The Company is contractually obligated to construct and equip two monitoring centers for an international customer, as well as supply equipment for the customer’s satellite locations, which will be owned by the customer when construction is completed. The Company has incurred approximately $1.7 million in costs for twoSantiago and Puerto Montt monitoring centers and related equipment at December 31, 2021, and estimates the total to construct and equip the locations will be approximately $2.0 million. The Santiago monitoring center, which was completed in June 2021 cost approximately $1.1 million and began monthly amortization is recorded in Monitoring, products and other related servicesservice costs on the Condensed Consolidated StatementStatements of Operations over the life of the new contract in June 2021. Operations. Amortization of costs related to the Santiago and Puerto Montt monitoring centercenters for the three months ended December 31, 20212022 were $75,947.$133,304. The Company will record revenue from the customer based on a contractually agreed upon unit per day amount during the contract period. See Note 19 for details of the borrowings related to the monitoring centers construction and equipment.

(16) LEASES

The following table shows right of use assets and lease liabilities and the associated financial statement line items as of December 31, 20212022 and September 30, 2021.2022.   

The following table summarizes the supplemental cash flow information for the three months ended December 31, 20212022 and 2020:2021:

The future minimum lease payments under noncancelable operating leases with terms greater than one year as of December 31, 20212022 are:

The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of December 31, 20212022 were 1.13.8 years and 7.0%4.0%, respectively. The Company’s lease discount rates are generally based on the estimates of its incremental borrowing rate as the discount rates implicit in the Company’s leases cannot be readily determined.

(17) ACCRUED LIABILITES

Accrued liabilities consisted of the following as of December 31, 20212022 and September 30, 20212022:

(18) RELATED PARTIES

ETS Limited is currently the beneficial owner of 4,871,745 shares of the Company's Common Stock (“(the “Track Group Shares”) held by ADS Securities LLC (“ADS”) under an agreement dated September 28, 2017, pursuant to which ADS transferred all of the Track Group Shares to ETS Limited in exchange for all of the outstanding shares of ETS Limited. A Director of ETS Limited was elected to the Company's current Board of Directors (the “Board”) on February 7, 2018 and is still serving on the Board of Directors.in his current capacity as a senior executive at ADS.

(19) DEBT OBLIGATIONS

Debt obligations, net of debt issuance costs, as of December 31, 20212022 and September 30, 2021,2022, consisted of the following:

On October 21, 2020, the Company requested, in writing, an additional extension to the maturity date of the $30.4 million Amended Facility Agreement. On November 25, 2020, the noteholders who owned the securities from Conrent used to finance the Amended Facility Agreement (the “Noteholders”) held a meeting to address the Company’s request and approved a new maturity date of July 1, 2024. On December 21, 2020, Conrent and the Company signed an amendment to the Amended Facility Agreement which extends the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalizes the accrued and unpaid interest increasing the outstanding principal amount and reduces the interest rate of the Amended Facility from 8% to 4%. On March 1, 2021, Conrent completed their documentation and the updated registration process to implement these changes and the Company transferred $12,531,556 of accrued interest to the Amended Facility for total principal of $42,931,556. Conrent forgave $67,556 of the total amount due and the principal and interest due under the Amended Facility became $42,864,000. Interest payments are scheduled to be made on June 30 and December 31 each year, which began June 30, 2021. We began amortizing deferred financing fees of approximately $360,000 on July 1, 2021. As of December 31, 2021,2022, $42,864,000 of principal and $876,331 of interest was owed to Conrent. The Company paid Conrent the $876,331 interest dueof $876,331 on January 5, 2022.10, 2023.

On January 6, 2021, the Company borrowed 70,443,375 Chilean Pesos (“CLP”) ($101,186USD) from HP Financial Services Chile Limitada.Limitada (the “HP Note 1”). To facilitate the Loan,HP Note 1, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The loanHP Note 1 was used to purchase PABX (private automatic branch exchange phone equipment) for the construction of the Gendarmeria de Chile monitoring centers in Santiago and Puerto Montt, Chile.Chile (the “Santiago Monitoring Center” and “Puerto Montt Monitoring Center”, respectively). The loanHP Note 1 bears an interest rate of 6.56% per annum, payable monthly with principal beginning February 2021, and a maturity date of February 6, 2024.

On January 12, 2021, the Company borrowed 347,198,500CLP ($482,965USD), net of 2,801,500CLP fees ($3,897USD), from Banco Santander.Santander (the “Banco Santander Note”). To facilitate the Loan,Banco Santander Note, the Company entered into a Note Payable Agreement with Banco Santander as the lender. The loanBanco Santander Note was used to comply withfor the construction of Gendarmeria de Chile monitoring center inthe Santiago ChileMonitoring Center and remodeling a temporary monitoring center. The loanBanco Santander Note bears an interest at a rate of 5.04% per annum, payable monthly with principal beginning February 2021, and a maturity of May 11, 2024. The Company also paid 19,607,843CLP ($27,275USD) in broker fees which are amortized over the life of the loan.

On February 2, 2021, the Company borrowed 247,999,300CLP ($338,954USD), net of 2,000,700CLP fees ($2,734USD), from Banco Estado.Estado (the “Banco Estado Note”). To facilitate the Loan,Banco Estado Note, the Company entered into a Note Payable Agreement with Banco Estado as the lender. The loan providedBanco Estado Note was used for the construction of the Gendarmeria de Chile monitoring center in Santiago ChileMonitoring Center and computer equipment for Gendarmeria branch offices. The loanBanco Estado Note bears an interest at a rate of 3.50% per annum, initially having a 6-month grace period with the first payment including the 6 months of interest plus 1 month of principal on August 2, 2021, then monthly interest with principal, and a maturity date of January 2, 2024. The Company also paid 14,124,294CLP ($19,304USD) in broker fees which are amortized over the life of the loan.

On February 4, 2021, the Company borrowed 149,794,432CLP ($205,330USD) from HP Financial Services Chile Limitada.Limitada (the “HP Note 2”). To facilitate the Loan,HP Note 2, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The loanHP Note 2 was used to purchase computer equipment for the Gendarmeria de Chile monitoring center in Santiago Chile.Monitoring Center. The loanHP Note 2 bears an interest at a rate of 6.61% per annum, payable monthly with principal beginning March 2021, and a maturity of March 4, 2024.

On February 5, 2021, the Company borrowed of 99,808,328CLP ($136,564USD), net of 210,485CLP fees ($286USD), from Banco de Chile.Chile (the “Banco de Chile Note 1”). To facilitate the Loan,Banco de Chile Note, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The loan providedBanco de Chile Note was used to purchase HVAC equipment for Gendarmeriathe Santiago Monitoring Center. The Banco de Chile monitoring center in Santiago, Chile. The loanNote bears an interest at a rate of 2.54% per annum, payable monthly with principal beginning March 2021, and a maturity date of March 4, 2024.

On February 15, 2021, the Company borrowed 500,000,000CLP ($678,214USD) from Banco de Chile.Chile (the “Banco de Chile Note 2”). To facilitate the Loan,Banco de Chile Note 2, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The loan proceeds wereBanco de Chile Note 2 was used as working capital and to complete the construction of the Gendarmeria monitoring center in Puerto Montt Chile.Monitoring Center. The loanBanco de Chile Note 2 bears an interest at a rate of 3.12% per annum, payable monthly with principal beginning March 2021, and a maturity of February 17, 2025. The Company also paid 28,248,588CLP ($38,317USD) in broker fees which are amortized over the life of the loan.

The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of December 31, 2021:2022:

(20) PREFERRED AND COMMON STOCK

The Company is authorized to issue up to 30,000,000 shares of common stock, $0.0001 par value per share.

The Company is authorized to issueCommon Stock and up to 20,000,000 shares of preferred stock, $0.0001 par value per share.share (“Preferred Stock”). The Company’s Board of Directors has the authority to amend the Company’s Certificate of Incorporation, without further stockholder approval, to designate and determine, in whole or in part, the preferences, limitations and relative rights of the preferred stockPreferred Stock before any issuance of the preferred stock,Preferred Stock, and to create one or more series of preferred stock.Preferred Stock. As of December 31, 2021,2022, there were 0no shares of preferred stockPreferred Stock outstanding.

NaNNo dividends were paid during the three months ended December 31, 20212022 or 2020,2021, respectively.

Series A Convertible Preferred Stock

On October 12, 2017, the Company filed a Certificate of Designation of the Relative Rights and Preferences (“Certificate of Designation”) with the Delaware Division of Corporations, designating 1,200,000 shares of the Company’s preferred stockPreferred Stock as Series A Preferred.Preferred (“Series A Preferred”). Shares of Series A Preferred rank senior to the Company’s common stock,Common Stock, and all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series A Preferred.

Except with respect to transactions upon which holders of the Series A Preferred are entitled to vote separately as a class under the terms of the Certificate of Designation, the Series A Preferred has no voting rights. The shares of common stockCommon Stock into which the Series A Preferred is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding shares of our common stock.Common Stock.

The Series A Preferred has no separate dividend rights; however, whenever the Board declares a dividend on the Company’s common stock,Common Stock, if ever, each holder of record of a share of Series A Preferred shall be entitled to receive an amount equal to such dividend declared on one share of common stockCommon Stock multiplied by the number of shares of common stockCommon Stock into which such share of Series A Preferred could be converted on the Record Date.

Each share of Series A Preferred has a Liquidation Preferenceliquidation preference of $35.00 per share, and is convertible, at the holder’s option, into ten shares of the Company’s common stock,Common Stock, subject to adjustments as set forth in the Certificate of Designation, at any time beginning five hundred and forty days after the date of issuance.

As of December 31, 2021,2022, 0no shares of Series A Preferred were issued and outstanding.

(21) STOCK OPTIONS AND WARRANTS

Stock Incentive Plan

At the annual meeting of stockholders on March 21, 2011,April 13, 2022, our stockholders approved the 20122022 Omnibus Equity CompensationIncentive Plan (the “20122022 Plan”)., previously approved by the Company’s Board. The 20122022 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 provide services to the Company in lieu of cash. A total of 90,000500,000 shares were initiallyare authorized for issuance pursuant to awards granted under the 20122022 Plan. At

The 2022 Plan supersedes and replaces the 2015 annual meeting of stockholders held on May 19, 2015, our stockholders approved a 713,262 share increase to the total number of shares authorized under theCompany’s 2012 Plan. Warrants for Board members vest immediately, and warrants issued to employees vest annually over either a two or three-year period after the grant date.

Equity Compensation Plan (the “2012 Plan”). As of June 30, 2020, the Board of Directors suspended further awards under the 2012 Plan. Any awards outstanding under the 2012 Plan will remain subject to the 2012 Plan. All shares of Common Stock remaining authorized and available for issuance under the 2012 Plan and any shares subject to outstanding awards under the 2012 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under our 2022 Plan.

On April 13, 2022, the Company issued 285,000 restricted shares to members of its executive team from the 2022 Plan valued at $370,500. The Company recorded expense of $0$61,750 and $0 for the three months ended December 31, 20212022 and 2020,2021, respectively, related to the vesting of common stock awarded prior to the suspension of the 20122022 Plan.

There were 27,218215,000 shares of common stockCommon Stock available for issuance under the 20122022 Plan as of December 31, 2021.2022.  

All Options and Warrants

The fair value of each stock option and warrant grant is estimated on the date of grant using the Black-Scholes option-pricing model. Warrants for Board members vest immediately and expire five years from grant date and warrants or options issued to employees vest annually over either a two to three-year period and expire five years after the final vesting date of the grant. The Company recorded no expense of $0 and $0 for the three months ended December 31, 20212022 and 2020,2021, respectively, related to the issuance and vesting of outstanding stock options and warrants. During the three months ended December 31, 20212022 and 2020,2021, the Company granted 0no options or warrants to purchase shares of common stock under the 2012 Plan.

All options and warrants outstanding under the 2012 Plan have vested and are exercisable atas of December 31, 2021 2022.and 0 future issuances are expected under the 2012 Plan.

The expected life of stock options (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.Common Stock. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options (warrants). The dividend yield represents the Company’s anticipated cash dividends over the expected life of the stock options (warrants).

A summary of stock option (warrant) activity for the three months ended December 31, 20212022 is presented below:

The intrinsic value of options and warrants outstanding and exercisable is based on the Company’s share price of $2.28$0.35 at December 31, 2021.2022.

(22) 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 three months ended December 31, 20212022 and 2020,2021, the Company incurred net income (loss) for income tax purposes of $(305,322)$36,384 and $1,323,494,$(305,322), respectively. The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, our 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.

In computing income tax, we recognize an income tax provision in tax jurisdictions in which we have pre-tax income for the period and are expecting to generate pre-tax book income during the fiscal year.

(23) COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of nearly all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.

SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior). On March 24, 2017, SecureAlert Inc. (a predecessor entity to Track Group, Inc. or the Company) filed a complaint before the Federal Administrative Tribunal, asserting the failure by defendants to pay claimant amounts agreed to, and due under, the Pluri Annual Contract for the Rendering of Monitoring Services of Internees, through Electric Bracelets, in the Islas Marias Penitentiary Complex dated July 15, 2011, entered into by and between the Organo Administrativo Desconcentrado Prevencion y Readaptacion Social (“OADPRS”) of the then Public Security Department, and presently, an agency of the National Security Commission of the Department of the Interior, and SecureAlert, Inc., presently Track Group, Inc. The Company’s claim amount is upwards of $6.0 million. The Supreme Court took actionAlthough preliminary rulings have been unfavorable to resolve previous, conflicting decisions regarding the jurisdiction of suchCompany, the Company’s counsel continues to review its remaining claims and determined that such claims will be resolved by the Federal Administrative Tribunal. Subsequently, plaintiff filed an Amparo action before the Collegiate Court, seeking an appeal of the Federal Administrative Court’s earlier decision against plaintiff. The Collegiate Court issued a ruling in August 2019 that the matter of dispute was previously resolved by a lower court in 2016. The Company disagreed with this ruling and on November 11, 2020 made a re-demand of the OADPRS for payment due under the July 15, 2011 contract. The OADPRS failed to respond withinanalyzing its allotted 3 months’ time-period and the Company filed an Amparo Action on May 6, 2021, which was dismissed. The Company additionally filed a motion for annulment with the Federal Administrative Tribunal on August 4, 2021. The Company was notified on January 6, 2022 that the OADPRS had filed their answer on November 12, 2021. On January 25, 2022, the Company filed its reply, and a ruling is anticipated in approximately 2-3 months.options. Based upon the fee arrangement the Company has with its counsel, we anticipate the future liabilities attributable to legal expense will be minimal.

Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation. On January 23, 2020, the Company was served with a summons for an Adversary Action pending against International Surveillance Services Corporation (“ISS”), a subsidiary of the Company, now known as Track Group – Puerto Rico Inc., in the United States District Court for the District of Puerto Rico seeking to avoid and recover allegedly constructive fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stem from payments made to ISS between 2014 and 2017, which the Company believes were properly made in accordance with a contract between ISS and the government of Puerto Rico, through the Oficina de Servicios con Antelacion a Juicio, originally signed in 2011. The Company is confident that all payments it received were earned and due under applicable law and has produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020. On August 26, 2021, the Court entered an order staying the Adversary Action pending the Court’s confirmation of the Commonwealth’s Proposed Plan of Adjustment. In accordance with the terms of the August 26, 2021 order, the Company moved to lift the stayThe parties held a mediation on January 11,November 1, 2022 though that motion was denied without prejudice on February 4, 2022. The court ruled thatbut were unable to reach an agreement but left open the Company may file a motion to recommence the proceeding after the expirationpossibility of thirty days following the Effective Date of the Plan, which is projected to be March 15, 2022.

Eli Sabag v. Track Group, Inc., et al. On March 12, 2020, Eli Sabag commenced an arbitration with the International Centre for Dispute Resolution, Case Number 01-20-0003-6931. The arbitration claim, as it pertains to the Company, alleges breach of the Share Purchase Agreement (“SPA”) between the Company and Sabag. Sabag alleges that the Company breached the SPA because it failed to pay him his earn-out after it sold or leased a sufficient number of GPS Global Tracking devices to meet the earn-out milestone, or alternatively, breached the SPA by failing to act in “good faith” to allow Sabag to achieve his earn-out. Sabag further claims that the Company fraudulently induced Sabag to sell GPS Global Tracking and Surveillance System Ltd. to the Company.additional discussions. The Company has enteredremains confident in its appearanceposition and on July 17, 2020, nofiled its Answer denying the allegations of the claim and asserting numerous defenses. The Company continues to vigorously defend against the allegations. An arbitration is scheduled accrual for April 2022. The Company has not accrued anya potential loss has been made, after consultation with outside legal counsel.