Business Acquisitions

Dextro, Inc.

On February 8, 2017, we acquired all of the outstanding common stock of Dextro for a total purchase price of $7.5 million. Dextro's technology provides one of the first computer-vision and deep learning systems to make the visual contents in video searchable in real time. This technology will allow law enforcement agencies and departments to quickly isolate and analyze critical seconds of footage from massive amounts of video data. The technology acquired, along with the Dextro employees that joined Axon, were key additions to the Axon Artificial Intelligence team.

The purchase price of $7.5 million consisted primarily of cash, net of cash acquired, and contingent consideration of $1.0 million representing potential earn-outs to former stockholders based on predetermined future metrics. As of December 31, 2018, 0.6 million was earned and paid relative to the former stockholder earn-out provisions. We also agreed to additional earn-out provisions to former Dextro employees totaling approximately $1.4 million based, in part, on predetermined future metrics. The additional earn-outs were not included as part of the purchase price and are being expensed as compensation for the employees in the period earned.

The major classes of assets and liabilities to which we allocated the purchase price were as follows (in thousands):



Accounts receivable	$	12
Property and equipment	46
Developed technology	5,800
Goodwill	2,703
Deferred income tax liabilities, net	(1,074		)
Total purchase price	$	7,487

We assigned the goodwill to the Software and Sensors segment. Identifiable definite-lived intangible assets were assigned a total weighted average amortization period of 3.4 years. Dextro has been included in our consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for Dextro have not been presented because they are not material to the consolidated results of operations. In connection with the acquisition, we incurred and expensed costs of approximately $0.2 million, which included legal, accounting and other third-party expenses related to the transaction.

Breon Enterprises

On July 1, 2017, we acquired certain tangible and intangible assets from Breon, which was our distributor in the Australia region. This transaction, which was accounted for as a business combination under ASC 805, is intended to expand our growth across Australia and surrounding regions by growing our in-country sales and support team.

The purchase price of $4.2 million was paid in full in July 2017. As of the acquisition date, we had a $2.2 million pre-existing accounts receivable balance from Breon for our sales of goods and services to Breon prior to the acquisition date. This receivable balance was cash settled in full separately from the business combination at its book value, which was considered to be the fair value due to the short-term nature of the receivable.

The major classes of assets to which we allocated the purchase price were as follows (in thousands):



Re-acquired distribution rights	$	2,100
Customer relationships	400
Goodwill	1,650
Total purchase price	$	4,150

We assigned $0.8 million of the goodwill to each of the TASER and Software and Sensors segments. The assignment of goodwill was based on our estimate of how the acquired assets would contribute cash flows to us over time. Identifiable definite-lived intangible assets were assigned a total weighted average amortization period of 2.1 years. Breon has been included in our consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for Breon have not been presented because they are not material to the consolidated results of operations. Costs related to the acquisition were expensed as incurred and were considered insignificant.

VIEVU

On May 3, 2018, we acquired all of the outstanding ownership interests of VIEVU, a public safety camera and cloud-based evidence management system provider for law enforcement agencies.

The estimated purchase price of $17.6 million consisted of $5.0 million in cash, net of cash acquired of $0.1 million, and $2.4 million, or 58,843 shares, of our common stock issued to VIEVU’s parent company, Safariland, LLC (“Safariland”). Additionally, the purchase price consisted of contingent consideration of up to $6.0 million, or 141,226 additional shares of common stock, if certain conditions relating to retention of certain VIEVU customers are met as of the first and second anniversaries of the acquisition date. The fair value of the contingent consideration as of the acquisition date was $5.8 million. The purchase price also included the fair value of a long-term Product Development and Supplier Agreement (the “Supply Agreement”) with Safariland, pursuant to which Safariland will be our preferred provider of holsters for our CEW products. The estimated fair value of the Supply Agreement as of the acquisition date was $4.5 million, a portion of which was recorded within accrued liabilities and the remaining portion recorded within other long-term liabilities.

Pursuant to ASC 805, the acquisition of VIEVU has been accounted for as a business combination, under the acquisition method of accounting, which resulted in acquired assets and assumed liabilities being measured at their estimated fair values as of the acquisition date. As of the acquisition date, goodwill was measured as the excess of consideration transferred, which is also generally measured at fair value, over the net acquisition date fair values of the assets acquired and liabilities assumed. Goodwill includes the value of intangible assets that do not qualify for separate recognition as well as strategic benefits we expect to realize from the acquisition. $5.2 million of the acquired goodwill is expected to be deductible for tax purposes.

The major classes of assets and liabilities to which we have allocated the purchase price were as follows (in thousands):



Accounts receivable	$	1,776
Inventory	2,626
Prepaid expenses and other assets	362
Property and equipment	459
Contract assets	1,472
Intangible assets	4,510
Goodwill	10,285
Accounts payable and accrued liabilities	(3,345		)
Deferred revenue	(543		)
Total purchase price	$	17,602

We have assigned the goodwill to the Software and Sensors segment. Identifiable definite-lived intangible assets were assigned a total weighted average amortization period of 5.1 years. VIEVU has been included in our consolidated results of operations subsequent to the acquisition date. Revenue included in our consolidated financial statements from the acquisition date through December 31, 2018 was $6.7 million. Direct costs incurred by the VIEVU legal entity and costs attributable to legacy VIEVU employees were approximately $16.9 million through December 31, 2018.

The following unaudited pro forma financial information presents the combined results of operations for the years ending December 31, 2018, and 2017, respectively, as though the VIEVU acquisition that occurred during the reporting period had occurred as of January 1, 2017. The unaudited pro forma results include certain adjustments, which are primarily comprised of the change in amortization of intangible assets established in purchase accounting compared to VIEVU's legacy intangible assets, and reclassifying the expense recorded during the three months ended June 30, 2018 related to assumed purchase commitments to the pro forma 2017 results. In addition, we have made pro forma adjustments in 2018 to exclude nonrecurring transaction costs directly attributable to the acquisition.

These unaudited pro forma results of operations are presented for informational purposes only as required by U.S. GAAP, and do not include any anticipated cost savings or other effects of future integration efforts associated with the Company's acquisition strategy to secure major city customer relationships. As such, they may not be indicative of the results we would have achieved if the acquisition had taken place on January 1, 2017, nor are they indicative of future results of operations (in thousands, except per share amounts):



	For the Years Ended December 31,
	2018		2017
Net sales	$	423,890	$	352,985
Net income (loss)	$	27,035	$	(2,145	)
Net income (loss) per share:
Basic	$	0.49	$	(0.04	)
Diluted	$	0.47	$	(0.04	)

In connection with the acquisition, we incurred and expensed costs of approximately $0.8 million, which included legal, accounting and other third-party expenses related to the transaction. Subsequent to the acquisition date, we recorded expenses of $1.2 million related to purchase commitments assumed in the VIEVU business combination that exceeded estimated future demand.