Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X]
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended September 30, 2018
|
|
|
|
or
|
|
|
|
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ____________
to ___________
|
Commission file number:
000-23153
TRACK GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
|
|
87-0543981
|
(State or other jurisdiction of incorporation or
organization)
|
|
(I.R.S. Employer Identification No.)
|
200 E.
5th Avenue Suite 100
Naperville, Illinois 60563
(Address of principal executive offices, Zip Code)
(877) 260-2010
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $0.0001 par
value
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes
[ ] No [X]
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer [ ]
|
Accelerated
filer [
]
|
Non-accelerated filer [
]
|
Smaller reporting company [X]
|
|
Emerging growth company [ ]
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. [
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes [
] No [X]
The aggregate market value of the registrant’s Common Stock
held by non-affiliates of the registrant computed by reference to
the closing price on March 31, 2018 was $3.1 million.
As of January 24, 2019, there
were 11,401,650 shares of the registrant’s common stock
issued and outstanding.
EXPLANATORY NOTE
This Amendment No. 1 on
Form 10-K/A (the “Amendment”)
amends the Annual Report on Form 10-K of Track Group, Inc. (the
“Company,”
“our”
or “we”)
for the year ended September 30, 2018, originally filed with the
Securities and Exchange Commission (“SEC”)
on December 19, 2018 (the “Original
Filing”). We
are filing this Amendment to present the information required
by Items 10, 11, 12, 13,
and 14 of Part III of the Original Filing in reliance on General Instruction G(3)
to Form 10-K, which provides that registrants may incorporate
by reference certain information from a definitive proxy statement
filed with the SEC within 120 days after fiscal year end. In
addition, the reference on the cover of the Original Filing to the
incorporation by reference to portions of our definitive proxy
statement into Part III of the Original Filing is hereby
deleted.
In
accordance with Rule 12b-15 under the Securities Exchange Act of
1934, as amended, (i) Part III, Items 10 through 14 of the Original
Filing are hereby amended and restated in their entirety, and (ii)
Part IV, Item 15 of the Original Filing is hereby amended and
restated in its entirety. In addition, new certifications of our
principal executive officer and principal financial officer are
attached, each as of the filing date of this Amendment. Except as
described above, no other changes have been made to the Original
Filing.
Except
as stated herein, this Amendment does not reflect events occurring
after the filing of the Original Filing and no attempt has been
made in this Amendment to modify or update other disclosures as
presented in the Original Filing.
-i-
Track
Group, Inc.
FORM 10-K/A
For the Fiscal Year Ended September 30, 2018
Table of Contents
|
Page
|
|
||
1
|
||
5
|
||
10
|
||
11
|
||
13
|
||
|
||
|
||
15
|
||
|
|
|
17
|
PART
III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The Company’s Board of Directors (the
“Board”) and executive officers consist of the
persons named in the table below. Each director serves for a
one-year term, until his or her successor is elected and qualified,
or until earlier resignation or removal. Our Bylaws provide that
the authorized number of directors shall be fixed by the Board from
time to time. The directors and executive officers are as
follows:
Guy Dubois
|
|
60
|
|
Chairman of the Board of Directors
|
Derek Cassell
|
|
45
|
|
Chief Executive Officer
|
Peter K. Poli
|
|
57
|
|
Chief Financial Officer
|
Karen Macleod
|
|
55
|
|
Director
|
Karim Sehnaoui
|
|
40
|
|
Director
|
Guy
Dubois, became
a director in December 2012, and has served as our Chairman since
February 2013. In addition, Mr. Dubois served as our Chief
Executive Officer from September 2016 to
December 2017. Mr. Dubois is the Founder and Chairman of
Singapore-based Tetra House Pte. Ltd., a provider of bespoke
consulting and advisory services out of Singapore, Luxemburg, and
most recently launched CIRCLO3
in the
United Kingdom. Mr. Dubois is a
former director and Chief Executive Officer of Gategroup AG, and
also previously held various executive leadership roles at Gate
Gourmet Holding LLC. Mr. Dubois has held executive management
positions at Roche Vitamins Inc. in New Jersey, as well as regional
management roles in that firm’s Asia Pacific operations. Mr.
Dubois also served the European Organization for Nuclear Research
(CERN) team in Switzerland in various roles, including treasurer
and chief accountant. Additionally, Mr. Dubois worked with IBM in
Sweden as Product Support Specialist for Financial Applications. A
Belgian citizen, Mr. Dubois holds a degree in financial science and
accountancy from the Limburg Business School in Diepenbeek,
Belgium.
In
considering Mr. Dubois as a director of the Company, the Board
reviewed his extensive financial and management expertise and
experience. In addition, Mr. Dubois’ public company senior
management and board experience, and the leadership he has shown in
his positions with prior companies, were considered important
factors in the determination of the current Board, as well as the
fact that he served as the Company’s Chief Executive Officer
for approximately a year.
Derek
Cassell joined the Company in
June 2014 through the strategic acquisition of Emerge Monitoring,
at which time he was appointed Divisional President, Americas. Mr.
Cassell was appointed to serve as our President in December 2016
and was promoted to the role of Chief Executive Officer effective
January 1, 2018. From September 2008 until June 2014, Mr. Cassell
served as an Executive Vice President of Emerge Monitoring, which
was part of the Bankers Surety Team. Mr. Cassell has over 20 years
of experience providing correctional solutions to the criminal
justice industry. His previous positions include Director of
Operations for ADT Correctional Services, Director of Customer
Support for G4S Justice Services, and National Sales and Marketing
Manager for ElmoTech Inc. He holds a Criminal Justice Degree from
Henry Ford College in Dearborn Heights,
Michigan.
Peter K.
Poli has served as our Chief
Financial Officer since January 2017. In addition, he has served as
the Chief Financial Officer and Treasurer of Emerge Monitoring,
Inc., Secretary and Treasurer of Track Group – Puerto Rico,
Inc., Secretary of Track Group Analytics, Limited and Manager of
Emerge Monitoring LLC, all of which are subsidiaries of the
Company, since May 2017. Before joining the Company, Mr. Poli
served as the Chief Financial Officer of Grand Banks Yachts Limited
from August 18, 2004 through December 31, 2015. In addition, he
served as an Executive Director of Grand Banks Yachts from March
31, 2008 through October 28, 2015. Prior to his time with Grand
Banks Yachts Limited, Mr. Poli served as the Chief Financial
Officer for Acumen Fund Inc., I-Works Inc., and as Vice
President and Chief Financial Officer of FTD.COM. Mr. Poli also
spent nine years as an Investment Banker with Dean Witter Reynolds,
Inc. and served as the CFO of a wholly-owned subsidiary of Morgan
Stanley Dean Witter from 1997 to 1999. In addition, Mr. Poli served
as an Independent Director of Leapnet, Inc. from 2000 to 2002. Mr.
Poli earned a Bachelor of Art in Economics and Engineering from
Brown University in 1983 and an MBA from Harvard Business School in
1987.
Karen
Macleod became a director of
the Company in January 2016 and currently serves as Chief Executive
Officer of Arete Group LLC, a professional services firm. Prior to
Arete Group, Ms. Macleod was President of Tatum LLC, a New
York-based professional services firm owned by Randstad, from 2011
to 2014, and was a co-founder of Resources Connection
(NASDAQ:RECN), now known as RGP, a multinational professional
services firm founded as a division of Deloitte in June 1996. Ms.
Macleod served in several positions for RGP, including as a
director from 1999 to 2009 and President, North America from 2004
to 2009. Prior to RGP, Ms. Macleod held several positions in the
audit department of Deloitte from 1985 to 1994. Ms. Macleod served
as a director for A-Connect (Schweiz) AG, a privately
held, Swiss-based global professional services firm, from 2014
to 2016, and was a director for Overland Solutions from 2006 to
2013. Currently, Ms. Macleod is serving as a director on the Board
of the FWA (Financial Women’s Association) in New York, and
is a member of their audit committee. Ms. Macleod holds a
Bachelor of Science in Business/Managerial Economics from the
University of California, Santa
Barbara.
The
Board believes Ms. Macleod’s senior public company leadership
experience along with her finance and accounting background are
important to the ongoing growth of the Company and corporate
governance excellence.
Karim
Sehnaoui became a director of
the Company in February 2018. Mr. Sehnaoui is an entrepreneur and
investment professional, who specializes in private equity, venture
capital, and corporate finance. Currently, he serves as General
Manager of the Reference Group SARL, a boutique financial advisory
firm based in Geneva, Switzerland, which position he has held since
October 2017, and as a Director of ETS Limited. In addition, Mr.
Sehnaoui is the founder and current Managing Director of Elham
Management and Investment Group, an investment firm founded in 2011
that is dedicated to sustainable strategic investing. From 2012 to
2016, Mr. Sehnaoui taught graduate level finance courses as a
visiting Assistant Professor at MSB Mediterranean School of
Business in Tunisia. Prior to that, Mr. Sehnaoui spent several
years in investment banking and private equity, serving as Acting
Chief Investment Officer of Abu Dhabi Investment House PJSC and
General Manager for Abu Dhabi Investment House S.A., and Business
Development Director at Ithmaar Bank. Mr. Sehnaoui is currently a
member of the Supervisory Board of Fyber N.V. (FRA: FBEN), an
advertising technology company. Mr. Sehnaoui holds Bachelor’s
and Master’s degrees in Civil Engineering from McGill
University in Montreal, Canada, and was a Global Leadership Fellow
at the World Economic Forum in Geneva, Switzerland from 2005 to
2007.
The
Board’s decision to appoint Mr. Sehnaoui as a director of the
Company was made in connection with ETS Limited becoming the
Company’s largest shareholder of record. The Board also
believes Mr. Sehnaoui’s senior leadership experience, along
with his private equity and venture capital background, are
important to the ongoing growth of the Company and corporate
governance.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act
of 1934, as amended (the “Exchange
Act”), requires our
officers, directors, and persons who beneficially own more than ten
percent of our common stock to file reports of ownership and
changes in ownership with the SEC. Officers, directors, and
greater-than-ten-percent stockholders are also required by the SEC
to furnish us with copies of all Section 16(a) forms that they
file.
Based
solely upon a review of these forms that were furnished to us, we
believe that all reports required to be filed by these individuals
and persons under Section 16(a) were filed during fiscal year 2018
and that such filings were timely except the
following:
●
Dr. Ray
Johnson, a former director, filed two Form 4s reporting an
aggregate of five late transaction;
●
Peter
Poli, our Chief Financial Officer, filed a Form 4 reporting one
late transaction;
●
Dirk
van Daele, a former director, filed two Form 4s reporting an
aggregate of four late transactions;
●
Guy
Dubois, a director and our former Chief Executive Officer, filed a
Form 4 reporting sixteen late transactions;
●
David
Boone, a former director, filed a Form 4 reporting seven late
transactions; and
●
Karen
Macleod, a former director, filed a Form 4 reporting five late
transactions.
Code of Business Conduct and Ethics
We have established a Code of Business Conduct and
Ethics that applies to our officers, directors and
employees. The Code of Business Conduct and Ethics contains
general guidelines for conducting our business consistent with the
highest standards of business ethics, and is intended to qualify as
a “code of ethics” within the meaning of Section 406 of
the Sarbanes-Oxley Act of 2002 and the rules promulgated
thereunder. We have posted our Code of Business Conduct and
Ethics on our website, www.trackgrp.com, and
will post any amendments to or waivers from a provision of our Code
of Business Conduct and Ethics that apply to our principal
executive officer, principal financial officer, principal
accounting officer, controller or persons performing similar
functions and that relates to any element of the Code of Business
Conduct and Ethics.
Board Leadership Structure
Our
Board of Directors has discretion to determine whether to separate
or combine the roles of Chief Executive Officer and Chairman of the
Board. Guy Dubois served in both roles from September 11, 2016
through December 31, 2017. Our Board believed that his combined
role was most advantageous to the Company and our
stockholders. Effective January 1, 2018, the Board of
Directors promoted the President of the Company, Mr. Derek Cassell,
to the role of Chief Executive Officer, and thereby separated the
roles of Chief Executive Officer and Chairman of the Board. Mr.
Dubois continues to serve as Chairman of the Board.
In
addition to Mr. Cassell’s and Mr. Dubois’ leadership,
the Board maintains effective independent oversight through a
number of governance practices, including, open and direct
communication with management, input on meeting agendas, and
regular executive sessions.
Board Role in Risk Assessment
Management,
in consultation with outside professionals, as applicable,
identifies risks associated with the Company’s operations,
strategies and financial statements. Risk assessment is also
performed through periodic reports received by the Board from
management, counsel and the Company’s independent registered
public accountants relating to risk assessment and management. Our
Board meets privately in executive sessions with representatives of
the Company’s independent registered public accountants. The
Board also provides risk oversight through its periodic reviews of
the financial and operational performance of the
Company.
Director Nominations
The
Board nominates directors for election at each annual meeting of
stockholders and appoints new directors to fill vacancies when they
arise, and has the responsibility to identify, evaluate and recruit
qualified candidates to the Board for such nomination or
appointment.
The
Board of Directors identifies director nominees by first
considering those current members of the Board who are willing to
continue service. Current members of the Board with skills and
experience that are relevant to our business and who are willing to
continue service are considered for re-nomination, balancing the
value of continuity of service by existing members of the Board
with that of obtaining a new perspective. Nominees for director are
selected by a majority of the members of the Board of Directors.
Although the Company does not have a formal diversity policy, in
considering the suitability of director nominees, the Board
considers such factors as it deems appropriate to develop a Board
that is diverse in nature and comprised of experienced and seasoned
advisors. Factors considered by the Board include judgment,
knowledge, skill, diversity, integrity, experience with businesses
and other organizations of comparable size, including experience in
the software and/or technology industries, software, intellectual
property, business, finance, administration or public service, the
relevance of a candidate’s experience to our needs and
experience of other Board members, experience with accounting rules
and practices, the desire to balance the considerable benefit of
continuity with the periodic injection of the fresh perspective
provided by new members, and the extent to which a candidate would
be a desirable addition to the Board and any committees of the
Board.
A
stockholder who wishes to suggest a prospective nominee for the
Board may notify the Secretary of the Company in writing with any
supporting material the stockholder considers appropriate. Nominees
suggested by stockholders are considered in the same way as
nominees suggested from other sources.
In addition, the Company’s Bylaws contain
provisions that address the process by which a stockholder may
nominate an individual to stand for election to the Board at the
Company’s annual meeting of stockholders. In order to
nominate a candidate for director, a stockholder must give timely
notice in writing to the Secretary of the Company and otherwise
comply with the provisions of the Company’s Bylaws.
Information required by the Company’s Bylaws to be in the
notice include: the name, contact information and share ownership
information for the candidate and the person making the nomination,
and other information about the nominee that must be disclosed in
proxy solicitations under Section 14 of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”) and its related
rules and regulations. The Board may also require any proposed
nominee to furnish such other information as may reasonably be
required by the Board to determine the eligibility of such proposed
nominee to serve as director of the Company. The recommendation
should be sent to: Secretary, Track Group, Inc., 200 E.
5th Avenue, Suite 100, Naperville, Illinois
60563. You can obtain a copy of the Company’s Bylaws by
writing to the Secretary at this address.
Stockholder Communications
If you wish to communicate with the Board, you may
send your communication in writing to: Secretary, Track Group,
Inc., 200 E. 5th Avenue, Suite 100, Naperville, Illinois
60563. You must include your name and address in the written
communication and indicate whether you are a stockholder of the
Company. The Secretary will review any communication received from
a stockholder, and all material and appropriate communications from
stockholders will be forwarded to the appropriate director or
directors or committee of the Board based on the subject
matter.
Board Meetings
Directors
hold office until the next annual meeting of the shareholders and
until their successors have been elected or appointed and duly
qualified. Vacancies on the Board which are created by the
retirement, resignation or removal of a director, may be filled by
the vote of the remaining members of the Board, with such new
director serving the remainder of the term or until his/her
successor shall be elected and qualified.
The
Board of Directors is elected by and is accountable to our
shareholders. The Board establishes policy and provides
strategic direction, oversight, and control. The Board met
eleven times during the year ended September 30, 2018 and all
incumbent directors attended at least 75% of the aggregate number
of meetings of the Board and of the committees on which such
directors served.
Board Committees and Charters
Effective May 31, 2018, David Boone, Dirk van
Daele, Eric Rosenblum and Ray Johnson (together, the
“Former
Directors”) resigned from
their positions as directors on the Company’s Board of
Directors, leaving Guy Dubois, Karim Sehnaoui and Karen Macleod as
the remaining directors on our Board. Certain disclosure which
follows regarding corporate governance refers to the
Company’s Board of Directors and corporate governance
policies and procedures prior to the resignation of the Former
Directors, and does not reflect the Company’s corporate
governance policies and procedures subsequent to such
resignations.
The
Board of Directors had three standing committees prior to the
resignation of the Former Directors: the Audit Committee,
Compensation Committee, and Nominating and Corporate Governance
Committee. These committees assisted the Board of Directors to
perform its responsibilities and make informed decisions. Effective
May 31, 2018, as a result of the resignation of Messrs. Boone, van
Daele, Rosenblum and Johnson, the Board no longer has an acting
Audit Committee, Compensation Committee, or Nominating and
Corporate Governance Committee. Instead, the full Board of
Directors administers the duties of the Audit Committee,
Compensation and Nominating and Corporate Governance
Committees.
Audit Committee
Prior to May 31, 2018, we had a separately
designated standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The primary duties of the
Audit Committee were to oversee (i) management’s conduct
related to our financial reporting process, including reviewing the
financial reports and other financial information provided by the
Company, and reviewing our systems of internal accounting and
financial controls, (ii) our independent auditors’
qualifications and independence and the audit and non-audit
services provided to the Company, and (iii) the engagement and
performance of our independent auditors. The Audit Committee
assisted the Board in providing oversight of our financial and
related activities, including capital market transactions. The
Audit Committee had a charter, a copy of which is available on our
website at www.trackgrp.com.
The
Audit Committee met with our Chief Financial Officer and with our
independent registered public accounting firm and evaluated the
responses by the Chief Financial Officer, both to the facts
presented and to the judgments made by our independent registered
public accounting firm. The Audit Committee met three times
during the 2018 fiscal year prior to May 31, 2018, and all members
of the Audit Committee attended at least 75% of the
Committee’s meetings.
Prior
to May 31, 2018, the Members of the Audit Committee consisted of
Ms. Macleod, Mr. Rosenblum and Mr. van Daele. Each member of the
Audit Committee, satisfied, as determined by the full Board of
Directors, the definition of independent director as established in
the Nasdaq Stock Market Rules and were financially
literate. In accordance with Section 407 of the Sarbanes-Oxley
Act of 2002, the Board of Directors designated Ms. Macleod as the
Audit Committee’s “audit committee financial
expert” as defined by the applicable regulations promulgated
by the SEC. Currently, the entire Board of Directors serves in
the capacity as an Audit Committee.
Our full Board reviewed and discussed the matters
required by United States auditing standards required by the Public
Company Accounting Oversight Board (the “PCAOB”) and our audited financial statements for
the fiscal year ended September 30, 2018 with management and our
independent registered public accounting firm. Our Board received
the written disclosures and the letter from our independent
registered public accounting firm required by Independence
Standards Board No. 1, and our Board discussed with the independent
registered public accounting firm the independent registered public
accounting firm's independence.
Compensation Committee
Prior
to May 31, 2018, we had a separately designated standing
Compensation Committee. The members of the Compensation Committee
consisted of Dr. Johnson and Mr. Rosenblum, both of whom were
determined to be independent directors in accordance with the
Nasdaq Stock Market Rules, including Rule 5605(d)(2)(A). The
Compensation Committee met one time during the 2018 fiscal year
prior to May 31, 2018, and all members of the Compensation
Committee attended at least 75% of the Committee’s
meetings.
Currently,
the entire Board of Directors serves in the capacity as a
Compensation Committee. As such, the entire Board of Directors has
the responsibility for developing and maintaining an executive
compensation policy that creates a direct relationship between pay
levels and corporate performance and returns to stockholders. The
Board monitors the results of such policy to assure that the
compensation payable to our executive officers provides overall
competitive pay levels, creates proper incentives to enhance
stockholder value, rewards superior performance, and is justified
by the returns available to stockholders. Additionally, the Board
administers compensation plans in a manner consistent with the
terms of such plans (including, as applicable, the granting of
stock options, restricted stock, stock units and other awards, the
review of performance goals established before the start of the
relevant plan year, and the determination of performance compared
to the goals at the end of the plan year).
Currently,
Ms. Macleod serves as the sole independent director, as determined
by the Board of Directors in accordance with the Nasdaq Stock
Market Rules, including Rule 5605(d)(2)(A).
Nominating and Corporate Governance Committee
Prior
to May 31, 2018, we had a separately designated standing Nominating
and Corporate Governance Committee. Messrs. van Daele, Boone and
Johnson served as members of our Nominating and Corporate
Governance Committee. Currently, the entire Board of Directors
serves in the capacity as a Nominating Committee. As such, the
entire Board of Directors has the responsibility for identifying
and recommending candidates to fill vacant and newly created Board
positions, setting corporate governance guidelines regarding
director qualifications and responsibilities, and planning for
senior management succession.
Currently,
our full Board is required to review the qualifications and
backgrounds of all directors and nominees (without regard to
whether a nominee has been recommended by stockholders), as well as
the overall composition of the Board of Directors, and recommend a
slate of directors to be nominated for election at the annual
meeting of stockholders, or, in the case of a vacancy on the Board
of Directors, elect a new director to fill such vacancy. The
Nominating and Corporate Governance Committee held one meeting
during the 2018 fiscal year prior to May 31, 2018.
Independent Directors
Prior
to the resignations of Messrs. Boone, van Daele, Rosenblum and
Johnson, the Company had determined that, other than Messrs. Dubois
and Sehnaoui, all of its then directors were independent directors
as defined by the rules and regulations of the Nasdaq Stock
Market.
The Board has determined that Ms. Macleod is
currently the Company’s sole independent director as defined
by the rules and regulations of the Nasdaq Stock Market. Ms.
Macleod meets the independence standards established by the Nasdaq
Stock Market and the U.S. Securities and Exchange Commission (the
“SEC”). In addition, the Board has determined
that of its current directors, Ms. Macleod satisfies the definition
of an “audit committee financial expert” under SEC
rules and regulations. These designations do not impose any duties,
obligations or liabilities that are greater than those generally
imposed as members of the Board, and the designation as an audit
committee financial expert does not affect the duties, obligations
or liability of any other member of the Board.
Indemnification of Officers and Directors
As
permitted by Delaware law, the Company will indemnify its
directors and officers against expenses and liabilities they
incur to defend, settle, or satisfy any civil or
criminal action brought against them on account of
their being or having been Company directors or officers
unless, in any such action, they are adjudged to have acted
with gross negligence or willful
misconduct.
ITEM 11.
|
EXECUTIVE COMPENSATION
|
The
following discussion relates to the compensation of our
“named executive officers.”
Summary Compensation Table
The following summary
compensation table sets forth the compensation paid to the
following persons for our fiscal years ended September 30, 2017 and
2018:
(a)
our
principal executive officer;
(b)
our
other two most highly compensated executive officers who were
serving as executive officers at the end of the fiscal year ended
September 30, 2018 and who had total compensation exceeding
$100,000; and
(c)
additional individuals for whom disclosure would
have been provided under (b) but for the fact that the individual
was not serving as an executive officer at the end of the most
recently completed financial year (together, the “
Named Executive
Officers”).
Name and
|
|
Salary
|
Bonus
|
Stock Awards
|
Option Awards
|
All Other Compensation
|
Total
|
Principal Position
|
Year
|
($)
|
($)
|
($) (1)
|
($) (2)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
Guy Dubois (3)
|
2018
|
$-
|
$60,000
|
$350,000(4)
|
$-
|
$50,000
|
$460,000
|
Chairman and Former Executive Chairman
|
2017
|
$-
|
$-
|
$100,000(4)
|
$-
|
$-
|
$100,000
|
|
|
|
|
|
|
|
|
Derek Cassell (5)
|
2018
|
$266,923
|
$30,000
|
$315,000
|
$-
|
$-
|
$611,923
|
Chief Executive Officer and Former President
|
2017
|
$224,454
|
$-
|
$193,846
|
$-
|
351(6)
|
$418,651
|
|
|
|
|
|
|
|
|
Peter
Poli
|
2018
|
$247,692
|
$22,500
|
$157,500
|
$-
|
$-
|
$427,692
|
Chief Financial Officer
|
2017
|
$175,384
|
$-
|
$-
|
$134,318
|
$-
|
$309,702
|
(1)
|
This column represents the
grant date fair value in accordance with ASC 718. These amounts do
not represent the actual value that may be realized by the named
executive officers.
|
|
|
(2)
|
This
column represents the grant date fair value in accordance with ASC
718. Please refer to the section labeled “Stock-Based
Compensation” found within Note 2, “Summary of
Significant Accounting Policies,” in the Notes to
Consolidated Financial Statements included in our Annual Report on
Form 10-K filed on December 19, 2018 for the relevant
assumptions used to determine the compensation cost of our stock
option awards. These amounts do not represent the actual value, if
any, that may be realized by the named executive
officers.
|
|
|
(3)
|
Mr. Dubois served as a member of the Executive Committee from
October 2012 to September 2016, and as the Chief Executive Officer
from September 2016 to December 2017. He currently serves as the
Chairman of our Board of Directors. Mr. Dubois does not
have an employment agreement, nor did he when serving as the
Company’s Executive Chairman.
|
|
|
(4)
|
$25,000 and $0 of Mr. Dubois’ stock award payments had been
accrued, but not yet issued as of September 30, 2017 and 2018,
respectively, and $25,000 of Mr. Dubois’ cash compensation
had not been paid at September 30, 2018.
|
|
|
(5)
|
On January 1, 2018, Mr. Cassell was appointed as the
Company’s Chief Executive Officer. Mr. Cassell previously
served as the Company’s President from December 19, 2016 to
January 1, 2018.
|
|
|
(6)
|
Consists of a health club membership for Mr. Cassell.
|
Narrative Disclosure to the Summary Compensation Table
Compensation Paid to our Former Executive
Chairman
Our former principal executive officer, Guy
Dubois, was granted 51,746 shares of common stock,
equal to $100,000, for his work
as Chairman of the Board of the Company during the fiscal year
ended September 30, 2017, $25,000 of which had been accrued, but
had not yet been issued as of September 30, 2017. Mr. Dubois did
not receive any compensation during the fiscal year ended September
30, 2017 for his services as the Chief Executive Officer of the
Company.
Mr.
Dubois was granted 41,293 shares of common stock, equal to $50,000,
and $50,000 in cash payments for his work as Chairman of the Board of the Company during the fiscal year
ended September 30, 2018, of which $25,000 of cash payments had not
been paid as of September 30, 2018. In addition, Mr. Dubois
received a $60,000 cash bonus and 241,935 shares of stock equal to
$300,000 for services provided to the Company in his former role as
Executive Chairman.
Poli Employment Agreement
On December 12, 2016,
the Company entered into a three-year employment agreement with Mr.
Poli (the “Poli Employment
Agreement”). Under the
terms and conditions of the Poli Employment Agreement, Mr. Poli
began receiving a base salary equal to $240,000 per annum beginning
in January 2017, and received an option to purchase 100,000 shares
of the Company’s common stock at an exercise price per share
equal to the closing price of the Company’s common stock on
the date approved by the Board. One-half of this option vested on
January 1, 2018, and the remaining one-half vested on January 1,
2019. If the Company terminates Mr. Poli’s employment as a
result of an involuntary termination, he would receive an amount
equal to 12 months base salary, plus any annual bonus deemed to be vested and
earned.
An amendment to the
Poli Employment Agreement was approved at a Board meeting on
December 13, 2017, and such amendment was executed on January 3,
2018. Pursuant to the terms of
the Poli Agreement, as amended (the “Poli
Amendment”), effective
January 1, 2018, Mr. Poli’s employment was extended three
years, and shall automatically renew for successive one year
periods thereafter unless either party provides the other with
notice of its intent not to renew the Poli Agreement at least six
months prior to termination. In addition, the Poli Amendment
provides: (i) an increase in Mr. Poli’s base salary to
$250,000 per year; (ii) the issuance of 150,000 unregistered
restricted shares of the Company’s common stock, which shall
vest annually in increments of 50,000 beginning January 1, 2018;
and (iii) in the event of a change of control, Mr. Poli shall be
entitled to a cash payment equal to one year’s salary, plus
all restricted stock, warrants and options previously issued to Mr.
Poli shall become immediately vested and
exercisable.
Cassell Employment Agreement
On December 1, 2016,
the Company entered into an employment agreement with Mr. Cassell,
which was subsequently amended on February 13, 2017 (the
“Cassell Employment
Agreement”). Under the
terms and conditions of the Cassell Employment Agreement, Mr.
Cassell received a base salary equal to $240,000 per annum, and
received 60,000 unregistered restricted shares of the
Company’s common stock. One-half of these shares vested
immediately upon issuance, and the remaining one-half is scheduled
to vest on March 30, 2018. If the Company terminates Mr.
Cassel’s employment as a result of an involuntary
termination, he would receive an amount equal to 12 months base
salary, plus any annual bonus
deemed to be vested and earned.
A second amendment to
the Cassell Employment Agreement was approved at a Board meeting
held on December 13, 2017, and such amendment was executed on
January 4, 2018. Under the terms of the Cassell Agreement, as
amended (the “Cassell
Amendment”), effective
January 1, 2018, Mr. Cassell was promoted from President to Chief
Executive Officer of the Company, a position which he shall hold
until December 31, 2020, unless earlier terminated or extended.
Should Mr. Cassell elect to voluntarily terminate his employment
with the Company, he must provide written notice of his intent to
do so at least 180 days prior to terminating his
employment. In addition,
the Cassell Amendment provides: (i) an increase in Mr.
Cassell’s base salary to $275,000 per year; (ii) a 50%
increase in his annual bonus effective for bonus plan year 2018 and
thereafter; (iii) the issuance of 300,000 unregistered restricted
shares of the Company’s common stock, which shall vest
annually in increments of 100,000 beginning January 1, 2018; and
(iv) in the event of a change of control, Mr. Cassell shall be
entitled to a cash payment equal to one year’s salary, plus
all restricted stock, warrants and options previously issued to Mr.
Cassell shall become immediately vested and
exercisable.
Outstanding Equity Awards at September 30, 2018
The
following table discloses outstanding shares, stock option awards
and warrants held by each of the Named Executive Officers as of
September 30, 2018:
Outstanding Equity Awards at Fiscal Year-End 2018
Name
|
Number of securities underlying unexercised options (#)
exercisable
|
Number of securities underlying unexercised options (#)
unexercisable
|
Equity incentive plan awards: Number of underlying unexercised
unearned options (#)
|
Option exercise price
($) (1)
|
Option
expiration
date
|
Number of shares or units of stock that have not vested
(#)
|
Market value of shares or units of stock that have not vested
($)
|
Equity incentive plan awards: Number of Unearned shares, units or
other rights that have not vested (#)
|
Equity incentive plan awards: Market or Payout value of unearned
shares, units or other rights that have not vested ($)
|
|
|
|
|
|
|
|
|
|
|
Guy Dubois
|
2,385
|
-
|
-
|
$1.24
|
3/21/2022
|
-
|
-
|
-
|
-
|
|
64,665
|
-
|
-
|
$1.24
|
4/14/2022
|
-
|
-
|
-
|
-
|
|
4,083
|
-
|
-
|
$1.24
|
6/30/2022
|
-
|
-
|
-
|
-
|
|
2,280
|
-
|
-
|
$1.24
|
9/30/2022
|
-
|
-
|
-
|
-
|
|
2,344
|
-
|
-
|
$1.24
|
12/31/2023
|
-
|
-
|
-
|
-
|
|
2,432
|
-
|
-
|
$1.24
|
3/31/2023
|
-
|
-
|
-
|
-
|
|
51,576
|
-
|
-
|
$1.24
|
6/02/2023
|
-
|
-
|
-
|
-
|
|
2,647
|
-
|
-
|
$1.24
|
6/30/2023
|
-
|
-
|
-
|
-
|
|
14,988
|
-
|
-
|
$1.24
|
1/27/2022
|
-
|
-
|
-
|
-
|
|
8,868
|
-
|
-
|
$1.24
|
4/20/2022
|
-
|
-
|
-
|
-
|
|
113,310
|
-
|
-
|
$1.24
|
8/14/2022
|
-
|
-
|
-
|
-
|
|
8,571
|
-
|
-
|
$1.24
|
9/30/2022
|
-
|
-
|
-
|
-
|
|
12,676
|
-
|
-
|
$1.24
|
10/14/2022
|
-
|
-
|
-
|
-
|
|
15,126
|
-
|
-
|
$1.24
|
1/15/2023
|
-
|
-
|
-
|
-
|
|
14,286
|
-
|
-
|
$1.24
|
3/31/2023
|
-
|
-
|
-
|
-
|
|
18,000
|
-
|
-
|
$1.24
|
6/30/2023
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Peter Poli
|
50,000
|
50,000(2)
|
-
|
$1.24
|
1/1/2022
|
-
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
50,000(3)
|
$52,500
|
|
|
|
-
|
-
|
-
|
-
|
-
|
50,000(4)
|
$52,500
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Derek Cassell
|
-
|
-
|
-
|
-
|
-
|
100,000(3)
|
$105,000
|
-
|
-
|
|
|
|
|
|
|
100,000(4)
|
$105,000
|
-
|
-
|
(1)
On
November 30, 2017, the Board of Directors approved the repricing of
the exercise price of all outstanding stock options and warrants
held by the Company’s officers and directors on such date. As
such, all of the stock options reported in this table that were
outstanding at November 30, 2017 have an exercise price of $1.24,
the closing price of the Company’s Common Stock as reported
by the OTCQX Marketplace on November 30, 2017.
(2)
Such
options vested on January 1, 2019, subsequent to the year ended
September 30, 2018.
(3)
Such
shares vested on January 1, 2019, subsequent to the year ended
September 30, 2018.
(4)
Such
shares vest on January 1, 2020.
Director Compensation
During the fiscal year ended September 30, 2018,
each of our non-employee directors received $25,000 per quarter for
serving on the Board of Directors, which fees were
payable in
(i) cash, (ii) common stock valued at the current market price at
the date of the grant, or (iii) warrants with an exercise price at
the current market price at the date of grant; all grants of
warrants were valued at the date of grant using the Black-Scholes
valuation method.
The
members of the Board of Directors are also eligible for
reimbursement of their expenses incurred in attending Board
meetings in accordance with our policies.
The
following table sets forth the compensation awarded to, earned by,
or paid to each person who served as a director during the fiscal
year ended September 30, 2018, including the Former Directors, each
of whom resigned effective May 31, 2018, other than a director who
also served as an executive officer:
|
Stock Awards
|
Warrant Awards
|
Cash
|
Total Fees Earned
|
Name (1)
|
($)
|
($)
|
($)
|
($)
|
|
|
|
|
|
David
Boone
|
$50,000
|
$-
|
$25,000
|
$75,000
|
Karen
Macleod
|
$50,000
|
$-
|
$50,000
|
$100,000
|
Dirk
van Daele
|
$50,000
|
$-
|
$25,000
|
$75,000
|
Dr. Ray
Johnson
|
$-
|
$50,000
|
$25,000
|
$75,000
|
Eric
Rosenblum
|
$50,000
|
$-
|
$25,000
|
$75,000
|
Karim
Sehnaoui
|
$14,722
|
$-
|
$50,000
|
$64,722
|
(1)
As
discussed above, Messrs. Boone, van Daele, Rosenblum and Johnson
resigned from their positions as directors on the Company’s
Board of Directors effective May 31, 2018. Additionally, Mr.
Sehnaoui was appointed to serve as a director on the Board on
February 7, 2018.
Director Warrants
The following table lists the warrants to purchase shares of common
stock held by each of our non-employee directors as of January 24,
2019, all of which were granted in connection with their services
as directors:
|
Grant
|
Expiration
|
Exercise
|
Number of
|
Compensation
|
Name
|
Date
|
Date
|
Price
|
Warrants
|
Expense
|
Guy Dubois (1)
|
3/22/13
|
3/21/22
|
$1.24
|
2,385
|
$11,682
|
|
4/16/13
|
4/14/22
|
$1.24
|
64,665
|
$285,003
|
|
7/1/13
|
6/30/22
|
$1.24
|
4,083
|
$23,640
|
|
10/1/13
|
9/30/22
|
$1.24
|
2,280
|
$17,982
|
|
1/2/14
|
12/31/23
|
$1.24
|
2,344
|
$12,014
|
|
4/1/14
|
3/31/23
|
$1.24
|
2,432
|
$8,684
|
|
6/3/14
|
6/02/23
|
$1.24
|
51,576
|
$300,326
|
|
7/1/14
|
6/30/23
|
$1.24
|
2,647
|
$7,270
|
|
1/27/14
|
1/27/22
|
$1.24
|
14,988
|
$61,918
|
|
4/20/15
|
4/20/22
|
$1.24
|
8,868
|
$27,464
|
|
8/14/15
|
8/14/22
|
$1.24
|
113,310
|
$300,000
|
|
10/1/15
|
9/30/22
|
$1.24
|
8,571
|
$25,114
|
|
10/15/15
|
10/14/22
|
$1.24
|
12,676
|
$25,859
|
|
1/15/16
|
1/15/23
|
$1.24
|
15,126
|
$45,008
|
|
4/1/16
|
3/31/23
|
$1.24
|
14,286
|
$47,572
|
|
7/1/16
|
6/30/23
|
$1.24
|
18,000
|
$53,454
|
Karen
Macleod
|
7/1/16
|
6/30/23
|
$1.24
|
9,000
|
$37,154
|
|
9/30/16
|
9/30/21
|
$1.15
|
3,529
|
$15,000
|
|
10/1/16
|
9/30/21
|
$1.15
|
5,882
|
$25,000
|
|
1/1/17
|
12/31/21
|
$1.15
|
9,191
|
$25,000
|
|
4/1/17
|
3/31/22
|
$1.15
|
12,195
|
$25,000
|
(1)
Mr. Dubois served
as the Company’s Chief Executive Officer from September 2016
until December 31, 2017. Effective January 1, 2018 he resigned from
such position and is now Chairman of the Board of
Directors.
Compensation Risks Assessment
As
required by rules adopted by the SEC, management has made an
assessment of our compensation policies and practices with respect
to all employees to determine whether risks arising from those
policies and practices are reasonably likely to have a material
adverse effect on us. In doing so, management considered various
features and elements of the compensation policies and practices
that discourage excessive or unnecessary risk taking. As a result
of the assessment, we have determined that our compensation
policies and practices do not create risks that are reasonably
likely to have material adverse effects.
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
|
Security Ownership of Certain Beneficial Owners
The following table presents information regarding
beneficial ownership as of January 24, 2019 (the “Table Date”), of our common stock by (i) each
shareholder known to us to be the beneficial owner of more than
five percent of our common stock; (ii) each of our Named Executive
Officers serving as of the Table Date; (iii) each of our directors
serving as of the Table Date; and (iv) all of our executive
officers and directors as a group.
We
have determined beneficial ownership in accordance with the rules
of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the persons
and entities named in the table below have sole voting and
dispositive power with respect to all securities they beneficially
own. As of the Table Date, the applicable percentage ownership
is based on 11,401,650 shares of our common stock issued
and outstanding.
Beneficial
ownership representing less than one percent of the issued and
outstanding shares of a class is denoted with an asterisk
(“*”). Holders of common stock are entitled
to one vote per share.
Name and Address of
|
Common Stock
|
|
Beneficial Owner (1)
|
Shares
|
%
|
|
|
|
5% Beneficial Owners:
|
|
|
ETS Limited (2)
|
4,871,745
|
43%
|
Safety Invest S.A., Compartment Secure
I (3)
|
1,740,697
|
15%
|
Conrent Invest S.A. (4)
|
591,378
|
5%
|
|
|
|
Directors and Named Executive Officers:
|
|
|
Guy Dubois (5)
|
653,568
|
6%
|
Peter Poli (6)
|
233,640
|
2%
|
Derek Cassell (7)
|
317,209
|
3%
|
Karen Macleod (8)
|
94,939
|
1%
|
Karim Sehnaoui (9)
|
14,021
|
1%
|
All
directors and executive officers as a group
(5
persons)
|
1,313,377
|
12%
|
(1)
|
Except as otherwise indicated, the business address for these
beneficial owners is c/o the Company, 200 E. 5th Avenue, Suite 100,
Naperville, Illinois 60563.
|
(2)
|
Address is c/o Mourant Ozannes Corporate Services (Cayman) Limited,
94 Solaris Avenue, Camana Bay, PO Box 1348, Grand Cayman KY1-1108,
Cayman Islands. Holding information is based on Amendment No.
2 to Schedule 13D filed by ADS Securities LLC on February 9,
2018.
|
(3)
|
Secure I is a compartment of Safety Invest S.A.
(“Safety”), a company established under the
Luxembourg Securitization Law and incorporated as a
“société anonyme” under the laws of the Grand
Duchy of Luxembourg whose principal business is to enter into one
or more securitization transactions. Holding information is based
on Company records.
|
|
|
(4)
|
Address is 283, Route d’Arlon L-8011 Strassen R.C.S.
Luxembourg B 170.360. Holding information is based on an American
Stock Transfer & Title Company - Institutional ownership with
underlying beneficial owners report, dated January 7,
2019.
|
(5)
|
Holdings consist of 315,331 shares of common stock owned of
record and 338,237 shares of common stock issuable upon exercise of
stock purchase warrants, exercisable within 60 days of January 24,
2019.
|
(6)
|
Holdings consist of 133,640 shares of common stock and 100,000
shares of common stock issuable upon exercise of stock purchase
warrants, exercisable within 60 days of January
24, 2019.
|
|
|
(7)
|
Holdings include 317,209 shares of common stock owned of
record.
|
(8)
|
Holdings includes 55,142 shares of Common Stock owned of
record and 39,797 shares of Common Stock issuable upon exercise of
stock purchase warrants, exercisable within 60 days of January 24,
2019.
|
|
|
(9)
|
Holdings include 14,021 shares of Common Stock owned of
record
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information as of September 30, 2018
regarding equity compensation plans approved by our security
holders and equity compensation plans that have not been approved
by our security holders:
Plan category
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted-average exercise price of outstanding options,
warrants and rights
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
615,655
|
$1.61
|
27,218
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
68,604
|
1.15
|
-
|
|
|
|
|
Total
|
685,259
|
$1.56
|
27,218
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
|
Related-Party Loan Agreements
Amended and Restated Facility Agreement and Debt Exchange Agreement
with Conrent Invest, S.A. On July 14, 2015, the
Company entered into an Amended and Restated Facility Agreement
(the “Amended
Facility Agreement”) with Conrent
Invest S.A., a public limited liability company incorporated under
the laws of the Grand Duchy of Luxembourg
(“Conrent”),
pursuant to which the Company may borrow up to $29.4 million of
unsecured debt, which accrues interest at a rate of 8% per annum
and matures on July 31, 2018. The Amended Facility Agreement also
provides the Company with a voluntary prepayment option, wherein
the Company may pay the amounts borrowed under the debt facility,
including all accrued but unpaid interest, prior to the maturity
date without any penalty or prepayment fee.
On October 9, 2017, the
Company entered into a Debt Exchange Agreement with Conrent
regarding total debt and unpaid interest of approximately $34.7
million due under the Amended Facility Agreement as of October 31,
2017 (the “Debt”)
(the “Debt
Exchange”). The Debt
Exchange called for the Company to exchange newly issued shares of
preferred stock for the entire Debt subject to approval by the
investors who purchased securities from Conrent to finance the Debt
(the “Noteholders”).
On November 2, 2017, Conrent convened a meeting of the Noteholders
to approve the Debt Exchange; however, the quorum required to
approve the Debt Exchange was not achieved.
On February 26, 2018, the Company proposed that
the maturity date of the Amended Facility Agreement be extended
from July 31, 2018 to April 1, 2019. On April 26, 2018, the
Noteholders approved the extension of the Facility Agreement from
July 31, 2018 to April 1, 2019, subject to the satisfaction of
certain conditions (the “Debt
Extension”). On June 14,
2018, the Company received a letter from Conrent acknowledging that
certain conditions had been met, and indicating that Conrent would
proceed with the Debt Extension.
On July 19, 2018 the
Company and Conrent, amended the facility agreement again, thereby
(i) extending the Maturity Date to the earlier of either April 1,
2019 or the date upon which the Outstanding Principal Amount, as
defined therein, is repaid by the Company, and (ii) provided that
in the event of a Change of Control, as defined therein, Conrent
shall immediately cancel the facility and declare the Outstanding
Principal Amount, together with unpaid interest, immediately due
and payable.
Subsequent
to the year ended September 30, 2018, on November 14, 2018, the
Company requested that Conrent further extend the maturity of the
Amended Facility Agreement from April 1, 2019 to April 1, 2020. On
December 3, 2018, Conrent agreed to convene meetings of the
Noteholders and subsequently issued a notice of a meeting of
Noteholders for each series of Notes, which meetings were held on
January 16, 2019. Conrent notified the Company (via
telephone), that the Noteholders agreed to extend the maturity of
the Amended Facility Agreement to April 1, 2020, subject to the
signing of a written agreement.
Conrent
Loan Agreement. On May 1,
2016, the Company entered into an unsecured Loan Agreement with
Conrent, acting with respect to its Compartment Safety III
(the “Conrent Loan
Agreement”). Pursuant to its terms, available
borrowing capacity under the Conrent Loan Agreement was $5.0
million; however, due to the failure of the lender to satisfy
certain conditions precedent to its obligation to fund, the Company
had not received funds under the Conrent Loan Agreement as of
January 24, 2019, and no proceeds thereunder are
anticipated.
Sapinda Loan Agreement. On September 25,
2015, the Company entered into a loan agreement with one of the
Company’s related parties, Sapinda Asia Limited
(“Sapinda”),
to provide the Company with a $5.0 million line of credit that
accrues interest at a rate of 3% per annum for undrawn funds and 8%
per annum for borrowed funds (the “Sapinda
Loan Agreement”). Pursuant to
the terms and conditions of the Sapinda Loan Agreement, available
funds could be drawn down at the Company’s request at any
time until the loan agreement matured on September 30, 2017, when
all borrowed funds, plus all accrued but unpaid interest became due
and payable. The Company,
however, was entitled to elect to satisfy any outstanding
obligations under the Sapinda Loan Agreement prior to the Maturity
Date without penalties or fees.
On March 13, 2017, the
Company and Sapinda entered into an
agreement to amend the Sapinda Loan Agreement
(“Amendment
Number One”). Amendment
Number One extended the maturity date of all loans made pursuant to
the Sapinda Loan Agreement
to September 30, 2020. In addition, Amendment Number One eliminated
the requirement that the Company pay Sapinda the 3% interest, and forgave
the 3% interest due to Sapinda for all undrawn funds under
the Sapinda Loan Agreement
through the Execution Date. Further, Amendment Number One provided
that all Lender Penalties accrued under the Sapinda Loan Agreement
through the Execution Date were forgiven. Per Amendment Number One,
Lender Penalties began to accrue again because Sapinda failed to
fund the amount of $1.5 million on or before March 31, 2017. The
Company formally notified Sapinda of the breach by letter dated
April 4, 2017. The Company is again accruing Lender Penalties,
amounting to $664,000 at January 24, 2019, under Section 6.3
of the Sapinda Loan Agreement,
as amended, and the Company intends to offset Lender Penalties
against future payments due.
We did not draw on this line of credit, nor did we
pay any interest during or subsequent to the year ended September
30, 2018. The undrawn balance of this line of credit at January 24,
2019 was $1,600,356. Further advances under
the Sapinda Loan Agreement
are not currently expected to be forthcoming, and therefore no
assurances can be given that the Company will obtain additional
funds to which it is entitled under the Sapinda Loan Agreement,
or that the penalties accruing will ever be
paid.
Stock Payable – Related Party
In connection with certain acquisitions during fiscal 2014 and
2015, the Company recognized a liability for stock payable to the
sellers of the entities acquired. In conjunction with the
respective purchase agreements, shares of the Company’s stock
were payable during the year ended September 30, 2017 based on the
achievement of certain milestones. There were no shares of Company
stock payable during the year ended September 30, 2018. Changes in
the stock payable liability are shown below:
|
Sept. 30,
2017
|
Beginning
balance
|
$3,289,879
|
Payment
of shares for achieving performance milestones
|
(75,939)
|
Adjustment
to Track Group Analytics stock payable
|
(213,940)
|
Adjustment
to GPS Global stock payable
|
(3,000,000)
|
Ending
balance
|
$-
|
Additional Related-Party Transactions and Summary of All
Related-Party Obligations
|
Sept. 30,
2018
|
Sept. 30,
2017
|
|
|
|
Related
party loan with an interest rate of 8% per annum for undrawn and
borrowed funds. Principal and interest due September 30,
2020.
|
$3,399,644
|
$3,399,644
|
Total
related-party debt obligations
|
$3,399,644
|
$3,399,644
|
Each
of the foregoing related-party transactions was reviewed and
approved by disinterested and independent members of the
Company’s Board of Directors.
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND
SERVICES
|
During
the years ended September 30, 2018 and 2017, Eide Bailly
served as our independent registered public accounting firm. The
following table presents approximate aggregate fees and other
expenses for professional services rendered by Eide Bailly, our
independent registered public accounting firm, for the audit of the
Company’s annual financial statements for the years ended
September 30, 2018 and 2017 and fees and other expenses for other
services rendered during those periods.
|
2018
|
2017
|
|
|
|
Audit Fees (1)
|
$174,179
|
$162,420
|
Audit-Related Fees (2)
|
$6,862
|
$6,141
|
Tax Fees (3)
|
$20,200
|
$20,728
|
All Other Fees (4)
|
$28,400
|
$21,661
|
Total
|
$229,641
|
$210,950
|
(1)
|
Audit services in 2018 and 2017 consisted of the audit of our
annual consolidated financial statements, and other services
related to filings and registration statements filed by us and our
subsidiaries, and other pertinent matters. Eide Bailly has served
as our independent registered public accounting firm since
September 24, 2013.
|
(2)
|
Audit-related fees consisted of travel costs related to our annual
audit.
|
(3)
|
For
permissible professional services related to income tax return
preparation and compliance.
|
(4)
|
All
other fees are related to the preparation of the Company’s
Affordable Care Act forms and examination of the 401(k) financial
statements.
|
Audit Committee Pre-Approval Policies and Procedures
Prior
to May 31, 2018, our former Audit Committee had, and subsequent to
such date our entire Board has, established pre-approval policies
and procedures, pursuant to which the Audit Committee approved the
foregoing audit and permissible non-audit services provided by Eide
Bailly in fiscal 2017 and the full Board approved the foregoing
audit and permissible non-audit services provided by Eide Bailly in
fiscal 2018. Such procedures govern the ways in which the Audit
Committee pre-approved, and the full Board no pre-approves, audit
and various categories of non-audit services that the auditor
provides to the Company. Services that have not received
pre-approval must receive specific approval of the Audit Committee,
or the full Board for fiscal 2018.
Auditor Independence
Our
Audit Committee and the full Board considered that the work done
for us in fiscal year 2017 and 2018, respectively, by Eide
Bailly was compatible with maintaining Eide Bailly’s
independence.
Report of the Audit Committee of the Board of
Directors
Date:
December 19, 2018
The full Board, serving in the capacity of the
Company’s Audit Committee, has reviewed and discussed with
management and Eide Bailly,
LLP, our independent registered
public accounting firm, the audited consolidated financial
statements in the Track Group, Inc. Annual Report on Form
10-K for the year ended September 30, 2018. The Board has also
discussed with Eide Bailly, LLP
those matters required to be discussed
by Public Company Accounting Oversight Board
(“PCAOB”) Auditing Standard No.
61.
Eide Bailly, LLP
also provided the Board with the
written disclosures and the letter required by the applicable
requirements of the PCAOB regarding the independent auditor’s
communication with the Board concerning independence. The Board has
discussed with the registered public accounting firm their
independence from our Company.
Based
on its discussions with management and the registered public
accounting firm, and its review of the representations and
information provided by management and the registered public
accounting firm, including as set forth above, the Board determined
that the audited financial statements should be included in our
Annual Report on Form 10-K for the year ended September 30,
2018.
|
Respectfully Submitted,
Guy
Dubois
Karen Macleod
Karim Sehnaoui
|
The information contained above under the caption
“Report of the Audit Committee
of the Board of Directors” shall not be deemed to be soliciting
material or to be filed with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, except to the extent that we specifically
incorporate it by reference into such filing.
PART
IV
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a)
|
The following documents are filed as part of this Annual
Report:
|
3(i)(1)
|
|
|
|
3(i)(2)
|
|
|
|
3(i)(3)
|
|
|
|
3(1)(4)
|
Certificate of Designation of the
Relative Rights and Preferences of the Series A Convertible
Preferred Stock, dated October 12, 2017 (previously filed as
Exhibit 3.1 to our Current Report on Form 8-K, filed on October 13,
2017).
|
|
|
3(ii)(2)
|
|
|
|
4.01
|
|
|
|
4.02
|
|
|
|
10.1
|
|
|
|
10.2
|
|
|
|
10.3
|
|
|
|
10.4
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
10.7
|
|
|
|
10.8
|
|
|
|
10.9
|
|
|
|
10.10
|
|
|
|
10.11
|
|
|
|
10.12
|
|
|
|
10.13
|
|
|
|
10.14
|
|
|
|
14.1
|
|
|
|
21
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32
|
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350) (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
|
* Previously filed in Original Filing.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Track Group, Inc.
By: /s/ Derek
Cassell
Derek Cassell (Chief Executive Officer)
Date: January 28,
2019
-17-