As Filed with the Securities and Exchange Commission on November 13, 2013June __, 2014Registration No. 333-____________333-195599
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM S-1S-1/A
Amendment No. 1
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
 
SECUREALERT, INC.
(NameExact name of Registrant As Specifiedregistrant as specified in its Charter)charter)
 
Utah366987-0543981
(State or Other Jurisdictionother jurisdiction of Incorporation incorporation or Organization)
organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification No.)

150 West Civic Center Drive, Suite 400
Sandy, Utah 84070
Telephone: (801) 451-6141
(Address, including zip code, and Telephone Numbertelephone number, including area code, of Principal Executive Offices)
registrant’s principal executive offices)
 
Gordon Jesperson, Esq.
Chief Legal Counsel
150 West Civic Center Drive, Suite 400
Salt Lake City, UT 84070
Telephone: (801) 451-6141
(Name, Addressaddress, including zip code, and Telephone Numbertelephone number, including area code, of Agentagent for Service)
service)
 
Copies of communications to:

Kevin R. Pinegar, Esq.
Wayne D. Swan, Esq.
Durham Jones & Pinegar, P.C.
111 East Broadway, Suite 900
Salt Lake City, UT 84111
Telephone: (801) 415-3000
Facsimile: (801) 415-3500
 
Approximate Datedate of Proposed Salecommencement of proposed sale to the Public:
Frompublic: As soon as practical from time to time after this Registration Statement becomes effective.
 
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ
 
 
 
 
 
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
 
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
 
If this formForm is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement the same offering: 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þo
  (Do        (Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
                      
Title of Each Class of
Securities Being Registered
 
Amount to be
 Registered (1)
  
Proposed Maximum
Offering Price
 per Share(2)
  
Proposed
 Maximum
 Aggregate
Offering
 Price(2)
  
Amount of
 Registration Fee
  
Amount to be
 Registered(1)
   
Proposed Maximum
Offering Price
 per Share(2)
 
Proposed
 Maximum
 Aggregate
Offering
 Price(2)
 
Amount of
 Registration Fee
                      
Common Stock, $0.00001 par value per share, issuable upon conversion of note  3,905,917  $18.90  $73,821,831  $9,508 
                
Common Stock, $0.0001 par value  84,078 (3)  $18.00  $1,513,404  $195 
Common Stock, $0.0001 par value  152,391 (4) $18.00  $2,743,038  $353 
Total  3,905,917          $9,508   236,469   $18.00  $4,256,442  $548 
       _______________
(1) Pursuant to Rule 416 under the Securities Act, the shares being registered hereunder include such indeterminate number of shares of Common Stock as may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends or similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act. The price per share and aggregate offering price are based on the closing sales price of the Registrant’s Common Stock on November 12, 2013,
(1)Pursuant to Rule 416 under the Securities Act, the shares being registered hereunder include such indeterminate number of shares of Common Stock as may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends or similar transactions.
(2)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act. The price per share and aggregate offering price are based on the closing sales price of the Registrant’s Common Stock on April 28, 2014, as reported on the OTC Markets (OTCQB).
(3)Shares issued upon closing of acquisition; the number of shares issued determined pursuant to contract by dividing allocated purchase price amount ($1,600,000) by daily volume weighted average closing price as reported for 60 consecutive trading days ending on March 26, 2014.
(4)Shares issued upon closing of acquisition and held in escrow; the number of shares issued determined pursuant to contract by dividing allocated purchase price amount ($2,900,000) by daily volume weighted average closing price as reported for 60 consecutive trading days ending on March 26, 2014.  These shares are held in escrow by a bank, to be delivered to the Selling Shareholder pursuant to terms and conditions contained in an escrow agreement.
 
The Registrant amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 
 
 
 
The information in this preliminary prospectus is not complete and may be changed. The selling shareholderWe may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomesis effective. This preliminary prospectus is not an offer to sell, these securities and the selling shareholder is not soliciting offersnor does it seek an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.
 
PRELIMINARYSUBJECT TO COMPLETIONNovember 13, 2013
PROSPECTUS
 
3,905,917236,469 Shares of Common Stock
 
This prospectus relates to the offer and resale by Eli Sabag, the selling shareholderSelling Shareholder identified in this prospectus, of up to 3,905,917236,469 shares (the “Shares”) of the common stock, par value $0.00001,$0.0001 (the “Common Stock”) of SecureAlert, Inc., a Utah corporation (“SecureAlert” or “we”), issued toin connection with the selling shareholder upon conversion of a promissory note held by and payable to the selling shareholder (the “Note”).  The Note was madeacquisition by SecureAlert under a Loanof GPS Global Tracking and Security Agreement betweenSurveillance System Ltd., an Israeli corporation (“GPS Global”) from the Selling Shareholder.  Certain of the Shares are held in escrow and to be delivered to Selling Shareholder upon satisfaction of certain conditions contained in the escrow agreement among SecureAlert, Inc.Selling Shareholder and the selling shareholderescrow agent identified in such agreement.  Closing of the acquisition of GPS Global (the “Transaction”) occurred on December 3, 2012.  The Note was converted and the Shares issued to the selling shareholder on September 30, 2013.April 1, 2014.
 
We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale or other disposition of the Shares of Common Stock by the selling shareholder.Selling Shareholder.  Please refer to the section of this prospectus entitled “The Loan and Security Agreement”Transaction” for a description of the loanacquisition transaction involvingpursuant to which the NoteShares were or will be issued to Selling Shareholder and to the section entitled “Selling Shareholder” for additional information regarding the selling shareholder. Selling Shareholder.
The selling shareholderSelling Shareholder may, from time to time, sell, transfer or otherwise dispose of any or all of the Shares on any exchange, market or trading facility on which the Common Stock is traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at various prices determined at the time of sale or at negotiated prices. See “Plan of Distribution” for more information about how the selling shareholderSelling Shareholder may sell the Shares.
 
We will pay the expenses incurred in registering the Shares, including legal and accounting fees. The selling shareholderSelling Shareholder will pay any commissions and selling expenses ithe may incur in connection with the sale of the Shares. See “Plan of Distribution.”
 
Our Common Stock is currently quoted on the OTC Markets (OTCQB) under the symbol “SCRA.” On November 12, 2013,April 28, 2014, the last reported sale price of our Common Stock was $18.90$18.00 per share.
 
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 43 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
 
Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
The date of this prospectus is ________June ___, 2013.2014.

 
 
 
 
TABLE OF CONTENTS
 
 Page
  
PROSPECTUS SUMMARY 1
  
CORPORATE INFORMATION 2
  
THE OFFERING 3
  
RISK FACTORS 43
  
   Risks Related to our Company
 43
  
   Risks Related to our Business
43
  
   Risks Related to the Transaction
7
   Risks Related to our Common Stock 89
  
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 10
  
USE OF PROCEEDS 10
  
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 10
  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
  
BUSINESS 2019
  
MANAGEMENT2926
  
EXECUTIVE COMPENSATION3632
  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT3733
  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS3935
  
THE LOAN AND SECURITY AGREEMENTTRANSACTION 4238
  
SELLING SHAREHOLDER 4239
  
DESCRIPTION OF SECURITIES 4340
  
PLAN OF DISTRIBUTION 4541
  
LEGAL MATTERS 4642
  
EXPERTS 4642
  
WHERE YOU CAN FIND ADDITIONAL INFORMATION 4743
  
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY 4743
  
FINANCIAL STATEMENTSF-144
  
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUSi89
  
SIGNATURESx96
 
You should rely only on the information contained in this prospectus. We have not, and the selling shareholderSelling Shareholder has not, authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell, nor is the selling shareholderSelling Shareholder seeking an offer to buy, securities in any state where the offer or solicitation is not permitted. The information contained in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but information may have changed since that date. We are responsible for updating this prospectus to ensure that all material information is included and we will update this prospectus to the extent required by law.
 
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of the information.

 
 
 
 
PROSPECTUS SUMMARY
 
SecureAlert, Inc., a Utah corporation, is referred to as “SecureAlert,” “we,” “us,” “our,” or the “Company” throughout this prospectus. The items in the following summary are described in more detail later in this prospectus. This summary does not contain all of the information you should consider. Before investing in our securities, you should read the entire prospectus carefully, including the “Risk Factors” beginning on page 43 and the financial statements and related notes beginning on page F-1.43. Our fiscal year ends on September 30.
 
Overview
 
We wereare a Utah corporation originally formed to manufacture and market medical diagnostic stains, solutions and related equipment.  In July 2001, we expanded our product salesinto the elder care market with hardware products and monitoring services related tofor Personal Emergency Response Systems (“PERS”)(PERS) and mobile Global Positioning System (“GPS”) tracking for the elderly.(GPS) location tracking. In 2006, we introduced the GPS tracking technology and monitoring businessservices for the incarcerationcorrections industry which includes manufacturing, distributing, and monitoring mobile emergency andwith a line of wearable, interactive GPS tracking products worn on the bodydevices that focus on the defendantwe manufacture and distribute, combined with offender tracking, monitoring and intervention marketplace.services.
 
In fiscal year 2010,December 2007, we spun offacquired Midwest Monitoring and Surveillance, Inc. (Midwest), Court Programs Inc. and Court Programs of Florida, Inc. In order to focus our resources on our strategic purpose of producing or acquiring and deploying leading edge tracking technology and monitoring services for the criminal justice arena in 2009, we completed the divestiture of our medical diagnostic stain and PERS business in an entity known as ActiveCare, Inc., a Delaware corporation.
During fiscal year 2012, we continued our efforts to focus on our core competencies and embarked on a number of divestitures of those subsidiaries which were primarily local-services based.  We sold certain territories in the state of Florida previously serviced by our wholly-owned subsidiary, Court Programs of Florida, Inc. to various independent distributors.  At the end of fiscal year 2012, we also sold our interest in Midwest Monitoring and Surveillance, Inc. to focus our resources on further developing our foreign markets.  Early inMidwest.  In fiscal year 2013, we sold our wholly-owned subsidiary, Court Programs, of Florida, Inc. and related entities, as partto complete our divestment plans.
Effective April 1, 2014, we acquired all of the same strategy.issued and outstanding equity of GPS Global Tracking and Surveillance System Ltd., an Israeli corporation (“GPS Global”) from its sole stockholder, Eli Sabag, the selling shareholder under this prospectus (“Selling Shareholder”).  GPS Global develops products for locating, tracking, tracing, monitoring and surveillance solutions of offenders, vehicles, facilities and human resources. GPS Global specializes in developing innovative products using advanced technologies and tailored turn-key solutions for its customers worldwide. GPS Global has been engaged primarily in research and development of its products and has had limited operations to date. See “The Transaction” at page 38, for more information regarding our acquisition of GPS Global.
We own or have rights to various trademarks, service marks or trade names that we use in connection with the operation of our business, including, without limitation: Mobile911, Mobile911Siren with 2-Way Voice Communication & Design, ActiveTrace, MobilePAL, HomePAL, HomeAware, PAL Services, TrackerPAL, ReliAlert, SecureAlert, SecureCuff, TrueDetect, and the stylized SecureAlert logo. While some of these trademarks, service marks and trade names are used in this document, for convenience, without protective marking, we will assert our ownership and rights to the fullest extent under applicable law. The trademarks, service marks and trade names of other companies appearing in this prospectus are, to our knowledge, the property of their respective owners. In this prospectus, unless indicated otherwise, references to “dollars” and “$” are to United States dollars.
 
Our Products and Services
 
We market and deploy offender management programs, combining patented GPS tracking technologies, full-timefulltime 24/7/365 intervention-based monitoring capabilities.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 which effectively integrates GPS, RF (Radio Frequency)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.
 
Our ReliAlert™ and ReliAlert XC™ 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,” and facilitate re-socializing offender populations.  The productsdevices 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, 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 technologies
ReliAlert devices 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 thean 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).  Our monitoring devices feature our upgraded,unique patented, dual-steel banded SecureCuff™ strapSecureCuff 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.supervision.
 
 
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The ReliAlertWe believe successful monitoring requires effective, persistent management of monitored individuals. Our monitoring and ReliAlert XC units are intelligent devices with integrated computer circuitry and constructed from case-hardened plastics designed to promptly notify the intervention centers act as an important link between offenders and their supervising officers. SecureAlert intervention specialists initiate contact at the direction of the supervising agency or when an offender violates any attempt madeestablished restriction or protocol.  The monitoring that is enabled by our state-of-the-art devices, which give us the unique ability to breach applicable protocols, or to remove or otherwise tamperconduct live, three-way voice communication with monitored individuals and officers, provides the device or optical strap housing.  Electronic 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.  We market our services onsituational context that is the basis that electronic monitoringfor behavior management and other supervisory programsmodification. And, if necessary, it allows us to provide cost-effective alternativesinteraction details 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 support of continually evolving rehabilitation and re-socialization initiatives of law enforcement and justice agencies in the United States and global markets, we have made the strategic decisionofficers, giving them greater insights prior 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.intervention.
 
Corporate Information
 
Our principal executive office and monitoring facility is located at 150 West Civic Center Drive, Suite 400, Sandy, Utah 84070, and our telephone number is (801) 451-6141.  Our website address is www.securealert.com. No information found on our website is part of this prospectus. Also, this prospectus may include the names of various government agencies or the trade names of other companies. Unless specifically stated otherwise, the use or display by us of such other parties’ names and trade names in this prospectus is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, any of these other parties.
 
Reverse Stock Split
 
On 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.
 
Risk Factors
 
Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Risk Factors” and elsewhere in this prospectus, including without limitation, in conjunction with the forward-looking statements included in this prospectus.  All subsequent written and oral forward-looking statements attributable to us, or personaspersons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Some of the factors that we believe could affect our results include:
 
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·Risks related to our ability to generate sufficient cash to finance our operations, which may not be successful;
·Risks related to general economic conditions; if recovery from the recent recession continues to be slow or prolonged, it could continue to adversely affect our government agency customers and our reliance on third-party manufacturers and suppliers increases our risk of obtaining adequate, timing, and cost-effective product supplies;
·How well we manage our business;
·Competition that could negatively impact our business;
·Risks associated with adequately maintaining security and preventing unauthorized access to electronic and other confidential information and data breaches;
·Risks related to our information systems;systems, including, for example, security breaches or the effects of loss of power supply or other service disruptions at our monitoring centers;
·Risks related to our acquisitions, including the acquisition of GPS Global;
·Our current lack of a Chief Executive Officer and our inability to identify, hire and subsequently integrate a new Chief Executive Officer;
·Changes in regulations or enforcement that may adversely impact our business;
·Risks relating to conducting business internationally, subjecting us to a variety of regulations, political interests and monetary fluctuations;
·Disruptions in the capital markets could increase our costs of doing business; and
·The possibility that the interests of our controllinglargest shareholder may conflict with the interests of other shareholders or creditors.
 
The foregoing factors are not exhaustive and new factors may emerge or changes to the foregoing factors may occur that could impact our business.  In addition, there may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results of operations to differ materially from the forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.  You should review carefully the section captioned “Risk Factors” in this prospectus.
 
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THE OFFERING
 
On December 3, 2012,April 1, 2014, we entered intoclosed on a LoanShare Purchase Agreement executed on March 12, 2014 (the “Purchase Agreement”) to acquire all of the issued and Security Agreementoutstanding shares of GPS Global (the “Loan Agreement”“Transaction”) with Sapinda Asia Limited (“Sapinda”), or.  The sole owner of GPS Global was Eli Sabag, an individual residing in Israel and the selling shareholder, pursuantSelling Shareholder under this prospectus.  The purchase price for the shares of GPS Global was an amount up to which it made available to us $16,640,000 (the “Loan”).  In connection with the Loan, we entered into a convertible secured promissory note$7,811,404 payable in the principal amountcash of $16,640,000 (the “Note”).  By its terms, the Note was convertible into$311,404 and shares of our Common Stock par value $0.00001 per sharevalued at a price of $4.50 per share.  On August 13, 2013, we entered into an Acknowledgement and$7,500,000.  The Purchase Agreement with the selling shareholder, pursuant to which we agreedrequires us to file with the Securities and Exchange Commission (“SEC”) the registration statement that includes this prospectus under the Securities Act of 1933, as amended, or the Securities Act, the registration statement that includes this prospectus for the purpose of registering the resale of the Shares that were issued at the time of the closing of the Transaction, including certain shares of Common Stock underlying conversionthat are to be held in escrow by Zions First National Bank of Salt Lake City, Utah (“Escrow Agent”) to be released to Selling Shareholder on conditions contained in the escrow agreement entered into by the parties (the “Escrow Agreement”).  See “The Transaction” for a summary of the Note (the “Shares”).  On September 30, 2013, the selling shareholder exercised its right to convert the Noteterms and we issued the Shares to be offered and sold by the selling shareholder under this prospectus.
The above descriptionsconditions of the Loan Agreement (including the Note) and the Acknowledgement and Agreement are qualified in their entirety by reference to Exhibits 10.30 and 10.33, respectively, to the registration statementour acquisition of which this prospectus is a part, filed with the SEC on November 13, 2013.GPS Global.
 
Securities Offered
This offering involves a total of 236,469 shares of our Common Stock (the “Shares”) issued under the Purchase Agreement, including 152,291 shares held in escrow by the Escrow Agent which may be delivered to Selling Shareholder on or about October 1, 2014, as provided in the Purchase Agreement and subject to conditions contained in the Purchase Agreement and in the Escrow Agreement, as follows:
 
Common Stock offered by the selling shareholderSelling Shareholder:3,905,917236,469 Shares
Common Stock outstanding prior to the offeringoffering:9,806,7469,833,407 Shares
Common Stock outstanding after the offeringoffering:9,806,74610,069,876 Shares
Use of proceedsproceeds:We will not receive any proceeds from the sale of the Shares by the selling shareholderSelling Shareholder in this offering.  See “Use of Proceeds”.Proceeds.”
Risk factorsfactors:An investment in the Shares involves a high degree of risk. See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
OTC Markets (OTCQB) symbolsymbol:SCRA
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RISK FACTORS
 
Before you make a decision to invest in our securities, you should consider carefully the risks described below, together with other information in this prospectus. If any of the following events actually occur, our business, operating results, prospects or financial condition could be materially and adversely affected. This could cause the trading price of our Common Stock to decline and you may lose all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also significantly impair our business operations and could result in a complete loss of your investment.
 
Risks Related to our CompanyOur Business, Operations and Industry
 
We are primarily dependent on additional borrowings under a Facility Agreement. Our business plan is dependent upon raising sufficient capital to supplement operational income. It may be necessary for us to obtain additional borrowing at less than favorable terms. On January 3, 2014, we entered into an unsecured “Facility Agreement” with Tetra House Pte. Ltd., (“Tetra House”) an entity controlled by our Chairman, Guy Dubois, pursuant to which Tetra House agreed to make available to us up to $25,000,000 in borrowed funds at an 8% annual interest rate due and payable in arrears semi-annually. The financial statements containedfunds may be drawn down at any time and from time to time through May 31, 2014, in this prospectusminimum amounts of $2,000,000 and in $1,000,000 increments.  In addition, we paid Tetra House an arrangement fee of $750,000 (3% of the aggregate maximum amount under the Facility Agreement). The borrowed funds may be used for the year ended September 30, 2012acquisitions and for general corporate purposes and are due and payable two years from the nine months ended June 30, 2013,closing date.  After the loan was executed, Tetra House assigned the Facility Agreement to Conrent Invest S.A. through its compartment “Safety II.”  Since January 3, 2014, we have been prepared onborrowed $15,000,000 under the basis that we will continue as a going concern, notwithstanding the fact thatFacility Agreement.
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We face risks related to our financial performance and condition during the past few years raise substantial doubt as toindebtedness.  Our substantial leverage could adversely affect 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 and had negative cash flows from operating activities of $1,709,388, and as of June 30, 2013 we have an accumulated deficit of $254,707,653 comparedraise additional capital to an accumulated deficit of $248,513,626 at September 30, 2012.  These factors raise substantial doubt aboutfund our operations, limit our ability to continue as a going concern.  The financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty.  Our plan with respectreact to this uncertainty is to focus on increasing the number of TrackerPAL™ and ReliAlert™ deviceschanges in the market placeeconomy or our industry, expose us to interest rate risk associated with our variable rate debt and prevent us from whichmeeting our obligations under our outstanding debentures and other debt instruments.  As of March 31, 2014, we will generate monitoring service revenue, reducing operating costs and raising capital through additional borrowings and or the salehad $12,125,628 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.indebtedness outstanding.
 
Sales by certainOur high degree 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,leverage could adversely affect the market price of our Common Stock.  A large number of outstanding shares of our Common Stock are held by several of our principal shareholders, including the selling shareholder.  If any of these principal shareholders werehave important consequences to decide to sell large amounts of stock over a short period of time such sales could cause the market price of our Common Stock to decline.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;
·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.
 
We may not be able to generate sufficient cash from operationsto service all of our indebtedness, and may be forced to take other actions to satisfy our obligations.  obligations under our indebtedness, which may not be successful.Our ability to financemake 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 our obligations are 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.
 
If our cash flows and capital resources are insufficient to fund our operations and to pay ourdebt 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 problems 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.
 
Risks RelatedGeneral economic conditions may affect our revenue and harm our business.  As widely reported, financial markets in the United States, Europe and Asia experienced 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 Businessproducts and services, adversely affecting our results of operations and financial condition. Challenging economic conditions also may impair the ability of our customers 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 United 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, the industry has experienced a general decline in average daily lease rate for GPS tracking units.  As a result of these factors, our ability to maintain or increase our revenues may be negatively affected.
 
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As a result of our increased focus on a newinternational business market,markets, our business is subject to many of the risks of a new or start-up venture.  Our business goals and strategy subjectssubject 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 consumercustomer 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.  There is no assurance that a market for our products or services will continue to develop or that demand for our products and services will 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.
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The selling shareholder is the beneficial owner ofCertain individuals and groups own or control a significant percentagenumber of our Common Stock, giving it and parties related tooutstanding shares.  Certain groups or affiliatedpersons associated with itthem beneficially own a substantial control, and limiting the influencenumber of other shareholders on important policy and management issues. The selling shareholder is the beneficial owner of approximately 40%shares of our outstanding Common Stock or securities and debt instruments convertible into shares of our Common Stock.  As a result, these persons have the ability, acting as of October 18, 2013 (see “Security Ownership of Certain Beneficial Owners and Management” and “Selling Shareholder”).  The selling shareholder is therefore ablea 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 or entering into a change of control transaction or making other transactions more difficult or impossible without their support. In addition, thisthese equity holderholders may have an interest in pursuing acquisitions, divestitures, financing or other transactions that, in itstheir judgment, could enhance itstheir equity investments, even though such transactions may involve risk to us or to our other shareholders.  Additionally, itthey 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.
 
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 currentlyother 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.
 
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 aredo not currently evaluating candidateshave a chief executive officer.  In October 2012, the Board of Directors established an Executive Committee and transferred the executive function to hire as a Chief Executive Officerthis committee, currently comprised of Guy Dubois and David Boone.  Messrs. Dubois and Boone will continue to take over fromexecute the interim CEO, a role currently filled byresponsibilities of the Company’s principal executive officer through the Executive Committee, until our search for 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 our Board of Directors.  operations.
 
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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 a national cellular access company for cellular services. We also rely currently on a single manufacturersource for the manufacture of our TrackerPAL and ReliAlert devices.  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.
 
Our business subjects our research, development and ultimate marketing activities 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 are not subject to specific approvals from any governmental agency, although our products using cellular and GPS technologies for use in the United States must be manufactured in compliance with applicable rules and regulations of the Federal Communications Commission (“FCC”).  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 our products.  Our technology competes directly with other technology,products and althoughservices.  Although we believe our technology has 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.  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 institutions may be in the process of developing technology that could be developed more quickly or be ultimately more effective than our 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.products, or achieve earlier patent protection or product commercialization.
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TheWe are dependent upon certain customers, the loss of a significant customer maywhich would adversely affect our results of operations and business condition.  During fiscal year 2013, two customers each accounted for more than 10% or more of sales as follows:  Customer Atotal sales.  One customer paid $5,252,959 (34%) and Customer B (10%).  During the of total sales) under an international contract that was completed during fiscal year ended September 30, 2013 and it is uncertain if we completedwill provide services to this customer in the future.  Another customer paid $1,622,326 (10% of total sales) under a contract with Customer A.  A three-year contract with Customer B comes up for renewalwhich was completed in November 2013 and it is anticipated that we will continue providing services to this customer underhas continued on a month-to-month agreement.basis since that time.  This contract could be terminated at anytime upon 30 days notice. The loss of either of these customers maywould result in lower revenues and limit the cash available to grow our business and to achieve profitability.  In addition, on November 15, 2013, we entered into a contract with the uniformed prison service of the Republic of Chile known as the Gendarmerie.  This is a 41-month contract and barring additional new contracts, this contract is expected to account for more than 10% of sales for fiscal year 2014.  Subsequent to the execution of this contract, general elections were held in Chile.  There is no assurance that the new government will honor this contract.  The loss or interruption of this new contract would adversely affect our results of operations and financial condition.
 
Our business plan is subject to the risks of technological uncertainty, which may result in our products failing to be competitive or readily accepted inby our target markets.  Some of the products we are currently evaluating, including the products under development by GPS Global, 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 anticipatesWe 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 business activities, the cost and timing of expanding our revenues, marketing and manufacturing activities, our ability to establish and maintain collaborative relationships, competing technological and market developments, 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 borrowings as well as 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.  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 in the United States and in other countries.  We have received several patents; we have also applied for several additional patents and those applications are awaiting action by the United States Patent and Trademark Office, or PTO, and by similar regulators in other countries.  There is no assurance those patents will issue or that when they do issue they will include all of the claims currently included in the applications. Even if they do issue, those new patents and our existing patents must be protected against possible infringement.  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 13patent 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 15 patents and have filed and intend to file additional patent applications with the 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, if 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 OfficePTO 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.
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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.
 
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We conduct business internationally with a variety of sovereign governments and we aregovernments.  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.
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 and result in negative publicity that could cause us to lose customer accounts or fail to obtain new accounts.  In the past we have experienced temporary interruptions of telecommunications or power outages which were promptly mitigated.  Such instances may result in loss of customer accounts or similar problems if they occur in the future.  Any inability to scale our systems may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, or impaired quality and speed of transaction processing.  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 the Transaction
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 several years. Unfavorable changes in economic conditions, including declining consumer confidence, inflation, recession or other changes, may lead our customers to delay or reduce purchasesThe success of our productsbusiness depends on achieving our strategic objectives, including through acquisitions, dispositions and services, adversely affecting our results of operationsrestructurings.  With respect to acquisitions such as the Transaction, as well as potential restructuring actions, we may not achieve expected returns 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, andother 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.  In the past 18 months, we disposed of entities we had previously acquired.  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 reservesstrategic objectives. Alternatively, we may dispose of a business at a price or on terms that are less than we had anticipated. After reaching an agreement with a buyer or seller for doubtful accountsthe acquisition or disposition of a business, we are subject to satisfaction of pre-closing conditions as well as to necessary regulatory and write-offs of accounts receivable could increase. Our cash flowsgovernmental approvals on acceptable terms, which may be adversely affected by delayed payments or underpayments by our customers. We are unable to predictprevent us from completing the duration and severity of the current disruption intransaction. Dispositions may also involve continued financial markets and adverse economic conditionsinvolvement in the United States anddivested business, such as through continuing equity ownership, guarantees, indemnities or other countries.financial obligations. Under these arrangements, performance by the divested businesses or other conditions outside our control could affect our future financial results.
 
Serious disruptionsWe may not be able to grow successfully through the Transaction or catastrophic events, including geo-political eventsthrough future acquisitions, we may not successfully manage future growth, and weatherwe may not be able to effectively integrate the business of GPS Global or other 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 number of shares outstanding.  Businesses that we acquire, such as GPS Global, 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, which may result in unforeseen operational difficulties or diminished financial performance or require a disproportionate amount of our management’s attention.  Even if we are successful in integrating GPS Global or future acquisitions into our existing operations, we may not derive the benefits, such as operational or administrative synergies or earnings gains, that we expected from such acquisitions, which may result in the commitment of our capital resources without the expected returns on such capital. Also, 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:
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·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.
We are exposed to fluctuations in currency exchange rates. A significant portion of our business, particularly our research and development following the completion of the Transaction, is or will be conducted outside the United States.  The business of GPS Global, which we acquired on April 1, 2014, is located in Israel.  We also have significant contracts with agencies in Central and South America and in the Caribbean.  Therefore, we are exposed to currency exchange fluctuations in other currencies such as New Israeli Shekels (“NIS”).  Moreover, a portion of our expenses in Israel are paid in NIS, which subjects us to the risks of foreign currency fluctuations. Our primary expenses paid in NIS are employee salaries, fees for consultants and subcontractors and lease payments on our Israeli facilities.
The dollar cost of our operations in Israel will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation to the dollar, which would harm our results of operations. A considerable portion of our expenses related to GPS Global, which we anticipate will ultimately include much of our research and development activities, such as employees’ salaries are linked to an extent to the rate of inflation in Israel.  The dollar cost of our operations is expected to be influenced by the extent to which any increase in the rate of inflation in Israel is or is not offset by the devaluation of the NIS in relation to the dollar. As a result, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate in relation to the dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results of operations will be adversely affected. During the past few years the inflation-adjusted NIS appreciated against the dollar. We cannot predict whether the NIS will appreciate or depreciate against the dollar in the future. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation of the NIS in relation to the dollar, will increase labor and other costs, which will increase the dollar cost of our operations in Israel and adversely affect our business and results of operations.  Unforeseen public health issues, such as pandemics
Political, economic and epidemics,military instability in Israel may impede our ability to execute our plan of operations.  Our GPS Global operations and geo-political events, such as civil unrest in a country in which our suppliers or customersthe research and development facilities to be funded by us under the Purchase Agreement are located or terrorist orin Israel.  Accordingly, political, economic and military activities disrupting transportation, communications or utility systems, as well as natural disasters such as hurricanes, tornadoes, floods, earthquakesconditions in Israel may affect our business.  Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and other adverse weather and climate conditions, whether occurring in the U.S. or abroad, particularly during peak seasonal periods,its Arab neighbors.  Acts of random terrorism periodically occur which could disruptaffect our operations or personnel.  Ongoing or revived hostilities or other factors related to Israel could harm our operations and research and development process and could impede our ability to execute our plan of operations. In addition, Israeli-based companies and companies doing business with Israel have been the subject of an economic boycott by members of the Arab League and certain other predominantly Muslim countries since Israel’s establishment. Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved. Wars and acts of terrorism have resulted in damage to the Israeli economy, including reducing the level of foreign and local investment. Any hostilities involving Israel, acts of terrorism, or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely affect our operations and research and development and cause our revenues to decrease. 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 in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. 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 Transaction, we now have eight full-time employees and two 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. In response to increased tension and hostilities, since September 2000 there have been occasional call-ups of military reservists, and it is possible that there will be additional call-ups in the future. 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 vendors or customers located in the affected areas.key employees for military service. Such occurrencesdisruption could significantly impactmaterially adversely affect our operatingoperations, business and results and financial performance.  As a result, our business could be adversely affected.of operations.
 
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Risks Related to Our Common Stock
 
A decline in the price of our Common Stock could affect our ability to raise further 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 through the sale of equity securities and convertible debt instruments, 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 price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.
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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 quarterly operating results;
·announcements of new services, products, acquisitions or strategic relationships by us or our competitors;
·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.
The market price for our Common Stock may also be affected by our ability to meet or exceed expectations of analysts or investors. 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 in the future, it will result in the dilution of our existing shareholders.  Our Articles of Incorporation authorize the issuance of 15,000,000 shares of Common Stock. Our Board of Directors has the authority to issue additional shares of Common Stock up to the authorized capital stated in The Articles of Incorporation.  The issuance of any such shares of Common Stock will result in a reduction of the book value or market price of the outstanding shares of our 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 corporation.
Trading of our Common Stock may be volatile and sporadic, which could depress the market price of our Common Stock and make it difficult for our shareholders to resell 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 OTC Market’s OTCQB. Trading in stock quoted on OTC Market’s OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price for our Common Stock that is unrelated to operating performance. Moreover, OTC Market’s OTCQB is not a stock exchange, and trading of securities quoted on OTC Market’s OTCQB is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ. There is no assurance that a sufficient market will develop in the stock, in which case it could be difficult for our shareholders to resell their stock.
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 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. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the Common 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.control of the Company.  The Board of Directors has designated 85,000 shares of preferred stock as our Series D Preferred stock.  Each share of Series D Preferred stock is convertible into 30 shares of Common Stock.  Holders 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.  As of October 30, 2013,April 28, 2014, there were 468no outstanding shares of Series D Preferred issuedstock.
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.  A large number of outstanding shares of our Common Stock are held by several of our principal shareholders, including the Selling Shareholder.  If any of these principal shareholders were to decide to sell large amounts of stock over a short period of time such sales could cause the market price of our Common Stock to decline.
A decline in the price of our Common Stock could affect our ability to raise additional working capital and outstanding,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 and convertible debt instruments, 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 price 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 were convertible into 14,040you purchase your Shares:
·actual or anticipated variations in our quarterly operating results;
·announcements of new services, products, acquisitions or strategic relationships by us or our competitors;
·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.
The market price for our Common Stock may also be affected by our ability to meet or exceed expectations of analysts or investors. 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 in the future, it will result in the dilution of our existing shareholders.  Our Articles of Incorporation authorize the issuance of 15,000,000 shares of Common Stock. Our Board of Directors has the authority to issue additional shares of Common Stock up to the authorized capital stated in The Articles of Incorporation.  The issuance of any such shares of Common Stock will result in a reduction of the book value or market price of the outstanding shares of our 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 corporation.
 
 
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Trading of our Common Stock may be volatile and sporadic, which could depress the market price of our Common Stock and make it difficult for our shareholders to resell 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 OTC Market’s OTCQB. Trading in stock quoted on OTC Market’s OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the issuer’s operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price for our Common Stock that is unrelated to operating performance. Moreover, OTC Market’s OTCQB is not a stock exchange, and trading of securities quoted on OTC Market’s OTCQB is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ. We have filed an application to have our Common Stock included on the NASDAQ stock market, but there is no assurance that the application will be accepted or that a sufficient market will develop in the stock, in which case it could be difficult for our shareholders to resell their stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.
 
The forward-looking statements contained in this prospectus involve a number of risks and uncertainties, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, those discussed in “Risk Factors” elsewhere in this prospectus. Readers are expressly advised to review and consider those Risk Factors. Although we believe that the assumptions underlying the forward-looking statements contained in this prospectus are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. Except as required by applicable laws including the securities laws of the United States, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
USE OF PROCEEDS
 
This prospectus relates to the Shares of our Common Stock that may be offered and sold from time to time by the selling shareholder.Selling Shareholder. We will not receive any proceeds upon the sale of the Shares by the selling shareholder.Selling Shareholder.
 
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
Market Information
 
Our Common Stock is traded on the OTC Bulletin BoardOTCQB under the symbol “SCRA.OB.“SCRA.QB.”  The following table sets forth the range of high and low bid prices of our Common Stock as reported on the OTC Bulletin Board adjusted to reflect the reverse stock split, for each of the periods indicated.  The sales information is available online at http://otcbb.com.
 
 Fiscal Year Ended September 30, 2012 High  Low 
 First Quarter ended December 31, 2011 $20.00  $13.20 
 Second Quarter ended March 31, 2012 $15.40  $8.00 
 Third Quarter ended June 30, 2012 $10.80  $5.60 
 Fourth Quarter ended September 30, 2012 $7.80  $4.00 
         
 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 
 
10
 
 
 Fiscal Year Ended September 30, 2012 High  Low 
 First Quarter ended December 31, 2011 $20.00  $13.20 
 Second Quarter ended March 31, 2012 $15.40  $  8.00 
 Third Quarter ended June 30, 2012 $10.80  $  5.60 
 Fourth Quarter ended September 30, 2012 $  7.80  $  4.00 
         
 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 
Holders
 
As of October 30, 2013, there wereApril 28, 2014, we had approximately 2,500 holders of record of our Common Stock and 9,806,74610,069,876 shares of Common Stock outstanding. We also have granted options and warrants for the purchase of 434,806410,851 shares of Common Stock and 5,40042,000 shares of Series D Preferred stock that may be converted into 162,000 shares of Common Stock.  As of October 30, 2013, there were 468 shares of Series D Preferred stock outstanding, which are convertible into 14,040 shares of Common Stock and are voted on an as-converted basis with the outstanding Common Stock.stock.  
 
Dividends
 
Since incorporation, we have not declared any cash dividends on our Common Stock.  We do not anticipate declaring cash dividends on our Common Stock for the foreseeable future.  The Series D Preferred stock is entitled to dividends at the rate equal to 8% per annum calculated on the purchase amount actually paid for the shares or amount of debt converted.converted in exchange for the shares.  The dividend is payable in cash or shares of Common 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, 2013 and 2012, we recorded $1,042,897 and $2,480,298 in stock dividend expense,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 Stock are reserved for issuance upon exercise of purchase or conversion rights.
The issuance of any shares of Common Stock for any reason will result in dilution of the equity and voting interests of existing shareholders.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for our Common Stock is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New York, 11219.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
OurThe 2012 SecureAlert, Inc. Stock Incentive Plan
The Board of Directors has adopted two equity incentive plans: the 2006 Equity Incentive Award Plan or 2006 Plan, and theSecureAlert, Inc. 2012 Equity Incentive AwardCompensation Plan or 2012 Plan.  These plans were(the “2012 Plan”), approved by our shareholders at the Annual Meeting of Shareholders held on July 10, 2006 and December 21, 2011, respectively.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 2006 Plan and the 2012 Plan are an important attraction, retention and motivation tool for participants in the plans.plan.
 
Under the 20062012 Plan, noawards for 90,000 shares of Common Stock are available for issuance pursuant to awards granted under the plan.  Under the 2012 Plan, 60,000 options or shares of Common Stock are available for awards.may be granted.  As of the date of this prospectus, awards for the purchase of 50,000 shares of Common Stock have been granted under the 2006 Plan and awardsoptions for the purchase of 30,000 shares of Common Stock have been grantedawarded under the 2012 Plan.
The following table includes information as of September 30, 2013 for all of our equity compensation plans:
 
 
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Equity Compensation Plan Information 
Plan category 
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 holders  21,433  $16.66   68,567 
             
Equity compensation plans not approved by security holders  477,349  $24.00   - 
             
Total  498,782  $24.00   68,567 
The following table includes information as of September 30, 2013 for our equity compensation plans:
 
 
 
 
 
 
 
 
Plan category
 
 
 
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 holders  21,433  $16.66   60,000 
             
Equity compensation plans not approved by security holders  568,533  $15.28   - 
             
Total  589,966  $16.12   60,000 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 20122013 and the ninethree and six months ended June 30, 2013,March 31, 2014, included elsewhere in this prospectus.
 
Our BusinessOverview
 
We market and deploy 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 which effectively integrates GPS, 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.
 
Our ReliAlert and ReliAlert XC devices are designed in the United States and manufactured in China 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 by offender types (e.g., domestic abusers, sexual predators, 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’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 SecureAlert Monitoring Center (or other agency-based monitoring centers).  During fiscal year 2011, we also 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 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.
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Results of Operations

Continuing Operations - Three months ended March 31, 2014, compared to three months ended March 31, 2013

Revenues

For the three months ended March 31, 2014, the Company recognized revenues from operations of $2,455,789, compared to $4,808,324 for the three months ended March 31, 2013, a decrease of $2,352,535 (49%).  Of these revenues, $2,309,864 and $4,643,071, respectively, were from monitoring and other related services, a decrease of $2,333,207 (50%) in the quarter ended March 31, 2014.  The decrease was the result of the completion of a contract with an international customer.  For the three months ended March 31, 2014, international revenue was $728,443, compared to $3,029,440 for the three months ended March 31, 2013, a decrease of $2,300,996 (76%); the decrease in total revenue was due to the completion of a contract with an international customer.

Product revenues decreased $19,328 (12%) from $165,253 for the three months ended March 31, 2013, to $145,925 for the three months ended March 31, 2014.
Cost of Revenues

During the three months ended March 31, 2014, cost of revenues totaled $1,093,767 compared to cost of revenues during the three months ended March 31, 2013 of $2,043,070, a decrease of $949,303.  The decrease in cost of revenues in 2014 resulted primarily from decreases of $503,420 in royalty payments; $200,269 in commissions and a decrease in depreciation of $145,715 related to international sales.

Depreciation for the three months ended March 31, 2014 and 2013 totaled $191,823 and $343,835, respectively. Depreciation 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 depreciated over three years.  The Company believes 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.

The Company expects the cost of revenues as a percentage of revenues to decrease in the foreseeable future due to economies of scale realized through 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 use of more efficient supply channels.
Gross Profit and Margin

During the three months ended March 31, 2014, gross profit totaled $1,362,022, or 55% of net revenues compared to $2,765,254, or 58% of net revenues during the three months ended March 31, 2013.

Research and Development Expenses

During the three months ended March 31, 2014, research and development expenses totaled $403,175 compared to research and development expenses for the three months ended March 31, 2013 totaling $197,603, an increase of $205,572.  These research and development costs were incurred to improve efficiency in the software, firmware and hardware of our products and services including the development of our upcoming 3G electronic monitoring device.

Selling, General and Administrative Expenses

During the three months ended March 31, 2014, selling, general and administrative expenses totaled $2,564,015 compared to $2,124,965 for the three months ended March 31, 2013.  The increase of $439,050 primarily resulted of an increase of legal expense ($335,381) in connection with preliminary work and preparation for a large international contract.
Other Income and Expense
For the three months ended March 31, 2014, interest expense was $327,367 compared to $2,358,727 for the three months ended March 31, 2013. This decrease in interest expense resulted primarily from a reduction in convertible debentures and the acceleration of certain debt conversion features into common stock. For the three months ended March 31, 2014, other income was $624,730, compared to $175,083 for the three months ended March 31, 2013.  This increase in other income resulted primarily from a settlement agreement.

Net Loss

The Company had a net loss from continuing operations for the three months ended March 31, 2014 totaling $1,292,119 compared to a net loss of $1,638,785 for the three months ended March 31, 2013, a decrease of  $346,666.  This decrease is a result of other income and an offset to expense recognized from a settlement agreement offset by a reduction of gross profit generated from monitoring services in connection with an international customer.  Offsetting this are increased operating expenses in connection with preliminary work and preparation for a large international contract and increased research and development expenses related to the development of our 3G electronic monitoring devices. 
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 Continuing Operations - Six months ended March 31, 2014, compared to six months ended March 31, 2013

Revenues

For the six months ended March 31, 2014, the Company had revenues from operations of $5,115,083 compared to $10,396,396 for the six months ended March 31, 2013, a decrease of $5,281,313 (51%).  Of these revenues, $4,903,547 and $10,097,349 were from monitoring and other related services, a decrease of $5,193,802 (51%); this decrease resulted primarily from the completion of a contract with an international customer.  Product revenues decreased $87,511 (29%) from $299,047 for the six months ended March 31, 2013 to $211,536 for the six months ended March 31, 2014.

Cost of Revenues

During the six months ended March 31, 2014, cost of revenues totaled $2,492,596 compared to cost of revenues during the six months ended March 31, 2013 of $5,021,588, a decrease of $2,528,992.  The decrease in cost of revenues resulted primarily from decreases of $1,330,447 in royalties; $433,998 in commissions; the cost of equipment of $295,091 related to international sales and $492,321 in costs in connection with the development of a charging solution for an international customer.

Amortization for the six months ended March 31, 2014 and 2013 totaled $373,651 and $666,414, 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.  The Company believes 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 as a percentage of revenues to decrease in the foreseeable future due to economies of scale realized through 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 use of more efficient supply channels.

Gross Profit and Margin

During the six months ended March 31, 2014, gross profit totaled $2,622,487, or 51% of net revenues, compared to $5,374,808, or 52% of net revenues during the six months ended March 31, 2013.
Research and Development Expenses

During the six months ended March 31, 2014, research and development expenses totaled $722,745 compared to research and development expenses for the six months ended March 31, 2013 totaling $399,197.  These additional research and development costs were incurred to improve efficiency in the software, firmware and hardware of our products and services including the development of our upcoming 3G electronic monitoring device.

Selling, General and Administrative Expenses

During the six months ended March 31, 2014, selling, general and administrative expenses totaled $4,735,423 compared to $4,162,987 for the six months ended March 31, 2013.  The increase of $572,436 is primarily the result of increases in legal and professional fees ($411,056) and travel expenses ($278,820) related to preliminary work and preparation in connection with a large international contract.

Other Income and Expense

For the six months ended March 31, 2014, interest expense was $371,285 compared to $3,201,951 for the six months ended March 31, 2013.  This decrease in interest expense resulted primarily from a reduction in convertible debentures and the acceleration of certain debt conversion features into common stock.   For the six months ended March 31, 2014, other income was $624,780 compared to $167,100 for the six months ended March 31, 2013.  This increase in other income resulted primarily from a settlement agreement.

Net Loss

The Company had a net loss from continuing operations for the six months ended March 31, 2014 totaling $2,562,312 compared to a net loss of $2,479,623 for the six months ended March 31, 2013.  This increase primarily resulted from the reduction of gross profit generated from monitoring services in connection with an international customer. Additionally, the increase in net loss resulted from preliminary work and preparation in connection with a large international contract and the development of our 3G electronic monitoring device.  The increase in net loss was offset by the income resulting from a settlement agreement.

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Discontinued Operations - Six months ended March 31, 2014, compared to six months ended March 31, 2013

Effective October 1, 2012, we sold all of the issued and outstanding capital stock of our subsidiary, Midwest, to the former principals of Midwest. Because Midwest was a component of our consolidated entity, this sale requires discontinued operations reporting treatment of the Midwest operations.

We also sold to the former principal of our wholly owned subsidiary, Court Programs, Inc., all of the issued and outstanding capital stock of Court Programs, Inc. and its affiliated entities, effective January 1, 2013. Because these entities were a component of our consolidated entity, this sale requires discontinued operations reporting treatment of their operations.

A summary of the operating results of discontinued operations for the six months ended March 31, 2014 and 2013 is as follows:
  March 31,  March 31, 
  2014  2013 
Revenues $-  $477,298 
Cost of revenues  -   (163,487)
Gross profit  -   313,811 
Selling, general and administrative  -   (319,976)
Loss from operations  -   (6,165)
Other expense  -   (295)
Net loss from discontinued operations $-  $(6,460)
Continuing Operations – Fiscal Year Ended September 30,2013 compared to Fiscal Year 2012
Net Revenues
 
During the fiscal year ended September 30, 2012,2013, we had net revenues of $19,791,492$15,641,062 compared to net revenues of $17,961,803$13,114,979 for the fiscal year ended September 30, 2011,2012, an increase of $1,829,689,$2,526,083, or approximately 10%19%.  Revenues from monitoring services for the fiscal year ended September 30, 2012,2013, totaled $17,778,337,$15,028,625, compared to $16,410,292$11,519,727 for the same period ended 2011, resulting infiscal year 2012, an increase of $1,368,045$3,508,898 or approximately 8%30%.  These revenuesRevenues increased as a result of our continued expansion into the global marketinternational markets, which contributed an additional $2,254,161$2,745,667 to monitoring revenues for fiscal year 2013. Of the $15,028,625 in revenues in fiscal year 2013, $5,252,959 (35%) was derived from an international contract that was completed during the fiscal year ended September 30, 2012.and it is uncertain if we will provide services to this customer in the future. Domestic revenues decreased by $424,473,$219,584, or 3%, from the fiscal year ended September 30, 2011.2012. This decrease resulted primarily from lowering our monitoring daily charge to compete in the domestic marketplace. Revenues from product sales for the fiscal year ended September 30, 20122013 were $2,013,155,$612,437, compared to $1,551,511$1,595,252 for the prior year, an increasea decrease of $461,644,$982,815, or 30%62%.  This increasedecrease was primarily due to the 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.
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solution in fiscal year 2012.
 
Cost of Revenues
 
During the fiscal year ended September 30, 2012,2013, cost of revenues excluding impairment of equipment and parts, totaled $11,418,012,$8,030,168, compared to cost of revenues during the fiscal year ended September 30, 20112012 of $9,565,959, an increase of $1,852,053.  These net costs of revenues,$8,954,364, a decrease as a percentage of net revenues increased 5%of 17%, from 53% in 2011 to 58% in 2012.  The increase in cost68% of revenues of $1,852,053 in 2012 resulted primarily from increases in the costs of the charging solution of $360,961, royalty fees of $853,623, communication costs of $311,764, and amortization expenses of $187,126.
Although there were increases in the costto 51% 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.2013.
 
Impairment costs for equipment and parts for the fiscal years ended September 30, 2013 and 2012, were $213,276 and 2011 were $1,648,762, and $464,295, 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, 2013 and 2012, totaled $1,230,293 and 2011, totaled $1,387,756 and $1,160,920,$1,231,773, 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 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, 2012,2013, gross profit totaled $6,724,718,$7,610,894, or 34%49% of net revenues, compared to $7,931,549,$4,160,615, or 44%32% of net revenues during the fiscal year ended September 30, 2011, a decrease2012, an increase of $1,206,831.$3,450,279.  Included in cost of revenues are costs attributable to impairment of inventory and monitoring equipment of $213,276 and $1,648,762 and $464,295 for the fiscal years ended September 30,2013 and 2012, and 2011, 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, 20122013 was $8,373,480$7,824,170 or 42%50% of net revenues, compared to $8,395,844$5,809,377 or 47%44% of net revenues, for the same period in 2011, a decrease2012, an increase of $22,364.$2,014,793.
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Research and Development Expenses
 
During the fiscal year ended September 30, 2012,2013, we incurred research and development expenses of $1,248,654$987,934 compared to similar expenses recognized during fiscal year 20112012 totaling $1,453,994.$1,248,654.  This decrease of $205,340$260,720 is due primarily to a reduction in research and development staff.
 
Selling, General and Administrative Expenses
 
During the fiscal year ended September 30, 2012,2013, our selling, general and administrative expenses totaled $15,405,742,$7,689,124, compared to $15,652,303$12,623,114 for the fiscal year ended September 30, 2011.2012.  The decrease of $246,561$4,933,990 is the result of decreasesreductions in the following expenses: bad debt expense ($202,782), consulting fees ($2,286,737), insurance ($182,191), legal fees ($170,011), payroll, payroll taxes and employee benefits ($399,781)1,426,001), and travel expenses ($213,387),102,810).  Consulting and legal ($100,982).  Consultingnon-cash employee compensation expense for the fiscal year ended September 30, 2012 was $3,911,0272013 totaled $445,971, compared to $2,681,718$3,904,527 for the fiscal year ended September 30, 2011, an increase2012, a decrease of $1,229,309.$3,458,556.  The increasedecrease in consulting and non-cash employee compensation expenses resulted primarily from modificationsthe issuance of outstandingCommon Stock and acceleration of expense in connection with cancellation of stock options.
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options during fiscal year 2012.
 
Other Income and Expense
 
For the fiscal year ended September 30, 2012,2013, interest expense was $1,489,897,$17,048,519, compared to $712,840$1,431,416 for the fiscal year ended September 30, 2011.2012. This increase of $777,057$15,617,103 is a result primarily of the non-cash interest expense of $860,190$15,960,382 related to the amortization of debt discounts on convertible debentures. Also included in interest expense is $59,575$939,770 in accrued interest on a loan and security agreement with a related to amortizationparty, of debt discounts in connection with an acquisition, and $39,965 for re-pricing of warrants.
Net Loss
We had a net loss for the fiscal year ended September 30, 2012 totaling $17,458,107 (approximately $8.00 per share), compared to a net loss of $9,858,824 (approximately $6.00 per share) for the fiscal year ended September 30, 2011.  This increase 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, interest expense of $777,057, and settlement charges of $126,966.
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, we funded our operating and investing activities through sale and issuance of debt and equity securities.  The cash provided by these transactionswhich $936,627 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.
As of September 30, 2012, we had unrestricted cash of $695,111, compared to unrestricted cash of $949,749 as of September 30, 2011.  As of September 30, 2012, we had a working capital deficit of $13,600,345, compared to a working capital deficit of $1,201,955 as of September 30, 2011.  The decrease in working capitalconverted into Common Stock in fiscal year 2012 primarily resulted from the royalty repurchase agreement and borrowings from the issuance of our convertible debentures.
During fiscal year 2012, our operating activities used cash of $1,709,388, compared to $6,809,513 used during fiscal year 2011.  This improvement in cash used from operating activities 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. 
Investing activities during the fiscal year ended September 30, 2012, used cash of $2,720,944, compared to $3,716,554 during the fiscal year ended September 30, 2011.  The decrease in cash used by investing activities of $995,610 during fiscal year 2012 resulted primarily from the decrease in cash used for the purchase of monitoring equipment and payments related to an acquisition during the fiscal year ended September 30, 2011.
Financing activities during the fiscal year ended September 30, 2012, provided $4,175,694 of net cash compared to $10,349,584 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 had 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 debentures to related-parties and $1,033,000 from the issuance of Common Stock to a related party.
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During the fiscal year ended September 30, 2011, we made net payments of $635,657 on notes payable and $188,634 on a related-party line of credit.  During the fiscal year 2011, we had net proceeds of $10,344,603 from the issuance of Series D Convertible Preferred stock and net proceeds of $829,272 from related-party notes payable.
During fiscal year ended September 30, 2012, we incurred a net loss of $17,458,107 and negative cash flows from operating activities of $1,709,388, compared to a net loss of $9,858,824 and negative cash flows from operating activities of $6,809,513 for the fiscal year ended September 30, 2011.  As of September 30, 2012, our working capital deficit was $13,600,345, stockholders’ equity was $4,427,137, and accumulated deficit totaled $248,513,626.
Continuing Operations – Nine months ended June 30, 2013, compared to nine months ended June 30, 2012
Revenues
For the nine months ended June 30, 2013, we had revenues from operations of $13,081,610, compared to $10,116,610 for the nine months ended June 30, 2012, an increase of $2,965,000 (29%).  Of these revenues, $12,617,534 and $8,572,595 were from monitoring and other related services, an increase of $4,044,939 (47%).  The increase was primarily attributed to an increase in international monitoring of $3,776,862 for the nine months ended June 30, 2013, compared to the same period ended in 2012. 
Product revenues decreased $1,079,939 (70%) from $1,544,015 for the nine months ended June 30, 2012 to $464,076 for the nine months ended June 30, 2013.  Revenues in 2012 included one-time revenues of $1,071,983 from the development of a charging solution for an international customer.
Cost of Revenues
During the nine months ended June 30, 2013, cost of revenues totaled $6,617,239, compared to cost of revenues during the nine months ended June 30, 2012 of $5,035,758, an increase of $1,581,481.  The increase in cost of revenues resulted primarily from increases of $764,000 in royalties, $450,000 in impairment of equipment and $505,775 in costs in connection with the development of a charging solution for an international customer described above.
Depreciation for the nine months ended June 30, 2013 and 2012 totaled $1,009,089 and $987,863, respectively. Depreciation 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 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 our proprietary software, enabling each operator to monitor more devices resulting in lower monitoring center costs.
Gross Profit and Margin
During the nine months ended June 30, 2013, gross profit totaled $6,464,371, or 49% of net revenues, compared to $5,080,852, or 50% of net revenues during the nine months ended June 30, 2012, an improvement of $1,383,519, due to higher net revenues.
Research and Development Expenses
During the nine months ended June 30, 2013, we incurred research and development expenses of $668,269 compared to research and development expenses for the nine months ended June 30, 2012 totaling $987,215.  These research and development costs were incurred to improve efficiency in the software, firmware and hardware of our products and services.
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Selling, General and Administrative Expenses
During the nine months ended June 30, 2013, our selling, general and administrative expenses totaled $6,238,783, compared to $10,838,842 for the nine months ended June 30, 2012.  The decrease of $4,600,059 is primarily the result of reductions in consulting expense ($3,551,188); legal and professional fees ($389,404); and payroll expense ($599,151), offset by an increase in international taxes ($195,842).
Other Income and Expense
For the nine months ended June 30, 2013, interest expense was $5,939,171, compared to $992,334 for the nine months ended June 30, 2012.  This increase in interest expense includes non-cash expenses of $5,194,397 and $592,482 related to the amortization of debt discount in connection with convertible debentures that were issued from February 2012 to February 2013.
 
Net Loss
 
We had a net loss from continuing operations for the nine monthsfiscal year ended JuneSeptember 30, 2013 totaling $6,612,386,$18,334,070 (approximately $3.79 per share), compared to a net loss of $7,551,159$17,150,288 (approximately $6.27 per share) for the nine monthsfiscal year ended JuneSeptember 30, 2012.  This improvement in net lossincrease of $938,773$1,183,782 is due primarily to a decrease in a reductionthe amortization of selling, general, and administrative expenses.the beneficial conversion feature of our convertible debentures recorded as non-cash interest expense as described above.
 
Discontinued Operations - Nine months ended June 30,Fiscal Year 2013 compared to nine months ended June 30,Fiscal Year 2012
 
Effective October 1, 2012, we sold all of the issued and outstanding capital stock of our subsidiary, Midwest, Monitoring and Surveillance, Inc. (“Midwest”), to the former principals of Midwest. Because Midwest was a component of our consolidated entity, this sale requires discontinued operations reporting treatment of the Midwest operations.
 
We alsoEffective January 1, 2013, we sold to the former principal of our wholly owned subsidiary, Court Programs, Inc. (“Court Programs”), all of the issued and outstanding capital stock of Court Programs, Inc. to the former principal of that entity, together with all issued and outstanding capital stock of its affiliated entities, effective January 1, 2013.entities. Because these entities were a component of our consolidated entity, this sale requires that we report their operating results as discontinued operations reporting treatment of their operations.for accounting purposes.
 
A summary of the operating results of discontinued operations for the nine monthsfiscal years ended JuneSeptember 30, 2013 and 2012, is as follows:
 
 
Nine Months Ended
June 30,
 
 2013  2012  2013 2012 
Revenues $477,298  $5,135,887  $477,298 $6,676,513 
Cost of revenues  (163,487)  (3,102,773)  (163,487)  (4,112,410) 
Gross profit  313,811   2,033,114  313,811 2,564,103 
Selling, general and administrative  (319,976)  (2,166,014)
Selling, general and administrative expense  (319,976)  (2,782,628) 
Loss from operations  (6,165)  (132,900)      (6,165)    (218,525) 
Other income  (295)  (45,715)
Other expense          (295)       (89,294) 
Net loss from discontinued operations $(6,460) $(178,615) $     (6,460) $   (307,819) 
Liquidity and Capital Resources
During the fiscal year ended September 30, 2013, we were able to finance our business from cash flows only in part from operating activities.  We supplemented cash flows with the proceeds from borrowings. 
During the six months ended March 31, 2014, we supplemented cash flows to finance our business from borrowings under a credit facility and from the sale and issuance of debt and equity securities, providing net cash proceeds from financing activities of $11,160,422.
As of September 30, 2013, we had unrestricted cash of $3,382,428, compared to unrestricted cash of $458,029 as of September 30, 2012.  As of September 30, 2013, we had a working capital surplus of $6,836,442, compared to a working capital deficit of $13,600,345 as of September 30, 2012.  The increase in working capital in fiscal year 2013 primarily resulted from the conversion of amounts owed to a related party under a loan and security agreement into shares of Common Stock.
 
 
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Liquidity and Capital Resources
During the nine months ended June 30, 2013, we were able to finance our business in part from cash flows from operating activities. During the nine months ended June 30, 2013, we supplemented cash flows to finance our business from the sale and issuance of related-party notes payable, providing net cash proceeds from financing activities of $2,512,112.
As of June 30, 2013,March 31, 2014, we had unrestricted cash of $4,030,960$7,365,884 and working capital surplus of $5,715,346,$6,342,405, compared to unrestricted cash of $458,029$3,382,428 and a working capital deficitsurplus of $13,600,345$6,836,442 as of September 30, 2012.2013.  For the ninesix months ended June 30,March 31, 2014, our operating activities used cash of $1,002,552 compared to $39,240 of cash provided in operating activities for the six months ended March 31, 2013.
During fiscal year 2013, our operating activities provided cash of $1,438,750$838,910, compared to $1,894,016$1,910,067 of cash used during fiscal year 2012.  This improvement in cash provided from operating activities for the nine months ended June 30, 2012.of $2,748,977 resulted primarily from an increase in revenues of $2,526,083 in fiscal year 2013. 
 
We used cash of $523,121$6,174,414 for investing activities during the ninesix months ended June 30, 2013,March 31, 2014, compared to $1,645,495$484,391 of cash used in investing activities in the ninesix months ended JuneMarch 31, 2013.
Investing activities during the fiscal year ended September 30, 2013, used cash of $560,425, compared to $2,847,274 used during fiscal year 2012.  The decrease of $2,286,849 in cash used by investing activities during fiscal year 2013 resulted primarily from the decrease in cash used for the purchase of monitoring equipment.
Financing activities during the fiscal year ended September 30, 2013, provided $2,500,724 of net cash compared to $4,396,563 of cash provided during fiscal year 2012.
During the fiscal year ended September 30, 2013, we made net cash payments of $299,276 on notes payable.  During fiscal year 2013, we had cash proceeds totaling $2,800,000 from the issuance of convertible debentures to related parties.
During the fiscal year ended September 30, 2012, we made net payments of $687,354 on notes payable, and we paid $207,578 on related-party notes payable and $1,147,250 of commissions in connection with capital raises.  During fiscal year 2012, we had proceeds of $2,004,000 from the sale of Series D Preferred stock, proceeds of $500,000 from the issuance of convertible debentures, proceeds of $2,900,000 from the issuance of convertible debentures to related parties, and $1,033,000 from the sale of Common Stock to a related party.
 
Financing activities for the ninesix months ended June 30, 2013,March 31, 2014, provided cash of $2,512,112,$11,160,422, compared to $3,175,673$2,545,681 for the ninesix months ended June 30, 2012.March 31, 2013. For the ninesix months ended June 30, 2013,March 31, 2014, we received proceeds of $2,800,000$2,700,000 from a significant shareholder under a promissory note; $9,250,000 from net borrowings under a Facility Agreement; and $8,000 from the issuanceexercise of a convertible debenture from a related-party entity.warrants.  Cash decreased by $287,888$425,571 due to principal payments made on notes payable; $312,007 for the redemption of Series D Preferred stock and $60,000 to pay off a related-party note payable.  Cash provided by financing activities was used to support operating activities.
On February 1, 2013, we entered into a revolving loan agreement with the selling shareholder wherein we 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 June 30, 2013, no advances have been made under this loan. The loan terminates on June 30, 2014.

Cash flow from discontinued operations for the ninesix months ended June 30, 2013,March 31, 2014, provided cash of $145,190,$0, compared to $232,606$145,190 for the ninesix months ended June 30, 2012.March 31, 2013.
 
Going Concern
We haveDuring the fiscal year ended September 30, 2013, we incurred recurringa net lossesloss from continuing operations of $18,334,070 and we had positive cash flows from operating activities of $838,910, compared to a net loss of $17,150,288 and negative cash flows from operating activities of $1,910,067 for the fiscal years ended September 30, 2012 and 2011.  In addition, we have accumulated deficits of $248,513,626 and $231,055,519 asyear 2012.  As of September 30, 20122013, our working capital surplus was $6,836,442, our stockholders’ equity was $23,963,342, and 2011, respectively. These factors raise substantial doubt about our 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 us to continue as a going concern, we must generate positive cash flows from operating activities and obtain the necessary funding to meet our projected capital investment requirements.  
Management’s plans with respect to this uncertainty include raising additional capital through borrowing, from the issuance of preferred or Common Stock or debt securities, and by expanding the market for our ReliAlert portfolio of products.  There can be no assurance that revenues will increase rapidly enough to offset operating losses and repay debts.  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 may have to cease operations.accumulated deficit totaled $266,429,337.
 
Inflation
 
We do not believe that inflation has had a material impact on our historical operations or profitability.
 
Critical Accounting Policies
 
In Note (2) to the audited Consolidated Financial Statements for the fiscal year ended September 30, 2012,2013, we discusseddiscuss those accounting policies that are considered to be significant in determining the results of operations and our financial position.
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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:
 
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·Current inventory quantities on hand;
·Product acceptance in the marketplace;
·Customer demand;
·Historical sales;
·Forecast sales;
·Product obsolescence; and
·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
 
Our 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 any timeanytime with 30 days 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 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.
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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.
 
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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.
 
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. 
 
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Allowance for Doubtful Accounts
 
We must make estimates of the collectability of accounts receivable.  In doing so, weWe 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) 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 our 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.
 
Off-Balance Sheet ArrangementsFinancial and Certain Pro Forma Information Regarding GPS Global
 
We have no off-balance sheet arrangements that haveAt the time of the Transaction, GPS Global was a privately owned company established in 2007 in the State of Israel.  GPS Global provides tracking, monitoring and surveillance solutions of offenders, vehicles, facilities and human resources.  GPS Global specializes in developing innovative products using advanced technologies to provide a complete solution for its customers.  GPS Global has had limited operations.  Its business has involved primarily the research and development of solutions for offender tracking and monitoring, human resources and personnel locating, vehicle and asset tracking, locating and control, and facility monitoring.  It does not own any patents at this time.  The financial and certain pro forma financial information regarding GPS Global specified in Rule 3-05(b) or are reasonably likelyRule 8-04(b) of Regulation S-X under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), will be filed by amendment to have a current or future effectthis registration statement on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our shareholders.Form S-1/A within the 71 days allowed.
 
BUSINESS
 
Our Business
We market and deploy 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, 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 opportunity to be “free from prison”.prison.”  This provides for greater public safety at a lower cost compared to incarceration or traditional resource-intensive alternatives.
By way of explanation, GPS technology utilizes highly accurate clocks on 24 satellites orbiting the earth owned and operated by the United States Department of Defense.  These satellites are designed to transmit their identity, orbital parameters 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.  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.
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Our ReliAlert and ReliAlert XC 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 productsdevices 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, 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 technologies
ReliAlert devices 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 thean offender’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 SecureAlert Monitoring Center (or other agency-based monitoring centers).  We deploy our upgraded,also have a 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 andsupervision.
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We believe successful monitoring services.requires effective, persistent management of monitored individuals. Our monitoring and intervention centers act as an important link between the offenderoffenders and thetheir supervising officer, asofficers. SecureAlert intervention specialists persistently track and monitor the offender, initiatinginitiate contact at the direction of the supervising agency and/or when thean offender is in violation ofviolates any established restrictionsrestriction or protocols.protocol.  The ReliAlertmonitoring 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 ReliAlert XC units are intelligent devices with integrated computer circuitry and constructed from case-hardened plastics designed to promptly notifyofficers, provides 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% 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 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 conditional supervision, and those sentenced to a term of supervised release.
Electronic 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 us indicatesituational context 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 onis the basis that electronicfor behavior management and modification.  In addition, if necessary, monitoring and other supervisory programsallows us to 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.
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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% 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 $2.74 to $10.00 per day or up to a 90% 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.
In support of these continually evolving rehabilitation and re-socialization initiatives, which extendinteraction details to law enforcement and justice agencies beyond the U.S and intoofficers, giving them greater insights prior to intervention or 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.actions.
 
Our Strategy
 
Our global growth strategy is to continue to expand offerings which 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, 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, all in support of offender reformation, re-socialization and recidivism reduction initiatives.arena.
 
Our exclusive portfolioIn 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 addition to traditional desktops, to leverage our real-time monitoring data, best-practice monitoring, and 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 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 suchmanufacturer, 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.well as other critical data sources.
 
In summary, we 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 anticipate to continue during this next fiscal yearimprove monitoring program success rates, all while offering defendants and which will remain a concerted focusoffenders opportunities for the Company.
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accountable freedom instead of incarceration.
 
Marketing
 
OverOur strategic purpose is to produce or acquire and globally deploy leading edge tracking technology and monitoring services in the past two years,criminal justice arena.  During fiscal year 2013, we expanded our electronic monitoring operations, bothworked to meet this objective by expanding sales and marketing activities domestically and internationally through the addition of sales resources and increase of marketing efforts such as well as internationally.  Growthtrade show participation.  As in fiscal 2012, new account acquisition was aided by the lack of public funding for 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 offenses thatwho have been released from custody.  TheseSeveral countries including the United States began or continued the process of evaluating sentencing laws which 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.globally, increasing demand for our products and monitoring services.
 
With ourOur products’ unique and patented functionality we are poised to take advantage ofmake us a good match for these opportunities.  In particular, demand wasour customers have expressed interest for the patented two- and three-way voice communication oftechnology on our ReliAlert device, and our SecureCuff steel reinforced band. These two features contributed heavily to a 50% 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 our 95 decibel siren, the real-time posting of location traces and flexible mapping, wereare also instrumental in winning other key accounts.
 
We are committedDuring fiscal year 2013, we continued our commitment to make continuousongoing enhancements to both the ReliAlert device line and our TrackerPAL tracking and monitoring software.  Device enhancements centered on the continuation of integrating 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.
TrackerPAL software wasWe 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 theTrackerPAL 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 activationselection 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 sold several of our Court Programs operations and disposed of our interest in Court Programs early in fiscal year 2013.  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 required management attention and investment to continue to grow.  Rather than continuing to divert executive management attention and investment dollars from our core 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 our offerings, but will also independently continue to grow by leveraging the strong customer, office and employee bases already in place.reporting features.
 
Research and Development Program
 
During the fiscal year ended September 30, 2013, we spent $987,934 on research and development, compared to research and development expenditures of $1,248,654 in the fiscal year ended September 30, 2012.  These costs of $987,934 were to further develop our TrackerPAL and ReliAlert portfolio of products and services.
 
 
2320
 
 
Monitoring Center
 
During fiscal year 2013, we continued to realize productivity enhancements and additions to our key core competency and differentiator, our Intervention Monitoring Center.  Productivity gains were achieved through monitoring software enhancements as well as continuous optimization of processes 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.
Strategic Relationship
Inovar, Inc. 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 provides several key components for our ReliAlert products.
 
Competition
 
WeDuring fiscal year 2013, as in past years, we continued to encounter GPS, house arrest and case managementelectronic offender monitoring competition from traditional competitors, a few of which had consolidated in 2011 and evolving competitors.  There is2012.  We also significant consolidationsaw a couple of our industry.  Our primary competitors includemajor new entrants come into the following companies:United States market.  Traditional competition includes:
 
·BI Incorporated, Denver, Colorado, a 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.
·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 which 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 the elderly and for Alzheimer’s sufferers.  Buddi has recently entered offender monitoring and are pursuing business within the United States.
·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.
 
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
 
For our yearTwo customers each represented more than 10% of gross revenues for the years ended September 30, 2013 one customer accounted for $1,622,327 (10%) of our total revenues and another customer accounted for $5,252,960 (34%) of our total revenues.  In addition, the latter customer accounted for $2,450,984 (12%) of our total revenues for the fiscal year ended September 30, 2012.  2012 as follows:
 2013  % 2012  % 
           
Secretaría de Gobernación de México $5,252,959   34% $2,450,984   16%
                 
The Ministry of National Security in the Bahamas $1,622,326   10% $1,876,285   12%
No other customer represented more than 10% of total revenues for the fiscal years ended September 30, 2013 or 2012. Our contract with Secretaría de Gobernación de México was completed during fiscal year 2013.  The Ministry of National Security in the Bahamas arrangement involved a three-year contract which concluded in November 2013, and services have continued on a month-to-month basis since that time. This arrangement could be terminated at anytime with a 30-day notice.
21
Concentration of credit risk associated with our total and outstanding accounts receivable as of September 30, 2013 and 2012, respectively, is shown in the table below:
  2013  %  2012  % 
             
La Oficina de Servicios con Antelación al Juicio de Puerto Rico $887,233   24% $681,781   24%
                 
The Ministry of National Security in the Bahamas $732,163   20% $475,800   17%
                 
Secretaría de Gobernación de México $892,897   24% $-   0%
Subsequent to the fiscal year ended September 30, 2013, we received $387,483 from la Oficina de Servicios con Antelación al Juicio de Puerto Rico and $518,137 from The Ministry of National Security in the Bahamas.
 
Dependence on Major Suppliers
 
We purchase cellular services from several suppliers. The cost to us for these services during the fiscal years ended September 30, 2013 and 2012, was approximately $974,709 and $961,994, respectively. Our cellular costs increased by approximately 1% in 2013 compared to 2012, due to the increase in the number of monitoring devices assigned to customers.
 
Product Returns
 
During fiscal year 2012,2013, we made improvements to the ReliAlert and ReliAlert XC devicesdevice as well as internal processes to improve product reliability and reduce product returns including some ofreturns. These improvements include the following:
 
•·Improving case designWe redesigned the shell of the ReliAlert device addressing several issues related to enhance waterproofing fordevices that were returned to us by our ReliAlert and ReliAlert XC devices.customers.
•Strengthening our inspection process and developing new tests for incoming parts from suppliers.
•·Designing new softwareWe refined our assembly and inspection processes (outgoing and incoming inspections) to programensure continued quality improvements.
·We instituted a formal change control process to ensure that we have a structured, strategic, and test devices, reducingdocumented approach to addressing and implementing changes.  This also includes improvements in our internal communications processes to ensure that different groups within the riskCompany have visibility into current issues, and everyone has input into the process of “user error” while configuring units for deployment;continual improvement of our processes and design.
·We cross-trained technical support staff and returns analysis staff to enable them to have improved visibility of the customer experience.  This has helped our staff to quickly and correctly diagnose issues in the field.
 
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.
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The following table summarizes our trademark registrations and applications:
25
 
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 960954Registered
Foresight®77/137/8223481509Registered
Bishop Rock Software®77/132,2553481474 Registered
ReliAlert™ 85/238,049 In process Pending
HomeAware™ 85/238,064 In process Pending
SecureCuff™ 85/238,058 In process Pending
TrueDetect™ 85/237,202 In process Pending
SecureAlert™86/031,550In processPending
 
Patents
Patents.We have 1215 patents issued and threetwo patents pending in the United States.  At foreign patent offices we have one patentthree patents issued and 1312 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
 09/684831 10-Oct-00 7092695 15-Aug-06 Issued
           
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 Device and a System and Method for Two-Way Voice Communication Between the Device and a Monitoring Center12/3991516-Mar-09823287631-Jul-12Issued
Emergency Phone with Single-Button Activation 11/486989174191 14-Jul-0630-Jun-0572514717/31/2007Issued
Tracking Device Incorporating Enhanced Security Mounting Strap13/970,00719-Aug-13  -  - Pending
           
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
Center		 12/39915111/486989 6-Mar-09-  - Pending
Tracking Device Incorporating Enhanced Security Mounting Strap
12/818,45318-Jun-1014-Jul-06  -  - Pending
 
 
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International PatentsApplication# Date FiledPatent# IssuedStatus
Remote Tracking and Communication Device - Mexico
MX/a/2008/
1932
4-Aug-062784056-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 with 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 available
28-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 Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Brazil
PI0909172-61-Sep-10 - - Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Mexico
96802-Sep-10 --  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - Canada
MX/a/2010/
2717866
3-Sep-10 --  Pending
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking Device  - EPO
9716860.36-Oct-10 --  Pending
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 - MX/a/2008/        
Mexico 1932 4-Aug-06 278405 24-Aug-10  Issued
           
A System and Method for Monitoring Individuals Using a Beacon and Intelligent Remote Tracking MX/a/2010/        
Device  - Mexico 9680 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  -  -  Pending
           
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
 
License Agreement
During the fiscal year ended September 30, 2010, we entered into a cross-licensing agreement with Satellite Tracking of People, LLC (“STOP”) accessing four patents that enhanced our positions into the areas of Crime Scene Correlation, augmenting GPS locationing with cellular network-based locationing, and confinement using RF-based beacon.
Royalty Agreement
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 purchasedpurchase 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 grantedagreed to pay to Borinquen aquarterly royalty payments in thean amount ofequal 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.  We redeemed and terminated this royalty obligation in February 2013 using the proceeds of a loan from a related party, Sapinda Asia Limited (“Sapinda Asia”).  The royalty payments were due quarterly through June 30, 2031. obligation to Sapinda Asia was converted to Common Stock and satisfied in full in September 2013.
 
On February 1, 2013, we redeemed the royalty held by Borinquen for a cash payment of $10,768,555, using proceeds from the Loan made to us by the selling shareholder.  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. For more information about the Loan, see “The Loan and Security Agreement” on page 43, below. 
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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. 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.
 
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Seasonality
 
Given the consistency in recurring domestic monitoring revenues by customer throughout 2012,2013, we detected no apparent seasonality in our business.  However, as in previous years, incremental domestic deployment opportunities slow down in the months of July and August.  We believe that this is due to the unavailability of many judges, probation directors and other key parole officials, who observe a traditional vacation season during these two months.
 
Properties
Our headquarters and monitoring facility are housed in approximately 7,500 square feet of commercial office space located at 150 West Civic Center Drive, Suite 400, Sandy, Utah.  Lease payments are approximately $18,000 per month. This lease expires on May 31, 2014.  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 $6,500; the lease expires on August 31, 2014.
GPS Global’ s operations are housed in approximately 350 square meters of commercial office space located at 23 Htaas St Kfar-Saba, Israel.  The monthly lease is approximately $5,100.  The lease expires on May 31, 2014 and the operations will likely be relocated to a comparable space in the same commercial area.
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 October 30, 2013,March 31, 2014, we had 9294 full-time employees and 8four part-time employees.employees in the United States.  None of thethese 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.
 
We acquired eight employees and two independent contractors in Israel in connection with the acquisition of GPS Global.  Israeli labor laws and regulations apply to all employees based in Israel.  The laws principally cover matters such as paid vacation, paid sick days, length of the workday, payment for overtime and severance payments upon the retirement or death of an employee or termination of employment under specified circumstances.  The severance payments may be funded, in whole or in part, through a managers’ insurance fund or a pension fund.  The payments to the managers’ insurance fund or pension fund toward severance amount to 8.3% of wages.  Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute of Israel, which also include payments for health insurance.  The payments to the National Insurance Institute amount to approximately 14.5% of wages, of which the employee contributes 66% and the employer contributes 34%.
Additional Available Information
 
OurWe maintain our principal executive offices and facilities are located at 150 West Civic Center Drive, Suite 400, Sandy, Utah 84070.  Our telephone number is (801) 451-6141. We maintain a webWorld Wide Web site at www.securealert.com.  The information found on, or otherwise accessible through, our website, is not incorporated information,into and does not form a part of this prospectus.  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 at no charge to investors upon request.
All reports filed by us with the SEC are available free of charge via the EDGAR system 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.  
 
Legal Proceedings
 
We are party to the following legal proceedings:
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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.  We believe these allegations are inaccurate and intend to defend the case vigorously. We 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. Duggan v. Court Programs of Florida, Inc. and SecureAlert, Inc.  On March 26, 2012, Mr. Duggan filed a complaint in the 9th9th Circuit Court in and for Orange County, Florida alleging malicious prosecution, abuse of process and negligent infliction of emotional distress against us and our former subsidiary.  The case resulted from actions of a former agent of our former subsidiary.  We intend to defend this matter. We have not accrued any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.
 
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Integratechs v. SecureAlert, Inc.  On March 14, 2013, Integratechs, Inc. filed a suit in the Fourth Judicial District Court of Utah County, claiming the Companywe had breached a contract for computer services and intentionally interfered with its economic relations.  The Company believesWe reached a settlement with Integratechs in March 2014, and agreed to pay $20,000 to Integratechs; neither party admitted any wrongdoing or liability and the allegations are inaccurate and will defend the case vigorously.lawsuit was dismissed with prejudice.
 
Christopher P. Baker v. SecureAlert, Inc.  In February 2013, Mr. Baker filed suit against the Companyus in the Third Judicial District Court in and for Salt Lake County, State of Utah.  Mr. Baker asserts that the Companywe breached a 2006 consulting agreement with him and claims damages of not less than $210,000.  The Company disputesWe dispute the plaintiff’s claims and will defend the case vigorously.  No accrual for a potential loss has been made as the Company believeswe believe the probability of incurring a material loss is remote.
SecureAlert, Inc. v. STOP, LLC. On December 17, 2013, we filed a complaint in the United States District Court, District of Utah, Central Division against Satellite Tracking of People, LLC (a.k.a. STOP, LLC) asserting claims for declaratory relief, reimbursement for overpayment and unjust enrichment related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010.  On February 14, 2014, STOP filed an answer denying our claims and asserted counterclaims for breach of contract against us related to the same Settlement Agreement.  On March 1, 2014, we entered into a Supplemental Settlement Agreement that included a stipulation and dismissal of all claims and counterclaims in 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 both parties provided the other with reciprocal license for future patents awarded the respective parties, but excluding patents held by or acquired by SecureAlert related to: (i) GPS or cellular tracking by a device not attached to a person’s limb, (ii) related to alcohol/drug monitoring, (iii) any patent held by an entity acquired by SecureAlert for so long as that entity is paying or owes STOP a royalty or fee until such time as any royalty or fee is no longer owed to STOP, unless STOP already has a right to those patents, and (iv) any patent not used in the electronic monitoring and tracking services, using cellular and/or GPS technologies, for governmental law enforcement agencies (e.g. offender tracking).  In addition, we agreed to pay to STOP a total of $4,500,000 in 24 equal monthly installments of $187,500 in exchange for a release of all royalty and other payment obligations called for under the Settlement Agreement dated January 29, 2010. 
SecureAlert, Inc. v. Derrick Brooks and STOP, LLC.  On February 21, 2014, we filed a complaint in the Third 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 claims 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 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 his claims.  We have not yet responded to Mr. Brooks’ counterclaims, but believe them to be without merit and we intend to vigorously defend against them. 
 
MANAGEMENT
 
Directors and Executive Officers
 
The following table sets forth information about the members of our Board of Directors as of September 30, 2013:April 1, 2014:  
 
Name  Age Position
David S. Boone 53 Director
Guy Dubois 55 Director
Rene Klinkhammer 3334 Director
Winfried Kunz 48 Director
Dan L. Mabey 62 Director
George F. Schmitt 70 Director
 
David S. Boone is the CEO of Paranet Solutions, LLC, in Dallas, Texas.  He became a director of our 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 asand was the CFO of Intira Corporation.  In addition, he has served as a consultant with the Boston Consulting Group.  Mr. Boone was CEO, President and Director of American CareSource Holdings Inc. (Nasdaq: ACS) from 2005 to 2011, a NASDAQ traded company.  In addition, he2011.  He 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.
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Guy Dubois is our Chairman since February 2013 and became a director in December 2012.  Mr. Dubois is a Director at Singapore-based Tetra House Pte. Ltd., that provides consulting and advisory services worldwide.  Mr. Dubois was Chief Executive Officer of gategroup AG from September 2008 until April 2011. He previously held the positions of President, Executive Vice President Finance and Administration, Chief Administrative Officer and Chief Financial Officer of 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’s Vitamins Inc. in New Jersey from 2000 to 2003. Prior to which heHe was Area Manager, Finance and Administration for Roche’s Vitamins Asia-Pacific Pte. Ltd. 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.  Mr. Dubois also served on the European Organization for Nuclear Research (CERN) team in Switzerland in various roles, including Treasurer and Chief Accountant, Manager General Accounting and Financial Accountant from 1989 to 1994.  He also worked with IBM in Sweden from 1984 to 1988 as Product Support Specialist for Financial Applications.  He attended the Limburg Business School in Diepenbeek, Belgium, and has a degree in Financial Science and Accountancy.  Mr. Dubois’ appointment to the Board of Directors was a requirement of a financing arrangement with the selling shareholder as part of the terms of the Loan Agreement.a loan agreement with Sapinda Asia.
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Rene Klinkhammer became 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.  From 2007 to June 2013, Mr. Klinkhammer worked 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.  Since July 2013, Mr. Klinkhammer works for Anoa Capital S.A., a Luxembourg based provider of innovative financing solutions, as Head of Origination. For the past six years, Mr. Klinkhammer has worked with us as both an investor and advisor.
 
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,industry, where he served in executive positions.  Mr. Kunz worked as an executive at Precision Software Ltd., Contact 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. From 2009 to 2011, Mr. Kunz has also worked with us as an investor.
 
Dan L. Mabeybecame a director on December 21, 2011.  He is 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 Salt 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.
 
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 asis a former Trustee of St.Saint Mary’s College.College of California.  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.
 
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Board of Directors
 
Election and Meetings+Meetings
 
Directors 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.
 
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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 18 times during fiscal year 2013.  All directors attended at least 80% of the meetings of the Board and of the committees of the Board of Directors of which they are members.
 
Director Independence
 
The Board of Directors intends to comply with the director independence standards of the NASDAQ Stock Market, including NASDAQ Rule 4200(a)(15).  The Board determined the independence of all directors based on the NASDAQ standards and asserts that George F. Schmitt, Winfried Kunz, David S. Boone, Rene Klinkhammer and Dan L. Mabey meet the standards to be considered independent.  The Board has not appointed a lead independent director.
 
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, Suite 400, Sandy, Utah 84070.
 
Involvement in Certain Legal Proceedings
There are no material proceedings to which any director or executive officer or any associate of any such director or officer is a party adverse to us or has a material interest adverse to our Company.
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Except as discussed below, no director or executive officer has been involved in any of the following events during the past ten years:
·any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
·being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
·being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
·being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and- desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
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 that company’s assets.  Guy Dubois, a director of the Company since December 2012, was Chief Executive Officer of gategroup holdings AG 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.
Committees of the Board of Directors
 
The Board of Directors has a separately-designatedthree standing committees: the Audit Committee, Compensation Committee, and Nominating and Corporate Governance 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.  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.securealert.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 both fiscal years 2012 and 2013 and all members of the Audit Committee attended at least 75% of the committee’s meetings.  
 
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Members of the Audit Committee as of September 30, 2013,March 31, 2014, are Messrs. Boone, Schmitt and Kunz.  EachIn the opinion of the Board of Directors, 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.  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 has designated 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.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, 2013 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'sfirm’s independence.  
 
Compensation Committee.Members of the committeeCompensation Committee are Messrs. Mabey (Chairman), Boone, and Schmitt.  The committee elected Mr. Mabey as the Chairman of the Committee.  The Compensation Committee met two times during fiscal year 2012.2013.  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 listing standards.  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.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.
 
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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 and Corporate Governance 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 and Corporate Governance Committee held one meeting during fiscal 2013. The Nominating and Corporate Governance Committee’s charter is available on our website, www.securealert.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.securealert.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.
 
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Involvement in Certain Legal Proceedings
 
There are no material proceedings to which any director or executive officer or any associate of any such director or officer is a party adverse to us or has a material interest adverse to our Company.
Except as discussed below, no director or executive officer has been involved in any of the following events during the past ten years:
·any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
·being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
·being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
·being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and- desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
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 that company’s assets.  Guy Dubois, a director of the Company since December 2012, was Chief Executive Officer of gategroup holdings AG 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.
Executive Officers
 
The following table sets forth certain information regarding our principal executive officer and principal financial and accounting officer as of September 20, 2013:March 31, 2014:
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Name Age Position
     
Executive Committee of Board of Directors   Principal Executive Officer
Chad D. OlsenJohn R. Merrill 4244 Chief Financial Officer
 
The Executive Committee of the Board of Directorswas established to act temporarily 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.  Current members of the Executive Committee are Guy Dubois and David S. Boone.  On April 16, 2013, Mr. Dubois was on April 16, 2013, granted warrants equal tovalued at $300,000 for his additional work as a director and member of the Board’s Executive Committee.  This grant is of warrants to purchase 64,665 shares of Common Stock at an exercise price of $9.00 per share; thatshare.  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 option-pricing model. The Board of Directors has not determined a timeline for the hiring of a new Chief Executive Officer.
 
Chad D. OlsenJohn R. Merrill became ourMr. Merrill joined the Company on April 21, 2014 and officially assumed the duties as Chief Financial Officer on April 24, 2014.  Mr. Merrill is also the 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 January 2010.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 broadcasting, sports marketing, and the retail industry.  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,BS and business advisory services. Additionally, Mr. Olsen owned and operated his own accounting practice performing tax, accounting, and consulting services. Mr. Olsen received a BachelorMasters of Science Degree in Accounting from Brigham Young University.the University of South Florida.
Employment Agreements
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% 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 2013 and that such filings were timely except the following:
 
·Mr. Klinkhammer, a director, filed two late reports on Form 4s4 reporting two transactions; and
·Mr. Schmitt, a director, filed two late reports on Form 4s4 reporting two transactions.
·Mr. Dubois, a director, filed two late reports on Form 4s4 reporting two transactions.
·Mr. Boone, a director, filed one late report on Form 4 reporting one transaction.
·Mr. Mabey, a director, filed one late report on Form 4 reporting one transaction.
·Mr. Kunz, a director, filed one late report on Form 4 reporting one transaction.
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Compensation of Directors
 
The table below summarizes the compensation paid by us to our non-employee directors for the fiscal year ended September 30, 2013, who are serving as directors as of October 18, 2013:March 31, 2014:

(a) (b)  (c)  (d)  (e) 
  Fees earned  Stock awards  Option awards  Total 
Name ($)  ($)  ($)  ($) 
David S. Boone $-  $-  $76,385  $76,385 
Guy Dubois $-  $-  $335,322  $335,322 
Rene Klinkhammer $-  $7,500  $46,859  $54,359 
Winfried Kunz $-  $-  $55,706  $55,706 
Dan L. Mabey $-  $15,000  $35,047  $50,047 
George F. Schmitt $-  $-  $55,706  $55,706 
 
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Effective January 1, 2012, the Company accruedwe began to accrue $2,500 per month for each director, to be issued in shares of Common Stock valued on the last date of the quarter orquarter; provided, that in the alternative, the director may elect to receive stock purchase warrants infor the amountpurchase of three times the amount hadnumber of shares otherwise issuable to the director, elected to take shares, valued at the date of grant using the Black-Scholes valuation method.  Additionally, the Chairman of the Audit Committee accruesis paid $5,000 per month, rather than $2,500.$2,500 paid to the other directors.  Mr. Dubois became a director in December 2012 and our Chairman on February 28, 2013.  AmountAmounts indicated includesin the table include the fair market value on the date of grant of warrants to purchase 73,413 shares of Common Stock granted to Mr. Dubois with exercise prices ranging from $9.00 to $19.46 and expiring$19.46; these warrants expire at different dates from March 2015 to September 2015, valued2015.  The values of all shares and warrants listed above were determined using the Black-Scholes model.
option-pricing model as of the date of grant or issuance.  The table below summarizes outstanding warrants previously issued for compensation to our current non-employee directors for compensation as of September 30, 2013:
 
 Grant Expiration Exercise  Number of  Compensation 
NameDate Date Price  Options  Expense 
             
Winfried Kunz3/22/13 3/21/15 $12.58   8,943  $43,809 
7/1/13 6/30/15 $14.70   2,040  $11,811 
10/1/13 9/30/15 $19.46   1,140  $8,848 
                
George F. Schmitt3/22/13 3/21/15 $12.58   8,943  $43,809 
7/1/13 6/30/15 $14.70   2,040  $11,811 
10/1/13 9/30/15 $19.46   1,140  $8,848 
                
Rene Klinkhammer1/20/10 1/19/15 $26.00   1,000  $21,036 
3/22/13 3/21/15 $12.58   8,943  $43,809 
7/1/13 6/30/15 $14.70   2,040  $11,811 
                
David S. Boone3/22/13 3/21/15 $12.58   8,943  $43,809 
7/1/13 6/30/15 $14.70   4,083  $23,640 
10/1/13 9/30/15 $19.46   2,280  $17,698 
                
Dan L. Mabey3/22/13 3/21/15 $12.58   8,943  $43,809 
                
Guy Dubois3/22/13 3/21/15 $12.58   2,385  $11,682 
4/16/13 4/15/15 $9.00   64,665  $300,000 
7/1/13 6/30/15 $14.70   4,083  $23,640 
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Reimbursement of Expenses
 
We reimburse travel expenses of members of the Board of Directors for their attendance at Board meetings and other necessary business travel.
 
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.
EXECUTIVE COMPENSATION
Summary Compensation
Set out in the following summary compensation table are the particulars of compensation paid to the following persons:
 ·our principal executive officer (note, we currently have no principal executive officer, rather the executive committee of the Board of Directors acts as our principal executive officer and compensation for the members of this committee is included in the Director Compensation table above);
 ·each of our two most highly compensated executive officers who were serving as executive officers at the end of the fiscal year ended September 30, 2013 who had total compensation exceeding $100,000, (with the principal executive officer, the Named Executive Officers); and
 ·up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year, who we will collectively refer to as the named executive officers, for our fiscal years ended September 30, 2013 and 2012.
Name and                   
Principal        Stock  Option  All Other    
PositionYear Salary  Bonus  Awards  Awards  Compensation  Total 
( a )( b ) ( c )  ( d )  ( e )  ( f )  ( g )  ( h ) 
Chad D. Olsen (2)2013 $192,000  $-  $-  $-  $8,740  $200,740 
Chief Financial Officer2012 $192,000  $35,000  $124,000  $432,352  $42,195  $825,547 
                          
Bernadette Suckel (3)2013 $168,000  $-  $-  $-  $8,061  $176,061 
Managing Director Global2012 $168,000  $35,000  $77,500  $270,219  $7,950  $558,669 
Customer Service                         
(1)Mr. Olsen has served as our Chief Financial Officer since January 2010. Prior to his appointment as Chief Financial Officer, Mr. Olsen was our controller.  Column (g) includes additional compensation for paid-time off, health, dental, life and vision insurance.
(2)Mrs. Suckel has served as Managing Director of Global Customer Service and Account Management of the Company since June 2008. Column (g) includes additional compensation for health, dental, life and vision insurance.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each Named Executive Officer certain information concerning outstanding equity awards as of September 30, 2013:
 Name 
 
Number of
securities
 underlying
unexercised
 options (#)
 exercisable
  
Number of
securities
 underlying
unexercised
options (#)
 unexercisable
  
Equity incentive
 plan awards:
 Number of underlying
  
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 (#)
 
                       
Chad D. Olsen  1,000   -   -  $15.00 1/15/14  -   -   - 
   125   -   -  $15.00 3/14/14  -   -   - 
   3,590   -   -  $15.00 9/29/15  -   -   - 
   30,000   -   -  $16.66 9/29/14  -   -   - 
                              
Bernadette Suckel  1,000   -   -  $60.00 1/15/14  -   -   - 
   18,750   -   -  $16.66 9/29/14  -   -   - 
   3,500   -   -  $30.00 9/29/15  -   -   - 
We have adopted our 2012 Plan and our 2006 Plan.  We have also granted individual plans to certain executives and directors in the form of stock purchase warrants, which are included in the table above.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
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.
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EXECUTIVE COMPENSATION
Summary 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, 2013 and 2012:
(a)our principal executive officer (note, we currently have no principal executive officer, rather the executive committee of the Board of Directors acts as our principal executive officer and compensation paid to members of this committee is included in the Director Compensation table above); 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, 2013 who had total compensation exceeding $100,000 (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. 
 Name and                   
Principal        Stock  Option  All Other    
PositionYear Salary  Bonus  Awards  Awards  Compensation  Total 
( a )( b ) ( c )  ( d )  ( e )  ( f )  ( g )  ( h ) 
                          
Chad D. Olsen (1)
2013 $192,000  $-  $-  $-  $  8,740  $200,740 
Chief Financial Officer2012 $192,000  $35,000  $124,000  $432,352  $42,195  $825,547 
                          
Bernadette Suckel (2)
2013 $168,000  $-  $-  $-  $  8,061  $176,061 
Managing Director Global Customer Service2012 $168,000  $35,000  $   77,500  $270,219  $  7,950  $558,669 
                          
(1)
Mr. Olsen served as our Chief Financial Officer from January 2010 to April 2014. Prior to his appointment as Chief Financial Officer, Mr. Olsen was our controller. Column (g) includes additional compensation for paid time off, health, dental, life and vision insurance.
 
(2)Mrs. Suckel has served as Managing Director of Global Customer Service and Account Management of the Company since June 2008. Column (g) includes additional compensation for health, dental, life and vision insurance.
Outstanding Equity Awards
The table below summarizes outstanding equity awards held by our Named Executive Officers and Mrs. Suckel as of September 30, 2013:
32
Outstanding Equity Awards at Fiscal Year-End 2013
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 (#)
 
                       
Chad D. Olsen  1,000   -   -  $15.00 1/15/14  -   -   - 
   125   -   -  $15.00 3/14/14  -   -   - 
   3,590   -   -  $15.00 9/29/15  -   -   - 
   30,000   -   -  $16.66 9/29/14  -   -   - 
                              
Bernadette Suckel  1,000   -   -  $60.00 1/15/14  -   -   - 
   18,750   -   -  $16.66 9/29/14  -   -   - 
   3,500   -   -  $30.00 9/29/15  -   -   - 
No options held by the Named Executive Officers or any of our directors were exercised during the fiscal year ended September 30, 2013.
We have adopted our 2012 Plan and our 2006 Plan.  We have also granted individual plans to certain executives and directors in the form of stock purchase warrants, which are included in the table above.
Employment Agreements
On November 14, 2013, we entered into an Employment Agreement with our former Chief Financial Officer, Chad Olsen.  The term of this agreement ended 30 days following the closing of an acquisition by the Company and Mr. Olsen resigned at that time.  Mr. Olsen will receive separation benefits, which include payment of salary of $192,000 over a 120-day period and other benefits as outlined in the agreement.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
Compensation Risks Assessment
 
As required by rules adopted by the SEC, our 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, management has determined that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
Security Ownership of Certain Beneficial Owners
We have two classes of voting securities issued and outstanding: our Common Stock and our Series D Preferred.  The following table presents information regarding beneficial ownership as of October 4, 2013April 28, 2014 (the “Table Date”), of all classes of our voting securities by (1) each shareholder known to us to be the beneficial owner of more than 5% of any class of our voting securities; (2) each of our Named Executive Officers serving as of the Table Date; (3) each of our directors serving as of the Table Date; and (4) all of our executive officers and directors as a group.
 
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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 9,805,50310,069,876 shares of Common Stock issued and outstanding and 468 shares of Series D issued and outstanding, convertible into 14,040 shares of Common Stock.outstanding.  In computing the number of shares of Common Stock and Series D Preferred beneficially owned by a person and the applicable percentage ownership of that person, we deemed outstanding shares of Common Stock or Series D Preferred subject to warrants, options and convertible debt or other securities held by that person that are currently exercisable or exercisable within 60 days of the Table Date.  We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
 
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Beneficial ownership representing less than 1% 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 are entitled to 30 votes per share and vote with the Common Stock shareholders on an as-converted basis.share.
 
  Title or Class of Securities: 
Name and Address of Common Stock 
Beneficial Owner (1) Shares  Percent 
       
5% Beneficial Owners:      
Sapinda Asia Limited (2)  4,534,168   45.0%
Safety Invest S.A., Compartment Secure I (3)  1,890,697   18.8%
Eli Sabag (4)  84,078   * 
         
Directors and Named Executive Officers:        
David S. Boone (5)  18,055   * 
Guy Dubois (6)  78,189   * 
Rene Klinkhammer (7)  13,293   * 
Winfried Kunz (8)  13,700   * 
Dan L. Mabey (9)  10,799   * 
George F. Schmitt (10)  12,919   * 
John Merrill (11)  -   * 
         
All directors and executive officers as a group (7 persons)  146,955   1.4%
             
             
  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)  3,905,917   39.8%  -   - 
Advance Technology Investors, LLC (3)  581,288   5.9%  -   - 
                 
Directors and Named Executive Officers:                
David S. Boone (4)  15,306   *   -   - 
Guy Dubois (5)  73,413   *   -   - 
Rene Klinkhammer (6)  12,363   *   -   - 
Winfried Kunz (7)  12,123   *   -   - 
Dan Mabey (8)  10,008   *   -   - 
George Schmitt (9)  18,906   *   -   - 
Chad D. Olsen (10)  40,925   *   207   44.2%
                 
All directors and executive officers as a group (7 persons)
  183,044   1.8%  207   44.2%
____________
 
(1)Except as otherwise indicated, the business address for these beneficial owners is c/o the Company, 150 West Civic Center Drive, Suite 400, Sandy, Utah 84070.
(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. A compartment under Luxembourg law represents a distinct part of the assets and liabilities of a company but is itself not a legal entity. Compartmentalization allows for the segregation of assets and liabilities between compartments where the rights of recourse of investors and creditors are limited to the assets of the relevant compartment.  Secure I’s principal business address is 19 rue de Bitbourg, L-1273 Luxembourg.  The owner of Safety is the SECULUX Trust, an Irish charitable trust for which Constitutional Trustees Limited (“Constitutional”) acts as trustee. The total share capital of Safety is held by Constitutional for the SECULUX Trust. The SECULUX Trust is a charitable trust with no named beneficiaries where any dividend or other distribution received by Constitutional will be distributed in its entirety to charity. Constitutional is a company limited by shares incorporated under the laws of Ireland whose principal business is the provision of share trustee and related services. Constitutional’s principal business address is 22, Clanwilliam Square, Dublin 2, Ireland. Constitutional is owned by Mr. Rory Williams and Ms. Wendy Merrigan, each of whom is a director and 50% shareholder of Constitutional.  Information based on Schedule 13D filed February 5, 2014.
(4)Eli Sabag is the Selling Shareholder under this prospectus.  Includes 573,96584,078 shares of Common Stock owned of record by Advance Technology Investors, LLC.  In addition, we haverecord.  The 152,291 shares held in escrow which are deliverable to Mr. Sabag on or about October 1, 2014 (six months following the closing of the Transaction) are not included 7,323 shares of Common Stock owned of record by U/W Mark Weidman Trust. Addressin the table above.  Mr. Sabag’s address is 154 Rock Hill Road, Spring Valley, NY 10977.Hamaapilim 14, Kfar Saba, Israel.
(4)
(5)Mr. Boone is a director and a member of the Board of Directors’ executive committee.  Includes 15,306405 shares of Common Stock owned of record and 17,650 shares of Common Stock issuable upon exercise of stock purchase warrants.
34
(5)(6)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 73,41378,189 shares of Common Stock issuable upon exercise of stock purchase warrants.
(6)(7)Mr. Klinkhammer is a director.  Includes 3801,310 shares of Common Stock owned of record and 11,983 shares of Common Stock issuable upon exercise of stock purchase warrants.
(7)
(8)Mr. Kunz is a director.  Includes 12,123405 shares of Common Stock owned of record and 13,295 shares of Common Stock issuable upon exercise of stock purchase warrants.
(8)
(9)Mr. Mabey is a director.  Includes 1,0651,856 shares of Common Stock owned of record and 8,943 shares of Common Stock issuable upon exercise of stock purchase warrants.
(9)
(10)Mr. Schmitt is a director.  Includes 6,783796 shares of Common Stock owned of record and 12,123 shares of Common Stock issuable upon exercise of stock purchase warrants.
(10)(11)Mr. OlsenMerrill is our Chief Financial Officer.  Includes 34,715 shares issuable upon exercise of vested stock purchase warrants, as well as 6,210 shares of Common Stock issuable upon conversion of 207 shares of Series D Preferred stock.Officer beginning on April 24, 2014.  
 
38
Changes in Control
 
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our Company.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Related Transactions
We have entered into certain transactions with related parties during the fiscal year ended September 30, 2013. These transactions consistconsisted mainly of financing transactions and 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 (a shareholder) to purchase its wholly-owned subsidiary ISS for 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.  As additional consideration, we also granted Borinquen a royalty in the amount of 20% of our net revenues from the sale or lease of monitoring devices and monitoring services within a territory comprised of South and Central America, the Caribbean, Spain and Portugal, payable quarterly for a term of 20 years. The royalty payments were due quarterly through June 30, 2031.
 
On February 1, 2013, we entered into an agreement with Sapinda Asia and Borinquen (the Settlement and Royalty and Share Buy Back Agreement) to complete the repurchase and termination of the royalty obligation (at a cost of $11,616,982)$11,616,984) and to pay accrued royalty expenses (totaling $1,383,018)$1,383,016) for a total payment of $13,000,000.  To finance this redemption,these expenditures, we borrowed $16,700,000 from Sapinda Asia. We usedAsia (the “Loan”).  In addition to the payments to Borinquen totaling $13,000,000, toward the redemption of the royalty and to pay off accrued royalty fees andwe used $3,700,000 of the loanLoan for operating capital.  (See “LoanDuring the fiscal year ended September 30, 2013, we recorded a debt discount of $14,290,269 as interest expense to account for a beneficial conversion feature in connection with the Loan. Additionally, we recorded $611,308 of interest expense during the fiscal year ended 2013 relating to accretion of a debt discount associated with the Loan. On September 30, 2013, Sapinda Asia converted all outstanding principal and Security Agreement” on page 43 for additional information about this loan transaction and related transactions involving Sapinda Asia.)interest in connection with the Loan totaling $17,576,627 into 3,905,917 shares of Common Stock at a rate of $4.50 per share pursuant to a right of conversion granted as part of the Loan agreement.
 
Revolving Loan Agreement
 
On February 1, 2013, we entered into a revolving loan agreement with Sapinda Asia (the “Revolving Loan”).  Under this arrangement, we mayhad the right to borrow up to $1,200,000$1,200,000; interest was payable at an interesta 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 we had accrued $23,868 in interest liability on the Revolving Loan.  On October 24, 2013, we drew down the full $1,200,000 for use in a performance bond as required under a contract with an international customer.
 
 
3935
 
 
Related-Party Service Agreement
 
Subsequent to JuneDuring the quarter ended September 30, 2013, we entered into an agreement with Paranet Solutions, LLC to provide the following primary services: 1)services for a monthly fee of $4,500: (1) procurement of hardware and software necessary to ensure that vital databases are available to us in the event of a disaster (backup and disaster recovery system); and 2) providing(2) the security of all data and the integrity of such data against all loss of data, including misappropriation of data by Paranet, its employees and affiliates.  We subsequently amended the agreement to expand the services offered to the Company and it subsidiaries.  The additional services are at a monthly rate of $2,700.00 David S. Boone, a director and member of our Executive Committee, is the Chief Executive Officer of Paranet.
As consideration for these services, we agreed to pay Paranet $4,500 per month.  The arrangement can be terminated by either party for any reason upon ninety (90)90 days written notice to the other party.
Related-Party Loan
During fiscal year 2012, we borrowed $500,000 from David Derrick, who was then an executive officer and director of the Company.  During the fiscal year ended September 30, 2013, we 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 and reflected an adjustment in the conversion rate from $11.00 to $4.50 to equal the conversion rate of the Loan described above.  During fiscal year 2013, this debt was converted into 111,112 shares of Common Stock.
Related-Party Convertible Debenture #1
During fiscal year 2012, we borrowed $500,000 from George F. Schmitt, a director of the Company, with an interest rate of 8% per annum. The debenture was to mature on December 17, 2012 and was secured by our domestic patents.  During the fiscal year ended September 30, 2013, the debenture was convertible at $4.50 which created a beneficial conversion feature expense of $110,556 which was to be amortized over the term of the debenture, but which was accelerated upon the conversion of the debenture into 117,784 shares of Common Stock on March 13, 2013.
Related-Party Convertible Debenture #2
During fiscal year 2012, we borrowed $2,000,000 from Sapinda Asia with an interest rate of 8% per annum. The debenture was to mature on December 17, 2012 and was secured by our domestic patents.  During the fiscal year ended September 30, 2013, the debenture was convertible at $4.50 which created a beneficial conversion feature of $442,222 which was to be amortized over the term of the debenture, but which was accelerated upon the conversion of the debenture into 472,548 shares of Common Stock on February 4, 2013.
Facility Agreement
On January 3, 2014, we entered into a loan agreement (“Facility Agreement”) with Tetra-House Pte. Ltd., (“Tetra House”) to provide unsecured debt financing to the Company for acquisitions and for other corporate purposes, including working capital.  Tetra House is a private company incorporated under the laws of the Republic of Singapore and is controlled by Mr. Guy Dubois who is chairman of our Board of Directors.  Under this agreement, we may borrow up to $25,000,000, through May 31, 2014.  Borrowed amounts under the Facility Agreement bear interest at a rate of 8% per annum payable in arrears semi-annually.  All outstanding principal under the Facility Agreement, together with accrued and unpaid interest, is due and payable on January 3, 2016.  We may prepay borrowed amounts without penalty in minimum amounts of $1,000,000.  In consideration of the Facility Agreement, we paid Tetra House an arrangement fee in the amount of $750,000 (3% of the aggregate maximum amount available under the Facility Agreement).  We may draw down funds in increments of not less than $2,000,000 and in integral multiples of $1,000,000 by submitting a Utilization Request to Tetra House, who then has 10 business days in which to fund the Utilization Request.  Since January 3, 2014, we have borrowed $15,000,000 under the Facility Agreement.  Tetra House has transferred and assigned its obligations and rights under the Facility Agreement to Conrent Invest S.A through its compartment “Safety II”.  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.
36
 
Additional Related Party Transactions;Transactions and Summary of All Related-Party Obligations
  2013  2012 
       
Note payable in connection with the redemption of a royalty agreement for $10,768,555. The note required installment payments and was paid off by the proceeds of the Loan.
 $-  $10,050,027 
         
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. This note was assumed through the sale of Court Programs, Inc.  -   46,693 
         
We received $500,000 from Mr. Derrick, a shareholder and former officer. This was converted into 111,112 shares of Common Stock.
  -   500,000 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents. The debenture and accrued interest was converted into 117,784 shares of Common Stock.
  -   500,000 
         
Convertible debenture with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents. The debenture and accrued interest was converted into 472,548 shares of Common Stock.
  -   2,000,000 
         
We received $16,700,000 through the issuance of a convertible debenture to selling shareholder with an interest rate of 8% per annum. The debenture matures on August 14, 2014. On September 30, 2013, $16,640,000 plus accrued interest of  936,627 was converted into 3,905,917 shares of Common Stock. The remaining balance of $60,000 plus accrued interest of $3,143 was paid in cash on October 3, 2013.
  60,000   1,288,693 
         
Total related-party debt obligations  60,000   14,385,413 
Less current portion  (60,000)  (12,654,701)
Long-term debt, net of current portion $-  $1,730,712 
 
The following table summarizes our future maturities ofall related-party debt obligations, as of September 30, 2013:including those described above:

Fiscal Year Total 
 2014 $60,000 
 2015  - 
 Thereafter  - 
 Total $60,000 
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  March 31,  September 30, 
  2014  2013 
       
Loan from a significant shareholder with an interest rate of 10% per annum. Principal and interest due at maturity on June 30, 2014. $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, 2014.  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  (2,700,000)  (60,000)
Long-term debt, net of current portion $-  $- 
 
Recent Transactions
 
We evaluated subsequent events through the date the accompanying consolidated financial statements were issued.  Subsequent to September 30, 2013, the following events occurred:

·
We issued to directors for services rendered during the 4th fiscal quarter ended September 30, 2013,granted warrants to purchase 6,840 shares of Common Stock with an exercise price of $19.46 per share, valued at the date of grant at $53,091 using the Black-Scholes model.
·
We issued to directorsmodel, for services renderedof our directors during the 4th fiscal quarter ended September 30, 2013, 760 shares of Common Stock, valued at the date of grant at $15,000.
·
We issued 483 shares of Common Stock to Series D Preferred shareholders for dividends earned during the 4th fiscal quarter ended September 30, 2013.
  
·We advancedissued 483 shares of Common Stock as payment of Series D Preferred stock dividends for the quarter ended September 30, 2013, valued at $5,650 as of the date of issuance.
·We issued a total of 760 shares of Common Stock to directors for services rendered, valued at $15,000 as of the date of issuance.
·We issued 500 shares of Common Stock for cash proceeds of $8,000 ($16.00 per share) upon the exercise of warrants by a consultant.
·We issued 4,700 shares of Common Stock upon the cashless exercise of warrants by an executive officer at exercise prices ranging from $15.00 to $16.66 per share.
·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 provide electronic (GPS and residential) monitoring of offenders and other services to the Chilean government. The agreement anticipates that we will put into service up to 9,400 electronic monitoring (GPS) devices over the contract term. We were required to post a performance bond in the amount of $3,382,082.  In addition, we agreed to design and construct a real-time monitoring and data center to be staffed by Chilean government employees and to train the monitoring center personnel. The maximum sum to be paid for the services provided by us under the agreement is approximately $70,000,000, at current exchange rates.  While devices are not yet being monitored, we have completed construction of the real-time monitoring center in Santiago and training of government personnel, and we continue working with the Chilean government on implementation of the project.
·We borrowed $1,200,000 from a line-of-creditshareholder to be used with other available cash on hand to issue apost the performance bond for an international customer inunder our agreement with the amount of $3,382,082.
Except as described above, there has been no transaction, since October 1, 2013, or currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest.
·any of our directors or executive officers;Gendarmeria de Chile described above.
  
·any beneficial ownerWe borrowed $1,500,000 from a shareholder for working capital. The unsecured loan bears interest at a rate of shares carrying more than 5% of the voting rights attached to our outstanding shares of Common Stock;8% per annum and matures on November 18, 2014.
  
·any memberOn 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 immediate family (including spouse, parents, children, siblings and in-laws)aggregate maximum amount under the loan. After the loan was executed, Tetra House assigned the Facility Agreement to Conrent Invest S.A.  Since January 3, 2014, we borrowed $10,000,000 under the Facility Agreement.
·On January 16, 2014, we sent notices of anyredemption to holders of 261 shares of Series D Preferred stock of the foregoing persons.Company.  Pursuant to Section 10(c) of the Designation of Rights and Preferences we have the right to redeem Series D Preferred shares for cash at 120 percent of the original issue price at any time after December 1, 2010.  The date of redemption was February 13, 2014, subject to the right of the Series D shareholders to convert their shares of Series D Preferred stock into common stock by giving notice of conversion prior to the date of redemption.  On February 16, we redeemed 261 shares of Series D Preferred stock .
·On June 2, 2014, we entered into a Stock Purchase Agreement (the “SPA”) to purchase from BFC Surety Group, Inc., (“Seller”), all of the issued and outstanding shares and equity interests (collectively the “Shares”) of Emerge Monitoring, Inc., a Florida corporation (“Emerge”), which 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 (65%) of the equity interest of Integrated Monitoring Systems, LLC, a Colorado limited liability company and subsidiary of Emerge LLC. The SPA contains customary representations and warranties and covenants, including provisions for indemnification, subject to the limitations described in the SPA. Certain key employees of the acquired entities will continue to operate the acquired entities following the closing. The closing of the transaction occurred on June 2, 2014, and is subject to customary closing conditions.  The purchase price for the Shares is $7,360,000 and was paid in cash at the closing.
 
Compensation of Named Executive Officers and Directors
 
For information regarding compensation of Named Executive Officers and directors, please see “Executive Compensation.”
37
 
Director Independence
 
The Board of Directors intends 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 standards 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 twelve12 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 the greater of 5% of the recipient'srecipient’s consolidated gross revenues for that year or $200,000, whichever is more;$200,000;
•
·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.
 
THE TRANSACTION
On March 12, 2014, we entered into the Purchase Agreement to acquire all of the issued and outstanding shares of GPS Global from the Selling Shareholder for a purchase price of $7,811,404 payable in cash and shares of our Common Stock.  The Transaction closed on April 1, 2014.  The cash portion of the purchase price was paid by offsetting amounts owed to us totaling $311,404, that were loaned to the Selling Shareholder and to GPS Global on or about March 14, 2014, under a Loan Agreement and Loan and Funding Agreement, respectively.  Under the Loan and Funding Agreement, we also agreed to provide to GPS Global up to $3,000,000 to fund corporate operations.  The initial advances under the Loan and Funding Agreement totaled NIS 2,000,000 (approximately $577,000), and liabilities to be paid were approximately NIS 1,687,000 (approximately $500,000).  An additional advance was made in the amount of approximately $188,600 for payment of certain liabilities owed to LineBit Systems Ltd. and Eytanim Building and Infrastructure Ltd., entities owned or controlled by the Selling Shareholder:
 
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THE LOAN AND SECURITY AGREEMENTThe Common Stock issuable as part of the purchase price in the Transaction is valued at $7,500,000 and is payable to Selling Shareholder as follows:
 
On September 5, 2012, we entered into an agreement to redeem the royalty from Borinquen, as discussed on page 28, above.  To finance our obligations under that agreement, on December 3, 2012, we entered into the Loan and Security Agreement (the “Loan”) with Sapinda Asia.  Under the Loan, Sapinda Asia agreed to lend us $16,640,000 at a rate of 8% interest per annum.  We were unable to complete the redemption of the royalty by the extended completion date under the September 5, 2012 agreement due to lack of funds.
·$1,600,000 (84,078 shares of Common Stock) delivered to the Selling Shareholder at the closing of the Transaction;
·$2,900,000 (152,291 shares of Common Stock) delivered to Escrow Agent to be held and released to Selling Shareholder under the terms of the Escrow Agreement at the end of six months following the date of closing (the “Escrow Period”); and
·$3,000,000, or approximately 157,646 shares of Common Stock (the “Contingent Shares”) to be issued to the Selling Shareholder, if at all, upon the achievement of certain milestones as follows:
o$1,000,000 (valued at the time of issuance) within 30 days of the date GPS Global sells or leases a minimum of 1,500 units of its offender GPS tracking device under revenue-generating contracts as defined in the Purchase Agreement; and
o$2,000,000 (valued at the time of issuance) within 30 days of the date GPS Global sells or leases a minimum of 2,500 units of its offender GPS tracking device (in addition to the 1,500 units described above, or a minimum of 4,000 units) under revenue-generating contracts.
 
On February 1, 2013, we entered into a Settlement and Royalty and Share Buy Back Agreement with Borinquen and Sapinda Asia to repurchase the royalty for a price of $13,000,000.  The funds to purchase the royalty were provided by Sapinda Asia under the Loan.  As a condition to the Loan, we agreed to appoint Guy Dubois to our Board of Directors as a representative and nominee of Tetra House Pte. Ltd.  We also agreed to complete an exchange offer to retire a minimum of 90% of our issued and outstanding shares of Series D Preferred stock.
On May 29, 2013, we settled certain disputed payments under the Loan and on August 13, 2013 we enteredenter into an Acknowledgementemployment agreement with the Selling Shareholder to continue his involvement with GPS Global in an executive capacity and Agreement resolving those and all other compensation issues underwe granted Selling Shareholder the Loan.  As partright to appoint his nominee as a member of the Acknowledgementboards of directors of SecureAlert and Agreement, weof GPS Global until the third anniversary of the closing date of the Transaction.  We also agreed to file the registration statement of which this prospectus formsis a part, to provide for the offer and salepurpose of registering the shares issued to Selling Shareholder as part of the Shares issuable upon conversionpurchase price of the principal and interest payableTransaction (excluding the Contingent Shares).  The shares covered by this prospectus are referred to Sapinda Asia underin this prospectus as the Loan.“Shares.”
 
On September 30, 2013, Sapinda Asia exercised its rightThe Purchase Agreement also contains customary representations, warranties, covenants and conditions to convert the principal and accrued interest underperformance of the parties to the agreement.  A copy of the Purchase Agreement, the Loan and Funding Agreement, the Loan Agreement and the Escrow Agreement are filed as exhibits to the registration statement of which this prospectus forms a part.  The foregoing description of the Transaction and summary of the terms of these agreements are qualified in exchange fortheir entirety by the issuanceterms of 3,905,917 shares of Common Stock at a conversion price of $4.50 per Share stated in the original Note under the Loan.agreements.
 
SELLING SHAREHOLDER
 
This prospectus relates to the possible resale by Sapinda AsiaEli Sabag as the selling shareholderSelling Shareholder of the Shares, which were issued to the selling shareholderSelling Shareholder pursuant to the exercise of its conversion right under the Note.Purchase Agreement.
 
The selling shareholder,Selling Shareholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the Shares that we have issued to it pursuant to the conversion of the Note.Shares. The selling shareholderSelling Shareholder may sell some, all or none of itshis Shares.  We do not know how long the selling shareholderSelling Shareholder will hold the Shares before selling them, and we currently have no agreements, arrangements or understandings with the selling shareholderSelling Shareholder regarding the resale of any of the Shares.
 
The following table presents information regarding the selling shareholderSelling Shareholder and the Shares that ithe may offer and sell from time to time under this prospectus.  The table is prepared based on information supplied to us by the selling shareholder,Selling Shareholder, and reflects itshis holdings of our equity securities as of October 18, 2013.April 1, 2014.  The selling shareholderSelling Shareholder has represented to us that neither the selling shareholderSelling Shareholder nor any of itshis affiliates have held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates.  Selling Shareholder is the chief executive officer of our wholly-owned subsidiary, GPS Global, and he has the right to appoint a nominee to our Board of Directors.  This position and right of appointment make Selling Shareholder an affiliate of the Company.
 
 
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As used in this prospectus, the term “selling shareholder”“Selling Shareholder” includes Sapinda Asia LimitedEli Sabag and any of his donees, pledgees, transferees or other successors in interest selling the Shares received after the date of this prospectus from selling shareholderSelling Shareholder as a gift, pledge or other non-sale related transfer.  Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act.  The percentage of shares beneficially owned prior to the offering is based on 9,806,7469,833,407 shares of our Common Stock actually outstanding as of October 18, 2013.April 28, 2014.
 
Selling Shareholder
Shares Benefcially
 Owned Before
this Offering (1)
Percentage of
Outstanding Shares
 Beneficially Owned
 Before this Offering
Shares to be
 Sold in this
Offering (2)
Shares Benefcially
 Owned After
 this Offering (2)
Percentage of
Outstanding
 Shares Beneficially
 Owned After
 this Offering
 
Shares Beneficially
 Owned Before
this Offering (1)
 
Percentage of
Outstanding Shares
 Beneficially Owned
 Before this Offering
 
Shares to be
 Sold in this
Offering (2)
 
Shares Beneficially
 Owned After
 this Offering (2)
 
Percentage of
Outstanding
 Shares Beneficially
 Owned After
 this Offering
 
              
Sapinda Asia Limited3,905,91739.8%3,905,91700.0%
Eli Sabag 236,469 * 236,469 * * 
 
*  Less than 1%.

Footnotes:
 
(1)Includes the 3,905,917 Shares offered hereby.
(2)Assumes the sale of all of the Shares offered hereby.
 
DESCRIPTION OF SECURITIES
 
Common Stock
 
Authorized and Outstanding
 
We are authorized to issue up to 15,000,000 shares of Common Stock, par value $0.0001 per share, of which 9,805,50310,069,876 shares are outstanding as of September 30, 2013.April 28, 2014.
 
Voting
 
Holders of our Common Stock each have one vote per share.  Our directors are elected by the vote of a plurality of the Common Stock represented in person or by proxy at such meeting and entitled to vote on the election of directors. A majority of the outstanding shares of Common Stock constitute a quorum. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
 
Upon our dissolution, our shareholders will be entitled to receive pro rata all assets remaining available for distribution to shareholders after payment of all liabilities and provision for the liquidation of any shares of Preferred Stock with preferential liquidation rights, if any, at the time outstanding. Our common shareholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Common Stock.
 
Preferred Stock
 
Authorized and Outstanding
 
We are authorized to issue up to 20,000,000 shares of Preferred Stock, par value $0.0001 per share.  As of the date of this prospectus, we have the following shares of Preferred Stock outstanding.
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outstanding as described below.
 
Series D Preferred
 
Our Board of Directors has designated 85,000 shares of Preferred Stock as our Series D Convertible Preferred Stock (the “Series D Preferred”), and established the designations, rights and preferences for the Series D Preferred.  As of September 30, 2013,April 28, 2014, there were 468no outstanding shares of Series D Preferred issued and outstanding.stock.
 
As subsequently amended, the Certificate of Designation of Rights and Preferences, or Certificate, provides that the holders of the Series D Preferred are entitled to the following preferences and other rights.rights described below.
 
Rank. The Series D Preferred ranks senior as to liquidation rights to the Common Stock, and all as to other classes and series of equity securities which by their terms do not rank senior to the Series D Preferred (collectively with the Common Stock, “Junior Stock”). The Series D Preferred is subordinate and ranks junior to all indebtedness of the Company.
 
Payment of Dividends. Dividends declared by the Board of Directors are payable on the Series D Preferred on a pro rata basis with the Common Stock and all of our other equity securities ranking pari passu with the Common Stock as to the payment of dividends, before certain distributions are paid on, or declared and set apart for Junior Stock, other than the Common Stock.  In addition, we are prohibited from declaring, paying or setting apart for payment any dividend or making any distribution on Junior Stock (other than dividends or distributions payable in shares of the Junior Stock) unless, at the time of such dividend or distribution, we have paid all unpaid dividends on the outstanding shares of Series D Preferred.  Holders of the Series D Preferred are entitled to receive cumulative quarterly dividends accrued on March 31, June 30, September 30, and December 31 of each year cumulative dividends on the Series D Preferred at the rate per share equal to 8% per annum, payable in cash or shares of Common Stock at the sole discretion of the Board of Directors.  If a dividend is paid in shares of Common Stock, the number of shares to be issued will be based on the average per share market price of the Common 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 paid quarterly, no later than the thirtieth (30th)(30th) day following the end of the accrual period.
 
Voting Rights. Except as otherwise required by Utah law and in the Certificate, the Series D Preferred will votevotes with the Common Stock on an as-converted basis.  Each share of Series D Preferred entitles the holder thereof to 30030 votes.  The Common Stock into which the Series D Preferred is convertible, upon issuance, has all of the same voting rights as other issued and outstanding Common Stock.
 
Liquidation Preference. Holders of the Series D Preferred are entitled to preferences upon liquidation, dissolution or winding up of the Company, voluntary or involuntary, before any payment is made or any assets distributed to holders of any Junior Stock.
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Conversion.  Each holder of Series D Preferred has the right to convert the Series D Preferred into shares of Common Stock under certain circumstances.  Each share of Series D Preferred is convertible into 30 shares of Common Stock, subject to adjustment as provided in the Certificate.
 
Optional Redemption. At any time on or after December 1, 2010, we have the right, exercisable at our option, to redeem from funds legally available therefore, all or any portion of the then-outstanding and unconverted shares of the Series D Preferred at a price that is equal to 120% of the original purchase price of the shares redeemed.  Any redemption of less than all of the Series D Preferred will be pro rata among the holders of the Series D Preferred based on the number of shares of Series D Preferred held by each holder of record at the time of such partial redemption.  On February 16, 2014, we redeemed 261 shares of Series D Preferred for cash payments totaling $312,008.
 
Undesignated Preferred Stock
 
The ability to authorize and issue undesignated Preferred Stock may enable our Board of Directors to render more difficult or discourage an attempt to change control of the Company by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal is not in our best interest, the Board of Directors could cause shares of Preferred Stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group.
 
44
Utah Anti-Takeover Law and Articles and Bylaws Provisions
 
Certain provisions of our Articles of Incorporation and Bylaws, and of applicable Utah State corporation law, have the effect of making more difficult an acquisition of control of the Company in a transaction not approved by the Board of Directors.  Specifically, Article VIII of the Articles of Incorporation provides that the affirmative vote of the holders of not less than two-thirds of the outstanding shares of our voting stock is required for approval of the following types of transactions:
 
•·Merger or consolidation with another entity if the other entity or its affiliates are directly or indirectly the beneficial owners of more than 10% of the total voting power of all of the outstanding shares of our voting stock (defined as a “Related Corporation”), or
•
·The sale or exchange of all or substantially all of our assets to a Related Corporation, or
•
·The issuance or delivery of our stock or other securities in exchange for payment for any properties or assets or the securities of a Related Corporation or the merger of any our affiliates with or into a Related Corporation or any of its affiliates.
 
Any amendment of Article VIII requires the affirmative vote of the holders of not less than two-thirds of the outstanding shares of our voting stock.
 
PLAN OF DISTRIBUTION
 
We are registering the Shares issued to the selling shareholder upon conversion of the NoteSelling Shareholder to permit the resale of these Shares of Common Stock by the selling shareholderSelling Shareholder from time to time after the date of this prospectus.  We will not receive any of the proceeds from the sale of the Shares by the selling shareholder.Shares.  We will bearpay all fees and expenses incident to our obligation to register the Shares.
 
The Shares offered by this prospectus isare being offered by the selling shareholder.Selling Shareholder.  The Shares may be sold or distributed from time to time by the selling shareholderSelling Shareholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the Shares offered by this prospectus could be effected in one or more of the following methods:
 
·ordinary brokers’ transactions;
·transactions involving cross or block trades;
·through brokers, dealers, or underwriters who may act solely as agentsagents;
·“at the market” into an existing market for the Common Stock;
·in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
·in privately negotiated transactions; or
·any combination of the foregoing.
 
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In order to comply with the securities laws of certain states, if applicable, the Shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the Shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
 
The selling shareholderSelling Shareholder and any broker-dealer participating in the distribution of the Shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Shares is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling shareholderSelling Shareholder and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The selling shareholderSelling Shareholder may indemnify any broker-dealer that participates in transactions involving the sale of the Shares against certain liabilities, including liabilities arising under the Securities Act. We know of no existing arrangements between the selling shareholderSelling Shareholder or any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the Shares offered by this prospectus. We will pay the expenses incident to the registration, offering, and sale of the Shares to the selling shareholder;Selling Shareholder; provided, however, that the selling shareholderSelling Shareholder is solely responsible for the payment of any fee or commission payable to any broker-dealer in connection with the sale of the Shares.
 
Brokers, dealers, underwriters or agents participating in the distribution of the Shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling shareholderSelling Shareholder and/or purchasers of the Shares for whom the broker-dealers may act as agent.  The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions.  Neither we nor the selling shareholderSelling Shareholder can presently estimate the amount of compensation that any agent will receive.
 
The selling shareholdersSelling Shareholder and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the Shares by the selling shareholdersSelling Shareholder and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the Shares to engage in market-making activities with respect to the Shares. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
 
This offering will terminate on the date that all Shares offered by this prospectus have been sold by the selling shareholderSelling Shareholder or may be sold by the selling shareholderSelling Shareholder without restriction under Rule 144(b)(1)(i) under the Securities Act.
Our Common Stock is quoted on the OTCQB under the symbol “SCRA”.
 
LEGAL MATTERS
 
The validity of the securities being offered by this prospectus has been passed upon for us by Durham Jones & Pinegar, P.C., Salt Lake City, Utah.
 
EXPERTS
 
Hansen Barnett & MaxwellEide Bailly, LLP, our independent registered public accounting firm, has audited our balance sheetssheet as of September 30, 2012 and 20112013 and the related statementsstatement of operations, changes in capital, deficit and cash flows for the yearsyear then ended. We have included our financial statements in this prospectus and elsewhere in the registration statement of which it is a part in reliance on Eide Bailly LLP’s report, given on their authority as experts in accounting and auditing.
Hansen Barnett & Maxwell, P.C., an independent registered public accounting firm, has audited our balance sheet as of September 30, 2012 and the related statement of operations, changes in capital, deficit and cash flows for the year then ended. We have included our financial statements in this prospectus and elsewhere in the registration statement of which it is a part in reliance on Hansen Barnett & Maxwell, LLP’sP.C.’s report, given on their authority as experts in accounting and auditing.
 
On September 23, 2013, Hansen, Barnett & Maxwell, P.C. (“HBM”) resigned as our independent registered public accounting firm.  Prior to that resignation, HBM recently entered into an agreement with Eide Bailly LLP (“Eide Bailly”), pursuant to which Eide Bailly acquired the operations of HBM, and certain of the professional staff and partners of HBM joined Eide Bailly either as employees or partners of Eide Bailly and will continue to practice as members of Eide Bailly.  Concurrent with the resignation of HBM, we,the Company, through and with the approval of our Audit Committee, engaged Eide Bailly as itsour independent registered public accounting firm.

46
Prior to engaging Eide Bailly, we did not consult with Eide Bailly regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinions that might be rendered by Eide Bailly on our financial statements, and Eide Bailly did not provide any written or oral advice that was an important factor considered by us in reaching a decision as to any such accounting, auditing or financial reporting issue.
42
 
The reports of HBM regarding our financial statements for the fiscal yearsyear ended September 30, 2012 and 2011 contained a going concern note.  Other than the foregoing,such note, the reports of HBM did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.  During the yearsyear ended September 30, 2012, and 2011, and during the period from September 30, 2012 through September 23, 2013, the date of resignation, there were no disagreements with HBM on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of HBM would have caused it to make reference to such disagreement in its reports.
 
We previously filed a Current Report on Form 8-K with the SEC to report this change.  We also filed as an exhibit to the Current Report a copy of HBM’s letter dated September 24, 2013 in which HBM stated its agreement with the above statements which were also contained in the Current Report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We filed with the Securities and Exchange CommissionSEC a registration statement under the Securities Act for the Shares Stock in this offering.  This prospectus does not contain all of the information in the registration statement and the exhibits and scheduleschedules that were filed with the registration statement.  For further information with respect to us and our Common Stock, we refer you to the registration statement and the exhibits and scheduleschedules that were filed with the registration statement.  Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement.  A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange CommissionSEC at 100 F Street, N.E. Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange CommissionSEC upon payment of the prescribed fee.  Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange CommissionSEC at 1-800-SEC-0330. The Securities and Exchange CommissionSEC maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
 
We file periodic reports under the Securities Exchange Act, of 1934, including annual, quarterly and special reports, and other information with the Securities and Exchange Commission.SEC.  These periodic reports and other information are available for inspection and copying at the regional offices, public reference facilities and website of the Securities and Exchange CommissionSEC referred to above.
 
We make available free of charge on or through our internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.SEC.
 
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
 
4743
 

 
SECUREALERT, INC.
FINANCIAL STATEMENTS

F - 1
 
SecureAlert, Inc.
Consolidated Financial Statements
September 30, 20122013 and 20112012


 
F - 244
 

Index to Consolidated Financial Statements


 Page
  
Report of Independent Registered Public Accounting FirmEide BaillyF-446
Report of Hansen, Barnett & Maxwell, P.C.47
  
Consolidated Balance Sheets as of September 30, 20122013 and 20112012F-548
  
Consolidated Statements of Operations for the fiscal years ended September 30, 20122013 and 20112012F-649
  
Consolidated Statements of Stockholders’ Equity for the fiscal years ended September 30, 20112012 and 20122013F-750
  
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 20122013 and 20112012F-952
  
Notes to Consolidated Financial StatementsF-1154
 
 
F - 345
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of SecureAlert, Inc.

We have audited the accompanying consolidated balance sheetssheet of SecureAlert, Inc. and Subsidiaries (collectively the Company) as of September 30, 2012 and 20112013 and the related consolidated statementsstatement of operations, stockholders’ equity, and cash flows for the yearsyear 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 auditsaudit 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 auditsaudit 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, 2013 and the consolidated results of its operations, and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Eide Bailly LLP

Salt Lake City, Utah
January 14, 2014
5 Triad Center, Ste. 750 | Salt Lake City, UT 84180-1128 | T 801.532.2200 | F 801.532.7944 | EOE
www.eidebailly.com
46

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of SecureAlert, Inc.
We have audited the accompanying consolidated balance sheets of SecureAlert, Inc. and Subsidiaries (collectively the Company) as of September 30, 2012 and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provide 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, 2012, and 2011, and the consolidated results of its operations, and its cash flows for the yearsyear 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 (not presented herein), 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 1.1 (not presented herein). The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.


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

 
F - 447
 
 
SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 20122013 AND 20112012

Assets 2012  2011  2013 2012 
Current assets:           
Cash $695,111  $949,749  $3,382,428  $458,029 
Accounts receivable, net of allowance for doubtful accounts of $772,000 and $996,122, respectively
  2,864,542   4,150,427 
Accounts receivable, net of allowance for doubtful accounts of $3,968,000 and $772,000, respectively  3,721,964   2,411,701 
Note receivable, current portion  156,190   90,000   176,205   74,801 
Prepaid expenses and other  1,979,172   1,082,581   1,783,805   1,760,579 
Inventory, net of reserves of $192,000 and $127,016, respectively  630,566   579,779 
Inventory, net of reserves of $148,043 and $192,000, respectively  467,101   630,566 
Current assets from discontinued operations  -   989,905 
Total current assets  6,325,581   6,852,536   9,531,503   6,325,581 
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 
Property and equipment, net of accumulated depreciation of $2,092,222 and $1,879,540, respectively  318,201   504,491 
Monitoring equipment, net of accumulated amortization of $1,183,346 and $669,929, respectively  1,236,696   3,171,947 
Note receivable, net of current portion  112,492   125,000   28,499   112,492 
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 
Intangible assets, net of accumulated amortization of $1,256,647 and $327,540, respectively  15,413,920   15,494,598 
Other assets  74,815   78,509   170,172   65,597 
Non-current assets from discontinued operations, net of accumulated depreciation of $0 and $2,837,498, respectively  -   859,019 
Total assets $26,533,725  $22,685,249  $26,698,991  $26,533,725 
             
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 
Accounts payable  348,074   1,830,075 
Accrued liabilities  3,001,062   2,713,230   2,180,791   2,439,451 
Dividends payable  630,528   541,797   9,427   630,528 
Deferred revenue  422,183   162,331   8,674   354,570 
Current portion of long-term related-party debt  12,793,303   754,896   60,000   12,654,701 
Current portion of long-term debt  634,218   1,041,392   88,095   339,151 
Current liabilities from discontinued operations  -   1,677,450 
Total current liabilities  19,925,926   8,054,491   2,695,061   19,925,926 
Long-term related-party debt, net of current portion  1,730,712   116,852   -   1,730,712 
Long-term debt, net of current portion  449,950   898,598   40,588   85,680 
Long-term liabilities from discontinued operations  -   364,270 
Total liabilities  22,106,588   9,069,941   2,735,649   22,106,588 
             
Stockholders’ equity:             
Preferred stock:             
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 48,763 and 44,845 shares outstanding, respectively (aggregate liquidation preference of $28,476,086)
  5   5 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 3,096,642 and 2,518,117 shares outstanding, respectively
  310   252 
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 468 and 48,763 shares outstanding, respectively (aggregate liquidation preference of $467,507)  1   5 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 9,805,503 and 3,096,641 shares outstanding, respectively  980   310 
Additional paid-in capital  252,940,448   244,670,570   290,391,698   252,940,448 
Accumulated deficit  (248,513,626)  (231,055,519)  (266,429,337)  (248,513,626)
Total equity  4,427,137   13,615,308   23,963,342   4,427,137 
Total liabilities and stockholders’ equity $26,533,725  $22,685,249  $26,698,991  $26,533,725 
 
See accompanying notes to consolidated financial statements.

 
F - 548
 

SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20122013 AND 2011
2012

 2012  2011  2013 2012 
Revenues:           
Products $2,013,155  $1,551,511  $612,437  $1,595,252 
Monitoring and other related services  17,778,337   16,410,292   15,028,625   11,519,727 
Total revenues  19,791,492   17,961,803   15,641,062   13,114,979 
             
Cost of revenues:             
Products  1,596,759   651,113   262,022   1,353,953 
Monitoring and other related services  9,821,253   8,914,846   7,554,870   5,951,649 
Impairment of monitoring equipment and parts (Note2)  1,648,762   464,295 
Impairment of monitoring equipment and parts  213,276   1,648,762 
Total cost of revenues  13,066,774   10,030,254   8,030,168   8,954,364 
             
Gross profit  6,724,718   7,931,549   7,610,894   4,160,615 
             
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 
Selling, general and administrative (including non-cash expenses of $430,618 and $3,576,194, respectively, of compensation expense paid in stock, stock options and warrants or as a result of amortization of stock-based compensation)  7,679,124   12,623,114 
Impairment of goodwill  -   5,514,395 
Settlement expense  360,000   403,678 
Research and development  1,248,654   1,453,994   987,934   1,248,654 
Settlement expense  403,678   276,712 
Impairment of goodwill (Note 2)  5,514,395   - 
             
Loss from operations  (15,847,751)  (9,451,460)
Loss from continuing operations  (1,416,164)  (15,629,226)
             
Other income (expense):             
Currency exchange rate loss  (145,612)  (28,358)
Loss on disposal of equipment  (23,865)  (300,338)  (2,949)  (5,374)
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 
Interest expense (including non-cash expenses of $15,954,355 and $963,233, respectively, paid in stock, stock options and warrants, or amortization of debt discount)  (17,048,519)  (1,431,416)
Other income (expense), net  279,174   (55,914)
Net loss from continuing operations  (18,334,070)  (17,150,288)
Gain on disposal of discontinued operations  424,819   - 
Net loss from discontinued operations  (6,460)  (307,819)
Net loss  (17,458,107)  (9,858,824)  (17,915,711)  (17,458,107)
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)  (1,042,897)  (2,480,298)
Net loss attributable to SecureAlert, Inc. common stockholders $(19,938,405) $(11,920,570) $(18,958,608) $(19,938,405)
Net loss per common share, basic and diluted $(0.04) $(0.03)
Net loss per common share, basic and diluted from continuing operations $(3.79) $(6.27)
Net loss per common share, basic and diluted from discontinued operations $0.09  $(0.11)
Weighted average common shares outstanding, basic and diluted  547,034,000   380,659,000   4,832,000   2,735,170 

See accompanying notes to consolidated financial statements.

 
F - 649
 

SECUREALERT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20112012 AND 20122013
 
  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   2,518,117  $252  $244,670,570  $(231,055,519) $13,615,308 
                             
Issuance of common stock for:                            
Conversion of Series D Preferred stock  (90)  -   2,700   -   -   -   - 
Royalty payment  -   -   71,969   7   819,965   -   819,972 
Services  -   -   4,315   -   40,000   -   40,000 
Debt  -   -   8,449   1   118,279   -   118,280 
Dividends from Series D Preferred stock  -   -   210,689   21   2,391,547   -   2,391,568 
Employee compensation  -   -   121,700   12   732,622   -   732,634 
Board of director fees  -   -   3,000   -   48,060   -   48,060 
Cash  -   -   155,703   17   1,032,983   -   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   3,096,641  $310  $252,940,448  $(248,513,626) $4,427,137 
                            
                 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   1,400,116  $141  $224,529,724  $(50,000) $(221,164,945) $(185,073)  3,129,851 
                                     
Issuance of common stock for:                                    
                                     
Conversion of Series D Preferred stock  (22,735)  (2)  682,050   68   (66)  -   -   -   0 
                                     
Dividends from SMI Series A Preferred stock  -   -   4,908   -   97,349   -   -   -   97,349 
                                     
Services  -   -   1,250   -   21,310   -   -   -   21,310 
                                     
Acquisition of subsidiaries  -   -   323,526   32   5,322,032   -   -   153,323   5,475,387 
                                     
Dividends from Series D Preferred stock  -   -   106,535   11   2,043,298   -   -   -   2,043,309 
                                     
Cancellation of shares  -   -   (269)  -   -   -   -   -   - 
                                     
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   2,518,117  $252  $244,670,570  $-  $(231,055,519) $-  $13,615,308 

See accompanying notes to consolidated financial statements.

 
F - 750
 

SECUREALERT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20112012 AND 20122013
 
                      
                      
  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   2,518,117  $252  $244,670,570  $(231,055,519) $13,615,308 
                             
Issuance of common stock for:                            
Conversion of Series D Preferred stock  (90)  -   2,700   -   -   -   - 
Royalty payment  -   -   71,969   7   819,965   -   819,972 
Services  -   -   4,315   -   40,000   -   40,000 
Debt  -   -   8,449   1   118,279   -   118,280 
Dividends from Series D Preferred stock  -   -   210,689   21   2,391,547   -   2,391,568 
Employee compensation  -   -   121,700   12   732,622   -   732,634 
Board of director fees  -   -   3,000   -   48,060   -   48,060 
Cash  -   -   155,704   17   1,032,983   -   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   3,096,642  $310  $252,940,448  $(248,513,626) $4,427,137 
  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   141,758   -   141,760 
Debt  -   -   4,607,361   461   20,732,657   -   20,733,118 
Dividends from Series D Preferred stock  -   -   181,832   18   1,663,979   -   1,663,997 
Accrued board of director fees  -   -   3,661   -   47,500   -   47,500 
Cash  -   -   (159)  -   (1,996)  -   (1,996)
                             
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 stock 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  $980  $290,391,698  $(266,429,337) $23,963,342 
 
See accompanying notes to consolidated financial statements.

 
F - 851
 

SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20122013 AND 20112012
 
 2012  2011  2013 2012 
Cash flows from operating activities:           
Net Loss $(17,458,107) $(9,858,824) $(17,915,711) $(17,458,107)
Adjustments to reconcile net income to net cash used in operating activities:        
Gain on sale of subsidiaries  (424,819)  - 
Loss from discontinued operations  6,460   307,819 
Loss from continuing operations  (18,334,070)  (17,150,288)
Adjustments to reconcile net loss to net cash used and provided by in operating activities:     
Depreciation and amortization  2,078,127   1,793,557   2,414,270   1,816,945 
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 
Vesting and re-pricing of stock options for services  160,301   1,405,500 
Issuance of common stock to employees for the cancellation of warrants  -   2,130,694 
Issuance of common stock for services  141,760   40,000 
Re-pricing of warrants in connection with debt with related parties  -   39,965 
Accretion of debt discount and beneficial conversion feature recorded as interest expense  15,954,355   923,268 
Issuance of warrants with related parties  128,559   - 
Impairment of monitoring equipment and parts  213,276   1,648,763 
Impairment of goodwill  5,514,395   -   -   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 
Factional shares of common stock paid in cash  (1,996)  - 
Loss on disposal of property and equipment  23,865   300,338   4,740   5,374 
Disposal of property and equipment as employee compensation  2,790   - 
Loss on disposal of monitoring equipment and parts  84,805   188,901 
Loss on forgiveness of note receivable  22,750   -   -   22,750 
Loss on disposal of monitoring equipment and parts  205,489   95,583 
Property and equipment disposed for services and compensation  -   2,790 
Change in assets and liabilities:             
Accounts receivable, net  1,054,267   (2,726,576)  (652,749)  854,673 
Notes receivable  88,061   (170,000)  63,978   88,061 
Inventories  (410,521)  (502,648)  186,913   (437,421)
Prepaid expenses and other assets  (892,897)  232,014   107,576   (908,673)
Accounts payable  487,264   1,042,579   (1,473,530)  572,277 
Accrued expenses  1,127,088   46,023   2,186,618   1,102,638 
Deferred revenue  259,852   81,441   (345,896)  229,321 
Net cash used in operating activities  (1,709,388)  (6,809,513)
Net cash provided by (used in) operating activities  838,910   (1,910,067)
             
Cash flow from investing activities:             
Purchase of property and equipment  (112,163)  (215,528)  (50,682)  (101,875)
Net proceeds from the sale of property and equipment  136,618   - 
Purchase of monitoring equipment and parts  (2,745,399)  (3,066,026)  (509,743)  (2,745,399)
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)  (560,425)  (2,847,274)
             
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   2,800,000   2,980,000 
Principal payments on related-party notes payable  (3,187,578)  (951,639)  -   (3,187,578)
Proceeds from convertible debentures  -   500,000 
Proceeds from related-party convertible debentures  -   2,900,000 
Proceeds from notes payable  3,962   1,283,800   -   1,745 
Principal payments on notes payable  (910,440)  (1,919,457)  (299,276)  (687,354)
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 
Net proceeds from issuance of common stock  -   1,033,000 
Net proceeds from issuance of Series D Convertible Preferred stock  -   2,004,000 
Commissions paid in connection with capital raise  (1,147,250)  -   -   (1,147,250)
Net cash provided by financing activities  4,175,694   10,349,584   2,500,724   4,396,563 
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 
     
Cash flow from discontinued operations:     
Net cash provided by operating activities  126,715   200,679 
Net cash provided by investing activities  -   126,330 
Net cash provided by (used in) financing activities  18,475   (220,869)
Net cash provided by discontinued operations  145,190   106,140 
     
Net increase in cash  2,924,399   (254,638)
Cash, beginning of period  458,029   712,667 
Cash, end of period $3,382,428  $458,029 

See accompanying notes to consolidated financial statements.
 
 
F - 952
 

SECUREALERT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 20122013 AND 20112012
 
  2012  2011 
Cash paid for interest $444,644  $816,178 
Supplemental schedule of non-cash investing and financing activities:        
Issuance of shares of common stock, respectively forpayment of SecureAlert Monitoring, Inc. Series A Preferred stock dividends
  -   97,349 
Note payable issued to acquire monitoring equipment and property andequipment
  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 shares of common stock in connection withSeries D Preferred stock dividends
  2,391,568   2,043,309 
Non-controlling interest assumed through acquisition of subsidiaries  -   153,322 
Issuance of shares of common stock from the conversion 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 ofMidwest Monitoring & Surveillance, Inc.
  -   1,187,946 
Cancellation of shares of common stock, respectively, for services
  -   5 
Cancellation of subscription receivable  -   50,000 
Issuance of Series D Preferred stock for prepaid commissions  -   493,500 
Issuance of shares of common stock in connection with the acquisition of Midwest Monitoring & Surveillance, Inc.
  -   238,064 
Issuance of 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 ServicesCorp. ownership
  -   84,338 
Acquisition of accounts payable and accrued liabilities from International Surveillance Services Corp. ownership
  -   13,921 
Issuance of stock warrants, respectively, for settlement of debt  253,046   - 
Issuance of common stock warrants, respectively, for Boardof Director fees
  105,042   - 
Issuance of shares of common stock, respectively, for Board ofDirector fees
  48,060   - 
Issuance of shares of common stock, respectively, for related- party royalty
  819,972   - 
Issuance of shares of common stock, respectively, for settlement of debt
  118,280   - 
Issuance of common stock warrants, respectively, to aconsultant 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   - 
  2013  2012 
Cash paid for interest $238,080  $444,644 
         
Supplemental schedule of non-cash investing and financing activities:        
Issuance of stock warrants for settlement of debt  -   253,046 
Issuance of common stock in connection with Series D Preferred stock dividends  1,663,997   2,391,568 
Series D Preferred stock dividends earned  1,042,897   2,480,298 
Issuance of warrants for accrued Board of Director fees  272,500   105,042 
Issuance of common stock shares for accrued Board of Director fees  47,500   48,060 
Issuance of shares of common stock, respectively, for related-party royalty payable  -   819,972 
Issuance of common stock shares for settlement of debt  20,733,118   118,280 
Issuance of warrants to a consultant for services  -   33,357 
Issuance of common stock shares from the conversion of shares of Series D     
Preferred stock  189   54 
Accretion of debt discount and beneficial conversion feature expense recorded with convertible debentures  15,954,355   473,334 
Issuance of debt to repurchase royalty agreement  11,616,984   - 
Note payable issued to acquire monitoring equipment and property and equipment  -   69,000 
Beneficial conversion feature recorded with related-party convertible debentures  -   1,001,666 
 
See accompanying notes to consolidated financial statements.

 
F - 1053
 

SECUREALERT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)Organization and Nature of Operations
 
General
 
SecureAlert, Inc. and subsidiaries (collectively, the “Company”) markets, monitors and leases TrackerPAL® and ReliAlert™ devices. The TrackerPAL® and ReliAlert™ devices are used to monitor convicted offenders that are on probation or parole in the criminal justice system. The TrackerPAL® andsystem or pretrial defendants. ReliAlert™ 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 incurredhad a history of recurring net losses and negative cash flows from operating activities fora significant accumulated deficit. For the fiscal yearsyear 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,did not have enough cash on hand to meet its current liabilities. As a result, the report from the independent registered public accounting firm for fiscal year 2012 and 2011, respectively. These factors raiseincluded an explanatory paragraph in respect to the substantial doubt aboutof the Company'sCompany’s ability to continue as a going concern. The financial statements dofor fiscal year 2012 and for prior periods did not include any adjustments that might result from the outcome of thisthat uncertainty.

In order The Company’s plan for the Company to continuecontinuing as a going concern it must generate positive cash flows from operating activities and obtainincluded obtaining the necessary funding to meet its projected capital investment requirements. Management’s plans with respectrequirements and operating needs.

Subsequent 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. IfSeptember 30, 2013, the Company is unableentered into a Facility Agreement, whereby the Company may borrow up to increase$25,000,000 for working capital and acquisitions purposes (see Note 5). As of January 14, 2014, the Company borrowed $10,000,000 under the Facility Agreement which its Board of Directors and management believes provides the Company sufficient working capital and enough cash flows from operating activities or obtain additional financing, it will be unableon hand to continue the development ofsatisfy its products and may have to cease operations.current obligations.

(2)Summary of Significant Accounting Policies

Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of SecureAlert, Inc. and its subsidiaries, SecureAlert Monitoring, Inc., International Surveillance Services Corp, and SecureAlert Chile SpA (collectively, the “Company”). Additionally, during the fiscal year ended September 30, 2013, the Company sold Midwest Monitoring & Surveillance, Inc., and Court Programs, Inc., Court Programs of Florida, Inc., and International Surveillance Services Corp (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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.

54
 
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.

F - 11
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:
  2013  %  2012  % 
             
Customer A $5,252,959   34% $2,450,984   16%
                 
Customer B $1,622,326   10% $1,876,285   12%
No other customer represented more than 10 percent of the Company’s total revenues for the fiscal years ended September 30, 20122013 or 2011.2012. Customer A which attributed $5,252,959 (34 percent) derived from a contract that completed during the fiscal year ended 2013 and it is uncertain if the Company will provide services to this customer in the future. Customer B which attributed $1,622,326 (10%) derived from a three-year contract which completed in November 2013 and has continued under a month-to-month contract. This contract could be terminated at anytime with a 30-day notice.

Concentration of credit risk associated with the Company’s total and outstanding accounts receivable as of September 30, 20122013 and 2011,2012, respectively, are shown in the table below:
  2013  %  2012  % 
             
Customer A $887,233   24% $681,781   24%
                 
Customer B $732,163   20% $475,800   17%
                 
Customer C $892,897   24% $-   0%

  2012  %  2011  % 
             
Customer A $681,781   24% $-   - 
                 
Customer B $475,800   17% $347,553   7%
                 
Customer C $-   -  $1,995,804   39%
Based upon the expected collectability of its accounts receivable, the Company maintains an allowance for doubtful accounts receivable. Subsequent to the fiscal year ended September 30, 2013, the Company received $387,483 from Customer A and $518,137 from Customer B 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$3,128,187 and $371,130$350,716 of cash deposits in excess of federally insured limits as of September 30, 20122013 and 2011,2012, 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.
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. The note is currently in default and accrues interest at a rate of 17% per annum. As of September 30, 2013, the outstanding balance of the note was $199,682 and $5,022 of accrued interest.

55
Prepaid and Other Expenses

The carrying amounts reported in the balance sheets for prepaid and other expenses approximate their fair market value based on the short-term maturity of these instruments. As of September 30, 2013 and 2012, the outstanding balance of prepaid and other expenses was $1,783,805 and $1,760,579, respectively. Of the $1,783,805, was a bond posted for an international customer in the amount of $1,488,778, which the Company believes will be returned to the Company by March 31, 2014.

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$1,555 and $268,398$359,734 during the fiscal years ended September 30, 20122013 and 2011,2012, 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, 20122013 and 2011,2012, 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 
F - 12
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 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, the note does not have a stated interest rate; therefore, the Company imputed interest according to GAAP. As of September 30, 2012, the outstanding balance of the note, net of note discount, was $268,682 and $1,325 of accrued interest. As of the date of this report, the Company expects to collect the outstanding amount.
  2013  2012 
Raw materials $615,144  $822,566 
Reserve for damaged or obsolete inventory  (148,043)  (192,000)
Total inventory, net of reserves $467,101  $630,566 

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, 20122013 and 2011,2012, respectively:

 2012  2011  2013 2012 
Equipment, software and tooling $2,409,031  $2,390,329  $2,002,577  $1,970,327 
Automobiles  372,339   398,890   33,466   33,466 
Building  -   377,555 
Leasehold improvements  134,941   132,820   127,162   127,287 
Furniture and fixtures  323,505   317,630   247,218   252,951 
Total property and equipment before accumulated depreciation  3,239,816   3,617,224   2,410,423   2,384,031 
Accumulated depreciation  (2,562,323)  (2,530,591)  (2,092,222)  (1,879,540)
        
Property and equipment, net of accumulated depreciation $677,493  $1,086,633  $318,201  $504,491 

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, 20122013 and 2011,2012, the Company disposed of net property and equipment of $23,865$4,740 and $300,338,$5,374, respectively.

Depreciation expense for the fiscal years ended September 30, 2013 and 2012 was $231,853 and 2011 was $373,858 and $421,407,$281,791, respectively.

56
 
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 3 years. Monitoring equipment as of September 30, 2013 and 2012 is as follows:
  2013  2012 
Monitoring equipment $2,420,042  $3,841,876 
Less: accumulated amortization  (1,183,346)  (669,929)
Monitoring equipment, net of accumulated depreciation $1,236,696  $3,171,947 

Amortization expense for the fiscal years ended September 30, 2013 and 2012, was $1,230,293 and 2011, was $1,387,756 and $1,160,920,$1,231,773, respectively. These expenses were classified as a cost of revenues.

F - 13
AssetsMonitoring 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, 20122013 and 2011,2012, the Company disposed and impaired lease monitoring equipment and parts of $1,494,518$296,526 and $291,479,$1,837,664, respectively. 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 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. 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 fiscal years ended September 30, 20122013 and 2011:2012:

 Court Programs, Inc.  Midest Monitoring & Surveillance, Inc.  Court Programs, Inc. Midest Monitoring & Surveillance, Inc. 
 2012  2011  2012  2011  2013 2012 2013 2012 
Gross carrying amount, beginning of period $2,488,068  $2,488,068  $3,401,327  $1,421,995  $-  $2,488,068  $-  $3,026,327 
Additions  -   -   -   1,979,332   -   -   -   - 
Impairments  (2,488,068)  -   (3,026,327)  -   -   (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 anytime with 30 days 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.

57
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. All amounts billed have been earned.

F - 14
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.

58
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, 20122013 and 2011,2012, are as follows:
 
 Fiscal Years Ended 
 September 30, 
 2012  2011  2013 2012 
United States of America $14,075,140  $14,499,613  $7,179,043  $7,398,627 
Latin American Countries  2,450,984   2,533,483   5,252,960   2,450,984 
Caribbean Countries and Commonwealths  3,217,651   912,504   3,136,908   3,217,651 
Other Foreign Countries  47,717   16,203   72,151   47,717 
Total $19,791,492  $17,961,803  $15,641,062  $13,114,979 
 
The long-lived assets, net of accumulated depreciation and amortization, used in the generation of revenues by geographic area as of September 30, 20122013 and 2011,2012, were as follows:

 Net Property and Equipment  Net Monitoring Equipment  Net Property and Equipment Net Monitoring Equipment 
 2012  2011  2012  2011  2013 2012 2013 2012 
United States of America $677,493  $1,082,453  $2,328,139  $3,352,614  $318,201  $504,491  $878,823  $2,174,976 
Latin American Countries  -   -   719,171   32,919   -   -   -   719,171 
Caribbean Countries and Commonwealths  -   4,180   263,782   71,687   -   -   351,138   263,782 
Other Foreign Countries  -   -   14,018   4,765   -   -   6,735   14,018 
Total $677,493  $1,086,633  $3,325,110  $3,461,985  $318,201  $504,491  $1,236,696  $3,171,947 
F - 15

Research and Development Costs

All expenditures for research and development are charged to expense as incurred. These expenditures in 20122013 and 20112012 were for the development of SecureAlert’s TrackerPAL® andthe Company’s ReliAlert™ device and associated services. For the fiscal years ended September 30, 20122013 and 2011,2012, research and development expenses were $1,248,654$987,934 and $1,453,994,$1,248,654, respectively.
 
Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense for the fiscal years ended September 30, 2013 and 2012, was $30,782 and 2011, was $42,148 and $117,568,$29,141, 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, 2013 and September 30, 2012, 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.

59
 
Common share equivalents consist of shares issuable upon the exercise of common stock options and warrants, and shares issuable upon conversion of preferred stock. As of September 30, 20122013 and 2011,2012, there were 565,034,215604,006 and 399,448,2022,825,171 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 stock equivalents outstanding as of September 30, 20122013 and 2011,2012, consisted of the following:

 
 2012  2011  2013 2012 
Conversion of debt and accrued interest and loan origination fees  172,699,722   -   -   863,499 
Conversion of Series D Preferred stock  292,578,000   269,070,000   14,040   1,462,890 
Exercise of outstanding common stock options and warrants  67,356,493��  99,178,202   427,966   336,782 
Exercise and conversion of outstanding Series D Preferred stock        
warrants  32,400,000   31,200,000 
Exercise and conversion of outstanding Series D Preferred stock warrants  162,000   162,000 
Total common stock equivalents  565,034,215   399,448,202   604,006   2,825,171 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements areIn July 2013, the FASB issued byASU 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 Accounting Standards Board (FASB)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 standard setting bodies, which are adopted bycarryforward 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 asdoes not expect the adoption of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will notguidance to have a material impact on itsthe Company's consolidated financial position or results of operations upon adoption.statements.
 
F - 16

(3)Acquisitions Goodwill and Other Intangible Assets

As of September 30, 2012, the Company had recorded goodwill and intangible assets related to the acquisition of controlling interest of Midwest, Court Programs, Bishop Rock Software, and International Surveillance Services Corp (“ISS”). The Company has also entered into a license agreement related to the use of certain patents. The following tables summarizetable summarizes the activity and balance of goodwill and intangible assets for the fiscal yearsyear ended September 30, 2012 and 2011:2013:
  
Borinquen
Container
Corporation
  
International
Surveillance
Services Corp.
  Patent  Total 
             
Intangible assets:            
Patent license agreement $-  $-  $-  $- 
Royalty agreement  11,616,984   5,003,583   50,000   16,670,567 
Total intangible assets  11,616,984   5,003,583   50,000   16,670,567 
Accumulated amortization  (673,374)  (562,903)  (20,370)  (1,256,647)
Intangile assets, net of accumulated amortization $10,943,610  $4,440,680  $29,630  $15,413,920 
The following table summarizes the activity of intangible assets for the fiscal year ended September 30, 2012:

  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 
  
Borinquen
Container
Corporation
  
International
Surveillance
Services Corp.
  Patent  Total 
             
Intangible assets:            
Patent license agreement $-  $-  $-  $- 
Royalty agreement  10,768,555   5,003,583   50,000   15,822,138 
Total intangible assets  10,768,555   5,003,583   50,000   15,822,138 
Accumulated amortization  -   (312,724)  (14,816)  (327,540)
Intangile assets, net of accumulated amortization $10,768,555  $4,690,859  $35,184  $15,494,598 


  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 
60
 
The following table summarizes the future maturities of amortization of intangible assets as of September 30, 2012:2013:

                  
Fiscal Year Midwest Monitoring & Surveillance  Court Programs, Inc.  Bishop Rock Software  Patent  International Surveillance Services Corp.  Total  
Borinquen
Container
Corporation
 
International
Surveillance
Services Corp.
 Patent Total 
                           
2013 $8,000  $6,800  $-  $5,556  $250,179  $270,535 
2014  8,000   6,600   -   5,556   250,179   270,335  $630,792  $250,179  $5,556  $886,527 
2015  8,000   6,600   -   5,556   250,179   270,335   630,792   250,179   5,556   886,527 
2016  8,000   6,600   -   5,556   250,179   270,335   630,792   250,179   5,556   886,527 
2017  8,000   6,600   -   5,556   250,179   270,335   630,792   250,179   5,556   886,527 
2018  630,792   250,179   5,556   886,527 
Thereafter  41,336   34,100   -   7,404   3,439,964   3,522,804   7,789,650   3,189,785   1,850   10,981,285 
                                 
Total $81,336  $67,300  $-  $35,184  $4,690,859  $4,874,679  $10,943,610  $4,440,680  $29,630  $15,413,920 
 
Midwest Monitoring & SurveillanceBorinquen Container Corporation
Effective December 1, 2007,On September 5, 2012, the Company purchasedentered into an agreement to redeem the royalty held by Borinquen pursuant to 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 completedroyalty agreement dated July 1, 2011, as amended. Under the purchaseterms of the remaining ownership interest effective June 30, 2011.royalty, Borinquen had the right to receive 20 percent of net revenues derived within certain geographic territories.

F - 17
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 agreement to redeem the royalty had not yet been completed and as a result the Company hadcapitalized $10,768,555 as a balancenon-current asset and recorded a loan payable to Borinquen to reflect the obligation. On February 1, 2013, the Company completed the redemption of goodwillthe royalty with Borinquen which was funded under a Loan and Security Agreement (“Loan”) from Sapinda Asia Limited (“Sapinda Asia”), see Note 5. The Company capitalized the total cost of $375,000the royalty purchase commitment of $11,616,984, as a non-current asset and $122,000will amortize the asset over the remaining term of other intangible assets, as notedthe 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 table above.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.

During the fiscal years ended 20122013 and 2011,2012, the Company recorded $7,997$673,374 and $8,000$0 of amortization expense for Midwestthe intangible assets,asset, resulting in a total accumulated amortization of $40,664$673,374 and $32,667,$0, and net other intangible assets of $81,336,$10,943,610, and $89,333,$10,768,555, respectively.

Subsequent to the fiscal year ended September 30, 2012,International Surveillance Services Corp.
Effective July 1, 2011, the Company entered into a Stock Purchase Agreement whereby two former principalsstock purchase agreement and purchased ISS, a Puerto Rico corporation, in consideration of Midwest purchased from the Company all the issued and outstanding capital310,000 shares of its common stock, valued at $5,084,000 of Midwest for $750,000, payablewhich $5,003,583 was recorded 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, Inc., a Florida corporation, and Court Programs of Florida, Inc., a Florida corporation (collectively, “Court Programs”). The Company purchased the remaining 49 percent ownership interest effective March 1, 2010. Court Programsroyalty intangible asset. ISS is aan international distributor of electronic monitoring devices to courts providing a solution to monitor individuals on parole or probation. The Company acquired Court ProgramsISS to utilize the knowledge and connections the company has in Central and South America and to acquire the rights to its preexisting business relationships to gain more market share 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 distributorsterritorial commissions that were previously serviced by Court Programs of Florida, Inc., a wholly-owned subsidiary of SecureAlert.being paid to ISS.

The Company recorded goodwill impairment expense of $2,488,068 for the fiscal year ended September 30, 2012. As of September 30, 2012, the Company had a balance of goodwill of $0$250,179 and $111,000 of other intangible assets, as noted in the table above.

During the fiscal years ended 2012 and 2011, the Company recorded $7,800 and $7,800$250,179 of amortization expense on intangible assets for Court Programs,ISS during the fiscal year ended September 30, 2013 and 2012, resulting in a total accumulated amortization of $43,700$562,903 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 all of the assets of Bishop Rock Software, Inc., a California corporation through a wholly-owned subsidiary, SecureAlert Enterprise Solutions, Inc. During 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$312,724, and net intangible assets of $0$4,440,680 and $44,979,$4,690,859, respectively.

Patent
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 paypaid $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 20122013 and 2011,2012, the Company recorded $5,557$5,554 and $5,555$5,557 of amortization expense for the patent, resulting in a total accumulated amortization of $20,370 and $14,816, and $9,259, and net other intangible assets of $35,184,$29,630 and $40,741,$35,184, respectively.

 
F - 1861
 
 
International Surveillance Services Corp.
Effective July 1, 2011, the Company entered into a stock purchase agreement and purchased ISS, a Puerto Rico corporation, in consideration 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.

As of September 30, 2012, the Company had a balance of goodwill of $0 and $5,003,583 of other intangible assets, as noted in the table above.

The Company recorded $250,179 of amortization expense on intangible assets for ISS during the fiscal year ended September 30, 2012, resulting in a total accumulated amortization of $312,724 and net other intangible assets of $4,690,859.

(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, 20122013 and 2011:2012:
  2012  2011 
Accrued payroll, taxes and employee benefits $701,537  $749,509 
Accrued royalties  641,446   - 
Accrued consulting  352,072   370,658 
Accrued taxes - foreign and domestic  271,240   - 
Accrued board of directors fees  265,000   153,101 
Accrued other expenses  197,512   110,810 
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 outside services  38,630   28,294 
Accrued interest  37,937   26,329 
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 

  2013  2012 
Accrued royalties $714,400  $641,446 
Accrued payroll, taxes and employee benefits  473,179   540,931 
Accrued consulting  317,300   352,072 
Accrued taxes - foreign and domestic  262,880   262,440 
Accrued settlement costs  76,000   50,000 
Accrued board of directors fees  68,090   265,000 
Accrued other expenses  65,903   183,722 
Accrued legal costs  57,001   14,628 
Accrued cellular costs  55,000   27,662 
Accrued outside services  33,022   38,630 
Accrued warranty and manufacturing costs  30,622   30,622 
Accrued interest  27,394   27,831 
Accrued cost of revenues  -   4,467 
Total accrued expenses $2,180,791  $2,439,451 
 
F - 19

(6)
(5)Certain Relationships and Related Transactions

The Company entered into certain transactions with related parties during the fiscal yearyears ended September 30, 2013 and 2012. 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.

  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 
Royalty Agreement

On August 4, 2011, with an effective date of July 1, 2011, the Company entered into an agreement (the “Royalty Agreement”) with Borinquen (a shareholder) to purchase its wholly-owned subsidiary ISS for 310,000 shares of the Company’s common stock, valued at the market price on the date of the Royalty Agreement at $16.40 per share, or $5,003,583. As additional consideration, the Company also granted Borinquen a royalty in the amount of 20% of net revenues from the sale or lease of 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 were due quarterly through June 30, 2031.

On February 1, 2013, the Company entered into an agreement with Sapinda Asia and Borinquen (the Settlement and Royalty and Share Buy Back Agreement) to complete the repurchase of the royalty (at a cost of $11,616,984) and to pay accrued royalty expenses (totaling $1,383,016) for a total payment of $13,000,000. To finance this redemption, the Company borrowed $16,700,000 in connection with the Loan from Sapinda Asia. The Company used $13,000,000 toward the redemption of the royalty and to pay off accrued royalty fees and used $3,700,000 of the loan for operating capital. 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

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.
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: (1) 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 (2) 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, is the Chief Executive Officer of Paranet.
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.

 
F - 2062
 
 
Other Related-Party TransactionsLoan

Notes #1 and #2
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 debenture was convertible at $4.50 which created a beneficial conversion feature discount of $442,222, which was to be 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, the Company paid $1,018,082entered into a loan agreement (“Facility Agreement”) with Tetra House Pte. Ltd., (“Tetra House”) to provide unsecured debt financing to the Company for acquisitions and for other corporate purposes, including working capital. Tetra House is a private company incorporated under the laws of the Republic of Singapore and is controlled by Mr. Guy Dubois who is a director and currently serves as the Chairman of the Company’s Board of Directors. .Under this agreement, the Company may borrow up to $25,000,000, through May 31, 2014. Borrowed amounts under the Facility Agreement bear interest at a rate of 8% per annum and interest is payable in arrears semi-annually. All outstanding principal under the Facility Agreement, together with accrued and unpaid interest, is due and payable on January 3, 2016. The Company may prepay (in minimum amounts of $1,000,000) borrowed amounts without penalty. In consideration of the Facility Agreement, the Company agreed to pay in full all outstanding principalTetra House an arrangement fee equal to 3% of the aggregate maximum amount under the Facility Agreement ($750,000). The arrangement fee is payable as follows: (i) one percent (1%) due within five business days of signing the Facility Agreement, and accrued interest on(ii) the remaining two percent (2%) being withheld from the first notedraw down of funds under the Facility Agreement. The Company may draw down funds in increments of not less than $2,000,000 and $1,037,544in integral multiples of $1,000,000 by submitting a Utilization Request to payTetra House. Tetra House has 10 business days in full all outstanding principalwhich to fund the Utilization Request upon receipt of such request. The Facility Agreement was reviewed and accrued interest onapproved by disinterested and independent members of the second note.
Note #3
During the year ended September 30, 2012,Board of Directors, David S. Boone, Winfried Kunz, Dan L. Mabey and George F. Schmitt. As of January 14, 2014, the Company borrowed $50,000 from its then Chief Executive Officer, John Hastings,$10,000,000 under an unsecured promissory note. The note bore interestthe Facility Agreement.
Additional Related-Party Transactions and Summary 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.All Related-Party Obligations

Notes #4 and 5
  2013  2012 
       
Note payable in connection with the redemption of a royalty agreement for $10,768,555. The note required installment payments and was paid off by the proceeds of the Loan. $-  $10,050,027 
         
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. This note was assumed through the sale of Court Programs, Inc.  -   46,693 
  
Note payable from a shareholder and former officer. This was converted into 111,112 shares of common stock.  -   500,000 
         
Convertible debenture from a director with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents. The debenture and accrued interest was converted into 117,784 shares of common stock.  -   500,000 
  
Convertible debenture with a significant shareholder with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents. The debenture and accrued interest was converted into 472,548 shares of common stock.  -   2,000,000 
         
Convertible debenture of $16,700,000 from a shareholder with an interest rate of 8% per annum. The debenture matured on August 14, 2014. On September 30, 2013, $16,640,000 plus accrued interest of $936,627 was converted into 3,905,917 shares of common stock. A debt discount of $14,296,296 and $605,281, respectively, was recorded to reflect a beneficial conversion feature. As of September 30, reflect a beneficial conversion feature. As of September 30, 2013, the remaining debt discount was $0. The remaining balance of $60,000 plus accured interest of $3,143 was paid in cash on October 3, 2013.  60,000   1,288,693 
         
Total related-party debt obligations  60,000   14,385,413 
Less current portion  (60,000)  (12,654,701)
Long-term debt, net of current portion $-  $1,730,712 
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 percent 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 percent to 119.56 percent, risk-free rate ranging from 0.22 percent to 0.37 percent, 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
63
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:

(6)Debt Obligations
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, 20122013 and 2011,2012, 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 
  2013  2012 
       
Settlement liability from patent infringement suit and countersuit settled in February 2010. The liability was paid in March 2013. $-  $200,000 
         
Note issued in connection with the acquisition of a subsidiary and matures in December 2014.  64,111   94,459 
         
Capital leases with effective interest rates that range between 8.51% and 17.44%. Leases mature between August 2013 and November 2015. $154,410 was assumed through the sale of Midwest Monitoring & Surveillance, Inc. to its former owners.  59,266   118,098 
         
Automobile loan with a financial institution secured by the vehicle. Interest rate is 7.06%, due June 2014. $125,614 was assumed through the sale of Midwest Monitoring & Surveillance, Inc. to its former owners.  5,306   12,274 
         
Total debt obligations  128,683   424,831 
Less current portion  (88,095)  (339,151)
Long-term debt, net of current portion $40,588  $85,680 
F - 21

The following table summarizes the Company’s future maturities of debt obligations as of September 30, 2012:2013:

Fiscal Year Total  Total 
2013 $634,218 
2014  154,142  $88,095 
2015  95,190   38,945 
2016  24,536   1,643 
2017  6,919 
Thereafter  169,163   - 
Total $1,084,168  $128,683 
64
 
The following table summarizes the Company’s capital lease obligations included in the schedules of debt and debt obligations above as of September 30, 2012:2013:

Fiscal Year Total  Total 
2013 $161,857 
2014  112,383  $36,419 
2015  55,916   27,721 
2016  9,797   1,722 
2017  - 
Thereafter  -   - 
Total minimum lease payments  339,953   65,862 
Less: amount representing interest  (67,445)  (6,596)
Present value of net minimum lease payments  272,508   59,266 
Less: current portion  (131,072)  (31,576)
Obligation under capital leases - long-term $141,436  $27,690 

As of September 30, 20122013 and 2011,2012, the Company had total capital lease obligations of $272,508$59,266 and $335,366,$272,508, the current portion being $131,072$31,576 and $117,138,$131,072, respectively. Capital leases are secured by assets with a total original cost of $539,659$105,162 and $497,779$234,659 with related accumulated depreciation of $314,997$40,932 and $209,864$83,577 as of September 30, 2013 and 2012, and 2011, respectively.

(7)Preferred Stock
(8) 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.
F - 22

Series D Convertible Preferred Stock

In July 2011, the Company designated 85,000 sharesamended its Articles of preferred stock as Series D Convertible Preferred stock, $0.0001 par value per share (“Series D Preferred stock”).

DuringIncorporation and increased the fiscal year ended September 30, 2011, the Company issued 26,037total designated shares of Series D Preferred stock under securities purchase agreements for $10,344,603 in net cash proceeds, 4,669from 70,000 to 85,000 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.

(“Series D Preferred stock”). During the fiscal yearyears ended September 30, 2013 and 2012, the Company issued 0 and 4,008 shares of Series D Preferred stock under securities purchase agreements for $0 and $2,004,000 in net cash proceeds. proceeds, respectively.

As of September 30, 20122013 and 2011,2012, there were 48,763468 and 44,84548,763 Series D Preferred shares outstanding, respectively.

Dividends
The Series D Preferred stock is entitled to dividends at the rate equal to 8 percent 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 stock at the sole discretion of the Board of Directors. If a dividend is paid in shares of common stock of the Company, the number of shares to be issued is based on the average per share market price of the common 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, 2013, the Company issued 181,832 shares of common stock to pay $1,663,997 of accrued dividends on the Series D Preferred stock earned for the twelve months between July 1, 2012 and June 30, 2013. Subsequent to September 30, 2013, the Company issued 483 shares of common stock to pay $5,650 of accrued dividends on Series D Preferred stock earned during the three months ended September 30, 2013.

During the fiscal year ended September 30, 2012, the Company issued 42,137,711210,689 shares of common stock to pay $2,391,568 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 20,760,551103,803 shares of common stock to pay $630,528 of accrued dividends on Series D Preferred stock earned during the three 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, 2010 and June 30, 2011.

Convertibility
Each share of Series D Preferred stock may be converted into 6,00030 shares of common stock, commencing after ninety days from the date of issue.

In February 2013, and as a condition to a loan agreement, the Company conducted an exchange offer (“Exchange Offer”) of Series D Preferred stock in order to simplify the capitalization structure. The Exchange Offer was conditioned upon at least 90 percent of the cumulative original issue price paid for all of the issued and outstanding shares of Series D Preferred stock. The shareholders were entitled to exchange their shares of Series D Preferred at a premium over the current conversion rate of 30 shares of common stock per Series D Preferred share as follows: 15 shares for each $1,000 of original price paid, 10 shares for each $676 of original price paid, and 8 shares for each $500 of original price paid. During the fiscal yearsyear ended September 30, 2013 and under the Exchange Offer, 48,295 shares of Series D Preferred stock converted into 1,894,283 shares of common stock.

65
During the fiscal year ended September 30, 2012, and 2011, 90 and 22,735 shares of Series D Preferred stock were converted into 540,000 and 136,410,0002,700 shares of common stock.

Subsequent to the fiscal year ended September 30, 2013, the Company entered into an Employment Agreement with its Chief Financial Officer. In addition, Mr. Olsen and the Company agreed that he may convert his Series D Preferred shares into common stock respectively.at a rate of 155% of each share’s original investment; provided that Mr. Olsen must convert all of his Series D Preferred shares before the next annual shareholder meeting of the Company.
 
Voting Rights and Liquidation Preference
The holders 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, 20122013 and 2011,2012, there were 48,763468 and 44,84548,763 shares of Series D Preferred stock outstanding, respectively. Additionally, the holders are entitled to a liquidation preference equal to their original investment amount.

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.

F - 23
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, 5,400 warrants to purchase Series D Preferred stock at an exercise price of $500 per share were issued and outstanding.
SecureAlert Monitoring, Inc. Series A Preferred Shares
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 as2013, no Series A Convertible Redeemable Non-VotingD Preferred stock (“SMI Series A Preferred stock”).warrants were issued or exercised.

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)(8)Common Stock

Authorized Shares

Pursuit toThe Company held an annual shareholdersAnnual Shareholders meeting held on December 21, 2011 wherebyFebruary 28, 2013, at which time the shareholders approved an amendment,a reverse stock split at a ratio of 200 for 1 and reduced the Company increased its total authorized shares of common stock from 600,000,000 to 1,250,000,00015,000,000 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, 2012,2013, the Company issued 115,704,8716,709,021 shares of common stock. Of these shares, 540,0001,894,283 shares were issued upon conversion of 48,295 shares of Series D Preferred stock; 21,884 shares were issued for services rendered to the Company valued at $141,758; 4,607,361 shares were issued in connection with debt and accrued interest of $20,733,118; 181,832 shares were issued to pay dividends from Series D Preferred stock of $1,663,997; and 3,661 shares were issued to pay Board of Director fees of $47,500.

During the fiscal year ended September 30, 2012, the Company issued 578,524 shares of common stock. Of these shares, 2,700 shares were issued upon conversion of 90 shares of Series D Preferred stock; 14,393,86071,969 shares were issued as part of a royalty agreement, valued at $819,972; 862,9614,315 shares were issued for services rendered to the Company valued at $40,000; 1,689,7148,449 shares were issued in connection with debt and accrued interest; 42,137,711interest of $118,280; 210,689 shares were issued to pay dividends from Series D Preferred stock; 24,340,000stock of $2,391,568; 121,700 shares were issued to employees for compensation; 600,000compensation of $732,634; 3,000 shares were issued to pay Board of Director fees of $48,060 and 31,140,625155,703 shares were issued for $1,033,000 in cash proceeds.

During the fiscal year ended September 30, 2011, the Company issued 223,653,951 shares of common stock. Of these shares, 136,410,000 shares were issued upon conversion of 22,735 shares of Series D Preferred stock; 250,000 shares were issued for services rendered to the Company valued at $21,310; 2,705,264 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 redemption of SMI Series A Preferred stock; and 21,307,067 shares were issued to pay dividends from Series D Preferred stock. During the fiscal year ended September 30, 2011, the Company cancelled 53,778 shares of common stock previously issued.
 
 
F - 2466
 

(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”), 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 yearyears ended September 30, 2013 and 2012, the Company ratified0 and 30,000 options to purchase 6,000,000 shares of common stockwere issued under this plan that were previously granted on September 30, 2011.2012 Plan, respectively. As of September 30, 2012, options to purchase 13,713,3332013, 60,000 shares of common stock were available to distributefor future grants under the 2012 Plan.

Re-pricing of Warrants

During the fiscal year ended September 30, 2013, the Company did not re-price any previously issued warrants.

During the fiscal year ended September 30, 2012, the Company re-priced 4,893,00024,465 previously issued warrants in connection with debt financing agreements with original exercise prices ranging from $0.10$20 to $0.30,$60, revising the exercise price to $0.075,$15, resulting in additional interest expense of $39,965. Of the 4,893,00024,465 warrants re-priced, 4,211,00021,055 warrants were in connection with related-party transactions (see Note 5).transactions.

All Options and Warrants

During the fiscal year ended September 30, 2011,2013, the Company did not re-price anygranted 143,937 warrants to members of its Board of Directors, valued at $701,062. As of September 30, 2013, $154,378 of compensation expense associated with unvested stock options and warrants issued previously issued warrants.
All Options and Warrantsto members of the Board of Directors will be recognized over the next year.

During the fiscal year ended September 30, 2012, the Company granted options and warrants to purchase 10,900,00054,500 shares of common stock as follows: 3,700,00018,500 to members of the Board of Directors, valued at $105,041; 6,000,00030,000 to settle a lawsuit, valued at $253,046; and 1,200,0006,000 warrants to a consultant, valued at $33,358. The vesting periods for these options and warrants ranged from three to five years. Additionally during the fiscal year ended 2012, the Company cancelled 36,500,000182,500 of unvested warrants held by executives of the Company and issued 24,340,000121,700 shares of common stock and accelerated the vesting of 11,500,00057,500 of warrants for services rendered as of March 31, 2012.rendered. 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, which 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, 2013 and 2012 and 2011,using the Black-Scholes model, respectively:

  Fiscal Years Ended 
  September 30, 
  2013  2012 
Expected cash dividend yield  -   - 
Expected stock price volatility  108%  95%
Risk-free interest rate  0.18%  0.36%
Expected life of options 1.38 Years 2 Years 
  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 

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.
 
 
F - 2567
 
 
A summary of stock optionthe compensation-based options and warrants activity for the fiscal years ended September 30, 20122013 and 20112012 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, 2011  495,891  $26.00     
Granted  75,000,000  $0.08    54,500  $18.00     
Expired  (3,562,249) $0.32     (213,609) $22.00     
                  
Outstanding as of September 30, 2011  99,178,202  $0.13   
Outstanding as of September 30, 2012  336,782  $28.00     
Granted  10,900,000  $0.09    143,937  $11.18     
Expired / Cancelled  (42,721,709) $0.11     (52,754) $76.97     
                  
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, 2013  427,965  $16.12 1.38 years $1,802,008.18 
Exercisable as of September 30, 2013  392,939  $16.75 1.36 years $1,435,627.07 

The year-endfiscal year end intrinsic values are based on a September 30, 20122013 closing price of $0.0301$19.46 per share.

(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, 20122013 and 2011,2012, the Company incurred net losses for income tax purposes of $8,693,769$3,427,372 and $7,627,477,$8,693,769, 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, 2012,2013, the Company had net carryforwards available to offset future taxable income of approximately $179,000,000 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, 2013, approximately $79,000,000 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, 2013, 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, 2013.
.
68
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 $-  $- 


 
F - 26
  Fiscal Years Ended 
  September 30, 
  2013  2012 
Net loss carryforwards $72,700,000  $72,200,000 
Accruals and reserves  247,000   529,000 
Contributions  8,000   6,000 
Depreciation  42,000   26,000 
Stock-based compensation  5,880,000   5,768,000 
Valuation allowance  (78,877,000)  (78,529,000)
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, 20122013 and 20112012 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, 
  2013  2012 
Federal income tax benefit at statutory rate $6,091,000  $5,936,000 
State income tax benefit, net of federal income tax effect  591,000   576,000 
Change in estimated tax rate and gain (loss) on non-deductible expenses  (5,556,000)  (2,068,000)
Loss of operating losses for entities sold  (778,000)  - 
Change in valuation allowance  (348,000)  (4,444,000)
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$76,732 in value-added taxes which will be due upon collection.

The Company’s open tax years for its federal and state income tax returns are for the tax years ended September 30, 20082010 through September 30, 2012.2013.

(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 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption Agreements with the Company. 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 any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with legal counsel.

Larry C. Duggan v. Court Programs of Florida, Inc. and SecureAlert, Inc.On March 26, 2012, Mr. Duggan filed a complaint in the 9th Circuit Court in and for Orange County, Florida alleging malicious prosecution, abuse of process and negligent infliction of emotional distress against the Companyus and itsour former subsidiary. The case resulted from actions of a former agent of the Company’sour former subsidiary. The Company intends to defend itself in this matter. 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.

Camacho Melendez et alIntegratechs v. CommonwealthSecureAlert, Inc. On March 14, 2013, Integratechs, Inc. filed a suit in the Fourth Judicial District Court 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 ofUtah County, claiming the Company claiming negligence bybreached a contract for computer services and intentionally interfered with its economic relations. The Company believes the allegations are inaccurate and will defend the case vigorously. No accrual for a potential loss has been made as the Company 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 it 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.

 
F - 2769
 
 
GrenierChristopher P. Baker v. Court Programs of Florida,SecureAlert, Inc. The estate of Brooke GrenierIn February 2013, Mr. Baker filed suit against Court Programs of Florida, Inc., a subsidiary or SecureAlert,the Company in the CircuitThird Judicial District Court of the 19th Judicial Circuit in and for Indian RiverSalt Lake County, Florida.State of Utah. Mr. Baker asserts that the Company breached a 2006 consulting agreement with him and claims damages of not less than $210,000. The suit alleges negligence leading toCompany disputes plaintiff’s claims and will defend the deathcase vigorously. No accrual for a potential loss has been made as the Company believes the probability of Ms. Grenier. We assert no negligence and are vigorously defending the claims made against Court Programs of Florida, Inc.incurring a material loss is remote.
 
Data Subscriber Service Agreement
During the fiscal year ended September 30, 2012,SecureAlert, Inc. v. STOP, LLC. On December 17, 2013, the Company filed a claim in the United States District Court, District of Utah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into a data subscriber service agreement whereinby and between the Company agreed to a prepayment schedule with a vendor to provide Subscriber Identity Module (SIM) cards and mobile data services toSTOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. The Company believes the Company, at reduced rates, withrelief sought in the intent to settle a disputecase is warranted based on the language and reduce communication costs in connection with the monitoringintent of the Company’s TrackerPAL®parties and ReliAlert™ devices.
As of September 30, 2012,we will pursue 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 
matter vigorously.
Operating Lease Obligations

The following table summarizes the Company’s contractual obligations as of September 30, 2012:2013:

Fiscal Year Total  Total 
      
2013 $463,902 
2014  157,014  $237,580 
2015  22,113   34,721 
Thereafter  -   - 
       
Total $643,029  $272,301 
 
The total operating lease obligations of $643,029$272,301 consist of the following: $626,752$272,301 from facilities operating leases and $16,277$0 from equipment leases. During the fiscal years ended September 30, 20122013 and 2011,2012, the Company paid approximately $535,855$350,073 and $473,029,$383,187, 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. 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.

Indemnification Agreements

In November 2001,The Company’s Bylaws require the Company agreed 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.

F - 28
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 resubmitted documentation to comply with the country’s requirements; and as of the date of this Report, the audit results and potential penalties 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. sell to a former principal all of the issued 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.

70
The cost tofollowing is a summary of the Company duringassets and liabilities of Midwest and Court Programs reported as discontinued operations for the fiscal years ended September 30, 2013 and 2012, and 2011 was $961,994 and $650,230, respectively. These amounts are included in cost of sales.respectively:

(13) Fair Value Measurements
  2013  2012 
Current assets:      
Cash $-  $237,082 
Accounts receivable, net of allowance for doubtful accounts  -   452,841 
Note receivable  -   81,389 
Prepaid expenses and other assets  -   218,593 
Total current assets $-  $989,905 
         
Non-current assets:        
Property and equipment, net of accumulated depreciation $-  $173,002 
Monitoring equipment, net of accumulated amortization  -   153,163 
Deposits  -   9,218 
Goodwill  -   375,000 
Intangible assets, net of accumulated amortization  -   148,636 
Total non-current assets $-  $859,019 
         
Current liabilities:        
Accounts payable $-  $614,557 
Accrued liabilities  -   561,611 
Deferred revenue  -   67,613 
Current portion of long-term related-party debt  -   138,602 
Current portion of long-term debt  -   295,067 
Total current liabilities $-  $1,677,450 
         
Long-term liabilities:        
Long-term portion of related-party debt  -   - 
Long-term portion of debt  -   364,270 
Total long-term liabilities $-  $364,270 

The following is a summary of the operating results of discontinued operations for the fiscal years ended September 30, 2013 and 2012:
  2013  2012 
Revenues $477,298  $6,676,513 
Cost of revenues  (163,487)  (4,112,410)
Gross profit  313,811   2,564,103 
Selling, general and administrative  (319,976)  (2,782,628)
Loss from operations  (6,165)  (218,525)
Other expense  (295)  (89,294)
Net loss from discontinued operations $(6,460) $(307,819)
For asset and liabilities measured at fair value, the Company uses the following hierarchy of inputs:

·(13)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.;Subsequent Events

Assets measured at fair value on a non-recurring basis at September 30, 2012 are summarized as follows:

  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, 2012,2013, the following events occurred:

1)20,760,551The Company issued to directors for services rendered during the fourth fiscal quarter ended September 30, 2013, warrants to purchase 6,840 shares of Common Stock with an exercise price of $19.46 per share, valued at the date of grant at $53,091 using the Black-Scholes model.

2)The Company issued 483 shares of common stock were issued for fourth quarter Series D Preferred stock dividends, valued at $630,528.$5,650.
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.

71
3)The Company’s Chief Executive Officer, John L. Hastings, III resignedCompany issued 760 shares of common stock to several directors for services rendered, valued at $15,000.

4)The Company issued 500 shares of common stock to a consultant from all executive positionsthe exercise of warrants with an exercise price of $16.00 per share which provided cash proceeds to 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.$8,000.
  
5)The Company issued 4,700 shares of common stock to an officer upon the cashless exercise of warrants with exercise prices ranging from $15.00 to $16.66 per share.

6)The Company entered into an Employment Agreement with its Chief Financial Officer. The term of this agreement commenced on November 14, 2013 and continues until the earlier of (i) 30 days following the closing of an acquisition of or by the Company; or (ii) November 13, 2014. Thereafter, the agreement will be reviewed and renewed upon the mutual agreement by the parties. If Mr. Olsen’s employment terminates as a result of an involuntary termination other than for cause or at the end of the term of the agreement, he will be entitled to receive separation benefits which include payment of salary of $192,000 paid over a 120-day period and other benefits as outlined in the agreement. In addition, Mr. Olsen and the Company agreed that he may convert his Series D Preferred shares into common stock at a rate of 155% of each share’s original investment; provided that Mr. Olsen must convert all of his Series D Preferred shares before the next annual shareholder meeting of the Company.

7)On December 3, 2012, SecureAlertNovember 15, 2013, the Company entered into a Loan41-month agreement with the Gendarmeria de Chile (the Republic of Chile’s uniformed prison service) to provide electronic (GPS and Security Agreementresidential) monitoring of offenders and other services to the Chilean government. The agreement calls for the Company to put into service up to 9,400 electronic monitoring (GPS) devices over the contract. The Company was required under the agreement, to post a performance bond in the amount of $3,382,082 U.S. Dollars. In addition, the Company will design and construct a real-time monitoring and data center to be staffed by Chilean government employees. Training from the monitoring center personnel will also be provided by the Company. The maximum sum to be paid for the services provided by the Company is approximately $70,000,000 U.S. Dollars, at current exchange rates, over the term of the agreement.

8)The Company drew down an advance of $1,200,000 from a line-of-credit to be used with Sapinda Asia whereby Sapinda Asia willother available cash on hand to issue a bond for an international customer in the amount of $3,382,082.

9)The Company borrowed $1,500,000 from a shareholder for working capital. The unsecured loan SecureAlert $16,640,000. The loan will accruebears interest at a rate of 8 percent8% per annum and includesmatures on November 18, 2014.

10)On December 17, 2013, the Company filed a loan origination feeclaim in the United States District Court, District of $640,000, whichUtah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010. The complaint was forfeitedfiled under seal and is not publicly available. The Company believes the termsrelief sought in the case is warranted based on the language and intent of the Loanparties and Security Agreement when Sapinda Asia failed to timely fundwe will pursue the loan in full. The loan is convertible into shares of common stock at $0.0225 per share and matures on Junematter vigorously.

11)On December 17, 2014. Subsequent to the fiscal year ended September 30, 2012,2013, the Company received $2,800,000 under the Loan and Security Agreement. The proceedsentered into a non-binding letter of intent to acquire all of the loanissued and outstanding stock of GPS Global, an Israeli corporation located in Tel Aviv. The parties are currently negotiating a definitive agreement for the stock purchase; compensation for the stock will be useda combination of cash and our common stock. It is the intent of the parties to redeemclose the royalty obligation previously grantedtransaction as soon as possible.

12)On January 3, 2014, the Company entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by the Company’s Chairman, Guy Dubois. Under this agreement, the Company may borrow up to Borinquen$25,000,000 for working capital and for general corporateacquisitions purposes. The loan is secured, after such loan is fully funded, bybears 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, the Company agreed to pay Tetra House an arrangement fee equal to 3% of the intellectual property and other assetsaggregate maximum amount under the loan. As of January 14, 2014, 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 defaultborrowed $10,000,000 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.Facility Agreement.
 
F - 2972
 
SecureAlert, Inc.
FORM 10-Q
For the Quarterly Period Ended June 30, 2013
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)F-31
Condensed Consolidated Statements of Operations (Unaudited)
F-32
Condensed Consolidated Statements of Cash Flows (Unaudited)
F-33
Notes to Condensed Consolidated Financial Statements (Unaudited
F-35
F - 30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 June 30,  September 30,  March 31, September 30, 
Assets 2013  2012  2014 2013 
Current assets:           
Cash $4,030,960  $458,029  $7,365,884 $3,382,428 
Accounts receivable, net of allowance for doubtful accounts of $338,000 and $772,000, respectively
  2,912,897   2,411,701 
Note receivable, current portion  196,116   74,801 
Accounts receivable, net of allowance for doubtful accounts of $3,952,000 and $3,968,000, respectively 3,151,155 3,721,964 
Notes receivable, current portion 259,045 176,205 
Prepaid expenses and other  1,873,640   1,760,579  2,564,949 1,783,805 
Inventory, net of reserves of $192,000 and $192,000, respectively  443,721   630,566 
Current assets from discontinued operations  -   989,905 
Inventory, net of reserves of $478,827 and $148,043, respectively  489,695  467,101 
Total current assets  9,457,334   6,325,581  13,830,728 9,531,503 
Property and equipment, net of accumulated depreciation of $2,055,798 and $1,889,041, respectively  352,388   506,599 
Monitoring equipment, net of accumulated depreciation of $1,572,572 and $669,929, respectively  2,113,641   3,171,947 
     
Property and equipment, net of accumulated depreciation of $2,195,849 and $2,092,222, respectively 591,941 318,201 
Monitoring equipment, net of accumulated amortization of $1,065,534 and $1,183,346, respectively 1,786,524 1,236,696 
Note receivable, net of current portion  -   112,492  - 28,499 
Intangible assets, net of accumulated amortization of $1,035,017 and $789,996, respectively  15,635,550   15,517,617 
Intangible assets, net of accumulated amortization of $1,730,471 and $1,256,647, respectively 19,440,096 15,413,920 
Acquisition purchase commitment 5,740,451 - 
Other assets  80,375   65,597   3,416,297  170,172 
Non-current assets from discontinued operations, net of accumulated depreciation of $0 and $2,837,498, respectively
  -   833,892 
Total assets $27,639,288  $26,533,725  $44,806,037 $26,698,991 
             
Liabilities and Stockholders’ Equity             
Current liabilities:             
Accounts payable $296,682  $1,830,075  $744,603 $348,074 
Accrued liabilities  3,336,656   2,439,451  1,711,906 2,180,791 
Dividends payable  9,325   630,528  5,103 9,427 
Deferred revenue  8,708   354,570  5,617 8,674 
Current portion of long-term related-party debt  -   12,654,701  2,700,000 60,000 
Current portion of long-term debt, net of debt discount  90,617   339,151 
Current liabilities from discontinued operations  -   1,677,450 
Current portion of long-term debt  2,321,094  88,095 
Total current liabilities  3,741,988   19,925,926  7,488,323 2,695,061 
Long-term related-party debt, net of current portion and debt discount  5,934,012   1,730,712 
Long-term debt, net of current portion  61,929   85,680 
Long-term liabilities from discontinued operations  -   364,270 
Long-term debt, net of debt discount, net of current portion  11,229,534  40,588 
Total liabilities  9,737,929   22,106,588  18,717,857 2,735,649 
             
Stockholders’ equity:             
Preferred stock:             
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 468 and 48,763 shares outstanding, respectively (aggregate liquidation preference of $467,507)
  1   5 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 5,896,294 and 3,096,642 shares outstanding, respectively
  590   310 
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 10 and 468 shares outstanding, respectively (aggregate liquidation preference of $15,500) 1 1 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 10,066,321 and 9,805,503 shares outstanding, respectively 1,006 980 
Additional paid-in capital  272,608,421   252,940,448  294,932,850 290,391,698 
Accumulated other comprehensive income 145,972 - 
Accumulated deficit  (254,707,653)  (248,513,626)  (268,991,649)  (266,429,337)
Total equity  17,901,359   4,427,137   26,088,180  23,963,342 
Total liabilities and stockholders’ equity $27,639,288  $26,533,725  $44,806,037 $26,698,991 

The accompanying notes are an integral part of these condensed consolidated statementsstatements.

 
F - 3173
 

SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 Three Months Ended  Nine Months Ended 
` Three Months Ended Six Months Ended 
 June 30,  June 30,  March 31, March 31, 
 2013  2012  2013  2012  2014 2013 2014 2013 
Revenues:                     
Products $165,029  $151,610  $464,076  $1,544,015  $145,925 $165,253 $211,536 $299,047 
Monitoring and other related services  2,520,185   2,848,096   12,617,534   8,572,595   2,309,864  4,643,071  4,903,547  10,097,349 
Total revenues  2,685,214   2,999,706   13,081,610   10,116,610  2,455,789 4,808,324 5,115,083 10,396,396 
                         
Cost of revenues:                         
Products  86,773   88,789   199,785   553,004  58,349 58,373 121,070 113,012 
Monitoring and other related services  1,508,878   1,431,551   6,417,454   4,482,754   1,035,418  1,984,697  2,371,526  4,908,576 
Total cost of revenues  1,595,651   1,520,340   6,617,239   5,035,758  1,093,767 2,043,070 2,492,596 5,021,588 
                         
Gross profit  1,089,563   1,479,366   6,464,371   5,080,852  1,362,022 2,765,254 2,622,487 5,374,808 
                         
Operating expenses:                         
Selling, general and administrative (including non-cash expenses of $100,964, $2,471,664, $233,474 and $3,777,921, respectively, of compensation expense paid in stock, stock options and warrants or as a result of amortization of stock-based compensation)
  2,075,796   4,494,197   6,238,783   10,838,842 
Selling, general and administrative (including $123,785, $125,166, $263,981 and $132,510,respectively, of compensation expense paid in stock, stock options / warrant or as a result of amortization of stock-based compensation) 2,564,015 2,124,965 4,735,423 4,162,987 
Settlement expense  -   -   350,000   -  - - - 350,000 
Research and development  269,072   310,810   668,269   987,215   403,175  197,603  722,745  399,197 
                         
Loss from continuing operations  (1,255,305)  (3,325,641)  (792,681)  (6,745,205)
Income (loss) from continuing operations (1,605,168) 442,686 (2,835,681) 462,624 
                         
Other income (expense):                         
Currency exchange rate gain (loss)  (59,940)  35,633   (122,331)  (30,033) 2,803 (54,187) (4,232) (62,391)
Loss on disposal of equipment  (94)  -   (1,459)  (216) - - - (1,365)
Interest expense (including non-cash expenses of $2,390,915, $602,729, $5,200,842, and $680,088, respectively, paid in stock, stock options and warrants, or re-pricing of warrants, or amortization of debt discount)
  (2,737,220)  (654,426)  (5,939,171)  (992,334)
Interest income 12,883 156,360 24,106 156,360 
Interest expense (including $95,398, $2,109,543, $97,516, and $2,809,927, respectively, paid in stock, stock options / warrants, and accretion of debt discount) (327,367) (2,358,727) (371,285) (3,201,951)
Other income (expense), net  (80,204)  42,503   243,256   216,629   624,730  175,083  624,780  167,100 
Net loss from continuing operations  (4,132,763)  (3,901,931)  (6,612,386)  (7,551,159) (1,292,119) (1,638,785) (2,562,312) (2,479,623)
Gain on disposal of discontinued operations  -   -   424,819   -  - 139,564 - 424,819 
Net loss from discontinued operations  -   (245,978)  (6,460)  (178,615)  -  -  -  (6,460)
Net loss  (4,132,763)  (4,147,909) ��(6,194,027)  (7,729,774) (1,292,119) (1,499,221) (2,562,312) (2,061,264)
Dividends on Series D Preferred stock  (9,325)  (623,678)  (1,033,470)  (1,849,771)  (5,103)  (393,815)  (14,530)  (1,024,145)
Net loss attributable to SecureAlert, Inc. common stockholders $(4,142,088) $(4,771,587) $(7,227,497) $(9,579,545) $(1,297,222) $(1,893,036) $(2,576,842) $(3,085,409)
Net loss per common share, basic and diluted from continuing operations $(0.70) $(1.49) $(1.51) $(2.92) $(0.13) $(0.40) $(0.26) $(0.68)
Net loss per common share, basic and diluted from discontinued operations $-  $(0.09) $-  $(0.07) $- $- $- $- 
Weighted average common shares outstanding, basic and diluted  5,886,000   2,624,305   4,387,000   2,584,315  9,830,000 4,102,000 9,819,000 3,638,000 
 
The accompanying notes are an integral part of these condensed consolidated statementsstatements.

 
F - 3274
 

SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 Nine Months Ended  Six Months Ended 
 June 30,  March 31, 
 2013  2012  2014 2013 
Cash flows from operating activities:           
Net Loss $(6,194,027) $(7,729,774)
Gain on sale of subsidiaries  (424,819)  - 
Loss from discontinued operations  6,460   178,615 
Net loss $(2,562,312) $(2,061,264)
(Income) loss from discontinued operations  -  (418,359)
Loss from continuing operations  (6,612,386)  (7,551,159) (2,562,312) (2,479,623)
Adjustments to reconcile net loss to net cash used and provided by in operating activities:
        
Adjustments to reconcile net income to net cash used in operating activities:     
Depreciation and amortization  1,922,243   1,641,289  960,267 1,303,355 
Vesting and re-pricing of stock options for services  81,407   1,232,552  142,500 14,688 
Issuance of common stock to employees for the cancellation of warrants  -   2,130,694 
Issuance of warrants with related parties 83,981 45,844 
Issuance of common stock for services  106,223   28,000  37,500 71,978 
Re-pricing of warrants in connection with debt with related parties  -   39,965 
Accretion interest expense in connection with debt discount related to notes payable 97,516 1,757,149 
Beneficial conversion feature recorded as interest expense  5,200,842   592,483  - 1,052,778 
Issuance and re-pricing of warrants with related parties  45,844   - 
Impairment of monitoring equipment and parts  450,000   -  150,000 300,000 
Factional shares of common stock paid in cash  (1,996)  - 
Loss on disposal of property and equipment  2,034   11,562  - 1,490 
Fractional shares of common stock paid in cash - (1,996)
Loss on disposal of monitoring equipment and parts  89,093   88,839  17,388 54,360 
Loss on forgiveness of note receivable  -   22,750 
Property and equipment disposed for services and compensation  -   2,790 
Accretion interest expense in connection with debt discount related to acquisition of subsidiary
  -   47,640 
Change in assets and liabilities:             
Accounts receivable, net  (736,579)  946,040  570,809 (3,097,825)
Notes receivable  72,566   69,011  45,659 47,102 
Inventories  186,845   (189,139) 87,348 194,775 
Prepaid expenses and other assets  107,538   (1,391,551) (722,175) (160,230)
Accounts payable  (1,524,922)  8,355  396,529 (1,092,333)
Accrued expenses  2,395,860   (106,247) (304,505) 2,367,622 
Deferred revenue  (345,862)  482,110   (3,057)  (339,894)
Net cash provided by (used in) operating activities  1,438,750   (1,894,016) (1,002,552) 39,240 
             
Cash flow from investing activities:             
Purchase of property and equipment  (32,968)  (99,846)
Purchase of monitoring equipment and parts  (490,153)  (1,545,649)
Purchases of property and equipment (377,368) (17,607)
Purchases of monitoring equipment and parts (1,209,973) (466,784)
Investment in GPS Global Tracking & Surveillance System Ltd. (1,240,451) - 
Cash deposited in escrow to secure international bond  (3,346,622)  - 
Net cash used in investing activities  (523,121)  (1,645,495) (6,174,414) (484,391)
             
Cash flow from financing activities:             
Borrowings on related-party notes payable  2,800,000   2,980,000  2,700,000 2,800,000 
Principal payments on related-party notes payable  -   (3,177,947) (60,000) - 
Proceeds from convertible debentures  -   500,000 
Proceeds from related-party convertible debentures  -   2,000,000 
Redemption of Series D Preferred stock for cash (312,007) - 
Proceeds from note payable, net of fees 9,250,000 - 
Principal payments on notes payable  (287,888)  (738,380) (425,571) (254,319)
Net proceeds from issuance of Series D Convertible Preferred stock  -   1,612,000 
Cash received from the exercise of warrants  8,000  - 
Net cash provided by financing activities  2,512,112   3,175,673  11,160,422 2,545,681 
             
Cash flow from discontinued operations:             
Net cash provided by operating activities  126,715   10,973  - 126,715 
Net cash provided by investing activities  -   126,330 
Net cash provided by financing activities  18,475   95,303 
Net cash used in investing activities - - 
Net cash used in financing activities  -  18,475 
Net cash provided by discontinued operations  145,190   232,606  - 145,190 
             
Net increase in cash  3,572,931   (131,232) 3,983,456 2,245,720 
Cash, beginning of period  458,029   586,201   3,382,428  458,029 
Cash, end of period $4,030,960  $454,969  $7,365,884 $2,703,749 
 
The accompanying notes are an integral part of these condensed consolidated statementsstatements.

 
F - 3375
 

SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

  Nine Months Ended 
  June 30, 
  2013  2012 
  $222,262  $259,844 
         
         
Issuance of stock warrants for settlement of debt  -   253,046 
Issuance of common stock in connection with Series D Preferred stock dividends  1,654,673   1,767,890 
Series D Preferred stock dividends earned  1,033,470   1,849,771 
Issuance of warrants for Board of Director fees  318,344   105,042 
Issuance of common stock shares for Board of Director fees  -   48,060 
Issuance of shares of common stock, respectively, for related-party royalty payable
  -   769,575 
Issuance of common stock shares for settlement of debt  3,156,493   118,280 
Issuance of warrants to a consultant for services  -   33,358 
Issuance of common stock shares from the conversion of shares of Series D Preferred stock
  189   42 
Beneficial conversion feature recorded with convertible debt  15,619,444   473,334 
Issuance of debt to repurchase royalty agreement  11,898,455   - 
Note payable issued to acquire monitoring equipment and property and equipment  -   69,000 
Beneficial conversion feature recorded with related-party convertible debentures  -   368,333 
Note receivable issued for outstanding accounts receivable net of accounts payable  -   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 
Acquisition of monitoring equipment for an accrued liability  -   68,500 
  Six Months Ended 
  March 31, 
  2014  2013 
Cash paid for interest $106,403  $220,445 
         
Supplemental schedule of non-cash investing and financing activities:        
Issuance of common stock in connection with Series D Preferred stock dividends  18,854   1,260,858 
Series D Preferred stock dividends earned  14,530   1,024,145 
License agreement with STOP through debt obligation  4,500,000   - 
Cancellation of accrued royalties  832,531   - 
Issuance of common stock shares for settlement of debt  -   3,156,493 
Issuance of common stock shares from the conversion of shares of Series D     
Preferred stock  2   189 
Beneficial conversion feature recorded with convertible debt  -   15,619,444 
Issuance of common stock in connection with an acquisition purchase  4,500,000   - 
commitment        
Issuance of debt to repurchase royalty agreement  -   11,898,455 

The accompanying notes are an integral part of these condensed consolidated statementsstatements.

 
F - 3476
 

SECUREALERT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)           BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial information of SecureAlert, Inc. and subsidiaries (collectively, the “Company” or “SecureAlert”) has been prepared in accordance with the Instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2013,March 31, 2014, and results of its operations for the three and ninesix months ended June 30, 2013March 31, 2014 and 2012.2013.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012.2013.  The results of operations for the three and ninesix months ended June 30, 2013March 31, 2014 may not be indicative of the results for the fiscal year ending September 30, 2013. On February 28, 2013, the shareholders of the Company approved a reduction in the authorized share capital of the Company to 15,000,000 shares of common stock, and a reverse split reducing the outstanding shares of the Company. Share and per share information for the period covered by this report and for prior periods has been retroactively adjusted in this report to reflect the effects of a 200 for 1 reverse stock split of the Company’s common stock effective as of March 25, 2013.
(2) GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which will depend considerably on the ability of the Company to retain and extend existing contracts with its customers. Management’s plan with respect to this uncertainty includes expanding the market for its ReliAlert™ portfolio of products and services and extending the terms to existing contracts. There can be no assurance that revenues will continue or increase in order to generate sufficient cash flow to repay the Company’s obligations. If the Company is unable to supplement its cash flows from operating activities, the Company may be required to obtain additional funding, and if it is unable to do so, the Company may have to cease operations.2014.

(3)(2)           PRINCIPLES OF CONSOLIDATION
 
The condensed consolidated financial statements include the accounts of SecureAlert and its subsidiaries. All significant inter-company transactions have been eliminated in consolidation.

(4)(3)           RECENTLY ISSUED ACCOUNTING STANDARDS

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

(5)(4)           IMPAIRMENT OF LONG-LIVED ASSETS
 
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. If the carrying amount of an asset exceeds its fair 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 value that is independent of other groups of assets.  The Company recorded $450,000$75,000 and $0$150,000 of impairment expenses related to monitoring equipment for the ninethree months ended June 30,March 31, 2014 and 2013, respectively. Additionally, the Company recorded $150,000 and 2012,$300,000 of impairment expenses related to monitoring equipment for the six months ended March 31, 2014 and 2013, respectively.

F - 35
(6) REVENUE RECOGNITION(5)           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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 whichChilean Peso is the Company provides monitoring services and lease devices to distributors or end users and the Company retains ownershipfunctional currency of the leased device; and (b) monitoring services purchased by distributors or end users who have previously purchased monitoring devices and opt to useoperating subsidiary SecureAlert Chile, SpA. The balance sheet of SecureAlert Chile has been translated into United States Dollars (USD) at the Company’s monitoring services.

The Company typically leases its devices under one-year contracts with customers that opt to useexchange rate prevailing at March 31, 2014. Additionally, the Company’s monitoring services. However, these contracts may be cancelled by either party at anytime with 30 days notice. Underaverage exchange rates prevailing during the Company’s standard leasing contract, the leased device becomes billablesix months ended March 31, 2014 had an immaterial effect on the datestatements of activation or 7 to 21 days fromoperations. Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers 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 endeffects of each monthadditional economic events, such as foreign currency translation adjustments, 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 of 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 experiencebe recorded 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 servicesdetermining net loss, but rather are performed using the percentage-of-completion method of accounting for material installations. The Company typically uses labor hours or costs incurred to datereported 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.

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.

F - 36
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 aseparate component of cost of revenues.stockholders’ equity.

(7)(6)           GEOGRAPHIC INFORMATION

During the three and ninesix months ended June 30, 2013,March 31, 2014, 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 and services.  The revenues recognized by geographic area for the three and ninesix months ended June 30,March 31, 2014 and 2013, and 2012, are as follows:

 
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
  
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 2013  2012  2013  2012  2014 2013 2014 2013 
United States of America $1,887,630  $1,812,588  $5,427,973  $5,674,412  $1,728,547 $1,778,884 $3,613,510 $3,547,250 
Latin American Countries  -   283,045   5,252,960   2,167,938  - 2,234,483 - 5,252,960 
Caribbean Countries and Commonwealths  778,450   891,335   2,348,245   2,241,591  710,762 782,482 1,467,440 1,569,012 
Other Foreign Countries  19,134   12,738   52,432   32,669   16,480  12,475  34,133  27,174 
Total $2,685,214  $2,999,706  $13,081,610  $10,116,610  $2,455,789 $4,808,324 $5,115,083 $10,396,396 

77
 
The long-lived assets, net of accumulated depreciation, used in the generation of revenues by geographic area as of June 30, 2013March 31, 2014 and September 30, 2012,2013, were as follows:

 Net Property and Equipment  Net Monitoring Equipment  Net Property and Equipment Net Monitoring Equipment 
 
June 30,
2013
  
September 30,
2012
  
June 30,
2013
  
September 30,
2012
  
March 31,
2014
 
September 30,
2013
 
March 31,
2014
 
September 30,
2013
 
United States of America $352,388  $506,599  $1,038,215  $2,174,976  $552,498  $318,201  $1,451,657  $878,823 
Latin American Countries  -   -   914,325   719,171   13,477   -   144,474   - 
Caribbean Countries and Commonwealths  -   -   157,679   263,782   16,011   -   183,343   351,138 
Other Foreign Countries  -   -   3,422   14,018   9,955   -   7,050   6,735 
Total $352,388  $506,599  $2,113,641  $3,171,947  $591,941  $318,201  $1,786,524  $1,236,696 
 
(8)(7)           NET LOSS PER COMMON SHARE

Basic net loss per common share ("Basic EPS") is computed by dividing net loss available to common shareholders 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 shareholders 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 common stock options and warrants, and shares issuable upon conversion of preferred stock.  As of June 30,March 31, 2014 and 2013, and 2012, there were 4,460,230453,151 and 2,408,1184,334,688 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.  No reconciliation for discontinued operations was provided since the impact was immaterial. The common stock equivalents outstanding as of June 30,March 31, 2014 and 2013 and 2012, consisted of the following:

  
March 31,
2014
  
March 31,
2013
 
Conversion of debt and accrued interest  -   3,771,116 
Conversion of Series D Preferred stock  300   14,040 
Exercise of outstanding common stock options and warrants  410,851   387,532 
Exercise and conversion of outstanding Series D Preferred        
    stock warrants  42,000   162,000 
Total common stock equivalents  453,151   4,334,688 
(8)           PREPAID AND OTHER EXPENSES

The carrying amounts reported in the balance sheets for prepaid expenses and other current assets approximate their fair market value based on the short-term maturity of these instruments. As of March 31, 2014 and September 30, 2013, the outstanding balance of prepaid and other expenses was $2,564,949 and $1,783,805, respectively.  The $2,564,949 is comprised of a $1,488,778 bond posted as a requirement for doing business in Latin America which the Company anticipates to repatriate by June 30, 2014.

 
F - 3778
 

  
June 30,
2013
  
June 30,
2012
 
Conversion of debt and accrued interest  3,846,758   416,667 
Conversion of Series D Preferred stock  14,040   1,463,490 
Exercise of outstanding common stock options and warrants  437,432   365,961 
Exercise and conversion of outstanding Series D Preferred stock warrants
  162,000   162,000 
Total common stock equivalents  4,460,230   2,408,118 
 
(9)           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 itemitem’s selling price.  Inventory is periodically reviewed in order to identify obsolete, or damaged items or impaired values.items.

Inventory consists of raw materials that are used in the manufacturing of TrackerPAL®TrackerPAL™ and ReliAlert™ devices.  Completed TrackerPAL®TrackerPAL™ and ReliAlert™ devices are reflected in Monitoring Equipment.  As of June 30, 2013March 31, 2014 and September 30, 2012,2013, respectively, inventory consisted of the following:

 June 30,  September 30,  March 31, September 30, 
 2013  2012  2014 2013 
Raw materials $635,721  $822,566  $968,522 $615,144 
Reserve for damaged or obsolete inventory  (192,000)  (192,000)  (478,827)  (148,043)
Total inventory, net of reserves $443,721  $630,566  $489,695 $467,101 
 
(10)         PROPERTY AND EQUIPMENT

Property and equipment as of June 30, 2013March 31, 2014 and September 30, 2012,2013, were as follows:

 June 30,  September 30,  March 31, September 30, 
 2013  2012  2014 2013 
Equipment, software and tooling $2,000,340  $1,981,936  $2,379,944 $2,002,577 
Automobiles  33,466   33,466  33,466 33,466 
Leasehold improvements  127,162   127,287  127,162 127,162 
Furniture and fixtures  247,218   252,951  247,218 247,218 
Total property and equipment before accumulated depreciation  2,408,186   2,395,640  2,787,790 2,410,423 
Accumulated depreciation  (2,055,798)  (1,889,041)  (2,195,849)  (2,092,222)
Property and equipment, net of accumulated depreciation $352,388  $506,599  $591,941 $318,201 
 
Depreciation expense for the threesix months ended June 30,March 31, 2014 and 2013 was $103,629 and 2012, was $54,581 and $91,803, respectively. Furthermore, depreciation expense for the nine months ended June 30, 2013 and 2012, was $182,658 and $286,151,$128,077, respectively.  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 anythe property. Any gains or losses are includedrecognized in the results of operations.  During the ninesix months ended June 30,March 31, 2014 and 2013, and 2012, the Company disposed of property and equipment with a net book value of $2,033$0 and $214,566,$1,365, respectively.

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(11)         MONITORING EQUIPMENT

Monitoring equipment as of June 30, 2013March 31, 2014 and September 30, 2012,2013, was as follows:

 June 30,  September 30,  March 31, September 30, 
 2013  2012  2014 2013 
Monitoring equipment $3,686,213  $3,841,876  $2,852,058 $2,420,042 
Less: accumulated depreciation  (1,572,572)  (669,929)  (1,065,534)  (1,183,346)
Monitoring equipment, net of accumulated depreciation $2,113,641  $3,171,947  $1,786,524 $1,236,696 
 
The Company began leasing monitoring equipment to agencies for offender tracking in April 2006 under operating lease arrangements.  The monitoring equipment is amortized using the straight-line method over an estimated useful life of three years.

Depreciation expense for the threesix months ended June 30,March 31, 2014 and 2013 was $382,814 and 2012, was $342,676 and $319,411, respectively. Furthermore, depreciation expense for the nine months ended June 30, 2013 and 2012, was $1,010,757 and $1,106,509,$668,081, respectively.  Additionally, as of June 30, 2013,March 31, 2014, the Company reserved $450,000$150,000 for future monitoring equipment impairment. These expenses were classified as arecognized in cost of revenues.

Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the estimated costs to sell.sell the assets.  During the ninesix months ended June 30,March 31, 2014 and 2013, and 2012, the Company recorded in cost of revenues disposal of lease monitoring equipment and parts of $89,093$17,388 and $88,839,$54,360, respectively.

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(12)         INTANGIBLE ASSETS

As of June 30, 2013, the Company had recorded intangible assets related to an agreement to redeem the royalty held by Borinquen Container Corporation (“Borinquen”), the acquisition of International Surveillance Services Corp. (“ISS”) and a license agreement for the use of certain patents. The following table summarizes the balanceactivity of intangible assets as of June 30, 2013:for the second fiscal quarter ended March 31, 2014:

 
Borinquen
Container
Corporation
  
International
Surveillance
Services
Corp.
  Patent  Total  
Borinquen
Container
Corporation
 
International
 Surveillance
Services Corp.
 
Satellite
Tracking of
People, LLC
 Patent Total 
                       
Other intangible assets:            
Intangible assets:           
Patent license agreement $-  $-  $50,000  $50,000  $- $- $4,500,000 $50,000 $4,550,000 
Royalty agreement  11,616,984   5,003,583   -   16,620,567   11,616,984  5,003,583  -  -  16,620,567 
Total intangible assets  11,616,984   5,003,583   50,000   16,670,567  11,616,984 5,003,583 4,500,000 50,000 21,170,567 
Accumulated amortization  (515,676)  (500,358)  (18,983)  (1,035,017)  (988,767)  (687,994)  (30,562)  (23,148)  (1,730,471)
                
Intangible assets, net of accumulated amortization
 $11,101,308  $4,503,225  $31,017  $15,635,550  $10,628,217 $4,315,589 $4,469,438 $26,852 $19,440,096 
 
Borinquen Container Corporation
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 subsequently amended.  Under the terms of the royalty agreement, Borinquen had the right to receive 20 percent20% of net revenues derived within certain geographic territories.

On February 1, 2013, the Company completed the redemption ofredeemed the royalty withfrom Borinquen which was funded under a Loan and Security Agreement from Sapinda Asia Limited (“Sapinda Asia”), see Note 15. Thethe Company capitalized the total cost of the royalty purchase commitment of $11,616,984, as a non-current asset and will amortizeamortizes the asset over the remaining term of the royalty agreement, subject to periodic analysis for impairment based on future expected revenues.  TheAnnually, the Company will annually calculateevaluates the relative amortization based on the effective royalty rate and oncompares the revenues in the geographic territory subject to the royalty. The Company’s analysis will be based on such factors asroyalty, historical revenue, and expected revenue growth in the territory.

F - 39
As of June 30, 2013,March 31, 2014, the Company had a balance of $11,616,984 of intangible assets, as noted in the table above. The Company recorded $157,697 and $515,676$315,393 of amortization expense on intangible assets for ISSBorinquen during the three and ninesix months ended June 30, 2013,March 31, 2014, resulting in a total accumulated amortization of $515,676$988,767 and net other intangible assets, net of $11,101,308.accumulated amortization of $10,628,217.

International Surveillance Services Corp.
Effective July 1, 2011, the Company entered into a stock purchase agreement and purchased all of the issued and outstanding shares of International Surveillance Services Corp. (“ISS”), a Puerto Rico corporation, to utilize the knowledge and connections of ISS in Central and South America and to acquire the rights to certain territorial commissions that were payable by the Company to ISS.

As of June 30, 2013,March 31, 2014, the Company had a balance of $5,003,583 of intangible assets. The Company recorded $125,091 of amortization expense on intangible assets for ISS during the six months ended March 31, 2014, resulting in a total accumulated amortization expense of $687,994 and intangible assets, net of accumulated amortization of $4,315,589.

Satellite Tracking of People, LLC
On March 1, 2014, the Company entered into an agreement with Satellite Tracking of People, LLC (“STOP”) whereby the Company was granted a non-exclusive, irrevocable, perpetual and royalty-free license to certain patents held by STOP.  Under the terms of the agreement, the Company was released from its obligations to make certain royalty payments under prior agreements.  During the three months ended March 31, 2014, these obligations were removed and the amounts were offset to cost of revenues and other income. The Company agreed to pay STOP a non-refundable payment of $4,500,000 over two years, in 24 equal monthly installments of $187,500. The Company recorded an intangible asset in the amount of $4,500,000, as a non-current asset and will amortize the asset over the estimated useful term of the patents, 10 years, subject to periodic analysis for impairment based on future expected revenues.

As of March 31, 2014, the Company had a balance of $4,500,000 of intangible assets, as noted in the table above. The Company recorded $62,546 and $187,634$30,562 of amortization expense on intangible assets for ISSrelated to this license agreement during the three and ninesix months ended June 30, 2013,March 31, 2014, resulting in a total accumulated amortization of $500,358$30,562 and net other intangible assets of $4,503,225.$4,469,438.

Patent License
On January 29, 2010, the Company and Satellite Tracking of People, LLC (“STOP”) entered into a license agreement whereby STOP granted to the 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 the Company’s present and future business. The license will continue for so long as any of the licensed patents have enforceable rights. The license is not assignable or transferable except for sublicenses within the scope of the license to the Company’s subsidiaries.Authorized Shares

The Company paid $50,000 as considerationheld 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 usetotal authorized shares of this patent.common stock to 15,000,000 shares. The Company recorded $1,389 and $4,167retroactive effect of amortization expense for the patent duringreverse stock split has been reflected throughout these financial statements.
Common Stock Issuances

During the three and nine monthsfiscal year ended JuneSeptember 30, 2013, resulting in a total accumulated amortization relatingthe Company issued 6,709,021 shares of common stock. Of these shares, 1,894,283 shares were issued upon conversion of 48,295 shares of Series D Preferred stock; 21,884 shares were issued for services rendered to the patentCompany valued at $141,758; 4,607,361 shares were issued in connection with debt and accrued interest of $18,983$20,733,118; 181,832 shares were issued to pay dividends from Series D Preferred stock of $1,663,997; and net intangible assets3,661 shares were issued to pay Board of $31,017.Director fees of $47,500.

(13) ACCRUED EXPENSES

Accrued expenses consisted ofDuring the following as of June 30, 2013 andfiscal year ended September 30, 2012:2012, the Company issued 578,524 shares of common stock. Of these shares, 2,700 shares were issued upon conversion of 90 shares of Series D Preferred stock; 71,969 shares were issued as part of a royalty agreement, valued at $819,972; 4,315 shares were issued for services rendered to the Company valued at $40,000; 8,449 shares were issued in connection with debt and accrued interest of $118,280; 210,689 shares were issued to pay dividends from Series D Preferred stock of $2,391,568; 121,700 shares were issued to employees for compensation of $732,634; 3,000 shares were issued to pay Board of Director fees of $48,060 and 155,703 shares were issued for $1,033,000 in cash proceeds.

  June 30,  September 30, 
  2013  2012 
Accrued royalties $845,656  $641,446 
Accrued taxes - foreign and domestic  655,678   262,440 
Accrued interest  625,654   27,831 
Accrued payroll, taxes and employee benefits  347,161   540,931 
Accrued consulting  317,300   352,072 
Accrued outside services  151,839   38,630 
Accrued travel costs  85,756   - 
Accrued settlement costs  82,000   50,000 
Accrued board of directors fees  80,000   265,000 
Accrued cellular costs  50,500   27,662 
Accrued legal costs  47,779   14,628 
Accrued warranty and manufacturing costs  30,622   30,622 
Accrued other expenses  16,711   183,722 
Accrued cost of revenues  -   4,467 
Total accrued expenses $3,336,656  $2,439,451 
 
 
F - 4066
 
 
(14) DEBT OBLIGATIONS
(9)Stock Options and Warrants

DebtStock Incentive Plan

At the annual meeting of shareholders on December 21, 2011, the shareholders approved the 2012 Equity Compensation Plan (the “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 90,000 shares are authorized for issuance pursuant to awards granted under the 2012 Plan. During the fiscal years ended September 30, 2013 and 2012, 0 and 30,000 options were issued under this 2012 Plan, respectively. As of September 30, 2013, 60,000 shares of common stock were available for future grants under the 2012 Plan.

Re-pricing of Warrants

During the fiscal year ended September 30, 2013, the Company did not re-price any previously issued warrants.

During the fiscal year ended September 30, 2012, the Company re-priced 24,465 previously issued warrants in connection with debt financing agreements with original exercise prices ranging from $20 to $60, revising the exercise price to $15, resulting in additional interest expense of $39,965. Of the 24,465 warrants re-priced, 21,055 warrants were in connection with related-party transactions.

All Options and Warrants

During the fiscal year ended September 30, 2013, the Company granted 143,937 warrants to members of its Board of Directors, valued at $701,062. As of September 30, 2013, $154,378 of compensation expense associated with unvested stock options and warrants issued previously to members of the Board of Directors will be recognized over the next year.

During the fiscal year ended September 30, 2012, the Company granted options and warrants to purchase 54,500 shares of common stock as follows: 18,500 to members of the Board of Directors, valued at $105,041; 30,000 to settle a lawsuit, valued at $253,046; and 6,000 warrants to a consultant, valued at $33,358. The vesting periods for these options and warrants ranged from three to five years. Additionally during the fiscal year ended 2012, the Company cancelled 182,500 of unvested warrants held by executives of the Company and issued 121,700 shares of common stock and accelerated the vesting of 57,500 of warrants for services rendered. 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.
The following are the weighted-average assumptions used for options granted during the fiscal years ended September 30, 2013 and 2012 using the Black-Scholes model, respectively:

  Fiscal Years Ended 
  September 30, 
  2013  2012 
Expected cash dividend yield  -   - 
Expected stock price volatility  108%  95%
Risk-free interest rate  0.18%  0.36%
Expected life of options 1.38 Years 2 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.
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A summary of the compensation-based options and warrants activity for the fiscal years ended September 30, 2013 and 2012 is presented below:
  
Shares
Under
Option
  
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value
 
             
Outstanding as of September 30, 2011  495,891  $26.00     
Granted  54,500  $18.00     
Expired  (213,609) $22.00     
             
Outstanding as of September 30, 2012  336,782  $28.00     
Granted  143,937  $11.18     
Expired / Cancelled  (52,754) $76.97     
             
Outstanding as of September 30, 2013  427,965  $16.12 1.38 years $1,802,008.18 
Exercisable as of September 30, 2013  392,939  $16.75 1.36 years $1,435,627.07 

The fiscal year end intrinsic values are based on a September 30, 2013 closing price of $19.46 per share.
(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, 2013 and 2012, the Company incurred net losses for income tax purposes of $3,427,372 and $8,693,769, 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, 2013, the Company had net carryforwards available to offset future taxable income of approximately $179,000,000 which will begin to expire in 2020. The utilization of the net loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards 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. As 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 permitted to offset future taxable income. Of our federal NOL amount as of September 30, 2013, approximately $79,000,000 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 future 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, 2013, or on the Company’s net deferred tax asset as of September 30, 2013.
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The deferred income tax assets (liabilities) were comprised of the following for the periods indicated:
  Fiscal Years Ended 
  September 30, 
  2013  2012 
Net loss carryforwards $72,700,000  $72,200,000 
Accruals and reserves  247,000   529,000 
Contributions  8,000   6,000 
Depreciation  42,000   26,000 
Stock-based compensation  5,880,000   5,768,000 
Valuation allowance  (78,877,000)  (78,529,000)
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, 2013 and 2012 are as follows:
  Fiscal Years Ended 
  September 30, 
  2013  2012 
Federal income tax benefit at statutory rate $6,091,000  $5,936,000 
State income tax benefit, net of federal income tax effect  591,000   576,000 
Change in estimated tax rate and gain (loss) on non-deductible expenses  (5,556,000)  (2,068,000)
Loss of operating losses for entities sold  (778,000)  - 
Change in valuation allowance  (348,000)  (4,444,000)
Benefit for income taxes $-  $- 
During the fiscal year ended September 30, 2013, the Company began recognizing revenues from international sources from its products and monitoring services. During the fiscal year ended September 30, 2013, the Company accrued $76,732 in value-added taxes which will be due upon collection.

The Company’s open tax years for its federal and state income tax returns are for the tax years ended September 30, 2010 through September 30, 2013.
(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 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption Agreements with the Company. 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 intend to defend the case vigorously. 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.

Larry C. Duggan v. Court Programs of Florida, Inc. and SecureAlert, Inc. On March 26, 2012, Mr. Duggan filed a complaint in the 9th Circuit Court in and for Orange County, Florida alleging malicious prosecution, abuse of process and negligent infliction of emotional distress against us and our former subsidiary. The case resulted from actions of a former agent of our former subsidiary. The Company intends to defend this matter. 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.

Integratechs v. SecureAlert, Inc. On March 14, 2013, Integratechs, Inc. filed a suit in the Fourth Judicial District Court of Utah County, claiming the Company breached a contract for computer services and intentionally interfered with its economic relations. The Company believes the allegations are inaccurate and will defend the case vigorously. No accrual for a potential loss has been made as the Company believes the probability of incurring a material loss is remote.

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Christopher P. Baker v. SecureAlert, Inc. In February 2013, Mr. Baker filed suit against the Company in the Third Judicial District Court in and for Salt Lake County, State of Utah. Mr. Baker asserts that the Company breached a 2006 consulting agreement with him and claims damages of not less than $210,000. The Company disputes plaintiff’s claims and will defend the case vigorously. No accrual for a potential loss has been made as the Company believes the probability of incurring a material loss is remote.
SecureAlert, Inc. v. STOP, LLC. On December 17, 2013, the Company filed a claim in the United States District Court, District of Utah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. The Company believes the relief sought in the case is warranted based on the language and intent of the parties and we will pursue the matter vigorously.
Operating Lease Obligations

The following table summarizes the Company’s contractual obligations as of JuneSeptember 30, 2013:

Fiscal Year Total 
    
2014 $237,580 
2015  34,721 
Thereafter  - 
     
Total $272,301 
The total operating lease obligations of $272,301 consist of the following: $272,301 from facilities operating leases and $0 from equipment leases. During the fiscal years ended September 30, 2013 and 2012, the Company paid approximately $350,073 and $383,187, 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% royalty or $0.35 per activated device of monitoring revenues, subject to certain adjustments. 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.
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.

International Importation Audit
During the fiscal year ended September 30, 2013, the Company was notified that several international importation documents were selected to be audited by a taxing authority. The Company resubmitted documentation to comply with the country’s requirements; and as of the date of this Report, the audit results and potential penalties 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 a Stock Purchase Agreement to sell to a former principal all of the issued 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.

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The following is a summary of the assets and liabilities of Midwest and Court Programs reported as discontinued operations for the fiscal years ended September 30, 2013 and 2012, respectively:

  2013  2012 
Current assets:      
Cash $-  $237,082 
Accounts receivable, net of allowance for doubtful accounts  -   452,841 
Note receivable  -   81,389 
Prepaid expenses and other assets  -   218,593 
Total current assets $-  $989,905 
         
Non-current assets:        
Property and equipment, net of accumulated depreciation $-  $173,002 
Monitoring equipment, net of accumulated amortization  -   153,163 
Deposits  -   9,218 
Goodwill  -   375,000 
Intangible assets, net of accumulated amortization  -   148,636 
Total non-current assets $-  $859,019 
         
Current liabilities:        
Accounts payable $-  $614,557 
Accrued liabilities  -   561,611 
Deferred revenue  -   67,613 
Current portion of long-term related-party debt  -   138,602 
Current portion of long-term debt  -   295,067 
Total current liabilities $-  $1,677,450 
         
Long-term liabilities:        
Long-term portion of related-party debt  -   - 
Long-term portion of debt  -   364,270 
Total long-term liabilities $-  $364,270 
The following is a summary of the operating results of discontinued operations for the fiscal years ended September 30, 2013 and 2012:
  2013  2012 
Revenues $477,298  $6,676,513 
Cost of revenues  (163,487)  (4,112,410)
Gross profit  313,811   2,564,103 
Selling, general and administrative  (319,976)  (2,782,628)
Loss from operations  (6,165)  (218,525)
Other expense  (295)  (89,294)
Net loss from discontinued operations $(6,460) $(307,819)
(13)Subsequent Events
The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued. Subsequent to September 30, 2013, the following events occurred:
1)The Company issued to directors for services rendered during the fourth fiscal quarter ended September 30, 2013, warrants to purchase 6,840 shares of Common Stock with an exercise price of $19.46 per share, valued at the date of grant at $53,091 using the Black-Scholes model.

2)The Company issued 483 shares of common stock for fourth quarter Series D Preferred stock dividends, valued at $5,650.

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3)The Company issued 760 shares of common stock to several directors for services rendered, valued at $15,000.

4)The Company issued 500 shares of common stock to a consultant from the exercise of warrants with an exercise price of $16.00 per share which provided cash proceeds to the Company of $8,000.
5)The Company issued 4,700 shares of common stock to an officer upon the cashless exercise of warrants with exercise prices ranging from $15.00 to $16.66 per share.

6)The Company entered into an Employment Agreement with its Chief Financial Officer. The term of this agreement commenced on November 14, 2013 and continues until the earlier of (i) 30 days following the closing of an acquisition of or by the Company; or (ii) November 13, 2014. Thereafter, the agreement will be reviewed and renewed upon the mutual agreement by the parties. If Mr. Olsen’s employment terminates as a result of an involuntary termination other than for cause or at the end of the term of the agreement, he will be entitled to receive separation benefits which include payment of salary of $192,000 paid over a 120-day period and other benefits as outlined in the agreement. In addition, Mr. Olsen and the Company agreed that he may convert his Series D Preferred shares into common stock at a rate of 155% of each share’s original investment; provided that Mr. Olsen must convert all of his Series D Preferred shares before the next annual shareholder meeting of the Company.

7)On November 15, 2013, the Company entered into a 41-month agreement with the Gendarmeria de Chile (the Republic of Chile’s uniformed prison service) to provide electronic (GPS and residential) monitoring of offenders and other services to the Chilean government. The agreement calls for the Company to put into service up to 9,400 electronic monitoring (GPS) devices over the contract. The Company was required under the agreement, to post a performance bond in the amount of $3,382,082 U.S. Dollars. In addition, the Company will design and construct a real-time monitoring and data center to be staffed by Chilean government employees. Training from the monitoring center personnel will also be provided by the Company. The maximum sum to be paid for the services provided by the Company is approximately $70,000,000 U.S. Dollars, at current exchange rates, over the term of the agreement.

8)The Company drew down an advance of $1,200,000 from a line-of-credit to be used with other available cash on hand to issue a bond for an international customer in the amount of $3,382,082.

9)The Company borrowed $1,500,000 from a shareholder for working capital. The unsecured loan bears interest at a rate of 8% per annum and matures on November 18, 2014.

10)On December 17, 2013, the Company filed a claim in the United States District Court, District of Utah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. The Company believes the relief sought in the case is warranted based on the language and intent of the parties and we will pursue the matter vigorously.

11)On December 17, 2013, the Company entered into a non-binding letter of intent to acquire all of the issued and outstanding stock of GPS Global, an Israeli corporation located in Tel Aviv. The parties are currently negotiating a definitive agreement for the stock purchase; compensation for the stock will be a combination of cash and our common stock. It is the intent of the parties to close the transaction as soon as possible.

12)On January 3, 2014, the Company entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by the Company’s Chairman, Guy Dubois. Under this agreement, the Company 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, the Company agreed to pay Tetra House an arrangement fee equal to 3% of the aggregate maximum amount under the loan. As of January 14, 2014, the Company borrowed $10,000,000 under the Facility Agreement.
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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  March 31,  September 30, 
Assets 2014  2013 
Current assets:      
Cash $7,365,884  $3,382,428 
    Accounts receivable, net of allowance for doubtful accounts of $3,952,000 and $3,968,000,   respectively  3,151,155   3,721,964 
Notes receivable, current portion  259,045   176,205 
Prepaid expenses and other  2,564,949   1,783,805 
Inventory, net of reserves of $478,827 and $148,043, respectively  489,695   467,101 
Total current assets  13,830,728   9,531,503 
         
Property and equipment, net of accumulated depreciation of $2,195,849 and $2,092,222, respectively  591,941   318,201 
Monitoring equipment, net of accumulated amortization of $1,065,534 and $1,183,346, respectively  1,786,524   1,236,696 
Note receivable, net of current portion  -   28,499 
 Intangible assets, net of accumulated amortization of $1,730,471 and $1,256,647, respectively  19,440,096   15,413,920 
Acquisition purchase commitment  5,740,451   - 
Other assets  3,416,297   170,172 
Total assets $44,806,037  $26,698,991 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable $744,603  $348,074 
Accrued liabilities  1,711,906   2,180,791 
Dividends payable  5,103   9,427 
Deferred revenue  5,617   8,674 
Current portion of long-term related-party debt  2,700,000   60,000 
Current portion of long-term debt  2,321,094   88,095 
         Total current liabilities  7,488,323   2,695,061 
Long-term debt, net of debt discount, net of current portion  11,229,534   40,588 
            Total liabilities  18,717,857   2,735,649 
         
Stockholders’ equity:        
Preferred stock:        
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 10  and 468 shares outstanding, respectively (aggregate liquidation preference of $15,500)  1   1 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 10,066,321 and 9,805,503 shares outstanding, respectively  1,006   980 
Additional paid-in capital  294,932,850   290,391,698 
Accumulated other comprehensive income  145,972   - 
Accumulated deficit  (268,991,649)  (266,429,337)
        Total equity  26,088,180   23,963,342 
Total liabilities and stockholders’ equity $44,806,037  $26,698,991 

The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

` Three Months Ended  Six Months Ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
Revenues:            
   Products $145,925  $165,253  $211,536  $299,047 
   Monitoring and other related services  2,309,864   4,643,071   4,903,547   10,097,349 
               Total revenues  2,455,789   4,808,324   5,115,083   10,396,396 
                 
Cost of revenues:                
   Products  58,349   58,373   121,070   113,012 
   Monitoring and other related services  1,035,418   1,984,697   2,371,526   4,908,576 
               Total cost of revenues  1,093,767   2,043,070   2,492,596   5,021,588 
                 
Gross profit  1,362,022   2,765,254   2,622,487   5,374,808 
                 
Operating expenses:                 
Selling, general and administrative (including $123,785, $125,166, $263,981 and $132,510,respectively, of compensation expense paid in stock, stock options / warrant or as a result of amortization of stock-based compensation)  2,564,015   2,124,965   4,735,423   4,162,987 
Settlement expense  -   -   -   350,000 
Research and development  403,175   197,603   722,745   399,197 
                 
Income (loss) from continuing operations  (1,605,168)  442,686   (2,835,681)  462,624 
                 
Other income (expense):                
Currency exchange rate gain (loss)  2,803   (54,187)  (4,232)  (62,391)
Loss on disposal of equipment  -   -   -   (1,365)
Interest income  12,883   156,360   24,106   156,360 
Interest expense (including $95,398, $2,109,543, $97,516, and $2,809,927, respectively,  paid in stock, stock options / warrants, and accretion of debt discount)  (327,367)  (2,358,727)  (371,285)  (3,201,951)
Other income (expense), net  624,730   175,083   624,780   167,100 
Net loss from continuing operations  (1,292,119)  (1,638,785)  (2,562,312)  (2,479,623)
Gain on disposal of discontinued operations  -   139,564   -   424,819 
Net loss from discontinued operations  -   -   -   (6,460)
Net loss  (1,292,119)  (1,499,221)  (2,562,312)  (2,061,264)
Dividends on Series D Preferred stock  (5,103)  (393,815)  (14,530)  (1,024,145)
Net loss attributable to SecureAlert, Inc. common stockholders $(1,297,222) $(1,893,036) $(2,576,842) $(3,085,409)
Net loss per common share, basic and diluted from continuing operations $(0.13) $(0.40) $(0.26) $(0.68)
Net loss per common share, basic and diluted from discontinued operations $-  $-  $-  $- 
Weighted average common shares outstanding, basic and diluted  9,830,000   4,102,000   9,819,000   3,638,000 
The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Six Months Ended 
  March 31, 
  2014  2013 
Cash flows from operating activities:      
   Net loss $(2,562,312) $(2,061,264)
(Income) loss from discontinued operations  -   (418,359)
Loss from continuing operations  (2,562,312)  (2,479,623)
   Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization  960,267   1,303,355 
Vesting and re-pricing of stock options for services  142,500   14,688 
Issuance of warrants with related parties  83,981   45,844 
Issuance of common stock for services  37,500   71,978 
Accretion interest expense in connection with debt discount related to notes payable  97,516   1,757,149 
Beneficial conversion feature recorded as interest expense  -   1,052,778 
Impairment of monitoring equipment and parts  150,000   300,000 
Loss on disposal of property and equipment  -   1,490 
Fractional shares of common stock paid in cash  -   (1,996)
Loss on disposal of monitoring equipment and parts  17,388   54,360 
Change in assets and liabilities:        
  Accounts receivable, net  570,809   (3,097,825)
  Notes receivable  45,659   47,102 
  Inventories  87,348   194,775 
  Prepaid expenses and other assets  (722,175)  (160,230)
  Accounts payable  396,529   (1,092,333)
  Accrued expenses  (304,505)  2,367,622 
  Deferred revenue  (3,057)  (339,894)
Net cash provided by (used in) operating activities  (1,002,552)  39,240 
         
Cash flow from investing activities:        
Purchases of property and equipment  (377,368)  (17,607)
Purchases of monitoring equipment and parts  (1,209,973)  (466,784)
Investment in GPS Global Tracking & Surveillance System Ltd.  (1,240,451)  - 
Cash deposited in escrow to secure international bond  (3,346,622)  - 
Net cash used in investing activities  (6,174,414)  (484,391)
         
Cash flow from financing activities:        
Borrowings on related-party notes payable  2,700,000   2,800,000 
Principal payments on related-party notes payable  (60,000)  - 
Redemption of Series D Preferred stock for cash  (312,007)  - 
Proceeds from note payable, net of fees  9,250,000   - 
Principal payments on notes payable  (425,571)  (254,319)
Cash received from the exercise of warrants  8,000   - 
Net cash provided by financing activities  11,160,422   2,545,681 
         
Cash flow from discontinued operations:        
Net cash provided by operating activities  -   126,715 
Net cash used in investing activities  -   - 
Net cash used in financing activities  -   18,475 
Net cash provided by discontinued operations  -   145,190 
         
Net increase in cash  3,983,456   2,245,720 
Cash, beginning of period  3,382,428   458,029 
Cash, end of period $7,365,884  $2,703,749 
The accompanying notes are an integral part of these statements.

75
SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

  Six Months Ended 
  March 31, 
  2014  2013 
Cash paid for interest $106,403  $220,445 
         
Supplemental schedule of non-cash investing and financing activities:        
Issuance of common stock in connection with Series D Preferred stock dividends  18,854   1,260,858 
Series D Preferred stock dividends earned  14,530   1,024,145 
License agreement with STOP through debt obligation  4,500,000   - 
Cancellation of accrued royalties  832,531   - 
Issuance of common stock shares for settlement of debt  -   3,156,493 
Issuance of common stock shares from the conversion of shares of Series D     
Preferred stock  2   189 
Beneficial conversion feature recorded with convertible debt  -   15,619,444 
Issuance of common stock in connection with an acquisition purchase  4,500,000   - 
commitment        
Issuance of debt to repurchase royalty agreement  -   11,898,455 

The accompanying notes are an integral part of these statements.

76
SECUREALERT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)           BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial information of SecureAlert, Inc. and subsidiaries (collectively, the “Company” or “SecureAlert”) has been prepared in accordance with Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2014, and results of its operations for the three and six months ended March 31, 2014 and 2013.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013.  The results of operations for the six months ended March 31, 2014 may not be indicative of the results for the fiscal year ending September 30, 2014.

(2)           PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of SecureAlert and its subsidiaries. All significant inter-company transactions have been eliminated in consolidation.

(3)           RECENTLY ISSUED ACCOUNTING STANDARDS

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

(4)           IMPAIRMENT OF LONG-LIVED ASSETS
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. If the carrying amount of an asset exceeds its fair 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 value that is independent of other groups of assets.  The Company recorded $75,000 and $150,000 of impairment expenses related to monitoring equipment for the three months ended March 31, 2014 and 2013, respectively. Additionally, the Company recorded $150,000 and $300,000 of impairment expenses related to monitoring equipment for the six months ended March 31, 2014 and 2013, respectively.

(5)           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The Chilean Peso is the functional currency of the operating subsidiary SecureAlert Chile, SpA. The balance sheet of SecureAlert Chile has been translated into United States Dollars (USD) at the exchange rate prevailing at March 31, 2014. Additionally, the average exchange rates prevailing during the six months ended March 31, 2014 had an immaterial effect on the statements of operations. Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ equity.
(6)           GEOGRAPHIC INFORMATION

During the six months ended March 31, 2014, 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 and services.  The revenues recognized by geographic area for the three and six months ended March 31, 2014 and 2013, are as follows:

  
Three Months Ended
March 31,
  
Six Months Ended
March 31,
 
  2014  2013  2014  2013 
United States of America $1,728,547  $1,778,884  $3,613,510  $3,547,250 
Latin American Countries  -   2,234,483   -   5,252,960 
Caribbean Countries and Commonwealths  710,762   782,482   1,467,440   1,569,012 
Other Foreign Countries  16,480   12,475   34,133   27,174 
Total $2,455,789  $4,808,324  $5,115,083  $10,396,396 

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The long-lived assets, net of accumulated depreciation, used in the generation of revenues by geographic area as of March 31, 2014 and September 30, 2013, were as follows:

  Net Property and Equipment  Net Monitoring Equipment 
  
March 31,
2014
  
September 30,
2013
  
March 31,
2014
  
September 30,
2013
 
United States of America $552,498  $318,201  $1,451,657  $878,823 
Latin American Countries  13,477   -   144,474   - 
Caribbean Countries and Commonwealths  16,011   -   183,343   351,138 
Other Foreign Countries  9,955   -   7,050   6,735 
Total $591,941  $318,201  $1,786,524  $1,236,696 
(7)           NET LOSS PER COMMON SHARE

Basic net loss per common share ("Basic EPS") is computed by dividing net loss available to common shareholders 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 shareholders 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 common stock options and warrants, and shares issuable upon conversion of preferred stock.  As of March 31, 2014 and 2013, there were 453,151 and 4,334,688 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.  No reconciliation for discontinued operations was provided since the impact was immaterial. The common stock equivalents outstanding as of March 31, 2014 and 2013 consisted of the following:

   June 30,  September 30, 
   2013  2012 
        
Settlement liability from patent infringement suit and countersuit settled in February 2010. The liability was paid in March 2013. $- $200,000 
        
Note issued in connection with the acquisition of a subsidiary and matures in December 2014.  76,586  94,459 
        
Capital leases with effective interest rates that range between 8.51% and 17.44%. Leases mature between August 2013 and November 2015. $154,410 was assumed through the sale of Midwest Monitoring & Surveillance, Inc. to its former owners.  68,870  118,098 
        
Automobile loan with a financial institution secured by the vehicle. Interest rate is 7.06%, due June 2014. $125,614 was assumed through the sale of Midwest Monitoring & Surveillance, Inc.to its former owners.
  7,090  12,274 
        
Total debt obligations  152,546  424,831 
Less current portion  (90,617) (339,151)
Long-term debt, net of current portion $61,929 $85,680 
  
March 31,
2014
  
March 31,
2013
 
Conversion of debt and accrued interest  -   3,771,116 
Conversion of Series D Preferred stock  300   14,040 
Exercise of outstanding common stock options and warrants  410,851   387,532 
Exercise and conversion of outstanding Series D Preferred        
    stock warrants  42,000   162,000 
Total common stock equivalents  453,151   4,334,688 
 
(15) RELATED-PARTY TRANSACTIONS(8)           PREPAID AND OTHER EXPENSES

The carrying amounts reported in the balance sheets for prepaid expenses and other current assets approximate their fair market value based on the short-term maturity of these instruments. As of March 31, 2014 and September 30, 2013, the outstanding balance of prepaid and other expenses was $2,564,949 and $1,783,805, respectively.  The $2,564,949 is comprised of a $1,488,778 bond posted as a requirement for doing business in Latin America which the Company entered into certain transactions with related parties during the nine months endedanticipates to repatriate by June 30, 2013. These transactions consist mainly of financing transactions and consulting arrangements. Transactions with related parties are reviewed and approved by the independent members of the Board of Directors.2014.

Royalty Agreement, Loan and Security Agreement and Revolving Loan

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On August 4, 2011, with an effective date of July 1, 2011, the Company entered into an agreement (the “Royalty Agreement”) with Borinquen (see Note 12) to purchase ISS in consideration of 310,000 shares of our common stock,
(9)           INVENTORY
Inventory is valued at the market pricelower of the cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method.  Market is determined based on the dateestimated net realizable value, which generally is the item’s selling price.  Inventory is periodically reviewed in order to identify obsolete, damaged items or impaired items.

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 March 31, 2014 and September 30, 2013, respectively, inventory consisted of the Royalty Agreementfollowing:

  March 31,  September 30, 
  2014  2013 
Raw materials $968,522  $615,144 
Reserve for damaged or obsolete inventory  (478,827)  (148,043)
Total inventory, net of reserves $489,695  $467,101 
(10)         PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2014 and September 30, 2013, were as follows:

  March 31,  September 30, 
  2014  2013 
Equipment, software and tooling $2,379,944  $2,002,577 
Automobiles  33,466   33,466 
Leasehold improvements  127,162   127,162 
Furniture and fixtures  247,218   247,218 
   Total property and equipment before accumulated depreciation  2,787,790   2,410,423 
Accumulated depreciation  (2,195,849)  (2,092,222)
Property and equipment, net of accumulated depreciation $591,941  $318,201 
Depreciation expense for the six months ended March 31, 2014 and 2013 was $103,629 and $128,077, respectively.  Property and equipment to be disposed of is reported at $16.40 per share, or $5,084,000, and the grant to Borinquenlower of the royaltycarrying amount or fair value, less the estimated costs to sell the property. Any gains or losses are recognized in the amountresults of 20 percentoperations.  During the six months ended March 31, 2014 and 2013, the Company disposed of property and equipment with a net book value of $0 and $1,365, respectively.

(11)         MONITORING EQUIPMENT

Monitoring equipment as of March 31, 2014 and September 30, 2013, was as follows:

  March 31,  September 30, 
  2014  2013 
Monitoring equipment $2,852,058  $2,420,042 
Less: accumulated depreciation  (1,065,534)  (1,183,346)
Monitoring equipment,  net of accumulated depreciation $1,786,524  $1,236,696 
The Company began leasing monitoring equipment to agencies for offender tracking in April 2006 under operating lease arrangements.  The monitoring equipment is amortized using the straight-line method over an estimated useful life of three years.

Depreciation expense for the six months ended March 31, 2014 and 2013 was $382,814 and $668,081, respectively.  Additionally, as of March 31, 2014, the Company reserved $150,000 for future monitoring equipment impairment. These expenses were recognized in cost of revenues.

Assets to be disposed of are reported at the lower of the Company’s net revenues fromcarrying amount or fair value, less the sale or lease of monitoring devicesestimated costs to sell the assets.  During the six months ended March 31, 2014 and monitoring services within a territory comprised of South and Central America, the Caribbean, Spain and Portugal, for a term of 20 years (see Note 12). The royalty payments were due quarterly through June 30, 2031. In the event2013, the Company failed to makerecorded in cost of revenues disposal of lease monitoring equipment and parts of $17,388 and $54,360, respectively.

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(12)         INTANGIBLE ASSETS

The following table summarizes the royalty payments, in cash or in sharesactivity of common stock, at its discretion,intangible assets for the royalty rate would increase to 50 percent in certain portions of the territory, and 30 percent in others.second fiscal quarter ended March 31, 2014:

  
Borinquen
Container
Corporation
  
International
 Surveillance
Services Corp.
  
Satellite
Tracking of
People, LLC
  Patent  Total 
                
Intangible assets:               
Patent license agreement $-  $-  $4,500,000  $50,000  $4,550,000 
Royalty agreement  11,616,984   5,003,583   -   -   16,620,567 
Total intangible assets  11,616,984   5,003,583   4,500,000   50,000   21,170,567 
Accumulated amortization  (988,767)  (687,994)  (30,562)  (23,148)  (1,730,471)
Intangible assets, net of accumulated amortization $10,628,217  $4,315,589  $4,469,438  $26,852  $19,440,096 
Borinquen Container Corporation
On September 5, 2012, the Company entered into an agreement to redeem the royalty with Borinquen. On December 3, 2012, the Company entered into the Loan and Security Agreement (the “Loan”held by Borinquen Container Corporation (“Borinquen”) with Sapinda Asia whereby Sapinda Asia agreedpursuant to loan to the Company $16,640,000 at a rate of 8 percent interest per annum. As a condition to the Loan, the Company appointed to the Board of Directors, Guy Dubois, a representative of Tetra House Pte.

The Loan contains the following covenants:

1)SecureAlert shall provide to the director representing Tetra House Pte. a monthly cash flow report for each month throughout the term of this Loan showing the anticipated use of all loan proceeds and other cash outlays. After the conversion of the outstanding principal, accrued and unpaid interest and fees under the Loan into shares of SecureAlert’s Common Stock, Sapinda Asia shall have a right to require that all of the SecureAlert’s excess cash flow available after the payment of normal operating expenses and scheduled capital expenditures be applied to prepay the Loan without penalty.

2)SecureAlert shall provide to the director representing Tetra House Pte. a rolling twelve (12) months profit and loss and cash flow projections.

F - 41
3)Each schedule and/or report required herein shall be updated monthly by SecureAlert and delivered to the director representing Tetra House Pte. no later than the twenty-fifth (25th) calendar day of each month.

4)SecureAlert covenants and agrees that it shall not enter into any convertible loan agreement, debenture or other agreement providing for the issuance of new shares of SecureAlert's Common Stock at a price lower than the conversion price without the consent of Sapinda Asia.

Upon the occurrence of any one or more broken covenant outlined above or any other event of default, Sapinda Asia shall provide written notice of such event of default to SecureAlert who shall have thirty (30) days to cure such event(s) of default.
Sapinda Asia failed to timely fund underroyalty agreement dated July 1, 2011, as subsequently amended.  Under the terms of the Loan. Sapinda Asia incurred penaltiesroyalty agreement, Borinquen had the right to receive 20% of $5,000 per day, payable to the Company, until the Loan was fully funded. As of March 31, 2013, the Company recorded a receivable of $245,000 from Sapinda Asia for the incurred penalties pursuant to the Loan. Subsequent to June 30, 2013, the Company entered into an acknowledgement and agreement with Sapinda Asia whereby the Company agreed to waive the penalties and any other “out of pocket” expenses owed by Sapinda Asia under the Loan and Sapinda Asia acknowledges that it is not owed an origination fee. Both Parties have also agreed to accelerate the conversion of the loan to reduce the accumulation of interest debt under the Loan. Sapinda Asia commits and is bound to convert all principal and accrued interest under the Loan into common stock of the Company no later than 15 calendar days following the effective date of a registration statement with the Securities and Exchange Commission to register such shares, which the Company has agreed to file in a timely manner.net revenues derived within certain geographic territories.
On February 1, 2013, the Company Sapinda Asia and Borinquen entered into a Settlement and Royalty and Share Buy Back to complete the repurchase ofredeemed the royalty ($11,616,982)from Borinquen and to pay accrued royalty expenses ($1,383,018) for a total payment of $13,000,000. The Company borrowed a total of $16,700,000 from Sapinda Asia. Of the $16,700,000, the Company used $13,000,000 toward the redemption of the royalty and to pay off accrued royalty fees and $3,700,000 for operating capital. The Loan is due on August 14, 2014. As a condition to the Loan, Sapinda Asia required the Company to name a nominee from Tetra House Pte. Ltd. (Guy Dubois) to its Board of Directors and to conduct an exchange offer to retire the Series D Preferred Stock. As of March 1, 2013, both of these conditions were met. Sapinda Asia has the right to convert the Loan principal and accrued interest into common stock at a rate of $4.50 per share, beginning March 1, 2013. The Loan is secured by all of the intellectual property and other assets of the Company.

The Company capitalized the total cost of the royalty purchase commitment of $11,616,984, as a non-current asset and will amortizeamortizes the asset over the remaining term of the royalty agreement, subject to periodic analysis for impairment based on future expected revenues.  TheAnnually, the Company will annually calculateevaluates the relative amortization based on the effective royalty rate and oncompares the revenues in the geographic territory subject to the royalty. The Company’s analysis will be based on such factors asroyalty, historical revenue, and expected revenue growth in the territory.

As of March 31, 2014, the Company had a balance of $11,616,984 of intangible assets, as noted in the table above. The Company recorded $515,676$315,393 of amortization expense on intangible assets for Borinquen during the ninesix months ended June 30, 2013,March 31, 2014, resulting in a total accumulated amortization of $988,767 and intangible assets, net intangible asset of $11,101,308.accumulated amortization of $10,628,217.

On FebruaryInternational Surveillance Services Corp.
Effective July 1, 2013, SecureAlert entered into a revolving loan agreement with Sapinda Asia wherein the Company may borrow up to $1,200,000 at an interest rate of 3 percent per annum for unused funds and 10 percent per annum for borrowed funds. As of June 30, 2013, no advances have been made under this loan. The loan terminates on June 30, 2014. As of June 30, 2013, the Company has accrued $14,795 in interest liability on this loan.

Related-Party Service Agreement

Subsequent to June 30, 2013,2011, the Company entered into ana stock purchase agreement with Paranet, LLC to provide the following primary services: 1) procurement of hardware and software necessary to ensure that the Company’s vital databases are available in the event of a disaster (backup and disaster recovery system) and 2) ensure the security of all data and the integrity of such data of the Company against all loss of data, misappropriation of data by Paranet, its employees and affiliates and shall guarantee the Company that no unauthorized person or entity shall gain access to such data, wherever such data is located.

The Company agreed to pay Paranet $4,500 per month for this service which can be terminated by either party for any reason upon ninety (90) days written notice by either party. The agreement is considered a related-party service agreement because a Company director and member of the Company’s executive committee is also the Chief Executive Officer of Paranet, LLC.

F - 42
Related-Party Notes Payable

   June 30,  September 30, 
   2013  2012 
       
Note payable in connection with the redemption of a royalty agreement for $10,768,555. The note required installment payments and was paid off by the proceeds of the Loan as discussed under Note 15.
 $- $10,050,027 
        
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. This note was assumed through the sale of Court Programs, Inc.  -  46,693 
        
The Company received $500,000 from Mr. Derrick, a shareholder and former officer. This was converted into 111,112 shares of common stock.
 -  500,000 
        
Convertible debenture with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents of the Company. The debenture and accrued interest was converted into 117,784 shares of common stock.
  -  500,000 
        
Convertible debenture with an interest rate of 8% per annum. The debenture matured December 17, 2012 and was secured by the domestic patents of the Company. The debenture and accrued interest was converted into 472,548 shares of common stock.
  -  2,000,000 
        
The Company received $16,700,000 through the issuance of a convertible debenture with an interest rate of 8% per annum. The debenture matures on June 17, 2014. This debenture may convert into shares of common stock at a rate of $4.50 per share. A debt discount of $14,566,667 and $633,333, respectively, was recorded to reflect a beneficial conversion feature. As of June 30, 2013, the remaining debt discount was $10,765,986.  5,934,012  1,288,693 
        
Total related-party debt obligations  5,934,012  14,385,413 
Less current portion  -  (12,654,701)
Long-term debt, net of current portion $5,934,012 $1,730,712 
(16) 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.

Series D Convertible Preferred Stock
On July 27, 2011, the Company amended its Articles of Incorporation and increased the total designated shares of Series D Preferred stock from 70,000 to 85,000 shares. During the nine months ended June 30, 2013, the Company did not issue any Series D Preferred stock.

Dividends
The Series D Preferred stock is entitled to dividends at the rate equal to 8 percent 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 stock at the sole discretion of the Board of Directors. If a dividend is paid in shares of common stock of the Company, the number of shares to be issued is based on the average per share market price of the common 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 nine months ended June 30, 2013, the Company issued 181,033 shares of common stock to pay $1,654,673 of accrued dividends on the Series D Preferred stock earned. Subsequent to June 30, 2013, the Company issued 799 shares of common stock to pay $9,325 of accrued dividends on Series D Preferred stock earned during the three months ended June 30, 2013.

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Convertibility
Each share of Series D Preferred stock may be converted into 30 shares of common stock, commencing after ninety days from the date of issue.

In February 2013, and as a condition to a loan agreement, the Company conducted an exchange offer (“Exchange Offer”) of Series D Preferred stock in order to simplify the capitalization structure. The Exchange Offer was conditioned upon at least 90 percent of the cumulative original issue price paid forpurchased all of the issued and outstanding shares of Series D Preferred stock. The shareholdersInternational Surveillance Services Corp. (“ISS”), a Puerto Rico corporation, to utilize the knowledge and connections of ISS in Central and South America and to acquire the rights to certain territorial commissions that were entitled to exchange their shares of Series D Preferred at a premium over the current conversion rate of 30 shares of common stock per Series D Preferred share as follows: 15 shares for each $1,000 of original price paid, 10 shares for each $676 of original price paid, and 8 shares for each $500 of original price paid. Under the Exchange Offer, 46,095 shares of Series D Preferred stock converted into 1,828,283 shares of common stock.

During the nine months ended June 30, 2013, a total of 48,295 shares of Series D Preferred stock (including shares exchanged for common stock in the Exchange Offer) were converted into 1,894,283 shares of common stock. As of June 30, 2013 and September 30, 2012, there were 468 and 48,763 Series D Preferred shares outstanding, respectively.

Voting Rights and Liquidation Preference
The holders 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. For the periods ended June 30, 2013 and September 30, 2012, there were 468 and 48,763 shares of Series D Preferred stock outstanding with voting rights equivalent to 14,040 and 1,462,890 shares of common stock, respectively.

Additionally, the holders are entitled to a liquidation preference equal to their original investment amount. In the event of the liquidation, dissolution or winding up of the affairs ofpayable by 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.ISS.

Series D Preferred Stock Purchase Warrants
As of June 30, 2013 and September 30, 2012,March 31, 2014, the Company had warrants outstandinga balance of $5,003,583 of intangible assets. The Company recorded $125,091 of amortization expense on intangible assets for ISS during the purchasesix months ended March 31, 2014, resulting in a total accumulated amortization expense of 5,400 shares$687,994 and intangible assets, net of Series D Preferred stock at an exercise priceaccumulated amortization of $16.67 per share. The warrants were issued in connection with a subscription to purchase Series D Preferred stock which expire beginning in November 2013 and ending July 2016.$4,315,589.

(17) COMMON STOCKSatellite Tracking of People, LLC
On March 1, 2014, the Company entered into an agreement with Satellite Tracking of People, LLC (“STOP”) whereby the Company was granted a non-exclusive, irrevocable, perpetual and royalty-free license to certain patents held by STOP.  Under the terms of the agreement, the Company was released from its obligations to make certain royalty payments under prior agreements.  During the three months ended March 31, 2014, these obligations were removed and the amounts were offset to cost of revenues and other income. The Company agreed to pay STOP a non-refundable payment of $4,500,000 over two years, in 24 equal monthly installments of $187,500. The Company recorded an intangible asset in the amount of $4,500,000, as a non-current asset and will amortize the asset over the estimated useful term of the patents, 10 years, subject to periodic analysis for impairment based on future expected revenues.

As of March 31, 2014, the Company had a balance of $4,500,000 of intangible assets, as noted in the table above. The Company recorded $30,562 of amortization expense related to this license agreement during the six months ended March 31, 2014, resulting in a total accumulated amortization of $30,562 and net other intangible assets of $4,469,438.

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 amendedreduced 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 nine monthsfiscal year ended JuneSeptember 30, 2013, the Company issued the following6,709,021 shares of common stock:stock. Of these shares, 1,894,283 from the exchange orshares were issued upon conversion of 48,295 shares of Series D Preferred stock, 701,444stock; 21,884 shares fromwere issued for services rendered to the conversion of $3,156,493 ofCompany valued at $141,758; 4,607,361 shares were issued in connection with debt and accrued interest 181,033of $20,733,118; 181,832 shares were issued to pay $1,654,673 of accrued dividends onfrom Series D Preferred stock 16,266of $1,663,997; and 3,661 shares for services valued at $71,979, 2,981 shareswere issued to pay accrued boardBoard of directorDirector fees valued at $37,500, and 3,805 shares for commissions valued at $34,245. Subsequent to Juneof $47,500.

During the fiscal year ended September 30, 2013,2012, the Company issued 799578,524 shares of common stockstock. Of these shares, 2,700 shares were issued upon conversion of 90 shares of Series D Preferred stock; 71,969 shares were issued as paymentpart of a royalty agreement, valued at $819,972; 4,315 shares were issued for services rendered to the Company valued at $40,000; 8,449 shares were issued in connection with debt and accrued interest of $118,280; 210,689 shares were issued to pay dividends onfrom Series D Preferred stock of $2,391,568; 121,700 shares were issued to employees for the 3rd fiscal quarter ended June 30, 2013.compensation of $732,634; 3,000 shares were issued to pay Board of Director fees of $48,060 and 155,703 shares were issued for $1,033,000 in cash proceeds.
 
 
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(18) STOCK OPTIONS AND WARRANTS
(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”), 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 90,000 shares are authorized for issuance pursuant to awards granted under the 2012 Plan. During the nine monthsfiscal years ended JuneSeptember 30, 2013 and 2012, 0 and 30,000 options were issued under this 2012 Plan, respectively. As of JuneSeptember 30, 2013, 60,000 shares of common stock were available for future grants under the 2012 Plan.

ForRe-pricing of Warrants

During the nine monthsfiscal year ended JuneSeptember 30, 2013, andthe Company did not re-price any previously issued warrants.

During the fiscal year ended September 30, 2012, the Company calculated compensationre-priced 24,465 previously issued warrants in connection with debt financing agreements with original exercise prices ranging from $20 to $60, revising the exercise price to $15, resulting in additional interest expense of $22,032$39,965. Of the 24,465 warrants re-priced, 21,055 warrants were in connection with related-party transactions.

All Options and $199,755, respectively, relatedWarrants

During the fiscal year ended September 30, 2013, the Company granted 143,937 warrants to the vestingmembers of stock options previously granted under Company stock incentive plans in prior years. Compensationits Board of Directors, valued at $701,062. As of September 30, 2013, $154,378 of compensation expense associated with unvested stock options and warrants issued previously to members of $7,644the Board of Directors will be recognized over the fiscal year ending September 30, 2013.next year.

All OptionsDuring the fiscal year ended September 30, 2012, the Company granted options and Warrantswarrants to purchase 54,500 shares of common stock as follows: 18,500 to members of the Board of Directors, valued at $105,041; 30,000 to settle a lawsuit, valued at $253,046; and 6,000 warrants to a consultant, valued at $33,358. The vesting periods for these options and warrants ranged from three to five years. Additionally during the fiscal year ended 2012, the Company cancelled 182,500 of unvested warrants held by executives of the Company and issued 121,700 shares of common stock and accelerated the vesting of 57,500 of warrants for services rendered. 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.
The following are the weighted-average assumptions used for options granted during the fiscal years ended September 30, 2013 and 2012 using the Black-Scholes model, respectively:

  Fiscal Years Ended 
  September 30, 
  2013  2012 
Expected cash dividend yield  -   - 
Expected stock price volatility  108%  95%
Risk-free interest rate  0.18%  0.36%
Expected life of options 1.38 Years 2 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 Company granted warrants to purchase 129,649 and 54,500 shares of common stock during the nine months ended June 30, 2013 and 2012, respectively. The Company recorded $399,751 and $1,472,732 of expense for the nine months ended June 30, 2013 and 2012, respectively, related to the issuance, vesting and re-pricing of all stock options and warrants. As of June 30, 2013, $7,644 of compensation expense associated with unvested stock options and warrants issued previously to employees and $71,250 of expense associated with unvested warrants issued previously to board members will be recognized over the remaining fiscal year. The option and warrant grants for nine months ended June 30, 2013 and 2012 were valued using the Black-Scholes model with the following weighted-average assumptions:

  
Nine Months Ended
June 30,
 
  2013  2012 
Expected cash dividend yield  -   - 
Expected stock price volatility  108%  95%
Risk-free interest rate  0.15%  0.36%
Expected life of options/warrants 2 years  2 years 
The expected life of stock options (warrants)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. TheIn fiscal year 2013, the Company changed from a daily volatility calculation for the nine months ended June 30, 2012 to a weekly volatility for the nine months ended June 30, 2013.volatility. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options (warrants).and warrants. The dividend yield represents the Company’s anticipated cash dividends over the expected life of the stock options (warrants).option and warrants.

A summary of stock option activity for the nine months ended June 30, 2013 is presented below:

 
F - 4567
 
           
  
Shares Under
Option/ Warrant
  
Weighted
Average Exercise
Price
 
Weighted Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
 
Outstanding as of September 30, 2012  336,782  $28.00     
Granted  129,651  $10.79     
Expired / Cancelled  (29,000) $60.01     
             
Outstanding as of June 30, 2013  437,433  $20.59 1.57 years $506,361 
Exercisable as of June 30, 2013  377,064  $22.19 1.54 years $214,560 
Subsequent to June 30, 2013, the Company granted warrants to purchase 14,286 shares of common stock for two years with an exercise price of $14.70 per share, valued on July 1, 2013 the date of the grant, to board members and valued at $82,715. These warrants are fully vested.

(19) CHANGES IN EQUITY

A summary of the composition of equity ofcompensation-based options and warrants activity for the Company as of Junefiscal years ended September 30, 2013 and the changes during the nine months then ended2012 is presented in the following table:below:
  
Shares
Under
Option
  
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value
 
             
Outstanding as of September 30, 2011  495,891  $26.00     
Granted  54,500  $18.00     
Expired  (213,609) $22.00     
             
Outstanding as of September 30, 2012  336,782  $28.00     
Granted  143,937  $11.18     
Expired / Cancelled  (52,754) $76.97     
             
Outstanding as of September 30, 2013  427,965  $16.12 1.38 years $1,802,008.18 
Exercisable as of September 30, 2013  392,939  $16.75 1.36 years $1,435,627.07 

  Total Equity 
Balance at September 30, 2012 $4,427,137 
Issuance of common stock for:    
Dividends from Series D Preferred stock  1,654,673 
Services  143,724 
Debt  3,156,493 
Fractional shares disposed due to reverse stock split  (1,996)
Issuance of warrants to a director for services rendered  318,344 
Vesting of stock options and warrants  81,407 
Series D Preferred dividends  (1,033,470)
Beneficial conversion feature related to convertible debenture  15,349,074 
Net loss  (6,194,027)
Balance at June 30, 2013 $17,901,359 
The fiscal year end intrinsic values are based on a September 30, 2013 closing price of $19.46 per share.
(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.

(20) COMMITMENTS AND CONTINGENCIESFor the fiscal years ended September 30, 2013 and 2012, the Company incurred net losses for income tax purposes of $3,427,372 and $8,693,769, 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, 2013, the Company had net carryforwards available to offset future taxable income of approximately $179,000,000 which will begin to expire in 2020. The utilization of the net loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards 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. As 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 permitted to offset future taxable income. Of our federal NOL amount as of September 30, 2013, approximately $79,000,000 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 future 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, 2013, or on the Company’s net deferred tax asset as of September 30, 2013.
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The deferred income tax assets (liabilities) were comprised of the following for the periods indicated:
  Fiscal Years Ended 
  September 30, 
  2013  2012 
Net loss carryforwards $72,700,000  $72,200,000 
Accruals and reserves  247,000   529,000 
Contributions  8,000   6,000 
Depreciation  42,000   26,000 
Stock-based compensation  5,880,000   5,768,000 
Valuation allowance  (78,877,000)  (78,529,000)
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, 2013 and 2012 are as follows:
  Fiscal Years Ended 
  September 30, 
  2013  2012 
Federal income tax benefit at statutory rate $6,091,000  $5,936,000 
State income tax benefit, net of federal income tax effect  591,000   576,000 
Change in estimated tax rate and gain (loss) on non-deductible expenses  (5,556,000)  (2,068,000)
Loss of operating losses for entities sold  (778,000)  - 
Change in valuation allowance  (348,000)  (4,444,000)
Benefit for income taxes $-  $- 
During the fiscal year ended September 30, 2013, the Company began recognizing revenues from international sources from its products and monitoring services. During the fiscal year ended September 30, 2013, the Company accrued $76,732 in value-added taxes which will be due upon collection.

The Company’s open tax years for its federal and state income tax returns are for the tax years ended September 30, 2010 through September 30, 2013.
(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 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain stock redemption agreementsStock Redemption Agreements with the Company. 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 any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with outside legal counsel.

Camacho Melendez et alLarry C. Duggan v. CommonwealthCourt Programs of Puerto RicoFlorida, Inc. and International Surveillance Services Corporation.SecureAlert, Inc. On April 24,March 26, 2012, the plaintiffsMr. Duggan filed suit against the Commonwealth of Puerto Rico and ISS, claiming negligence by ISS and the government of the Commonwealth of Puerto Rico resultinga complaint in the death9th Circuit Court in and for Orange County, Florida alleging malicious prosecution, abuse of process and negligent infliction of emotional distress against us and our former subsidiary. The case resulted from actions of a woman. The complaint seeks damagesformer agent of $2,110,000.our former subsidiary. The Company intends to defend this matter. The Company has not accrued any potential loss as the probability of incurring a material loss is in discussionsdeemed remote by management, after consultation with the government of the Commonwealth of Puerto Rico to resolve this matter and to obtain a complete release of all claims; the Company expects to finalize this matter before the end of the fiscal year.legal counsel.

Integratechs v. SecureAlert, Inc. On March 14, 2013, Integratechs, Inc., filed a suit in the Fourth Judicial District Court of Utah County, claiming the Company breached a contract for computer services and intentionally interfered with its economic relations. The Company believes the allegations are inaccurate and will defend the case vigorously. No accrual for a potential loss has been made as the Company believes the probability of incurring a material loss is remote.

 
F - 4669
 
 
Christopher P. Baker v. SecureAlert, Inc. In February 2013, Mr. Baker filed suit against the Company in the Third Judicial District Court in and for Salt Lake County, State of Utah. Mr. Baker asserts that the Company breached a 2006 consulting agreement with him and claims damages of not less than $210,000. The Company disputes plaintiff’s claims and will defend the case vigorously. No accrual for a potential loss has been made as the Company believes the probability of incurring a material loss is remote.
SecureAlert, Inc. v. STOP, LLC. On December 17, 2013, the Company filed a claim in the United States District Court, District of Utah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. The Company believes the relief sought in the case is warranted based on the language and intent of the parties and we will pursue the matter vigorously.
Operating Lease Obligations

(21) DISCONTINUED OPERATIONSThe following table summarizes the Company’s contractual obligations as of September 30, 2013:

Fiscal Year Total 
    
2014 $237,580 
2015  34,721 
Thereafter  - 
     
Total $272,301 
The total operating lease obligations of $272,301 consist of the following: $272,301 from facilities operating leases and $0 from equipment leases. During the fiscal years ended September 30, 2013 and 2012, the Company paid approximately $350,073 and $383,187, 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% royalty or $0.35 per activated device of monitoring revenues, subject to certain adjustments. 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.
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.

International Importation Audit
During the fiscal year ended September 30, 2013, the Company was notified that several international importation documents were selected to be audited by a taxing authority. The Company resubmitted documentation to comply with the country’s requirements; and as of the date of this Report, the audit results and potential penalties 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 a Stock Purchase Agreement to sell to a former principal all of the issued 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.

70
The following is a summary of the assets and liabilities of Midwest and Court Programs reported as discontinued operations for the Junefiscal years ended September 30, 2013 and September 30, 2012, periods:respectively:

  June 30,  September 30, 
  2013  2012 
Current assets:      
Cash $-  $237,082 
Accounts receivable, net of allowance for doubtful accounts  -   452,841 
Note receivable  -   81,389 
Prepaid expenses and other assets  -   218,593 
Total current assets $-  $989,905 
         
Non-current assets:        
Property and equipment, net of accumulated depreciation $-  $170,894 
Monitoring equipment, net of accumulated amortization  -   153,163 
Deposits  -   9,218 
Goodwill  -   375,000 
Intangible assets, net of accumulated amortization  -   125,617 
Total non-current assets $-  $833,892 
         
Current liabilities:        
Accounts payable $-  $614,557 
Accrued liabilities  -   561,611 
Deferred revenue  -   67,613 
Current portion of long-term related-party debt  -   138,602 
Current portion of long-term debt  -   295,067 
Total current liabilities $-  $1,677,450 
         
Long-term liabilities:        
Long-term portion of related-party debt  -   - 
Long-term portion of debt  -   364,270 
Total long-term liabilities $-  $364,270 

F - 47
  2013  2012 
Current assets:      
Cash $-  $237,082 
Accounts receivable, net of allowance for doubtful accounts  -   452,841 
Note receivable  -   81,389 
Prepaid expenses and other assets  -   218,593 
Total current assets $-  $989,905 
         
Non-current assets:        
Property and equipment, net of accumulated depreciation $-  $173,002 
Monitoring equipment, net of accumulated amortization  -   153,163 
Deposits  -   9,218 
Goodwill  -   375,000 
Intangible assets, net of accumulated amortization  -   148,636 
Total non-current assets $-  $859,019 
         
Current liabilities:        
Accounts payable $-  $614,557 
Accrued liabilities  -   561,611 
Deferred revenue  -   67,613 
Current portion of long-term related-party debt  -   138,602 
Current portion of long-term debt  -   295,067 
Total current liabilities $-  $1,677,450 
         
Long-term liabilities:        
Long-term portion of related-party debt  -   - 
Long-term portion of debt  -   364,270 
Total long-term liabilities $-  $364,270 
 
The following is a summary of the operating results of discontinued operations for the nine monthsfiscal years ended JuneSeptember 30, 2013 and 2012:

 Three Months Ended  Nine Months Ended 
 June 30,  June 30, 
 2013  2012  2013  2012  2013 2012 
Revenues $-  $1,794,133  $477,298  $5,135,887  $477,298  $6,676,513 
Cost of revenues  -   (1,105,363)  (163,487)  (3,102,773)  (163,487)  (4,112,410)
Gross profit  -   688,770   313,811   2,033,114   313,811   2,564,103 
Selling, general and administrative  -   (911,802)  (319,976)  (2,166,014)  (319,976)  (2,782,628)
Income from operations  -   (223,032)  (6,165)  (132,900)
Other income  -   (22,946)  (295)  (45,715)
Loss from operations  (6,165)  (218,525)
Other expense  (295)  (89,294)
Net loss from discontinued operations $-  $(245,978) $(6,460) $(178,615) $(6,460) $(307,819)
 
(13)Subsequent Events
The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued. Subsequent to September 30, 2013, the following events occurred:
1)The Company issued to directors for services rendered during the fourth fiscal quarter ended September 30, 2013, warrants to purchase 6,840 shares of Common Stock with an exercise price of $19.46 per share, valued at the date of grant at $53,091 using the Black-Scholes model.

2)The Company issued 483 shares of common stock for fourth quarter Series D Preferred stock dividends, valued at $5,650.

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3)The Company issued 760 shares of common stock to several directors for services rendered, valued at $15,000.

4)The Company issued 500 shares of common stock to a consultant from the exercise of warrants with an exercise price of $16.00 per share which provided cash proceeds to the Company of $8,000.
5)The Company issued 4,700 shares of common stock to an officer upon the cashless exercise of warrants with exercise prices ranging from $15.00 to $16.66 per share.

6)The Company entered into an Employment Agreement with its Chief Financial Officer. The term of this agreement commenced on November 14, 2013 and continues until the earlier of (i) 30 days following the closing of an acquisition of or by the Company; or (ii) November 13, 2014. Thereafter, the agreement will be reviewed and renewed upon the mutual agreement by the parties. If Mr. Olsen’s employment terminates as a result of an involuntary termination other than for cause or at the end of the term of the agreement, he will be entitled to receive separation benefits which include payment of salary of $192,000 paid over a 120-day period and other benefits as outlined in the agreement. In addition, Mr. Olsen and the Company agreed that he may convert his Series D Preferred shares into common stock at a rate of 155% of each share’s original investment; provided that Mr. Olsen must convert all of his Series D Preferred shares before the next annual shareholder meeting of the Company.

7)On November 15, 2013, the Company entered into a 41-month agreement with the Gendarmeria de Chile (the Republic of Chile’s uniformed prison service) to provide electronic (GPS and residential) monitoring of offenders and other services to the Chilean government. The agreement calls for the Company to put into service up to 9,400 electronic monitoring (GPS) devices over the contract. The Company was required under the agreement, to post a performance bond in the amount of $3,382,082 U.S. Dollars. In addition, the Company will design and construct a real-time monitoring and data center to be staffed by Chilean government employees. Training from the monitoring center personnel will also be provided by the Company. The maximum sum to be paid for the services provided by the Company is approximately $70,000,000 U.S. Dollars, at current exchange rates, over the term of the agreement.

8)The Company drew down an advance of $1,200,000 from a line-of-credit to be used with other available cash on hand to issue a bond for an international customer in the amount of $3,382,082.

9)The Company borrowed $1,500,000 from a shareholder for working capital. The unsecured loan bears interest at a rate of 8% per annum and matures on November 18, 2014.

10)On December 17, 2013, the Company filed a claim in the United States District Court, District of Utah, Central Division against STOP, LLC seeking declaratory relief and other claims related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. The Company believes the relief sought in the case is warranted based on the language and intent of the parties and we will pursue the matter vigorously.

11)On December 17, 2013, the Company entered into a non-binding letter of intent to acquire all of the issued and outstanding stock of GPS Global, an Israeli corporation located in Tel Aviv. The parties are currently negotiating a definitive agreement for the stock purchase; compensation for the stock will be a combination of cash and our common stock. It is the intent of the parties to close the transaction as soon as possible.

12)On January 3, 2014, the Company entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by the Company’s Chairman, Guy Dubois. Under this agreement, the Company 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, the Company agreed to pay Tetra House an arrangement fee equal to 3% of the aggregate maximum amount under the loan. As of January 14, 2014, the Company borrowed $10,000,000 under the Facility Agreement.
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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  March 31,  September 30, 
Assets 2014  2013 
Current assets:      
Cash $7,365,884  $3,382,428 
    Accounts receivable, net of allowance for doubtful accounts of $3,952,000 and $3,968,000,   respectively  3,151,155   3,721,964 
Notes receivable, current portion  259,045   176,205 
Prepaid expenses and other  2,564,949   1,783,805 
Inventory, net of reserves of $478,827 and $148,043, respectively  489,695   467,101 
Total current assets  13,830,728   9,531,503 
         
Property and equipment, net of accumulated depreciation of $2,195,849 and $2,092,222, respectively  591,941   318,201 
Monitoring equipment, net of accumulated amortization of $1,065,534 and $1,183,346, respectively  1,786,524   1,236,696 
Note receivable, net of current portion  -   28,499 
 Intangible assets, net of accumulated amortization of $1,730,471 and $1,256,647, respectively  19,440,096   15,413,920 
Acquisition purchase commitment  5,740,451   - 
Other assets  3,416,297   170,172 
Total assets $44,806,037  $26,698,991 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable $744,603  $348,074 
Accrued liabilities  1,711,906   2,180,791 
Dividends payable  5,103   9,427 
Deferred revenue  5,617   8,674 
Current portion of long-term related-party debt  2,700,000   60,000 
Current portion of long-term debt  2,321,094   88,095 
         Total current liabilities  7,488,323   2,695,061 
Long-term debt, net of debt discount, net of current portion  11,229,534   40,588 
            Total liabilities  18,717,857   2,735,649 
         
Stockholders’ equity:        
Preferred stock:        
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 10  and 468 shares outstanding, respectively (aggregate liquidation preference of $15,500)  1   1 
Common stock, $0.0001 par value: 15,000,000 shares authorized; 10,066,321 and 9,805,503 shares outstanding, respectively  1,006   980 
Additional paid-in capital  294,932,850   290,391,698 
Accumulated other comprehensive income  145,972   - 
Accumulated deficit  (268,991,649)  (266,429,337)
        Total equity  26,088,180   23,963,342 
Total liabilities and stockholders’ equity $44,806,037  $26,698,991 

The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

` Three Months Ended  Six Months Ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
Revenues:            
   Products $145,925  $165,253  $211,536  $299,047 
   Monitoring and other related services  2,309,864   4,643,071   4,903,547   10,097,349 
               Total revenues  2,455,789   4,808,324   5,115,083   10,396,396 
                 
Cost of revenues:                
   Products  58,349   58,373   121,070   113,012 
   Monitoring and other related services  1,035,418   1,984,697   2,371,526   4,908,576 
               Total cost of revenues  1,093,767   2,043,070   2,492,596   5,021,588 
                 
Gross profit  1,362,022   2,765,254   2,622,487   5,374,808 
                 
Operating expenses:                 
Selling, general and administrative (including $123,785, $125,166, $263,981 and $132,510,respectively, of compensation expense paid in stock, stock options / warrant or as a result of amortization of stock-based compensation)  2,564,015   2,124,965   4,735,423   4,162,987 
Settlement expense  -   -   -   350,000 
Research and development  403,175   197,603   722,745   399,197 
                 
Income (loss) from continuing operations  (1,605,168)  442,686   (2,835,681)  462,624 
                 
Other income (expense):                
Currency exchange rate gain (loss)  2,803   (54,187)  (4,232)  (62,391)
Loss on disposal of equipment  -   -   -   (1,365)
Interest income  12,883   156,360   24,106   156,360 
Interest expense (including $95,398, $2,109,543, $97,516, and $2,809,927, respectively,  paid in stock, stock options / warrants, and accretion of debt discount)  (327,367)  (2,358,727)  (371,285)  (3,201,951)
Other income (expense), net  624,730   175,083   624,780   167,100 
Net loss from continuing operations  (1,292,119)  (1,638,785)  (2,562,312)  (2,479,623)
Gain on disposal of discontinued operations  -   139,564   -   424,819 
Net loss from discontinued operations  -   -   -   (6,460)
Net loss  (1,292,119)  (1,499,221)  (2,562,312)  (2,061,264)
Dividends on Series D Preferred stock  (5,103)  (393,815)  (14,530)  (1,024,145)
Net loss attributable to SecureAlert, Inc. common stockholders $(1,297,222) $(1,893,036) $(2,576,842) $(3,085,409)
Net loss per common share, basic and diluted from continuing operations $(0.13) $(0.40) $(0.26) $(0.68)
Net loss per common share, basic and diluted from discontinued operations $-  $-  $-  $- 
Weighted average common shares outstanding, basic and diluted  9,830,000   4,102,000   9,819,000   3,638,000 
The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Six Months Ended 
  March 31, 
  2014  2013 
Cash flows from operating activities:      
   Net loss $(2,562,312) $(2,061,264)
(Income) loss from discontinued operations  -   (418,359)
Loss from continuing operations  (2,562,312)  (2,479,623)
   Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization  960,267   1,303,355 
Vesting and re-pricing of stock options for services  142,500   14,688 
Issuance of warrants with related parties  83,981   45,844 
Issuance of common stock for services  37,500   71,978 
Accretion interest expense in connection with debt discount related to notes payable  97,516   1,757,149 
Beneficial conversion feature recorded as interest expense  -   1,052,778 
Impairment of monitoring equipment and parts  150,000   300,000 
Loss on disposal of property and equipment  -   1,490 
Fractional shares of common stock paid in cash  -   (1,996)
Loss on disposal of monitoring equipment and parts  17,388   54,360 
Change in assets and liabilities:        
  Accounts receivable, net  570,809   (3,097,825)
  Notes receivable  45,659   47,102 
  Inventories  87,348   194,775 
  Prepaid expenses and other assets  (722,175)  (160,230)
  Accounts payable  396,529   (1,092,333)
  Accrued expenses  (304,505)  2,367,622 
  Deferred revenue  (3,057)  (339,894)
Net cash provided by (used in) operating activities  (1,002,552)  39,240 
         
Cash flow from investing activities:        
Purchases of property and equipment  (377,368)  (17,607)
Purchases of monitoring equipment and parts  (1,209,973)  (466,784)
Investment in GPS Global Tracking & Surveillance System Ltd.  (1,240,451)  - 
Cash deposited in escrow to secure international bond  (3,346,622)  - 
Net cash used in investing activities  (6,174,414)  (484,391)
         
Cash flow from financing activities:        
Borrowings on related-party notes payable  2,700,000   2,800,000 
Principal payments on related-party notes payable  (60,000)  - 
Redemption of Series D Preferred stock for cash  (312,007)  - 
Proceeds from note payable, net of fees  9,250,000   - 
Principal payments on notes payable  (425,571)  (254,319)
Cash received from the exercise of warrants  8,000   - 
Net cash provided by financing activities  11,160,422   2,545,681 
         
Cash flow from discontinued operations:        
Net cash provided by operating activities  -   126,715 
Net cash used in investing activities  -   - 
Net cash used in financing activities  -   18,475 
Net cash provided by discontinued operations  -   145,190 
         
Net increase in cash  3,983,456   2,245,720 
Cash, beginning of period  3,382,428   458,029 
Cash, end of period $7,365,884  $2,703,749 
The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

  Six Months Ended 
  March 31, 
  2014  2013 
Cash paid for interest $106,403  $220,445 
         
Supplemental schedule of non-cash investing and financing activities:        
Issuance of common stock in connection with Series D Preferred stock dividends  18,854   1,260,858 
Series D Preferred stock dividends earned  14,530   1,024,145 
License agreement with STOP through debt obligation  4,500,000   - 
Cancellation of accrued royalties  832,531   - 
Issuance of common stock shares for settlement of debt  -   3,156,493 
Issuance of common stock shares from the conversion of shares of Series D     
Preferred stock  2   189 
Beneficial conversion feature recorded with convertible debt  -   15,619,444 
Issuance of common stock in connection with an acquisition purchase  4,500,000   - 
commitment        
Issuance of debt to repurchase royalty agreement  -   11,898,455 

The accompanying notes are an integral part of these statements.

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SECUREALERT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)           BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial information of SecureAlert, Inc. and subsidiaries (collectively, the “Company” or “SecureAlert”) has been prepared in accordance with Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2014, and results of its operations for the three and six months ended March 31, 2014 and 2013.  These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013.  The results of operations for the six months ended March 31, 2014 may not be indicative of the results for the fiscal year ending September 30, 2014.

(2)           PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of SecureAlert and its subsidiaries. All significant inter-company transactions have been eliminated in consolidation.

(3)           RECENTLY ISSUED ACCOUNTING STANDARDS

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

(4)           IMPAIRMENT OF LONG-LIVED ASSETS
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. If the carrying amount of an asset exceeds its fair 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 value that is independent of other groups of assets.  The Company recorded $75,000 and $150,000 of impairment expenses related to monitoring equipment for the three months ended March 31, 2014 and 2013, respectively. Additionally, the Company recorded $150,000 and $300,000 of impairment expenses related to monitoring equipment for the six months ended March 31, 2014 and 2013, respectively.

(5)           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The Chilean Peso is the functional currency of the operating subsidiary SecureAlert Chile, SpA. The balance sheet of SecureAlert Chile has been translated into United States Dollars (USD) at the exchange rate prevailing at March 31, 2014. Additionally, the average exchange rates prevailing during the six months ended March 31, 2014 had an immaterial effect on the statements of operations. Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ equity.
(6)           GEOGRAPHIC INFORMATION

During the six months ended March 31, 2014, 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 and services.  The revenues recognized by geographic area for the three and six months ended March 31, 2014 and 2013, are as follows:

  
Three Months Ended
March 31,
  
Six Months Ended
March 31,
 
  2014  2013  2014  2013 
United States of America $1,728,547  $1,778,884  $3,613,510  $3,547,250 
Latin American Countries  -   2,234,483   -   5,252,960 
Caribbean Countries and Commonwealths  710,762   782,482   1,467,440   1,569,012 
Other Foreign Countries  16,480   12,475   34,133   27,174 
Total $2,455,789  $4,808,324  $5,115,083  $10,396,396 

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The long-lived assets, net of accumulated depreciation, used in the generation of revenues by geographic area as of March 31, 2014 and September 30, 2013, were as follows:

  Net Property and Equipment  Net Monitoring Equipment 
  
March 31,
2014
  
September 30,
2013
  
March 31,
2014
  
September 30,
2013
 
United States of America $552,498  $318,201  $1,451,657  $878,823 
Latin American Countries  13,477   -   144,474   - 
Caribbean Countries and Commonwealths  16,011   -   183,343   351,138 
Other Foreign Countries  9,955   -   7,050   6,735 
Total $591,941  $318,201  $1,786,524  $1,236,696 
(7)           NET LOSS PER COMMON SHARE

Basic net loss per common share ("Basic EPS") is computed by dividing net loss available to common shareholders 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 shareholders 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 common stock options and warrants, and shares issuable upon conversion of preferred stock.  As of March 31, 2014 and 2013, there were 453,151 and 4,334,688 outstanding common share equivalents, respectively, that were not included in the computation of Diluted EPS as their effect would be anti-dilutive.  No reconciliation for discontinued operations was provided since the impact was immaterial. The common stock equivalents outstanding as of March 31, 2014 and 2013 consisted of the following:

  
March 31,
2014
  
March 31,
2013
 
Conversion of debt and accrued interest  -   3,771,116 
Conversion of Series D Preferred stock  300   14,040 
Exercise of outstanding common stock options and warrants  410,851   387,532 
Exercise and conversion of outstanding Series D Preferred        
    stock warrants  42,000   162,000 
Total common stock equivalents  453,151   4,334,688 
(8)           PREPAID AND OTHER EXPENSES

The carrying amounts reported in the balance sheets for prepaid expenses and other current assets approximate their fair market value based on the short-term maturity of these instruments. As of March 31, 2014 and September 30, 2013, the outstanding balance of prepaid and other expenses was $2,564,949 and $1,783,805, respectively.  The $2,564,949 is comprised of a $1,488,778 bond posted as a requirement for doing business in Latin America which the Company anticipates to repatriate by June 30, 2014.

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(9)           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’s selling price.  Inventory is periodically reviewed in order to identify obsolete, damaged items or impaired items.

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 March 31, 2014 and September 30, 2013, respectively, inventory consisted of the following:

  March 31,  September 30, 
  2014  2013 
Raw materials $968,522  $615,144 
Reserve for damaged or obsolete inventory  (478,827)  (148,043)
Total inventory, net of reserves $489,695  $467,101 
(10)         PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 2014 and September 30, 2013, were as follows:

  March 31,  September 30, 
  2014  2013 
Equipment, software and tooling $2,379,944  $2,002,577 
Automobiles  33,466   33,466 
Leasehold improvements  127,162   127,162 
Furniture and fixtures  247,218   247,218 
   Total property and equipment before accumulated depreciation  2,787,790   2,410,423 
Accumulated depreciation  (2,195,849)  (2,092,222)
Property and equipment, net of accumulated depreciation $591,941  $318,201 
Depreciation expense for the six months ended March 31, 2014 and 2013 was $103,629 and $128,077, respectively.  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 the property. Any gains or losses are recognized in the results of operations.  During the six months ended March 31, 2014 and 2013, the Company disposed of property and equipment with a net book value of $0 and $1,365, respectively.

(11)         MONITORING EQUIPMENT

Monitoring equipment as of March 31, 2014 and September 30, 2013, was as follows:

  March 31,  September 30, 
  2014  2013 
Monitoring equipment $2,852,058  $2,420,042 
Less: accumulated depreciation  (1,065,534)  (1,183,346)
Monitoring equipment,  net of accumulated depreciation $1,786,524  $1,236,696 
The Company began leasing monitoring equipment to agencies for offender tracking in April 2006 under operating lease arrangements.  The monitoring equipment is amortized using the straight-line method over an estimated useful life of three years.

Depreciation expense for the six months ended March 31, 2014 and 2013 was $382,814 and $668,081, respectively.  Additionally, as of March 31, 2014, the Company reserved $150,000 for future monitoring equipment impairment. These expenses were recognized in cost of revenues.

Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the estimated costs to sell the assets.  During the six months ended March 31, 2014 and 2013, the Company recorded in cost of revenues disposal of lease monitoring equipment and parts of $17,388 and $54,360, respectively.

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(12)         INTANGIBLE ASSETS

The following table summarizes the activity of intangible assets for the second fiscal quarter ended March 31, 2014:

  
Borinquen
Container
Corporation
  
International
 Surveillance
Services Corp.
  
Satellite
Tracking of
People, LLC
  Patent  Total 
                
Intangible assets:               
Patent license agreement $-  $-  $4,500,000  $50,000  $4,550,000 
Royalty agreement  11,616,984   5,003,583   -   -   16,620,567 
Total intangible assets  11,616,984   5,003,583   4,500,000   50,000   21,170,567 
Accumulated amortization  (988,767)  (687,994)  (30,562)  (23,148)  (1,730,471)
Intangible assets, net of accumulated amortization $10,628,217  $4,315,589  $4,469,438  $26,852  $19,440,096 
Borinquen Container Corporation
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 subsequently amended.  Under the terms of the royalty agreement, Borinquen had the right to receive 20% of net revenues derived within certain geographic territories.
On February 1, 2013, the Company redeemed the royalty from Borinquen and the Company capitalized the total cost of the royalty purchase commitment of $11,616,984, as a non-current asset and amortizes the asset over the remaining term of the royalty agreement, subject to periodic analysis for impairment based on future expected revenues.  Annually, the Company evaluates the relative amortization based on the effective royalty rate and compares the revenues in the geographic territory subject to the royalty, historical revenue, and expected revenue growth in the territory.

As of March 31, 2014, the Company had a balance of $11,616,984 of intangible assets, as noted in the table above. The Company recorded $315,393 of amortization expense on intangible assets for Borinquen during the six months ended March 31, 2014, resulting in a total accumulated amortization of $988,767 and intangible assets, net of accumulated amortization of $10,628,217.

International Surveillance Services Corp.
Effective July 1, 2011, the Company entered into a stock purchase agreement and purchased all of the issued and outstanding shares of International Surveillance Services Corp. (“ISS”), a Puerto Rico corporation, to utilize the knowledge and connections of ISS in Central and South America and to acquire the rights to certain territorial commissions that were payable by the Company to ISS.

As of March 31, 2014, the Company had a balance of $5,003,583 of intangible assets. The Company recorded $125,091 of amortization expense on intangible assets for ISS during the six months ended March 31, 2014, resulting in a total accumulated amortization expense of $687,994 and intangible assets, net of accumulated amortization of $4,315,589.

Satellite Tracking of People, LLC
On March 1, 2014, the Company entered into an agreement with Satellite Tracking of People, LLC (“STOP”) whereby the Company was granted a non-exclusive, irrevocable, perpetual and royalty-free license to certain patents held by STOP.  Under the terms of the agreement, the Company was released from its obligations to make certain royalty payments under prior agreements.  During the three months ended March 31, 2014, these obligations were removed and the amounts were offset to cost of revenues and other income. The Company agreed to pay STOP a non-refundable payment of $4,500,000 over two years, in 24 equal monthly installments of $187,500. The Company recorded an intangible asset in the amount of $4,500,000, as a non-current asset and will amortize the asset over the estimated useful term of the patents, 10 years, subject to periodic analysis for impairment based on future expected revenues.

As of March 31, 2014, the Company had a balance of $4,500,000 of intangible assets, as noted in the table above. The Company recorded $30,562 of amortization expense related to this license agreement during the six months ended March 31, 2014, resulting in a total accumulated amortization of $30,562 and net other intangible assets of $4,469,438.

Patent License
On January 29, 2010, the Company and Satellite Tracking of People, LLC (“STOP”) entered into a license agreement whereby STOP granted to the Company a non-exclusive, perpetual 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 the Company’s present and future business.  The license is not assignable or transferable except for sublicenses within the scope of the license to the Company’s subsidiaries. The license will continue indefinitely so long as any of the licensed patents have enforceable rights.

The Company paid $50,000 as consideration for the use of this patent. The Company recorded $2,778 of amortization expense for the patent during the six months ended March 31, 2014, resulting in a total accumulated amortization relating to the patent of $23,148 and net intangible assets of $26,852.

(13)         OTHER ASSETS

As of March 31, 2014 and 2013, the outstanding balance of other assets was $3,416,297 and $170,172, respectively.  The $3,416,297 balance of other assets is comprised largely of $3,346,622 held in Chilean Pesos, which secures a performance bond for an international customer.  The Company anticipates this restricted cash will be unrestricted and available to the Company on March 16, 2018.

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(14)         ACCRUED EXPENSES

Accrued expenses consisted of the following as of March 31, 2014 and September 30, 2013:

  March 31,  September 30, 
  2014  2013 
Accrued payroll, taxes and employee benefits $499,201  $473,179 
Accrued consulting  306,011   317,300 
Accrued interest  292,276   27,394 
Accrued cellular costs  179,000   55,000 
Accrued legal costs  109,318   57,001 
Accrued taxes - foreign and domestic  99,321   262,880 
Accrued settlement costs  64,000   76,000 
Accrued board of directors fees  60,000   68,090 
Accrued outside services  49,276   33,022 
Accrued travel  39,864   50,000 
Accrued other expenses  13,639   15,903 
Accrued royalties  -   714,400 
Accrued warranty and manufacturing costs  -   30,622 
     Total accrued expenses $1,711,906  $2,180,791 
(15)         DEBT OBLIGATIONS

Debt obligations as of March 31, 2014 and September 30, 2013, respectively, are comprised of the following:

  March 31,  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 percent per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on January 3, 2016. A $750,000 orgination 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 March 31, 2014, the remaining debt discount was $656,249. $9,343,751  $- 
  
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.  4,125,000   - 
  
Note issued in connection with the acquisition of a subsidiary and matures in December 2014.  37,877   64,111 
  
Capital leases with effective interest rates that range between 8.51% and 17.44%. Leases mature between June 2015 and November 2015.  44,000   59,266 
  
Automobile loan with a financial institution secured by the vehicle. Interest rate is 7.06% and was paid off during the quarter ended March 31, 2014.  -   5,306 
         
Total debt obligations  13,550,628   128,683 
Less current portion  (2,321,094)  (88,095)
Long-term debt, net of current portion $11,229,534  $40,588 
The following table summarizes the Company’s future maturities of debt obligations as of March 31, 2014

Fiscal Year Total 
2015 $2,321,094 
2016  11,229,534 
     
Total $13,550,628 
(16)           RELATED-PARTY TRANSACTIONS

The Company entered into transactions with certain related parties during the six months ended March 31, 2014. These transactions consist largely of financing transactions and service arrangements. All transactions with related parties are reviewed and approved by the Company’s Board of Directors.

Loan Agreement

On February 1, 2013, the Company entered into a loan agreement with Sapinda Asia (the “Loan”).  Under the agreement, the Company may borrow up to $1,200,000 at an interest rate stated at three percent per annum for unused funds and 10% per annum for borrowed funds. On October 24, 2013 the Company drew down $1,200,000 for use in a performance bond required under a sales contract with an international customer. As of March 31, 2014, the Company owed $1,200,000 of principal and $79,550 of accrued interest on the Loan.  The Loan matures on June 30, 2014.

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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 matures on November 18, 2014. As of March 31, 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 (“Paranet”) to provide the following primary information technology (“IT”) services:  (1) procurement of hardware and software necessary to ensure vital backup and disaster recovery services; and (2) providing the security of all data and the integrity of such data against all loss of data, misappropriation of data, by its employees and affiliates.   During the six months ended March 31, 2014, Paranet invoiced the Company $276,084.  This amount consisted of $238,349 for computer equipment and $37,735 for services.  For the six months ended March 31, 2013, Paranet invoiced the Company $4,052 for services.  David S. Boone, a Director and member of the Company’s Executive Committee, is also the Chief Executive Officer of Paranet.

Facility Agreement

On January 3, 2014, the Company entered into a loan agreement (“Facility Agreement”) with Tetra House Pte. Ltd.(“Tetra House”) to provide unsecured debt financing to the Company for acquisitions and working capital.  In consideration of the Facility Agreement, the Company paid Tetra House an arrangement fee equal to 3% of the aggregate maximum amount under the Facility Agreement or $750,000. Tetra House is a private company incorporated under the laws of the Republic of Singapore and is controlled by Mr. Guy Dubois who is a director and member of the Company’s Executive Committee, and currently serves as the Chairman of the Company’s Board of Directors. Under this agreement, the Company may borrow up to $25,000,000, through May 31, 2014. Borrowed amounts under the Facility Agreement bear interest at a rate of 8% per annum and interest is payable in arrears semi-annually.  All outstanding principal under the Facility Agreement, together with accrued and unpaid interest, is due and payable on January 3, 2016. The Company may prepay, without penalty, in minimum amounts of $1,000,000, the borrowed amounts.  The Company may draw down funds in increments of not less than $2,000,000 and in integral multiples of $1,000,000 by submitting a utilization request to Tetra House.  Tetra House has 10 business days in which to fund the utilization request upon receipt of such request.

On January 14, 2014 the Company was informed that Tetra House had assigned all of its rights and interests in the Facility Agreement to Conrent Invest, S.A, acting through its compartment Safety II, a securitization company established under the Luxembourg Law of 22 March 2004.  Conrent Invest, S.A., acting through its compartment Safety II is not a related party.  As of March 31, 2014, the Company had borrowed $10,000,000 of principal and $168,767 of interest had accrued on the Facility Agreement, which amounts are due and payable on January 3, 2016.
Summary of All Related-Party Debt
  March 31,  September 30, 
  2014  2013 
       
Loan from a significant shareholder with an interest rate of 10% per annum. Principal and interest due at maturity on June 30, 2014. $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, 2014.  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  (2,700,000)  (60,000)
Long-term debt, net of current portion $-  $- 
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(17)           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.

Series D Convertible Preferred Stock

In July 2011, the Company amended its Articles of Incorporation and increased the total designated shares of Series D Preferred stock from 70,000 to 85,000 shares (“Series D Preferred stock”).  During the six months ended March 31, 2014 and 2013, the Company did not issue any additional new shares of Series D Preferred stock.

As of March 31, 2014 and September 30, 2013, there were 10 and 468 Series D Preferred shares outstanding, respectively.

Dividends
The Series D Preferred stock is entitled to dividends at the rate equal to 8% 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 stock at the sole discretion of the Board of Directors. If a dividend is paid in shares of common stock of the Company, the number of shares to be issued is based on the average per share market price of the common 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 six months ended March 31, 2014 and 2013, the Company issued 979 and 148,942 shares of common stock to pay $18,854 and $1,260,858 of accrued dividends on the Series D Preferred stock earned during the six months ended March 31, 2014 and 2013, respectively.  Subsequent to March 31, 2014, the Company issued 270 shares of common stock to pay $5,103 of accrued dividends on Series D Preferred stock earned during the three months ended March 31, 2014.

Convertibility
Each share of Series D Preferred stock may be converted into thirty (30) shares of common stock, commencing 90 days after the date of issue. During the six months ended March 31, 2014 and 2013, 197 and 48,295 shares of Series D Preferred stock were converted into 16,053 and 1,828,283 shares of common stock, respectively. During fiscal year 2013, the Company entered into an employment agreement with an officer. In addition, the officer and the Company mutually agreed that the conversion of the Series D Preferred shares held by the officer will convert into common stock at a rate of 155% of each share’s original investment; provided that the officer must convert all of his Series D Preferred shares before the next annual shareholder meeting of the Company. As of April 30, 2014, there were no Series D Preferred shares 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 at 120% of the aggregate original investment of $260,007 through the payment of cash totaling $312,007.  The redemption date was February 13, 2014.

Voting Rights and Liquidation Preference
The holders 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 March 31, 2014 and September 30, 2013, there were 10 and 468 shares of Series D Preferred stock outstanding, respectively. Additionally, the holders are entitled to a liquidation preference equal to their original investment amount.
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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.

Series D Preferred Stock Warrants
As of March 31, 2014, 1,400 warrants to purchase Series D Preferred stock at an exercise price of $500 per share were issued and outstanding. During the six months ended March 31, 2014, no Series D Preferred stock warrants were issued or exercised.

(18)         COMMON STOCK

Common Stock Issuances

During the six months ended March 31, 2014, the Company issued the following shares of common stock: 16,053 shares upon the conversion of 197 shares of Series D Preferred stock, 979 shares to pay $18,854 of accrued dividends on Series D Preferred stock, 1,933 shares for Board of Director fees, 5,384 shares upon the exercise of options and warrants for total cash proceeds of $8,000, and 236,469 shares in connection with the acquisition of GPS Global Tracking & Surveillance System Ltd.
(19)         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”), 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 90,000 shares are authorized for issuance pursuant to awards granted under the 2012 Plan.  During the six months ended March 31, 2014 and 2013, respectively, no options were issued under this 2012 Plan.  As of March 31, 2014, 60,000 shares of common stock were available for future grants under the 2012 Plan.

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. The Company granted warrants to purchase 27,700 and 64,984 shares of common stock during the six months ended March 31, 2014 and 2013, respectively.  These warrants vested immediately and expire two years from grant date.  The Company recorded $160,862 and $53,188 of expense for the six months ended March 31, 2014 and 2013, respectively, and $106,915 and $53,188 of expense for the three months ended March 31, 2014 and 2013, respectively, related to the issuance and vesting of all stock options and warrants.  As of March 31, 2014, $11,878 of compensation expense associated with unvested stock options and warrants issued previously to employees will be recognized over the remaining fiscal year.

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The option and warrant grants for six months ended March 31, 2014 and 2013 were valued using the Black-Scholes model with the following weighted-average assumptions:

  
Six Months Ended
March 31,
 
  2014  2013 
Expected cash dividend yield  -   - 
Expected stock price volatility  77%  102%
Risk-free interest rate  0.12%  0.14%
Expected life of options/warrants 2 Years  2 Years 
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. 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 activity for the six months ended March 31, 2014 is presented below:

  
Shares
 Under
 Option/ Warrant
  
Weighted
Average
Exercise
 Price
 
Weighted
Average
 Remaining
 Contractual Life
 
Aggregate
 Intrinsic
Value
 
Outstanding as of September 30, 2013  427,965  $16.12     
Granted  27,700  $19.33     
Expired / Cancelled  (8,249) $32.58     
Exercised  (36,565) $16.44     
Outstanding as of March 31, 2014  410,851  $15.97 .98 years $1,458,325 
Exercisable as of March 31, 2014  408,156  $16.02 .98 years $1,432,055 
The intrinsic value of options outstanding and exercisable is based on the Company’s share price of $18.75 at March 31, 2014.

(20)         CHANGES IN EQUITY

A summary of the composition of equity of the Company as of March 31, 2014, and the changes during the six months then ended is presented in the following table:

  Total Equity 
Balance at September 30, 2013 $23,963,342 
Issuance of common stock for:    
Dividends from Series D Preferred stock  18,854 
Board of Director fees  37,500 
Exercise of options and warrants  8,000 
An acquisition purchase commitment  4,500,000 
Vesting of stock options and warrants  142,500 
Series D Preferred dividends  (14,530)
Issuance of warrants for Board of Director fees  160,862 
Accumulated other comprehensive income  145,972 
Redemption of Series D Preferred stock  (312,007)
Net loss  (2,562,312)
Balance at March 31, 2014 $26,088,180 
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(21)         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 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption 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 intend to defend the case vigorously. 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.
Larry C. Duggan v. Court Programs of Florida, Inc. and SecureAlert, Inc.  On March 26, 2012, Mr. Duggan filed a complaint in the 9th Circuit Court in and for Orange County, Florida alleging malicious prosecution, abuse of process and negligent infliction of emotional distress against the Company and its former subsidiary.  The case resulted from actions of a former agent of the subsidiary.  The Company intends to vigorously defend this matter. 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.
Integratechs v. SecureAlert, Inc.  On March 14, 2013, Integratechs, Inc. filed a suit in the Fourth Judicial District Court of Utah County, claiming the Company had breached a contract for computer services and intentionally interfered with its economic relations.  The parties reached a settlement in March 2014, and the Company agreed to pay $20,000 to Integratechs; neither party admitted any wrongdoing or liability and the lawsuit was dismissed with prejudice.
Christopher P. Baker v. SecureAlert, Inc.  In February 2013, Mr. Baker filed suit against the Company in the Third Judicial District Court in and for Salt Lake County, State of Utah.  Mr. Baker asserts that the Company breached a 2006 consulting agreement with him and claims damages of not less than $210,000.  The Company disputes the plaintiff’s claims and will defend the case vigorously.  No accrual for a potential loss has been made as management believes the probability of incurring a material loss is remote.
SecureAlert, Inc. v. STOP, LLC. On December 17, 2013, the Company filed a complaint in the United States District Court, District of Utah, Central Division against Satellite Tracking of People, LLC (a.k.a. STOP, LLC) asserting claims for declaratory relief, reimbursement for overpayment and unjust enrichment related to a Settlement Agreement entered into by and between the Company and STOP, effective January 29, 2010.  On February 14, 2014, STOP filed an answer denying our claims and asserted counterclaims for breach of contract against the Company related to the same Settlement Agreement.  On March 1, 2014, the parties entered into a Supplemental Settlement Agreement that included a stipulation and dismissal of all claims and counterclaims in 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, but excluding patents held by or acquired by SecureAlert related to: (i) GPS or cellular tracking by a device not attached to a person’s limb, (ii) related to alcohol/drug monitoring, (iii) any patent held by an entity acquired by SecureAlert for so long as that entity is paying or owes STOP a royalty or fee until such time as any royalty or fee is no longer owed to STOP, unless STOP already has a right to those patents, and (iv) any patent not used in the electronic monitoring and tracking services, using cellular and/or GPS technologies, for governmental law enforcement agencies (e.g. offender tracking).  In addition, the Company agreed to pay STOP 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 STOP. 
The parties also agreed that if the Company pays in full the above amounts they shall have no further payment obligations under the prior agreement and will receive a fully paid-up, non-exclusive, perpetual, and royalty-free license to the STOP Patents. This includes additional patents that were not in the prior agreement. Based on the terms of the agreement, the Company has accounted for this agreement as a separate transaction and as such removed prior accrued royalty amounts into current operations. If the Company does not make the required payments under the current agreement STOP shall have the right to seek enforcement of the royalty and payment obligations of the Company under the prior agreement; provided, however, that the Company shall receive partial credit for all prior payments made. The Company has made the first two installment payments under the agreement as of March 31, 2014.
SecureAlert, Inc. v. Derrick Brooks and STOP, LLC.  On February 21, 2014, the Company filed a complaint in the Third 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, the Company entered into a settlement agreement with STOP and all of the claims between the Company and STOP in the litigation 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 his claims.  The Company has not yet responded to Mr. Brooks’ counterclaims, but management believes them to be without merit and the Company intends to vigorously defend against them. 

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(22)        SUBSEQUENT EVENTS
 
The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued.  Subsequent to June 30, 2013,March 31, 2014, the following events occurred:
 
1)7992,431 shares of common stock were issued to five members of the Board of Directors for services.
2)270 shares of common stock were issued for the 3rd fiscal quarter Series D Preferred stock dividends, valued at $9,325.$5,103.
  
2)3)10 shares of Series D Preferred stock were converted into 854 shares of common stock, resulting in zero shares of Series D Preferred stock issued and outstanding.
4)6,556 shares of common stock were issued to four employees for services, valued at $120,000 or $18.30 per share.
5)Warrants to purchase 14,2862,432 shares of common stock for two years with an exercise price of $14.70$18.75 per share, valued at $8,684 on JulyApril 1, 20132014, the date of the grant, were issued to board members and valued at $82,715. These warrants are fully vested at date of issuance.grant.
  
3)6)6802,693 shares of common stock were issued to a board memberdirector from the exercise of cashless warrants previously granted for payment of services rendered from March 2013 through June 30, 2013, valued at $10,000.services.
  
4)7)The Company entered into a related-party service agreement46 shares of common stock were issued to provide a backup and disaster recovery system and other services (see Note 15).two employees from the exercise of cashless warrants previously granted for services.
  
5)8)The Effective April 1, 2014, the Company entered into an acknowledgementa Share Purchase Agreement to purchase all the issued and agreement with Sapinda Asia wherebyoutstanding shares of GPS Global Tracking and Surveillance System Ltd., a company formed under the laws of and operating in the State of Israel (“GPS”). The Company agreed to waivepurchase GPS for $7,811,044 payable in cash and shares of common stock.  Of the penaltiestotal amount $311,404 was paid in cash and any other “out236,469 shares of pocket” expenses owed by Sapinda Asia under the Loan and Sapinda Asia acknowledges that it is not owed an origination fee. Both Parties have also agreed to accelerate the conversion of the loan to reduce the accumulation of interest debt under the Loan. Sapinda Asia commits and is bound to convert all principal and accrued interest under the Loan into common stock valued at $4,500,000 were paid at closing prior to March 31, 2014.   See 8-K filed on March 12, 2014, for complete details related to the acquisition of the Company no later than 15 calendar days following the effective date of a registration statement with the Securities and Exchange Commission to register such shares, which the Company has agreed to file in a timely manner.GPS.
 
 
F - 4887
 
SECUREALERT, INC.
 
3,905,917236,469 Shares of Common Stock
 
PROSPECTUS
 
November 13, 2013June __, 2014
 
 
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PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.
 
Other Expenses of Issuance and Distribution.
 
The following table sets forth all costs and expenses, payable by us in connection with the sale of the Common Stock being registered. All amounts shown are estimates except for the SEC registration fee.
 
 Amount to  Amount to 
 be Paid  be Paid 
SEC registration fee $9,508  $548 
Printing and engraving expenses $5,000  $5,000 
Legal fees and expenses $30,000  $30,000 
Accounting fees and expenses $15,000  $15,000 
Transfer agent and registrar fees and expenses $1,000  $1,000 
Miscellaneous expenses $1,000  $1,000 
       
Total $61, 508  $52,548 
 
Item 14.
 
Indemnification of Directors and Officers.
 
Section 16-10a-841 of the Utah Revised Business Corporation Act (the “UBCA”) allows a Utah corporation to provide, in its articles of incorporation, bylaws or by shareholder resolution, for the elimination or limitation of personal liability of a director to the corporation or to its shareholders for monetary damages for any action or omission, as a director, except (i) liability for a financial benefit received by a director to which he was not entitled, (ii) intentional infliction of harm on the corporation or the shareholders, (iii) an unlawful distribution to shareholders in violation of the UBCA, and (iv) intentional violation of criminal law.
 
Section 16-10a-902 of the UBCA provides that a Utah corporation may indemnify any individual made a party to a proceeding because he or she is or was a director, against liability incurred in the proceeding, if: (a) the director’s conduct was in good faith, (b) the director reasonably believed that his or her conduct was in, or not opposed to, the corporation’s best interests; and (c) in the case of any criminal proceeding, the director had no reasonable cause to believe such conduct was unlawful; provided, however, that a corporation may not indemnify a director under Section 16-10a-902 if the director was adjudged liable to the corporation in a proceeding by or in the right of the corporation or adjudged liable for deriving an improper personal benefit.  All indemnification is limited to reasonable expenses only.
 
Section 16-10a-903 of the UBCA provides that, unless limited by its articles of incorporation, a Utah corporation shall indemnify a director who was successful, on the merits or otherwise, in the defense of any proceeding, or in the defense of any claim, issue or matter in the proceeding, to which the director was a party because he or she is or was a director of the corporation, against reasonable expenses incurred in connection with the proceeding or claim with respect to which the director has been successful.
 
In addition to the indemnification provided by Sections 902 and 903, Section 6-10a-905 of the UBCA provides that, unless otherwise limited by a corporation’s articles of incorporation, a director may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction.
 
Under Section 16-10a-904 of the UBCA, a Utah corporation may pay for or reimburse the reasonable expenses incurred by a director in advance of final disposition of the proceeding if the director furnishes the corporation a written affirmation of his or her good faith belief that the director has met the applicable standard of conduct, provides a written undertaking personally binding the director to pay the advance if it is ultimately determined that he or she did not meet the standard of conduct, and a determination is made that the facts then known to those making a determination would not preclude indemnification.  The director’s undertaking need not be secured and may be accepted without reference to financial ability to make repayment.  Section 16-10a-906 prohibits a corporation from making any discretionary indemnification, payment or reimbursement of expenses unless a determination has been made that the director has met the applicable standard of conduct.
ii

The determination required under Sections 16-10a-904 and 16-10a-906 of the UBCA must be made as follows: (1) by a majority vote of a quorum of the board of directors who are not parties to the proceeding; (2) if a quorum cannot be obtained as contemplated by (1), above, by a majority vote of a committee of two or more members of the board of directors who are not parties to the proceeding and are designated by the board of directors; (3) by special legal counsel selected by a quorum of the board of directors or its committee composed of persons determined in the manner prescribed in (1) or (2), above, or if a disinterested quorum of the board of directors or committee is not possible, then selected by a majority vote of the full board of directors, or (4) by a majority of the shareholders entitled to vote by person or proxy at a meeting.
89
 
Section 16-10a-907 of the UBCA provides that, unless a corporation’s articles of incorporation provide otherwise, (i) an officer of the corporation is entitled to mandatory indemnification under Section 903 and is entitled to apply for court-ordered indemnification under Section 905, in each case to the same extent as a director, (ii) a corporation may indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director, and (iii) a corporation may also indemnify and advance expenses to an officer, employee, fiduciary or agent who is not a director to a greater extent, if not inconsistent with public policy, and if provided for by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.
 
Section 16-10a-908 of the UBCA provides that a corporation may purchase and maintain liability insurance on behalf of a person who is or was a director, officer, employee, fiduciary, or agent of the corporation or who, while serving as a director, officer, employee, fiduciary, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of another foreign or domestic corporation or other person, or of an employee benefit plan against liability asserted against or incurred by the individual in that capacity or arising from his status as such, whether or not the corporation would have the power to indemnify him or her against the same liability under Sections 902, 903 or 907 of the UBCA.
 
Section 16-10a-909 of the UBCA provides that a provision treating a corporation’s indemnification of or advance for expenses to, directors that is contained in its articles of incorporation or bylaws, in a resolution of its stockholders or board of directors or in a contract, (except an insurance policy), or otherwise, is valid only if and to the extent the provision is not inconsistent with Sections 901 through 909 of the Revised Act.  If the articles of incorporation limit indemnification or advancement of expenses, indemnification and advancement of expenses are valid only to the extent not inconsistent with the articles.
 
The Company’s Amended and Restated Articles of Incorporation provide that, to the fullest extent permitted by the Revised Act or any other applicable law, a director of the Company will not be personally liable to the Company or its shareholders for monetary damages for any action taken or failure to take any action as a director, except liability for (a) the amount of a financial benefit received by a director to which he is not entitled, (b) an intentional infliction of harm on the Company or its shareholders, (c) a violation of Section 16-10a-842 of the Revised Act (regarding unlawful distributions) or (d) an intentional violation of criminal law.
 
The Amended and Restated Articles of Incorporation also provide that, to the fullest extent permitted by the Revised Act or other applicable law, (a) the Company will indemnify a person made or threatened to be made a party to any action for all liabilities and expenses incurred by such person in connection with such action because such person is or was a director or officer of the Company or served at the request of the Company as a director, officer, partner, trustee, employee, fiduciary or agent of another entity and (b) the Company will advance expenses to such person in advance of a final disposition of such action.
 
The Amended and Restated Articles of Incorporation further provide that neither an amendment nor repeal of the such provisions of the Company’s Amended and Restated Articles of Incorporation, nor the adoption of a provision of the Company’s Amended and Restated Articles of Incorporation that is inconsistent with such provisions, will eliminate or reduce the effect of such provisions with respect to any matter that occurs or action or proceeding that accrues or arises prior to such amendment or repeal of such provisions or the adoption of a provision that is inconsistent with such provisions.
 
iii
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 expenses incurred in connection with such proceeding to the maximum extent allowed under Utah law, and to advance expenses to any such individual.
 
The Company has also entered into Indemnification Agreements with each of its directors and executive officers.  In such agreements, the Company agrees to hold harmless and indemnify, including with respect to expenses, the respective officer or director to the fullest extent authorized or permitted by the Revised Act, the Company’s Amended and Restated Articles of Incorporation or the Company’s Bylaws.  The Company also agrees to pay the entire amount of liabilities and expenses, without requiring the contribution of the respective officer or director, in any action in which the Company is held jointly liable with such officer or director.  The Indemnification Agreements further require the Company to advance expenses to such officer or director to the maximum extent as may be permitted under the Revised Act.
 
The foregoing description is necessarily general and does not describe all details regarding the indemnification of officers, directors or controlling persons of the Company.
 
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Item 15.
 
Recent Sales of Unregistered Securities.
 
During the fiscal year ended September 30, 2013, we sold the securities described below without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance upon exemptions from registration available under Section 4(a)(2) of the Securities Act and rules and regulations promulgated under the Securities Act, including Regulation D and Regulation S.
 
Common Stock
 
We issued the following shares of Common Stock: 181,832 shares of Common Stock as payment of dividends on our Series D Convertible Preferred stock; 21,884 shares of Common Stock for services, valued at $141,758; 3,661 shares of Common Stock for the payment of board of director fees, valued at $47,500; 4,607,361 shares of Common Stock for conversion of debt totaling $20,733,118; and 1,894,283 shares of Common Stock upon the exchange or conversion of 48,295 shares of Series D Preferred stock.
 
In each of the transactions listed above, the securities were issued in private transactions, solely to accredited investors without general solicitation and without registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and the rules and regulations promulgated under the Securities Act, as indicated above.
 
In each of the transactions listed above, the shares of Common Stock were issued without registration under the Securities Act in reliance on exemptions from registration provided by Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder. The Company’s reliance on Section 4(a)(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale or issuance of the securities took place directly between the offerees and the Company.
 
Purchases of Equity Securities
 
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 ended September 30, 2012.
 
iv
Item 16.
 
Exhibits and Financial Statement Schedules.
 
(a) Exhibits
 
Exhibit NumberTitle 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(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- 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-KSB10-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).
91
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)(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 (previously(previously filed as Exhibit to Definitive Proxy Statement, filed October 25, 2011)
  
3(i)(14)
Articles of Amendment to the Articles of Incorporation of SecureAlert, Inc., filed April 11, 2013 (previously filed as Exhibit on Form 10-Q filed May 15, 2013).
  
3(ii)Bylaws (incorporated by reference to our Registration Statement on Form 10-SB, effective December 1, 1997).
  
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).
  
4.01  
2006 Equity Incentive Award Plan (previously filed in August 2006 as an Exhibit to the Form 10- QSB for the nine months ended June 30, 2006).
  
4.02
2012 Equity Incentive Award Plan (previously filed as Exhibit to Definitive Proxy Statement, filed October 25, 2011).
  
v
5.1Opinion of Durham Jones & Pinegar
  
10.01  
Distribution and Separation Agreement (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
  
10.02  
1997 Stock Incentive Plan of the Company, (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
  
10.03              
1997 Transition Plan (incorporated by reference to our Registration Statement and Amendments thereto on Form 10-SB, effective December 1, 1997).
  
10.04              
Securities 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).
  
10.05              
Loan 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).
  
10.06          
Loan 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).
  
10.07    
Agreement with ADP Management, Derrick and Dalton (April 2003) (previously filed as Exhibit on Form 10-QSB for the six months ended March 31, 2003)
92
10.08          
Security Agreement between Citizen National Bank and the Company (previously filed with Form 8-K in July 2006).
  
10.09          Promissory Note between Citizen National Bank and the Company (previously filed with Form 8-K in July 2006).
  
10.10          
Common 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).
  
10.11          
Change 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)
  
10.12          
Securities Purchase Agreement between the Company and VATAS Holding GmbH, a German limited liability company (previously filed with Form 8-K in November 2006).
  
10.13          
Common Stock Purchase Warrant between the Company and VATAS Holding GmbH dated November 9, 2006 (previously(previously filed as Exhibit on Form 10-QSB for the three months ended December 31, 2006, filed in February 2007).
  
10.14         
Settlement 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).
  
10.15          
Distributor 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).
  
10.16          
Distributor 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).
  
10.17          
Stock 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).
  
10.18          
Stock 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).
  
10.19          
Sub-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).

vi
10.20         
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
  
10.21         
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
  
10.22         
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007 (previously(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
  
10.23        
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated December 20, 2007 (previously(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June 2008).
  
10.24         
Stock 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).
  
10.25        
Distribution and License Agreement between euromicron AG, a German corporation, and the Company, dated  ay 28, 2009 (previously filed as Exhibit on Form 10-Q for the nine months ended June 30, 2009, filed in August 2009).
93
10.26        
Agreement 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(previously filed with Form 8-K in November 2010).
  
10.27        
Agreement and Royalty Agreement between Borinquen Container Corporation and SecureAlert, effective July 1, 2011 (previously filed with Form 8-K in August 2011).
  
10.28        
Addendum to the Royalty Agreement between Borinquen Container Corporation and SecureAlert, effective July 1, 2011 (previously filed as Exhibit on Form 10-Q for the six months ended March 31, 2012, filed in May 2012).
  
10.29        
Stock Purchase Agreement between Gary Shelton, Larry and Sue Gardner and SecureAlert, effective October 1, 2012 (previously filed on Form 8-K in December 2012).
  
10.30        
Loan and Security Agreement between Sapinda Asia Limited and SecureAlert, effective December 3, 2012 (previously(previously filed on Form 8-K in December 2012).
  
10.31
Stock Purchase Agreement between David Rothbart and SecureAlert, effective February 8, 2013 (previously filed on Form 10-Q in February 2012).
  
10.32
Settlement 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).
  
10.33Acknowledgement and Agreement between Sapinda Asia Limited, and SecureAlert, dated August 13, 2013.
  
14.1Code of Ethics (previously filed on Form 10-K in January 2014).
23.1Consent of Hansen, Barnett & Maxwell, LLPP.C. (incorporated herewith)
  
23.2
Consent of Eide Bailly, LLP  (incorporated herewith)
23.3Consent of Durham Jones & Pinegar (included in Exhibit 5)
  
99.1Insider Trading Policy Adopted (previously filed on Form 10-K in January 2014).
  
101.INS*XBRL INSTANCE DOCUMENT (Financial notes for period ending 9/30/2012 do not reflect post reverse split stock numbers)
  
101.SCH*XBRL TAXONOMY EXTENSION SCHEMA
  
101.CAL*XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
  
101.DEF*XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
  
101.LAB*XBRL TAXONOMY EXTENSION LABEL LINKBASE
  
101.PRE*XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 
* Filed herewith
 
vii
 
(b) Financial Statement Schedules
 
No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.
94
 
Item 17.
 
Undertakings.
 
The undersigned registrant hereby undertakes:

1.To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
 
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)To include any Prospectus required by section 10(a)(3) of the Securities Act; 

(ii)
To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;
 
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
2.
That, for the purpose of determining liability under the Securities Act, each post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and
4.That, for the purpose of determining our liability under the Securities Act to any purchaser, each Prospectus filed pursuant to Rule 424(b) as part of a Registration Statement relating to an offering, other than Registration Statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a Registration Statement or Prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or Prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or Prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
 
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
           (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant haswe have been advisedinformed that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the Registrantus of expenses incurred or paid by a director, officerour directors, officers or controlling person of the Registrantcontrol persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controllingcontrol person in connection with the securities being registered, the Registrantwe will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by itus is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Each Prospectus filed pursuant to Rule 424(b) as part of a Registration Statement relating to an offering, other than Registration Statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a Registration Statement or Prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or Prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or Prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
 
 
viii95
 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sandy, Utah, on the 1319th day of November, 2013.June, 2014.
 
 SECUREALERT, INC.
 
 
 
By:
 
 
/s/  Guy Dubois
  Guy Dubois, member, Executive Committee
   
 By:/s/ John R. Merrill
  
John R. Merrill, Chief Financial Officer
(Principal Financial Officer)

ix
 
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of SecureAlert, Inc., hereby severally constitute and appoint Guy Dubois, Chad Olsen and Gordon Jesperson and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, any amendments to this registration statement on Form S-1 (including any post-effective amendments thereto), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and generally to do all things in our names and on our behalf in our capacities as officers and directors to enable SecureAlert, Inc., to comply with the provisions of the Securities Act of 1933, as amended, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said registration statement and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
 
Signature Title Date
     
  /s/Guy Dubois Director, Member Executive Committee   November 13, 2013June 19, 2014
Guy Dubois  (Acting(Acting Principal Executive OfficerOfficer)  
     
  /s/  David S. Boone* Director   November 13, 2013June 19, 2014
David S. Boone    
     
  /s/  Chad D. OlsenJohn R. Merrill Chief Financial Officer and (Principal Financial   November 13, 2013June 19, 2014
       Chad D. OlsenJohn R. Merrill Officer and Principal Accounting Officer  
     
  /s/  Rene Klinkhammer* Director   November 13, 2013June 19, 2014
Rene Klinkhammer    
     
  /s/  Winfried Kunz* Director   November 13, 2013June 19, 2014
Winfried Kunz    
     
  /s/  Dan L. Mabey* Director   November 13, 2013June 19, 2014
Dan L. Mabey    
     
  /s/  George F. Schmitt* Director   November 13, 2013June 19, 2014
George F. Schmitt    
 
 

x* By: /s/ Guy Dubois
Attorney-in-fact
96