Track Group, Inc. - FORM 8-K/A - EX-99.1

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8-K/A - Track Group, Inc.	scra8ka20111024.htm
EX-99.2 - Track Group, Inc.	ex99-2.htm

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On August 4, 2011, with an effective date of July 1, 2011, SecureAlert, Inc., a Utah corporation (the “Company”), entered into an agreement (the “Agreement”) with Borinquen Container Corp., a corporation organized under the laws of the Commonwealth of Puerto Rico (“Borinquen”) and Borinquen’s wholly-owned subsidiary, International Surveillance Services Corporation and its subsidiary, International Surveillance Services of Brazil, collectively (“ISS”). The significant terms of the Agreement were previously reported by the Company on August 10, 2011 in the Current Report on Form 8-K filed on that date.

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2011 is presented as if the acquisition of ISS had occurred on June 30, 2011. The unaudited pro forma condensed consolidated financial statements of operations are presented as if the acquisition of ISS had occurred on October 1, 2010 for the nine months ended June 30, 2011 and October 1, 2009 for the year ended September 30, 2010. The pro forma condensed consolidated financial statements were based on the historical financial statements of the Company and ISS. Certain amounts from ISS’s historical consolidated financial statements have been reclassified to conform to the Company’s presentation.

The unaudited pro forma condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma condensed consolidated financial statements should be read along with the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 and Quarterly Report on Form 10-Q for the quarter and nine months ended June 30, 2011.

The pro forma adjustments presented are based on certain estimates and assumptions in accordance with the Company’s accounting policies. The Company’s management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions contemplated and that the pro forma adjustments give appropriate effect to these assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma condensed consolidated financial statements are presented for informational purposes only and are not necessarily indicative of the financial position or the results of operations of the combined company had the acquisition been completed as of the indicated dates or of the results that may be achieved in the future.

SECUREALERT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2011

	Historical (unaudited)
Assets	SecureAlert, Inc.			ISS			Pro Forma Adjustments				Pro Forma Combined
Current assets:
Cash	$	665,840		$	172,661		$	(162,661	)	(a)	$	675,840
Accounts receivable, net		1,912,696			84,338			-				1,997,034
Notes receivable, current portion		75,000			-			-				75,000
Prepaid expenses and other		1,234,318			-			(221,062	)	(b)		1,013,256
Inventory, net		302,729			-			-				302,729
Total current assets		4,190,583			256,999			(383,723	)			4,063,859
Property and equipment, net		1,379,318			-			-				1,379,318
Monitoring equipment, net		3,003,806			-			-				3,003,806
Notes receivable, net of current portion		140,000			-			-				140,000
Goodwill		6,101,449			-			-				6,101,449
Intangible assets, net		287,326			-			4,879,583		(c)		5,166,909
Other assets		80,130			-			-				80,130
Total assets	$	15,182,612		$	256,999		$	4,495,860			$	19,935,471

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	3,363,365		$	13,371		$	-			$	3,376,736
Related-party accounts payable		-			150,561			(150,561	)	(a)		-
Accrued expenses		2,629,107			550			-				2,629,657
Dividends payable		429,889			-			-				429,889
Deferred revenue		85,052			221,062			(221,062	)	(b)		85,052
Related-party note payable and line of credit		890,000			-			-				890,000
Current portion of long-term debt		1,057,100			-			-				1,057,100
Total current liabilities		8,454,513			385,544			(371,623	)			8,468,434
Long-term debt, net of current portion		2,026,819										2,026,819
Total liabilities		10,481,332			385,544			(371,623	)			10,495,253

Stockholders’ equity (deficit):
Preferred stock		3			-			-				3
Common stock		41,971			250,000			(243,800	)	(c),(d)		48,171
Additional paid-in capital		230,819,817			268,148			4,464,590		(a),(c),(d)		235,552,555
Accumulated other comprehensive income		-			73,686			(73,686	)	(d)		-
Accumulated deficit		(226,160,511	)		(720,379	)		720,379		(b),(d)		(226,160,511	)
Total equity		4,701,280			(128,545	)		4,867,483				9,440,218
Total liabilities and stockholders’ equity (deficit)	$	15,182,612		$	256,999		$	4,495,860			$	19,935,471

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

SECUREALERT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED JUNE 30, 2011

	Historical (unaudited)
	SecureAlert, Inc.			ISS			Pro Forma Adjustments				Pro Forma Combined
Revenues:
Products	$	1,154,071		$	-		$	-			$	1,154,071
Monitoring services		10,842,430			222,345			(107,287	)	(e)		10,957,488
Total revenues		11,996,501			222,345			(107,287	)			12,111,559

Cost of revenues:
Products		644,351			-			-				644,351
Monitoring services		5,756,574			107,287			(107,287	)	(e)		5,756,574
Total cost of revenues		6,400,925			107,287			(107,287	)			6,400,925

Gross profit		5,595,576			115,058			-				5,710,634

Operating expenses:
Selling, general and administrative		10,748,168			308,329			182,984		(f)		11,239,481
Research and development		1,126,703			-			-				1,126,703

Loss from operations		(6,279,295	)		(193,271	)		(182,984	)			(6,655,550	)

Other income (expense):
Currency exchange rate loss		(97	)		-			-				(97	)
Redemption of SecureAlert Monitoring Series A Preferred		16,683			-			-				16,683
Interest income		222			6,320			-				6,542
Interest expense		(635,236	)		-			-				(635,236	)
Loss on disposal of equipment		(11,282	)		(672	)		-				(11,954	)
Other income (expense), net		(54,811	)		-			-				(54,811	)
Net loss		(6,963,816	)		(187,623	)		(182,984	)			(7,334,423	)
Net income attributable to non-controlling interest		(31,750	)		-			-				(31,750	)
Net loss attributable to SecureAlert, Inc.		(6,995,566	)		(187,623	)		(182,984	)			(7,366,173	)
Dividends on Series D Preferred stock		(1,487,527	)		-			-				(1,487,527	)
Net loss attributable SecureAlert, Inc. to common stockholders	$	(8,483,093	)	$	(187,623	)	$	(182,984	)		$	(8,853,700	)
Net loss per common, basic and diluted	$	(0.02	)								$	(0.02	)
Weighted average common shares outstanding
basic and diluted		349,864,000										411,864,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

SECUREALERT, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED SEPTEMBER 30, 2010

	Historical (unaudited)
	SecureAlert, Inc.			ISS			Pro Forma Adjustments				Pro Forma Combined
Revenues:
Products	$	371,214		$	-		$	-			$	371,214
Monitoring services		12,079,757			-			-				12,079,757
Total revenues		12,450,971			-			-				12,450,971

Cost of revenues:
Products		45,131			-			-				45,131
Monitoring services		6,933,843			-			-				6,933,843
Impairment of monitoring equipment and parts		590,801			-			-				590,801
Total cost of revenues		7,569,775			-			-				7,569,775

Gross profit		4,881,196			-			-				4,881,196

Operating expenses:
Selling, general and administrative		12,126,413			285,406			243,979		(f)		12,655,798
Settlement expense		1,150,000			-			-				1,150,000
Research and development		1,483,385			-			-				1,483,385
Impairment of goodwill (note 5)		204,735			-			-				204,735

Loss from operations		(10,083,337	)		(285,406	)		(243,979	)			(10,612,722	)

Other income (expense):
Currency exchange rate loss
Redemption of SecureAlert Monitoring Series A Preferred		(19,095	)		-			-				(19,095	)
Interest income		23,139			39,861			-				63,000
Interest expense		(4,146,459	)		-			-				(4,146,459	)
Loss on disposal of equipment		(41,597	)		-			-				(41,597	)
Derivative valuation gain		200,534			-			-				200,534
Other income (expense), net		147,206			-			-				147,206
Net loss		(13,919,609	)		(245,545	)		(243,979	)			(14,409,133	)
Net loss attributable to non-controlling interest		135,567			-			-				135,567
Net loss attributable to SecureAlert, Inc.		(13,784,042	)		(245,545	)		(243,979	)			(14,273,566	)
Dividends on Series D Preferred stock		(1,494,481	)		-			-				(1,494,481	)
Net loss attributable SecureAlert, Inc. to common stockholders	$	(15,278,523	)	$	(245,545	)	$	(243,979	)		$	(15,768,047	)
Net loss per common, basic and diluted	$	(0.07	)								$	(0.05	)
Weighted average common shares outstanding
basic and diluted		227,321,000										289,321,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

SECUREALERT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)	Basis of Presentation

On August 4, 2011, with an effective date of July 1, 2011, SecureAlert, Inc. acquired all of the issued and outstanding common stock of ISS. In consideration for the transfer and sale of the shares of ISS, the Company paid the following consideration:

62,000,000 restricted shares of the Company’s common stock, $0.0001 par value per share, valued at the current market price of approximately $0.08 per share, or $4,960,000; and

A royalty payable for 20 years pursuant to the terms of a Royalty Agreement dated August 4, 2011 (the “Royalty Agreement”), in an amount equal to 20 percent of the net revenues (defined in the Royalty Agreement) from the sale or lease of the Company’s products and services within the Territory. The royalty payments are due quarterly and the term of the Royalty Agreement expires June 30, 2031.

The accompanying unaudited pro forma condensed consolidated financial statements were prepared in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 805, Business Combinations. Under the purchase method of accounting, the total purchase price will be allocated to ISS’s net tangible and intangible assets based on their estimated fair values as of the closing date of the acquisition. The excess of the purchase price over net tangible and intangible assets will be recorded as goodwill.

The unaudited pro forma condensed consolidated financial statements reflect a total consideration transferred of $4,960,000, which has been preliminarily allocated as follows:

Cash	$	10,000
Accounts receivable		84,338
Intangible assets		4,879,583
Total assets acquired		4,973,921

Accounts payable		13,371
Accrued liabilities		550
Total liabilities acquired		13,921

Net assets acquired	$	4,960,000

(2) Pro Forma Adjustments

(a) Adjustment to reflect assets and liabilities excluded under the purchase agreement.

(b) Adjustment to eliminate intercompany balances.

(c) Adjustment to record the purchase of ISS for 62 million restricted shares valued at $4.96 million. Assets acquired were valued at their fair value with the remainder being presented as an intangible asset with a 20 year estimated life.

(d) Adjustment to eliminate ISS’s historical stockholder’s equity.

(e) Adjustment to eliminate intercompany revenues and cost of revenues.

(f) Adjustment to record the amortization of the intangible asset described in (c) above.

Track Group, Inc. - FORM 8-K/A - EX-99.1 - October 25, 2011

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Track Group, Inc. Reports