Acquisition

3 Months Ended

Dec. 31, 2015

Notes to Financial Statements

ACQUISITION

GPS Global

On March 12, 2014, the Company entered into a Share Purchase Agreement to purchase from Eli Sabag, a resident of the State of Israel, all of the issued and outstanding shares of GPS Global Tracking and Surveillance System Ltd., an Israeli company ("GPS Global"). Subsequent to the closing, Mr. Sabag and certain key employees of GPS Global entered into employment agreements and continue to operate GPS Global. Subsequently, the Company changed the name of GPS Global to Track Group Interantional Ltd.

The purchase price for the issued and outstanding shares of GPS Global was $7,811,404, payable in cash and shares of the Company's common stock as follows: (i) $311,404 in cash to Mr. Sabag; and (ii) shares of the Company common stock valued at $7,500,000 of which common stock valued at $1,600,000 was paid to Mr. Sabag at closing. An additional amount of common stock valued at $2,900,000 was held in escrow for six months from closing before being released to Mr. Sabag. Common stock valued at $3,000,000 could be earned by Mr. Sabag based on specific milestones over a period of two years from the date of closing.

The total purchase price for the GPS Global acquisition was allocated to the net tangible and intangible assets based upon their fair values as of June 30, 2014. The excess of the purchase price over the net assets was recorded as goodwill. This acquisition provided the Company with additional research and development capabilities and enhanced technology which benefits current and future products.

 Track Group Analytics Limited

On November 26, 2014, the Company entered into a Share 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$4,600,000 (the “TGA Acquisition“), of which CAD$2,000,000 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 were issued on the one-year anniversary of the closing and the balance to be issued on the two-year anniversary of the closing; and (ii) the CAD$2,000,000 will be paid to the former TGA shareholders in shares of common stock  over a two-year period beginning as of the closing, upon the achievement of certain milestones set forth in the purchase agreement. As of December 31, 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. The Consolidated Balance Sheet at December 31, 2015 has been 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 $1,653,000 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 $81,700 for the three months ended December 31, 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.

Summary of Unaudited Pro-Forma Information

The unaudited pro-forma information below for the three months ended December 31, 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.

	Three Months Ended
	December 31,
	2015			2014
Revenues	$	6,317,604		$	4,976,416
Loss from operations		(1,390,441	)		(1,513,379	)
Net loss attributable to the Company		(2,127,238	)		(1,944,824	)
Basic income per share		(0.21	)		(0.19	)
Diluted income per share		(0.21	)		(0.19	)
Net loss attributable to common shareholders		(2,127,238	)		(1,924,388	)
Basic income per share		(0.21	)		(0.19	)
Diluted income per share		(0.21	)		(0.19	)