Legal Matters The Company is, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time. SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior). On March 24, 2017, SecureAlert Inc. filed a complaint before the Federal Administrative Tribunal, asserting the failure by defendants to pay claimant amounts agreed to, and due under, the Pluri Annual Contract for the Rendering of Monitoring Services of Internees, through Electric Bracelets, in the Islas Marias Penitentiary Complex dated July 15, 2011, entered into by and between the Organo Administrativo Desconcentrado Prevencion y Readaptacion Social (OADPRS) of the then Public Security Department, and presently, an agency of the National Security Commission of the Department of the Interior, and SecureAlert, Inc., presently Track Group, Inc. The Companys claim amount is upwards of $6.0 million. The Supreme Court took action to resolve previous, conflicting decisions regarding the jurisdiction of such claims and determined that such claims will be resolved by the Federal Administrative Tribunal. Subsequently, plaintiff filed an Amparo action before the Collegiate Court, seeking an appeal of the Federal Administrative Courts earlier decision against plaintiff. The Collegiate Court issued a ruling in August 2019 that the matter of dispute was previously resolved by a lower court in 2016. The Company disagrees with this ruling and on November 11, 2020 made a re-demand of the OADPRS for payment due under the July 15, 2011 contract. The OADPRS has 3 months from November 11, 2020 in which to formally respond. The Based upon the fee arrangement the Company has with its counsel, we anticipate the future liabilities attributable to legal expense will be minimal. Blaike Anderson v. Track Group, Inc., et. al. On June 24, 2019, Blaike Anderson filed a complaint seeking unspecified damages in the State Court of Marion County, Indiana, alleging liability on the part of defendants for providing a defective ankle monitoring device and failure to warn plaintiff regarding the condition thereof. The Company removed the matter to federal court and subsequently filed its answer denying Plaintiffs allegations in August 2019. Discovery, delayed by the Covid-19 crisis, remains ongoing. The Company continues to vigorously defend the case. Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation . On January 23, 2020, the Company was served with a summons for an Adversary Action pending against International Surveillance Services Corporation ( ISS ), a subsidiary of the Company, now known as Track Group  Puerto Rico Inc., in the United States District Court for the District of Puerto Rico seeking to avoid and recover allegedly constructive fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stem from payments made to ISS between 2014 and 2017, which the Company believes were properly made in accordance with a contract between ISS and the government of Puerto Rico, through the Oficina de Servicios con Antelacion a Juicio, originally signed in 2011. The Company is confident that all payments it received were earned and due under applicable law and has produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020, though the Commonwealth, through its financial advisory form, in correspondence dated November 13, 2020, requested additional information and discussion. The Company remains confident in its current position and continues to defend the case. Eli Sabag v. Track Group, Inc., et al. On March 12, 2020, Eli Sabag commenced an arbitration with the International Centre for Dispute Resolution, Case Number 01-20-0003-6931. The arbitration claim, as it pertains to the Company, alleges breach of the Share Purchase Agreement (SPA ) between the Company and Sabag. Sabag alleges that the Company breached the SPA because it failed to pay him his earn-out after it sold or leased a sufficient number of GPS Global Tracking devices to meet the earn-out milestone, or alternatively, breached the SPA by failing to act in good faith to allow Sabag to achieve his earn-out. Sabag further claims that the Company fraudulently induced Sabag to sell GPS Global Tracking and Surveillance System Ltd. to the Company. The Company has entered its appearance and on July 17, 2020, filed its Answer denying the allegations of the claim and asserting numerous defenses. The Company continues to vigorously defend against the allegations. The Company participated in mediation discussions on December 15, 2020 with all parties. The Company has not accrued any potential loss as the probability of incurring a material loss is deemed remote by management, after consultation with outside legal counsel. Leases Effective October 1, 2019, the Company adopted the new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842)  ASC Topic 842  which modified lease accounting for lessees to create transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted the new lease standard utilizing the modified retrospective transaction method, under which amounts in prior periods were not restated. For contracts existing at the time of the adoption, the Company elected not to reassess (a) whether any are or contain leases, (b) lease classification, and (c) initial direct costs. Upon adoption on October 1, 2019, the Company recorded $597,289 right of use assets and lease liabilities. The adoption of the new standard did not impact the Companys Statements of Operations or Statements of Cash Flows. Future maturities of lease liabilities under ASC 840 at September 30, 2019 were as follows: Operating Leases From October 2019 to September 2020 $ 196,245 From October 2020 to September 2021 233,107 From October 2021 to September 2022 167,325 From October 2022 to September 2023 3,612 Total minimum lease payments $ 597,289 The following table shows right of use assets and lease liabilities and the associated financial statement line items as of September 30, 2020. Operating lease asset Operating lease liability Other assets $ 375,397 $ - Accrued liabilities $ - $ 210,910 Long-term liabilities $ - $ 164,487 The following table summarizes the supplemental cash flow information for the year ended September 30, 2020: September 30, 2020 Cash paid for noncancelable operating leases included in operating cash flows $ 356,059 Right of use assets obtained in exchange for operating lease liabilities: $ - The future minimum lease payments under noncancelable operating leases with terms greater than one year as of September 30, 2020 are: Operating Leases From October 2020 to September 2021 $ 233,107 From October 2021 to September 2022 167,325 From October 2022 to September 2023 3,612 Undiscounted Cash Flow 404,044 Less: imputed interest (28,647 ) Total $ 375,397 Reconciliation to lease liabilities: Lease liabilities - current $ 210,910 Lease liabilities - long-term 164,487 Total Lease Liabilities $ 375,397 The weighted-average remaining lease term and discount rate related to the Companys lease liabilities as of September 30, 2020 were 1.8 years and 8%, respectively. The Companys lease discount rates are generally based on the estimates of its incremental borrowing rate as the discount rates implicit in the Companys leases cannot be readily determined. Performance Bonds As of September 30, 2020, Company has two performance bonds in connection with a foreign customer totaling $2,351,304, of which $1,645,881 is held in an interest-bearing account on behalf of the customer and is recorded in Other Assets on the Consolidated Balance Sheet. The remaining amount of $705,423 is guaranteed by a foreign financial institution on behalf of the Company. The amounts held on the two bonds will be released upon expiration as follows: $307,383 on January 18, 2022 and $1,338,498 on July 2, 2024. As of September 30, 2019, the Company held one of the above performance bonds totaling $474,682, of which $332,277 was held in an interest-bearing account on behalf of the customer and is recorded in Other Current Assets on the Consolidated Balance Sheet, with the remainder guaranteed by a foreign financial institution on behalf of the Company. This performance bond was renewed in 2020, thus, is included in the totals above. The Company pays interest on the full amount of the bonds to the financial institution providing the guarantee at 3.5% interest for the bond expiring in January 2022 and 2.8% interest for the bond expiring in July 2024. Related interest expense recorded for the years ended September 30, 2020 and 2019 was $33,617 and $17,860, respectively.