, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Sapinda Asia whereby Sapinda Asia is obligated to loan us the sum of $16,640,000 (the “Loan”). The Loan, if fully funded, is secured by all of the intellectual property and other assets of the Company and by the Royalty currently held by Borinquen, which was to be repurchased by us using the proceeds of the Loan pursuant to a royalty and stock purchase agreement entered into with Borinquen (the “Repurchase Agreement”). As of the date of this Report, the full amount expected to be made available to us under the terms of the Loan Agreement has not been advanced.  As a result, Sapinda Asia is currently in default under the Loan Agreement.  If the default continues for 30 days or longer without significant increases in revenue or funding from alternative sources, we expects that we will be may be required to cease operations. As of the date of this report we have received from Sapinda Asia (and its affiliates) under the Loan Agreement a total of $3,700,000 ($900,000 during the fiscal year ended September 30, 2012 and $2,800,000 subsequently).  In addition, Sapinda Asia paid $2,000,000 directly to Borinquen as part of a non-refundable deposit that is to be retained by Borinquen until the full terms under the Repurchase Agreement have been fully satisfied; or if such agreement is not fully satisfied, to be retained by Borinquen as a default penalty. The failure of Sapinda Asia to fully fund the Loan resulted in our default under the terms of the Repurchase Agreement and resulted in Borinquen terminating that agreement on December 26, 2012.  Sapinda Asia and Borinquen, with the support of the Company, are currently negotiating to cure the default and complete the royalty purchase on our behalf.  Borinquen has set January 30, 2013 as a deadline for completing negotiations for any new or modified agreement.  The outcome of these discussions may affect our ability to raise future capital from Sapinda Asia to fund operations.  There is no assurance that Borinquen and Sapinda Asia will reach an agreement.  The failure to do so will have an adverse effect on our business and results of operations.  See “Royalty Agreement” on page 9.
We face risks related to our substantial indebtedness. Our substantial leverage

As of September 30, 2014, we had $31,978,525 of indebtedness outstanding, which could adversely affect our ability to raise additional capital to fund our operations, make interest payments as they come due, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk associated with our variable rate debt and prevent us from meeting our obligations under our outstanding debentures and other debt instruments.  As of November 30, 2012, we had $16,516,847 million of indebtedness outstanding, of which $6,200,000 is secured by pledges of our intellectual property or other assets.  On December 7, 2012, we had approximately $4,700,000 million outstanding under a Loan and Security Agreement with Sapinda Asia to fund the redemption of a royalty granted to a significant shareholder and other working capital needs.  A significant portion of this indebtedness is secured by our patents and certain other assets.  Default under any of these secured obligations would severely limit our control over the secured assets and adversely affect our ability to continue to do business.

Our high degree of leverage could have importantadverse consequences to us, including:
 
•●making it more difficult for us to make payments on our debt;
  
•●increasing our vulnerability to general economic and industry conditions;
  
•●requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our debt, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities;
  
•exposing us to the risk of increased interest rates as certain of our borrowings under our Senior Secured Credit Facilities are at variable rates;
•●restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
  
•●limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and
  
•●limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may be less highly leveraged.
 
There is no certainty that the market will accept our products and services.  

Our targeted markets may be slow to or may never accept our products or services.  Governmental organizations may not use our products unless they determine, based on experience, advertising or other factors, that those products are a preferable alternative to other available methods of tracking or incarceration.  In addition, decisions to adopt new tracking devices can be influenced by government administrators, regulatory factors, and other factors largely outside our control.  No assurance can be given that key decision-makers will accept our products, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control.  Some of this indebtedness is past due and is owed to several vendors and suppliers critical to our operations.  We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

 
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If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness.

These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problemsdifficulties and might be required to dispose of material assets or operations to meet our debt service and other obligations.  We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

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General economic conditions may affect our revenue and harm our business.  As widely reported, financial markets in the United States, Europe and Asia have been experiencing extreme disruption in the past two years. Unfavorable changes in economic conditions, including declining consumer confidence, inflation, recession or other changes, may lead our customers to delay or reduce purchases of our products and services, adversely affecting our results of operations and financial condition. Challenging economic conditions also may impair the ability of our customers or distributors to pay for products or services they have purchased, and as a result, our reserves for doubtful accounts and write-offs of accounts receivable could increase. Our cash flows may be adversely affected by delayed payments or underpayments by our customers. We are unable to predict the duration and severity of the current disruption in financial markets and adverse economic conditions in the United States and other countries.

Budgetary issues faced by government agencies could adversely impact our future revenue. 

Our revenues are primarily derived from contracts with state, local and county government agencies in the UnitesUnited States and governments of Caribbean and Latin American nations.  Many of these government agencies are experiencing budget deficits and may continue to do so.  As a result, the amount spent by our current clients on equipment and services that we supply may be reduced or grow at rates slower than anticipated and it may be more difficult to attract additional government clients.  In addition, since 2009,Furthermore, the industry has experienced a general decline in average daily lease raterates for GPS tracking units.devices.  As a result of these factors, our ability to maintain or increase our revenues may be negatively affected.
 
As a result of our increased focus on a new business market, our business is subject to many of the risks of a new or start-up venture.  Our 2012 business goals and strategy subjects us to the risks and uncertainties usually associated with start-ups. Our business plan involves risks, uncertainties and difficulties frequently encountered by companies in their early stages of development.  If we are to be successful in this new business direction, we must accomplish the following, among other things:
·Develop and introduce functional and attractive product and service offerings;
·Increase awareness of our brand and develop consumer loyalty;
·Respond to competitive and technological developments;
·Increase gross profit margins;
·Build an operational structure to support our business; and
·Attract, retain and motivate qualified personnel.
If we fail to achieve these goals, that failure would have a material adverse effect on our business, prospects, financial condition and operating results.  Because the market for our product and service offerings is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any.  There is no assurance that a market for these products or services will ever develop or that demand for our products and services will emerge or be sustainable. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely affected.
Certain individuals and groups own or control a significant number of our outstanding shares.  

Certain groups or persons associated with them beneficially own a substantial number of shares of our outstanding common stockCommon Stock or securities and debt instruments convertible into shares of our common stock.instruments.  As a result, these persons have the ability, acting as a group, to effectively control our affairs and business, including the election of our directors and, subject to certain limitations, approval or preclusion of fundamental corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change of control or making other transactions more difficult or impossible without their support. In addition, these equity holders may have an interest in pursuing acquisitions, divestitures, financing or other transactions that, in their judgment, could enhance their equity investments, even though such transactions may involve significant risk to the Companyus or itsour other shareholders.  Additionally, they may make investments in businesses that directly or indirectly compete with us, or may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. See, Item 10. “Directors, Executive Officers and Corporate Governance,” on page 24 and Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” on page 30.
Certain of our shareholders and officers and directors are creditors of the Company and their interests may be in conflict with the interests of the Company or its remaining shareholders or creditors. A substantial portion of our debt obligations are secured by the pledge of our patents and other assets.  As a result, these creditors may benefit directly by our inability to repay our debts when due, which would result in their outright ownership of our patents and a potentially lucrative royalty.  In addition, because certain of these creditors are directors of the Company or have representatives on our Board of Directors, they may control our business affairs and operations in a manner that may result in decisions that favor them over our other shareholders or creditors.
There is no certainty that the market will accept our products and services.  Our targeted markets may be slow to or may never accept our products or services.  Governmental organizations may not use our products unless they determine, based on experience, advertising or other factors, that those products are a preferable alternative to currently available methods of tracking.  In addition, decisions to adopt new tracking devices can be influenced by government administrators, regulatory factors, and other factors largely outside our control.  No assurance can be given that key decision-makers will accept our new products, which could have a material adverse effect on our business, financial condition and results of operations.
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We do not have a chief executive officer and we are dependent upon the services of our senior management team, andteam; the failure to attract and retain such individuals could adversely affect our operations.  

We are dependent on the services, abilities and experience of our executive officers. The permanent loss of the services of any of these senior executives and any change in the composition of our senior management team could have a negative impact on our ability to execute on our business and operating strategies.  We do not currently have recently experienced a significant change in ourchief executive leadership. Onofficer.  In October 23, 2012, John L. Hastings, III resigned as Chief Executive Officer to focus on other business opportunities.  Thethe Board of Directors of the Company established an Executive Committee and temporarily transferred Mr. Hastings’ responsibilitiesthe executive function to this committee, currently comprised of Winfried KunzGuy Dubois and George Schmitt.David Boone.  Messrs. KunzDubois and SchmittBoone will continue to execute the responsibilities of the Company’s principal executive officer through the Executive Committee, until the Company’s search forour appointment of a new Chief Executive Officer is completed. Our inability to identify, hire and subsequently integrate a new Chief Executive Officer could adversely impact our business, financial condition and results of operations.chief executive officer.  

We rely on significant suppliers for key products and cellular access.  If we do not renew these agreements when they expire we may not continue to have access to these suppliers’ products or services at favorable prices or in volumes as we have in the past, which would reduce revenues and could adversely affect our results of operations or financial condition. 

We have entered into an agreement with atwo national cellular access companycompanies for cellular services. We also rely currently on a single manufacturersource for the manufacturemanufacturing of our TrackerPAL and ReliAlert devices.products.  If any of these significant suppliers were to cease providing products or services to us, we would be required to seek alternative sources. There is no assurance that alternate sources could be located or that the delay or additional expense associated with locating alternative sources for these products or services would not materially and adversely affect our business and financial condition.

 
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Our business subjects our research, development and ultimate marketing activities are subject to current and possibly to future government regulations. The cost of compliance or the failure to comply with these regulations could adversely affect our business, results of operations and financial condition. 

Our monitoring device products and services are not subject to specific approvals from any governmental agency, although our products using cellular and GPS technologies for use in the United States or internationally must be manufactured in compliance with applicable rules and regulations of the Federal Communications Commission (“FCC”).specific governmental agencies. There can also be no assurance that changes in the legal or regulatory framework or other subsequent developments will not result in limitation, suspension or revocation of regulatory approvals granted to us. Any such events, were they to occur, could have a material adverse effect on our business, financial condition and results of operations.  We may be required to comply with FCC regulations for manufacturing practices, which mandate procedures for extensive control and documentation of product design, control and validation of the manufacturing process and overall product quality. Foreign regulatory agencies have similar manufacturing standards. Any third parties manufacturing our products or supplying materials or components for such products may also be subject to these manufacturing practices and mandatory procedures. If we, our management or our third-party manufacturers fail to comply with applicable regulations regarding these manufacturing practices, we could be subject to a number of sanctions, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of market approval, seizures or recalls of product, operating restrictions and, in some cases, criminal prosecutions.  Our products and related manufacturing operations may also be subject to regulation, inspection and licensing by other governmental agencies, including the Occupational Health and Safety Administration.
 
We face intense competition, including competition from entities that are more established and may have greater financial resources than we do, which may make it difficult for us to establish and maintain a viable market presence.  

Our current and expected markets are rapidly changing. Existing products and services and emerging products and services will compete directly with the products we are seeking to develop and market.  Our technology will compete directly with other technology, and, althoughAlthough we believe our technology has or will have advantages over these competing systems, there can be no assurance that our technology will havethose advantages that are significant enough to cause users to adopt its use.  Competition is expected to increase.  Manysignificant; many of theseour competitors have products or techniques approved or in development and operate large, well-funded research and development programs in the field.  Moreover, these companies and institutionscompetitors may be in the process of developing technology that could be developed more quickly or be ultimately more effective than our planned products.  We face competition based on product efficacy, availability of supply, marketing and sales capability, price and patent position.  There can be no assurance that our competitors will not develop more effective or more affordable products, or achieve earlier patent protection or product commercialization.

The Company isWe are dependent upon certain customers, and the loss of which would adversely affect itsour results of operations and business condition.  

During fiscal year 2012, one customer2014, two of our customers each accounted for more than 10% of total sales.  The loss of this customereither of these customers would result in lower revenues and limit the cash available to growhave a material adverse effect on our business and to achieve profitability.
business.  
 
Our business plan is subject to the risks of technological uncertainty, which may result in our products failing to be competitive or readily accepted by our target markets.  Some of the products we are currently evaluating likely will require further research and development efforts before they can be commercialized.

There can be no assurance that our research and development efforts will be successful.  In addition, the technology which we integrate or that we may expect to integrate with our product and service offerings is rapidly changing and developing.  We face risks associated with the possibility that our technology may not function as intended and the possible obsolescence of our technology and the risks of delay in the further development of our own technologies. Cellular coverage is not uniform throughout our current and targeted markets and GPS technology depends upon “line-of-sight” access to satellite signals used to locate the user.  This limits the effectiveness of GPS if the user is in the lower floors of a tall building, underground or otherwise located where the signals have difficulty penetrating.  Other difficulties and uncertainties normally associated with new industries or the application of new technologies in new or existing industries also threaten our business, including the possible lack of consumer acceptance, difficulty in obtaining financing for untested technologies, increasing competition from larger or smaller well-funded competitors, advances in competing or other technologies, and changes in laws and regulations affecting the development, marketing or use of our new products and related services.
 
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Our business plan anticipatesTable of Contents

We face risks of litigation and regulatory investigation and actions in connection with our operations.

Lawsuits, including regulatory actions, may seek recovery of large, indeterminate amounts or otherwise limit our operations, and their existence and magnitude may remain unknown for substantial periods of time.  Relevant authorities in the markets in which we operate may investigate us in the future. These investigations may result in significant growth through monitoring revenuespenalties in multiple jurisdictions, and acquisitions. To manage the expected growth we will require capital and there is no assurance we will be successful in obtaining necessary additional funding.  If we are successful in implementing our business plan, we may be required to raise additional capital to manage anticipated growth.  Our actual capital requirements will depend on many factors, including but not limited to, the costs and timing of our ongoing development activities, the success of our development efforts, the cost and timing of establishing or expanding our revenues, marketing and manufacturing activities, the extent to which our products gain market acceptance, our ability to establish and maintain collaborative relationships, competing technological and market developments, the progress of our commercialization efforts and the commercialization efforts of our marketing alliances, the costsbecome involved in preparing, filing, prosecuting, maintaining and enforcing and defending patent claims and other intellectual property rights, developments related todisputes with private parties seeking compensation for damages resulting from the relevant violations. Such substantial legal liability or regulatory issues, and other factors, including many that are outside our control. To satisfy our capital requirements, we may seek to raise funds through public or private financings, collaborative relationships or other arrangements. Any arrangement that includes the issuance of equity securities or securities convertible into our equity securities may be dilutive to shareholders (including the purchasers of the shares), and debt financing, if available, may involve significant restrictive covenants that limit our ability to raise capital in other transactions. Collaborative arrangements, if necessary to raise additional funds, may require that we relinquish or encumber our rights to certain of our technologies, products or marketing territories.  Any inability or failure to raise capital when neededaction could also have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and credibility.  In addition, our business activities are subject to various governmental regulations in countries where we operate, which include investment approvals, export regulations, tariffs, antitrust, anti-bribery, intellectual property, consumer and business taxation, foreign trade and exchange controls, and environmental and recycling requirements. These regulations limit, and other new or amended regulations may further limit, our business activities or increase operating costs. In addition, the enforcement of such regulations, including the imposition of fines or surcharges for violation of such regulations, may adversely affect our results of operations. There can be no assurance that any such financing, if required, will be available on terms satisfactory to us, if at all.  

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operations, financial condition, cash flows, reputation and credibility.
 
Our products are subject to the risks and uncertainties associated with the protection of intellectual property and related proprietary rights.  

We believe that our success depends in part on our ability to obtain and enforce patents, maintain trade secrets and operate without infringing on the proprietary rights of others, both in the United States and in other countries. Our inability to obtain or to maintain patents on our key products could adversely affect our business. We have received several patents; we have also applied for several additionalcurrently own 16 patents and thosehave filed and intend to file additional patent applications are awaiting action bywith the in the United States Patent Office.and in key foreign jurisdictions relating to our technologies, improvements to those technologies and for specific products we may develop.  There iscan be no assurance thosethat patents will issue on any of these applications or that, when they do issue theyif issued, any patents will include all of the claims currently included in the applications.  Even if they do issue, those new patents and our existing patents mustnot be protected against possible infringement.challenged, invalidated or circumvented. The enforcement of patent rights can be uncertain and involve complex legal and factual questions.  The scope and enforceability of patent claims are not systematically predictable with absolute accuracy.  The strength of our own patent rights depends, in part, upon the breadth and scope of protection provided by the patent and the validity of our patents, if any.  Our inability to obtain or to maintain patents on our key products could adversely affect our business.  We own 13 patents and have filed and intend to file additional patent applications in the United States and in key foreign jurisdictions relating to our technologies, improvements to those technologies and for specific products we may develop.  There can be no assurance that patents will issue on any of these applications or that, if issued, any patents will not be challenged, invalidated or circumvented.  The prosecution of patent applications and the enforcement of patent rights are expensive, and the expense may adversely affect our profitability and the results of our operations.  In addition, there can be no assurance that the rights afforded by any patents will guarantee proprietary protection or competitive advantage.  

Our success will also depend, in part, on our ability to avoid infringing the patent rights of others.  We must also avoid any material breach of technology licenses we may enter into with respect to our new products and services.  Existing patent and license rights may require us to alter the designs of our products or processes, obtain licenses or cease certain activities.  In addition, ifIf patents have been issued to others that contain competitive or conflicting claims and such claims are ultimately determined to be valid and superior to our own, we may be required to obtain licenses to those patents or to develop or obtain alternative technology.  If any licenses are required, there can beis no assurance given that we will be able to obtain any necessary licenses on commercially favorable terms, if at all.  Any breach of an existing license or failure to obtain a license to any technology that may be necessary in order to commercialize our products may have a material adverse impact on our business, results of operations and financial condition.  Litigation that could result in substantial costs may also be necessary to enforce patents licensed or issued to us or to determine the scope or validity of third-party proprietary rights.  If our competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may have to participate in proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if we eventually prevail.  An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require that we cease using such technology.

We also rely on trade secrets laws to protect portions of our technology for which patent protection has not yet been pursued or is not believed to be appropriate or obtainable.  These laws may protect us against the unlawful or unpermitted disclosure of any information of a confidential and proprietary nature, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to vendors or suppliers and customer names and addresses.  We intendseek to protect this unpatentable and unpatented proprietary technology and processes, in addition to other confidential and proprietary information in part, by entering into confidentiality agreements with employees, collaborative partners, consultants and certain contractors.  There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and other confidential and proprietary information will not otherwise become known or be independently discovered or reverse-engineered by competitors.

We conduct business internationally with a variety of sovereign governments.  We are
Our business is subject to a variety of regulations and political interests that could affect the timing of our payment for services and the duration of our contracts. We face the risk of systems interruptions and capacity constraints, possibly resulting in adverse publicity, revenue loss and erosion of customer trust. The satisfactory performance, reliability and availability of our network infrastructure are critical to our reputation and our ability to attract and retain customers and to maintain adequate customer service levels. In addition, because our customers in these foreign jurisdictions are sovereign governments or governmental departments or agencies, it may be difficult for us to enforce our agreements with them in the event of a breach of those agreements, including, for example, the failure to pay for our services or to complete projects that we have commenced.
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We may experience temporary service interruptions for a variety of reasons, including telecommunications or power failures, fire, water damage, vandalism, computer bugs or viruses or hardware failures.  We may not be able to correct a problem in a timely manner.  

Any service interruption that results in the unavailability of our system or reduces its capacity could result in real or perceived public safety issues that may affect customer confidence in our services andservices.  Historically, we have experienced temporary interruptions of telecommunications or power outages which were promptly mitigated.  Such instances may result in negative publicity that could cause us to loseloss of customer accounts or fail to obtain new accounts.  Any inability to scale our systems may cause unanticipated system disruptions, slower response times, degradationsimilar problems if they occur in levels of customer service, or impaired quality and speed of transaction processing.the future.  We are not certain that we will be able to project the rate or timing of increases, if any, in the use of our services to permit us to upgrade and expand our systems effectively or to integrate smoothly and newly developed or purchased modules with our existing systems.
Risks Related to our Recent Acquisitions
The success of our business depends on achieving our strategic objectives, including through acquisitions, dispositions and restructurings.  

Our acquisitions, as well as potential restructuring actions, may not achieve expected returns and other benefits as a result of various factors, including integration and collaboration challenges, such as personnel and technology. In addition, we may not achieve anticipated cost savings from restructuring actions, which could result in lower margin rates. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives. After reaching an agreement with a buyer or seller for the acquisition or disposition of a business, we are subject to satisfaction of pre-closing conditions as well as to necessary regulatory and governmental approvals on acceptable terms, which may prevent us from completing the transaction.
We may not be able to grow successfully through the Acquisitions or through future acquisitions, we may not successfully manage future growth, and we may not be able to effectively integrate businesses that we may acquire.

We plan to continue to grow through strategic acquisitions of other businesses.  In order to complete acquisitions, we would expect to require additional debt and/or equity financing, which could increase our interest expense, leverage, and increase the number of shares outstanding.  Businesses that we acquire may not perform as expected. Future revenues, profits and cash flows of an acquired business may not materialize due to the failure or inability to capture expected synergies, increased competition, regulatory issues, changes in market conditions, or other factors beyond our control. In addition, we may not be successful in integrating these acquisitions into our existing operations. Competition for acquisition opportunities may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions.  Additional risks related to acquisitions include, but are not limited to:
●the potential disruption of our existing business;
●entering new markets or industries in which we have limited prior experience;
●difficulties integrating and retaining key management, sales, research and development, production and other personnel or diversion of management attention from ongoing business concerns to integration matters;
●difficulties integrating or expanding information technology systems and other business processes or administrative infrastructures to accommodate the acquired businesses;
●complexities associated with managing the combined businesses and consolidating multiple physical locations;
●risks associated with integrating financial reporting and internal control systems; and
●
whether any necessary additional debt or equity financing will be available on terms acceptable to us, or at all, and the impact of such financing on our operating performance and results of operations.

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We are exposed to fluctuations in currency exchange rates.

We are exposed to currency exchange fluctuations in other currencies.  Moreover, a portion of our expenses in Israel and Chile are paid in foreign currencies, which subjects us to the risks of foreign currency fluctuations.
The dollar cost of our operations internationally could increase to the extent of increases or decreases in the rate of inflation or devaluation in relation to the dollar, which may harm our results of operations.

The dollar cost of our international operations is expected to be influenced by any increase in inflation or is not offset by the devaluation of the local currency in relation to the dollar. As a result, we are exposed to the risk that foreign currencies will appreciate in relation to the dollar. We cannot predict whether the foreign currencies will appreciate or depreciate against the dollar in the future.
International political, economic and military instability may impede our ability to execute our plan of operations. 

Political, economic and military conditions internationally may affect our business, we cannot predict whether or in what manner these problems may occur. Acts of random terrorism periodically occur which could affect our operations or personnel.  Ongoing or revived hostilities or other factors could harm our operations and research and development process and could impede our ability to execute our plan of operations. Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures, strategic alliances or marketing arrangements with local operators, partners or agents. Reliance on local operators, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products.  In addition, our business insurance may not cover losses that may occur as a result of events associated with the security situation. Any losses or damages incurred by us could have a material adverse effect on our business and financial condition.
Our Israeli operations may be disrupted by the obligations of personnel to perform military service.

In connection with the GPS Acquisition, we now have eight full-time employees and three independent contractors based in Israel.  This number may increase in the future as we relocate additional research and development activity to our Israeli operations.  Our employees in Israel may be called upon to perform up to 36 days (and in some cases more) of annual military reserve duty until they reach the age of 45 (and in some cases, up to age 49), and in emergency circumstances, could be called to active duty. Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of one or more of our key employees for military service. Such disruption could materially adversely affect our operations, business and results of operations.
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Risks Related to Our Common Stock

Penny stock regulations may impose certain restrictions on marketability of our securities. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  As a result, our common stock is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse).  For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market.  The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may affect the ability of investors to sell our securities in the secondary market and the price at which such purchasers can sell any such securities. 
Investors should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.  Such patterns include:
·Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer
·Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases
·“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons
·Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers, and
·The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market.

Our Board of Directors may authorize the issuance of preferred stock and designate rights and preferences that will dilute the ownership and voting interests of existing shareholders without their approval.

Our Articles of Incorporation authorize us to issue up to 20,000,000 shares of preferred stock, at par value $0.0001. The Board of Directors is authorized to designate, and to determine the rights and preferences of any series or class of preferred stock. The Board of Directors may, without shareholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which are senior to the common stockCommon Stock or which could adversely affect the voting power or other rights of the existing holders of outstanding shares of preferred stock or common stock.Common Stock. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stockCommon Stock and reduce the likelihood that common shareholders will receive dividend payments and payments upon liquidation. The issuance of additional shares of preferred stock may also adversely affect an acquisition or change in control of the Company.  As of December 5, 2014, there were no outstanding shares of preferred stock.
Sales by certain of our shareholders of a substantial number of shares of our Common Stock in the public market, including the sale of the Shares in this offering, could adversely affect the market price of our Common Stock.  

The BoardA large number of Directors has designated 85,000outstanding shares of preferredour Common Stock are held by several of our principal shareholders.  If any of these principal shareholders were to decide to sell large amounts of stock asover a short period of time such sales could cause the market price of our Series D Preferred stock.  Each shareCommon Stock to decline.
A decline in the price of Series D Preferredour Common Stock could affect our ability to raise additional working capital and adversely impact our operations and would severely dilute existing or future investors if we were to raise funds at lower prices.  

A prolonged decline in the price of our Common Stock could result in a reduction in our ability to raise capital. Because our operations have been financed in part through the sale of equity securities, a decline in the price of our Common Stock could be especially detrimental to our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock is convertible into 6,000price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.  We believe the following factors could cause the market price of our Common Stock to continue to fluctuate widely and could cause our Common Stock to trade at a price below the price at which you purchase your Shares:
●actual or anticipated variations in our interim or annual results;
●announcements of new services, products, acquisitions or strategic relationships within the industry;
●changes in accounting treatments or principles;
●changes in earnings estimates by securities analysts and in analyst recommendations; and
●general political, economic, regulatory and market conditions.
Any failure to meet these expectations, even if minor, could materially adversely affect the market price of our Common Stock.
If we issue additional shares of common stock.  HoldersCommon Stock in the future, it will result in the dilution of our existing shareholders.
Our Articles of Incorporation authorize the Series D Preferred stock may vote their shares on an as-converted basis on any issue presented for a voteissuance of the shareholders, including the election of directors and the approval of certain transactions such as a merger or other business combination.  As of December 28, 2012, there were 48,76315,000,000 shares of Series D Preferred issued and outstanding, which were convertible into 292,578,000 shares of common stock.

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Common Stock. Our Board of Directors has filed a proxy statement seeking shareholder approvalthe authority to issue additional shares of a proposed reverse stock split amendment and a reduction ofCommon Stock up to the authorized capital amendment to ourstated in The Articles of Incorporation. In addition, asThe issuance of any such shares of Common Stock will result in a condition to the Loan and Security Agreement entered into with Sapinda Asia, we have agreed to conduct an offering directed at the holdersreduction in value of our Series D Preferred stock to exchange their Series D Preferred stock shares foroutstanding Common Stock. If we do issue any such additional shares of Common Stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control of our common stock.  Undercorporation.
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Trading of our Common Stock may be volatile and sporadic, which could depress the Loanmarket price of our Common Stock and Security Agreement, failuremake it difficult for our shareholders to obtain the tender of at least 90 percent of the Series D Preferred stock will trigger the right of Sapinda Asia to acquire the royalty previously granted to Borinquen and repurchased by the Company.  However, Sapinda Asiaresell their shares. 

There is currently a limited market for our Common Stock and the volume of our Common Stock traded on any day may vary significantly from one period to another. Our Common Stock is quoted on the OTCQB. Trading in default understock quoted on the LoanOTCQB is often thin and Security Agreement, consequently,characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the full repurchaseissuer’s operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price hasfor our Common Stock that is unrelated to operating performance. Moreover, the OTCQB is not been paid to Borinquena stock exchange, and Borinquen has terminatedtrading of securities quoted on the royalty buy-back agreement.  See “Royalty Agreement”OTCQB is often more sporadic than the trading of securities listed on page 9.a stock exchange like NASDAQ or NYSE:MKT.

Item 2.    Properties
Item 2.    Properties

Our headquarters and monitoring facility are housed in 11,462approximately 8,600 square feet of commercial office space located at 150 West Civic Center Drive,405 South Main Street, Suite 100, Sandy,700, Salt Lake City, Utah. Lease payments are approximately $23,000$13,200 per month. This lease expires on November 30, 2013.August 31, 2016.  In addition, we lease 6,152 square feet of warehousing and pallet shipping functions and capabilities in a facility located at 9716 South 500 West, Sandy, Utah 84070.  Monthly lease payments for this facility are approximately $5,800.  Management believes that these facilities$6,500; the lease expired on August 31, 2014; however, we negotiated a lease extension through March 2015.
GPS Global’s operations are sufficient to meet our needs for the foreseeable future.housed in approximately 420 square meters of commercial office space located at Atir Yeda Street, Kfar-Saba, Israel.  The monthly lease is approximately $600.  The lease began on August 1, 2014 and expires on July 31, 2018.

ItemEmerge Monitoring’s main operations are housed in approximately 2,800 square feet of commercial office space located at 1213 & 1215 Lakeview Court, Romeoville, IL. A lease for this office space began on August 1, 2014 and expires on July 31, 2017. Monthly lease payments are approximately $3,000 per month. In addition, Emerge also leases approximately 2,000 square foot facility in Indianapolis, Indiana. This lease was executed on January 1, 2014 and expires on December 31, 2018. Monthly lease payments for this facility are approximately $3,200.
Subsequent to September 30, 2014 we acquired Track Group Analytics Limited (See Note 14, “Subsequent Events”, in the notes to our Consolidated Financial Statements included in this Annual Report), whose operations are located in approximately 1,700 square feet of office space in Dartmouth, Nova Scotia, Canada.  The lease for this office space expires on December 31, 2014. Monthly payments are approximately $2,300 per month. The Company plans to continue utilizing this facility on a month to month basis until a new lease is secured.
Item 3.    Legal Proceedings

We are party to the following legal proceedings:

Lazar Leybovich et al v. SecureAlert, Inc.  On March 29, 2012, Lazar Leybovich, Dovie Leybovich and Ben Leybovich filed a complaint in the 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption Agreements with the Company.Agreements.  The complaint was subsequently withdrawn by the plaintiffs.  An amended complaint was filed by the plaintiffs on November 15, 2012.  The Company believesWe believe these allegations are inaccurate and intendsintend to defend the case vigorously. The Company hasWe have not accrued any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.

Larry C. DugganChristopher P. Baker v. Court Programs of Florida, Inc. and SecureAlert, Inc.  On March 26, 2012,In February 2013, Mr. DugganBaker filed a complaintsuit against us in the 9th CircuitThird Judicial District Court in and for OrangeSalt Lake County, Florida alleging malicious prosecution, abuseState of processUtah.  Mr. Baker asserts that we breached a 2006 consulting agreement with him and negligent inflictionclaims damages of emotional distress againstnot less than $210,000.  We dispute the Companyplaintiff’s claims and its subsidiary.  Thewill defend the case resulted from actions ofvigorously.  No accrual for a former agent of the Company’s subsidiary.  The Company intends to defend itself in this matter. The Company has not accrued any potential loss has been made as we believe the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.

Camacho Melendez et al v. Commonwealth of Puerto Rico and International Surveillance Services Corporation.  On April 24, 2012 the plaintiffs filed suit against the Commonwealth of Puerto Rico and International Surveillance Services Corporation, a wholly-owned subsidiary of the Company, (“ISSC”) claiming negligence by ISSC and the government of the Commonwealth of Puerto Rico resulting in the death of a woman.  The complaint seeks damages of $2,110,000.  The Company is vigorously defending this case and believes ISSC acted appropriately.  The Company has not accrued any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.
.
RACO Wireless LLC v SecureAlert, Inc. On October 12, 2010, RACO Wireless, LLC (“RACO”) filed a complaint alleging that the Company breached a contract by failing to place a sufficient number of RACO SIM chips in its new activations of monitoring devices.  The Company denied these allegations and filed a counterclaim against RACO.  During the fiscal year ended September 30, 2011, the parties agreed to settle this litigation. As part of the settlement agreement, the Company granted RACO warrants to purchase 6,000,000 shares of the Company’s common stock at an exercise price of $0.098 per share, valued at $253,046 using the Black-Scholes valuation model during the quarter ended December 31, 2011.  The Company was late in making some required payments to RACO and RACO filed a complaint on June 4, 2012. The Company is current on its payments and is disputing RACO’s claims.remote.
 
GrenierSecureAlert, Inc. v. Court Programs of Florida, Inc.Derrick Brooks and STOP, LLC The estate of Brooke Grenier.  On February 21, 2014, we filed suit against Court Programs of Florida, Inc., a subsidiary or SecureAlert,complaint in the CircuitThird Judicial District Court, Salt Lake County, State of Utah, against Derrick Brooks and STOP, asserting claims for declaratory relief, breach of contract, tortious interference with prospective economic relations, tortious interference with contract, misappropriation of trade secrets, injurious falsehood/trade libel/business disparagement, defamation, respondeat superior, injunctive relief and punitive damages.  On March 20, 2014, we entered into a settlement agreement with STOP and all of the 19th Judicial Circuitclaims between us and STOP in the litigation have been dismissed with prejudice.  On April 9, 2014, Mr. Brooks filed an answer denying our claims and asserted counterclaims for Indian River County, Florida.  The suit alleges negligence leadingconstructive discharge, interference with contract/interference with prospective economic relations and blacklisting.  In his counterclaim Mr. Brooks seeks to the deathrecover “not less than $150,000” on each of Ms. Grenier.his claims.  We assert no negligencebelieve Mr. Brooks’ counterclaims to be without merit and arewe intend to vigorously defending the claims madedefend against Court Programs of Florida, Inc.them. 

Item 4.    [Not Applicable]


 
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PARTPART II

ItemItem 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stockCommon Stock is traded on the OTC Bulletin BoardOTCQB under the symbol “SCRA.OB.“SCRA.”  

The following table sets forth the range of high and low bidsales prices of our common stockCommon Stock as reported on the OTC Bulletin BoardOTCQB for the periods indicated.  The sales information is available online at http://otcbb.com.
 Fiscal Year Ended September 30, 2014 High  Low 
 First Quarter ended December 31, 2013 $19.99  $17.29 
 Second Quarter ended March 31, 2014 $19.65  $17.51 
 Third Quarter ended June 30, 2014 $18.75  $14.60 
 Fourth Quarter ended September 30, 2014 $19.45  $10.77 
 Fiscal Year Ended September 30, 2013 High  Low 
 First Quarter ended December 31, 2012 $14.60  $3.22 
 Second Quarter ended March 31, 2013 $14.60  $11.00 
 Third Quarter ended June 30, 2013 $14.70  $7.00 
 Fourth Quarter ended September 30, 2013 $20.90  $14.40 

Fiscal Year Ended September 30, 2011 High  Low 
 First Quarter ended December 31, 2010 $0.11  $0.08 
 Second Quarter ended March 31, 2011 $0.12  $0.09 
 Third Quarter ended June 30, 2011 $0.10  $0.08 
 Fourth Quarter ended September 30, 2011 $0.11  $0.07 
         
 Fiscal Year Ended September 30, 2012 High  Low 
 First Quarter ended December 31, 2011 $0.10  $0.07 
 Second Quarter ended March 31, 2012 $0.08  $0.04 
 Third Quarter ended June 30, 2012 $0.05  $0.03 
 Fourth Quarter ended September 30, 2012 $0.04  $0.02 
Reverse Stock Split
 
HoldersOn February 28, 2013, our shareholders approved a reduction in the authorized share capital of the Company to 15,000,000 shares of Common Stock, and authorized a reverse split to reduce the outstanding shares of the Company at a ratio of 200-for-1, which was implemented on March 25, 2013.  Share and per share information for the prior periods has been retroactively adjusted in this prospectus to reflect the effects of the reverse stock split.

Holders
As of December 28, 2012, there were5, 2014, we had approximately 2,5001,049 holders of record of our common stockCommon Stock and 640,088,85010,131,629 shares of common stockCommon Stock outstanding. We also have granted options and warrants for the purchase of 67,356,493305,251 shares of common stockCommon Stock and 5,40042,000 shares of Series D Preferred stock.  As of December 10, 2012, there were also 48,763 shares of Series D Preferred stock outstanding, which are convertible into 292,578,000 shares of common stock and are voted on an as-converted basis with the outstanding common stock.Preferred.  

Dividends
 
Since incorporation, we have not declared any cash dividends on our common stock.Common Stock.  We do not anticipate declaring cash dividends on our common stockCommon Stock for the foreseeable future.  The Series D Preferred stock is entitled to dividends at the rate equal to 8 percent8% per annum calculated on the purchase amount actually paid for the shares or amount of debt converted.  The dividend is payable in cash or shares of common stockCommon Stock at the sole discretion of the Board of Directors. To date all dividends payable on our preferred stock outstanding have been paid by issuance of shares of common or preferred stock.  During the fiscal years ended September 30, 20122014 and 2011,2013, we recorded $2,480,298$14,585 and $2,029,996$1,042,897 in stock dividend expenses, respectively, payable with respect to our outstanding preferred stock.
 
Dilution

The Board of Directors determines when and under what conditions and at what prices to issue stock.  In addition, a significant number of shares of common stockCommon Stock are reserved for issuance upon exercise of purchase or conversion rights.
 
The issuance of any shares of common stockCommon Stock for any reason will result in dilution of the equity and voting interests of existing shareholders.

 
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Transfer Agent and Registrar

The transfer agent and registrar for our common stockCommon Stock is American Stock Transfer & Trust Company, 6201 15th15th Avenue, Brooklyn, New York, 11219.


15
 
Securities Authorized for Issuance under Equity Compensation Plans

The 2012 SecureAlert, Inc. Stock Incentive Plan

The Board of Directors has adopted the SecureAlert, Inc. 2012 Equity Compensation Plan (the “2012 Plan”“2012 Plan”), approved by shareholders at the Annual Meeting of Shareholders held on December 21, 2011.  We believe that incentives and stock-based awards focus employees on the objective of creating shareholder value and promoting the success of the Company, and that incentive compensation plans like the 2012 Plan are an important attraction, retention and motivation tool for participants in the plan.
 
Under the 2012 Plan, 18,000,00090,000 options or shares of common stockCommon Stock may be awarded.  As of the date of this report, options for the purchase of 6,000,00030,000 shares of common stockCommon Stock have been awarded under the 2012 Plan.

The following table includes information as of September 30, 20122014 for our equity compensation plans:
 
  
Number of securities
to be issued upon
exercise of outstanding
options, warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities refleted
in column (a))
 
Plan category  (a)   (b)   (c)  Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
             (a)  (b)  (c) 
Equity compensation plans approved by security holderst  4,286,667  $0.08   13,713,333 
            
Equity compensation plans approved by security holders  8,027  $30.00   60,000 
Equity compensation plans not approved by security holders  95,469,826  $0.12   -   339,224  $14.92   - 
            
Total  99,756,493  $0.12   13,713,333   347,251  $15.27   60,000 
 
Recent Sales of Unregistered Securities

During the fourth fiscal quarter ended September 30, 2012,2014, we issued the following securities without registration under the Securities Act of 1933, as amended (the “Securities Act”) not previously included in a current report on Form 8-K or in a quarterly report on Form 10-Q.Act:

Issuance of Common Stock for CashPayment of Preferred Dividends

During the fiscal quarter ended September 30, 2012, weWe issued 31,140,6253 shares of common stock for cash proceedsCommon Stock as payment of $1,033,000. dividends on our Series D Preferred, valued at $55.

Issuance of Common Stock for Services

During the fiscal quarter ended September 30, 2012, weWe issued 410,1788,787 shares of common stockCommon Stock to employees and consultants for services valued at $12,000.$123,018. 

Issuance of Common Stock for PaymentBoard of RoyaltyDirector Services

During the fiscal quarter ended September 30, 2012, weWe issued 1,592,9422,646 shares of common stock in connection with a royalty agreement, valued at $50,396. 

Issuance of Common Stock to directors for Conversion of Preferred Stock

During the fiscal quarter ended September 30, 2012, we issued 120,000 shares of common stock upon conversion of 20 shares of Series D Convertible Preferred stock.

Issuance of Common Stock for Payment of Preferred Dividends

During the fiscal quarter ended September 30, 2012, we issued 17,053,704 shares of common stock as payment of dividends on our Series D Convertible Preferred stock,services valued at $623,678.$45,000.

In each of the transactions listed above, we issued the shares of common stock were issuedCommon Stock without registration under the Securities Act in reliance on exemptions from registration provided by Section 4(2)4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder.

PurchasesIssuances of Equity SecuritiesCommon Stock for an Acquisition

Neither the Company nor any affiliated purchaser as defined in Rule 10b-18(3) of the Exchange Act made any purchases of shares of the Company’s common stock during the year endedSubsequent to September 30, 2012.2014, we issued 35,000 in connection with the acquisition of a subsidiary.

 
16-21-

ItemItem 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. All statements contained in this Annual Report on Form 10-K other than statements of historical fact are forward-looking statements. When used in this report or elsewhere by management from time to time, the words “believe,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “may,” “will,” “should,” “seeks” and similar expressions are forward-looking statements. Such forward-looking statements are based on current expectations, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. For a more detailed discussion of such forward-looking statements and the potential risks and uncertainties that may impact upon their accuracy, see Item 1A.,“Risk Factors” in Part I of this Form 10-K and the “Overview” and “Liquidity and Capital Resources” sections of this Item 7., Management’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements reflect our view only as of the date of this report. Except as required by law, we undertake no obligations to update any forward-looking statements. Accordingly, you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the SEC.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”&A”) is intended to help the reader better understand SecureAlert,Track Group, our operations and our present business environment.  Our fiscal year ends on September 30 of each year.  Reference to fiscal year 20122014 refers to the year ended September 30, 2012.2014.  This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements for the fiscal years ended September 30, 20122014 and 20112013 and the accompanying notes thereto contained in this report. This introduction summarizes MD&A, which includes the following sections:

·●Overview – a general description of our business and the markets in which we operate; our objectives; our areas of focus; and challenges and risks of our business.
·Recent Developments – a brief description of business developments occurring after the fiscal year ended September 30, 2012 and prior to the filing of this report.
·●Results of Operations – an analysis of our consolidated results of operations for the last two fiscal years presented in our consolidated financial statements.
·●Liquidity and Capital Resources – an analysis of cash flows; off-balance sheet arrangements and aggregate contractual obligations; an overview of financial position including the Company’s ability to continue as a going concern; and the impact of inflation and changing prices.
·●Critical Accounting Policies – a discussion of accounting policies that require critical judgments and estimates.
 
We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements.

Overview

We marketThe Company markets and deploydeploys offender management programs, combining patented GPS tracking technologies, fulltime 24/7/365 intervention-based monitoring capabilities and case management services.  Our vision is to be the global market leader for delivering the most reliable offender management solutions, which leverage superior intervention capabilities and integrated communication technologies.  We believe that we currently deliver the only offender management technology whichthat effectively integrates GPS, Radio Frequency (“RF”) and an interactive 3-way voice communication system into a single piece device, deployable worldwide.  Through our patented electronic monitoring technologies and services, we empower law enforcement, corrections and rehabilitation professionals with offender, defendant, probationer and parolee programs, which grant convicted criminals and pre-trial suspects an accountable opportunity to be “free from prison”.  This provides for greater public safety at a lower cost compared to incarceration or traditional resource-intensive alternatives.

-22-

Our flagship product line, ReliAlert, Shadow, and ReliAlert XCR.A.D.A.R., consists of devices are manufactured in the United States and include a portfolio of products, e-Arrest Beacons and monitoring services designed to create “Jails without Walls”, while re-socializing offender populations.  The products and services are customizable byto provide secure reintegration solutions for various offender types, (e.g.,including domestic abusers, sexual predators, gang members, pre-trial defendants, alcohol abusers, or juvenile offenders) and offer practical solutions and options for the reintegration and effective re-socialization of select offenders safely back into society.  Additionally, ouroffenders. Our proprietary software, and device firmware support the dynamic accommodation ofand processes accommodate agency-established monitoring protocols, victim protection imperatives, geographic boundaries, work environments, school attendance, rehabilitation programs and sanctioned home restrictions. Our technologiesdevices are intelligent devices with integrated computer circuitry.  They are constructed from case-hardened materials and are designed for domesticto promptly notify intervention monitoring centers of attempts to breach applicable electronic supervision terms or international, federal, state and local agencies to provide location tracking of designated individuals within the criminal justice system and throughout a restricted geography.   

Our GPS devicesremove or otherwise tamper with device elements. They are securely attached around the offender'san offender’s ankle with a tamper resistant strap (steel cabling with optic fiber) that can be adjusted or removed without detection only by.  We also have a supervising officer, and which is activated through services provided by our SecureAlert Monitoring Center (or other agency-based monitoring centers).  During fiscal year 2011, we also deployed an upgraded,unique patented, dual-steel banded SecureCuff strap for “at-risk”high risk or high flight risk offenders who have qualified for electronic monitoring supervision, but who require an incremental level of security and supervision, provided through both hardware and monitoring services.  Our monitoring and intervention centers act as an important link between the offender and the supervising officer, as intervention specialists persistently track and monitor the offender, initiating contact at the direction of the supervising agency and/or when the offender is in violation of any established restrictions or protocols.  The ReliAlert and ReliAlert XC units are intelligent devices with integrated computer circuitry and constructed from case-hardened plastics designed to promptly notify the intervention centers of any attempt made to breach applicable protocols, or to remove or otherwise tamper with the device or optical strap housing.

17
supervision.
 
Results of Operations

Continuing Operations - Fiscal Year 2012 compared2014 Compared to Fiscal Year 20112013

Net Revenues
During the fiscal year ended September 30, 2012,2014, we had net revenues of $19,791,492$12,262,198 compared to net revenues of $17,961,803$15,641,062 for the fiscal year ended September 30, 2011, an increase2013, a decrease of $1,829,689,$3,378,864, or approximately 10 percent.  Revenues22%.   Of these revenues, $11,663,181 and $15,028,625 were from monitoring and other related services forduring the fiscal year ended September 30, 2012, totaled $17,778,337, compared to $16,410,292 for the same2014 and 2013 period, ended 2011, resulting in an increaserespectively, a decrease of $1,368,045 or approximately 8 percent.  These revenues increased as a result of our continued expansion into the global market which contributed an additional $2,254,161 to monitoring revenues for the fiscal year ended September 30, 2012. Domestic revenues decreased by $424,473, or 3 percent, from the fiscal year ended September 30, 2011.$3,365,444 (22%). This decrease resulted primarily from lowering our monitoring daily charge to competethe completion of a contract with an international customer in the domestic marketplace. Revenuesfiscal 2013.  Product revenues decreased $13,420 (2%) from product sales$612,437 for the fiscal year ended September 30, 2012 were $2,013,155, compared2013 to $1,551,511$599,017 for the prior year an increase of $461,644, or 30 percent.  This increase was primarily due to a sale and installation of an onsite charging solution.  For the years ended September 30, 2012 and 2011, revenues from one-piece activated GPS tracking devices supported entirely about a single limb of the monitored person totaled $8,360,697 and $6,505,056, respectively.2014.

Cost of Revenues
 
During the fiscal year ended September 30, 2012,2014, cost of revenues excluding impairment of equipment and parts, totaled $11,418,012,$5,499,093 compared to cost of revenues during the fiscal year ended September 30, 20112013 of $9,565,959,$8,030,168, a decrease of $2,531,075. This decrease resulted primarily from the completion of a contract with an increase of $1,852,053.  These net costsinternational customer in fiscal 2013. We expect the cost of revenues as a percentage of net revenues increased 5 percent, from 53 percentto decrease in 2011the foreseeable future due to 58 percent in 2012.  The increase ineconomies of scale, realized through lower cost of revenues of $1,852,053 in 2012 resulted primarily fromdevices, projected increases in revenues, further development of our proprietary software, enabling each operator to monitor more devices resulting in lower monitoring center costs, and the costsuse of the charging solution of $360,961, royalty fees of $853,623, communication costs of $311,764, and amortization expenses of $187,126.more efficient supply channels.

Although there were increases in the cost of revenues, as stated above, the increase in communication costs in 2012 involve the costs associated with Subscriber Identity Modules (“SIM”) which are embedded in each TrackerPAL and ReliAlert device.  The SIM enables the device to transfer voice and data information to a monitoring center.  We incur a monthly charge for each SIM, regardless of whether or not the associated device generates revenue because the SIM cards are ordered and inserted into devices before the devices are sold or leased. Increases in these costs are expected as the number of activated devices increases.

Impairment costs for equipment and parts for the fiscal years ended September 30, 20122014 and 20112013 were $1,648,762$373,951 and $464,295,$213,276, respectively.  These costs resulted from disposalsthe disposal of obsolete inventory, monitoring equipment and parts as we continue to make enhancements to the device.

Amortization for the fiscal years ended September 30, 20122014 and 2011,2013, totaled $1,387,756$1,313,697 and $1,160,920,$1,230,293, respectively. Amortization costs are based on a three-year useful life for TrackerPAL and ReliAlert devices.  Devices that are leased or retained by us for future deployment or sale are amortized over three years. We believe this three-year life is appropriate due to rapid changes in electronic monitoring technology and the corresponding potential for obsolescence.  Management periodically assesses the useful life of the devices for appropriateness.

We expect the cost of revenues, excluding impairment of equipment and parts, as a percentage of revenues to decrease in the foreseeable future due to (a) economies of scale realized through projected increases in revenues, and (b) further development of lower cost devices and gained efficiencies in our proprietary software, enabling each operator to monitor more devices resulting in lower monitoring center costs.

Gross Profit and Margin

During the fiscal year ended September 30, 2012,2014, gross profit totaled $6,724,718,$6,763,105, or 34 percent55% of net revenues, compared to $7,931,549,$7,610,894, or 44 percent49% of net revenues during the fiscal year ended September 30, 2011,2013, a decrease of $1,206,831.$847,789.  Included in cost of revenues are costs attributable to impairment of inventory and monitoring equipment of $1,648,762$373,951 and $464,295$213,276 for the fiscal years ended September 30, 20122014 and 2011,2013, respectively.  These impairment costs from disposal and reduction in value of obsolete monitoring equipment are expenses we expect to decrease in future periods.  Excluding impairment costs, adjusted gross profit for the fiscal year ended September 30, 20122014 was $8,373,480$7,137,056 or 42 percent58% of net revenues, compared to $8,395,844$7,824,170 or 47 percent50% of net revenues, for the same period in 2011,2013, a decrease of $22,364.

18
$687,114. Decreases in revenues from the completion of a large international project in fiscal 2013 led to the decrease in gross profit.
 
Research and Development Expenses
During the fiscal year ended September 30, 2014, we incurred research and development expenses of $1,605,662 compared to similar expenses recognized during fiscal year 2013 totaling $987,934.  These increased research and development costs were incurred to improve efficiency in the software, firmware and hardware of our products and services including the development of new and more efficient electronic monitoring devices and other research and development costs incurred by a new subsidiary acquired during the year ended September 30, 2014.

Selling, General and Administrative Expenses
 
During the fiscal year ended September 30, 2012, we incurred research and development expenses of $1,248,654 compared to similar expenses recognized during fiscal year 2011 totaling $1,453,994.  This decrease of $205,340 is due primarily to a reduction in research and development staff.
Selling, General and Administrative Expenses
During the fiscal year ended September 30, 2012,2014, our selling, general and administrative expenses totaled $15,405,742,$12,891,151, compared to $15,652,303$7,679,124 for the fiscal year ended September 30, 2011.2013.  The decreaseincrease of $246,561$5,212,027 is primarily the result of decreasesincreases in legal, consulting, travel and other outside services expenses of $2,262,076, in connection with preliminary work and preparation for a large international contract and for purchase expenses related to the following expenses:acquisition of two new subsidiaries during the second half of fiscal 2014. The Company also incurred payroll and payroll taxesrelated expenses of $1,308,259 and employee benefits ($399,781), travelother operating expenses ($213,387),$1,855,614 related to the Company’s new Chilean, Israeli and legal ($100,982).  Consulting and non-cash compensation to employees expense forU.S. subsidiaries which were not a part of the fiscal year endedconsolidated entity at September 30, 2012 were $3,911,027 compared to $2,681,718 for the fiscal year ended September 30, 2011, an increase of $1,229,309.  The increase in consulting and non-cash compensation to employees expenses resulted from modifications of stock options.2013.

Other Income and Expense
 
For the fiscal year ended September 30, 2012,2014, interest expense was $1,489,897,$1,290,289, compared to $712,840$17,048,519 for the fiscal year ended September 30, 2011.2013. This increase of $777,057 is a result primarily of the non-cash interest expense of $860,190 related to amortization of debt discounts on convertible debentures. Also includeddecrease in interest expense is $59,575 relatedresulted primarily from a reduction in convertible debentures and the acceleration of certain debt conversion features into Common Stock during the 2014 period.   For the year ended September 30, 2014, other income was $624,001 compared to amortizationother expense of debt discounts$279,174 for the year ended September 30, 2013.  This increase in connection with an acquisition, and $39,965 for re-pricing of warrants.other income resulted primarily from a settlement agreement.

Net Loss
 
We had a net loss from for the fiscal year ended September 30, 20122014 totaling $17,458,107$8,747,844 (approximately $0.04$0.88 per share), compared to a net loss of $9,858,824$17,915,711 (approximately $0.03$3.79 per share) for the fiscal year ended September 30, 2011.2013.  This increasedecrease in the net loss is a result of $7,599,283 is due primarily to the impairment of goodwill of $5,514,395, impairment of monitoring equipment and parts of $1,184,467, royalties of $853,623,a large decrease in interest expense of $777,057,offset by increases in operating and settlement charges of $126,966.research and development expenses.
 
Discontinued Operations - Fiscal Year 2014 compared to Fiscal Year 2013
Effective October 1, 2012, we sold all of the issued and outstanding capital stock of our subsidiaries, Midwest Monitoring & Surveillance, Inc. (“Midwest”) and Court Programs, Inc. (“Court Programs”) to each of the their former principals, effective October 2012 and January 2013, respectively. Since Midwest and Court Programs were a component of our consolidated entity, these sales require discontinued operations reporting treatment of the Midwest and Court Program operations.

A summary of the operating results of discontinued operations for the fiscal years ended September 30, 2014 and 2013 is as follows:

  2014  2013 
Revenues $-  $477,298 
Cost of revenues  -   (163,487)
Gross Profit  -   313,811 
Selling, general and administrative expense  -   (319,976)
Loss from operations  -   (6,165)
Other expense  -   (295)
Net loss from discontinued operations $-  $(6,460)

Liquidity and Capital Resources

We have not historically financed operations entirely from cash flows from operating activities.  During the fiscal year ended September 30, 2012,2014, we fundedwere able to finance our business from cash flows partially from operating and investing activities through sale and issuance of debt and equity securities. Seeactivities.  We supplemented cash flows with the accompanying notes to the Consolidated Financial Statements included in this report.  The cash provided by these transactions was used by us to (i) pay operating expenses, including the costs associated with our monitoring center, (ii) purchase monitoring equipment and parts, (iii) pay down various debt and accounts payable, and (iv) pay general and administrative expenses, including the salaries of our employees, officers, and consultants and other expenses as described below.proceeds from borrowings. 
 
As of September 30, 2012,2014, we had unrestricted cash of $695,111,$11,101,822, compared to unrestricted cash of $949,749$3,382,428 as of September 30, 2011.2013.  As of September 30, 2012,2014, we had a working capital deficitsurplus of $13,600,345,$11,323,107, compared to a working capital deficitsurplus of $1,201,955$6,836,442 as of September 30, 2011.2013. The decreaseincrease in working capital in fiscal year 20122014 primarily resulted from the royalty repurchase agreementincreases in cash on hand as a result of increases in inventory and borrowingsproceeds from the issuance of our convertible debentures.   Facility Agreement with Tetra House and subsequently assigned to Conrent Invest S.A.

During fiscal year 2012, our2014, we used $4,582,288 in cash from operating activities, used cash of $1,709,388, compared to $6,809,513 used$838,910 of cash provided by operating activities during fiscal year 2011.  This improvement2013. The most significant change in cash from operations from 2013 to 2014 was the decrease in the certain non-cash accretion expense related to certain debt features which existed in 2013, but did not exist in 2014.  
The Company used from operating activities$12,837,121 of $5,100,125 resulted primarily from an increase in revenues of $1,829,689 and improved collections of accounts receivable of $3,780,843. 

Investingcash by investing activities during the fiscal year ended September 30, 2012, used cash of $2,720,944,2014, compared to $3,716,554$560,425 of cash used during the fiscal year ended September 30, 2011.2013.  The decreaseincrease in cash used by investing activities of $995,610$12,276,696 during fiscal year 20122014 resulted primarily from the decrease in cash used for the purchase of monitoring equipment and payments related to the acquisition of subsidiaries during 2014, the payment of a bond required for an acquisition during the fiscal year ended September 30, 2011.international subsidiary, and cash paid for purchases of property and equipment and leasehold improvements.
 
Financing activities during the fiscal year ended September 30, 2012,2014, provided $4,175,694$25,143,733 of net cash compared to $10,349,584$2,500,724 of cash provided during fiscal year 2013. This $22,643,009 increase during the fiscal year ended September 30, 2011.
During the fiscal year ended September 30, 2012, we made net payments of $906,478 on notes payable, $207,578 on related-party notes payable, and $1,147,250 of commissions paid in connection with capital raised.  During fiscal year 2012, we had2014 period is primarily attributable to proceeds of $2,004,000 from the issuance of Series D Convertible Preferred stock, proceeds of $500,000 from the issuance of convertible debentures, proceeds of $2,900,000 from the issuance of convertible debenturesFacility Agreement with Tetra House and subsequently assigned to related-parties and $1,033,000 from the issuance of common stock to a related party.

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Conrent Invest S.A.
 
During the fiscal year ended September 30, 2011,2014, we made net cash payments of $1,467,524 on notes and related–party notes payable.  During fiscal year 2014, we had cash proceeds totaling $26,950,000 from the issuance of notes and related-party notes payable. During the fiscal year ended September 30, 2013, we made net payments of $635,657$299,276 on notes payable and $188,634 on a related-party line of credit.payable.  During fiscal year 2011,2013, we had net proceeds of $10,344,603$2,800,000 from the issuance of Series D Convertible Preferred stock and net proceeds of $829,272 from related-party notes payable.

During the fiscal year ended September 30, 2012,2014, we incurred a net loss from continuing operations of $17,458,107$8,747,844 and we had negative cash flows from operating activities of $1,709,388,$4,582,288, compared to a net loss from continuing operations of $9,858,824$18,334,070 and negativepositive cash flows from operating activities of $6,809,513$838,910 for the fiscal year ended2013.  The significant decrease in the net loss from September 30, 2011.2013 to 2014 was largely due to the decrease in interest expense resulting from convertible debentures outstanding in fiscal 2013 which were not outstanding during fiscal 2014. As of September 30, 2012,2014, our working capital deficitsurplus was $13,600,345,$11,323,107, our stockholders’ equity was $4,427,137,$19,916,047 and the accumulated deficit totaled $248,513,626.

Going Concern$275,177,181.
 

Inflation

We do not believe that inflation has had a material impact on our historical operations or profitability.

Critical Accounting Policies
 
In Note (2)2, “Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements for the fiscal year ended September 30, 2012, included in this report,Annual Report, we discusseddiscuss those accounting policies that are considered to be significant in determining the results of operations and our financial position.
 
The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities.  The actual results may differ from these estimates under different assumptions or conditions.
  
With respect to inventory reserves, revenue recognition, impairment of long-lived assets and allowance for doubtful accounts receivables,receivable, we apply critical accounting policies discussed below in the preparation of our financial statements.
 
Inventory Reserves
 
The nature of our business requires maintenance of sufficient inventory on hand at all times to meet the requirements of our customers. We record inventory and raw materials at the lower of cost, or market, which approximates actual cost. General inventory reserves are maintained for the possible impairment of the inventory. Impairment may be a result of slow moving or excess inventory, product obsolescence or changes in the valuation of the inventory. In determining the adequacy of reserves, management analyzes the following, among other things:

·●Current inventory quantities on hand;
·●Product acceptance in the marketplace;
·●Customer demand;
·●Historical sales;
·●Forecast sales;
·●Product obsolescence; and
·Technological innovations
 
●Technological innovations.
Any modifications to these estimates of reserves are reflected in cost of revenues within the statement of operations during the period in which such modifications are determined necessary by management.
 

Revenue Recognition
 
The Company’sOur revenue has historically been from two sources: (i) monitoring services; and (ii) product sales.

Monitoring Services

Monitoring services include two components: (a)(i) lease contracts in which we provide monitoring services and lease devices to distributors or end users and we retain ownership of the leased device; and (b)(ii) monitoring services purchased by distributors or end users who have previously purchased monitoring devices and opt to use our monitoring services.

We typically lease our devices under one-year contracts with customers that opt to use our monitoring services.  However, these contracts may be cancelled by either party at anytimeany time with 30 daysdays’ notice.  Under our standard leasing contract, the leased device becomes billable on the date of activation or 7 to 21 days from the date the device is assigned to the lessee, and remains billable until the device is returned.  We recognize revenue on leased devices at the end of each month that monitoring services have been provided.  In those circumstances in which we receive payment in advance, we record these payments as deferred revenue.

Product Sales

We may sell monitoring devices in certain situations to our customers. In addition, we may sell equipment in connection with the building out and setting up a monitoring center on behalf of customers.  We recognize product sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices or equipment, prices are fixed or determinable (including sales not being made outside the normal payment terms) and collection is reasonably assured. When purchasing products (such as TrackerPAL, and ReliAlert, Shadow or R.A.D.A.R. devices), customers may, but are not required to, enter into one of our monitoring service contracts.  We recognize revenue on monitoring services for customers that have previously purchased devices at the end of each month that monitoring services have been provided.

We sell and install standalone tracking systems that do not require our ongoing monitoring.  We have experience in component installation costs and direct labor hours related to this type of sale and can typically reasonably estimate costs, therefore we recognize revenue over the period in which the installation services are performed using the percentage-of-completion method of accounting for material installations.  We typically use labor hours or costs incurred to date as a percentage of the total estimated labor hours or costs to fulfill the contract as the most reliable and meaningful measure that is available for determining a project’s progress toward completion.  We evaluate our estimated labor hours and costs and determine the estimated gross profit or loss on each installation for each reporting period.  If it is determined that total cost estimates are likely to exceed revenues, we accrue the estimated losses immediately.

Multiple Element Arrangements

The majority of our revenue transactions do not have multiple elements. However, on occasion, we enter into revenue transactions that have multiple elements.  These may include different combinations of products or monitoring services that are included in a single billable rate.  These products or monitoring services are delivered over time as the customer utilizes our services.  For revenue arrangements that have multiple elements, we consider whether the delivered devices have standalone value to the customer, there is objective and reliable evidence of the fair value of the undelivered monitoring services, which is generally determined by surveying the price of competitors’ comparable monitoring services, and the customer does not have a general right of return.  Based on these criteria, we recognize revenue from the sale of devices separately from the monitoring services provided to the customer as the products or monitoring services are delivered.

Other Matters

We consider an arrangement with payment terms longer than our normal terms not to be fixed or determinable, and we recognize revenue when the fee becomes due.  Normal payment terms for the sale of monitoring services and products are due upon receipt to 30 days.  We sell our devices and services directly to end users and to distributors.  Distributors do not have general rights of return.  Also, distributors have no price protection or stock protection rights with respect to devices we sell to them.  Generally, title and risk of loss pass to the buyer upon delivery of the devices.

We estimate our product returns based on historical experience and maintain an allowance for estimated returns, which is recorded as a reduction to accounts receivable and revenue.

Shipping and handling fees charged to customers are included as part of net revenues.  The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of revenues.

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Impairment of Long-lived Assets
 
We review our long-lived assets such as goodwill and intangibles for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable and in the case of goodwill, at least annually. We evaluate whether events and circumstances have occurred which indicate possible impairment as of each balance sheet date. We use an equity method of the related asset or group of assets in measuring whether the assets are recoverable.  If the carrying amount of an asset exceeds its market value, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset.  Impairment of long-lived assets is assessed at the lowest levels for which there is an identifiable fair market value that is independent of other groups of assets.  As of September 30, 2012 and 2011, we impaired goodwill from Court Programs by $2,488,068 and $0, respectively and impaired goodwill from Midwest by $3,026,327 and $0, respectively, for a total goodwill impairment for the fiscal year ended September 30, 2012 and 2011 of $5,514,395 and $0, respectively. 

Allowance for Doubtful Accounts
 
We must make estimates of the collectability of accounts receivable. In doing so, we analyze accounts receivable and historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
 
Recent Accounting Pronouncements 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB)(“FASB”) or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on itsour financial position or results of operations upon adoption.

Accounting for Stock-Based Compensation

We recognize compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  We estimate the fair value of stock options using a Black-Scholes option pricing model which requires us to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.

Item 7A.    QuantitativeQuantitative and Qualitative Disclosures About Market Risk.Risk

Our business is extending to several countries outside the United States, and we intend to continue to expand our foreign operations.  As a result, our revenues and results of operations are affected by fluctuations in currency exchange rates, interest rates, and other uncertainties inherent in doing business in more than one currency.  In addition, our operations are exposed to risks that are associated with changes in social, political, and economic conditions in the foreign countries in which we operate, including changes in the laws and policies that govern foreign investment, as well as, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment.


Foreign Currency Risks.We had $5,716,352$2,993,768 and $3,462,190$8,462,019 in revenues from sources outside the United States for the fiscal years ended September 30, 20122014 and 2011,2013, respectively.  We made and received payments in a foreign currency during the periods indicated, which resulted in a foreign exchange loss of $28,358$609,914 and $173,$145,612 in fiscal years 2014 and 2013, respectively.  Changes in currency exchange rates affect the relative prices at which we sell our products and purchase goods and services.  Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect of these fluctuations on our future business, product pricing, results of operations, or financial condition.  We do not use foreign currency exchange contracts or derivative financial instruments for trading or speculative purposes.  To the extent foreign sales become a more significant part of our business in the future, we may seek to implement strategies which make use of these or other instruments in order to minimize the effects of foreign currency exchange on our business.

ItemItem 8.    Financial Statements and Supplementary Data

The Financial Statements and Supplementary Data required by this Item are set forth at the pages indicated at Item 15 below.
 
ItemItem 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
��
None.
 
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ItemItem 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company hasWe have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to the Company is made known to the officers who certify the Company’sour financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 20122014 was completed pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act.  Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’sour disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms as of September 30, 2012.2014.

Management'sManagement’s Report on Internal Control over Financial Reporting

The Company’sOur management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  The Company’sOur internal control over financial reporting is a process designed under the supervision of the Company’sour principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company’sour financial statements for external purposes in accordance with generally accepted accounting principles.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) issued in September 1992 and related COSO guidance. Based on our evaluation under this framework, our management concluded that the Company’sour internal control over financial reporting was effective as of September 30, 2012.2014.

This management’s report on internal control over financial reporting does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual reportAnnual Report on form 10-K.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our fourth fiscal quarter ended September 30, 2012,2014, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

ItemItem 9B.    Other Information
 
None.
 

PAPARTRT III
 
ItemItem 10.    Directors, Executive Officers and Corporate Governance
Directors
 
The following table sets forth information about the members of our Board of Directors as of December 28, 2012:     12, 2014:

            Name                                                Age             Position                                                                                    
     
David S. Boone 5254 Director
Guy Dubois 5456 Director
David P. Hanlon68Director, Chairman of the Board
Rene Klinkhammer 3234 Director
Winfried Kunz 4749 Director
Dan L. Mabey 61Director
Antonio J. Rodriquez69Director
Larry G. Schafran7463 Director
George F. Schmitt 6971 Director
 
David S. Boone was recently appointed CEO of Paranet Solutions in Dallas, Texas.  He became a director of theour Company on December 21, 2011. He has served in executive roles with a variety of publicly traded and start-up organizations including Kraft General Foods, Sears, PepsiCo, Safeway and Belo Corporation, as well as serving as the CFO of Intira Corporation.  In addition, he has served as a consultant with the Boston Consulting Group.  Most recently, Mr. Boone was CEO, President and Director of American CareSource Holdings from 2005 to 2011, a NASDAQ traded company.  In addition, heHe was the 2009 Ernst and Young Entrepreneur of the Year winner for Health Care in the Southwest Region. Mr. Boone serves on a number of private company boards and serves on the board of the Texas Kidney Foundation. Mr. Boone graduated from the University of Illinois, cum laude, in 1983 majoring in accounting.  Mr. Boone is a Certified Public Accountant.  He received his master’s degree in business administration from Harvard Business School in 1989.

Guy Dubois is our Chairman since February 2013 and became a director in December 2012. Mr. Dubois is a Director atof Singapore-based Tetra House Pte. Ltd., that providesa provider of consulting and advisory services worldwide.worldwide; and a director of RNTS Media NV, a Luxembourg listed digital content developer and mobile application advertising monetization platform provider. Mr. Dubois was Chief Executive Officeris a former director and CEO of gategroupGategroup AG, from September 2008 until April 2011. He previouslyand held the positions of President, Executive Vice President Finance and Administration, Chief Administrative Officer and Chief Financial Officer ofvarious executive leadership roles at Gate Gourmet Holding LLC. He has served as a manager of the Board of Managers of Gate Gourmet Holding LLC from March 2007 until April 2011 and as a member of the Board of gategroup AG from February 2008 until April 2011.  Prior to joining Gate Gourmet in July 2003, Mr. Dubois was Vice President Finance, Administration, Demand and Supply Chain for Roche’shas held executive management positions at Roche Vitamins Inc. in New Jersey, from 2000 to 2003. Prior to which he was Area Manager, Finance and Administration for Roche’s Vitamins Asia-Pacific Pte. Ltd.as well as regional management roles in Singapore from 1997 to 1999, and Finance Manager from 1995 to 1997. Mr. Dubois worked in corporate finance for Hoffman-La Roche in 1994.that firm’s Asia Pacific operations. Mr. Dubois also served on the European Organization for Nuclear Research (CERN) team in Switzerland in various roles, including Treasurertreasurer and Chief Accountant, Manager General Accounting and Financial Accountant from 1989 to 1994.  Hechief accountant. Mr. Dubois also worked with IBM in Sweden from 1984 to 1988 as Product Support Specialist for Financial Applications. He attendedA Belgian citizen, Mr. Dubois holds a degree in financial science and accountancy from the Limburg Business School in Diepenbeek, Belgium, and has a degree in Financial Science and Accountancy.  Mr. Dubois is a Belgian citizen.Belgium.

Mr. Dubois’ appointment to the Board of Directors was a requirement of a financing arrangement with Sapinda Asia whereby Sapinda Asia is obligated to loan funds to the Company.

An executive of gategroup holdings AG, an airline catering company headquartered in Switzerland was convicted in a Danish court in September 2012 of fraud and embezzlement involving company assets.  Mr. Dubois, who was Chief Executive Officer of the company at the time the executive committed the acts leading to her conviction, voluntarily resigned from gategroup holdings AG in 2011.  The Zurich State Prosecutor initiated an investigation in 2011 focused on whether other individuals, including Mr. Dubois were aware of or benefitted personally from the fraud and embezzlement that occurred.  Mr. Dubois, who has indicated he was unaware of any of these activities at the time they were being committed, has been cooperating with that investigation.

David P. Hanlon has been a member of our Board of Directors since October 2006 and was appointed Chairman in December 2011.  He served previously as Chief Executive Officer and President of Empire Resorts, Inc., a public company in the gaming industry, until May 2009.  Prior to starting his own gaming consulting business in 2000, in which he advised a number of Indian and international gaming ventures, Mr. Hanlon was President and Chief Operating Officer of Rio Suites Hotel & Casino from 1996-1999, a period in which the Rio Suites Hotel & Casino underwent a major expansion.  From 1994-1995, Mr. Hanlon served as President and Chief Executive Officer of International Game Technology, the world's leading manufacturer of microprocessor gaming machines.  From 1988-1993, Mr. Hanlon served as President and Chief Executive Officer of Merv Griffin's Resorts International, and prior to that, Mr. Hanlon served as President of Harrah's Atlantic City (Harrah's Marina and Trump Plaza).  Mr. Hanlon also served as President and Chief Executive Officer of the Las Colinas Group organized for the purpose of developing a major entertainment center in partnership with the city of Irving Texas.  Mr. Hanlon's education includes a B.S. in Hotel Administration from Cornell University, an M.S. in Accounting, and an M.B.A. in Finance from the Wharton School, University of Pennsylvania, and completion of the Advanced Management Program at the Harvard Business School.

 
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Rene Klinkhammerbecame a director in January 2010.  He graduated from European Business School, Oestrich-Winkel, Germany, in 2004, with an MBA-equivalent degree in business administration.  His majors were Banking, Finance and International Management.  After graduating, Mr. Klinkhammer joined Deutsche Bank’s Investment Banking Division as an analyst in the Corporate Finance Advisory Group, specializing in mergers and acquisitions, along with debt and equity financing transactions for larger German clients of the bank.  SinceFrom 2007 to June 2013, Mr. Klinkhammer has been workingworked for Sapinda Holding B.V. and its subsidiaries, a group of privately-owned investment companies with offices in Amsterdam, Berlin, London and other major cities around the world.  For avoidanceFrom July 2013 until September 2014, Mr. Klinkhammer worked for Anoa Capital S.A., a Luxembourg based provider of doubt, Sapinda Asia Limited is not affiliated with Sapinda Holding B.V. andinnovative financing solutions, as Head of Origination. Since then, Mr. Klinkhammer has no affiliation with Sapinda Asia Limited. For the past six years, Mr. Klinkhammer has worked with the Company as both an investorco-launched a family-owned venture, focusing on residential real estate developments and advisor.
adjacent fields of business.

Winfried Kunz became a director on December 21, 2011. He studied Business Administration and Economics from 1984 -1989 at the Universities in Munich and Cologne. In 1985 he started working as a system analyst and from 1987 – 1998 as a management consultant for German, British and American companies in the information technology business, where he served in executive positions. Mr. Kunz worked as an executive at Precision Software Ltd., ContractContact Software International Inc., and Symantec Corp. For more than 15 years, Mr. Kunz has worked as an independent consultant and managing partner of Asecon GmbH, a company he founded in 1997, developing and implementing investor innovative business models for residential properties with a focus in Munich for his own portfolio and for third parties. For more than 10 years he has been a consultant to JK Wohnbau GmbH, a Munich-based real estate developer, where he served as COO from 2009 until the company’s initial public offering in 2010. Previously, from 2009 to 2011, Mr. Kunz worked with us as an investor.

Dan L. Mabeybecame a director on December 21, 2011.  He isMr. Mabey has acted as the PresidentCEO of BighornBigHorn Oil and Gas, an energy development company (Casper, Wyoming), and he has served in both public and private company leadership positions in the high-tech industry including President of 1-2-1 View digital signage company (Singapore), Chief Operating Officer and Director of In Media Corporation IPTV service company (California), President of Interactive Devices, Inc. a video compression company (Folsom, California) and Vice President of Broadcast International, a satellite broadcast company ( Salt Lake City, Utah).  From 1990 until 2002, Mr. Mabey was Director of the State of Utah Department of Economic Development International Business Development Office, growing Utah exports from $700 million to $3.6 billion a year. He helped recruit the 2002 Winter Olympics to SaleSalt Lake City, Utah, and managed international business development for the games. Throughout his career, Mr. Mabey has been active in civic and community organizations and is the recipient of numerous service awards. He is also the co-inventor or lead inventor on six patents and the sole inventor of a seventh.  Mr. Mabey received a Masters of Public Administration (MPA) degree from Idaho State University in 1978 and a B.A. degree from Boise State University in 1974.

Antonio J. Rodriguez became a director on December 21, 2011.  He has practiced corporate law since 1974 with the firm McConnell Valdes, LLC in Puerto Rico and from 1979 to 2006 he served as a principal partner of the law firm.  Since 2006, Mr. Rodriquez has served as Of Counsel with the firm.  Mr. Rodriquez has extensive experience as a corporate attorney advising both private and publicly held corporations and facilitating transactions of all kinds.  Mr. Rodriquez and his firm are legal counsel to Borinquen Container Corporation, a significant shareholder of the Company.
Larry G. Schafran
 has been a member of our Board of Directors since October 2006.  Until mid-December 2012, he was associated with Providence Capital, Inc. (“PCI”) as a Managing Director.  PCI is a New York City-based investment and advisory firm.  Additionally, Mr. Schafran was Lead Director and Audit Committee Chairman and later a consultant to the Chairman of WorldSpace, Inc.  In addition, to Secure Alert, Inc., Mr. Schafran is also a director of the following corporations: National Patent Development Corporation and Glasstech, Inc. In recent years, Mr. Schafran served in several capacities, including, as a director of SulphCo, Inc., PubliCard, Inc., Tarragon Corporation, and ElectroEnergy, and Trustee, Chairman/Interim-CEO/President and Co-Liquidating Trustee of Special Liquidating Trust of Banyan Strategic Realty Trust; Director and/or Chairman of the Executive Committees of Dart Group Corporation, Crown Books Corporation, TrakAuto Corporation, and Shoppers Food Warehouse, Inc. (Vice-Chairman); director and member of the Strategic Planning and Finance Committees of COMSAT Corporation, and Managing General Partner of L. G. Schafran & Partners, LP, a real estate investment and development firm.  
George F. Schmitt became a director on December 21, 2011.  He is a director and CEO of MBTH Technology Holdings.  He has held this position since December, 2010.  Mr. Schmitt is also a director of XG Technology, Inc. a publicly traded company, Kentrox and Calient.  Mr. Schmitt previously served as a director of TeleAtlas, Objective Systems Integrators, Omnipoint and LHS Group.  Mr. Schmitt is a principal of Sierra Sunset II, LLC and serves as a Trustee of St. Mary’s College.  In addition, Mr. Schmitt has served as a director of many privately held companies including Voice Objects, Knowledge Adventure, Jungo and Cybergate, among others.  Mr. Schmitt has also served as Financial Vice President of Pacific Telesis and chaired the audit committee of Objective Systems Integrations and TeleATLAS.  Mr. Schmitt received an M.S. in Management from Stanford University, where he was a Sloan Fellow, and a B.A. in Political Science from Saint Mary’s College.

25
 
Board of Directors

Election and Meetings

Directors currently hold office until the next annual meeting of the shareholders and until their successors have been elected or appointed and duly qualified.  Executive officers are appointed by the Board of Directors and hold office until their successors are appointed and duly qualified.  Vacancies on the Board which are created by the retirement, resignation or removal of a director may be filled by the vote of the remaining members of the Board, with such new director serving the remainder of the term or until his/her successor shall be elected and qualify.

The Board of Directors is elected by and is accountable to our shareholders.  The Board establishes policy and provides strategic direction, oversight, and control.  The Board met 24eight times during fiscal year 2012.2014.  All directors attended at least 80 percent80% of the meetings of the Board and the committees of the Board of Directors, of which they are members.
 
Director Independence
 
The Board of Directors has determined that the following current members of the Board are independent directors as of December 10, 2012, in accordanceintends to comply with the director independence standards of the NASDAQ Stock Market, including NASDAQ Rule 4200(a)(15):. The Board determined, based on the NASDAQ Stock Market Rules, that George F. Schmitt, Winfried Kunz, David S. Boone, David P. Hanlon, Winfried Kunz, Larry G. Schafran,Rene Klinkhammer, and George F. Schmitt.  The independent directorsDan L. Mabey meet from timethe NASDAQ standards to time in executive session.be considered independent. The Board has not appointed a lead independent director.
 
Specifically, none of these directors:
●has been at any time during the past three years employed by us or by any parent or subsidiary of the Company;
●has accepted or has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than compensation for board or board committee service;
●is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
●is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5 percent of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more;
●is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers serve on the compensation committee of such other entity; or
●is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.

Shareholder Communications with Directors
 
If we receive correspondence from our shareholders that is addressed to the Board of Directors, we forward it to every director or to the individual director to whom it is addressed. Shareholders who wish to communicate with the directors may do so by sending their correspondence to the directors c/o SecureAlert, Inc., 150 West Civic Center Drive,Track Group, 405 South Main Street, Suite 100, Sandy,700, Salt Lake City, Utah 84070.84111.
 
Committees of the Board of Directors
 
The Board of Directors has a separately-designatedthree standing committees: the Audit Committee, Compensation Committee, and Nominating Committee.  These committees assist the Board of Directors to perform its responsibilities and make informed decisions.  Charters for these committees are posted on our website, www.securealert.com. 
Audit Committee
 
Audit Committee.The primary duties of the Audit Committee are to oversee (i) management’s conduct of the Company’sour financial reporting process, including reviewing the financial reports and other financial information provided by the Company, and reviewing the Company’sour systems of internal accounting and financial controls, (ii) the Company’sour independent auditors’ qualifications and independence and the audit and non-audit services provided to the Company and (iii) the engagement and performance of the Company’sour independent auditors.  The Audit Committee assists the Board in providing oversight as to the Company’sof our financial and related activities, including capital market transactions. The Audit Committee has a charter, a copy of which is available on the Company’sour website at www.securealert.comwww.trackgrp.com.

The Audit Committee meets with our Chief Financial Officer and with our independent registered public accounting firm and evaluates the responses by the Chief Financial Officer both to the facts presented and to the judgments made by our independent registered public accounting firm.  The Audit Committee met four times during fiscal year 20122014 and all members of the Audit Committee attended at least 75 percent75% of the committee’s meetings.  

Members of the Audit Committee during 2012 wereas of September 30, 2014, are Messrs. Schafran (Chairman),Boone, Schmitt and Boone. On December 28, 2012, Mr. Schafran stepped down as Chairman and as a member of the Audit Committee and the Board of Directors appointed Mr. Boone to serve as the new Audit Committee Chairman.

Kunz.  Each member of the Audit Committee satisfies, according to the full Board of Directors, the definition of independent director as established in the NASDAQ Listing Standards.Stock Market Rules.  All of the members of the Audit Committee are financially literate.  In accordance with Section 407 of the Sarbanes-Oxley Act of 2002, the Board of Directors designated Mr.David S. Boone as the Audit Committee’s “Audit Committee Financial Expert” as defined by the applicable regulations promulgated by the Securities and Exchange Commission.  Mr. Boone is a nominee for director at the Annual Meeting.SEC.  
 
The Audit Committee reviewed and discussed the matters required by United States auditing standards required by the Public Company Accounting Oversight Board (“PCAOB”PCAOB”) and our audited financial statements for the fiscal year ended September 30, 20122014 with management and our independent registered public accounting firm.  The Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by Independence Standards Board No. 1, and the Audit Committee has discussed with the independent registered public accounting firm the independent registered public accounting firm's independence.  The Audit

Compensation Committee recommended to the Board of Directors that our audited Consolidated Financial Statements for the fiscal year September 30, 2012 be included in this report.
 
26
Compensation Committee.  During the fiscal year 2012,Members of the Compensation Committee was chaired by Mr. Kunz.are Messrs. SchmittMabey (Chairman), Boone, and Klinkhammer are also members of the Compensation Committee.Schmitt.  The Compensation Committee met two times during fiscal year 2012.2014.  Members of the Compensation Committee are appointed by the Board of Directors.  Mr. KunzMessrs. Mabey, Boone, and Mr. Schmitt are independent directors, under applicableas determined by the Board of Directors in accordance with the NASDAQ rules.Stock Market Rules, including Rule 5605(d)(2)(A).  The Compensation Committee is governed by a charter approved by the Board of Directors, a copy of which is available on the Company’s website www.securealert.comwww.trackgrp.com.

The Compensation Committee has responsibility for developing and maintaining an executive compensation policy that creates a direct relationship between pay levels and corporate performance and returns to shareholders. The Committee monitors the results of such policy to assure that the compensation payable to our executive officers provides overall competitive pay levels, creates proper incentives to enhance shareholder value, rewards superior performance, and is justified by the returns available to shareholders.

The Compensation Committee also acts on behalf of the Board of Directors in administering compensation plans approved by the Board, in a manner consistent with the terms of such plans (including, as applicable, the granting of stock options, restricted stock, stock units and other awards, the review of performance goals established before the start of the relevant plan year, and the determination of performance compared to the goals at the end of the plan year).  The Committee reviews and makes recommendations to the Board with respect to new compensation incentive plans and equity-based plans; reviews and recommends the compensation of the Company’s directors to the full Board for approval; and reviews and makes recommendations to the Board on changes in major benefit programs of executive officers of the Company.
Nominating and Corporate Governance Committee
 
Nominating Committee.  Mr. KunzSchmitt serves as the chair of the Nominating and Corporate Governance Committee.  Messrs. SchafranKunz and MabeyKlinkhammer also currently serve as members of this committee.  The Nominating Committee has the responsibility for identifying and recommending candidates to fill vacant and newly created Board positions, setting corporate governance guidelines regarding director qualifications and responsibilities, and planning for senior management succession.

The Nominating and Corporate Governance Committee is required to review the qualifications and backgrounds of all directors and nominees (without regard to whether a nominee has been recommended by shareholders), as well as the overall composition of the Board of Directors, and recommend a slate of directors to be nominated for election at the annual meeting of shareholders, or, in the case of a vacancy on the Board of Directors, recommend a director to be elected by the Board to fill such vacancy.  The Nominating Committee held three meetingsone meeting during fiscal 2012.2014. The Nominating Committee’s charter is available on our website, www.trackgrp.com.
  
Code of Ethics.  Ethics
We have established a Code of Business Ethics that applies to our officers, directors and employees.  The Code of Business Ethics contains general guidelines for conducting our business consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.  We will post on our website, www.securealert.comwww.trackgrp.com, any amendments to or waivers from a provision of our Code of Business Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions and that relates to any element of the Code of Business Ethics.

Executive Officers
 
The following table sets forth certain information regarding our principal executive officer and principal financial and accounting officer as of December 10, 2012:12, 2014:
Name                                                Age Position                                                                                    
     
Executive Committee of Board of Directors   Principal Executive Officer
Chad D. OlsenJohn R. Merrill 4144 Chief Financial Officer
 
The Executive Committee of the Board of Directors, comprised of George F. Schmitt and Winfried Kunz, was established to act temporarily act in the principal executive officer function following the resignation of John L. Hastings, IIIour Chief Executive Officer in October 2012. Mr. Hastings had served as our President since June 2008 and as Chief Executive Officer since June 2011.   Messrs. Schmitt and Kunz will act as a committee to fill the role of our principal executive officer on an interim basis until a new Chief Executive Officer can be engaged.  TheCurrent members of the Executive Committee are not compensated beyond normal director compensationGuy Dubois and David S. Boone.  Biographies for their service on the Executive Committee.Mr. Dubois and Boone appear under heading “Directors” above.
 
Chad D. OlsenJohn R. Merrill becamewas appointed to be our Chief Financial Officer in January 2010.April 2014. In addition to his position at Track Group, Mr. Merrill also serves as Chief Financial Officer for TenXNetworks and IPVidTech.com, a network intelligence provider of both hardware and services. From 2010 to 2013, Mr. Merrill worked as an advisor in the healthcare technology industry facilitating both due diligence and integration of certain acquired companies. Prior to that time, he served as our corporate controller since September 2001.  From 1992 to 1997,2010, Mr. Olsen worked inMerrill was the bankingChief Financial Officer of Park City Group, Inc. (Nasdaq: PCYG) and investment industry where he assisted clientsPrescient Applied Intelligence, Inc. (OTC: PPID), software-as-a-service providers of supply chain solutions for both retailers and their suppliers. Throughout his career, Mr. Merrill has held various financial roles within the broadcasting, sports marketing and retail industries. He began his career with tax, investmentKPMG and banking services. From 1997 to 2001, Mr. Olsen worked withholds a certified public accounting firm performing tax, auditing,Bachelors and business advisory services. Additionally, Mr. Olsen owned and operated his own accounting practice performing tax, accounting, and consulting services. Mr. Olsen received a Bachelor of Science DegreeMaster’s in Accounting from Brigham Young University.the University of South Florida.
Item 11.    Executive Compensation
 
Item 11.    Executive Compensation

Our former President, Chief Operating Officer, and Chief Executive Officer, Mr. Hastings, was paid a base annual salary of $360,000.  Mr. Hastings resigned from the Company in October 2012. The amount of the base salary was determined after negotiations between Mr. Hastings and our Compensation Committee.  Factors considered in determining Mr. Hastings’ base salary included his backgroundSet out in the industries in which we operate; his educational and work background, and reviewsfollowing summary compensation table are the particulars of sample salaries at companies of comparable size and industry. 

Effective September 30, 2011, the Board of Directors granted warrants to purchase 69,000,000 shares of Common Stock to executives of the Company, including Mr. Hastings and other of its executive officers and managers.  As of September 30, 2012, unvested warrants held by executives to purchase 36,500,000 shares were cancelled which resulted in outstanding vested warrants for the purchase of 32,500,000 shares of Common Stock held by such executives as of September 30, 2012.  Upon cancellation of these warrants, the Company issued a total of 24,340,000 restricted shares of Common Stockcompensation paid to the executives.
Summary Compensation Table

The following table summarizes the total compensation paid or earned bypersons for our principal executive officer serving during the most recently completed fiscal yearyears ended September 30, 2012,2014 and the two other most highly compensated executive officers of the Company (with the principal executive officer, collectively, the “Named Executive Officers”) who were serving as executive officers at September 30, 2012:2013:
 
 (a) 
( b )
  ( c )   ( d )   ( e )   ( f )   ( g )   ( h ) 
                    All Other     
 Name and   Salary   Bonus   Stock Awards   Option Awards   Compensation   Total 
 Principal Position  Year  ( $ )   ( $ )   ( $ )   ( $ )   ( $ )   ( $ ) 
                          
John L. Hastings, III (1)2012 $360,000  $-  $372,000  $1,297,055  $120,075  $2,149,130 
Chief Executive Officer,2011 $325,000  $27,000  $137,500  $477,350  $237,919  $1,204,769 
President, and      
Chief Operating Officer                         
                          
Chad D. Olsen (2)2012 $192,000  $35,000  $124,000  $432,352  $42,195  $825,547 
Chief Financial Officer2011 $165,000  $4,000  $-  $159,117  $26,511  $354,628 
                          
Bernadette Suckel (3)2012 $168,000  $35,000  $77,500  $270,219  $7,950  $558,669 
Managing Director Global2011 $125,400  $2,000  $-  $99,448  $10,653  $237,501 
Customer Service      
(a)(1)Mr. Hastings was
our Chief Executive Officer from July 2011 until October 2012. During that period he also served as our President (from June 2008)principal executive officer, consisting of the executive committee of the Board of Directors; and our Chief Operating Officer (from November 2008).  Column (e) includes 12,000,000 shares of restricted and unregistered common stock, valued on the date of grant at $372,000 and 275 shares of Series D Preferred Stock, valued on the date of grant at $137,500 issued to Mr. Hastings during the fiscal years ended September 30, 2012 and 2011, respectively.  Column (f) includes the fair value on the date of grant of certain common stock purchase warrants granted to Mr. Hastings in the years indicated. As of September 30, 2012, the intrinsic value of these warrants was $0. Of the amounts indicated for fiscal year 2012, $676,248 was attributable to the cancellation and surrender of warrants to the Company by Mr. Hastings.  Column (g) includes $120,075 of additional compensation paid by us for services and benefits on behalf of Mr. Hastings as part of his deferred sign-on package which was paid over the past three years, as well as payments for paid-time off, health, dental, vision, and life insurance.

 (2)
 (b)Mr. Olsen became
our Chief Financial Officer in January 2010. Prior to his appointmentmost highly compensated executive officer who was serving as Chief Financial Officer, Mr. Olsen was our controller.  Column (e) includes 4,000,000 sharesan executive officer at the end of restricted and unregistered  common stock valued on the date of grant at $124,000, issued to Mr. Olsen during the fiscal year ended September 30, 2012.  Column (f) includes2014 who had total compensation exceeding $100,000 (together, with the fair value onprincipal executive officer, the date“Named Executive Officers”); and
 (c)an additional individual for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer at the end of grantthe most recently completed financial year.
( a ) ( b ) ( c )  ( d )  ( e )  ( f )  ( g )  ( h ) 
Name and   Salary  Bonus  Stock Awards  Option Awards  All Other Compensation  Total 
Principal Position Year ( $ )  ( $ )  ( $ )  ( $ )  ( $ )  ( $ ) 
                     
Guy Dubois (1)
 2014 $-  $-  $-  $346,276  $-  $346,276 
Chairman and Acting Principal 2013 $-  $-  $-  $335,687  $-  $335,687 
Executive Officer                          
                           
Chad D. Olsen (2)
 2014 $325,056  $-  $-  $-  $32,515  $357,571 
Former Chief Financial Officer 2013 $192,000  $-  $-  $-  $8,740  $200,740 
                           
John R. Merrill (3)
 2014 $79,615  $-  $-  $-  $12,613  $92,228 
Chief Financial Officer                          
                           
Bernadette Suckel (4)
 2014 $211,048  $-  $-  $-  $15,995  $227,043 
Former Managing Director Global 2013 $168,000  $-  $-  $-  $8,061  $176,061 
Customer Service                          
(1)Mr. Dubois has been a member of certain common stock purchase warrants granted to the Executive Committee since October 2012 and currently serves as Chairman of the Board of Directors.

(2)Mr. Olsen in the years indicated. As of September 30, 2012, the intrinsic value of these warrants was $0.  Of the amount indicated for fiscal year 2012, $225,561 was attributable to the cancellation and surrender of warrants to the Company by Mr. Olsen.served as our Chief Financial Officer from January 2010 through April 2014.  Column (g) includes additional compensation for paid-time off, health, dental, life and vision insurance.

(3)(3)Mr. Merrill has served as our Chief Financial Officer since April 2014. Column (g) includes additional compensation for paid-time off, health, dental, life and vision insurance.

(4)Mrs. Suckel has served as Managing Director of Global Customer Service and Account Management of the Company sincefrom June 2008. Column (e) includes 2,500,000 shares of restricted and unregistered common stock valued on the date of grant at $77,500, issued to Mrs. Suckel during the fiscal year ended September 30, 2012.  Column (f) includes the fair value on the date of grant of certain common stock purchase warrants granted to Mrs. Suckel during the fiscal years indicated. As of September 30, 2012, the intrinsic value of these warrants was $0.  Of the amount indicated for fiscal year 2012, $140,975 was attributable to the cancellation and surrender of warrants to the Company by Mrs. Suckel.2008 through June 2014. Column (g) includes additional compensation for health, dental, life and vision insurance.insurance
 
Narrative Disclosure to the Executive Compensation Table

Compensation Paid to the Members of the Executive Committee

Member of the Executive Committee and acting principal executive officer, Guy Dubois, was granted warrants equal to $300,326 for his additional work as a director and member of the Board’s Executive Committee during the year ended September 30, 2014 consisting of warrants to purchase 51,576 shares of Common Stock at an exercise price of $17.45 per share. These warrants vest in equal monthly increments over a period of one year or immediately upon the hiring of a new Chief Executive Officer.  These warrants were valued at the date of grant using the Black-Scholes model. The Board of Directors has not determined a timeline for the hiring of a new Chief Executive Officer.
Outstanding Equity Awards at Fiscal Year-End 2012
 
                                  Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($)
                                  
            
Equity incentive plan awards: 
 Number of underlying
unexercised
 unearned options (#)
Option exercise price ($)           
Equity incentive plan awards:  Number of Unearned
shares, units or
other rights
 that have
 not vested (#)
                       
                       
    
Number of securities
underlying unexercised
 options (#) exercisable
Number of securities
 underlying unexercised
options (#) unexercisable
Option expiration date
Number of shares
or units of stock
 that have not vested (#)
Market value
 of shares or units
 of stock that have
 not vested ($)
    
    
    
 
 
Name
                                    
John L. Hastings III1,250,000--$0.075 6/23/13-- - -
    250,000--$0.075 1/15/14- - - -
    18,000,000--$0.083 9/29/14-- - -
                                      
Chad D. Olsen1,518,000--$0.075 4/30/13-- - -
    200,000--$0.075 1/15/14-- - -
    25,000--$0.075 3/14/14-- - -
    653,380-           64,620$0.075 9/29/15-- - -
    6,000,000--$0.083 9/29/14-- - -
                                      
Bernadette Suckel100,000--$1.55 6/8/13-- - -
    200,000--$0.30 1/15/14-- - -
    3,750,000--$0.083 9/29/14-- - -
    637,000-           63,000$0.15 9/29/15-- - -
Merrill Employment Agreement

No options held
On November 19, 2014, the Company entered into a two-year employment agreement with John Merrill, our Chief Financial Officer (the “Merrill Employment Agreement”).  Under the terms and conditions of the Merrill Employment Agreement, Mr. Merrill will receive an annual base salary of $180,000 and is eligible to participate in the Company’s Employee Bonus Plan and 2012 Equity Incentive Award Plan, wherein Mr. Merrill may earn a variable cash bonus and/or shares of the Company’s Common Stock based on individual performance and achieving specific Company milestones. Mr. Merrill is also entitled to participate in such life insurance, disability, medical, dental, retirement plans and other programs as may be made generally available from time to time by the Named Executive OfficersCompany for the benefit of similarly situated employees or any of our directors were exercised during the fiscal year ended September 30, 2012.its employees generally.

Outstanding Equity Awards at Fiscal Year-End 2014
Employment Agreements

Name Number of securities underlying unexercised options (#) exercisable  Number of securities underlying unexercised options (#) unexercisable  Equity incentive plan awards: Number of underlying unexercised unearned options (#)  Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#)  Market value of shares or units of stock that have not vested ($)  Equity incentive plan awards: Number of Unearned shares, units or other rights that have not vested (#)  Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($) 
                          
Guy Dubois  2,385   -   -  $12.580 3/21/2015  -   -   -   - 
   64,665   -   -  $9.000 4/15/2015  -   -   -   - 
   4,083   -   -  $14.700 6/30/2015  -   -   -   - 
   2,280   -   -  $19.460 9/30/2015  -   -   -   - 
   2,344   -   -  $19.290 12/31/2015  -   -   -   - 
   2,432   -   -  $18.750 3/31/2016  -   -   -   - 
   51,576          $17.450 6/2/2016                
   2,647          $15.450 6/30/2016                
                                  
Chad D. Olsen  -   -   -   -    -   -   -   - 
                                  
John R. Merrill  -   -   -   -    -   -   -   - 
                                  
Bernadette Suckel  -   -   -   -    -   -   -   - 
We have no employment agreements with any Named Executive Officer.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) requires our officers, directors, and persons who beneficially own more than 10 percent of our Common Stock to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater-than-ten-percent shareholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.
 
Based solely upon a review of these forms that were furnished to us, and based on representations made by certain persons who were subject to this obligation that such filings were not required to be made, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during fiscal year 2012,2014 and that such filings were timely except the following:

·
·Mr. Hanlon,Klinkhammer, a director, filed one late Form 4 to reportreporting one transaction; andtransaction
 
·
Mr. Schmitt, a director, filed three late Form 4s reporting three transactions
·         Mr. Dubois, a director, filed one late Form 4 to report three transactions.
·Borinquen Container Corporation filed six late Form 4s to report six transactions.reporting one transaction
 
·         Mr. Boone, a director, filed one late Form 4 reporting one transaction
·         Mr. Mabey, a director, filed two late Form 4s reporting two transactions
·         Mr. Kunz, a director, filed two late Form 4s reporting two transactions


Compensation of Directors

We do not pay any compensation to our employee directors for their service on the Board.  However, we do pay our non-employee directors as indicated below.

The table below summarizes the compensation paid by us to our non-employee directors for the fiscal year ended September 30, 2012:2014:

(a) (b)  (c)  (d)  (e) 
  Fees earned  Stock awards  Option awards  Total 
Name ($)*  ($)  ($)  ($) 
             
Winfried Kunz $15,000  $15,000  $15,000  $45,000 
George F. Schmitt $15,000  $22,500  $8,991  $46,491 
Rene Klinkhammer $15,000  $30,000  $-  $45,000 
David S. Boone $30,000  $30,000  $30,000  $90,000 
Dan L. Mabey $15,000  $29,833  $-  $44,833 
Guy Dubois $30,000  $-  $346,276  $376,276 
*Fees earned by our non-employee directors will be paid in Common Stock or options to purchase Common Stock at the option of the director.  A liability for these fees was included with accrued expenses at September 30, 2014.
From October 2013 through May 2014, we accrued $2,500 per month, which amount was increased to $5,000 per month in June 2014, for each director to be issued in shares of Common Stock valued on the last date of the quarter. Alternatively, any director may elect to receive warrants with an exercise price at the current market price at the date of grant in the amount of three times the amount had the director elected to take shares, valued at the date of grant using the Black-Scholes valuation method. Additionally, the Chairman and Chairman of the Audit Committee accrue $10,000 per month rather than $5,000.  Mr. Dubois became a director in December 2012 and our Chairman on February 28, 2013.

Director Warrants

The following table lists the warrants to purchase shares of Common Stock held by each of our directors as of December 12, 2014:
 
(a)  (b)   (c)   (d)   (e) 
   Fees earned   Stock awards   Option awards   Total 
  Name  ($)   ($)   ($)   ($) 
                 
David P. Hanlon $37,500  $-  $-  $37,500 
Winfried Kunz $27,500  $-  $-  $27,500 
George F. Schmitt $27,500  $-  $-  $27,500 
Larry G. Schafran $37,500  $-  $-  $37,500 
Rene Klinkhammer $37,500  $-  $-  $37,500 
David S. Boone $27,500  $-  $-  $27,500 
Dan L. Mabey $27,500  $-  $-  $27,500 
Antonio J. Rodriquez $27,500  $-  $-  $27,500 
Robert Childers $15,000  $-  $-  $15,000 
The Company accrued $5,000 per month for each director from October 1, 2011 to December 31, 2011. Effective January 1, 2012, the Board of Directors reduced the monthly fees to $2,500 per month for each director. These fees may be paid in cash, issuance of common stock, or warrants to purchase common stock. As of September 30, 2012, the fees reported under Column (b) were earned, but not paid.  Mr. Childers retired from the Board of Directors in December 2011.
 GrantExpiration Exercise  Number of  Compensation 
NameDateDate Price  Options  Expense 
            
Winfried Kunz3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
 1/2/1412/31/15 $19.29   1,172  $6,007 
               
George F. Schmitt3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
               
Guy Dubois3/22/133/21/15 $12.58   2,385  $11,682 
 4/16/134/15/15 $9.00   64,665  $285,003 
 7/1/136/30/15 $ 14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
 4/1/143/31/16 $18.75   2,432  $8,684 
 6/3/146/2/16 $17.45   51,576  $300,326 
 7/1/146/30/16 $15.45   2,647  $ 7,270 
               
David S. Boone3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
               
Dan L. Mabey3/22/133/21/15 $12.58   8,943  $43,809 
               
Rene Klinkhammer1/20/101/19/15 $26.00   1,000  $21,036 
 3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 
The table below summarizes outstanding warrants previously issued to directors for compensation as of September 30, 2012:
 
-37-
 GrantExpiration  Exercise   Number of   Compensation 
  NameDateDate  Price   Options   Expense 
               
Rene Klinkhammer1/20/101/19/15 $0.13   200,000  $21,036 
     
David Hanlon7/14/087/13/13 $0.13   459,000  $23,530 
1/20/101/19/15 $0.13   250,000  $26,295 
10/7/1110/6/14 $0.0833   1,200,000  $33,358 
               
Robert Childers7/14/087/13/13 $0.13   610,000  $31,271 
1/20/101/19/15 $0.13   250,000  $26,295 
10/7/1110/6/14 $0.0833   1,200,000  $33,358 
     
Larry Schafran12/5/0712/4/12 $0.13   50,000  $3,894 
7/14/087/13/13 $0.13   610,000  $31,271 
1/20/101/19/15 $0.13   250,000  $26,295 
10/7/1110/6/14 $0.0833   1,200,000  $33,358 

Reimbursement of Expenses

The Company reimburses
We reimburse reasonable travel expenses of members of the Board of Directors for their attendance at Board meetings.

Compensation Risks Assessment

As required by rules adopted by the SEC, management has made an assessment of the Company’sour compensation policies and practices with respect to all employees to determine whether risks arising from those policies and practices are reasonably likely to have a material adverse effect on the Company.us. In doing so, management considered various features and elements of the compensation policies and practices that discourage excessive or unnecessary risk taking. As a result of the assessment, the Company haswe have determined that itsour compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.us.

29
ItemItem 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security OwnershipDirector Independence
The Board of Certain Beneficial OwnersDirectors intends to comply with the director independence standards of the NASDAQ Stock Market, including Rule 4200(a)(15). The Board determined, based on the NASDAQ Stock Market Rules, that George F. Schmitt, Winfried Kunz, David S. Boone, Rene Klinkhammer, and Dan L. Mabey meet the NASDAQ standards to be considered independent. The Board has not appointed a lead independent director.
Specifically, none of these directors:
●has been at any time during the past three years employed by us or by any parent or subsidiary of the Company;
●has accepted or has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than compensation for board or board committee service;
●is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
●is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5 percent of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more;
●is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers serve on the compensation committee of such other entity; or
●is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.

Shareholder Communications with Directors
If we receive correspondence from our shareholders that is addressed to the Board of Directors, we forward it to every director or to the individual director to whom it is addressed. Shareholders who wish to communicate with the directors may do so by sending their correspondence to the directors c/o Track Group, 405 South Main Street, Suite 700, Salt Lake City, Utah 84111.
Committees of the Board of Directors
The Board of Directors has three standing committees: the Audit Committee, Compensation Committee, and Nominating Committee.  These committees assist the Board of Directors to perform its responsibilities and make informed decisions.
Audit Committee
The primary duties of the Audit Committee are to oversee (i) management’s conduct of our financial reporting process, including reviewing the financial reports and other financial information provided by the Company, and reviewing our systems of internal accounting and financial controls, (ii) our independent auditors’ qualifications and independence and the audit and non-audit services provided to the Company and (iii) the engagement and performance of our independent auditors.  The Audit Committee assists the Board in providing oversight of our financial and related activities, including capital market transactions. The Audit Committee has a charter, a copy of which is available on our website at www.trackgrp.com.
The Audit Committee meets with our Chief Financial Officer and with our independent registered public accounting firm and evaluates the responses by the Chief Financial Officer both to the facts presented and to the judgments made by our independent registered public accounting firm.  The Audit Committee met four times during fiscal year 2014 and all members of the Audit Committee attended at least 75% of the committee’s meetings.  

We have two classes
Members of voting securities issuedthe Audit Committee as of September 30, 2014, are Messrs. Boone, Schmitt and outstanding: our common stockKunz.  Each member of the Audit Committee satisfies, according to the full Board of Directors, the definition of independent director as established in the NASDAQ Stock Market Rules.  All of the members of the Audit Committee are financially literate.  In accordance with Section 407 of the Sarbanes-Oxley Act of 2002, the Board of Directors designated David S. Boone as the Audit Committee’s “Audit Committee Financial Expert” as defined by the applicable regulations promulgated by the SEC.  
The Audit Committee reviewed and discussed the matters required by United States auditing standards required by the Public Company Accounting Oversight Board (“PCAOB”) and our Series D Preferred Stock.audited financial statements for the fiscal year ended September 30, 2014 with management and our independent registered public accounting firm.  The following table presents information regarding beneficial ownership asAudit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by Independence Standards Board No. 1, and the Audit Committee has discussed with the independent registered public accounting firm the independent registered public accounting firm's independence.  

Compensation Committee
Members of December 27, 2012 (the “Table Date”)the Compensation Committee are Messrs. Mabey (Chairman), Boone, and Schmitt.  The Compensation Committee met two times during fiscal year 2014.  Members of all classesthe Compensation Committee are appointed by the Board of our voting securities by (1) each shareholder known to us to be the beneficial owner of more than five percent of any class of our voting securities; (2) each of our Named Executive Officers; (3) each of our directors;Directors.  Messrs. Mabey, Boone, and (4) all of our executive officers andSchmitt are independent directors, as a group.

We have determined beneficial ownershipby the Board of Directors in accordance with the rulesNASDAQ Stock Market Rules, including Rule 5605(d)(2)(A).  The Compensation Committee is governed by a charter approved by the Board of Directors, a copy of which is available on the Company’s website www.trackgrp.com.

The Compensation Committee has responsibility for developing and maintaining an executive compensation policy that creates a direct relationship between pay levels and corporate performance and returns to shareholders. The Committee monitors the results of such policy to assure that the compensation payable to our executive officers provides overall competitive pay levels, creates proper incentives to enhance shareholder value, rewards superior performance, and is justified by the returns available to shareholders.

The Compensation Committee also acts on behalf of the Securities and Exchange Commission (“SEC”).  Except as indicatedBoard of Directors in administering compensation plans approved by the footnotes below, we believe, based onBoard, in a manner consistent with the information furnishedterms of such plans (including, as applicable, the granting of stock options, restricted stock, stock units and other awards, the review of performance goals established before the start of the relevant plan year, and the determination of performance compared to us, that the personsgoals at the end of the plan year).  The Committee reviews and entities named inmakes recommendations to the table below have sole voting and dispositive powerBoard with respect to all securities they beneficially own.  Asnew compensation incentive plans and equity-based plans; reviews and recommends the compensation of the Table Date,Company’s directors to the applicable percentage ownershipfull Board for approval; and reviews and makes recommendations to the Board on changes in major benefit programs of executive officers of the Company.
Nominating and Corporate Governance Committee
Mr. Schmitt serves as the chair of the Nominating and Corporate Governance Committee.  Messrs. Kunz and Klinkhammer also currently serve as members of this committee.  The Nominating Committee has the responsibility for identifying and recommending candidates to fill vacant and newly created Board positions, setting corporate governance guidelines regarding director qualifications and responsibilities, and planning for senior management succession.
The Nominating and Corporate Governance Committee is basedrequired to review the qualifications and backgrounds of all directors and nominees (without regard to whether a nominee has been recommended by shareholders), as well as the overall composition of the Board of Directors, and recommend a slate of directors to be nominated for election at the annual meeting of shareholders, or, in the case of a vacancy on 640,088,850the Board of Common Stock issuedDirectors, recommend a director to be elected by the Board to fill such vacancy.  The Nominating Committee held one meeting during fiscal 2014. The Nominating Committee’s charter is available on our website, www.trackgrp.com.
Code of Ethics
We have established a Code of Business Ethics that applies to our officers, directors and outstandingemployees.  The Code of Business Ethics contains general guidelines for conducting our business consistent with the highest standards of business ethics, and 48,763 sharesis intended to qualify as a “code of Series D Preferred Stock issued and outstanding, convertible into 292,578,000 sharesethics” within the meaning of Common Stock.  In computingSection 406 of the numberSarbanes-Oxley Act of shares of Common Stock and Series D Preferred Stock beneficially owned by a person2002 and the applicable percentage ownershiprules promulgated thereunder.  We will post on our website, www.trackgrp.com, any amendments to or waivers from a provision of our Code of Business Ethics that person, we deemed outstanding shares of Common Stockapplies to our principal executive officer, principal financial officer, principal accounting officer, controller or Series D Preferred Stock subjectpersons performing similar functions and that relates to warrants and options held by that person that are currently exercisable or exercisable within 60 daysany element of the Table Date.  We did not deem these shares outstanding, however, for the purposeCode of computing the percentage ownershipBusiness Ethics.

Executive Officers
The following table sets forth certain information regarding our principal executive officer and principal financial and accounting officer as of any other person.  Beneficial ownership representing less than one percentDecember 12, 2014:
Name                                               AgePosition                                                                                    
Executive Committee of Board of DirectorsPrincipal Executive Officer
John R. Merrill44Chief Financial Officer
The Executive Committee of the issuedBoard of Directors was established to act temporarily in the principal executive officer function following the resignation of our Chief Executive Officer in October 2012. Current members of the Executive Committee are Guy Dubois and outstanding sharesDavid S. Boone.  Biographies for Mr. Dubois and Boone appear under heading “Directors” above.
John R. Merrill was appointed to be our Chief Financial Officer in April 2014. In addition to his position at Track Group, Mr. Merrill also serves as Chief Financial Officer for TenXNetworks and IPVidTech.com, a network intelligence provider of both hardware and services. From 2010 to 2013, Mr. Merrill worked as an advisor in the healthcare technology industry facilitating both due diligence and integration of certain acquired companies. Prior to 2010, Mr. Merrill was the Chief Financial Officer of Park City Group, Inc. (Nasdaq: PCYG) and Prescient Applied Intelligence, Inc. (OTC: PPID), software-as-a-service providers of supply chain solutions for both retailers and their suppliers. Throughout his career, Mr. Merrill has held various financial roles within the broadcasting, sports marketing and retail industries. He began his career with KPMG and holds a class is denoted with an asterisk (“*”).  HoldersBachelors and a Master’s in Accounting from the University of Common Stock are entitled to one vote per share and holdersSouth Florida.
Item 11.    Executive Compensation
 
Set out in the following summary compensation table are the particulars of compensation paid to the following persons for our fiscal years ended September 30, 2014 and 2013:
  Title or Class of Securities:       
             
Name and Address of Common Stock     Series D Preferred Stock 
Beneficial Owner (1) Shares  %  Shares  % 
             
5% Beneficial Owners:            
Sapinda Asia Limited (2)  120,029,514   18.8%  -   * 
Borinquen Container Corp (3)  104,914,420   15.8%  3,900   8.0%
Advance Technology Investors, LLC (4)  91,474,382   13.1%  9,264   19.0%
Kofler Ventures, S.a.r.1. (5)  60,756,061   8.7%  6,000   12.3%
David G. Derrick (6)  42,457,829   6.5%  5,778   11.8%
                 
Directors and Named Executive Officers:                
George Schmitt (7)  22,572,222   3.5%  -   * 
Chad D. Olsen (8)  14,223,803   2.2%  172   * 
David P. Hanlon (9)  3,077,047   *   115   * 
Larry G. Schafran (10)  3,226,515   *   110   * 
Rene Klinkhammer (11)  2,611,451   *   255   * 
Dan Mabey (12)  1,000   *   -   * 
Guy Dubois  -   *   -   * 
David S. Boone  -   *   -   * 
Winfried Kunz  -   *   -   * 
Antonio J. Rodriquez  -   *   -   * 
                 
All directors and executive officers as a group                
(10 persons)  45,712,038   7.0%  652   1.3%
 
30
(a)
our principal executive officer, consisting of the executive committee of the Board of Directors; and
 (b)
our most highly compensated executive officer who was serving as an executive officer at the end of the fiscal year ended September 30, 2014 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “Named Executive Officers”); and
 (c)an additional individual for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer at the end of the most recently completed financial year.
 
( a ) ( b ) ( c )  ( d )  ( e )  ( f )  ( g )  ( h ) 
Name and   Salary  Bonus  Stock Awards  Option Awards  All Other Compensation  Total 
Principal Position Year ( $ )  ( $ )  ( $ )  ( $ )  ( $ )  ( $ ) 
                     
Guy Dubois (1)
 2014 $-  $-  $-  $346,276  $-  $346,276 
Chairman and Acting Principal 2013 $-  $-  $-  $335,687  $-  $335,687 
Executive Officer                          
                           
Chad D. Olsen (2)
 2014 $325,056  $-  $-  $-  $32,515  $357,571 
Former Chief Financial Officer 2013 $192,000  $-  $-  $-  $8,740  $200,740 
                           
John R. Merrill (3)
 2014 $79,615  $-  $-  $-  $12,613  $92,228 
Chief Financial Officer                          
                           
Bernadette Suckel (4)
 2014 $211,048  $-  $-  $-  $15,995  $227,043 
Former Managing Director Global 2013 $168,000  $-  $-  $-  $8,061  $176,061 
Customer Service                          
 
(1)1)ExceptMr. Dubois has been a member of the Executive Committee since October 2012 and currently serves as otherwise indicated,Chairman of the business address for these beneficial owners is c/o the Company, 150 West Civic Center Drive, Suite 100, Sandy, Utah 84070.Board of Directors.

(2)2)Includes 31,140,625 shares of common stockMr. Olsen served as our Chief Financial Officer from January 2010 through April 2014.  Column (g) includes additional compensation for paid-time off, health, dental, life and 88,888,889 shares of common stock issuable upon the conversion of debentures in the principal amount of $2,000,000. Excluded from the table above are $3,700,000 in debentures that may be convertible into 164,444,444 shares of common stock after March 1, 2013.  Address is Rooms 803-4, 8F, Hang Seng Bank Building, 200 Hennessy Road, Wanchai, Hong Kong.vision insurance.

(3)3)Includes 23,400,000 shares of common stock issuable upon conversion of 3,900 shares of Series D Preferred stockMr. Merrill has served as our Chief Financial Officer since April 2014. Column (g) includes additional compensation for paid-time off, health, dental, life and 81,514,420 shares of common stock.  Address is P.O. Box 145170, Arecibo, Puerto Rico 00614.vision insurance.

(4)4)Includes 54,300,000 sharesMrs. Suckel served as Managing Director of common stock issuable upon conversionGlobal Customer Service and Account Management of 9,050 shares of Series D Preferredthe Company from June 2008 through June 2014. Column (g) includes additional compensation for health, dental, life and 35,113,200 shares of common stock owned of record by Advance Technology Investors, LLC.  In addition, we have included 438,591 shares of common stock owned of record by Dina Weidman, 32,001 shares of common stock owned of record by Steven Weidman, 306,590 shares of common stock owned of record by U/W Mark Weidman Trust, 642,000 shares of common stock issuable upon conversion of 107 shares of Series D Preferred stock owned of record by Dina Weidman, and 642,000 shares of common stock issuable upon conversion of 107 shares of Series D Preferred stock owned of record by Steven C. Weidman, which was not included on the 13D filed in December 2012 by Advance Technology Investors, LLC.  Address is 154 Rock Hill Road, Spring Valley, NY 10977.vision insurance
Narrative Disclosure to the Executive Compensation Table

Compensation Paid to the Members of the Executive Committee

Member of the Executive Committee and acting principal executive officer, Guy Dubois, was granted warrants equal to $300,326 for his additional work as a director and member of the Board’s Executive Committee during the year ended September 30, 2014 consisting of warrants to purchase 51,576 shares of Common Stock at an exercise price of $17.45 per share. These warrants vest in equal monthly increments over a period of one year or immediately upon the hiring of a new Chief Executive Officer.  These warrants were valued at the date of grant using the Black-Scholes model. The Board of Directors has not determined a timeline for the hiring of a new Chief Executive Officer.
Merrill Employment Agreement

On November 19, 2014, the Company entered into a two-year employment agreement with John Merrill, our Chief Financial Officer (the “Merrill Employment Agreement”).  Under the terms and conditions of the Merrill Employment Agreement, Mr. Merrill will receive an annual base salary of $180,000 and is eligible to participate in the Company’s Employee Bonus Plan and 2012 Equity Incentive Award Plan, wherein Mr. Merrill may earn a variable cash bonus and/or shares of the Company’s Common Stock based on individual performance and achieving specific Company milestones. Mr. Merrill is also entitled to participate in such life insurance, disability, medical, dental, retirement plans and other programs as may be made generally available from time to time by the Company for the benefit of similarly situated employees or its employees generally.

Outstanding Equity Awards at Fiscal Year-End 2014

Name Number of securities underlying unexercised options (#) exercisable  Number of securities underlying unexercised options (#) unexercisable  Equity incentive plan awards: Number of underlying unexercised unearned options (#)  Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#)  Market value of shares or units of stock that have not vested ($)  Equity incentive plan awards: Number of Unearned shares, units or other rights that have not vested (#)  Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($) 
                          
Guy Dubois  2,385   -   -  $12.580 3/21/2015  -   -   -   - 
   64,665   -   -  $9.000 4/15/2015  -   -   -   - 
   4,083   -   -  $14.700 6/30/2015  -   -   -   - 
   2,280   -   -  $19.460 9/30/2015  -   -   -   - 
   2,344   -   -  $19.290 12/31/2015  -   -   -   - 
   2,432   -   -  $18.750 3/31/2016  -   -   -   - 
   51,576          $17.450 6/2/2016                
   2,647          $15.450 6/30/2016                
                                  
Chad D. Olsen  -   -   -   -    -   -   -   - 
                                  
John R. Merrill  -   -   -   -    -   -   -   - 
                                  
Bernadette Suckel  -   -   -   -    -   -   -   - 

Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10 percent of our Common Stock to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater-than-ten-percent shareholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.
Based solely upon a review of these forms that were furnished to us, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during fiscal year 2014 and that such filings were timely except the following:
 5)Includes 5,556,061 shares owned of record by Kofler Ventures, S.a.r.l. and vested stock purchase warrants for the purchases of 19,200,000 shares of common stock, as well as 36,000,000 shares of common stock issuable upon conversion of 6,000 shares of Series D Preferred stock owned of record by Kofler Ventures, S.a.r.l.  Address is R.C.S. Luxembourg B-0090554, 412F, route d’Esch, L-2086 Luxembourg.

6)Amount indicated includes 5,094,766 shares owned of record by·         Mr. Derrick, 1,695,063 shares held in the name of ADP Management an entity controlled by Mr. Derrick, and vested warrants for the purchase of 1,000,000 shares of common stock. Also includes 22,668,000 shares of common stock issuable upon conversion of 3,778 shares of Series D Preferred stock owned of record by Mr. Derrick and 12,000,000 shares of common stock issuable upon conversion of 2,000 shares of Series D Preferred stock owned of record by JBD Management, LLC, an entity under common control of Mr. Derrick. Address is 1401 N. Highway 89, Suite 240, Farmington, Utah  84025.Klinkhammer, a director, filed one late Form 4 reporting one transaction
 
 7)
·Mr. Schmitt, is a director.  Amount indicated includes 350,000 shares of common stock owned of record and 22,222,222 shares of common stock issuable upon the conversion of a debenture in the principal amount of $500,000.director, filed three late Form 4s reporting three transactions

 8)
·Mr. Olsen is our Chief Financial Officer.  Common stock beneficially owned includes 4,795,423 shares owned of record by Mr. Olsen and 8,396,380 shares issuable upon exercise of vested stock purchase warrants, as well as 1,032,000 shares of common stock issuable upon conversion of 172 shares of Series D Preferred stock.Dubois, a director, filed one late Form 4 reporting one transaction

 9)
·Mr. Hanlon isBoone, a director.  Amount indicated includes 478,047 shares of common stock owned of record by David P. Hanlon Living Trust and 1,909,000 shares issuable upon exercise of warrants, as well as 690,000 shares of common stock issuable upon conversion of 115 shares of Series D Preferred stock.director, filed one late Form 4 reporting one transaction

 10)
·Mr. Schafran isMabey, a director.  Common stock includes 456,515 shares owned of record by Mr. Schafran and 2,110,000 shares of common stock issuable upon exercise of stock purchase warrants, as well as 660,000 shares of common stock issuable upon conversion of 110 shares of Series D Preferred stock.director, filed two late Form 4s reporting two transactions

 11)
·Mr. Klinkhammer isKunz, a director.  Includes 881,451 shares of common stock owned of record, 1,530,000 shares of common stock issuable upon conversion of 255 shares of Series D Preferred and 200,000 shares of common stock issuable upon exercise of stock purchase warrants.director, filed two late Form 4s reporting two transactions


12)Mr. Mabey is a director.  Amount indicated includes 1,000 shares of common stock owned of record by Mr. Mabey.
Compensation of Directors
 
The table below summarizes the compensation paid by us to our non-employee directors for the fiscal year ended September 30, 2014:

(a) (b)  (c)  (d)  (e) 
  Fees earned  Stock awards  Option awards  Total 
Name ($)*  ($)  ($)  ($) 
             
Winfried Kunz $15,000  $15,000  $15,000  $45,000 
George F. Schmitt $15,000  $22,500  $8,991  $46,491 
Rene Klinkhammer $15,000  $30,000  $-  $45,000 
David S. Boone $30,000  $30,000  $30,000  $90,000 
Dan L. Mabey $15,000  $29,833  $-  $44,833 
Guy Dubois $30,000  $-  $346,276  $376,276 
*Fees earned by our non-employee directors will be paid in Common Stock or options to purchase Common Stock at the option of the director.  A liability for these fees was included with accrued expenses at September 30, 2014.
From October 2013 through May 2014, we accrued $2,500 per month, which amount was increased to $5,000 per month in June 2014, for each director to be issued in shares of Common Stock valued on the last date of the quarter. Alternatively, any director may elect to receive warrants with an exercise price at the current market price at the date of grant in the amount of three times the amount had the director elected to take shares, valued at the date of grant using the Black-Scholes valuation method. Additionally, the Chairman and Chairman of the Audit Committee accrue $10,000 per month rather than $5,000.  Mr. Dubois became a director in December 2012 and our Chairman on February 28, 2013.

Director Warrants

The following table lists the warrants to purchase shares of Common Stock held by each of our directors as of December 12, 2014:
 GrantExpiration Exercise  Number of  Compensation 
NameDateDate Price  Options  Expense 
            
Winfried Kunz3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
 1/2/1412/31/15 $19.29   1,172  $6,007 
               
George F. Schmitt3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
               
Guy Dubois3/22/133/21/15 $12.58   2,385  $11,682 
 4/16/134/15/15 $9.00   64,665  $285,003 
 7/1/136/30/15 $ 14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
 4/1/143/31/16 $18.75   2,432  $8,684 
 6/3/146/2/16 $17.45   51,576  $300,326 
 7/1/146/30/16 $15.45   2,647  $ 7,270 
               
David S. Boone3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
               
Dan L. Mabey3/22/133/21/15 $12.58   8,943  $43,809 
               
Rene Klinkhammer1/20/101/19/15 $26.00   1,000  $21,036 
 3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
Item 13.    Certain Relationships and Related Transactions, and Director Independence

Related Transactions
Reimbursement of Expenses

The Company entered into certain transactions with related parties during the fiscal years ended September 30, 2011 and 2012. These transactions consist mainly
We reimburse reasonable travel expenses of financing transactions and consulting arrangements.  Transactions with related parties are reviewed and approved by the independent and disinterested members of the Board of Directors.Directors for their attendance at Board meetings.
 
Compensation Risks Assessment
  2012  2011 
       
Note payable in connection with the redemption of a royalty agreement for $10,768,555.  The note requires installment payments and matured December 17, 2012. Subsequent to the fiscal year end, this note was terminated.
 $10,050,027  $- 
         
Note payable in connection with the purchase of the remaining ownership of Midwest Monitoring & Surveillance, Inc. The payments are due quarterly ending in September 2013. The Company imputed interest since the note has no stated interest rate, resulting in a debt discount balance as of September 30, 2012 and 2011 of $11,398 and $32,524, respectively. The note was paid off subsequent to September 30, 2012 through the sale of Midwest Monitoring & Surveillance, Inc.
  138,602   192,476 
         
Note payable in connection with the purchase of the remaining ownership of Court Programs, Inc., interest at 12% per annum, with monthly payments of $10,000. The note matured November 2012 and is currently in default.
  46,694   139,272 
         
The Company received $500,000 from Mr. Derrick, a shareholder and former officer. The terms of this financing have not been determined as of the date of this Report.
  500,000   - 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matures December 17, 2012 and is secured by the domestic patents of the Company. The debenture may be converted into shares of common stock at a rate of $0.0225 per share. The debenture is currently in default.
  500,000   - 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matures December 17, 2012 and is secured by the domestic patents of the Company. The debenture may be converted into shares of common stock at a rate of $0.0225 per share.  The debenture is currently in default.
  2,000,000   - 
         
The Company received $1,900,000 through the issuance of convertible debentures with an interest rate of 8% per annum. The debentures mature on June 17, 2014. This debenture may convert into shares of common stock at a rate of $0.0225 per share. A debt discount of $633,333 was recorded to reflect a beneficial conversion feature. As of September 30, 2012, the remaining debt discount was $611,308.
  1,288,692   - 
         
The Company entered into a Loan a Security Agreement with an entity under which the Company could borrow up to $8,000,000 on a line of credit. Both the Company and the Lender agreed to terminate the agreement and enter into an agreement to raise additional equity on behalf of the Company through the sale of Series D Preferred stock.  The loan was paid back and the line of credit was closed.
  -   500,000 
         
Note payable with an interest rate of 16% per annum and matured in November 2011.  -   40,000 
         
Total related-party debt obligations  14,524,015   871,748 
Less current portion  (12,793,303)  (754,896)
Long-term debt, net of current portion $1,730,712  $116,852 
 
32
As required by rules adopted by the SEC, management has made an assessment of our compensation policies and practices with respect to all employees to determine whether risks arising from those policies and practices are reasonably likely to have a material adverse effect on us. In doing so, management considered various features and elements of the compensation policies and practices that discourage excessive or unnecessary risk taking. As a result of the assessment, we have determined that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.

Other Related-Party TransactionsItem 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Notes #1 and #2
During the year ended September 30, 2012, the Company borrowed $2,000,000 from a significant shareholder, Borinquen. under two notes payable.  The first note was unsecured and the second was secured by $1,530,000 of leased equipment and $1,529,808 of accounts receivable from an international customer.  The notes bore interest of 15% per annum and the Company accrued a $50,000 origination fee.  During the fiscal year ended 30, 2012, the Company paid $1,018,082 to pay in full all outstanding principal and accrued interest on the first note and $1,037,544 to pay in full all outstanding principal and accrued interest on the second note.

Note #3
During the year ended September 30, 2012, the Company borrowed $50,000 from its then Chief Executive Officer, John Hastings, under an unsecured promissory note.  The note bore interest of 15% per annum and was paid in full prior to September 30, 2012.  In connection with this loan, the Company paid a $5,000 origination fee and agreed to re-price outstanding warrants and options previously granted to Mr. Hastings to an exercise price of $0.075 per share, valued at $15,237 and recorded as interest expense.  The value of $15,237 was calculated based upon the following assumptions:  volatility ranging from 100.02% to 109.24%, risk-free rate of 0.22%, exercise price of $0.075, and market price of Common Stock on grant date of $0.074 per share.

Notes #4 and 5
During the year ended September 30, 2012, the Company borrowed $250,000 from its Chief Financial Officer, Chad Olsen, under two unsecured promissory notes payable.  The notes bore interest of 15% per annum and were paid in full prior to September 30, 2012.  The Company paid $15,000 in loan origination fees and agreed to re-price outstanding warrants and options previously granted to Mr. Olsen and other individuals to an exercise price of $0.075 per share, valued at $24,723 and recorded as interest expense.  The value of $24,723 was calculated based upon the following assumptions:  volatility ranging from 76.69% to 119.56%, risk-free rate ranging from 0.22% to 0.37%, exercise price of $0.075, and market price of Common Stock on grant date ranging from $0.074 to $0.075 per share.

Note #6
During the year ended September 30, 2012, the Company borrowed $180,000 from Rene Klinkhammer, one of its directors, under an unsecured promissory note payable.  The note bore interest of 10 percent per annum and the Company paid $193,220 of principal and interest to settle the note in full prior to September 30, 2012.  Included in the payoff of $193,220 is $9,000 in loan origination fees.

The following table summarizes the Company’s future maturities of related-party debt obligations as of September 30, 2012:

Fiscal Year Total 
 2013 $12,793,303 
 2014  1,730,712 
 Thereafter  - 
 Total $14,524,015 

Recent Transactions

The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued.  Subsequent to September 30, 2012, the following events occurred:

·We issued 20,760,551 shares of common stock for fourth quarter Series D Preferred stock dividends, valued at $630,528.
·Effective October 1, 2012, we entered into a Stock Purchase Agreement whereby two former principals of Midwest purchased from the Company all the issued and outstanding capital stock of Midwest for $750,000, payable as follows:  (a) forgiveness of $650,000 in debt obligations owed by the Company to the former Midwest principals, and (b) cash of $100,000 payable under a note on or before April 1, 2013.
·Our Chief Executive Officer, John L. Hastings, III resigned from all executive positions with the Company and as a director.  The Board of Directors formed an Executive Committee comprised of directors George Schmitt and Winfried Kunz to temporarily fulfill the duties of our principal executive officer until a new Chief Executive Officer is hired.
·On December 3, 2012 the Board of Directors appointed Guy Dubois as a director to fill the vacancy resulting from Mr. Hastings’ resignation and to fulfill a condition of the Loan and Security Agreement entered into with Sapinda Asia to appoint to the Board of Directors a representative of Tetra House Pte., Ltd.
·  On December 3, 2012, SecureAlert entered into a Loan and Security Agreement (“Loan Agreement”) with Sapinda Asia Limited (“Sapinda Asia”) whereby Sapinda Asia agreed to loan us the sum of $16,640,000 (the “Loan”). The Loan will accrue interest at a rate of 8% per annum and included a loan origination fee of $640,000, which was forfeited when Sapinda Asia failed to make all of the funds available to us as required under the terms of the Loan Agreement. The Loan is convertible into shares of common stock at $0.0225 per share and matures on June 17, 2014. Subsequent to the fiscal year ended September 30, 2012, Sapinda Asia or its affiliates advanced a total of $2,800,000 to us under the Loan Agreement.  The proceeds of the Loan were to be used in part to redeem the Royalty granted to Borinquen under a royalty repurchase agreement (the “Repurchase Agreement”) and for general corporate purposes. The Loan is secured, after it has been fully funded, by all of the intellectual property and other assets of the Company and by the Royalty.  In the event of a default by the Company, Sapinda Asia has the right to purchase the Royalty by reducing the outstanding principal of the Loan by $10,739,426. However, Sapinda Asia’s failure to fully fund the Loan as expected under the Loan Agreement prevented us from making timely payments to Borinquen under the Repurchase Agreement. As a result, Borinquen terminated the Repurchase Agreement on December 26, 2012.  As of the date of this report, Sapinda Asia and Borinquen are negotiating the terms of an agreement to cure the default and complete the purchase of the royalty on behalf of the Company. See “Risk Factors” on page 10.

33
Director Independence

The current members of our Board of Directors are David S. Boone, Guy Dubois, David P. Hanlon, Rene Klinkhammer, Winfried Kunz, Dan L. Mabey, Antonio J. Rodriquez, Larry G. Schafran, and George F. Schmitt.  The Board of Directors has determined that the following current members of the Board are independent directors, in accordanceintends to comply with the director independence standards of the NASDAQ Stock Market, including NASDAQ Rule 4200(a)(15): Messrs.. The Board determined, based on the NASDAQ Stock Market Rules, that George F. Schmitt, Winfried Kunz, David S. Boone, Hanlon, Kunz, Rodriquez, SchafranRene Klinkhammer, and Schmitt.  The independent directorsDan L. Mabey meet from timethe NASDAQ standards to time in executive session.be considered independent. The Board has not appointed a lead independent director.

Specifically, none of these directors:

·●has been at any time during the past three years employed by us or by any of our parent or subsidiary;subsidiary of the Company;
·●has accepted or has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than compensation for board or board committee service;
·●is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
·●is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed five5 percent of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more;
·●is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers serve on the compensation committee of such other entity; or
·●is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.

 
Shareholder Communications with Directors
If we receive correspondence from our shareholders that is addressed to the Board of Directors, we forward it to every director or to the individual director to whom it is addressed. Shareholders who wish to communicate with the directors may do so by sending their correspondence to the directors c/o Track Group, 405 South Main Street, Suite 700, Salt Lake City, Utah 84111.
Committees of the Board of Directors
The Board of Directors has three standing committees: the Audit Committee, Compensation Committee, and Nominating Committee.  These committees assist the Board of Directors to perform its responsibilities and make informed decisions.
Audit Committee
The primary duties of the Audit Committee are to oversee (i) management’s conduct of our financial reporting process, including reviewing the financial reports and other financial information provided by the Company, and reviewing our systems of internal accounting and financial controls, (ii) our independent auditors’ qualifications and independence and the audit and non-audit services provided to the Company and (iii) the engagement and performance of our independent auditors.  The Audit Committee assists the Board in providing oversight of our financial and related activities, including capital market transactions. The Audit Committee has a charter, a copy of which is available on our website at www.trackgrp.com.
The Audit Committee meets with our Chief Financial Officer and with our independent registered public accounting firm and evaluates the responses by the Chief Financial Officer both to the facts presented and to the judgments made by our independent registered public accounting firm.  The Audit Committee met four times during fiscal year 2014 and all members of the Audit Committee attended at least 75% of the committee’s meetings.  

Members of the Audit Committee as of September 30, 2014, are Messrs. Boone, Schmitt and Kunz.  Each member of the Audit Committee satisfies, according to the full Board of Directors, the definition of independent director as established in the NASDAQ Stock Market Rules.  All of the members of the Audit Committee are financially literate.  In accordance with Section 407 of the Sarbanes-Oxley Act of 2002, the Board of Directors designated David S. Boone as the Audit Committee’s “Audit Committee Financial Expert” as defined by the applicable regulations promulgated by the SEC.  
The Audit Committee reviewed and discussed the matters required by United States auditing standards required by the Public Company Accounting Oversight Board (“PCAOB”) and our audited financial statements for the fiscal year ended September 30, 2014 with management and our independent registered public accounting firm.  The Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by Independence Standards Board No. 1, and the Audit Committee has discussed with the independent registered public accounting firm the independent registered public accounting firm's independence.  

Compensation Committee
Members of the Compensation Committee are Messrs. Mabey (Chairman), Boone, and Schmitt.  The Compensation Committee met two times during fiscal year 2014.  Members of the Compensation Committee are appointed by the Board of Directors.  Messrs. Mabey, Boone, and Schmitt are independent directors, as determined by the Board of Directors in accordance with the NASDAQ Stock Market Rules, including Rule 5605(d)(2)(A).  The Compensation Committee is governed by a charter approved by the Board of Directors, a copy of which is available on the Company’s website www.trackgrp.com.

The Compensation Committee has responsibility for developing and maintaining an executive compensation policy that creates a direct relationship between pay levels and corporate performance and returns to shareholders. The Committee monitors the results of such policy to assure that the compensation payable to our executive officers provides overall competitive pay levels, creates proper incentives to enhance shareholder value, rewards superior performance, and is justified by the returns available to shareholders.

The Compensation Committee also acts on behalf of the Board of Directors in administering compensation plans approved by the Board, in a manner consistent with the terms of such plans (including, as applicable, the granting of stock options, restricted stock, stock units and other awards, the review of performance goals established before the start of the relevant plan year, and the determination of performance compared to the goals at the end of the plan year).  The Committee reviews and makes recommendations to the Board with respect to new compensation incentive plans and equity-based plans; reviews and recommends the compensation of the Company’s directors to the full Board for approval; and reviews and makes recommendations to the Board on changes in major benefit programs of executive officers of the Company.
Nominating and Corporate Governance Committee
Mr. Schmitt serves as the chair of the Nominating and Corporate Governance Committee.  Messrs. Kunz and Klinkhammer also currently serve as members of this committee.  The Nominating Committee has the responsibility for identifying and recommending candidates to fill vacant and newly created Board positions, setting corporate governance guidelines regarding director qualifications and responsibilities, and planning for senior management succession.
The Nominating and Corporate Governance Committee is required to review the qualifications and backgrounds of all directors and nominees (without regard to whether a nominee has been recommended by shareholders), as well as the overall composition of the Board of Directors, and recommend a slate of directors to be nominated for election at the annual meeting of shareholders, or, in the case of a vacancy on the Board of Directors, recommend a director to be elected by the Board to fill such vacancy.  The Nominating Committee held one meeting during fiscal 2014. The Nominating Committee’s charter is available on our website, www.trackgrp.com.
Code of Ethics
We have established a Code of Business Ethics that applies to our officers, directors and employees.  The Code of Business Ethics contains general guidelines for conducting our business consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.  We will post on our website, www.trackgrp.com, any amendments to or waivers from a provision of our Code of Business Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions and that relates to any element of the Code of Business Ethics.

Executive Officers
The following table sets forth certain information regarding our principal executive officer and principal financial and accounting officer as of December 12, 2014:
Name                                               AgePosition                                                                                    
Executive Committee of Board of DirectorsPrincipal Executive Officer
John R. Merrill44Chief Financial Officer
The Executive Committee of the Board of Directors was established to act temporarily in the principal executive officer function following the resignation of our Chief Executive Officer in October 2012. Current members of the Executive Committee are Guy Dubois and David S. Boone.  Biographies for Mr. Dubois and Boone appear under heading “Directors” above.
John R. Merrill was appointed to be our Chief Financial Officer in April 2014. In addition to his position at Track Group, Mr. Merrill also serves as Chief Financial Officer for TenXNetworks and IPVidTech.com, a network intelligence provider of both hardware and services. From 2010 to 2013, Mr. Merrill worked as an advisor in the healthcare technology industry facilitating both due diligence and integration of certain acquired companies. Prior to 2010, Mr. Merrill was the Chief Financial Officer of Park City Group, Inc. (Nasdaq: PCYG) and Prescient Applied Intelligence, Inc. (OTC: PPID), software-as-a-service providers of supply chain solutions for both retailers and their suppliers. Throughout his career, Mr. Merrill has held various financial roles within the broadcasting, sports marketing and retail industries. He began his career with KPMG and holds a Bachelors and a Master’s in Accounting from the University of South Florida.
Item 11.    Executive Compensation
Set out in the following summary compensation table are the particulars of compensation paid to the following persons for our fiscal years ended September 30, 2014 and 2013:
(a)
our principal executive officer, consisting of the executive committee of the Board of Directors; and
 (b)
our most highly compensated executive officer who was serving as an executive officer at the end of the fiscal year ended September 30, 2014 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “Named Executive Officers”); and
 (c)an additional individual for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer at the end of the most recently completed financial year.
( a ) ( b ) ( c )  ( d )  ( e )  ( f )  ( g )  ( h ) 
Name and   Salary  Bonus  Stock Awards  Option Awards  All Other Compensation  Total 
Principal Position Year ( $ )  ( $ )  ( $ )  ( $ )  ( $ )  ( $ ) 
                     
Guy Dubois (1)
 2014 $-  $-  $-  $346,276  $-  $346,276 
Chairman and Acting Principal 2013 $-  $-  $-  $335,687  $-  $335,687 
Executive Officer                          
                           
Chad D. Olsen (2)
 2014 $325,056  $-  $-  $-  $32,515  $357,571 
Former Chief Financial Officer 2013 $192,000  $-  $-  $-  $8,740  $200,740 
                           
John R. Merrill (3)
 2014 $79,615  $-  $-  $-  $12,613  $92,228 
Chief Financial Officer                          
                           
Bernadette Suckel (4)
 2014 $211,048  $-  $-  $-  $15,995  $227,043 
Former Managing Director Global 2013 $168,000  $-  $-  $-  $8,061  $176,061 
Customer Service                          
(1)Mr. Dubois has been a member of the Executive Committee since October 2012 and currently serves as Chairman of the Board of Directors.

(2)Mr. Olsen served as our Chief Financial Officer from January 2010 through April 2014.  Column (g) includes additional compensation for paid-time off, health, dental, life and vision insurance.

(3)Mr. Merrill has served as our Chief Financial Officer since April 2014. Column (g) includes additional compensation for paid-time off, health, dental, life and vision insurance.

(4)Mrs. Suckel served as Managing Director of Global Customer Service and Account Management of the Company from June 2008 through June 2014. Column (g) includes additional compensation for health, dental, life and vision insurance
Narrative Disclosure to the Executive Compensation Table

Compensation Paid to the Members of the Executive Committee

Member of the Executive Committee and acting principal executive officer, Guy Dubois, was granted warrants equal to $300,326 for his additional work as a director and member of the Board’s Executive Committee during the year ended September 30, 2014 consisting of warrants to purchase 51,576 shares of Common Stock at an exercise price of $17.45 per share. These warrants vest in equal monthly increments over a period of one year or immediately upon the hiring of a new Chief Executive Officer.  These warrants were valued at the date of grant using the Black-Scholes model. The Board of Directors has not determined a timeline for the hiring of a new Chief Executive Officer.
Merrill Employment Agreement

On November 19, 2014, the Company entered into a two-year employment agreement with John Merrill, our Chief Financial Officer (the “Merrill Employment Agreement”).  Under the terms and conditions of the Merrill Employment Agreement, Mr. Merrill will receive an annual base salary of $180,000 and is eligible to participate in the Company’s Employee Bonus Plan and 2012 Equity Incentive Award Plan, wherein Mr. Merrill may earn a variable cash bonus and/or shares of the Company’s Common Stock based on individual performance and achieving specific Company milestones. Mr. Merrill is also entitled to participate in such life insurance, disability, medical, dental, retirement plans and other programs as may be made generally available from time to time by the Company for the benefit of similarly situated employees or its employees generally.

Outstanding Equity Awards at Fiscal Year-End 2014

Name Number of securities underlying unexercised options (#) exercisable  Number of securities underlying unexercised options (#) unexercisable  Equity incentive plan awards: Number of underlying unexercised unearned options (#)  Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#)  Market value of shares or units of stock that have not vested ($)  Equity incentive plan awards: Number of Unearned shares, units or other rights that have not vested (#)  Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($) 
                          
Guy Dubois  2,385   -   -  $12.580 3/21/2015  -   -   -   - 
   64,665   -   -  $9.000 4/15/2015  -   -   -   - 
   4,083   -   -  $14.700 6/30/2015  -   -   -   - 
   2,280   -   -  $19.460 9/30/2015  -   -   -   - 
   2,344   -   -  $19.290 12/31/2015  -   -   -   - 
   2,432   -   -  $18.750 3/31/2016  -   -   -   - 
   51,576          $17.450 6/2/2016                
   2,647          $15.450 6/30/2016                
                                  
Chad D. Olsen  -   -   -   -    -   -   -   - 
                                  
John R. Merrill  -   -   -   -    -   -   -   - 
                                  
Bernadette Suckel  -   -   -   -    -   -   -   - 

Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10 percent of our Common Stock to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater-than-ten-percent shareholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.
Based solely upon a review of these forms that were furnished to us, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during fiscal year 2014 and that such filings were timely except the following:
·         Mr. Klinkhammer, a director, filed one late Form 4 reporting one transaction
·         Mr. Schmitt, a director, filed three late Form 4s reporting three transactions
·         Mr. Dubois, a director, filed one late Form 4 reporting one transaction
·         Mr. Boone, a director, filed one late Form 4 reporting one transaction
·         Mr. Mabey, a director, filed two late Form 4s reporting two transactions
·         Mr. Kunz, a director, filed two late Form 4s reporting two transactions


Compensation of Directors
The table below summarizes the compensation paid by us to our non-employee directors for the fiscal year ended September 30, 2014:

(a) (b)  (c)  (d)  (e) 
  Fees earned  Stock awards  Option awards  Total 
Name ($)*  ($)  ($)  ($) 
             
Winfried Kunz $15,000  $15,000  $15,000  $45,000 
George F. Schmitt $15,000  $22,500  $8,991  $46,491 
Rene Klinkhammer $15,000  $30,000  $-  $45,000 
David S. Boone $30,000  $30,000  $30,000  $90,000 
Dan L. Mabey $15,000  $29,833  $-  $44,833 
Guy Dubois $30,000  $-  $346,276  $376,276 
*Fees earned by our non-employee directors will be paid in Common Stock or options to purchase Common Stock at the option of the director.  A liability for these fees was included with accrued expenses at September 30, 2014.
From October 2013 through May 2014, we accrued $2,500 per month, which amount was increased to $5,000 per month in June 2014, for each director to be issued in shares of Common Stock valued on the last date of the quarter. Alternatively, any director may elect to receive warrants with an exercise price at the current market price at the date of grant in the amount of three times the amount had the director elected to take shares, valued at the date of grant using the Black-Scholes valuation method. Additionally, the Chairman and Chairman of the Audit Committee accrue $10,000 per month rather than $5,000.  Mr. Dubois became a director in December 2012 and our Chairman on February 28, 2013.

Director Warrants

The following table lists the warrants to purchase shares of Common Stock held by each of our directors as of December 12, 2014:
 GrantExpiration Exercise  Number of  Compensation 
NameDateDate Price  Options  Expense 
            
Winfried Kunz3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
 1/2/1412/31/15 $19.29   1,172  $6,007 
               
George F. Schmitt3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 
 10/1/139/30/15 $19.46   1,140  $8,991 
               
Guy Dubois3/22/133/21/15 $12.58   2,385  $11,682 
 4/16/134/15/15 $9.00   64,665  $285,003 
 7/1/136/30/15 $ 14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
 4/1/143/31/16 $18.75   2,432  $8,684 
 6/3/146/2/16 $17.45   51,576  $300,326 
 7/1/146/30/16 $15.45   2,647  $ 7,270 
               
David S. Boone3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   4,083  $23,640 
 10/1/139/30/15 $19.46   2,280  $17,982 
 1/2/1412/31/15 $19.29   2,344  $12,014 
               
Dan L. Mabey3/22/133/21/15 $12.58   8,943  $43,809 
               
Rene Klinkhammer1/20/101/19/15 $26.00   1,000  $21,036 
 3/22/133/21/15 $12.58   8,943  $43,809 
 7/1/136/30/15 $14.70   2,040  $11,811 

Reimbursement of Expenses
We reimburse reasonable travel expenses of members of the Board of Directors for their attendance at Board meetings.
Compensation Risks Assessment
As required by rules adopted by the SEC, management has made an assessment of our compensation policies and practices with respect to all employees to determine whether risks arising from those policies and practices are reasonably likely to have a material adverse effect on us. In doing so, management considered various features and elements of the compensation policies and practices that discourage excessive or unnecessary risk taking. As a result of the assessment, we have determined that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners
The following table presents information regarding beneficial ownership as of December 12, 2014 (the “Table Date”), of our Common Stock by (i) each shareholder known to us to be the beneficial owner of more than five percent of our Common Stock; (ii) each of our Named Executive Officers serving as of the Table Date; (iii) each of our directors serving as of the Table Date; and (iv) all of our executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the SEC.  Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and dispositive power with respect to all securities they beneficially own.  As of the Table Date, the applicable percentage ownership is based on 10,131,629 shares of Common Stock issued and outstanding.


Beneficial ownership representing less than one percent of the issued and outstanding shares of a class is denoted with an asterisk (“*”).  Holders of Common Stock are entitled to one vote per share and holders of Series D Preferred are entitled to 30 votes per share and vote with the Common Stock shareholders on an as-converted basis.
Name and Address of Common Stock 
Beneficial Owner (1)
 Shares  % 
       
5% Beneficial Owners:      
Sapinda Asia Limited (2)
  4,534,168   44.8%
Safety Invest S.A., Compartment Secure I (3)
  1,890,697   18.7%
         
Directors and Named Executive Officers:        
David S. Boone (4)
  19,343   * 
Guy Dubois (5)
  61,279   * 
Rene Klinkhammer (6)
  13,600   * 
Winfried Kunz (7)
  13,700   * 
Dan Mabey (8)
  13,938   * 
George F. Schmitt (9)
  20,143   * 
John R. Merrill   -   * 
         
All directors and executive officers as a group
(7 persons)
  142,003   1.4%
(1)Except as otherwise indicated, the business address for these beneficial owners is c/o the Company, 405 South Main Street, Suite 700, Salt Lake City, Utah 84111.
(2)Address is Rooms 803-4, 8F, Hang Seng Bank Building, 200 Hennessy Road, Wanchai, Hong Kong.  Based on a Form 4 filed by Sapinda Asia Limited on November 5, 2013.
(3)
Secure I is a compartment of Safety Invest S.A. (“Safety”), a company established under the Luxembourg Securitization Law and incorporated as a “société anonyme” under the laws of the Grand Duchy of Luxembourg whose principal business is to enter into one or more securitization transactions.

(4)Mr. Boone is a director and a member of the Board of Directors’ executive committee.  Includes 1,693 shares of Common Stock owned of record and 17,650 shares of Common Stock issuable upon exercise of stock purchase warrants.

(5)Mr. Dubois is a director and Chairman of the Board of Directors; he is also a member of the executive committee of the Board of Directors.  Includes 61,279 shares of Common Stock issuable upon exercise of stock purchase warrants.
(6)Mr. Klinkhammer is a director.  Includes 1,617 shares of Common Stock owned of record and 11,983 shares of Common Stock issuable upon exercise of stock purchase warrants.
(7)Mr. Kunz is a director.  Includes 405 shares of Common Stock owned of record and 13,295 shares of Common Stock issuable upon exercise of stock purchase warrants.
(8)Mr. Mabey is a director.  Includes 4,995 shares of Common Stock owned of record and 8,943 shares of Common Stock issuable upon exercise of stock purchase warrants.
(9)Mr. Schmitt is a director.  Includes 8,020 shares of Common Stock owned of record and 12,123 shares of Common Stock issuable upon exercise of stock purchase warrants.
Item 13.    Certain Relationships and Related Transactions, and Director Independence

Royalty Agreement

On August 4, 2011, with an effective date of July 1, 2011, we entered into an agreement (the “Royalty Agreement”) with Borinquen Container Corp., a corporation organized under the laws of the Commonwealth of Puerto Rico (“Borinquen”) to purchase Borinquen’s wholly-owned subsidiary, International Surveillance Services Corporation, a Puerto Rico corporation (“ISS”) in consideration of 310,000 shares of our Common Stock, valued at the market price on the date of the Royalty Agreement at $16.40 per share, or $5,084,000.  We also agreed to pay to Borinquen quarterly royalty payments in an amount equal to 20% of our net revenues from the sale or lease of our monitoring devices and monitoring services within a territory comprised of South and Central America, the Caribbean, Spain and Portugal, for a term of 20 years.  On February 1, 2013, we redeemed and terminated this royalty obligation in February 2013 for a total cost of $13.0 million using the proceeds of a $16.7 million loan from a related party, Sapinda Asia Limited (“Sapinda Asia”). In addition to the $13.0 million used to terminate the Royalty Agreement, we used the remaining $3.7 million as operating capital during the 2013 fiscal year. On September 30, 2013, Sapinda Asia converted all outstanding principal and interest under the loan, totaling $17,576,627, into 3,905,917 shares of Common Stock at a rate of $4.50 per share.

Revolving Loan Agreement

On February 1, 2013, the Company entered into a revolving loan agreement with Sapinda Asia (the “Revolving Loan”).  Under this arrangement, the Company may borrow up to $1,200,000 at an interest rate of 3% per annum for unused funds and 10% per annum for borrowed funds. On October 24, 2013, the Company drew down the full $1,200,000 for use in a performance bond as required under a contract with an international customer. The loan initially matured in June 2014. However, the maturity date of the note was extended and now matures in December 2015.

Related-Party Promissory Note
On November 19, 2013, the Company borrowed $1,500,000 from Sapinda Asia.  The unsecured note bears interest at a rate of 8% per annum and initially matured on November 18, 2014. However, the maturity date of the note was extended to November 19, 2015. As of September 30, 2014, the Company owed $1,500,000 of principal and $43,726 of accrued interest on the note.
Related-Party Service Agreement

During the fiscal year ended September 30, 2013, the Company entered into an agreement with Paranet Solutions, LLC to provide the following primary services:  (i) procurement of hardware and software necessary to ensure that vital databases are available in the event of a disaster (backup and disaster recovery system); and (ii) providing the security of all data and the integrity of such data against all loss of data, misappropriation of data by Paranet, its employees and affiliates.  David S. Boone, a director and member of the Company’s Executive Committee, was the Chief Executive Officer of Paranet until August 2014.

As consideration for these services, the Company agreed to pay Paranet $4,500 per month, and during the year ended September 30, 2014 the Company paid $461,223 to Paranet. The arrangement can be terminated by either party for any reason upon ninety (90) days written notice to the other party.

Facility Agreement
On January 3, 2014, we entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by our Chairman, Guy Dubois.  Under this agreement, we may borrow up to $25,000,000 for working capital and acquisitions purposes. The loan bears interest at a rate of 8% per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on January 3, 2016. In addition, we agreed to pay Tetra House an arrangement fee equal to 3% of the aggregate maximum amount under the loan. On January 14, 2014 Tetra House assigned the Facility Agreement to Conrent Invest S.A.  Since January 3, 2014, we have borrowed $25,000,000 under the Facility Agreement. The borrowed funds have been used for acquisitions and for general corporate purposes. The Facility Agreement was reviewed and approved by disinterested and independent members of the Board of Directors, David S. Boone, Winfried Kunz, Dan L. Mabey and George F. Schmitt.


Additional Related-Party Transactions and Summary of All Related-Party Obligations

  2014  2013 
       
Loan from a significant shareholder with an interest rate of 8% per annum.      
Principal and interest due at maturity on December 30, 2015. $1,200,000  $- 
         
Promissory note with a significant shareholder with an interest rate of 8% per        
annum. Principal and interest due at maturity on November 19, 2015.  1,500,000   - 
         
Convertible debenture of $16,700,000 from a significant shareholder with an interest rate        
of 8% per annum. On September 30, 2013, $16,640,000 plus accrued interest of        
$936,627 was converted into 3,905,917 shares of Common Stock and in October 2013, the        
Company paid $60,000 in cash to pay off the debenture.  -   60,000 
         
Total related-party debt obligations  2,700,000   60,000 
Less current portion  -   (60,000)
Long-term debt, net of current portion $2,700,000  $ - 
Item 14.    Principal Accounting Fees and Services
 
Audit Fees
 
Audit services consist of the audit of the annual consolidated financial statements of us, and other services related to filings and registration statements filed by us and our subsidiaries and other pertinent matters.  Audit fees paid to Hansen Barnett & Maxwell, P.C. (“HBM”) served as our independent auditors for most of fiscal years 2012year 2013, for which we paid approximately $49,750.  HBM resigned as our independent registered public accounting firm on September 23, 2013.  We appointed Eide Bailly as our independent registered public accounting firm on September 24, 2013.  We paid Eide Bailly approximately $162,500 and 2011 totaled approximately $147,000$50,000 for audit services for the year ended September 30, 2014 and $144,000,2013, respectively.

Tax Fees, Audit Related Fees, and All Other Fees
 
Hansen Barnett & Maxwell, P.C.HBM provided tax services to us in fiscal years 2012 and 2011.  Tax fees paid for fiscal years 2012 and 2011 totaledyear 2013, for which we paid approximately $14,000 and $14,000, respectively.$16,750.  The Audit Committee of the Board of Directors considered and authorized all services provided by Hansen Barnett & Maxwell, P.C.HBM.  No tax services were provided to us during the fiscal year ended September 30, 2013 by Eide Bailly. The Company paid Eide Bailly $9,064 in audit related fees for the year ended September 30, 2013. The Company paid Eide Bailly $16,230 and $13,231 for tax and audit related fees during the year ended September 30, 2014, respectively.
34
 
Auditor Independence

Our Audit Committee considered that the work done for us in fiscal year 20122013 and 2014 by Hansen Barnett & Maxwell, P.C.HBM and by Eide Bailly was compatible with maintaining Hansen Barnett & Maxwell, P.C.’s independence.the independence of each of those firms.

 
Report
-43-

Report of the Audit Committee

To the Board of Directors:

The Audit Committee reviewed and discussed SecureAlert, Inc.’s audited financial statements for the fiscal year ended September 30, 20122014 with our management.  The Audit Committee discussed with Hansen Barnett & Maxwell, P.C.,Eide Bailly, LLP, our independent public accounting firm for the fiscal year ended September 30, 2012,2014, the matters required to be discussed under applicable PCAOB standards. The Audit Committee also received the written communication from Hansen Barnett & Maxwell, P.C.Eide Bailly, LLP required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee has discussed the independence of Hansen Barnett & Maxwell, P.C.Eide Bailly, LLP with them.

 
Based on the Audit Committee’s review and discussions noted above, the Audit Committee recommended to our Board of Directors that the Company’s audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the SEC on January 14, 2013.2014.
 
 
Respectfully submitted:
 
 
THE AUDIT COMMITTEE

David S. Boone, ChairChairman
George F. Schmitt,
Director
Winfried Kunz, Director

 
ItemPART IV
Item 15.    Exhibits and Financial Statement Schedules
 
(a) The following documents are filed as part of this Form:report:

1. Financial Statements
 
Report of Independent Registered Public Accounting FirmEide Bailly 41
Consolidated Balance Sheets 42
Consolidated Statements of Operations 43
Consolidated Statements of Stockholders' Equity (Deficit) and  Comprehensive Income 44
Consolidated Statements of Cash Flows 46
Notes to the Consolidated Financial Statements 48

2.  Financial Statement Schedules.    [Included in
3. Exhibits. The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Consolidated Financial Statements or Notes thereto.]Commission:

3. Exhibits.
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission: 
35
Exhibit Number 
Title of Document
  
3(i)(1)Articles of Incorporation (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
 
3(i)(2)Amendment to Articles of Incorporation for Change of Name (previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2001).
 
3(i)(3)Amendment to Articles of Incorporation Amending Rights and Preferences of Series A Preferred Stock (previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2001).
 
3(i)(4)Amendment to Articles of Incorporation Adopting Designation of Rights and Preferences of Series B Preferred Stock (previously filed as Exhibit on Form 10-QSB10- QSB for the six months ended March 31, 2002).
 
3(i)(5)Certificate of Amendment to the Designation of Rights and Preferences Related to Series A 10% Cumulative Convertible Preferred Stock of SecureAlert, Inc. (incorporated by reference to our annual report on Form 10-KSB for the fiscal year ended September 30, 2001).
 
3(i)(6)Certificate of Amendment to the Designation of Rights and Preferences Related to Series C 8% Convertible Preferred Stock of SecureAlert, Inc. (incorporated by reference to our Current Report on Form 8-K, filed with the Commission on March 24, 2006).
 
3(i)(7)Articles of Amendment to Articles of Incorporation filed July 12, 2006 (previously filed as exhibits to our current report on Form 8-K filed July 18, 2006, and incorporated herein by reference).
 
3(i)(8)Articles of Amendment to the Fourth Amended and Restated Designation of Right and Preferences of Series A 10% Convertible Non-Voting Preferred Stock of SecureAlert, Inc. (previously filed as Exhibit on Form 10-QSB for the nine months ended June 30, 2007, filed in August 2007).
3(i)(9)Articles of Amendment to the Designation of Right and Preferences of Series A Convertible Redeemable Non-Voting Preferred Stock of SecureAlert, Inc. (previously filed as Exhibit on Form 10-QSB for the nine months ended June 30, 2007, filed in August 2007).
 
3(i)(10)Articles of Amendment to the Articles of Incorporation and Certificate of Amendment to the Designation of Rights and Preferences Related to Series D 8% Convertible Preferred Stock of SecureAlert, Inc. (previously filed as Exhibit on Form 10-K filed in January 2010).
 
3(i)(11)Articles of Amendment to the Articles of Incorporation filed March 28, 2011 (previously filed as Exhibit on Form 8-K filed April 4, 2011).
 
3(i)(12)Articles of Amendment to the Articles of Incorporation of SecureAlert, Inc., filed August 1, 2011 (previously filed as Exhibit on Form 10-Q filed August 15, 2011).
 
3(i)(13)Articles of Amendment to the Articles of Incorporation of SecureAlert, Inc., filed December 28, 2011 (filed herewith.)(previously filed as Exhibit to Definitive Proxy Statement, filed October 25, 2011)
 3(ii)Bylaws (incorporated by reference
3(i)(14)Articles of Amendment to our Registration Statementthe Articles of Incorporation of SecureAlert, Inc., filed April 11, 2013 (previously filed as Exhibit on Form 10-SB, effective December 1, 1997)10-Q filed May 15, 2013).
 
3(iii)Amended and Restated Bylaws (previously filed in February 2011 as an Exhibit to the Form 10-Q for the three months ended December 31, 2010).
4.012006 Equity Incentive Award Plan (previously filed in August 2006 as an Exhibit to the Form 10-QSB10- QSB for the nine months ended June 30, 2006).
 10.01Distribution and Separation Agreement (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
 10.024.021997 Stock2012 Equity Incentive Award Plan of the Company, (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
 10.031997 Transition Plan (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
 10.04Securities Purchase Agreement for $1,200,000 of Series A Preferred Stock (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
 10.05Loan Agreement (as amended) dated June 2001 between ADP Management and the Company (incorporated by reference to our annual report on Form 10-KSB for the fiscal year ended September 30, 2001).
 10.06Loan Agreement (as amended and extended) dated March 5, 2002 between ADP Management and the Company, effective December 31, 2001 (filed as an exhibit to our quarterly report on Form 10-QSB for the quarter ended December 31, 2001).
 10.07Agreement with ADP Management, Derrick and Dalton (April 2003) (previously filed as Exhibit on Form 10-QSB for the six months ended March 31, 2003)
 10.08Security Agreement between Citizen National Bank and the Company (previouslyto Definitive Proxy Statement, filed on Form 8-K in July 2006).
 10.09Promissory Note between Citizen National Bank and the Company (previously filed on Form 8-K in July 2006)October 25, 2011).
36
 
 10.10Common Stock Purchase Agreement dated as of August 4, 2006 (previously filed as an exhibit to our current report on Form 8-K filed August 7, 2006 and incorporated herein by reference).
 10.11Change in Terms Agreement between Citizen National Bank and the Company (previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2006)
 10.12Securities Purchase Agreement between the Company and VATAS Holding GmbH, a German limited liability company (previously filed on Form 8-K in November 2006).
 10.13Common Stock Purchase Warrant between the Company and VATAS Holding GmbH dated November 9, 2006 (previously filed as Exhibit on Form 10-QSB for the three months ended December 31, 2006, filed in February 2007).
 10.14Settlement Agreement and Mutual Release between the Company and Michael Sibbett and HGR Enterprises, LLC, dated as of February 1, 2007 (previously filed as Exhibit on Form 10-QSB for the three months ended December 31, 2006, filed in February 2007).
 10.15Distributor Sales, Service and License Agreement between the Company and Seguridad Satelital Vehicular S.A. de C.V., dated as of February 5, 2007 (previously filed as Exhibit on Form 10-QSB for the three months ended December 31, 2006, filed in February 2007).
 10.16Distributor Agreement between the Company and QuestGuard, dated as May 31, 2007. Portions of this exhibit were redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (previously filed as Exhibit on Form 10-QSB for the nine months ended June 30, 2007, filed in August 2007).
 10.17Stock Purchase Agreement between the Company and Midwest Monitoring & Surveillance, Inc., dated effective December 1, 2007 (previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2007, filed in January 2008).
 10.18Stock Purchase Agreement between the Company and Court Programs, Inc., Court Programs of Florida Inc., and Court Programs of Northern Florida, Inc., dated effective December 1, 2007 (previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2007, filed in January 2008).
 10.19Sub-Sublease Agreement between the Company and Cadence Design Systems, Inc., a Delaware corporation, dated March 10, 2005 (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.20Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.21Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.22Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.23Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated December 20, 2007 (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.24Stock Purchase Agreement (sale of Volu-Sol Reagents Corporation shares to Futuristic Medical, LLC), dated January 15, 2008, including voting agreement (previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
 10.25Distribution and License Agreement between euromicron AG, a German corporation, and the Company, dated May 28, 2009 (previously filed as Exhibit on Form 10-Q for the nine months ended June 30, 2009, filed in August 2009).
 10.26Agreement for Monitoring & Associated Services among I.C.S. of the Bahamas Co., Ltd., SecureAlert, Inc., International Surveillance Services Corp and The Ministry of National Security, dated November 19, 2010 (previously filed on Form 8-K in November 2010).
 10.27Agreement and Royalty Agreement between Borinquen Container Corporation and SecureAlert, effective July 1, 2011 (previously filed on Form 8-K in August 2011).
 10.28Stock Purchase Agreement between Gary Shelton, Larry and Sue Gardner and SecureAlert, effective October 1, 2012 (previously filed on Form 8-K in December 2012).
 10.2910.1Loan and Security Agreement between Sapinda Asia Limited and SecureAlert, effective December 3, 2012 (previously filed on Form 8-K in December 2012).
 
10.2Settlement and Royalty and Share Buy Back among Borinquen Container Corporation, Sapinda Asia Limited, and SecureAlert, effective February 4, 2013 (previously filed on Form 8-K in February 2013).
10.3Facility Agreement between Tetra House Pte. Ltd. and SecureAlert, Inc., dated January 3, 2014 (previously filed on Form 8-K in January 2014).
10.4Notice of Conversion from Sapinda Asia Limited, dated September 24, 2013 (incorporated by reference from Exhibit 10.14 to our Annual Report on Form 10-K filed January 14, 2014).
10.5Share Purchase Agreement dated as of April 1, 2014, by and between SecureAlert, Inc. and Eli Sabag (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed March 18, 2014).
10.6
Executive Employment Agreement by and between SecureAlert, Inc. and John R. Merrill, dated November 20, 2014 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed November 25, 2014).
10.7
Stock Purchase Agreement by and between SecureAlert, Inc. and BFC Surety Group, Inc., dated June 2, 2014 (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed June 4, 2014).
10.8
Share Purchase Agreement dated as of November 26, 2014, by and between SecureAlert, Inc., dba TrackGroup, and the shareholders of G2 Research Limited (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed December 2, 2014).
14.1Code of Ethics (incorporated by reference from Exhibit 14.1 to our Annual Report on Form 10-K filed January 14, 2014).
21Subsidiaries of the Registrant (incorporated by reference from Exhibit 21 to our Annual Report on Form 10-K filed January 14, 2014).
31(i)Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002.2002 (filed herewith).
 
31(ii)Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002.2002 (filed herewith).
 31(iii)Certification of Chief Financial Officer, Principal Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002.
32Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith).

101.INSXBRL INSTANCE DOCUMENT
 101 INS
101.SCHXBRL Instance Document*TAXONOMY EXTENSION SCHEMA
 101 SCH
101.CALXBRL Schema Document*TAXONOMY EXTENSION CALCULATION LINKBASE
 101 CAL
101.DEFXBRL Calculation Linkbase Document*TAXONOMY EXTENSION DEFINITION LINKBASE
 101 DEF
101.LABXBRL Definition Linkbase Document*TAXONOMY EXTENSION LABEL LINKBASE
 101 LAB
101.PREXBRL Labels Linkbase Document*
 101 PREXBRL Presentation Linkbase Document*TAXONOMY EXTENSION PRESENTATION LINKBASE
 
*           The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.


SIGNATURESSIGNATURES

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

SecureAlert, Inc.
By: /s/ George F. Schmitt
George F. Schmitt, Member Executive Committee
 (Acting Principal Executive Officer)
By: /s/ Winfried Kunz
Winfried Kunz, Member Executive Committee
 (Acting Principal Executive Officer)
SecureAlert, Inc. dba Track Group

By: /s/ Guy Dubois
Guy Dubois, Member Executive Committee
(Acting Principal Executive Officer)

Date: January 14, 2013December 17, 2014
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 Signature  Title  Date
     
 /s/  George F. SchmittGuy Dubois  Director, Member of Executive Committee  January 14, 2013December 17, 2014
        George F. SchmittGuy Dubois  (Acting Principal Executive Officer)  
     
 /s/  Winfried Kunz Director, Member Executive Committee January 14, 2013
      Winfried Kunz (Acting Principal Executive Officer)
 /s/  Chad D. OlsenJohn R. Merrill  Chief Financial Officer and (Principal Financial  January 14, 2013December 17, 2014
       Chad D. OlsenJohn R. Merrill  Officer and Principal Accounting Officer
 /s/  David P. Hanlon Director January 14, 2013
      David P. HanlonOfficer)  
     
 /s/  David S. Boone  Director, Member of Executive Committee  January 14, 2013December 17, 2014
       David S. Boone
 /s/  Winfried Kunz Director December 17, 2014
        Winfried Kunz    
     
 /s/  Rene Klinkhammer  Director  January 14, 2013December 17, 2014
        Rene Klinkhammer    
     
 /s/  Dan L. Mabey  Director  January 14, 2013December 17, 2014
        Dan L. Mabey    
     
 /s/  Antonio J. RodriquezGeorge F. Schmitt  Director  January 14, 2013December 17, 2014
        Antonio J. Rodriquez
 Director January 14, 2013
      Larry G. Schafran
 /s/  Guy Dubois Director January 14, 2013
      Guy DuboisGeorge F. Schmitt    
 

 
38-48-

Table of Contents











SecureAlert, Inc.
Consolidated Financial Statements
September 30, 2012 and 2011













39


Index to Consolidated Financial Statements



 Page
Reports of Eide Bailly 
Report of Independent Registered Public Accounting Firm41
F-2
Consolidated Balance Sheets as of September 30, 20122014 and 2011201342
 F-3
Consolidated Statements of OperationsComprehensive Loss for the fiscal years ended September 30, 20122014 and 2011201343
 F-4
Consolidated Statements of Stockholders’Stockholders' Equity for the fiscal years ended September 30, 20112014 and 2012201344
 F-5
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 20123, 2014 and 2011201346
 F-6
Notes to Consolidated Financial Statements48F-7



REPORT OF INDEPENDENTINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and
Shareholders of SecureAlert, Inc.
dba Track Group

We have audited the accompanying consolidated balance sheets of SecureAlert, Inc. and Subsidiaries (collectively the Company) as of September 30, 20122014 and 20112013 and the related consolidated statements of operations and other comprehensive loss, stockholders’ equity, and cash flows for the years then ended.  The Company’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidences supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SecureAlert, Inc. as of September 30, 20122014 and 2011,2013 and the consolidated results of its operations, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses, negative cash flows from operating activities, notes payable in default and has an accumulated deficit.  These conditions raise substantial doubt about its ability to continue as a going concern.  Management’s plans regarding those matters are also described in Note 1.  The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.


Eide Bailly LLP
HANSEN, BARNETT & MAXWELL, P.C.
Salt Lake City, Utah
January 10, 2013

December 17, 2014

 
SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCEBALANCE SHEETS
AS OF SEPTEMBER 30, 20122014 AND 2011

Assets 2012  2011 
Current assets:      
Cash $695,111  $949,749 
Accounts receivable, net of allowance for doubtful accounts of $772,000 and $996,122, respectively
  2,864,542   4,150,427 
Note receivable, current portion  156,190   90,000 
Prepaid expenses and other  1,979,172   1,082,581 
Inventory, net of reserves of $192,000 and $127,016, respectively  630,566   579,779 
Total current assets  6,325,581   6,852,536 
Property and equipment, net of accumulated depreciation of $2,562,323 and $2,530,591, respectively  677,493   1,086,633 
Monitoring equipment, net of accumulated amortization of $3,179,310 and $3,608,388, respectively  3,325,110   3,461,985 
Note receivable, net of current portion  112,492   125,000 
Goodwill  375,000   5,889,395 
Royalty Purchase Commitment  10,768,555   - 
Intangible assets, net of accumulated amortization of $801,905 and $485,393, respectively  4,874,679   5,191,191 
Other assets  74,815   78,509 
Total assets $26,533,725  $22,685,249 
         
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable (including $0 and $505,977 respectively due to a related party, see Note 5)  2,444,632   2,840,845 
Accrued liabilities  3,001,062   2,713,230 
Dividends payable  630,528   541,797 
Deferred revenue  422,183   162,331 
Current portion of long-term related-party debt  12,793,303   754,896 
Current portion of long-term debt  634,218   1,041,392 
         Total current liabilities  19,925,926   8,054,491 
Long-term related-party debt, net of current portion  1,730,712   116,852 
Long-term debt, net of current portion  449,950   898,598 
            Total liabilities  22,106,588   9,069,941 
         
Stockholders’ equity:        
Preferred stock:        
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 48,763 and44,845 shares outstanding, respectively (aggregate liquidation preference of $28,476,086)
  5   5 
Common stock, $0.0001 par value: 1,250,000,000 shares authorized; 619,328,299 and 503,623,428 shares outstanding, respectively
  61,933   50,362 
Additional paid-in capital  252,878,825   244,620,460 
Accumulated deficit  (248,513,626)  (231,055,519)
         Total equity  4,427,137   13,615,308 
               Total liabilities and stockholders’ equity $26,533,725  $22,685,249 
2013
 
Assets 2014  2013 
Current assets:      
Cash $11,101,822  $3,382,428 
Accounts receivable, net of allowance for doubtful accounts of $4,070,000 and $3,968,000, respectively  3,788,207   3,721,964 
Note receivable, current portion  273,964   176,205 
Prepaid expenses and other  1,226,054   1,783,805 
Inventory, net of reserves of $223,500 and $148,043, respectively  1,248,264   467,101 
Total current assets  17,638,311   9,531,503 
Property and equipment, net of accumulated depreciation of $2,292,521 and $2,092,221, respectively  1,860,247   318,201 
Monitoring equipment, net of accumulated amortization of $1,251,551 and $1,183,346, respectively  1,914,666   1,236,696 
        Note receivable, net of current portion  -   28,499 
Intangible assets, net of accumulated amortization of $2,818,894 and $1,256,647, respectively  26,743,626   15,413,920 
Other assets  3,150,428   170,172 
Goodwill  6,577,609   - 
Total assets $57,884,887  $26,698,991 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable  1,995,607   348,074 
Accrued liabilities  2,413,557   2,180,791 
Dividends payable  -   9,427 
Deferred revenue  -   8,674 
Current portion of long-term related-party debt  -   60,000 
Current portion of long-term debt, net of discount of $375,370 and zero, respectively  1,906,040   88,095 
         Total current liabilities  6,315,204   2,695,061 
Stock payable - related party  3,000,000   - 
Long-term related-party debt, net of current portion  2,700,000   - 
Long-term debt, net of current portion and discount of $93,750 and zero, respectively  25,868,361   40,588 
Other long-term liabilities  85,275   - 
Total liabilities  37,968,840   2,735,649 
         
Stockholders’ equity:        
Preferred stock:        
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 0 and 468 shares outstanding, respectively  -   1 
common stock,  $0.0001 par value: 15,000,000 shares authorized; 10,093,130 and 9,805,503 shares outstanding, respectively  1,009   981 
Additional paid-in capital  295,364,173   290,391,697 
Accumulated deficit  (275,177,181)  (266,429,337)
Accumulated other comprehensive loss  (271,954)  - 
Total equity  19,916,047   23,963,342 
Total liabilities and stockholders’ equity $57,884,887  $26,698,991 
See accompanying notes to consolidated financial statements.

 
42F-3

 SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011COMPREHENSIVE LOSS

  2012  2011 
Revenues:      
   Products $2,013,155  $1,551,511 
   Monitoring and other related services  17,778,337   16,410,292 
               Total revenues  19,791,492   17,961,803 
         
Cost of revenues:        
   Products  1,596,759   651,113 
   Monitoring and other related services  9,821,253   8,914,846 
Impairment of monitoring equipment and parts (Note2)  1,648,762   464,295 
               Total cost of revenues  13,066,774   10,030,254 
         
Gross profit  6,724,718   7,931,549 
         
Operating expenses:         
Selling, general and administrative (including $3,576,194 and $1,530,646, respectively, of compensation expense paid in stock, stock options / warrants or as a result of amortization of stock-based compensation)
  15,405,742   15,652,303 
Research and development  1,248,654   1,453,994 
Settlement expense  403,678   276,712 
Impairment of goodwill (Note 2)  5,514,395   - 
         
Loss from operations  (15,847,751)  (9,451,460)
         
Other income (expense):        
Loss on disposal of equipment  (23,865)  (300,338)
Change from estimate to actual on acquisition costs  110,342   - 
Redemption of SecureAlert Monitoring Series A Preferred  -   16,683 
Interest income  11,445   13,072 
Interest expense (including $963,233 and $42,351, respectively, paid in stock, stock options / warrants)
  (1,489,897)  (712,840)
Currency exchange rate gain (loss)  (28,358)  (173)
Other income, net  (190,023)  576,232 
Net loss  (17,458,107)  (9,858,824)
Net loss (income) attributable to non-controlling interest  -   (31,750)
Net loss attributable to SecureAlert, Inc.  (17,458,107)  (9,890,574)
Dividends on Series D Preferred stock  (2,480,298)  (2,029,996)
Net loss attributable to SecureAlert, Inc. common stockholders $(19,938,405) $(11,920,570)
Net loss per common share, basic and diluted $(0.04) $(0.03)
Weighted average common shares outstanding, basic and diluted  547,034,000   380,659,000 

See accompanying notes to consolidated financial statements.

43

SECUREALERT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20112014 AND 20122013
 
                 Preferred          
  Preferred Stock  Common Stock  Additional  Stock          
  Series D        Paid-in  Subscription  Accumulated  Non-Controlling    
  Shares  Amount  Shares  Amount  Capital  Receivable  Deficit  Interest  Total 
Balance as of October 1, 2010  35,407  $4   280,023,255  $28,002  $224,501,863  $(50,000) $(221,164,945) $(185,073) $3,129,851 
                                     
Issuance of common stock for:                                    
Conversion of Series D Preferred stock  (22,735)  (2)  136,410,000   13,641   (13,639)  -   -   -   - 
Dividends from SMI Series A Preferred stock  -   -   981,620   98   97,251   -   -   -   97,349 
Services  -   -   250,000   25   21,285   -   -   -   21,310 
Acquisition of subsidiaries  -   -   64,705,264   6,470   5,315,594   -   -   153,323   5,475,387 
Dividends from Series D Preferred stock  -   -   21,307,067   2,131   2,041,178   -   -   -   2,043,309 
Cancellation of shares  -   -   (53,778)  (5)  5   -   -   -   - 
                                     
Vesting and re-pricing of stock options  -   -   -   -   1,231,836   -   -   -   1,231,836 
                                     
Beneficial conversion feature recorded as interest expense
  -   -   -   -   42,351   -   -   -   42,351 
                                     
Series D Preferred dividends  -   -   -   -   (2,029,996)  -   -   -   (2,029,996)
                                     
Issuance of Series D Preferred stock in connection with forbearance agreements
  280   -   -   -   140,000   -   -   -   140,000 
                                     
Issuance of Series D Preferred stock for Board of Director fees
  25   -   -   -   12,500   -   -   -   12,500 
                                     
Issuance of Series D Preferred stock for prepaid commissions
  987   -   -   -   493,500   -   -   -   493,500 
                                     
Issuance of Series D Preferred stock in connection with debt and accrued interest
  4,669   -   -   -   2,334,632   -   -   -   2,334,632 
                                     
Issuance of Series D Preferred stock for cash  26,037   3   -   -   10,344,600   -   -   -   10,344,603 
                                     
Cancellation of Series D Preferred stock  (100)  -   -   -   (50,000)  50,000   -  ��-   - 
                                     
Issuance of Series D Preferred stock in connection with services
  275   -   -   -   137,500   -   -   -   137,500 
                                     
Net loss  -   -   -   -   -   -   (9,890,574)  31,750   (9,858,824)
                                     
Balance as of September 30, 2011  44,845  $5   503,623,428  $50,362  $244,620,460  $-  $(231,055,519) $-  $13,615,308 
  2014  2013 
Revenues:      
   Products $599,017  $612,437 
   Monitoring and other related services  11,663,181   15,028,625 
               Total revenues  12,262,198   15,641,062 
         
Cost of revenues:        
   Products  251,385   262,022 
   Monitoring and other related services  4,873,757   7,554,870 
Impairment of monitoring equipment and parts (Note 2)  373,951   213,276 
               Total cost of revenues  5,499,093   8,030,168 
         
Gross profit  6,763,105   7,610,894 
         
Operating expenses:         
         
Selling, general and administrative (including $801,820 and $430,618, respectively, of compensation expense paid in stock, stock options / warrants or as a result of amortization of stock-based compensation)
  12,891,151   7,679,124 
Research and development  1,605,662   987,934 
Settlement expense  14,291   360,000 
Loss from operations  (7,747,999)  (1,416,164)
         
Other income (expense):        
Loss on disposal of equipment  (36,533)  (2,949)
Interest income  368,434   - 
Interest expense  (1,290,289)  (17,048,519)
Currency exchange rate gain (loss)  (609,914)  (145,612)
Other income, net  624,001   279,174 
Net loss from continuing operations  (8,471,982)  (18,334,070)
Gain on disposal of discontinued operations  -   424,819 
Net loss from discontinued operations  -   (6,460)
Net loss before tax  (8,692,300)  (17,915,711)
Income tax  (55,544)  - 
Net loss Company  (8,747,844)  (17,915,711)
Dividends on preferred stock  (14,585)  (1,042,897)
Net loss attributable to common shareholders  (8,762,429)  (18,958,608)
Foreign currency translation adjustments  (271,954)  - 
Comprehensive loss $(9,034,383) $(18,958,608)
Net loss per common share, basic and diluted from continuing operations $(0.88) $(3.79)
Net income per common share, basic and diluted from discontinued operations $-  $0.09 
Weighted average common shares outstanding, basic and diluted  9,951,000   4,832,000 

See accompanying notes to consolidated financial statements.

 
44F-4

SECUREALERT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2013 AND 2014

  Preferred Stock  Common Stock  Additional       
  Series D        Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance as of October 1, 2012  48,763  $5   3,096,641  $310  $252,940,448  $(248,513,626) $4,427,137 
                             
Issuance of common stock for:                            
Conversion of Series D Preferred stock(48,295)  (4)  1,894,283   189   (185)  -   - 
Services  -   -   21,884   2   141,756   -   141,758 
Debt  -   -   4,607,361   462   20,732,657   -   20,733,119 
Dividends from Series D Preferred stock-   -   181,832   18   1,663,979   -   1,663,997 
Board of director fees-   -   3,661   -   47,500   -   47,500 
Cash  -   -   (159)  -   (1,995)  -   (1,995)
                             
Vesting and re-pricing of stock options  -   -   -   -   160,301   -   160,301 
                             
Beneficial conversion feature recorded as interest expense
  -   -   -   -   15,349,074   -   15,349,074 
                             
Series D Preferred dividends  -   -   -   -   (1,042,897)  -   (1,042,897)
                             
Issuance of common stock warrants for Board of Director fees
  -   -   -   -   401,059   -   401,059 
                             
Net loss  -   -   -   -   -   (17,915,711)  (17,915,711)
                             
Balance as of September 30, 2013  468  $1   9,805,503  $981  $290,391,697  $(266,429,337) $23,963,342 

See accompanying notes to consolidated financial statements.
F-5

SECUREALERT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20112013 AND 20122014

                      
                      
  Preferred Stock  Common Stock  Additional       
  Series D        Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance as of October 1, 2011  44,845  $5   503,623,428  $50,362  $244,620,460  $(231,055,519) $13,615,308 
                             
Issuance of common stock for:                            
Conversion of Series D Preferred stock  (90)  -   540,000   54   (54)  -   - 
Royalty payment  -   -   14,393,860   1,439   818,533   -   819,972 
Services  -   -   862,961   86   39,914   -   40,000 
Debt  -   -   1,689,714   170   118,110   -   118,280 
Dividends from Series D Preferred stock  -   -   42,137,711   4,214   2,387,354   -   2,391,568 
Employee compensation  -   -   24,340,000   2,434   730,200   -   732,634 
Board of director fees  -   -   600,000   60   48,000   -   48,060 
Cash  -   -   31,140,625   3,114   1,029,886   -   1,033,000 
                             
Vesting and re-pricing of stock options  -   -   -   -   1,405,500   -   1,405,500 
                             
Acceleration of vesting and cancellation of stock warrants
  -   -   -   -   1,398,060   -   1,398,060 
                             
Beneficial conversion feature recorded as interest expense
  -   -   -   -   1,475,000   -   1,475,000 
                             
Series D Preferred dividends  -   -   -   -   (2,480,298)  -   (2,480,298)
                             
Issuance of common stock warrant to settle a lawsuit
  -   -   -   -   253,046   -   253,046 
                             
Issuance of common stock warrants for Board of Director fees
  -   -   -   -   105,042   -   105,042 
                             
Issuance of common stock warrants for consulting fees
  -   -   -   -   33,357   -   33,357 
                             
Repricing of common stock warrants in connection with debt and accrued interest
  -   -   -   -   39,965   -   39,965 
                             
Issuance of Series D Preferred stock for cash  4,008   -   -   -   2,004,000   -   2,004,000 
                             
Commission paid in connection with capital raise  -   -   -   -   (1,147,250)  -   (1,147,250)
                             
Net loss  -   -   -   -   -   (17,458,107)  (17,458,107)
                             
Balance as of September 30, 2012  48,763  $5   619,328,299  $61,933  $252,878,825  $(248,513,626) $4,427,137 
  Preferred Stock  Common Stock  Additional      
Accumulated Other
    
  Series D        Paid-in  Accumulated  Comprehensive    
  Shares  Amount  Shares  Amount  Capital  Deficit  Loss  Total 
Balance as of October 1, 2013  468   1   9,805,503   981   290,391,697   (266,429,337)  -  $23,963,342 
                                 
Issuance of common stock for:                                
Conversion of Series D Preferred stock(207)  -   16,907   2   (2)  -       - 
Acquisitions of subsidiaries -   -   236,469   24   4,499,976           4,500,000 
Services  -   -   15,343   2   243,016   -       243,018 
Exercise of options and warrants-   -   10,646   1   7,999   -       8,000 
Dividends from Series D Preferred stock-   -   1,252   -   24,012   -       24,012 
Board of director fees  -   -   7,010   1   127,499   -       127,500 
                                 
Vesting of stock options  -   -   -   -   254,487   -       254,487 
                                 
Stock offering costs  -   -   -   -   (34,735)  -       (34,735)
                                 
Series D Preferred dividends  -   -   -   -   (14,585)  -       (14,585)
                                 
Cash paid for repurchase of Series D Preferred Stock  (261)  (1)  -   -   (312,008)          (312,009)
                                 
Issuance of common stock warrants for Board of                                
Director fees  -   -   -   -   176,816   -       176,816 
                                 
Foreign currency translation adjustments  -   -   -   -   -   -   (271,954)  (271,954)
                                 
Net loss  -   -   -   -   -   (8,747,844)      (8,527,526)
                                 
Balance as of September 30, 2014  -  $-   10,093,130  $1,009  $295,364,173  $(275,177,181) $(271,954) $20,136,365 

See accompanying notes to consolidated financial statements.

 
45F-6

SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20122014 AND 2011
2013
  2012  2011 
Cash flows from operating activities:      
   Net Loss $(17,458,107) $(9,858,824)
   Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization  2,078,127   1,793,557 
Common stock issued for services  40,000   21,310 
Issuance of common stock to employees for cancellation of warrants  2,130,694   - 
Series D Preferred stock issued for services  -   137,500 
Vesting and re-pricing of stock options  1,405,500   1,231,836 
Amortization of debt discount  923,268   61,493 
Settlement expense  -   276,712 
Origination fees recorded in connection with debt  -   25,000 
Common stock warrants repriced in connection with related-party debt  39,965   - 
Change in redemption value in connection with SMI Series A Preferred stock  -   (16,682)
Increases in related-party line of credit for services  -   515,536 
Impairment of goodwill  5,514,395   - 
Impairment of monitoring equipment and parts  1,648,762   464,295 
Issuance of Series D Preferred shares in connection with forbearance  -   140,000 
Loss on disposal of property and equipment  23,865   300,338 
Disposal of property and equipment as employee compensation  2,790   - 
Loss on forgiveness of note receivable  22,750   - 
Loss on disposal of monitoring equipment and parts  205,489   95,583 
Change in assets and liabilities:        
  Accounts receivable, net  1,054,267   (2,726,576)
  Notes receivable  88,061   (170,000)
  Inventories  (410,521)  (502,648)
  Prepaid expenses and other assets  (892,897)  232,014 
  Accounts payable  487,264   1,042,579 
  Accrued expenses  1,127,088   46,023 
  Deferred revenue  259,852   81,441 
Net cash used in operating activities  (1,709,388)  (6,809,513)
         
Cash flow from investing activities:        
Purchase of property and equipment  (112,163)  (215,528)
Net proceeds from the sale of property and equipment  136,618   - 
Purchase of monitoring equipment and parts  (2,745,399)  (3,066,026)
Cash acquired through acquisition  -   10,000 
Payment related to acquisition  -   (400,000)
Issuance of note receivable  -   (45,000)
Net cash used in investing activities  (2,720,944)  (3,716,554)
         
Cash flow from financing activities:        
Principal payments on related-party line of credit  -   (188,634)
Borrowings on related-party notes payable  2,980,000   1,780,911 
Principal payments on related-party notes payable  (3,187,578)  (951,639)
Proceeds from notes payable  3,962   1,283,800 
Principal payments on notes payable  (910,440)  (1,919,457)
Borrowings on related-party convertible debentures  2,900,000   - 
Borrowings on convertible debentures  500,000   - 
Proceeds from issuance of common stock  1,033,000   - 
Proceeds from issuance of Series D Convertible Preferred stock  2,004,000   10,344,603 
Commissions paid in connection with capital raise  (1,147,250)  - 
Net cash provided by financing activities  4,175,694   10,349,584 
Net increase (decrease) in cash  (254,638)  (176,483)
Cash, beginning of year  949,749   1,126,232 
Cash, end of year $695,111  $949,749 

  2014  2013 
Cash flows from operating activities:      
     Net loss $(8,747,844) $(17,915,711)
Gain on sale of subsidiaries  -   (424,819)
Loss from discontinued operations  -   6,460 
Loss from continuing operations  (8,747,844)  (18,334,070)
Adjustments to reconcile net income to net cash used in operating activities:     
  Depreciation and amortization  2,457,991   2,414,270 
  Common stock issued for services  801,820   141,760 
  Accretion of debt discount and benficial conversion feature  286,399   15,954,355 
  Bad debt expense  125,961   - 
  Vesting and re-pricing of stock options  -   160,301 
  Fractional shares of common stock paid in cash  -   (1,996)
  Impairment of monitoring equipment and parts  373,951   213,276 
  Issuance of warrants to related parties  -   128,559 
  Loss on disposal of property and equipment  3,710   4,740 
  Loss on disposal of monitoring equipment and parts  -   84,805 
Change in assets and liabilities net of assets and liabilities acquired:        
  Accounts receivable, net  (193,030)  (652,749)
  Notes receivable  (25,244)  63,978 
  Inventories  (1,727,400)  186,913 
  Prepaid expenses and other assets  604,506   107,576 
  Accounts payable  1,466,905  ��(1,473,530)
  Accrued expenses  (1,339)  2,186,618 
  Deferred revenue  (8,674)  (345,896)
Net cash (used in) provided by operating activities  (4,582,288)  838,910 
         
Cash flow from investing activities:        
Purchase of property and equipment  (544,126)  (50,682)
Purchase of monitoring equipment and parts  -   (509,743)
Leasehold improvements  (1,330,068)  - 
Payments for other assets  (3,163,802)  - 
Cash acquired through acquisition  195,058   - 
Payment related to acquisition  (8,050,167)  - 
Proceeds from notes receivable  55,984   - 
 Net cash used in investing activities  (12,837,121)  (560,425)
         
Cash flow from financing activities:        
Borrowings on related-party notes payable  1,200,000   2,800,000 
Principal payments on related-party notes payable  (60,000)  - 
Proceeds from notes payable  25,750,000   - 
Principal payments on notes payable  (1,407,524)  (299,276)
Proceeds from issuance of common stock  8,000   - 
Repurchase of Series D Convertible Preferred stock  (312,008)  - 
Debt offering costs  (34,735)  - 
Net cash provided by financing activities  25,143,733   2,500,724 
         
Effect of exchange rate changes on cash  (4,930)  - 
         
Cash flow from discontinued operations:        
Net cash provided by operating activities  -   126,715 
Net cash provided by investing activities  -   - 
Net cash provided by financing activities  -   18,475 
Net cash provided by discontinued operations  -   145,190 
         
Net increase (decrease) in cash  7,719,394   2,924,399 
Cash, beginning of year  3,382,428   458,029 
Cash, end of year $11,101,822  $3,382,428 
See accompanying notes to consolidated financial statements.

SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20122014 AND 20112013

  2014  2013 
Cash paid for interest $193,019  $238,080 
         
Supplemental schedule of non-cash investing and financing activities:     
Issuance of common stock in connection with Series D preferred stock dividends 
   24,012   1,663,997 
Series D Preferred stock dividends earned  14,585   1,042,897 
Issuance of warrants for accrued Board of Director fees  477,142   272,500 
Issuance of common shares for settlement of debt  -   20,733,118 
Issuance of common shares from the conversion of shares of Series D Preferred Stock 
   -   189 
Issuance of debt to repurchase royalty agreement  -   11,616,984 
Issuance of stock for the acquisition of a subsidiary  4,500,000   - 
Accretion of debt discount and beneficial conversion feature  -   15,954,355 
 
       
       
  2012  2011 
Cash paid for interest $444,644  $816,178 
         
Supplemental schedule of non-cash investing and financing activities:        
Issuance of 0 and 981,620 shares of common stock, respectively for payment of SecureAlert Monitoring, Inc. Series A Preferred stock dividends
  -   97,349 
Note payable issued to acquire monitoring equipment and property and equipment
  69,000   274,148 
Issuance of shares of Series D Convertible Preferred stock for conversion of debt, accrued liabilities and interest
  -   2,334,632 
Issuance of 42,137,711 and 21,307,067 shares of common stock in connection with Series D Preferred stock dividends
  2,391,568   2,043,309 
Non-controlling interest assumed through acquisition of subsidiaries  -   153,322 
Issuance of 540,000 and 136,410,000 shares of common stock from the conversion of  90 and 22,735 shares of Series D Preferred stock
  54   13,641 
Series D Preferred stock dividends earned  2,480,298   2,029,996 
Accrued liabilities and notes recorded in connection with the acquisition of        
Midwest Monitoring & Surveillance, Inc.  -   1,187,946 
Cancellation of 0 and 53,778 shares of common stock, respectively, for services
  -   5 
Cancellation of subscription receivable  -   50,000 
Issuance of 0 and 987 Series D Preferred stock for prepaid commissions  -   493,500 
Issuance of 0 and 2,705,264 shares of common stock in connection with the acquisition of Midwest Monitoring & Surveillance, Inc.
  -   238,064 
Issuance of 0 and 62,000,000 shares of common stock in connection with the acquisition of International Surveillance Services Corp., net of cash acquired
  -   5,087,921 
Issuance of Series D Preferred stock to settle accrued liabilities  -   12,500 
Acquisition of accounts receivable from International Surveillance Services Corp. ownership
  -   84,338 
Acquisition of accounts payable and accrued liabilities from International Surveillance Services Corp. ownership
  -   13,921 
Issuance of 6,000,000 and 0 stock warrants, respectively, for settlement of debt  253,046   - 
Issuance of 3,700,000 and 0 common stock warrants, respectively, for Board of Director fees
  105,042   - 
Issuance of 600,000 and 0 shares of common stock, respectively, for Board of Director fees
  48,060   - 
Issuance of 14,393,860 and 0 shares of common stock, respectively, for related- party royalty
  819,972   - 
Issuance of 1,689,714 and 0 shares of common stock, respectively, for settlement of debt
  118,280   - 
Issuance of 1,200,000 and 0 common stock warrants, respectively, to a consultant for services
  33,357   - 
Beneficial conversion feature recorded with convertible debentures  473,334   - 
Beneficial conversion feature recorded with related-party convertible debentures  1,001,666   - 
Note receivable issued for outstanding accounts receivable net of accounts payable due
  168,116   - 
Settlement of note payable upon sale of property and equipment  56,794   - 
Acquisition of property and equipment as payment against note receivable  3,623   - 
Liabilities and notes payable paid through issuance of related-party convertible debt debt
  1,000,000   - 
Acquisition of royalty purchase commitment through issuance of note payable  10,768,555   - 

See accompanying notes to consolidated financial statements.

 
47F-8

SECUREALERT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALFINANCIAL STATEMENTS

(1)Organization and Nature of Operations
 
General
 
SecureAlert, Inc. and subsidiaries (DBA Track Group) (collectively, the “Company”“Company”) markets, monitors and leases TrackerPAL®ReliAlert™, Shadow and ReliAlert™R.A.D.A.R. devices.  The TrackerPAL® and ReliAlert™These devices are used to monitor convicted offenders that are on probation or parole in the criminal justice system.  The TrackerPAL®system or pretrial defendants.  ReliAlert™ and ReliAlert™Shadow devices utilize GPS, radio frequencies, and cellular technologies in conjunction with a monitoring center that is staffed 24/7 and 365 days a year.  The Company believes that its technologies and services benefit law enforcement officials by allowing them to respond immediately to a problem involving the monitored offender.  The TrackerPAL® and ReliAlert™ devices are targeted to meet the needs of this market domestically as well as internationally.
 
Going Concern
The Company has incurred recurring net losses and negative cash flows from operating activities for the fiscal years ended September 30, 2012 and 2011, and we have several debt obligations currently in default.  In addition, the Company has accumulated deficits of $248,513,626 and $231,055,519 as of September 30, 2012 and 2011, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In order for the Company to continue as a going concern, it must generate positive cash flows from operating activities and obtain the necessary funding to meet its projected capital investment requirements.  Management’s plans with respect to this uncertainty include raising additional capital from the issuance of preferred or common stock or debt securities, and expanding its market for its ReliAlert™ portfolio of products.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay debts.  If the Company is unable to increase cash flows from operating activities or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

(2)Summary of Significant Accounting Policies

Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of SecureAlert, Inc. (DBA Track Group) and its subsidiaries, SecureAlert Monitoring, Inc.,subsidiaries. Additionally, during the fiscal year ended September 30, 2013, the Company formed a Chilean subsidiary and sold Midwest Monitoring & Surveillance, Inc., and Court Programs, Inc., Court Programs of Florida, Inc., and International Surveillance Services Corp (collectively, During the “Company”)year ended September 30, 2014, the Company acquired two additional subsidiaries (see Note 3 “Acquisitions” below). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuredisclosures of contingent assets and liabilities atas of the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period.period presented. Actual results could differ from thesethose estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, certain assumptions related to the recoverability of intangible and long-lived assets, and fair market values of certain assets and liabilities.

Business Combinations

Business combinations are accounted for under the provisions of ASC 805-10, Business Combinations (ASC 805-10), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the contingent consideration is recorded at its probable fair value at the acquisition date. Any changes in fair value after the acquisition date are accounted for as measurement-period adjustments if they pertain to additional information about facts and circumstances that existed at the acquisition date and that we obtained during the measurement period. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as performance measures, are recognized in earnings.

Foreign currency translation

The Chilean Peso and Israeli New Shekel are the functional currencies of Track Group – Chile and Track Group – Israel. Their respective balance sheets have been translated into USD at the exchange rate prevailing at the balance sheet date. Their respective statements of operations have been translated into USD using the average exchange rates prevailing during the periods of each statement. The corresponding translation adjustments are part of accumulated other comprehensive income and are shown as part of shareholders’ equity.
F-9
Goodwill
Goodwill represents costs in excess of purchase price over the fair value of the assets of businesses acquired, including other identifiable intangible assets.
Other Intangible Assets

Other intangible assets principally consist of patents, royalty purchase agreements, developed technology acquired, customer relationships, trade name and capitalized website development costs.  The Company accounts for other intangible assets in accordance with generally accepted accounting principles and does not amortize intangible assets with indefinite lives.  The Company’s intangible assets with finite useful lives are amortized over their respective estimated useful lives which range from two to ten years.  The Company’s intangible assets are reviewed for impairment annually or more frequently whenever events or changes in circumstances indicate possible impairment.
Fair Value of Financial Statements
 
The carrying amounts reported in the accompanying consolidated financial statements for cash, accounts receivable, accounts payable, accrued liabilities and other debt obligations approximate fair values because of the immediate or short-term maturities of these financial instruments.  The carrying amounts of the Company’s debt obligations approximate fair value as the interest rates approximate market interest rates.

Concentration of Credit Risk

In the normal course of business, the Company provides credit terms to its customers and requires no collateral. Accordingly, the Company performs ongoing credit evaluations of its customers' financial condition.

48
Based upon the expected collectability of its accounts receivable, theThe Company maintains an allowance for doubtful accounts receivable.
One customer accounted for $2,450,984 (12 percent)had sales to entities which represent more than 10 percent of total revenues as follows for the fiscal yearyears ended September 30, 2012 and the same customer accounted for $2,265,805 (13 percent) of total revenues for the fiscal year ended September 30, 2011.  30:
  2014  %  2013  % 
             
Customer A $-   0% $5,252,960   33%
                 
Customer B $1,501,940   12% $1,622,327   10%
                 
Customer C $1,431,854   12% $1,514,581   9%
No other customer represented more than 10 percent of the Company’s total revenues for the fiscal years ended September 30, 20122014 or 2011.2013.

Concentration of credit risk associated with the Company’s total and outstanding accounts receivable as of September 30, 20122014 and 2011,2013, respectively, are shown in the table below:

  2012  %  2011  % 
             
Customer A $681,781   24% $-   - 
                 
Customer B $475,800   17% $347,553   7%
         ��       
Customer C $-   -  $1,995,804   39%
  2014  %  2013  % 
             
Customer A $-   0% $892,897   24%
                 
Customer B $499,040   13% $732,163   20%
                 
Customer C $419,523   11% $887,233   24%
 
Based upon the expected collectability of its accounts receivable, the Company maintains an allowance for doubtful accounts. Subsequent to the fiscal year ended September 30, 2014, the Company received $387,483 from Customer B and $518,137 from Customer C for a total of $905,620.

Cash Equivalents

Cash equivalents consist of investments with original maturities to the Company of three months or less.  The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts.

Cash equivalents consist of investments with original maturities to the Company of three months or less. The Company had $350,716$10,572,702 and $371,130$3,128,187 of cash deposits in excess of federally insured limits as of September 30, 20122014 and 2011,2013, respectively.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves areThe allowance is estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables and changes in payment histories.  Trade receivables are written off when deemed uncollectible.  Recoveries of trade receivables previously written off are recorded when cash is received.  A trade receivable is considered to be past due if any portion of the receivable balance has not been received by the Company within its normal terms.  Interest income is not recorded on trade receivables that are past due, unless that interest is collected.

Inventory

Inventory is valued at the lower of the cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method.  Market is determined based on the estimated net realizable value, which generally is the item selling price.  Inventory is periodically reviewed in order to identify obsolete or damaged items or impaired values.  The Company impaired its inventory by $359,734 and $268,398 during the fiscal years ended September 30, 2012 and 2011, respectively.

Inventory consists of raw materials that are used in the manufacturing of TrackerPAL® and ReliAlert™ devices.  Completed TrackerPAL® and ReliAlert™ devices are reflected in Monitoring Equipment.  As of September 30, 2012 and 2011, respectively, inventory consisted of the following:
  2012  2011 
Raw materials $822,566  $706,795 
Reserve for damaged or obsolete inventory  (192,000)  (127,016)
Total inventory, net of reserves $630,566  $579,779 


49
Note Receivable

Notes receivable are carried at the face amount of each note plus respective accrued interest receivable, less received payments.  The Company does not typically carry notes receivable in the course of its regular business, but had entered into an agreement with one of its customers during the fiscal year ended September 30, 2012.  Payments are under the note are recorded as they are received and are immediately offset against any outstanding accrued interest before they are applied against the outstanding principal balance on the respective note.  The note requires monthly payments of $15,000 and matures in May 2014.  Additionally, theThe note does not haveis currently in default and accrues interest at a stated interest rate; therefore, the Company imputed interest according to GAAP.rate of 17% per annum. As of September 30, 2012,2014, the outstanding balance of the note net of note discount, was $268,682$156,323 and $1,325$15,211 of accrued interest.  As

Inventory

Inventory is valued at the lower of the date of this report,cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method.  Market is determined based on the estimated net realizable value, which generally is the item selling price.  Inventory is periodically reviewed in order to identify obsolete or damaged items or impaired values.  The Company expects to collectimpaired its inventory by $153,633 and $211,555 during the outstanding amount.fiscal years ended September 30, 2014 and 2013, respectively.
 
Prepaid and Other Expenses
F-11

The carrying amounts reportedInventory consists of raw materials that are used in the balance sheets for prepaidmanufacturing of ReliAlert™, Shadow, and other expenses approximate their fair market value based on the short-term maturity of these instruments.tracking devices.  Completed ReliAlert™ and other tracking devices are reflected in Monitoring Equipment.  As of September 30, 20122014 and 2011, the outstanding balance of prepaid and other expenses was $1,979,172 and $1,082,581, respectively.  Of the $1,979,172, was a bond posted for an international customer in the amount of $1,488,778, which may be returned to the Company at the completion2013, respectively, inventory consisted of the contract.following:
  2014  2013 
Raw materials, work-in-process and finished goods inventory $1,471,764  $615,144 
Reserve for damaged or obsolete inventory  (223,500)  (148,043)
Total inventory, net of reserves $1,248,264  $467,101 
 
Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are determined using the straight-line method over the estimated useful lives of the assets, typically three to seven years.  Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the term of the lease. Expenditures for maintenance and repairs are expensed while renewals and improvements are capitalized.

Property and equipment consisted of the following as of September 30, 20122014 and 2011,2013, respectively:
  2012  2011 
Equipment, software and tooling $2,409,031  $2,390,329 
Automobiles  372,339   398,890 
Building  -   377,555 
Leasehold improvements  134,941   132,820 
Furniture and fixtures  323,505   317,630 
   Total property and equipment before accumulated depreciation  3,239,816   3,617,224 
Accumulated depreciation  (2,562,323)  (2,530,591)
         
Property and equipment, net of accumulated depreciation $677,493  $1,086,633 
 
  2014  2013 
Equipment, software and tooling $2,571,450  $2,002,576 
Automobiles  33,466   33,466 
Leasehold improvements  1,294,386   127,162 
Furniture and fixtures  253,466   247,218 
Total property and equipment before accumulated depreciation  4,152,768   2,410,423 
Accumulated depreciation  (2,292,521)  (2,092,221)
Property and equipment, net of accumulated depreciation $1,860,247  $318,201 
Property and equipment to be disposed of is reported at the lower of the carrying amount or fair value, less the estimated costs to sell and any gains or losses are included in the results of operations. During the fiscal years ended September 30, 20122014 and 2011,2013, the Company disposed of net property and equipment of $23,865$3,710 and $300,338,$4,740, respectively.

Depreciation expense for the fiscal years ended September 30, 20122014 and 20112013 was $373,858$276,355 and $421,407,$231,853, respectively.

Monitoring Equipment

Monitoring equipment as of September 30, 2012 and 2011 is as follows:
  2012  2011 
Monitoring equipment $6,504,420  $7,070,373 
Less: accumulated amortization  (3,179,310)  (3,608,388)
Monitoring equipment,  net of accumulated depreciation $3,325,110  $3,461,985 

The Company began leasing monitoring equipment to agencies for offender tracking in April 2006 under operating lease arrangements.  The monitoring equipment is depreciated using the straight-line method over an estimated useful life of 3three years. Monitoring equipment as of September 30, 2014 and 2013 is as follows:

  2014  2013 
Monitoring equipment $3,166,217  $2,420,042 
Less: accumulated amortization  (1,251,551)  (1,183,346)
Monitoring equipment,  net of accumulated depreciation $1,914,666  $1,236,696 
Amortization expense for the fiscal years ended September 30, 20122014 and 2011,2013 was $1,387,756$844,172 and $1,160,920,$1,230,293, respectively.  These expenses were classified as a cost of revenues.

50
Assets Monitoring equipment to be disposed of are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.  During the fiscal years ended September 30, 20122014 and 2011,2013, the Company disposed and impaired lease monitoring equipment and parts of $1,494,518$209,757 and $291,479,$296,526, respectively. In addition, the Company recognized $220,318 of impairment expense for future impairment of monitoring equipment during the year ended September 30, 2014. These impairment costs were included in cost of revenues. This equipment will continue to be used.

 
Impairment of Long-Lived Assets and Goodwill

The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable and in the case of goodwill, at least annually. The Company evaluates whether events and circumstances have occurred which indicate possible impairment as of each balance sheet date. The Company uses an equity method of the related asset or group of assets in measuring whether the assets are recoverable.  If the carrying amount of an asset exceeds its marketfair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset.  Impairment of long-lived assets is assessed at the lowest levels for which there is an identifiable fair market value that is independent of other groups of assets.  In reviewing historical financial performance and participating in recent discussions in selling Court Programs, Inc. and Midwest Monitoring & Surveillance, Inc., the Company recorded an impairment expense.
The following summarizes the changes in goodwill during the years ended September 30, 2012 and 2011:
  Court Programs, Inc.  Midest Monitoring & Surveillance, Inc. 
  2012  2011  2012  2011 
Gross carrying amount, beginning of period $2,488,068  $2,488,068  $3,401,327  $1,421,995 
Additions  -   -   -   1,979,332 
Impairments  (2,488,068)  -   (3,026,327)  - 
Gross carrying amount, end of period $-  $2,488,068  $375,000  $3,401,327 
Revenue Recognition

The Company’s revenue has historically been from two sources: (i) monitoring services; and (ii) product sales.

Monitoring Services
Monitoring services include two components: (a) lease contracts in which the Company provides monitoring services and leases devices to distributors or end users and the Company retains ownership of the leased device; and (b) monitoring services purchased by distributors or end users who have previously purchased monitoring devices and opt to use the Company’s monitoring services.

The Company typically leases its devices under one-year contracts with customers that opt to use the Company’s monitoring services.  However, these contracts may be cancelled by either party at anytimeany time with 30 daysdays’ notice.  Under the Company’s standard leasing contract, the leased device becomes billable on the date of activation or 7 to 21 days from the date the device is assigned to the lessee, and remains billable until the device is returned to the Company.  The Company recognizes revenue on leased devices at the end of each month that monitoring services have been provided.  In those circumstances in which the Company receives payment in advance, the Company records these payments as deferred revenue.

Product Sales
The Company may sell its monitoring devices in certain situations to its customers. In addition, the Company may sell equipment in connection with the building out and setting up a monitoring center on behalf of its customers. The Company recognizes product sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices or equipment, prices are fixed or determinable (including sales not being made outside the normal payment terms) and collection is reasonably assured. When purchasing products (such as TrackerPAL® and ReliAlert™ devices) from the Company, customers may, but are not required to, enter into monitoring service contracts with the Company.  The Company recognizes revenue on monitoring services for customers that have previously purchased devices at the end of each month that monitoring services have been provided.

The Company sells and installs standalone tracking systems that do not require ongoing monitoring by the Company.  The Company has experience in component installation costs and direct labor hours related to this type of sale and can typically reasonably estimate costs, therefore the Company recognizes revenue over the period in which the installation services are performed using the percentage-of-completion method of accounting for material installations.  The Company typically uses labor hours or costs incurred to date as a percentage of the total estimated labor hours or costs to fulfill the contract as the most reliable and meaningful measure that is available for determining a project’s progress toward completion.  The Company evaluates its estimated labor hours and costs and determines the estimated gross profit or loss on each installation for each reporting period.  If it is determined that total cost estimates are likely to exceed revenues, the Company accrues the estimated losses immediately.

51
All amounts billed have been earned.
 
Multiple Element Arrangements
The majority of the Company’s revenue transactions do not have multiple elements. However, on occasion, the Company enters into revenue transactions that have multiple elements. These may include different combinations of products or monitoring services that are included in a single billable rate. These products or monitoring services are delivered over time as the customer utilizes the Company's services. For revenue arrangements that have multiple elements, the Company considers whether the delivered devices have standalone value to the customer, there is objective and reliable evidence of the fair value of the undelivered monitoring services, which is generally determined by surveying the price of competitors’ comparable monitoring services, and the customer does not have a general right of return. Based on these criteria, the Company recognizes revenue from the sale of devices separately from the monitoring services provided to the customer as the products or monitoring services are delivered.

Other Matters
The Company considers an arrangement with payment terms longer than the Company’s normal terms not to be fixed or determinable, and revenue is recognized when the fee becomes due.  Normal payment terms for the sale of monitoring services and products are due upon receipt to 30 days.  The Company sells its devices and services directly to end users and to distributors.  Distributors do not have general rights of return.  Also, distributors have no price protection or stock protection rights with respect to devices sold to them by the Company.  Generally, title and risk of loss pass to the buyer upon delivery of the devices.

The Company estimates its product returns based on historical experience and maintains an allowance for estimated returns, which is recorded as a reduction to accounts receivable and revenue.

Shipping and handling fees charged to customers are included as part of net revenues.  The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of revenues.

Geographical Information

The Company recognized revenues from international sources from its products and monitoring services.  Revenues are attributed to the geographic areas based on the location of the customers purchasing and leasing the products.  The revenues recognized by geographic area for the fiscal years ended September 30, 20122014 and 2011,2013, are as follows:
  Fiscal Years Ended 
  September 30, 
  2012  2011 
United States of America $14,075,140  $14,499,613 
Latin American Countries  2,450,984   2,533,483 
Caribbean Countries and Commonwealths  3,217,651   912,504 
Other Foreign Countries  47,717   16,203 
Total $19,791,492  $17,961,803 
 
  Fiscal Years Ended 
  September 30, 
  2014  2013 
United States of America $9,268,430  $7,179,043 
Latin American countries  -   5,252,960 
Caribbean countries and commonwealths  2,933,794   3,136,908 
Other foreign countries  59,974   72,151 
Total $12,262,198  $15,641,062 
The long-lived assets, net of accumulated depreciation and amortization, used in the generation of revenues by geographic area as of September 30, 20122014 and 2011,2013, were as follows:
  Net Property and Equipment  Net Monitoring Equipment 
  2012  2011  2012  2011 
United States of America $677,493  $1,082,453  $2,328,139  $3,352,614 
Latin American Countries  -   -   719,171   32,919 
Caribbean Countries and Commonwealths  -   4,180   263,782   71,687 
Other Foreign Countries  -   -   14,018   4,765 
Total $677,493  $1,086,633  $3,325,110  $3,461,985 


  Net Property and Equipment  Net Monitoring Equipment 
  2014  2013  2014  2013 
United States of America $611,095  $318,201  $1,645,137  $878,823 
Latin American countries  1,168,406   -   237,667   - 
Caribbean countries and commonwealths  -   -   -   351,138 
Other foreign countries  80,746   -   31,862   6,735 
Total $1,860,247  $318,201  $1,914,666  $1,236,696 
52
 
Research and Development Costs

All expenditures for research and development are charged to expense as incurred. These expenditures in 20122014 and 20112013 were for theto further develop our TrackerPAL and ReliAlert portfolio of products and services, as well as other research and development of SecureAlert’s TrackerPAL® and ReliAlert™ device and associated services.costs incurred by a new subsidiary acquired during fiscal year 2014. For the fiscal years ended September 30, 20122014 and 2011,2013, research and development expenses were $1,248,654$1,605,662 and $1,453,994,$987,934, respectively.
 
Advertising Costs

The Company expenses advertising costs as incurred.  Advertising expense for the fiscal years ended September 30, 20122014 and 2011,2013 was $42,148$60,505 and $117,568,$30,782, respectively.

Stock-Based Compensation

The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.

The tax effects from uncertain tax positions can be recognized in the financial statements, provided the position is more likely than not to be sustained on audit, based on the technical merits of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company applied the foregoing accounting standard to all of its tax positions for which the statute of limitations remained open as of the date of the accompanying consolidated financial statements.
 
The Company’s policy is to recognize interest and penalties related to income tax issues as components of other noninterest expense. As of September 30, 2014 and September 30, 2013, the Company did not record a liability for uncertain tax positions.

Net Loss Per Common Share

Basic net loss per common share ("("Basic EPS") is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted net loss per common share ("("Diluted EPS") is computed by dividing net loss attributable to common stockholders by the sum of the weighted-average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding.  The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.
 

Common share equivalents consist of shares issuable upon the exercise of options and warrnats to purchase shares of the Company's common stock, options and warrants,par value $0.0001 per share (“Common Stock”), and shares issuable upon conversion of preferred stock.  As of September 30, 20122014 and 2011,2013, there were 565,034,215347,251 and 399,448,202604,006 outstanding common share equivalents, respectively, that were not included in the computation of diluted net loss per common share as their effect would be anti-dilutive.  The common stockCommon Stock equivalents outstanding as of September 30, 20122014 and 2011,2013 consisted of the following:

  2014  2013 
       
Conversion of Series D Preferred stock  -   14,040 
Exercise of outstanding Common Stock options and warrants  305,251   427,966 
Exercise and conversion of outstanding Series D Preferred stock warrants
  42,000   162,000 
Total Common Stock equivalents  347,251   604,006 
  2012  2011 
Conversion of debt and accrued interest and loan origination fees  172,699,722   - 
Conversion of Series D Preferred stock  292,578,000   269,070,000 
Exercise of outstanding common stock options and warrants  67,356,493   99,178,202 
Exercise and conversion of outstanding Series D Preferred stock        
    warrants  32,400,000   31,200,000 
Total common stock equivalents  565,034,215   399,448,202 

Recent Accounting Pronouncements

From timeIn July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which addresses the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. ASU 2013-11 will be effective for us beginning in the first quarter of fiscal 2014. Early adoption is permitted. Since ASU 2013-11 only impacts financial statement disclosure requirements for unrecognized tax benefits, the Company does not expect the adoption of the guidance to time, new accounting pronouncements are issued byhave a material impact on the Company's consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (FASB)(“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or otherservices are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard setting bodies, which are adopted by the Company asis effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the specified effective date. Unless otherwise discussed,following transition methods: (i) a full retrospective approach reflecting the Company believes thatapplication of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of recently issued standards that areour pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about our ability to continue as a going concern, and if so, to provide related footnote disclosures. The standard is effective for annual reporting periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are currently evaluating this new standard and after adoption, we will not have a material impact on its financial position or resultsincorporate this guidance in our assessment of operations upon adoption.going concern.
 

(3)Acquisitions Goodwill

On March 12, 2014, the Company entered into a Share Purchase Agreement (the “SPA”) to purchase from Eli Sabag, an individual resident of the State of Israel (“Seller”), all of the issued and outstanding shares (“Shares”) of GPS Global Tracking and Surveillance System Ltd., a company formed under the laws of and operating in the State of Israel (“GPS Global”). The SPA contained customary representations and warranties and covenants, including provisions for indemnification, subject to the limitations described in the SPA. Subsequent to the closing, the Seller and certain key employees of GPS Global entered into employment agreements and continue to operate GPS Global. The SPA also granted the Seller the right for a three-year period following the closing, to nominate one director to serve on the Registrant’s board and on GPS Global’s board of directors. The closing of the transaction, which occurred on April 1, 2014, was subject to customary closing conditions.
The purchase price for the Shares was $7,811,404, payable in cash and shares of Registrant’s Common Stock as follows:
●Cash to Seller of $311,404 at the closing;
●Shares of Registrant’s Common Stock valued at $7,500,000, delivered to Seller as follows:
o  Common Stock valued at $1,600,000 delivered to Seller at the closing.
o  
Common Stock valued at $2,900,000, delivered to an escrow agent (“Bank”) to be released by Bank to Seller after six months from the closing, conditioned upon Registrant’s verification that GPS Global’s global positioning satellite (“GPS”) products (the “Devices”) meet expected operating specifications;
o  Common Stock valued at $1,000,000, the number of shares to be determined by dividing $1,000,000 by the weighted average closing price of the Registrant’s Common Stock for the 60 consecutive trading days preceding the third business day prior to release of such shares, to be issued to Seller by Registrant within 30 days of certification that GPS Global has sold or leased a minimum of 1,500 of its Devices under revenue-generating contracts; and Other Intangible Assets
o  Common Stock valued at $2,000,000,  the number of shares to be determined by dividing $2,000,000 by the weighted average closing price of the Registrant’s Common Stock for the 60 consecutive trading days preceding the third business day prior to release of such shares, to be issued to Seller by Registrant within 30 days of certification that GPS Global has sold or leased a minimum of 2,500 of its Devices under revenue-generating contracts, in addition to the 1,500 Devices previously mentioned (i.e., a minimum of 4,000 Devices sold or leased).

As described above, shares of September 30, 2012,Common Stock valued at $3,000,000 may be payable based on sales of the Company had recorded goodwillGPS devices sold or leased. Management determined that it was probable that sales of GPS devices would exceed the number of units specified in the SPA, and has therefore, recognized a Stock Payable liability for the entire $3,000,000 value of common shares payable. 

The total purchase price for the GPS Global acquisition was allocated to the net tangible and intangible assets relatedbased upon their fair values as of March 31, 2014 as set forth below. The excess of the purchase price over the net assets was recorded as goodwill. Goodwill recognized from this acquisition is not tax deductible. This acquisition provided the Company with additional research and development capabilities and enhanced technology which are expected to the acquisitionbenefit current and future products.


  Midwest Monitoring & Surveillance  Court Programs, Inc.  Bishop Rock Software  Patent  International Surveillance Services Corp.  Total 
                   
Goodwill $375,000  $-  $-  $-  $-  $375,000 
Other intangible assets                        
Trade name  120,000   99,000   10,000   -   -   229,000 
Software  -   -   380,001   -   -   380,001 
Customer relationships  -   6,000   -   -   -   6,000 
Patent license agreement  -   -   -   50,000   -   50,000 
Non-compete agreements  2,000   6,000   -   -   -   8,000 
Royalty agreement  -   -   -   -   5,003,583   5,003,583 
Total other intangible assets  122,000   111,000   390,001   50,000   5,003,583   5,676,584 
Accumulated amortization  (40,664)  (43,700)  (390,001)  (14,816)  (312,724)  (801,905)
Other intangible assets, net of accumulated amortization  81,336   67,300   -   35,184   4,690,859   4,874,679 
Total goodwill and other intangible assets, net of amortization $456,336  $67,300  $-  $35,184  $4,690,859  $5,249,679 


  Midwest Monitoring & Surveillance  Court Programs, Inc.  Bishop Rock Software  Patent  International Surveillance Services Corp.  Total 
                   
Goodwill $3,401,327  $2,488,068  $-  $-  $-  $5,889,395 
Other intangible assets                        
Trade name  120,000   99,000   10,000   -   -   229,000 
Software  -   -   380,001   -   -   380,001 
Customer relationships  -   6,000   -   -   -   6,000 
Patent license agreement  -   -   -   50,000   -   50,000 
Non-compete agreements  2,000   6,000   -   -   -   8,000 
Royalty agreement  -   -   -   -   5,003,583   5,003,583 
Total other intangible assets  122,000   111,000   390,001   50,000   5,003,583   5,676,584 
Accumulated amortization  (32,667)  (35,900)  (345,022)  (9,259)  (62,545)  (485,393)
Other intangible assets, net of accumulated amortization  89,333   75,100   44,979   40,741   4,941,038   5,191,191 
Total goodwill and other intangible assets, net of amortization $3,490,660  $2,563,168  $44,979  $40,741  $4,941,038  $11,080,586 
The following table summarizes the future maturities of amortization of intangible assets as of September 30, 2012:

                   
Fiscal Year Midwest Monitoring & Surveillance  Court Programs, Inc.  Bishop Rock Software  Patent  International Surveillance Services Corp.  Total 
                   
 2013 $8,000  $6,800  $-  $5,556  $250,179  $270,535 
 2014  8,000   6,600   -   5,556   250,179   270,335 
 2015  8,000   6,600   -   5,556   250,179   270,335 
 2016  8,000   6,600   -   5,556   250,179   270,335 
 2017  8,000   6,600   -   5,556   250,179   270,335 
 Thereafter  41,336   34,100   -   7,404   3,439,964   3,522,804 
                         
 Total $81,336  $67,300  $-  $35,184  $4,690,859  $4,874,679 
Midwest Monitoring & Surveillance
Effective December 1, 2007, the Company purchased a 51 percent ownership interest, including a voting interest, in Midwest Monitoring & Surveillance, Inc. (“Midwest”).  Midwest provides electronic monitoring for individuals on parole. The Company completed the purchasefair values of the remaining ownership interest effective June 30, 2011.assets and liabilities assumed at the acquisition date (in thousands).

  (000's) 
Purchase Price $7,811 
Current assets $217 
Inventory  17 
Property and equipment  47 
Monitoring equipment  48 
Other non-current assets  21 
Intangible assets  4,856 
Tradename  192 
Accounts payable and accrued expenses  (215)
Loan payable  (753)
Goodwill  3,381 
Total fair value of assets acquired $7,811 
 
54
The Company recorded a goodwill impairment expense of $3,026,327 for the fiscal year ended September 30, 2012.  As of September 30, 2012, the Company had a balance of goodwill of $375,000 and $122,000 of other intangible assets, as noted in the table above.

During the fiscal years ended 2012 and 2011, the Company recorded $7,997 and $8,000 of amortization expense for Midwest intangible assets, resulting in a total accumulated amortization of $40,664 and $32,667, and net other intangible assets of $81,336, and $89,333, respectively.

Subsequent to the fiscal year ended September 30, 2012,On June 2, 2014, the Company entered into a Stock Purchase Agreement whereby two former principals(the “Emerge SPA”) to purchase from BFC Surety Group, Inc. all of Midwest purchased from the Company all the issued and outstanding capital stockshares and equity interests of Midwest for $750,000, payable as follows:  (a) forgiveness of $650,000 in debt obligations owed by the Company to the former Midwest principals, and (b) cash of $100,000 payable under a note on or before April 1, 2013.

Court Programs
Effective December 1, 2007, the Company purchased a 51 percent ownership interest, including a voting interest, in Court Programs, Inc., a Mississippi corporation, Court Programs of Northern Florida,Emerge Monitoring, Inc., a Florida corporation (“Emerge”), which is the direct owner of all of the issued and Court Programsoutstanding equity interests of Florida, Inc.,Emerge Monitoring II, LLC, a Florida corporation (collectively, “Court Programs”).  The Company purchased the remaining 49 percent ownership interest effective March 1, 2010.  Court Programs is a distributor of electronic monitoring devices to courts providing a solution to monitor individuals on probation.  The Company acquired Court Programs to utilize its preexisting business relationships to gain more market sharelimited liability company and expand available service offerings. During the fiscal year ended September 30, 2012, the Company sold various territories in the state of Florida to various distributors that were previously serviced by Court Programs of Florida, Inc., a wholly-owned subsidiary of SecureAlert.Emerge (“Emerge LLC”), and a majority (65%) of the equity interest of Integrated Monitoring Systems, LLC, a Colorado limited liability company and subsidiary of Emerge LLC. The Emerge SPA contains customary representations and warranties and covenants, including provisions for indemnification, subject to the limitations described in the Emerge SPA. Certain key employees of the acquired entities continued to operate the acquired entities following the closing. During June 2014, the Company also committed to purchase the remaining 35% minority equity interest of Integrated Monitoring Systems, LLC. This purchase occurred during July 2014.

The Company recorded goodwill impairment expense of $2,488,068purchase price for the fiscal year ended September 30, 2012.  AsEmerge acquisition was $7,739,167, all of September 30, 2012,which was paid in cash. The total purchase price for the Emerge acquisition was allocated to the net tangible and intangible assets based upon their fair values as of June 1, 2014 as set forth below. The excess of the purchase price over the net assets was recorded as goodwill. Goodwill recognized as a result of this acquisition is fully deductible for tax purposes. This acquisition provided the Company had a balance of goodwill of $0with significant customer relationships, an experienced sales and $111,000 of other intangible assets, as noted inmanagement team and additional alcohol monitoring product offerings.

The following table summarizes the table above.

During the fiscal years ended 2012 and 2011, the Company recorded $7,800 and $7,800 of amortization expense on intangible assets for Court Programs, resulting in a total accumulated amortization of $43,700 and $35,900 and net other intangible assets of $67,300 and $75,100, respectively.

Bishop Rock Software
Effective January 14, 2009, the Company purchased allfair values of the assets of Bishop Rock Software, Inc., a California corporation through a wholly-owned subsidiary, SecureAlert Enterprise Solutions, Inc. Duringand liabilities assumed at the fiscal year ended 2011, SecureAlert Enterprise Solutions, Inc. merged into SecureAlert Monitoring, Inc. During the fiscal years ended 2012 and 2011, the Company recorded $44,979 and $127,334 of amortization expense on intangible assets for Bishop Rock Software, resulting in a total accumulated amortization of $390,001 and $345,022 and net intangible assets of $0 and $44,979, respectively.acquisition date (in thousands).

Patent
Inventory $451 
Property and equipment  227 
Other assets  109 
Developed technology  1,600 
Customer contracts/relationships  1,860 
Tradename/Trademarks  110 
Liabilities  30 
Goodwill  3,382 
Total fair value of assets acquired $7,739 
On January 29, 2010, the Company and Satellite Tracking of People, LLC (“STOP”) entered into a license agreement whereby STOP granted to Company a non-exclusive license under U.S. Patent No. 6,405,213 and any and all patents issuing from continuation, continuation-in-part, divisional, reexamination and reissues thereof and along with all foreign counterparts, to make, have made, use, sell, offer to sell and import covered products in SecureAlert’s present and future business.  The license granted will continue for so long as any of the licensed patents have enforceable rights.  The license granted is not assignable or transferable except for sublicenses within the scope of its license to the Company’s subsidiaries.

The Company agreed to pay $50,000 as consideration for the use of this patent.  Of the $50,000, $25,000 was paid during the fiscal year ended September 30, 2010 and the balance was paid on February 3, 2011.

During the fiscal years ended 2012 and 2011, the Company recorded $5,557 and $5,555 of amortization expense for the patent, resulting in a total accumulated amortization of $14,816 and $9,259, and net other intangible assets of $35,184, and $40,741, respectively.


International Surveillance Services Corp.
Effective July 1, 2011,
Subsequent to September 30, 2014, the Company entered into a stockshare purchase agreement (“G2 Agreement”) with Track Group Analytics Limited, a company formed under the laws of the providence of Nova Scotia (“G2”), all issued and purchased ISS,outstanding shares and equity interests of G2 for an aggregate purchase price of up to CAD$4.6 million, of which CAD$2.0 million was paid in cash to the Shareholders at closing. See Note 14, “Subsequent Events” below for a Puerto Rico corporation, in considerationmore detailed description of 62,000,000 shares of its common stock.  ISS is an international distributor of electronic monitoring devices to individuals on parole or probation.  The Company acquired ISS to utilize the knowledge and connections the company has in Central and South America and to acquire the rights to its territorial commissions that were being paid to ISS.

G2 acquisition. As of September 30, 2012,the date that these consolidated financial statements were issued, the Company had a balance of goodwill of $0 and $5,003,583 of other intangible assets, as notedwas in the table above.process of determining the value of assets and liabilities acquired in connection to this acquisition.

Summary of Pro-forma Information (Unaudited)

The Company recorded $250,179 of amortization expense on intangible assetspro-forma information below for ISS during the fiscal year ended September 30, 2012, resulting in a total accumulated amortization2014 and 2013 gives effect to the acquisitions as if they had occurred on October 1, 2012. The pro-forma financial information is not necessarily indicative of $312,724 and net other intangible assetsthe results of $4,690,859.operations if the acquisitions had been effective as of this date.
  For the Year Ended 
  September 30, 
  Unaudited 
  2014  2013 
       
Revenues  16,445,410   18,668,162 
Loss from operations  (8,617,692)  (2,388,277)
Net loss attributable to the Company  (8,924,681)  (19,413,822)
Basic income per share  (1.11)  (3.80)
Diluted income per share  (1.11)  (3.80)
Net loss attributable to common shareholders  (8,939,266)  (20,456,519)
Basic income per share  (0.88)  (4.00)
Diluted income per share  (0.88)  (4.00)

(4)Royalty Purchase Commitment

On September 5, 2012, the Company entered into an agreement to redeem the royalty held by Borinquen Container Corporation (“Borinquen”) pursuant to a royalty agreement dated July 1, 2011, as amended.  Under the terms of the royalty, Borinquen had the right to 20 percent of net revenues derived within certain geographic territories.

The Company capitalized the total cost of the royalty purchase commitment, $10,768,555, as a non-current asset and recorded a loan payable to Borinquen to reflect the obligation (see note 6 below).  The Company will amortize the asset over the remaining term of the royalty agreement, subject to periodic analysis for impairment based on future expected revenues.  The Company will annually calculate the amortization based on the effective royalty rate and on the revenues in the geographic territory subject to the royalty.  The Company’s analysis will be based on such factors as historical revenue and expected revenue growth in the territory.  Funds for the purchase of the royalty were to be provided under a Loan and Security Agreement from Sapinda Asia Limited (“Sapinda Asia”).  The loan was not fully funded and the necessary payments were not made in full to Borinquen.  Consequently, Borinquen terminated the agreement on December 26, 2012.  Sapinda Asia and Borinquen are negotiating to cure the default and complete the purchase.

(5)Accrued Expenses
 
Accrued expenses consisted of the following as of September 30, 20122014 and 2011:2013:
 
 2012  2011  2014  2013 
Accrued royalties $-  $714,400 
Accrued payroll, taxes and employee benefits $701,537  $749,509   822,847   473,179 
Accrued royalties  641,446   - 
Accrued consulting  352,072   370,658   267,300   317,300 
Accrued taxes - foreign and domestic  271,240   -   203,941   262,880 
Accrued settlement costs  52,000   76,000 
Accrued board of directors fees  265,000   153,101   120,000   68,090 
Accrued other expenses  197,512   110,810   374,298   65,903 
Accrued acquisition costs payable in cash  149,626   272,500 
Accrued acquisition costs payable in cash to a related-party  149,626   272,500 
Accrued settlement costs  50,000   276,712 
Accrued legal costs  6,454   57,001 
Accrued cellular costs  25,000   55,000 
Accrued outside services  38,630   28,294   23,562   33,022 
Accrued warranty and manufacturing costs  14,031   30,622 
Accrued interest  37,937   26,329   504,124   27,394 
Accrued warranty and manufacturing costs  30,622   66,622 
Accrued indigent fees  28,518   39,175 
Accrued cost of revenues  28,397   42,026 
Accrued cellular costs  27,662   32,299 
Accrued administration fees  16,609   29,900 
Accrued legal costs  14,628   215,895 
Accrued inventory costs  -   26,900 
Total accrued expenses $3,001,062  $2,713,230  $2,413,557  $2,180,791 


(6)
(5)  Certain Relationships and Related Transactions

The Company entered into certain transactions with related parties during the fiscal yearyears ended September 30, 2012.2014 and 2013. These transactions consist mainly of financing transactions and consulting arrangements.service agreements.  Transactions with related parties are reviewed and approved by the independent and disinterested members of the Board of Directors.

Royalty Agreement

On August 4, 2011, with an effective date of July 1, 2011, we entered into an agreement (the “Royalty Agreement”) with Borinquen Container Corp., a corporation organized under the laws of the Commonwealth of Puerto Rico (“Borinquen”) to purchase Borinquen’s wholly-owned subsidiary, International Surveillance Services Corporation, a Puerto Rico corporation (“ISS”) in consideration of 310,000 shares of our Common Stock, valued at the market price on the date of the Royalty Agreement at $16.40 per share, or $5,084,000.  We also agreed to pay to Borinquen quarterly royalty payments in an amount equal to 20% of our net revenues from the sale or lease of our monitoring devices and monitoring services within a territory comprised of South and Central America, the Caribbean, Spain and Portugal, for a term of 20 years.  On February 1, 2013, we redeemed and terminated this royalty obligation in February 2013 for a total cost of $13.0 million using the proceeds of a $16.7 million loan from a related party, Sapinda Asia Limited (“Sapinda Asia”). In addition to the $13.0 million used to terminate the Royalty Agreement, we used the remaining $3.7 million as operating capital during the 2013 fiscal year. During the fiscal year ended September 30, 2013, the Company recorded a debt discount of $14,296,296 which was recorded as interest expense to account for a beneficial conversion feature in connection with the Loan. Additionally, $605,281 of interest expense was recorded during the fiscal year ended 2013 to record accretion of debt discount. On September 30, 2013, Sapinda Asia converted all outstanding principal and interest in connection with the Loan in the amount of $17,576,627 into 3,905,917 shares of Common Stock at a rate of $4.50 per share.

Revolving Loan Agreement
  2012  2011 
       
Note payable in connection with the redemption of a royalty agreement for $10,768,555. The note requires installment payments and matured December 17, 2012. Subsequent to the fiscal year end, this note was terminated.
 $10,050,027  $- 
         
Note payable in connection with the purchase of the remaining ownership of Midwest Monitoring & Surveillance, Inc. The payments are due quarterly ending in September 2013. The Company imputed interest since the note has no stated interest rate, resulting in a debt discount balance as of September 30, 2012 and 2011 of $11,398 and $32,524, respectively. The note was paid off subsequent to September 30, 2012 through the sale of Midwest Monitoring & Surveillance, Inc.
  138,602   192,476 
         
Note payable in connection with the purchase of the remaining ownership of Court Programs, Inc., interest at 12% per annum, with monthly payments of $10,000. The note matured November 2012 and is currently in default.
  46,694   139,272 
         
The Company received $500,000 from Mr. Derrick, a shareholder and former officer. The terms of this financing have not been determined as of the date of this Report.
  500,000   - 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matures December 17, 2012 and is secured by the domestic patents of the Company. The debenture may be converted into shares of common stock at a rate of $0.0225 per share. The debenture is currently in default.
  500,000   - 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matures December 17, 2012 and is secured by the domestic patents of the Company. The debenture may be converted into shares of common stock at a rate of $0.0225 per share. The debenture is currently in default.
  2,000,000   - 
         
The Company received $1,900,000 through the issuance of convertible debentures with an interest rate of 8% per annum. The debentures mature on June 17, 2014. This debenture may convert into shares of common stock at a rate of $0.0225 per share. As of September 30, 2012, the remaining debt discount was $611,308.
  1,288,692   - 
         
The Company entered into a Loan a Security Agreement with an entity under which the Company could borrow up to $8,000,000 on a line of credit. Both the Company and the Lender agreed to terminate the agreement and enter into an agreement to raise additional equity on behalf of the Company through the sale of Series D Preferred stock.  The loan was paid back and the line of credit was closed.
  -   500,000 
         
Note payable with an interest rate of 16% per annum and matured in November 2011.  -   40,000 
         
Total related-party debt obligations  14,524,015   871,748 
Less current portion  (12,793,303)  (754,896)
Long-term debt, net of current portion $1,730,712  $116,852 

On February 1, 2013, the Company entered into a revolving loan agreement with Sapinda Asia (the “Revolving Loan”).  Under this arrangement, the Company may borrow up to $1,200,000 at an interest rate of 3% per annum for unused funds and 10% per annum for borrowed funds. As of September 30, 2013, no advances have been made under this loan and the Company had accrued $23,868 in interest liability on the Revolving Loan.  On October 24, 2013, the Company drew down the full $1,200,000 for use in a performance bond as required under a contract with an international customer.The loan initially matured in June 2014; however, the note was extended and now matures in December 2015.
Related-Party Promissory Note
 
On November 19, 2013, the Company borrowed $1,500,000 from Sapinda Asia, a significant shareholder.  The unsecured note bears interest at a rate of 8% per annum and initially matured on November 18, 2014. The note initially matured in November 2014. However, the maturity date of the note was subsequently extended to November 2015.  As of September 30, 2014, the Company owed $1,500,000 of principal and $43,726 of accrued interest on the note.
 
Other Related-Party TransactionsService Agreement

Notes #1 and #2
During the fiscal year ended September 30, 2013, the Company entered into an agreement with Paranet Solutions, LLC to provide the following primary services:  (i) procurement of hardware and software necessary to ensure that vital databases are available in the event of a disaster (backup and disaster recovery system); and (ii) providing the security of all data and the integrity of such data against all loss of data, misappropriation of data by Paranet, its employees and affiliates.  David S. Boone, a director and member of the Company’s Executive Committee, was the Chief Executive Officer of Paranet until August 2014.

As consideration for these services, the Company agreed to pay Paranet $4,500 per month.  The arrangement can be terminated by either party for any reason upon ninety (90) days written notice to the other party. During the years ended September 30, 2014 and 2013, the Company paid Paranet $461,223 and $8,552, respectively.

Related-Party Loan

During the fiscal year ended 2012, the Company borrowed $500,000 from a former officer. During the fiscal year ended September 30, 2013, the Company established terms for this loan which created a debt discount of $500,000 which was immediately recorded as interest expense to account for a beneficial conversion feature to reflect an adjustment in the conversion rate from $11.00 to $4.50 to equal the conversion rate of the Loan to redeem the royalty. During fiscal year 2013, this debt was converted into 111,112 shares of Common Stock.

Related-Party Convertible Debenture #1

During the fiscal year ended 2012, the Company borrowed $500,000 from a director with an interest rate of 8% per annum. The debenture was to mature on December 17, 2012 and secured by the domestic patents of the Company. During the fiscal year ended September 30, 2013, the debenture was convertible at $4.50 which created a beneficial conversion feature discount of $110,556 which was to be amortized over the term of the loan, but was accelerated upon the conversion of the debenture into 117,784 shares of Common Stock.

Related-Party Convertible Debenture #2

During the fiscal year ended 2012, the Company borrowed $2,000,000 from a significant shareholder Borinquen, under two notes payable.with an interest rate of 8 percent per annum. The first notedebenture was unsecuredto mature on December 17, 2012 and the second was secured by $1,530,000the domestic patents of leased equipment and $1,529,808 of accounts receivable from an international customer.  The notes bore interest of 15 percent per annum and the Company accrued a $50,000 origination fee.Company. During the fiscal year ended September 30, 2012,2013, the Company paid $1,018,082debenture was convertible at $4.50 which created a beneficial conversion feature discount of $442,222, which was to paybe amortized over the term of the loan, but was accelerated upon the conversion of the debenture into 472,548 shares of Common Stock.

Facility Agreement
On January 3, 2014, we entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by our Chairman, Guy Dubois.  Under this agreement, we may borrow up to $25,000,000 for working capital and acquisitions purposes. The loan bears interest at a rate of 8% per annum, payable in fullarrears semi-annually, with all outstanding principal and accrued and unpaid interest due on the first note and $1,037,544January 3, 2016. In addition, we agreed to pay in full all outstanding principalTetra House an arrangement fee equal to 3% of the aggregate maximum amount under the loan. On January 14, 2014 Tetra House assigned the Facility Agreement to Conrent Invest S.A.  Since January 3, 2014, we have borrowed $25,000,000 under the Facility Agreement. The borrowed funds have been used for acquisitions and accrued interest onfor general corporate purposes. The Facility Agreement was reviewed and approved by disinterested and independent members of the second note.Board of Directors, David S. Boone, Winfried Kunz, Dan L. Mabey and George F. Schmitt.

F-21
 
During the year endedAdditional Related-Party Transactions and Summary of All Related-Party Obligations
  2014  2013 
Loan from a significant shareholder with an interest rate of 8% per annum. 
Principal and interest due at maturity on December 30, 2015. $1,200,000  $- 
Promissory note with a significant shareholder with an interest rate of 8% per 
annum. Principal and interest due at maturity on November 19, 2015.  1,500,000   - 
Convertible debenture of $16,700,000 from a significant shareholder with an interest rate 
of 8% per annum. On September 30, 2013, $16,640,000 plus accrued interest of 
$936,627 was converted into 3,905,917 shares of Common Stock and in October 2013, the 
Company paid $60,000 in cash to pay off the debenture.  -   60,000 
         
Total related-party debt obligations  2,700,000   60,000 
Less current portion  -   (60,000)
Long-term debt, net of current portion $2,700,000  $- 

(6)           Debt Obligations

Debt obligations as of September 30, 2012,2014 and 2013, consisted of the Company borrowed $50,000 from its then Chief Executive Officer, John Hastings, under an unsecured promissory note.  The note bore interest of 15 percent per annum and was paid in full prior to September 30, 2012.  In connection with this loan, the Company paid a $5,000 origination fee and agreed to re-price outstanding warrants and options previously granted to Mr. Hastings to an exercise price of $0.075 per share, valued at $15,237 and recorded as interest expense.  The value of $15,237 was calculated based upon the following assumptions:  volatility ranging from 100.02 percent to 109.24 percent, risk-free rate of 0.22 percent, exercise price of $0.075, and market price of Common Stock on grant date of $0.074 per share.following:

Notes #4 and 5
  September 30,  September 30, 
  2014  2013 
Unsecured facility agreement with an entity whereby the Company may borrow up to $25 million bearing interest at a rate of 8% per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on January 3, 2016.  A $750,000 origination fee or 3% on the total amount under the agreement was paid and recorded as a debt discount and will be amortized as interest expense over the term of the loan. As of September 30, 2014, the remaining debt discount was $468,750.
 $24,531,250  $- 
The Company entered into an agreement whereby the Company was granted a non-exclusive, irrevocable, perpetual and royalty-free license to certain patents with an entity. The Company agreed to pay $4,500,000 over two years or $187,500 per month through February 2016.
  3,187,500   - 
Note issued in connection with the acquisition of a subsidiary and matures in December 2014.  9,630   64,111 
Capital leases with effective interest rates that range between 8.51% and 17.44%.  Leases mature between June 2015 and November 2015.  $154,410 was assumed through the sale of Midwest Monitoring & Surveillance, Inc. to its former owners.  46,021   59,266 
Automobile loan with a financial institution secured by the vehicle.  Interest rate is 7.06%, due June 2014. This loan was paid off in February 2014
  -   5,306 
Related notes payable for $1.5 million and $1.2 million, due December 31, 2015 and November 19, 2015, respectively  2,700,000   - 
Total debt obligations  30,474,401   128,683 
Less current portion  (1,906,040)  (88,095)
Long-term portion of related party debt  (2,700,000)  - 
Long-term debt, net of current portion $25,868,361  $(40,588) 
During the year ended September 30, 2012, the Company borrowed $250,000 from its Chief Financial Officer, Chad Olsen, under two unsecured promissory notes payable.  The notes bore interest
F-22

Note #6
During the year ended September 30, 2012, the Company borrowed $180,000 from Rene Klinkhammer, one of its directors, under an unsecured promissory note payable.  The note bore interest of 10 percent per annum and the Company paid $193,220 of principal and interest to settle the note in full prior to September 30, 2012.  Included in the payoff of $193,220 is $9,000 in loan origination fees.

The following table summarizes the Company’s future maturities of related-party debt and related party obligations as of September 30, 2012:

Fiscal Year Total 
 2013 $12,793,303 
 2014  1,730,712 
 Thereafter  - 
 Total $14,524,015 
(7)           Debt Obligations

Debt obligations as of September 30, 2012 and 2011, consisted of the following:
  2012  2011 
       
Settlement liability from patent infringement suit and countersuit settled in February 2010.  The liability will be paid quarterly through March 2013. $200,000  $500,000 
         
Notes issued in connection with the acquisition of a subsidiary. Quarterly cash payments mature on January 2014. These notes bear no interest. Balance on notes reflects debt discount of $16,939 and $55,388, respectively. The effective interest rate is 15% per annum. Subsequent to fiscalyear ended September 30, 2012, this debt was assumed through the sale of Midwest Monitoring & Surveillance, Inc. to former owners of the company.
  233,061   369,612 
         
Capital leases with effective interest rates that range between 8.51% and 17.44%.  Leases mature between November 2012 and March 2016.  272,508   335,366 
         
Note payable due to the Small Business Administration ("SBA").  Note bears interest at 4.00% and matures April 2037.  The note is secured by Court Programs, Inc.  201,204   215,288 
         
Automobile loans with several financial institutions secured by the vehicles.  Interest rates range between 0.0% and 8.9%, due through February 2016.  137,888   181,146 
         
Unsecured revolving line of credit with a bank, with an interest rate of 9.25%, $10,493 and $10,568, was available for withdrawal under the line of credit, respectively.  39,507   39,432 
         
Secured note bearing an interest rate of 18%.  The note matured in November 2011.  -   225,000 
         
Note payable to a financial institution bearing interest at 6.37%.  The note was secured by property which was sold during the fiscal year.  -   70,156 
         
Notes payable for testing equipment with an interest rate of 8%.  The notes were secured by testing equipment. The notes matured in December 2011.  -   3,237 
         
Notes payable for monitoring equipment.  Interest rates range between 7.8% to 18.5% and matured in November 2011.  The notes were secured by monitoring equipment.  -   753 
         
Total debt obligations  1,084,168   1,939,990 
Less current portion  (634,218)  (1,041,392)
Long-term debt, net of current portion $449,950  $898,598 


58
2014:
 
Fiscal Year Total 
 2015 $1,906,040 
 2016  28,548,192 
 2017  4,444 
 2018  4,450 
 2019 & thereafter  11,275 
     
 Total $30,474,401 
The following table summarizes the Company’s future maturities of debt obligations as of September 30, 2012:

Fiscal Year Total 
 2013 $634,218 
 2014  154,142 
 2015  95,190 
 2016  24,536 
 2017  6,919 
 Thereafter  169,163 
 Total $1,084,168 
The following table summarizes the Company’s capital lease obligations included in the schedules of debt and debt obligations above as of September 30, 2012:2014:

Fiscal Year Total  Total 
2013 $161,857 
2014  112,383 
2015  55,916  $21,409 
2016  9,797   4,442 
2017
  4,444 
2018  4,450 
Thereafter  -   11,275 
Total minimum lease payments  339,953   46,020 
Less: amount representing interest  (67,445)  (10,351)
Present value of net minimum lease payments  272,508   35,669 
Less: current portion  (131,072)  (4,440)
Obligation under capital leases - long-term $141,436  $31,229 

As of September 30, 20122014 and 2011,2013, the Company had total capital lease obligations of $272,508$35,669 and $335,366,$59,266, the current portion being $131,072$4,440 and $117,138,$31,576, respectively. Capital leases are secured by assets with a total original cost of $539,659 and $497,779 with related accumulated depreciation of $314,997 and $209,864 as ofAt September 30, 20122014 and 2011,2013, accumulated amortization of assets under capital lease was $55,473 and $40,932, respectively.

(8)(7)           Preferred Stock

The Company is authorized to issue up to 20,000,000 shares of preferred stock, $0.0001 par value per share. The Company's Board of Directors has the authority to amend the Company's Articles of Incorporation, without further shareholder approval, to designate and determine, in whole or in part, the preferences, limitations and relative rights of the preferred stock before any issuance of the preferred stock and to create one or more series of preferred stock.

59
Series D Convertible Preferred Stock

In July 2011, the
The Company has designated 85,000 shares of preferredits stock as Series D Convertible Preferred stock $0.0001 par value per share (“Series D Preferred stock””).

During the fiscal year ended September 30, 2011,2014 and 2013, the Company issued 26,037did not issue any additional new shares of Series D Preferred, stock under securities purchase agreements for $10,344,603 in net cash proceeds, 4,669 shares in consideration for the conversion of $2,334,632 of debt, accrued liabilities and interest, 280 shares in consideration of shareholder forbearance agreements valued at $140,000, and 25 shares to members of the Company’s Board of Directors for fees.  In addition, the issuance of 100 shares was cancelled in connection with a rescinded subscription receivable, 987 shares were issued for prepaid commissions valued at $493,500, and 275 shares valued at $137,500 were issued as payment for services rendered to the Company.

During the fiscal year ended September 30, 2012,however the Company issued 4,008exchanged 207 shares of Series D Preferred stock under securities purchase agreements for $2,004,000 in net cash proceeds.  As16,907 shares of September 30, 2012 and 2011, there were 48,763 and 44,845Common Stock. Additionally, the Company repurchased 261 shares of Series D Preferred for $312,008 during the year ended September 30, 2014. As a result of these transactions, there were no shares of Series D Preferred outstanding respectively.at September 30, 2014.
 

Dividends
The Series D Preferred stock is entitled to dividends at the rate equal to 8 percent8% per annum calculated on the purchase amount actually paid for the shares or amount of debt converted.  The dividend is payable in cash or shares of common stockCommon Stock at the sole discretion of the Board of Directors. If a dividend is paid in shares of common stockCommon Stock of the Company, the number of shares to be issued is based on the average per share market price of the common stockCommon Stock for the 14-day period immediately preceding the applicable accrual date (i.e., March 31, June 30, September 30, or December 31, as the case may be).  Dividends are payable quarterly, no later than 30 days following the end of the accrual period.

During the fiscal year ended September 30, 2012,2014 and 2013, the Company issued 42,137,7111,249 and 181,832 shares of common stockCommon Stock to pay $2,391,568$24,012 and $1,663,997 of accrued dividends on the Series D Preferred stock earned for the twelve months between July 1, 2011 and June 30, 2012. Subsequent to September 30, 2012, the Company issued 20,760,551 shares of common stock to pay $630,528 of accrued dividends on Series D Preferred stock earned during the threenine months ended September 30, 2012.

During the fiscal year ended September 30, 2011, the Company issued 21,307,067 shares of common stock to pay $2,043,308 of accrued dividends on the Series D Preferred stock earned for the twelve months between July 1, 2010March 31, 2014 and June 30, 2011.2013, respectively.

Convertibility
Each share of Series D Preferred stock may be converted into 6,000thirty (30) shares of common stock,Common Stock, commencing after ninety90 days fromafter the date of issue. During the fiscal yearsyear ended September 30, 20122014 and 2011, 902013, 207 and 22,73548,295 shares of Series D Preferred were converted into 16,907 and 1,894,283 shares of Common Stock, respectively. As of September 30, 2014, there were no shares of Series D Preferred outstanding.

Redemption
On January 16, 2014, the Company sent out notices to Series D Preferred shareholders regarding the Company’s election under the Amended and Restated Designation of the Rights and Preferences to redeem 261 shares of Series D Preferred stock were converted into 540,000 and 136,410,000 shares of common stock, respectively.
Voting Rights and Liquidation Preference
The holdersat 120% of the Series D Preferred stock may vote their shares on an as-converted basis on any issue presented for a vote of the shareholders, including the election of directors and the approval of certain transactions such as a merger or other business combination of the Company.  As of September 30, 2012 and 2011, there were 48,763 and 44,845 shares of Series D Preferred stock outstanding, respectively. Additionally, the holders are entitled to a liquidation preference equal to theiraggregate original investment amount.of $260,007 through the payment of cash totaling $312,008.  The redemption date was February 13, 2014.

In the event of the liquidation, dissolution or winding up of the affairs of the Company (including in connection with a permitted sale of all or substantially all of the Company’s assets), whether voluntary or involuntary, the holders of shares of Series D Preferred Stock then outstanding will be entitled to receive, out of the assets of the Company available for distribution to its shareholders, an amount per share equal to original issue price, as adjusted to reflect any stock split, stock dividend, combination, recapitalization and the like with respect to the Series D Preferred Stock.

60
Series D Preferred Stock Warrants
During the fiscal year ended September 30, 2011, the Company issued and fully vested warrants to purchase a total of 1,400 Series D Preferred stock at an exercise price of $500 per share.  The warrants were valued using the Black-Scholes option-pricing model as if the shares were converted into common stock.  The related value associated with these four-year warrants was $475,340 based upon the following inputs:  volatility of 108.05 percent, risk-free rate of 0.50 percent, exercise price of $0.0833, and market price on grant date of $0.09.  The warrants were issued in connection with a subscription to purchase Series D Preferred stock.

As of September 30, 2012, 5,4002014, 42,000 warrants to purchase Series D Preferred stock at an exercise price of $500$16.67 per share were issued and outstanding. During the fiscal years ended September 30, 2014 and 2013, no shares of Series D Preferred or warrants were issued or exercised.
 
SecureAlert Monitoring, Inc. Series A Preferred
(8)Common Stock

Authorized Shares

The Company held an Annual Shareholders meeting on February 28, 2013, at which time the shareholders approved a reverse stock split at a ratio of 200 for 1 and reduced the total authorized shares of Common Stock to 15,000,000 shares. The retroactive effect of the reverse stock split has been reflected throughout these financial statements.

Common Stock Issuances

During the fiscal year ended September 30, 2007, and pursuant to Board of Directors approval, the Company amended the articles of incorporation of its subsidiary, SecureAlert Monitoring, Inc. (“SMI”) to designate  3,590,000 shares of preferred stock designated as Series A Convertible Redeemable Non-Voting Preferred stock (“SMI Series A Preferred stock”).

On March 24, 2008, SMI redeemed all outstanding shares of SMI Series A. The former SMI Series A shareholders were entitled to receive quarterly contingent payments through March 23, 2011, based on a rate of $1.54 per day times the number of parolee contracts calculated in days during the quarter, payable in either cash or common stock at the Company’s option. The Company was required to make quarterly adjustments as necessary to reflect the difference between the estimated and actual contingency payments to the former SMI Series A shareholders. During the fiscal years ended September 30, 2012 and 2011, the Company recorded income of $0 and $16,683, respectively, to reflect the change between the estimated and actual contingency payments.  The Company no longer has any obligation for contingent or other payments to the former holders of the SMI Series A.

(9)Common Stock
Authorized Shares
Pursuit to an annual shareholders meeting held on December 21, 2011 whereby the shareholders approved an amendment, the Company increased its total authorized shares of common stock from 600,000,000 to 1,250,000,000 shares.
Common Stock Issuances

During the fiscal year ended September 30, 2012,2014, the Company issued 115,704,871287,627 shares of common stock.Common Stock.  Of these shares, 540,00016,907 shares were issued upon conversion of 90207 shares of Series D Preferred stock; 14,393,860 shares were issued as part of a royalty agreement, valued at $819,972; 862,961Preferred; 15,343 shares were issued for services rendered to the Company valued at $40,000; 1,689,714$243,018; 236,469 shares valued at $4,500,000 were issued in connection with debtthe acquisition of a subsidiary; 10,646 shares valued at $8,000 were issued upon the exercise of options and accrued interest; 42,137,711warrants; 1,252 shares were issued to pay dividends from Series D Preferred stock; 24,340,000 shares were issued to employees for compensation; 600,000of $24,012; and 7,010 shares were issued to pay Board of Director fees of $48,060 and 31,140,625 shares were issued for $1,033,000 in cash proceeds.$127,500.

During the fiscal year ended September 30, 2011,2013, the Company issued 223,653,9516,709,021 shares of common stock.Common Stock.  Of these shares, 136,410,0001,894,283 shares were issued upon conversion of 22,73548,295 shares of Series D Preferred stock; 250,000Preferred; 21,884 shares were issued for services rendered to the Company valued at $21,310; 2,705,264$141,758; 4,607,361 shares were issued as part of the agreement to purchase the remaining percentage of ownership of Midwest, valued at $238,064 (see Note 3); 62,000,000 shares were issued as part of the agreement to purchase the assets of ISS, valued at $5,084,000 (see Note 3);  981,620 shares were issued to pay contingency payments of $97,349 in connection with the redemptiondebt and accrued interest of SMI Series A Preferred stock; and 21,307,067$20,733,119; 181,832 shares were issued to pay dividends from Series D Preferred stock.  During the fiscal year ended September 30, 2011, the Company cancelled 53,778of $1,663,997; and 3,661 shares were issued to pay Board of common stock previously issued.Director fees of $47,500.
 

(10)(9)Stock Options and Warrants

Stock Incentive Plan

At the annual meeting of shareholders on December 21, 2011, the shareholders approved the 2012 Equity Compensation Plan (the “2012 Plan”“2012 Plan”), which had previously been adopted by the Board of Directors of the Company.  The 2012 Plan provides for the grant of incentive stock options and nonqualified stock options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, other stock-based awards and performance-based awards to employees and certain non-employees who have important relationships with the Company. A total of 18,000,00090,000 shares are authorized for issuance pursuant to awards granted under the 2012 Plan.  To the extent that an award terminates, any shares subject to the award may be used again under the 2012 plan.  During the fiscal years ended September 30, 2014 and 2013, there were no options were issued under this 2012 Plan. During the year ended September 30, 2012, the Company ratified options to purchase 6,000,0002014, we issued 8,787 shares of common stockCommon Stock under this plan that were previously granted on September 30, 2011.plan. As of September 30, 2012, options to purchase 13,713,3332014, 51,213 shares of common stockCommon Stock were available to distributefor future grants under the 2012 Plan.
 
Re-pricing ofAll Options and Warrants

During the fiscal year ended September 30, 2012, the Company re-priced 4,893,000 previously issued warrants in connection with debt financing agreements with original exercise prices ranging from $0.10 to $0.30, revising the exercise price to $0.075, resulting in additional interest expense of $39,965. Of the 4,893,000 warrants re-priced, 4,211,000 warrants were in connection with related-party transactions (see Note 5).

During the fiscal year ended September 30, 2011,2014, the Company did not re-price anygranted 69,356 warrants to members of its Board of Directors, valued at $391,578. The Company also granted 15,000 warrants to an employee valued at $76,880. As of September 30, 2014, $200,218 of compensation expense associated with unvested stock options and warrants issued previously issued warrants.to members of the Board of Directors will be recognized over the next year.
All Options and Warrants

During the fiscal year ended September 30, 2012,2013, the Company granted options and143,937 warrants to purchase 10,900,000 sharesmembers of common stock as follows: 3,700,000 toits Board of Directors, valued at $105,041; 6,000,000 to settle a lawsuit, valued at $253,046; and 1,200,000 warrants to a consultant, valued at $33,358. The vesting periods for these$701,062. As of September 30, 2013, $154,378 of compensation expense associated with unvested stock options and warrants ranged from threeissued previously to five years. Additionally during the fiscal year ended 2012, the Company cancelled 36,500,000 of unvested warrants held by executivesmembers of the Company and issued 24,340,000 sharesBoard of common stock and accelerated the vesting of 11,500,000 of warrants for services rendered as of March 31, 2012. The modification of the equity awards resulted in $2,130,694 of compensation expense which includes the immediate recognition of the unamortized portion of the cancelled unvested warrants.

During the fiscal year ended September 30, 2011, the Company granted options and warrants to purchase 75,000,000 shares of common stock to employees, valued at $3,909,697. The vesting periods for these options and warrants ranged from immediate to three years.

The Company recognized $2,803,560 and $1,231,836 of expense during the fiscal years ended September 30, 2012 and 2011, respectively, in connection with the issuance, vesting, and re-pricing of options and warrants. The remaining unamortized expense in connection with the options and warrants is $29,678, whichDirectors will be recognized over the next year.

The following are the weighted-average assumptions used for options granted during the fiscal years ended September 30, 20122014 and 2011,2013 using the Black-Scholes model, respectively:
  Fiscal Years Ended 
  September 30, 
  2014  2013 
Expected cash dividend yield  -   - 
Expected stock price volatility  0%  108%
Risk-free interest rate  0.65%  0.18%
Expected life of options 1.05 Years 1.38 Years 
The fair value of each stock option and warrant grant is estimated on the date of grant using the Black-Scholes option-pricing model. The expected life of stock options and warrants represents the period of time that the stock options or warrants are expected to be outstanding based on the simplified method allowed under GAAP.  The expected volatility is based on the historical price volatility of the Company’s Common Stock. In fiscal year 2013, the Company changed from a daily to weekly volatility. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options and warrants. The dividend yield represents the Company’s anticipated cash dividends over the expected life of the stock option and warrants.
  Fiscal Years Ended 
  September 30, 
  2012  2011 
Expected cash dividend yield  -   - 
Expected stock price volatility  95%  96%
Risk-free interest rate  0.36%  0.32%
Expected life of options 2 Years  2 Years 



A summary of stock optionthe compensation-based options and warrants activity for the fiscal years ended September 30, 20122014 and 20112013 is presented below:

 Shares Under Option  
Weighted Average
 Exercise Price
 
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
 Shares Under Option  Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 
Outstanding as of September 30, 2010  27,740,451  $0.36   
Outstanding as of September 30, 2012  336,782  $28.00     
Granted  75,000,000  $0.08    143,937  $11.18     
Expired  (3,562,249) $0.32     (52,754) $76.97     
                     
Outstanding as of September 30, 2011  99,178,202  $0.13   
Outstanding as of September 30, 2013  427,965  $16.12     
Granted  10,900,000  $0.09    84,356  $18.04     
Expired / Cancelled  (42,721,709) $0.11   
Expired  (141,177) $17.50     
Exercised  (65,893) $18.04     
                     
Outstanding as of September 30, 2012  67,356,493  $0.14  2.09 years $              -
Exercisable as of September 30, 2012  65,371,254  $0.14  2.09 years $              -
Outstanding as of September 30, 2014  305,251  $15.71  1.05 years $            487,402 
Exercisable as of September 30, 2014  270,867  $15.49  0.97 years $            487,402 
 
The year-endfiscal year end intrinsic values are based on a September 30, 20122014 closing price of $0.0301$14.70 per share. The intrinsic value of options and warrants exercised during the year ended September 30, 2014 was $191,916.

(11)(10)           Income Taxes

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized.  Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.  Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

For the fiscal years ended September 30, 20122014 and 2011,2013, the Company incurred net losses for income tax purposes of $8,693,769$8,419,359 and $7,627,477,$3,427,372, respectively.  The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined.  The Company has established a valuation allowance for all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization.  Accordingly, there is no benefit for income taxes in the accompanying statements of operations.

At September 30, 2012,2014, the Company had net carryforwards available to offset future taxable income of approximately $179,000,000$203,000,000 which will begin to expire in 2019.2020.  The utilization of the net loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carry forwardscarryforwards can be utilized.  The Internal Revenue Code contains provisions that likely could reduce or limit the availability and utilization of these net operating loss carryforwards. For example, limitationsAs part of a debt conversion to Common Stock on September 30, 2013 the Company believes a Section 382 ownership change occurred. In general, a Section 382 ownership change occurs if there is a cumulative change in ownership by “5%” shareholders (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potentially other deferred tax assets are imposedpermitted to offset future taxable income. Of our federal NOL amount as of September 30, 2014, approximately $66,000,000 is subject to an annual Section 382 limitation of approximately $6,200,000 per year due to the ownership change. Since the Company maintains a full valuation allowance on all of its U.S. and state deferred tax assets, the impact of the ownership change on the utilizationfuture realizability of its U.S. and state deferred tax assets did not result in an impact to our provision for income taxes for the year ended September 30, 2014, or on the Company’s net operating loss carryforwards if certain ownership changes have taken place or will take place.  The Company will perform an analysis to determine whether any such limitations have occurreddeferred tax asset as the net operating losses are utilizedof September 30, 2014.
.

The deferred income tax assets (liabilities) were comprised of the following for the periods indicated:

  Fiscal Years Ended 
  September 30, 
  2012  2011 
Net loss carryforwards $66,696,000  $63,453,000 
Accruals and reserves  529,000   678,000 
Contributions  6,000   3,000 
Depreciation  26,000   13,000 
Stock-based compensation  5,768,000   4,434,000 
Valuation allowance  (73,025,000)  (68,581,000)
Total $-  $- 


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  Fiscal Years Ended 
  September 30, 
  2014  2013 
Net loss carryforwards $50,933,000  $72,208,000 
Accruals and reserves  281,000   1,562,000 
Contributions  8,000   8,000 
Depreciation  79,000   42,000 
Stock-based compensation  5,980,000   5,880,000 
Valuation allowance  (57,282,000)  (79,700,000)
Customer advances  1,000   - 
Total $-  $- 
Reconciliations between the benefit for income taxes at the federal statutory income tax rate and the Company's benefit for income taxes for the years ended September 30, 20122014 and 20112013 are as follows:

  Fiscal Years Ended 
  September 30, 
  2012  2011 
Federal income tax benefit at statutory rate $5,936,000  $3,363,000 
State income tax benefit, net of federal        
   income tax effect  576,000   326,000 
Change in estimated tax rate and gain (loss)        
   on non-deductible expenses  (2,068,000)  (98,000)
Change in valuation allowance  (4,444,000)  (3,591,000)
Benefit for income taxes $-  $- 
  Fiscal Years Ended 
  September 30, 
  2014  2013 
Federal income tax benefit at statutory rate $2,863,000  $6,091,000 
State income tax benefit, net of federal income tax effect
  278,000   591,000 
Change in estimated tax rate and gain (loss) on non-deductible expenses
  (5,000)  (5,556,000)
Loss of operating loss for IRC Sec 382 limitation  (24,738,000)  - 
Loss of operating loss for entities sold  -   778,000 
Change in valuation allowance  21,602,000   (348,000)
Benefit for income taxes $-  $- 
 
During the fiscal year ended September 30, 2012,2013, the Company began recognizing revenues from international sources from its products and monitoring services.  During the fiscal year ended September 30, 2012,2013, the Company accrued $254,017 inbegan recognizing a liability for value-added taxes which will be due upon collection. The liability for these value added taxes at September 30, 2014 was $74,184.

The Company’s open tax years for its federal and state income tax returns are for the tax years ended September 30, 20082011 through September 30, 2012.2014.

(12)(11)           Commitments and Contingencies

Legal Matters

Lazar Leybovich et al v. SecureAlert, Inc.  On March 29, 2012, Lazar Leybovich, Dovie Leybovich and Ben Leybovich filed a complaint in the 11th11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption Agreements with the Company.Agreements.  The complaint was subsequently withdrawn by the plaintiffs.  An amended complaint was filed by the plaintiffs on November 15, 2012.  The Company believes these allegations are inaccurate and intendsintend to defend the case vigorously. The Company has not accrued anyNo accrual for a potential loss has been made as management believes the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.remote.

Larry C. DugganChristopher P. Baker v. Court Programs of Florida, Inc. and SecureAlert, Inc.  On March 26, 2012,In February 2013, Mr. DugganBaker filed a complaintsuit against the Company in the 9th CircuitThird Judicial District Court in and for OrangeSalt Lake County, Florida alleging malicious prosecution, abuseState of process and negligent infliction of emotional distress againstUtah.  Mr. Baker asserts that the Company breached a 2006 consulting agreement with him and its subsidiary.  The case resulted from actionsclaims damages of a former agent of the Company’s subsidiary.not less than $210,000.  The Company intends todisputes the plaintiff’s claims and will defend itself in this matter. The Company has not accrued anythe case vigorously.  No accrual for a potential loss has been made as management believes the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.remote.

Camacho Melendez et alSecureAlert, Inc. v. CommonwealthDerrick Brooks and STOP, LLC.  On February 21, 2014, the Company filed a complaint in the Third Judicial District Court, Salt Lake County, State of Puerto RicoUtah, against Derrick Brooks and International Surveillance Services Corporation STOP, asserting claims for declaratory relief, breach of contract, tortious interference with prospective economic relations, tortious interference with contract, misappropriation of trade secrets, injurious falsehood/trade libel/business disparagement, defamation, respondeat superior, injunctive relief and punitive damages.  On April 24, 2012March 20, 2014, the plaintiffs filed suit against the Commonwealth of Puerto RicoCompany entered into a settlement agreement with STOP and International Surveillance Services Corporation, a wholly-owned subsidiaryall of the Company, claiming negligence byclaims between the Company and the government of the Commonwealth of Puerto Rico resultingSTOP in the deathlitigation have been dismissed with prejudice.  On April 9, 2014, Mr. Brooks filed an answer denying the Company’s claims and asserting counterclaims for constructive discharge, interference with contract, interference with prospective economic relations and blacklisting.  In his counterclaim, Mr. Brooks seeks to recover “not less than $150,000” on each of a woman.  The complaint seeks damages of $2,110,000.  The Company is vigorously defending this case and believes it acted appropriately.his claims.  The Company has not accrued anyyet responded to Mr. Brooks’ counterclaims, but management believes them to be without merit and the Company intends to vigorously defend against them. No accrual for a potential loss has been made as management believes the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.remote.

RACO Wireless LLC v SecureAlert, Inc. On October 12, 2010, RACO Wireless, LLC (“RACO”) filed a complaint alleging that the Company breached a contract by failing to place a sufficient number of RACO SIM chips in its new activations of monitoring devices.  The Company denied these allegations and filed a counterclaim against RACO.  During the fiscal year ended September 30, 2011, the parties agreed to settle this litigation. As part of the settlement agreement, the Company granted RACO warrants to purchase 6,000,000 shares of the Company’s common stock at an exercise price of $0.098 per share, valued at $253,046 using the Black-Scholes valuation model during the quarter ended December 31, 2011.  The Company was late in making some required payments to RACO and RACO filed a complaint on June 4, 2012. The Company is current on its payments and is disputing RACO’s claims.

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Grenier v. Court Programs of Florida, Inc. The estate of Brooke Grenier filed suit against Court Programs of Florida, Inc., a subsidiary or SecureAlert, in the Circuit Court of the 19th Judicial Circuit in and for Indian River County, Florida.  The suit alleges negligence leading to the death of Ms. Grenier. We assert no negligence and are vigorously defending the claims made against Court Programs of Florida, Inc.
Data Subscriber Service Agreement
During the fiscal year ended September 30, 2012, the Company entered into a data subscriber service agreement wherein the Company agreed to a prepayment schedule with a vendor to provide Subscriber Identity Module (SIM) cards and mobile data services to the Company, at reduced rates, with the intent to settle a dispute and reduce communication costs in connection with the monitoring of the Company’s TrackerPAL® and ReliAlert™ devices.
As of September 30, 2012, the future minimum payments under the data subscriber service agreements are as follows:
Fiscal Years Amount 
 2013 $300,000 
 2014  300,000 
 2015  300,000 
 Thereafter  - 
 Total $900,000 
Operating Lease Obligations

The following table summarizes the Company’s contractual obligations as of September 30, 2012:2014:

Fiscal Year Total  Total 
      
2013 $463,902 
2014  157,014 
2015  22,113  $299,121 
2016  269,149 
2017  109,069 
Thereafter  -   89,718 
        
Total $643,029  $767,057 
 
The total operating lease obligations of $643,029$767,057 consist of the following: $626,752$721,037 from facilities operating leases and $16,277$46,020 from equipment leases. During the fiscal years ended September 30, 20122014 and 2011,2013, the Company paid approximately $535,855$381,156 and $473,029,$350,073, in lease payment obligations, respectively.

Intellectual Property Settlement

In January 2010, the Company entered into an intellectual property settlement agreement with an entity whereby the Company agreed to begin paying the greater of a 6 percent6% royalty or $0.35 per activated device of monitoring revenues, subject to certain adjustments.
Indemnification Agreements
In November 2001, The Company and other party disagree with the methodology used to calculate such royalty; litigation was filed by the Company in December 2013 to resolve the matter. During the year ended September 30, 2013, the Company negotiated a settlement of this litigation. Under the terms of the settlement, both parties restructured their relationship and provided reciprocal licenses for all patents listed in the settlement agreement effective January 29, 2010.  In addition, each party provided the other with a reciprocal license for future patents awarded the respective party. The Company also agreed to pay the entity a total of $4,500,000 in 24 equal monthly installments of $187,500 in exchange for the granting of a non-exclusive, irrevocable, perpetual and royalty-free license to certain patents held by the entity. 

Indemnification Agreements

The Company’s Bylaws require the Company to indemnify any individual who is made a party to a proceeding because the individual is or was a director or officer of the Company against any liability or expense incurred in connection with such proceeding to the extent allowed under the Utah Revised Business Corporation Act (the “UBCA”), if the Company has properly authorized indemnification under Section 16.10a-906 of the UBCA.  Section 16-10a-906(2) of the UBCA requires that the Company determine, before granting indemnification, that: (i) the individual’s conduct was in good faith; (ii) the individual reasonably believed that the individual’s conduct was in, or not opposed to, the Company’s best interests; and (iii) in the case of any criminal proceeding, the individual had no reasonable cause to believe the individual’s conduct was unlawful.  The foregoing description is necessarily general and does not describe all details regarding the indemnification of officers and directors of the Company against personal liability incurred by them in the conduct of their duties for the Company. In the event that any of the officers or directors of the Company are sued or claims or actions are brought against them in connection with the performance of their duties and the individual is required to pay an amount, the Company will immediately repay the obligation together with interest thereon at the greater of 10 percent per year or the interest rate of any funds borrowed by the individual to satisfy their liability.

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Cellular Access AgreementInternational Importation Audit
 
During the fiscal year ended September 30, 2010,2013, the Company was notified that several international importation documents were selected to be audited by a taxing authority. The Company submitted documentation to comply with the country’s requirements; and the audit was finalized during the year ended September 30, 2014. The same international taxing authority selected additional importation documents to be audited for the year ended September 30, 2014 The Company has submitted documentation to comply with the country’s requirements. As of the date of this report, the audit results and potential penalties (if any) are uncertain.
(12)           Discontinued Operations

SecureAlert entered into a Stock Purchase Agreement with certain of the former principals of its wholly-owned subsidiary, Midwest Monitoring & Surveillance, Inc. (“Midwest”) whereby they purchased from the Company all of the issued and outstanding capital stock of Midwest. The agreement was effective as of October 1, 2012.  Additionally, the Company entered into several agreements with cellular organizationsa Stock Purchase Agreement to provide communication services. The costsell to a former principal all of the Company duringissued and outstanding stock of Court Programs Inc. (“Court Programs”), effective January 1, 2013.  Midwest and Court Programs were components of the Company’s consolidated entity, and as a result of the sale of these entities, these financial statements include the applicable discontinued operations reporting treatment.

There were no assets and liabilities of Midwest and Court Programs reported as discontinued operations for the fiscal years ended September 30, 20122014 and 2011 was $961,994 and $650,230,2013, respectively.  These amounts are included in cost of sales.

The following is a summary of the operating results of discontinued operations for the fiscal years ended September 30, 2014 and 2013:
  2014  2013 
Revenues $-  $477,298 
Cost of revenues  -   (163,487)
Gross profit  -   313,811 
Selling, general and administrative expense  -   (319,976)
Loss from operations  -   (6,165)
Other expense  -   (295)
Net loss from discontinued operations $-  $(6,460)
(13)           Fair Value MeasurementsIntangible Assets

The following table summarizes the activity of intangible assets for the years ended September 30, 2014 and 2013, respectively:

For asset
2014 Weighted Average Useful Life (yrs) Gross Carrying Amount Accumulated Amortization Net Book Value 
Patent & royalty agreements  7.99  $21,170,565  $(2,405,668) $18,764,897 
Developed technology  8.97   6,190,083   (318,054)  5,872,029 
Customer relationships  7.7   1,860,000   (81,447)  1,778,553 
Trade name  9.64   291,486   (13,725)  277,761 
Website  3   50,386   -   50,386 
Total      29,562,520   (2,818,894)  26,743,626 
                 
2013 Weighted Average Useful Life (yrs) Gross Carrying Amount Accumulated Amortization Net Book Value 
Patent & royalty agreements  5.86  $16,670,567  $(1,256,647) $15,413,920 
Total      16,670,567   (1,256,647)  15,413,920 

The intangible assets summarized above were purchased on various dates from January 2010 through June 2014. The assets have useful lives ranging from six to ten years. Amortization expense for the years ended September 30, 2014 and liabilities measured at fair value,2013 was $1,563,416 and $929,108, respectively.
The following table summarizes the future maturities of amortization of intangible assets as of September 30, 2014:
Fiscal Year   
2015  2,352,735 
2016  2,352,735 
2017  2,352,735 
2018  2,388,505 
2019  2,332,236 
Thereafter  14,964,680 
Total  26,743,626 

Goodwill – During the year ended September 30, 2014, the Company usesrecognized goodwill as a result of acquisitions discussed in the following hierarchyAcquisitions footnote. In accordance with accounting principles generally accepted in the United States of inputs:

·Level one — Quoted market prices in active markets for identical assets or liabilities;
·Level two — Inputs other than level one inputs that are either directly or indirectly observable; and;
·Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.;

Assets measuredAmerica the Company does not amortize goodwill. These principles require the Company to periodically perform tests for goodwill impairment, at fair value on a non-recurring basis atleast annually, or sooner if evidence of possible impairment arises. The Company evaluated the goodwill for impairment as of September 30, 2012 are summarized2014. Based on the evaluation made, the Company concluded that no impairment of goodwill was necessary.
Goodwill, as follows:of September 30 consisted of the following:
  September 30, 
  2014  2013 
Balance - beginning of year $-  $- 
Additions resulting from acquisitions:        
Acquisition of GPS Global Tracking & Surveillance, Ltd.  3,381,000   - 
Acquisition of Emerge Monitoring, Inc.  3,381,754   - 
Foreign currency translation adjustment  (185,145)    
Balance - end of year  6,577,609   - 

  Level 1  Level 2  Level 3  Total 
             
Fair Value of Goodwill $-  $-  $375,000  $375,000 
 
(14)           Subsequent Events

The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued.  Subsequent to September 30, 2012,2014, the following events occurred:

1)20,760,551 shares of common stock were issued for fourth quarter Series D Preferred stock dividends, valued at $630,528.
2)Effective October 1, 2012, the Company entered into a Stock Purchase Agreement whereby two former principals of Midwest purchased from the Company all the issued and outstanding capital stock of Midwest for $750,000, payable as follows:  (a) forgiveness of $650,000 in debt obligations owed by the Company to the former Midwest principals, and (b) cash of $100,000 payable under a note on or before April 1, 2013.
3)The Company’s Chief Executive Officer, John L. Hastings, III resigned from all executive positions with the Company and as a director.  The Board of Directors formed an Executive Committee comprised of directors George Schmitt and Winfried Kunz to temporarily fulfill the duties of the principal executive officer until a new Chief Executive Officer is hired.
4)On December 3, 2012 the Board of Directors appointed Guy Dubois as a director to fill the vacancy resulting from Mr. Hastings’ resignation and to fulfill a condition of the Loan and Security Agreement entered into with Sapinda Asia to appoint to the Board of Directors a representative of Tetra House Pte., Ltd.
5)On December 3, 2012, SecureAlert entered into a Loan and Security Agreement with Sapinda Asia whereby Sapinda Asia will loan SecureAlert $16,640,000. The loan will accrue interest at a rate of 8 percent per annum and includes a loan origination fee of $640,000, which was forfeited under the terms of the Loan and Security Agreement when Sapinda Asia failed to timely fund the loan in full. The loan is convertible into shares of common stock at $0.0225 per share and matures on June 17, 2014. Subsequent to the fiscal year ended September 30, 2012, the Company received $2,800,000 under the Loan and Security Agreement. The proceeds of the loan will be used to redeem the royalty obligation previously granted to Borinquen and for general corporate purposes. The loan is secured, after such loan is fully funded, by all of the intellectual property and other assets of the Company and by the royalty. In the event of default of the Company, Sapinda Asia shall have the right to purchase a 20 percent royalty on revenues from certain countries by reducing the outstanding principal of the loan in amount of $10,739,426. The failure to fully fund the loan resulted in the Company’s default under the terms of the royalty buy-back agreement and Borinquen terminated the agreement on December 26, 2012. Sapinda Asia and Borinquen are negotiating to cure the default and complete the purchase on behalf of the Company.  See "Risk Factors" on page 10.
On November 26, 2014 (the “Closing Date”), the Company entered into a Share Purchase Agreement (the “G2Agreement”) to purchase from the existing Shareholders of G2 all issued and outstanding shares and equity interests of G2 (collectively the “Shares”) for an aggregate purchase price of up to CAD$4.6 million (the “G2Acquisition”), of which CAD$2.0 million was paid in cash to the Shareholders on the Closing Date. Pursuant to the terms and conditions of the Agreement, the remainder of the purchase price will be paid as follows: (i) CAD$600,000 will be paid to the Shareholders in shares of Common Stock of which one-half of the shares will be issued on the one-year anniversary of the Closing Date and the remaining one-half will be issued on the two-year anniversary of the Closing Date; and (ii) the remaining CAD$2.0 million will be paid to the Shareholders in shares of Common Stock periodically, over the course the two-year period beginning on the Closing Date, upon the achievement of certain milestones set forth in the G2 Agreement. The G2 Agreement also provides for customary representations, warranties and covenants, including provisions for indemnification, and is subject to customary closing conditions. Following the G2 Acquisition, G2’s executive leadership and employees will be integrated with the Company but will operate from G2’s existing offices in Halifax, Nova Scotia, Canada. The Company issued 38,499 shares of Common Stock subsequent to September 30, 2014 in connection to this acquisition. As of the date that these consolidated financial statements were issued, the Company was in the process of determining the value of assets and liabilities acquired in connection to this acquisition.
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