Acquisitions

12 Months Ended

Sep. 30, 2015

Notes to Financial Statements

ACQUISITIONS

(3)              Acquisitions

GPS Global

On March 12, 2014, the Company entered into a Share Purchase Agreement (the “GPS Global SPA”) to purchase from Eli Sabag, an individual resident of the State of Israel, all of the issued and outstanding shares of GPS Global Tracking and Surveillance System Ltd., a company formed under the laws of and operating in the State of Israel (“GPS Global”). The GPS Global SPA contained customary representations and warranties and covenants, including provisions for indemnification, subject to the limitations described in the agreement. Subsequent to the closing, the Mr. Sabag and certain key employees of GPS Global entered into employment agreements and continue to operate GPS Global. The GPS Global SPA also granted Mr. Sabag the right for a three-year period following the closing to nominate one director to serve on the Company’s board and on GPS Global’s board of directors.  Subsequently, the Company changed the name of GPS Global to Track Group International Ltd.  The purchase price was $7,811,404, payable in cash and shares of the Company's Common Stock.  The Company paid $311,404 in cash at closing.  In addition the Company paid Mr. Sabag shares of Common Stock equal to $7,500.000 as follows: (i) $1,600,000 at closing; (ii) $2,900,000, held in escrow and released six (6) months after closing; (iii) up to $3,000,000 based on specified performance milestones as set forth in the GOS Global SPA.

Emerge

On June 2, 2014, the Company entered into a Stock Purchase Agreement (the “ Emerge SPA”) to purchase from BFC Surety Group, Inc. all of the issued and outstanding shares and equity interests of Emerge Monitoring, Inc., a Florida corporation (“Emerge”), which is the direct owner of all of the issued and outstanding equity interests of Emerge Monitoring II, LLC, a Florida limited liability company and wholly-owned subsidiary of Emerge (“Emerge LLC”), and a majority (65%) of the equity interest of Integrated Monitoring Systems, LLC, a Colorado limited liability company and subsidiary of Emerge LLC (the “Emerge Acquisition”). The purchase price for the Emerge Acquisition was $7,739,167 all of which was paid in cash (the “Emerge Purchase Price”).  The Company also committed to purchase the remaining 35% minority equity interest of Integrated Monitoring Systems, LLC, which was completed during the fiscal year ended September 30, 2014.

Track Group Analytics Limited

On November 26, 2014 (the “Closing Date”), the Company entered into a Share Purchase Agreement (the “TGA Purchase Agreement”) to purchase from the shareholders of Track Group Analytics Limited, formerly G2 Research Limited (“TGA”), all issued and outstanding shares of TGA for an aggregate purchase price of up to CAD$4.6 million (the “TGA Acquisition”), of which CAD$2.0 million was paid in cash to the TGA shareholders on the Closing Date with the remainder of the purchase price to be paid as follows: (i) CAD$600,000 will be paid to the former TGA shareholders in shares of Common Stock of which one-half of the shares will be issued on the one-year anniversary of the Closing Date and the balance on the two-year anniversary of the Closing Date; and (ii) the CAD$2.0 million will be paid to the former TGA shareholders in shares of Common Stock  over a two-year period beginning on the Closing Date, upon the achievement of certain milestones set forth in the TGA Purchase Agreement. As of September 30, 2015, the Company had issued 38,499 shares of Common Stock in connection to this acquisition and 63,777 shares of Common Stock to the TGA shareholders upon achieving certain performance milestones.

During the third quarter of fiscal 2015, the Company received the final valuation report for the TGA Acquisition. Our Consolidated Balance Sheet at June 30, 2015 was retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC 805, Business Combinations, (“ASC 805”). The revisions to the purchase price allocation for the acquisition resulted from the Company’s finalization of valuation of long-term and intangible assets with consideration of the valuation report obtained from a third party appraisal firm. The aforementioned adjustments resulted in a retrospective adjustment to goodwill by $2,384,000 and other intangibles by $1,817,000. The $1.6 million in goodwill recognized as a result of this acquisition is not deductible for income tax purposes. The Company included in its financial statements revenues generated by Track Group Analytics of $165,869 for the year ended September 30, 2015.

The fair value of patents, developed technology, customer contracts/relationship, tradename and trademarks were capitalized as of the acquisition date and will be subsequently amortized using a straight-line method to depreciation and amortization expense over their estimated useful lives.

The Company has retrospectively adjusted the previously reported fair values to reflect these amounts as follows (in thousands):

	As Initially Reported		Measurement Period Adjustments			As Retrospectively Adjusted
Assets
Current assets	$	477	$	(85	)	$	392
Property and equipment		5		2			7
Intangible assets:
Patents / developed technology		-		975			975
Customer contracts / relationships		-		807			807
Trade names / trademarks		-		35			35
Goodwill		4,037		(2,384	)		1,653
Total assets acquired		4,519		(650	)		3,869
Liabilities
Current liabilities		65		(3	)		62
Loans payable		381		(7	)		374
Total liabilities assumed		446		(10	)		436
Total purchase consideration	$	4,073	$	(640	)	$	3,433

Summary of Unaudited Pro-Forma Information

The unaudited pro-forma information below for the years ended September 30, 2015 and 2014 gives effect to each of the acquisitions described herein as, if the acquisitions had occurred on October 1, 2013. The pro-forma financial information is not necessarily indicative of the results of operations if the acquisitions had been effective as of this date.

	For the Year Ended
	September 30,
	Unaudited
	2015			2014
Revenues		21,137,315			16,445,410
Loss from operations		(8,380,490	)		(8,617,692	)
Net loss attributable to the Company		(5,421,800	)		(8,924,681	)
Basic income per share		(0.53	)		(0.88	)
Diluted income per share		(0.53	)		(0.88	)
Net loss attributable to common shareholders		(5,421,800	)		(8,939,266	)
Basic income per share		(0.53	)		(0.88	)
Diluted income per share		(0.53	)		(0.88	)