(Mark One)
|
|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(
d
) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended September 30, 2013
|
|
or
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(
d
) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ____________
to
___________
|
Utah
|
87-0543981
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
SecureAlert, Inc.
|
|||||||||
FORM 10-K
|
|||||||||
For the Fiscal Year Ended September 30, 2013
|
|||||||||
INDEX
|
|||||||||
Page
|
|||||||||
PART I
|
|||||||||
Item 1
|
Business
|
3
|
|||||||
Item 1A
|
Risk Factors
|
9
|
|||||||
Item 2
|
Properties
|
13
|
|||||||
Item 3
|
Legal Proceedings
|
13
|
|||||||
PART II
|
|||||||||
Item 5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 14 | |||||||
Item 7
|
Management's Discussion and Analysis of Financial Condition and Results of
Operations
|
16 | |||||||
Item 7A
|
Quantitative and Qualitative Disclosures About Market Risk
|
22
|
|||||||
Item 8
|
Financial Statements and Supplementary Data
|
22
|
|||||||
Item 9
|
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
22 | |||||||
Item 9A
|
Controls and Procedures
|
23
|
|||||||
Item 9B
|
Other Information
|
23
|
|||||||
PART III
|
|||||||||
Item 10
|
Directors, Executive Officers and Corporate Governance
|
23
|
|||||||
Item 11
|
Executive Compensation
|
27
|
|||||||
Item 12
|
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
29 | |||||||
Item 13
|
Certain Relationships and Related Transactions, and Director Independence
|
30
|
|||||||
Item 14
|
Principal Accounting Fees and Services
|
33
|
|||||||
PART IV
|
|||||||||
Item 15
|
Exhibits and Financial Statement Schedules
|
35
|
|||||||
Signatures
|
40
|
·
|
BI Incorporated, Denver Colorado, subsidiary of GEO Care, Inc., Boca Raton, Florida – 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.
|
·
|
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’ United States Offender Monitoring operation in 2012) – This company supplies monitoring and supervision solutions for the offender population. Through their acquisition and consolidation of G4S’ United 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, they also resell Omnilink’s active GPS device, in addition to their own.
|
·
|
Buddi, Ltd., Aylesbury, Binkghamshire, United Kingdom – This company was started in 2005 to provide consumer tracking for consumers such as the elderly or Alzheimer’s sufferers. Their major launch into offender monitoring was via an award of a United Kingdom Ministry of Justice contract. They also announced plans to enter the United States offender monitoring market by headquartering United States operations in Tampa, FL and hiring Steve Chapin, former Protech President and CEO.
|
·
|
Corrisoft, LLC, Lexington, Kentucky – This company produces offerings for the monitoring of low and medium risk offenders, and distributes other companies’ products for higher risk offenders. They have announced that they will be developing additional products for the monitoring of all offender types.
|
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 | % |
2013
|
%
|
2012
|
%
|
|||||||||||||
La Oficina de Servicios con Antelaci
ó
n 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 | % |
·
|
We redesigned the shell of the ReliAlert device addressing several issues related to devices that were returned to us by our customers.
|
|
|
·
|
We refined our assembly and inspection processes (outgoing and incoming inspections) to ensure continued quality improvements.
|
·
|
We instituted a formal change control process to ensure that we have a structured, strategic, and documented approach to addressing and implementing changes. This also includes improvements in our internal communications processes to ensure that different groups within the Company have visibility into current issues, and everyone has input into the process of continual improvement of our processes and 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.
|
Trademark
|
Application Number
|
Registration Number
|
Status/Next Action
|
|||
Mobile911 Siren with 2-Way Voice Communication & Design
®
|
76/013,886
|
2,595,328
|
Registered
|
|||
PAL Services
®
|
78/514,514
|
3,100,192
|
Registered
|
|||
TrackerPAL
®
|
78/843,035
|
3,345,878
|
Registered
|
|||
Mobile911
®
|
78/851,384
|
3,212,937
|
Registered
|
|||
TrackerPAL
®
|
CA 1,315,487
|
749,417
|
Registered
|
|||
TrackerPAL
®
|
MX 805,365
|
960954
|
Registered
|
|||
Foresight
®
|
77/137/822
|
3481509
|
Registered
|
|||
Bishop Rock Software
®
|
77/132,255
|
3481474
|
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™
|
86/031,550
|
In process
|
Pending
|
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 T
racking 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
|
12/818,453 |
18-Jun-10
|
8514070 |
20-Aug-13
|
Issued
|
||||||
A System and Method for Monitoring Individuals
Using a Beacon and Intelligent Remote Tracking
Device
|
12/399151 |
6-Mar-09
|
8232876 |
31-Jul-12
|
Issued
|
||||||
Emergency Phone with Single-Button Activation
|
11/174191 |
30-Jun-05
|
7251471 |
7/31/2007
|
Issued
|
||||||
Tracking Device Incorporating Enhanced Security
Mounting Strap
|
13/970,007 |
19-Aug-13
|
- |
-
|
Pending
|
||||||
A Remote Tracking Device and a System and
Method for Two-Way Voice Communication
Between the Device and a Monitoring Center
|
11/486989 |
14-Jul-06
|
- |
-
|
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
|
|||||
•
|
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.
|
·
|
Develop and introduce functional and attractive product and service offerings;
|
·
|
Increase awareness of our brand and develop consumer loyalty;
|
·
|
Respond to competitive and technological developments;
|
·
|
Increase gross profit margins;
|
·
|
Build an operational structure to support our business; and
|
·
|
Attract, retain and motivate qualified personnel.
|
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 |
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 fo
r
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 |
·
|
Overview – a general description of our business and the markets in which we operate; our objectives; our areas of focus; and challenges and risks of our business.
|
·
|
Results of Operations – an analysis of our consolidated results of operations for the last two fiscal years presented in our consolidated financial statements.
|
·
|
Liquidity and Capital Resources – an analysis of cash flows; off-balance sheet arrangements and aggregate contractual obligations; and the impact of inflation and changing prices.
|
·
|
Critical Accounting Policies – a discussion of accounting policies that require critical judgments and estimates.
|
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 expense
|
(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 | ) |
·
|
Current inventory quantities on hand;
|
·
|
Product acceptance in the marketplace;
|
·
|
Customer demand;
|
·
|
Historical sales;
|
·
|
Forecast sales;
|
·
|
Product obsolescence; and
|
·
|
Technological innovations.
|
Name
|
Age
|
Position
|
||
David S. Boone
|
53
|
Director
|
||
Guy Dubois
|
55
|
Director
|
||
Rene Klinkhammer
|
33
|
Director
|
||
Winfried Kunz
|
48
|
Director
|
||
Dan L. Mabey
|
62
|
Director
|
||
George F. Schmitt
|
70
|
Director
|
Name
|
Age
|
Position
|
||
Executive Committee of Board of Directors
|
Principal Executive Officer
|
|||
Chad D. Olsen
|
42
|
Chief Financial Officer
|
(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 for the 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
|
||||||||||||||||||||||
Position
|
Year
|
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 Officer
|
2012
|
$ | 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 Service
|
2012
|
$ | 168,000 | $ | 35,000 | $ | 77,500 | $ | 270,219 | $ | 7,950 | $ | 558,669 |
(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.
|
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 ($)
|
Option
expiration
date
|
Number of
shares
or units
of stock tha
t have not
vested (#)
|
Market value
of shares or
units of stock
that have
not vested ($)
|
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
|
- | - | - |
·
|
Mr. Klinkhammer, a director, filed two late Form 4s reporting two transactions.
|
·
|
Mr. Schmitt, a director, filed two late Form 4s reporting two transactions.
|
·
|
Mr. Dubois, a director, filed two late Form 4s reporting two transactions.
|
·
|
Mr. Boone, a director, filed one late Form 4 reporting one transaction.
|
·
|
Mr. Mabey, a director, filed one late Form 4 reporting one transaction.
|
·
|
Mr. Kunz, a director, filed one late Form 4 reporting one transaction.
|
(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
|
Grant | Expiration | Exercise | Number of | Compensation | ||||||||||||||||
Name
|
Date
|
Date
|
Price
|
Options
|
Expense
|
|||||||||||||||
David S. Boone
|
3/22/13
|
3/21/15
|
$ |
12.58
|
8,943
|
$ |
43,809
|
|||||||||||||
7/1/13
|
6/30/15
|
$ |
14.70
|
4,083
|
$ |
23,640
|
||||||||||||||
Guy Dubois | 3/22/13 | 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 | ||||||||||||||
Rene Klinkhammer
|
1/20/10
|
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
|
||||||||||||||
Winfried Kunz
|
3/22/13
|
3/21/15
|
$ |
12.58
|
8,943
|
$ |
43,809
|
|||||||||||||
7/1/13
|
6/30/15
|
$ |
14.70
|
2,040
|
$ |
11,811
|
||||||||||||||
Dan L. Mabey
|
3/22/13
|
3/21/15
|
$ |
12.58
|
8,943
|
$ |
43,809
|
|||||||||||||
George F. Schmitt
|
3/22/13
|
3/21/15
|
$ |
12.58
|
8,943
|
$ |
43,809
|
|||||||||||||
7/1/13
|
6/30/15
|
$ |
14.70
|
2,040
|
$ |
11,811
|
Title or Class of Securities:
|
||||||||||||||||
Name and Address of
|
Common Stock
|
Series D Preferred Stock
|
||||||||||||||
Beneficial Owner (1)
|
Shares
|
Percent
|
Shares
|
Percent
|
||||||||||||
5% Beneficial Owners:
|
||||||||||||||||
Sapinda Asia Limited (2)
|
4,534,168 | 46.2 | % | - | - | |||||||||||
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 L. Mabey (8)
|
10,008 | * | - | - | ||||||||||||
George F. Schmitt (9)
|
18,906 | * | - | - | ||||||||||||
Chad D. Olsen (10)
|
21,587 | * | 207 | 44.2 | % | |||||||||||
All directors and executive officers as a group
|
||||||||||||||||
(7 persons)
|
163,706 | 1.6 | % | 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)
|
Includes 573,965 shares of common stock owned of record by Advance Technology Investors, LLC. In addition, we have included 7,323 shares of common stock owned of record by U/W Mark Weidman Trust. Address is 154 Rock Hill Road, Spring Valley, NY 10977.
|
4)
|
Mr. Boone is a director and a member of the Board of Directors’ executive committee. Includes 15,306 shares of common stock issuable upon exercise of stock purchase warrants.
|
5)
|
Mr. Dubois is a director and Chairman of the Board of Directors; he is also a member of the executive committee of the Board of Directors. Includes 73,413 shares of common stock issuable upon exercise of stock purchase warrants.
|
6)
|
Mr. Klinkhammer is a director. Includes 380 shares of common stock owned of record and 11,983 shares of common stock issuable upon exercise of stock purchase warrants.
|
7)
|
Mr. Kunz is a director. Includes 12,123 shares of common stock issuable upon exercise of stock purchase warrants.
|
8)
|
Mr. Mabey is a director. Includes 1,065 shares of common stock owned of record and 8,943 shares of common stock issuable upon exercise of stock purchase warrants.
|
9)
|
Mr. Schmitt is a director. Includes 6,783 shares of common stock owned of record and 12,123 shares of common stock issuable upon exercise of stock purchase warrants.
|
10)
|
Mr. Olsen is our Chief Financial Officer. Includes 4,914 shares or common stock owned of record, as well as 16,673 shares of common stock issuable upon conversion of 207 shares of Series D Preferred stock.
|
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 from a director with an interest rate of 8% per annum. The
debenture matured December 17, 2012 and was secured by our 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 our 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, 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 |
·
|
We 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.
|
·
|
We issued 483 shares of common stock as payment of fourth quarter Series D Preferred stock dividends, valued at $5,650.
|
·
|
We issued a total of 760 shares of common stock to several of our directors for services rendered, valued at $15,000.
|
·
|
We issued 500 shares of common stock to a consultant upon the exercise of warrants at an exercise price of $16.00 per share and received cash proceeds of $8,000.
|
·
|
We 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.
|
·
|
We entered into an Employment Agreement with our Chief Financial Officer, filed as an exhibit to this report. 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 us; 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, we agreed with Mr. Olsen 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.
|
·
|
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 calls for us to put into service up to 9,400 electronic monitoring (GPS) devices over the contract term. We were required under the agreement, to post a performance bond in the amount of $3,382,082. In addition, we 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 us. The maximum sum to be paid for the services provided by us is approximately $70,000,000, at current exchange rates, over the term of the agreement.
|
·
|
We borrowed $1,200,000 under a line-of-credit with a related party to be used with other available cash on hand to post the performance bond under our agreement for the Chilean contract described above.
|
·
|
We borrowed $1,500,000 from Sapinda Asia, a shareholder, for working capital. The unsecured loan bears interest at a rate of 8% per annum and matures on November 18, 2014.
|
·
|
On December 17, 2013, we 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 us and STOP, effective January 29, 2010. The complaint was filed under seal and is not publicly available. We believe the relief sought in the case is warranted based on the language and intent of the parties and we will pursue the matter vigorously.
|
·
|
On December 17, 2013, we 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.
|
·
|
On January 3, 2014, we entered into an unsecured Facility Agreement with Tetra House Pte. Ltd., a related-party entity, controlled by our Chairman, Guy Dubois. Under this agreement, we may borrow up to $25,000,000 for working capital and acquisitions purposes. The loan bears interest at a rate of 8% per annum due and payable in arrears semi-annually, with a maturity date for all principal and unpaid interest of January 3, 2016. In addition, we agreed to pay an arrangement fee equal to 3 percent of the aggregate maximum amount under the loan. As of the date of this report, we borrowed and received $10,000,000 from the Facility Agreement.
|
•
|
has been at any time during the past three years employed by us or by any parent or subsidiary of the Company;
|
•
|
has accepted or has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than compensation for board or board committee service;
|
•
|
is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
|
•
|
is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5 percent of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more;
|
•
|
is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers serve on the compensation committee of such other entity; or
|
•
|
is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.
|
Report of Eide Bailly
|
43
|
Report of Hansen, Barnett & Maxwell, P.C.
|
44 |
Consolidated Balance Sheets
|
45
|
Consolidated Statements of Operations
|
46
|
Consolidated Statements of Stockholders' Equity (Deficit) and
Comprehensive Income
|
47
|
Consolidated Statements of Cash Flows
|
49
|
Notes to the Consolidated Financial Statements
|
51
|
Exhibit Number
|
Title of Document
|
3(i)(1)
|
Articles of Incorporation (incorporated by reference to our Registration Statement and Amendments thereto
on Form 10-SB, effective December 1, 1997).
|
3(i)(2)
|
Amendment to Articles of Incorporation for Change of Name (previously filed as Exhibit on Form 10-KSB for
the fiscal year ended September 30, 2001).
|
3(i)(3)
|
Amendment to Articles of Incorporation Amending Rights and Preferences of Series A Preferred Stock
(previously filed as Exhibit on Form 10-KSB for the fiscal year ended September 30, 2001).
|
3(i)(4)
|
Amendment to Articles of Incorporation Adopting Designation of Rights and Preferences of Series B
Preferred Stock (previously filed as Exhibit on Form 10- QSB for the six months ended March 31, 2002).
|
3(i)(5)
|
Certificate of Amendment to the Designation of Rights and Preferences Related to Series A 10% Cumulative
Convertible Preferred Stock of SecureAlert, Inc. (incorporated by reference to our annual report on Form
10-KSB for the fiscal year ended September 30, 2001).
|
3(i)(6)
|
Certificate of Amendment to the Designation of Rights and Preferences Related to Series C 8% Convertible
Preferred Stock of SecureAlert, Inc. (incorporated by reference to our Current Report on Form 8-K, filed with
the Commission on March 24, 2006).
|
3(i)(7)
|
Articles of Amendment to Articles of Incorporation filed July 12, 2006 (previously filed as exhibits to our
current report on Form 8-K filed July 18, 2006, and incorporated herein by reference).
|
3(i)(8)
|
Articles of Amendment to the Fourth Amended and Restated Designation of Right and Preferences of Series
A 10% Convertible Non-Voting Preferred Stock of SecureAlert, Inc. (previously filed as Exhibit on Form
10-QSB for the nine months ended June 30, 2007, filed in August 2007).
|
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).
|
10.1
|
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007
(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June
2008).
|
10.2
|
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007
(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June
2008).
|
10.3
|
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated September 14, 2007
(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June
2008).
|
10.4
|
Patent Assignment Agreement between Futuristic Medical Devices, LLC, dated December 20, 2007
(previously filed as Exhibit on Form 10-KSB/A for the fiscal year ended September 30, 2007, filed in June
2008).
|
10.5
|
Distribution and License Agreement between euromicron AG, a German corporation, and the Company, dated
May 28, 2009 (previously filed as Exhibit on Form 10-Q for the nine months ended June 30, 2009, filed in
August 2009).
|
10.6
|
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 filed with Form 8-K in November 2010).
|
10.7
|
Agreement and Royalty Agreement between Borinquen Container Corporation and SecureAlert, effective
July 1, 2011 (previously filed with Form 8-K in August 2011).
|
10.8
|
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).
|
10.9
|
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).
|
10.10
|
Loan and Security Agreement between Sapinda Asia Limited and SecureAlert, effective December 3, 2012
(previously filed on Form 8-K in December 2012).
|
10.11
|
Stock Purchase Agreement between David Rothbart and SecureAlert, effective February 8, 2013 (previously
filed on Form 10-Q in February 2012).
|
10.12
|
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).
|
10.13
|
Acknowledgement and Agreement between Sapinda Asia Limited, and SecureAlert, dated August 13, 2013
(previously filed on Form 10-Q in August 2013).
|
10.14
|
Notice of Conversion from Sapinda Asia Limited, dated September 24, 2013 (filed herewith).
|
101.INS*
|
XBRL INSTANCE DOCUMENT
|
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
|
Signature
|
Title
|
Date
|
||
/s/ Guy Dubois
|
Director, Member of Executive Committee
|
January 14, 2014
|
||
Guy Dubois
|
(Acting Principal Executive Officer)
|
|||
/s/ Chad D. Olsen
|
Chief Financial Officer and (Principal Financial
|
January 14, 2014
|
||
Chad D. Olsen
|
Officer and Principal Accounting Officer)
|
|||
/s/ David S. Boone
|
Director, Member of Executive Committee
|
January 14, 2014
|
||
David S. Boone
|
||||
/s/ Winfried Kunz
|
Director
|
January 14, 2014
|
||
Winfried Kunz
|
||||
/s/ Rene Klinkhammer
|
Director
|
January 14, 2014
|
||
Rene Klinkhammer
|
||||
/s/ Dan L. Mabey
|
Director
|
January 14, 2014
|
||
Dan L. Mabey
|
||||
/s/ George F. Schmitt
|
Director
|
January 14, 2014
|
||
George F. Schmitt
|
|
Page
|
|
Report of Eide Bailly
|
43
|
|
Report of Hansen, Barnett & Maxwell, P.C.
|
44
|
|
Consolidated Balance Sheets as of September 30, 2013 and 2012
|
45
|
|
Consolidated Statements of Operations for the fiscal years ended
September 30, 2013 and 2012
|
46
|
|
Consolidated Statements of Stockholders’ Equity for the fiscal years
ended September 30, 2012 and 2013
|
47
|
|
Consolidated Statements of Cash Flows for the fiscal years ended
September 30, 2013 and 2012
|
49
|
|
Notes to Consolidated Financial Statements
|
51
|
Assets
|
2013
|
2012
|
||||||
Current assets:
|
||||||||
Cash
|
$ | 3,382,428 | $ | 458,029 | ||||
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
|
176,205 | 74,801 | ||||||
Prepaid expenses and other
|
1,783,805 | 1,760,579 | ||||||
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
|
9,531,503 | 6,325,581 | ||||||
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
|
28,499 | 112,492 | ||||||
Intangible assets, net of accumulated amortization of $1,256,647 and $327,540, respectively
|
15,413,920 | 15,494,598 | ||||||
Other assets
|
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
|
$ | 26,698,991 | $ | 26,533,725 | ||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
348,074 | 1,830,075 | ||||||
Accrued liabilities
|
2,180,791 | 2,439,451 | ||||||
Dividends payable
|
9,427 | 630,528 | ||||||
Deferred revenue
|
8,674 | 354,570 | ||||||
Current portion of long-term related-party debt
|
60,000 | 12,654,701 | ||||||
Current portion of long-term debt
|
88,095 | 339,151 | ||||||
Current liabilities from discontinued operations
|
- | 1,677,450 | ||||||
Total current liabilities
|
2,695,061 | 19,925,926 | ||||||
Long-term related-party debt, net of current portion
|
- | 1,730,712 | ||||||
Long-term debt, net of current portion
|
40,588 | 85,680 | ||||||
Long-term liabilities from discontinued operations
|
- | 364,270 | ||||||
Total liabilities
|
2,735,649 | 22,106,588 | ||||||
Stockholders’ equity:
|
||||||||
Preferred stock:
|
||||||||
Series D 8% dividend, convertible, voting, $0.0001 par value: 85,000 shares designated; 468 and 48,763 sha
res 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
|
290,391,698 | 252,940,448 | ||||||
Accumulated deficit
|
(266,429,337 | ) | (248,513,626 | ) | ||||
Total equity
|
23,963,342 | 4,427,137 | ||||||
Total liabilities and stockholders’ equity
|
$ | 26,698,991 | $ | 26,533,725 |
2013
|
2012
|
|||||||
Revenues:
|
||||||||
Products
|
$ | 612,437 | $ | 1,595,252 | ||||
Monitoring and other related services
|
15,028,625 | 11,519,727 | ||||||
Total revenues
|
15,641,062 | 13,114,979 | ||||||
Cost of revenues:
|
||||||||
Products
|
262,022 | 1,353,953 | ||||||
Monitoring and other related services
|
7,554,870 | 5,951,649 | ||||||
Impairment of monitoring equipment and parts
|
213,276 | 1,648,762 | ||||||
Total cost of revenues
|
8,030,168 | 8,954,364 | ||||||
Gross profit
|
7,610,894 | 4,160,615 | ||||||
Operating expenses:
|
||||||||
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
|
987,934 | 1,248,654 | ||||||
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
|
(2,949 | ) | (5,374 | ) | ||||
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
|
(17,915,711 | ) | (17,458,107 | ) | ||||
Dividends on Series D Preferred stock
|
(1,042,897 | ) | (2,480,298 | ) | ||||
Net loss attributable to SecureAlert, Inc. common stockholders
|
$ | (18,958,608 | ) | $ | (19,938,405 | ) | ||
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
|
4,832,000 | 2,735,170 |
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 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 |
2013
|
2012
|
|||||||
Cash flows from operating activities:
|
||||||||
Net Loss
|
$ | (17,915,711 | ) | $ | (17,458,107 | ) | ||
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
|
2,414,270 | 1,816,945 | ||||||
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 | ||||||
Factional shares of common stock paid in cash
|
(1,996 | ) | - | |||||
Loss on disposal of property and equipment
|
4,740 | 5,374 | ||||||
Loss on disposal of monitoring equipment and parts
|
84,805 | 188,901 | ||||||
Loss on forgiveness of note receivable
|
- | 22,750 | ||||||
Property and equipment disposed for services and compensation
|
- | 2,790 | ||||||
Change in assets and liabilities:
|
||||||||
Accounts receivable, net
|
(652,749 | ) | 854,673 | |||||
Notes receivable
|
63,978 | 88,061 | ||||||
Inventories
|
186,913 | (437,421 | ) | |||||
Prepaid expenses and other assets
|
107,576 | (908,673 | ) | |||||
Accounts payable
|
(1,473,530 | ) | 572,277 | |||||
Accrued expenses
|
2,186,618 | 1,102,638 | ||||||
Deferred revenue
|
(345,896 | ) | 229,321 | |||||
Net cash provided by (used in) operating activities
|
838,910 | (1,910,067 | ) | |||||
Cash flow from investing activities:
|
||||||||
Purchase of property and equipment
|
(50,682 | ) | (101,875 | ) | ||||
Purchase of monitoring equipment and parts
|
(509,743 | ) | (2,745,399 | ) | ||||
Net cash used in investing activities
|
(560,425 | ) | (2,847,274 | ) | ||||
Cash flow from financing activities:
|
||||||||
Borrowings on related-party notes payable
|
2,800,000 | 2,980,000 | ||||||
Principal payments on related-party notes payable
|
- | (3,187,578 | ) | |||||
Proceeds from convertible debentures
|
- | 500,000 | ||||||
Proceeds from related-party convertible debentures
|
- | 2,900,000 | ||||||
Proceeds from notes payable
|
- | 1,745 | ||||||
Principal payments on notes payable
|
(299,276 | ) | (687,354 | ) | ||||
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 | ) | |||||
Net cash provided by financing activities
|
2,500,724 | 4,396,563 | ||||||
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 |
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 |
(1)
|
Organization and Nature of Operations
|
(2)
|
Summary of Significant Accounting Policies
|
2013
|
%
|
2012
|
%
|
|||||||||||||
Customer A
|
$ | 5,252,959 | 34 | % | $ | 2,450,984 | 16 | % | ||||||||
Customer B
|
$ | 1,622,326 | 10 | % | $ | 1,876,285 | 12 | % |
2013
|
%
|
2012
|
%
|
|||||||||||||
Customer A
|
$ | 887,233 | 24 | % | $ | 681,781 | 24 | % | ||||||||
Customer B
|
$ | 732,163 | 20 | % | $ | 475,800 | 17 | % | ||||||||
Customer C
|
$ | 892,897 | 24 | % | $ | - | 0 | % |
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 |
2013
|
2012
|
|||||||
Equipment, software and tooling
|
$ | 2,002,577 | $ | 1,970,327 | ||||
Automobiles
|
33,466 | 33,466 | ||||||
Leasehold improvements
|
127,162 | 127,287 | ||||||
Furniture and fixtures
|
247,218 | 252,951 | ||||||
Total property and equipment before accumulated depreciation
|
2,410,423 | 2,384,031 | ||||||
Accumulated depreciation
|
(2,092,222 | ) | (1,879,540 | ) | ||||
Property and equipment, net of accumulated depreciation
|
$ | 318,201 | $ | 504,491 |
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 |
Court Programs, Inc.
|
Midest Monitoring & Surveillance, Inc.
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Gross carrying amount, beginning of period
|
$ | - | $ | 2,488,068 | $ | - | $ | 3,026,327 | ||||||||
Additions
|
- | - | - | - | ||||||||||||
Impairments
|
- | (2,488,068 | ) | - | (3,026,327 | ) | ||||||||||
Gross carrying amount, end of period
|
$ | - | $ | - | $ | - | $ | - |
2013
|
2012
|
|||||||
United States of America
|
$ | 7,179,043 | $ | 7,398,627 | ||||
Latin American Countries
|
5,252,960 | 2,450,984 | ||||||
Caribbean Countries and Commonwealths
|
3,136,908 | 3,217,651 | ||||||
Other Foreign Countries
|
72,151 | 47,717 | ||||||
Total
|
$ | 15,641,062 | $ | 13,114,979 |
Net Property and Equipment
|
Net Monitoring Equipment
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
United States of America
|
$ | 318,201 | $ | 504,491 | $ | 878,823 | $ | 2,174,976 | ||||||||
Latin American Countries
|
- | - | - | 719,171 | ||||||||||||
Caribbean Countries and Commonwealths
|
- | - | 351,138 | 263,782 | ||||||||||||
Other Foreign Countries
|
- | - | 6,735 | 14,018 | ||||||||||||
Total
|
$ | 318,201 | $ | 504,491 | $ | 1,236,696 | $ | 3,171,947 |
2013
|
2012
|
|||||||
Conversion of debt and accrued interest and loan origination fees
|
- | 863,499 | ||||||
Conversion of Series D Preferred stock
|
14,040 | 1,462,890 | ||||||
Exercise of outstanding common stock options and warrants
|
427,966 | 336,782 | ||||||
Exercise and conversion of outstanding Series D Preferred stock
warrants
|
162,000 | 162,000 | ||||||
Total common stock equivalents
|
604,006 | 2,825,171 |
(3)
|
Acquisitions and Other Intangible Assets
|
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 |
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 |
Fiscal Year
|
Borinquen
Container
Corporation
|
International
Surveillance
Services Corp.
|
Patent
|
Total
|
||||||||||||
2014
|
$ | 630,792 | $ | 250,179 | $ | 5,556 | $ | 886,527 | ||||||||
2015
|
630,792 | 250,179 | 5,556 | 886,527 | ||||||||||||
2016
|
630,792 | 250,179 | 5,556 | 886,527 | ||||||||||||
2017
|
630,792 | 250,179 | 5,556 | 886,527 | ||||||||||||
2018
|
630,792 | 250,179 | 5,556 | 886,527 | ||||||||||||
Thereafter
|
7,789,650 | 3,189,785 | 1,850 | 10,981,285 | ||||||||||||
Total
|
$ | 10,943,610 | $ | 4,440,680 | $ | 29,630 | $ | 15,413,920 |
(4)
|
Accrued Expenses
|
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 |
(5)
|
Certain Relationships and Related Transactions
|
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 s
tock.
|
- | 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 |
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 |
Fiscal Year
|
Total
|
|||
2014
|
$ | 88,095 | ||
2015
|
38,945 | |||
2016
|
1,643 | |||
Thereafter
|
- | |||
Total
|
$ | 128,683 |
Fiscal Year
|
Total
|
|||
2014
|
$ | 36,419 | ||
2015
|
27,721 | |||
2016
|
1,722 | |||
2017
|
- | |||
Thereafter
|
- | |||
Total minimum lease payments
|
65,862 | |||
Less: amount representing interest
|
(6,596 | ) | ||
Present value of net minimum lease payments
|
59,266 | |||
Less: current portion
|
(31,576 | ) | ||
Obligation under capital leases - long-term
|
$ | 27,690 |
(8)
|
Common Stock
|
(9)
|
Stock Options and Warrants
|
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 |
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
|
$ | - | $ | - |
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
|
$ | - | $ | - |
Fiscal Year
|
Total
|
|||
2014
|
$ | 237,580 | ||
2015
|
34,721 | |||
Thereafter
|
- | |||
Total
|
$ | 272,301 |
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 |
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 | ) |
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.
|
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.
|
|
To the attention of the Board of Directors of SecureAlert, Inc. and to Mr. Chad Olsen, CFO
|
•
|
Cause the company to engage in business transactions with relatives or friends that would not redound to the benefit of SecureAlert, Inc. or that would place the employee, officer, or director or their relatives or friends in a position of conflict with the interests of the company;
|
•
|
Use nonpublic company, customer, or vendor information for personal gain by the employee, officer, director or their relatives or friends
|
•
|
Have more than a modest financial interest in any vendor, customer or competitor;
|
•
|
Receive a loan, or guarantee of obligations, from the company or a third party as a result of his or her position at the company; or
|
•
|
Compete, or prepare to compete, with the company while still employed by SecureAlert, Inc. or in violation of statutory or contractual duties or restrictions.
|
These are examples only. There are other situations in which a conflict of interest may arise.
|
NAME OF SUBSIDIARY
|
JURISDICTION OF ORGANIZATION/FORMATION
|
NAME UNDER WHICH IT DOES BUSINESS
|
SecureAlert Chile SpA
|
Republic of Chile
|
SecureAlert Chile SpA
|
SecureAlert Monitoring, Inc.
|
State of Utah
|
SecureAlert Monitoring, Inc.
|
International Surveillance Services Corp.
|
Puerto Rico
|
International Surveillance Services Corp.
|
1.
|
I have reviewed this annual report on Form 10-K of the Company;
|
2.
|
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
By:
|
/
S
/ GUY DUBOIS
|
Guy Dubois
|
|
Member, Executive Committee, Acting Principal Executive Officer
|
1.
|
I have reviewed this annual report on Form 10-K of the Company;
|
2.
|
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
By:
|
/
S
/ CHAD D. OLSEN
|
|
Chad D. Olsen
|
||
Chief Financial Officer (Principal Financial Officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
|
By:
|
/
S
/ GUY DUBOIS
|
Guy Dubois
|
|
Member, Executive Committee, Acting Principal Executive Officer
January 14, 2014
|
By:
|
/
S
/ CHAD D. OLSEN
|
Chad D. Olsen
|
|
Chief Financial Officer
January 14, 2014
|
·
|
the CEO, CFO or COO or a director of the reporting issuer, a significant (10% for U.S. purposes) shareholder of the issuer or a major subsidiary of the issuer;
|
·
|
a person or company responsible for a principal business unit, division or function of the issuer;
|
·
|
a significant shareholder (10% for U.S. purposes) of the issuer (including a significant shareholder of the issuer based on post-conversion beneficial ownership of securities and the CEO, CFO, COO and any director of that significant shareholder);
|
·
|
a management or services company providing significant services to the issuer or a major subsidiary of the issuer and the management company’s directors, CEO, CFO, COO and significant shareholders;
|
·
|
an individual who performs similar functions to the functions described in (a) to (d);
|
·
|
the reporting issuer who holds its own securities by reason of a repurchase, redemption or other acquisition; or
|
·
|
any other individual who in the ordinary course receives or has access to material undisclosed information regarding the issuer and who directly or indirectly exercises significant power or influence over the business, operations, capital or development of the reporting issuer.
|
·
|
selling shares of the Company short (i.e. selling shares not owned by the seller in anticipation of a falling price for the shares of the Company);
|
·
|
lending shares of the Company to others for any purpose not approved in advance by the Chief Financial Officer of the Company;
|
·
|
purchasing, writing or otherwise trading inputs, calls or other options on the shares of the Company (other than options granted under the Company’s Employee Stock Option Plan) or other derivative securities which are expected to trade at a price varying materially with the market price of the shares of the Company without the prior approval of the Chief Financial Officer of the Company;
|
·
|
purchasing or selling shares or other securities of the Company primarily for the purpose of influencing the price or the volume of trading of those shares or other securities;
|
·
|
being both a buyer and a seller (directly or indirectly) of the shares or other securities of the Company at the same time or at approximately the same time; or
|
·
|
retaining or causing to be retained any person or company to engage in any form of stock promotion in respect of the shares or other securities of the Company.
|
·
|
Confidential matters should not be discussed in places such as elevators, hallways, restaurants, airplanes, taxis or other places where the discussion may be overheard.
|
·
|
Confidential documents should not be read in public places and should not be discarded where they can be retrieved by others.
|
·
|
Transmission of documents by electronic means, such as by telecopier or directly from one computer to another, should only be made where it is reasonable to believe that the transmission can be made and received under secure conditions.
|
·
|
Unnecessary copying of confidential documents should be avoided and documents containing confidential information should be promptly removed from conference rooms and work areas after meetings have concluded. Extra copies of confidential documents should be shredded or otherwise destroyed.
|
·
|
Access to confidential electronic data should be restricted by senior management on a “need to know basis” or through the use of passwords.
|
·
|
Documents and files containing confidential information should be kept in locked cabinets to which access is restricted to individuals who have a “need to know” that information in the necessary course of business.
|
·
|
To the fullest extent practicable, if the Company is involved in a project that may give rise to material information, the project should be given a code name and documents prepared in connection with that project should utilize code names rather than names which would themselves reveal confidential information.
|
·
|
All proprietary information, including computer programs and other records, remain the property of the Company and may not be removed, disclosed, copied or otherwise used except in the normal course of employment or with the prior permission of the Company.
|
(I)
|
Definitions
.
|
If to the Executive:
|
Chad D. Olsen
|
|
1216 West 525 South
|
||
Lehi, UT 84043
|
||
If to the Company:
|
Attn: Chief Executive Officer
|
|
SecureAlert, Inc.
|
||
150 W. Civic Center Drive, Suite 400
|
||
Sandy, Utah 84070
|
SecureAlert, Inc.
|
Executive
|
|
By:
|
/s/ David S. Boone
|
/s/ Chad D. Olsen
|
David S. Boone
|
Chad D. Olsen
|
|
Date:
|
November 15, 2013
|
Date: November 14, 2013
|
RE:
|
Resolution of Dispute [Confidential Settlement Negotiations Protected by Rule 408, Utah Rules of Evidence].
|
Dear Chad:
|
1.
|
A 12 month severance agreement pursuant to the terms outlined in the Employment/Severance Agreement sent to you earlier today by Kevin Pinegar, outside counsel to the Company.
|
2.
|
The Company will redeem your Series D Preferred shares at a premium of 55 percent, by issuing the applicable number of free-trading shares of Common Stock (other than an “Affiliate Legend”, should you still be employed) of the Company. To illustrate this redemption please note the example below assuming an investment of $1,000 per Series D Share and a current common stock price of $18.95:
|
Investment/No. of D Shares
|
Redemption at 100%
|
Value at 55% Prem./Common Shares
|
$207,000.00 / 207
|
$207,000.00
|
$320,850.00/16,931
|
SecureAlert, Inc.
|
Acknowledged and Agreed
|
By:
/s/ David Boone
|
By:
/s/ Chad Olsen
|
David Boone, Member Executive Comm.
|
Chad Olsen
|