UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~[X]~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~[ ]~~

☐ 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: 0-23153

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 Number)

Securities registered pursuant to Section 12(b) of the Act: None

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~[ ]~~

Large accelerated filer ~~[ ]~~	☐	Accelerated filer ~~[ ]~~	☐
Non-accelerated filer ~~[ ]~~ ~~(Do not check if a smaller reporting company)~~	☒	Smaller reporting company ~~[X]~~	☒
		Emerging growth company ~~[ ]~~	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~

☒

The number of shares outstanding of the registrant’s common stock as of ~~February~~May 1, ~~2018~~2023 was ~~10,462,433.~~11,863,758.

Table of Contents

TRACK GROUP, INC.

FORM 10-Q

For the Quarterly Period Ended ~~December~~March 31, ~~2017~~

Item 1. Financial Statements

TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31,			September 30,
	2023			2022
Assets
Current assets:
Cash	$	4,014,530		$	5,311,104
Accounts receivable, net of allowance for doubtful accounts of $197,748 and $102,570, respectively		5,490,432			6,236,555
Prepaid expense and deposits		509,431			769,006
Inventory, net of reserves of $0 and $0, respectively		991,754			1,053,245
Other current assets		-			284,426
Total current assets		11,006,147			13,654,336
Property and equipment, net of accumulated depreciation of $1,893,809 and $1,829,588, respectively		147,391			170,329
Monitoring equipment, net of accumulated depreciation of $6,400,702 and $5,950,639, respectively		5,703,446			3,624,101
Intangible assets, net of accumulated amortization of $16,141,503 and $14,804,269, respectively		14,889,905			15,661,417
Goodwill		8,032,723			8,061,002
Other assets		3,056,248			3,509,655
Total assets	$	42,835,860		$	44,680,840

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	2,218,609		$	2,858,915
Accrued liabilities		3,013,254			3,042,443
Current portion of long-term debt		545,865			456,681
Total current liabilities		5,777,728			6,358,039
Long-term debt, net of current portion		42,873,560			42,979,243
Long-term liabilities		329,133			398,285
Total liabilities		48,980,421			49,735,567

Commitments and contingencies (Note 23)

Stockholders’ equity (deficit):
Common stock, $0.0001 par value: 30,000,000 shares authorized; 11,863,758 and 11,863,758 shares outstanding, respectively		1,186			1,186
Preferred stock, $0.0001 par value: 20,000,000 shares authorized; 0 shares outstanding		-			-
Series A Convertible Preferred stock, $0.0001 par value: 1,200,000 shares authorized; 0 shares outstanding		-			-
Paid in capital		302,550,802			302,437,593
Accumulated deficit		(307,667,763	)		(306,218,889	)
Accumulated other comprehensive loss		(1,028,786	)		(1,274,617	)
Total equity (deficit)		(6,144,561	)		(5,054,727	)
Total liabilities and stockholders’ equity (deficit)	$	42,835,860		$	44,680,840

Assets

December 31,
2017
(unaudited)

September 30,
2017

Current assets:

Cash
$1,755,437
$2,027,321
Accounts receivable, net of allowance for doubtful accounts of $3,432,985 and $3,268,095, respectively
  5,526,000
  5,438,564
Note receivable, current portion
  234,733
  234,733
Prepaid expenses and other
  4,219,135
  854,122
Inventory, net of reserves of $26,934, respectively
  172,347
  261,810
Total current assets
  11,907,652
  8,816,550
Property and equipment, net of accumulated depreciation of $1,862,347 and $1,778,634, respectively
  883,039
  903,100
Monitoring equipment, net of accumulated amortization of $4,767,061 and $4,906,925, respectively
  3,460,685
  3,493,012
Intangible assets, net of accumulated amortization of $10,444,569 and $9,839,032, respectively
  24,410,468
  24,718,655
Goodwill
  8,275,308
  8,226,714
Other assets
  785,195
  2,989,101
Total assets
$49,722,347
$49,147,132



Liabilities and Stockholders’ Equity


Current liabilities:


Accounts payable
  2,529,632
  2,769,835
Accrued liabilities
  8,021,419
  6,650,291
Current portion of long-term debt, net of discount of $130,067 and $185,811, respectively
  30,322,191
  30,270,531
Total current liabilities
  40,873,242
  39,690,657
Long-term debt, net of current portion
  3,466,468
  3,480,717
Total liabilities
  44,339,710
  43,171,374



Stockholders’ equity:


Common stock, $0.0001 par value: 30,000,000 shares authorized; 10,462,433 and 10,480,984 shares outstanding, respectively
  1,046
  1,048
Additional paid-in capital
  300,978,608
  300,717,861
Accumulated deficit
  (295,109,920)
  (294,067,329)
Accumulated other comprehensive loss
  (487,097)
  (675,822)
Total equity
  5,382,637
  5,975,758
Total liabilities and stockholders’ equity
$49,722,347
$49,147,132

The accompanying notes are an integral part of these condensed consolidated statements.

-1-

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2023			2022			2023			2022
Revenue:
Monitoring and other related services	$	8,179,025		$	8,842,486		$	16,468,807		$	18,312,215
Product sales and other		129,021			641,633			694,930			767,560
Total revenue		8,308,046			9,484,119			17,163,737			19,079,775

Cost of revenue:
Monitoring, products and other related services		3,721,527			4,152,219			7,623,521			8,083,797
Depreciation and amortization included in cost of revenue		843,714			792,915			1,616,733			1,656,764
Total cost of revenue		4,565,241			4,945,134			9,240,254			9,740,561

Gross profit		3,742,805			4,538,985			7,923,483			9,339,214

Operating expense:
General & administrative		2,869,799			2,770,657			5,624,320			5,269,016
Selling & marketing		768,871			720,709			1,498,341			1,418,581
Research & development		706,772			625,477			1,296,577			1,216,329
Depreciation & amortization		247,574			414,771			495,283			831,572
Total operating expense		4,593,016			4,531,614			8,914,521			8,735,498

Operating income (loss)		(850,211	)		7,371			(991,038	)		603,716

Other income (expense):
Interest expense, net		(400,976	)		(458,176	)		(820,526	)		(939,736	)
Currency exchange rate gain		71,792			396,369			554,943			290,091
Other income, net		-			633,471			-			633,471
Total other income (expense)		(329,184	)		571,664			(265,583	)		(16,174	)
Income (loss) before income tax		(1,179,395	)		579,035			(1,256,621	)		587,542
Income tax expense		305,863			126,794			192,253			440,623
Net income (loss) attributable to common shareholders		(1,485,258	)		452,241			(1,448,874	)		146,919
Foreign currency translation adjustments		93,585			20,085			245,831			(2,773	)
Comprehensive income (loss)	$	(1,391,673	)	$	472,326		$	(1,203,043	)	$	144,146


Net income (loss) per share – basic:
Net income (loss) per share	$	(0.13	)	$	0.04		$	(0.12	)	$	0.01
Weighted average shares outstanding		11,863,758			11,541,452			11,863,758			11,533,296

Net income (loss) per share – diluted:
Net income (loss) per share	$	(0.13	)	$	0.04		$	(0.12	)	$	0.01
Weighted average shares outstanding		11,863,758			11,955,969			11,863,758			11,961,407

~~(Unaudited)~~

Three Months Ended
December 31,

2017

2016

Revenues:

Monitoring services
$7,350,805
$7,265,013
Other
  139,889
  406,477
Total revenues
  7,490,694
  7,671,490



Cost of revenues:


Monitoring, products and other related services
  2,542,007
  3,607,276
Depreciation & amortization included in cost of revenues
  477,142
  445,493
Impairment of monitoring equipment and parts
  -
  74,787
Total cost of revenues
  3,019,149
  4,127,556



Gross profit
  4,471,545
  3,543,934



Operating expenses:


General & administrative
  3,657,738
  3,175,054
Restructuring costs
  -
  566,330
Selling & marketing
  409,737
  589,768
Research & development
  163,946
  488,178
Depreciation & amortization
  564,740
  575,111
Total operating expenses
  4,796,161
  5,394,441

Loss from operations
  (324,616)
  (1,850,507)



Other income (expense):


Interest expense, net
  (673,827)
  (647,103)
Currency exchange rate loss
  (55,072)
  (116,442)
Other income/expense, net
  10,924
  293
Total other income (expense)
  (717,975)
  (763,252)
Net loss attributable to common shareholders
  (1,042,591)
  (2,613,759)
Foreign currency translation adjustments
  188,725
  (493,572)
Comprehensive loss
$(853,866)
$(3,107,331)
Net loss per common share, basic and diluted
$(0.10)
$(0.25)
Weighted average common shares outstanding, basic and diluted
  10,476,346
  10,333,516

The accompanying notes are an integral part of these condensed consolidated statements.

-2-

Table of Contents

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Income (Loss)			Total

Balance September 30, 2022		11,863,758	$	1,186	$	302,437,593	$	(306,218,889	)	$	(1,274,617	)	$	(5,054,727	)
Stock-based compensation						61,750								61,750
Foreign currency translation adjustments											152,246			152,246
Net income								36,384						36,384
Balance December 31, 2022		11,863,758	$	1,186	$	302,499,343	$	(306,182,505	)	$	(1,122,371	)	$	(4,804,347	)
Stock-based compensation						51,459								51,459
Foreign currency translation adjustments											93,585			93,585
Net loss								(1,485,258	)					(1,485,258	)
Balance March 31, 2023		11,863,758	$	1,186	$	302,550,802	$	(307,667,763	)	$	(1,028,786	)	$	(6,144,561	)

~~(Unaudited)~~

	Common Stock				Paid-in			Accumulated			Comprehensive
	Shares		Amount		Capital			Deficit			Income (Loss)			Total

Balance September 30, 2021		11,524,978	$	1,152	$	302,250,954		$	(298,828,527	)	$	(1,054,349	)	$	2,369,230

Issuance of Common Stock for options/warrants exercised		16,474		2		(2	)		-			-			-
Cash received for options/warrants exercised		-		-		10,570			-			-			10,570
Tax withheld on issuance of Common Stock		-		-		(3,076	)		-			-			(3,076	)
Foreign currency translation adjustments		-		-		-			-			(22,858	)		(22,858	)
Net loss		-		-		-			(305,322	)		-			(305,322	)
Balance December 31, 2021		11,541,452	$	1,154	$	302,258,446		$	(299,133,849	)	$	(1,077,207	)	$	2,048,544

Foreign currency translation adjustments		-		-		-			-			20,085			20,085
Net income		-		-		-			452,241			-			452,241
Balance March 31, 2022		11,541,452	$	1,154	$	302,258,446		$	(298,681,608	)	$	(1,057,122	)	$	2,520,870

Three Months Ended
December 31,

2017

2016

Cash flows from operating activities:

Net loss
$(1,042,591)
$(2,613,759)
Adjustments to reconcile net loss to net cash used in operating activities:


Depreciation and amortization
  1,041,882
  1,020,604
Impairment of monitoring equipment and parts
  -
  74,787
Bad debt expense
  186,910
  359,551
Accretion of debt discount
  55,744
  55,743
Stock based compensation
  787,590
  225,374
Loss on monitoring equipment included in cost of sales
  95,817
  -
Other
  (36,454)
  -
Change in assets and liabilities:


Accounts receivable, net
  (354,633)
  660,834
Inventories
  69,836
  57,700
Prepaid expenses and other assets
  (1,009,813)
  149,428
Accounts payable
  (238,490)
  684,987
Accrued expenses
  772,412
  1,461,547
Net cash provided by operating activities
  328,210
  2,136,796



Cash flow from investing activities:


Purchase of property and equipment
  (28,685)
  (12,762)
Capitalized software
  (254,899)
  (570,093)
Purchase of monitoring equipment and parts
  (311,142)
  (818,600)
Net cash used in investing activities
  (594,726)
  (1,401,455)



Cash flow from financing activities:


Principal payments on notes payable
  (17,289)
  (17,266)
Net cash used in financing activities
  (17,289)
  (17,266)



Effect of exchange rate changes on cash
  11,921
  (1,606)



Net increase (decrease) in cash
  (271,884)
  716,469
Cash, beginning of period
  2,027,321
  1,769,921
Cash, end of period
$1,755,437
$2,486,390

Cash paid for interest
$10,708
$4,587



Supplemental schedule of non-cash investing and financing activities:


Non-cash transfer of inventory to monitoring equipment
$81,893
$62,193

The accompanying notes are an integral part of these condensed consolidated statements.

-3-

Table of Contents

	Six Months Ended March 31,
	2023			2022
Cash flows provided by operating activities:
Net income (loss)	$	(1,448,874	)	$	146,919
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,112,016			2,488,336
Bad debt expense (recovery)		88,536			(11,506	)
Loss on monitoring equipment included in cost of revenue		210,257			185,484
Amortization of debt issuance costs		85,001			70,742
Amortization of monitoring center assets included in cost of revenue		280,502			224,191
Stock based compensation		113,209			-
Income on forgiveness of accrued vendor expenses		-			(633,471	)
Foreign currency exchange gain		(554,943	)		(290,091	)
Change in assets and liabilities:
Accounts receivable, net		746,123			746,130
Inventories		61,491			109,934
Prepaid expense, deposits, deferred tax assets and other assets		1,109,230			(173,884	)
Accounts payable		(640,306	)		(1,117,465	)
Accrued liabilities		(29,189	)		(481,969	)
Net cash provided by operating activities		2,133,053			1,263,350

Cash flow used in investing activities:
Purchase of property and equipment		(20,809	)		(52,970	)
Capitalized software		(430,691	)		(310,525	)
Purchase of monitoring equipment and parts		(3,096,822	)		(1,995,641	)
Net cash used in investing activities		(3,548,322	)		(2,359,136	)

Cash flow used in financing activities:
Principal payments on long-term debt		(276,666	)		(256,636	)
Tax withholdings related to net share settlement of equity-based awards		-			(3,076	)
Proceeds from exercise of stock options		-			10,570
Net cash used in financing activities		(276,666	)		(249,142	)

Effect of exchange rate changes on cash		395,361			41,934

Net decrease in cash		(1,296,574	)		(1,302,994	)
Cash, beginning of period		5,311,104			8,421,162
Cash, end of period	$	4,014,530		$	7,118,168

Cash paid for interest	$	934,772		$	952,708
Cash paid for taxes	$	442,092		$	320,545

~~(1)~~

(1) BASIS OF PRESENTATION

~~(2)~~

(2) PRINCIPLES OF CONSOLIDATION

~~(3)~~

(3) RECENT ACCOUNTING STANDARDS

~~Recently adopted accounting standards~~

~~Recently issued accounting standards~~

~~In January~~ 2017 ~~the FASB issued ASU 2017-04,~~ -04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill ~~Impairment. The new guidance~~Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the ~~two-step~~two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ~~The new guidance will be~~ASU 2017-04 became effective for accelerated filing companies for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, ~~2019.~~ 2019, and all other entities should adopt the amendments in ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ~~Management~~The Company will adopt ASU 2017-04 in fiscal year 2024. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.

- 5-

Table of Contents

In ~~August~~June 2016, the FASB issued ASU ~~2016-15~~ 2016- ~~Statement~~13, “Measurement of ~~Cash Flows (Topic 230) classification of certain cash receipts and cash payments~~Credit Losses on Financial Instruments” (“ASU 2016-03”). ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to ~~conform the presentation in the statement of cash flows for certain transactions, including cash distributions from equity method investments, among others. The~~GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the ~~new standard is required~~beginning of the period of adoption. ASU 2016-13 became effective for fiscal years beginning after December 15, 2019, excluding smaller reporting entities, which will be effective for fiscal years beginning after December 15, 2022. The Company will adopt ASU 2016-13 in ~~2019. Management~~fiscal year 2024. The Company does not ~~anticipate that this adoption will~~ expect the application of the CECL impairment model to have a significant impact on ~~its consolidated financial position, results of operations, or cash flows.~~

our allowance for uncollectible amounts for accounts receivable.

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 841). For lessees, the amendments in this update require that for all leases not considered to be short term, a company recognize both a lease liability and right-of-use asset on its balance sheet, representing the obligation to make payments and the right to use or control the use of a specified asset for the lease term. The amendments in this update are effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Management does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.

~~In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” (“ASU 2014-09~~”

(4) and requires entities to recognize revenue is a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company has evaluated the new standard and anticipates a change in the reporting of revenue as enhanced disclosures will be required. The Company does not anticipate a significant impact on our financial statements due to the nature of our revenue streams and our revenue recognition policy.

~~(4) IMMATERIAL ERROR CORRECTIONS~~

This Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2017 includes the revision of the Company’s previously filed consolidated income statements for the three months ended December 31, 2016.

Management concluded that the general and administrative section of the Condensed Consolidated Income Statement contained an error and that for comparative purposes in fiscal year 2017 filings, these figures should be revised but that the adjustments are not material modifications. Accordingly, the Company has determined that prior financial statements should be corrected, even though such revisions are immaterial. Furthermore, the Company has determined that correcting prior year financial statements for immaterial changes would not require previously filed reports to be amended.

Under general and administrative expense, we have reclassified costs related to repairs and maintenance of monitoring devices and certain other costs, including installation, communications and transportation costs that were previously recorded in general and administrative expense to cost of revenues, selling and marketing, and research and development. Net income (loss) and shareholders’ equity were not affected by the reclassification. The effect of these revisions on the Company’s results of operations for the three months ended December 31, 2016 previously reported are as follows:

Three months ended
December 31,
2016
Previously
Reported

Net Change

Three months ended
December 31,
2016
(Revised)

Cost of revenues:

Monitoring, products & other related services
$2,933,622
$673,654
$3,607,276




General & administrative expenses
  3,768,099
  (593,045)
  3,175,054
Selling & marketing
  627,749
  (37,981)
  589,768
Research & development
  530,806
  (42,628)
  488,178

~~(5)~~ IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable and in the case of goodwill, at least annually. The Company evaluates whether events and circumstances have occurred which indicate possible impairment as of each balance sheet date. If the carrying amount of an asset exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of long-lived assets is assessed at the lowest levels for which there is an identifiable fair value that is independent of other groups of assets. ~~The Company recorded $0 and $74,787 of impairment expenses related to monitoring equipment for the three months ended December 31, 2017 and 2016, respectively.~~

~~(6)~~

(5) BUSINESS COMBINATIONS

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed and any non-controlling interest in the acquiree, and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controlling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

Acquired Assets and Assumed Liabilities

Pursuant to ASC ~~No. 805-10-25,~~805-10-25, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, but during the allowed measurement period not to exceed one year from the acquisition date, the Company retrospectively adjusts the provisional amounts recognized at the acquisition date, by means of adjusting the amount recognized for goodwill.

Contingent Consideration

In certain acquisitions, the Company has agreed to pay additional amounts to ~~sellers~~the seller contingent upon achievement by the acquired businesses of certain future goals, which may include revenue milestones, new customer accounts and earnings targets. The Company records contingent consideration based on its estimated fair value as of the date of the acquisition. The Company evaluates and adjusts the value of contingent consideration, if necessary, at each reporting period based on the progress toward and likely achievement of certain targets on which issuance of the contingent consideration is based. Any differences between the acquisition-date fair value and the changes in fair value of the contingent consideration subsequent to the acquisition date are recognized in current period earnings until the arrangement is settled. If there is uncertainty surrounding the value of contingent consideration, then the Company’s policy is to wait until the end of the measurement period before making an adjustment.

~~(7)~~

(6) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) as currently reported under ~~U.S.~~ GAAP and other comprehensive income (loss). Other comprehensive income (loss) considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net income (loss), but rather are reported as a separate component of stockholders’ equity. The Chilean Peso, New Israeli Shekel and the Canadian Dollar are used as functional currencies of the following operating subsidiaries: (i) Track Group Chile SpA; (ii) Track Group International Ltd.; and (iii) Track Group Analytics Limited, respectively. The balance sheets of all subsidiaries have been converted into United States Dollars ~~(USD)~~ at the prevailing exchange rate at ~~December~~March 31, ~~2017.~~2023.

- 6-

Table of Contents

~~(8)~~

(7) NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share (“Basic EPS”) is computed by dividing net income (loss) available to common ~~shareholders~~stockholders by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per common share (“Diluted EPS”) is computed by dividing net income (loss) attributable to common ~~shareholders~~stockholders by the sum of the weighted-average number of common shares outstanding and the weighted-average dilutive common share equivalents outstanding. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Common share equivalents consist of shares issuable upon the exercise of options to purchase shares of the Company’s common stock, $0.0001 par value per share (“Common Stock”) (“options”) and ~~warrants.~~warrants to purchase Common Stock (“warrants”). As of ~~December~~March 31, ~~2017~~ 2023 and ~~2016,~~2022, there were ~~570,467~~103,911 and ~~526,901~~15,000 of outstanding common share equivalents ~~respectively,~~ that were not included in the computation of Diluted EPS for the ~~three~~six months ended ~~December~~March 31, ~~2017~~ 2023 and ~~2016,~~2022, respectively, as their effect would be anti-dilutive.

At March 31, 2023 all stock options and warrants had exercise prices that were above the market price of $0.42, and have been excluded from the diluted earnings per share calculations. At March 31, 2022, 394,373 stock options and warrants had exercise prices that were below the market price of $1.50, and were included in the basic and diluted earnings per share calculations.

The common stock equivalents outstanding as of ~~December~~March 31, ~~2017~~ 2023 and ~~2016~~2022 consisted of the following:

	March 31,		March 31,
	2023		2022
Issuable common stock options and warrants		103,911		409,373
Total common stock equivalents		103,911		409,373

December 31,

December 31,

2017

2016

Exercisable common stock options and warrants
  570,467
  526,901
Total common stock equivalents
  570,467
  526,901

~~(9) PREPAID EXPENSES AND OTHER~~

(8) REVENUE RECOGNITION

Monitoring and Other Related Services. Monitoring services include two components: (i) lease contracts pursuant to which the Company provides monitoring services and lease devices to distributors or end users and the Company retains ownership of the leased device; and (ii) monitoring services purchased by distributors or end users who have previously purchased monitoring devices and opt to use the Company’s monitoring services. Sales of devices and leased GPS devices are required to use the Company’s monitoring service and both the GPS leased devices and monitoring services are accounted for as a single performance obligation. Monitoring revenue is recognized ratably over time, as the customer simultaneously receives and consumes the benefit of these services as they are performed. Payment due or received from the customers prior to rendering the associated services are recorded as deferred revenue.

The ~~carrying amounts reported~~balance of accounts receivables at March 31, 2023 of $5,490,432 includes an unbilled balance of $550,887 and the balance of accounts receivable at September 30, 2022 of $6,236,555 included an unbilled balance of $777,514. The balance of accounts receivable at September 30, 2021 of $7,163,615 included an unbilled balance of $420,697. The balances of the deferred revenue at March 31, 2023, September 30, 2022 and September 30, 2021 are $1,292, $3,299, and $22,500, respectively and were included in accrued liabilities on the Condensed Consolidated Balance Sheets. The Company recognized $718 and $3,730, respectively, of deferred revenue in the ~~balance sheets for prepaid expenses~~three and ~~other current assets approximate~~six months ended March 31, 2023 and $92,015 and $99,515, respectively, of deferred revenue in the three and six months ended March 31, 2022.

Product Sales and Other. The Company sells devices and replacement parts to customers under certain contracts, as well as law enforcement software licenses and maintenance, and analytical software. Revenue from the sale of devices and parts is recognized upon their ~~fair market value~~transfer of control to the customer, which is generally upon delivery. Delivery is considered complete at either the time of shipment or arrival at destination, based on the ~~short-term maturity~~agreed upon terms within the contract. Payment terms are generally 30 days from invoice date.

- 7-

Table of ~~these instruments.~~ Contents

Multiple Element Arrangements. The majority of our revenue transactions do not have multiple elements. However, on occasion, the Company may enter into revenue transactions that have multiple elements. These may include different combinations of products or services that are included in a single billable rate. These products or services are delivered over time as the customer utilizes our services. In cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price. The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met.

The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service. When there is only one performance obligation associated with a contract, the entire sale value is attributed to that obligation. When a contract contains multiple performance obligations the transaction value is first allocated using the observable price, which is generally a list price net of applicable discount, or the price used to sell in similar circumstances. In circumstances when a selling price is not directly observable, the Company will estimate the standalone selling price using information available to us.

The following table presents the Company’s revenue by geography, based on management’s assessment of available data:

	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
	Total Revenue		% of Total Revenue		Total Revenue		% of Total Revenue

United States		5,929,880		71%	$	6,545,066		69%
Latin America		2,304,192		28%		2,275,193		24%
Other		73,974		1%		663,860		7%
Total	$	8,308,046		100%	$	9,484,119		100%

	Six Months Ended March 31, 2023				Six Months Ended March 31, 2022
	Total Revenue		% of Total Revenue		Total Revenue		% of Total Revenue

United States		12,032,230		70%	$	13,452,326		71%
Latin America		4,586,564		27%		4,826,915		25%
Other		544,943		3%		800,534		4%
Total	$	17,163,737		100%	$	19,079,775		100%

The above table includes total revenue for the Company, of which monitoring and other related services is the majority (approximately 98% and 96% for the three and six months ended March 31, 2023, respectively, and approximately 93% and 96% for the three and six months ended March 31, 2022, respectively) of the Company’s revenue. Latin America includes the Bahamas, Chile, Puerto Rico, Panama and the U.S. Virgin Islands, and other includes Canada and Saudi Arabia.

(9) PREPAID EXPENSE AND DEPOSITS

As of ~~December~~March 31, ~~2017,~~ 2023, and September 30, ~~2017,~~ 2022, the outstanding balance of prepaid expense and ~~other expenses~~deposits was ~~$4,219,135~~$509,431 and ~~$854,122,~~$769,006, respectively. ~~The $4,219,135 as of December 31, 2017 is~~These balances are comprised largely of ~~performance bond deposits,~~ tax deposits, vendor deposits and other prepaid supplier expenses. The increase in prepaid and other expenses at December 31, 2017 was primarily due to a cash collateralized performance bond for an international customer of $2,860,358, which is scheduled to be repaid in the third fiscal quarter and has been re-classified as a short-term asset in the three-month period ended December 31, 2017, as well as increases in prepaid taxes, vendor deposits and insurance.

expense.

~~-7-~~- 8-

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~~(10)~~

(10) INVENTORY

December 31,

September 30,

2017

2017

Finished goods inventory
$199,281
$288,744
Reserve for damaged or obsolete inventory
(26,934)
(26,934)
Total inventory, net of reserves
$172,347
$261,810

~~(11)~~

(11) PROPERTY AND EQUIPMENT

~~The following table summarizes property~~

Property and equipment ~~at December~~consisted of the following as of March 31, ~~2017~~ 2023 and September 30, ~~2017, respectively:~~

December 31,
2017

September 30,
2017

Equipment, software and tooling
$1,045,090
$1,028,081
Automobiles
  40,048
  52,230
Leasehold improvements
  1,351,025
  1,307,802
Furniture and fixtures
  309,223
  293,621
Total property and equipment before accumulated depreciation
  2,745,386
  2,681,734
Accumulated depreciation
  (1,862,347)
  (1,778,634)
Property and equipment, net of accumulated depreciation
$883,039
$903,100

2022:

	March 31, 2023			September 30, 2022
Equipment, software and tooling	$	1,429,892		$	1,399,288
Automobiles		5,125			4,187
Leasehold improvements		385,857			380,586
Furniture and fixtures		220,326			215,856
Total property and equipment before accumulated depreciation		2,041,200			1,999,917
Accumulated depreciation		(1,893,809	)		(1,829,588	)
Property and equipment, net of accumulated depreciation	$	147,391		$	170,329

Property and equipment depreciation expense for the three months ended ~~December~~March 31, ~~2017~~ 2023 and ~~2016~~2022 was ~~$114,417~~$23,455 and ~~$50,291,~~$36,603, respectively.

~~(12)~~

(12) MONITORING EQUIPMENT

The Company leases monitoring equipment to agencies for offender tracking under contractual service agreements. The monitoring equipment is amortized using the straight-line method over an estimated useful life of ~~one to~~ between three and five years. Monitoring equipment as of ~~December~~March 31, ~~2017~~ 2023 and September 30, ~~2017~~ 2022 was as follows:

December 31,
2017

September 30,
2017

Monitoring equipment
$8,227,746
$8,399,937
Less: accumulated amortization
(4,767,061)
(4,906,925)
Monitoring equipment, net of accumulated depreciation
$3,460,685
$3,493,012

~~Amortization~~

	March 31, 2023			September 30, 2022
Monitoring equipment	$	12,104,148		$	9,574,740
Less: accumulated depreciation		(6,400,702	)		(5,950,639	)
Monitoring equipment, net of accumulated depreciation	$	5,703,446		$	3,624,101

Depreciation of monitoring equipment for the three months ended ~~December~~March 31, ~~2017~~ 2023 and ~~2016~~2022 was ~~$353,027~~$411,510 and ~~$332,993,~~$324,628, respectively. ~~These expenses were~~Depreciation of monitoring equipment for the six months ended March 31, 2023 and 2022 was $753,578 and $718,409, respectively. Depreciation expense for monitoring devices is recognized in cost of ~~revenues.~~

~~(13)~~

(13) INTANGIBLE ASSETS

The following table summarizes intangible assets at ~~December~~March 31, ~~2017~~ 2023 and September 30, ~~2017,~~ 2022, respectively:

December 31,
2017

September 30,
2017

Other intangible assets:

Patent & royalty agreements
  21,170,565
  21,170,565
Developed technology
  11,410,921
  11,116,738
Customer relationships
  1,860,000
  1,860,000
Trade name
  335,350
  332,183
Website
  78,201
  78,201
Total intangible assets
  34,855,037
  34,557,687
Accumulated amortization
  (10,444,569)
  (9,839,032)
Intangible assets, net
$24,410,468
$24,718,655

	March 31, 2023							September 30, 2022
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net

Patent & royalty agreements	$	21,120,565	$	(13,692,948	)	$	7,427,617	$	21,120,565	$	(13,027,465	)	$	8,093,100
Developed technology		9,771,283		(2,313,176	)		7,458,107		9,206,006		(1,649,563	)		7,556,443
Trade name		139,560		(135,379	)		4,181		139,115		(127,241	)		11,874
Total intangible assets	$	31,031,408	$	(16,141,503	)	$	14,889,905	$	30,465,686	$	(14,804,269	)	$	15,661,417

The intangible assets summarized above were purchased or developed on various dates from ~~January 2010~~ July 2011 through ~~December 2017. The assets have useful lives ranging from three to twenty years.~~ March 31, 2023. Amortization expense for the three months ended ~~December~~March 31, ~~2017~~ 2023 and ~~2016~~2022 was ~~$574,438~~$656,323 and ~~$637,320,~~$846,455, respectively.

~~(14)~~

(14) GOODWILL

The following table summarizes the activity of goodwill at ~~December~~March 31, ~~2017:~~

	~~Three months ended December 31,~~
	~~2017~~
~~Balance - beginning of period~~	$~~8,226,714~~
~~Effect of foreign currency translation on goodwill~~	~~48,594~~
~~Balance - end of period~~	$~~8,275,308~~

2023 and September 30, 2022, respectively:

	March 31, 2023							September 30, 2022
	Beginning of the Year Gross		Effect of foreign currency translation on Goodwill			End of the Year Gross		Beginning of the Year Gross		Effect of foreign currency translation on Goodwill			End of the Year Gross

Goodwill Balance	$	8,061,002	$	(28,279	)	$	8,032,723	$	8,519,998	$	(458,996	)	$	8,061,002

Goodwill is recognized in connection with acquisition transactions in accordance with ASC 805. The Company performs an impairment test for goodwill annually or more frequently if indicators of potential impairment exist. No impairment of goodwill was recognized through ~~December~~March 31, ~~2017.~~

~~(15)~~

(15) OTHER ASSETS

As of ~~December~~March 31, ~~2017~~ 2023 and September 30, ~~2017,~~ 2022, the ~~outstanding~~ balance of other assets was ~~$785,195~~$3,056,248 and ~~$2,989,101,~~$3,509,655, respectively. AOther assets at March 31, 2023 are comprised largely of cash ~~collateralized~~used as collateral for Performance Bonds as well as contractually required monitoring center and other equipment, right of use assets, lease deposits and other long-term assets. The Company anticipates these performance ~~bond~~bonds will be reimbursed to the Company upon completion of its contracts with the customer. See Note 23.

The Company was contractually obligated to construct and equip two monitoring centers for an international customer, as well as supply equipment for the customer’s satellite locations, which are owned by the customer since construction was completed. The Santiago and Puerto Montt monitoring centers amortization is ~~expected~~recorded in Monitoring, products and other related service costs on the Condensed Consolidated Statements of Operations. Amortization of costs related to ~~be repaid in~~ the ~~third fiscal quarter has been re-classified as~~Santiago and Puerto Montt monitoring centers for the three and six months ended March 31, 2023 were $147,198 and $280,502, respectively. Amortization of costs related to the monitoring centers for the three and six months ended March 31, 2022, were approximately $148,244 and $224,191, respectively. The Company will record revenue from the customer based on a ~~current asset in~~contractually agreed upon unit per day amount during the ~~three-month period ended December 31, 2017.~~

~~(16)~~

(17) ACCRUED LIABILITES

Accrued liabilities consisted of the following as of ~~December~~March 31, ~~2017~~ 2023 and September 30, ~~2017:~~

December 31,
2017

September 30,
2017

Accrued payroll, taxes and employee benefits
$1,573,440
$943,066
Accrued consulting
  8,954
  11,631
Accrued taxes - foreign and domestic
  573,322
  529,926
Accrued settlement costs
  50,000
  200,000
Accrued board of directors fees
  275,000
  125,000
Accrued other expenses
  151,804
  178,092
Accrued legal costs
  57,394
  116,824
Accrued cellular costs
  25,000
  81,100
Accrued manufacturing costs
  100,000
  137,884
Accrued bond guarantee
  304,270
  23,548
Accrued interest
  4,902,235
  4,303,220
     Total accrued liabilities
$8,021,419
$6,650,291

~~(17) RESTRUCTURING~~

~~Total restructuring charges for the three-months ended December 31, 2016 and their utilization are summarized as follows:~~

Employee
-related

Other
costs

Total

Liability at September 30, 2016
$-
$-
$-
Accrued expenses
  448,330
  118,000
$566,330
Payments
  -
  -
  -
Liability at December 31, 2016
$448,330
$118,000
$566,330

~~(18) DEBT OBLIGATIONS~~

~~Debt obligations~~

On February 4, 2021, the Company borrowed 149,794,432CLP ($205,330USD) from HP Financial Services Chile Limitada (the “HP Note 2”). To facilitate the HP Note 2, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The HP Note 2 was used to purchase computer equipment for the Santiago Monitoring Center. The HP Note 2 bears interest at a rate of ~~December 31, 2017~~ 6.61% per annum, payable monthly with principal beginning March 2021, and ~~September 30, 2017, respectively, are comprised~~a maturity of March 4, 2024.

On February 5, 2021, the Company borrowed 99,808,328CLP ($136,564USD), net of 210,485CLP fees ($286USD), from Banco de Chile (the “Banco de Chile Note 1”). To facilitate the Banco de Chile Note, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The Banco de Chile Note was used to purchase HVAC equipment for the Santiago Monitoring Center. The Banco de Chile Note bears interest at a rate of 2.54% per annum, payable monthly with principal beginning March 2021, and a maturity date of March 4, 2024.

On February 15, 2021, the Company borrowed 500,000,000CLP ($678,214USD) from Banco de Chile (the “Banco de Chile Note 2”). To facilitate the Banco de Chile Note 2, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The Banco de Chile Note 2 was used as working capital and to complete the construction of the ~~following:~~

December 31,
2017

September 30,
2017

Unsecured facility agreement with an entity whereby, as of June 30, 2015, the Company may borrow up to $30.4 million bearing interest at a rate of 8% per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on July 31, 2018. A $1.2 million origination fee was paid and recorded as a debt discount and will be amortized as interest expense over the term of the loan. As of December 31, 2017, the remaining debt discount was $130,067. We did not pay interest on this loan during the three months ended December 31, 2017.
$30,269,933
$30,214,189



Loan Agreement whereby the Company can borrow up to $5.0 million at 8% interest per annum on borrowed funds maturing on September 30, 2020.
  3,399,644
  3,399,644



Non-interest bearing notes payable to a Canadian governmental agency assumed in conjunction with the G2 acquisition.
  105,593
  123,393



Capital lease with effective interest rate of 12%. Lease matures August 15, 2019.
  13,489
  14,022



Total debt obligations
  33,788,659
  33,751,248
Less current portion
  (30,322,191)
  (30,270,531)
Long-term debt, net of current portion
$3,466,468
$3,480,717

Puerto Montt Monitoring Center. The Banco de Chile Note 2 bears interest at a rate of 3.12% per annum, payable monthly with principal beginning March 2021, and a maturity of February 17, 2025. The Company also paid 28,248,588CLP ($38,317USD) in broker fees which are amortized over the life of the loan.

On April 26, 2023, the Company and Conrent entered into an amendment to the facility agreement (the "Amendment") originally executed by and between the parties on December 30, 2013, as amended on June 30, 2015, July 19, 2018, February 24, 2019, January 10, 2020 and December 21, 2020 (the “Amended Facility Agreement”), containing certain provisions of the Company's existing $42.864 million unsecured debt facility. The Amendment is effective on April 28, 2023 and extends the maturity date from July 1, 2024 to July 1, 2027. Furthermore, the Amendment: (i) amends the applicable interest rate resulting in an escalating interest rate as follows: 4% through July 1, 2024, 5% through July 1, 2025, 5.5% through July 1, 2026 and 6% through the maturity date and (ii) removes section 3.7 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent.

The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of ~~December 31, 2017:~~

Fiscal Year

Total

2018
$30,452,258
2019
  43,842
2020
  3,422,626
2021
  -
2022
  -
Debt discount
  (130,067)
Total
$33,788,659

~~(19) RELATED-PARTY TRANSACTIONS~~

~~Additional Related-Party Transactions and Summary of All Related-Party Obligations~~

Dec. 31,
2017

Sept. 30,
2017

Related party loan with an interest rate of 3% and 8% per annum for undrawn and borrowed funds, respectively. Principal and interest due September 30, 2020.
$3,399,644
$3,399,644
Total related-party debt obligations
$3,399,644
$3,399,644

~~(20)~~

(20) PREFERRED AND COMMON STOCK

The Company is authorized to issue up to 30,000,000 shares of common stock, $0.0001 par value per share. During the three months ended December 31, 2017, no shares of common stock were issued to Board of Director members for their services earned in the first quarter of 2018. The Company has deferred the issuance of shares of common stockCommon Stock and ~~warrants since the fourth quarter of 2017, and $275,000 for unpaid Board of Director fees has been accrued at December 31, 2017.~~

~~The Company is authorized to issue~~ up to 20,000,000 shares of preferred stock, $0.0001 par value per ~~share.~~share (“Preferred Stock”). The Company’s Board ~~of Directors~~ has the authority to amend the Company’s Certificate of Incorporation, without further ~~shareholder~~stockholder approval, to designate and determine, in whole or in part, the preferences, limitations and relative rights of the ~~preferred stock~~Preferred Stock before any issuance of the ~~preferred stock,~~Preferred Stock, and to create one or more series of ~~preferred stock.~~Preferred Stock. As of ~~December~~March 31, ~~2017,~~ 2023, there were no shares of ~~preferred stock~~Preferred Stock outstanding.

~~In November~~

No dividends were paid during the six months ended March 31, 2023 or 2022, respectively.

Series A Convertible Preferred Stock

On October 12, 2017, ~~the Board of Directors approved the grant of 241,935 shares of common stock valued at $300,000, as compensation for services rendered to~~ the Company ~~which have not yet been issued. In addition,~~filed a Certificate of Designation of the ~~Company issued 30,797 warrants to a member~~Relative Rights and Preferences (“Certificate of Designation”) with the Delaware Division of Corporations, designating 1,200,000 shares of the Company’s ~~Board~~Preferred Stock as Series A Preferred (“Series A Preferred”). Shares of ~~Directors in exchange for 18,551~~Series A Preferred rank senior to the Company’s Common Stock, and all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series A Preferred.

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Except with respect to transactions upon which holders of the Series A Preferred are entitled to vote separately as a class under the terms of the Certificate of Designation, the Series A Preferred has no voting rights. The shares of ~~common stock~~Common Stock into which the ~~director previously received for services provided during~~Series A Preferred is convertible shall, upon issuance, have all of the ~~period~~same voting rights as other issued and outstanding shares of ~~October 2016~~our Common Stock.

The Series A Preferred has no separate dividend rights; however, whenever the Board declares a dividend on the Company’s Common Stock, if ever, each holder of record of a share of Series A Preferred shall be entitled to ~~June 2017,~~receive an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock into which such share of Series A Preferred could be converted on the Record Date.

Each share of Series A Preferred has a liquidation preference of $35.00 per share, and is convertible, at the holder’s option, into tenshares ~~were thereby cancelled~~of the Company’s Common Stock, subject to adjustments as set forth in the ~~three month period ended December~~Certificate of Designation, at any time beginning five hundred and forty days after the date of issuance.

As of March 31, ~~2017.~~

~~(21)~~

(21) STOCK OPTIONS AND WARRANTS

Stock Incentive Plan

As2022 Plan as of ~~December~~March 31, ~~2017, 27,218 shares of common stock were available for future grants under the 2012 Plan.~~

2023.

All Options and Warrants

On November 30, 2017, the Board of Directors unanimously approved the adjustment of the exercise price of 605,678 unexercised warrants, with original exercise prices ranging from $1.81 to $19.46, issued under the 2012 Plan to $1.24, resulting in incremental stock-based compensation of $149,088, which was expensed in the three-month period ending December 31, 2017.

The fair value of each stock option and warrant grant is estimated on the date of grant using the Black-Scholes option-pricing model. ~~During~~The Company recorded no expense for the three and six months ended ~~December~~March 31, ~~2017~~ 2023 and 2016, the Company granted 30,797 and 154,410, respectively, options and warrants to purchase shares of common stock under the 2012 Plan. Excluding the incremental stock-based compensation mentioned above, the Company recorded expense of $638,502 and $200,374 for the three months ended December 31, 2017 and 2016,2022, respectively, related to the issuance and vesting of outstanding ~~stock~~ options and warrants.

~~The option and warrant grants for three~~ During the six months ended ~~December~~March 31, ~~2017 were valued using~~2023 and 2022, the ~~Black-Scholes model with~~Company granted no options or warrants under the ~~following weighted-average assumptions:~~

Three Months Ended
December 31

2017

2016

Expected stock price volatility
  120%
  119%
Risk-free interest rate
  1.92%
  0.60%
Expected life of options/warrants

5 years

2 Years

2022 Plan or under the 2012 Plan. All options and warrants outstanding under the 2012 Plan have vested and are exercisable as of March 31, 2023.

The expected life of ~~stock~~ options (warrants) represents the period of time that the ~~stock~~ options or warrants are expected to be outstanding based on the simplified method allowed under GAAP. The expected volatility is based on the historical price volatility of the Company’s ~~common stock.~~Common Stock. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related ~~stock~~ options (warrants). The dividend yield represents the Company’s anticipated cash dividends over the expected life of the ~~stock~~ options (warrants).

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Table of Contents

A summary of stock option (warrant) activity for the ~~three~~six months ended ~~December~~March 31, ~~2017~~ 2023 is presented below:

Shares Under Option

Weighted Average
Exercise
Price

Weighted Average
Remaining
Contractual
Life

Aggregate Intrinsic
Value

Outstanding as of September 30, 2017
  600,842
$8.51

4.90 years

$-
Granted
  30,797
$4.87


Expired/Cancelled
  (1,172)
$(19.29)


Exercised
  -
$-


Outstanding as of December 31, 2017
  630,467
  1.78
  4.63
$-
Exercisable as of December 31, 2017
  570,467
  1.84
  4.67
$-

	Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding as of September 30, 2022		160,881		$	1.24		0.60	$	225
Granted		-			-				-
Expired/Cancelled		(56,970	)		1.24				-
Exercised		-			-				-
Outstanding as of March 31, 2023		103,911		$	1.24		0.23	$	0
Exercisable as of March 31, 2023		103,911		$	1.24		0.23	$	0

The intrinsic value of options and warrants outstanding and exercisable is based on the Company’s share price of ~~$1.05~~$0.42 at ~~December~~March 31, ~~2017.~~

2023.

~~(22)~~

(22) INCOME TAXES

The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary. Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively.

For the ~~three~~six months ended ~~December~~March 31, ~~2017~~ 2023 and ~~2016,~~2022, the Company incurred a net ~~loss~~(loss) income for income tax purposes of ~~$1,042,591~~($1,448,874) and ~~$2,613,759,~~$146,919, respectively. The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, ~~the Company’s~~our future earnings, and other future events, the effects of which cannot be determined. The Company has established a valuation allowance for all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization. Accordingly, there is no benefit for income taxes in the accompanying statements of operations.

In computing income tax, we recognize an income tax provision in tax jurisdictions in which we have pre-tax income for the period and are expecting to generate pre-tax book income during the fiscal year.

~~(23)~~

(23) COMMITMENTS AND CONTINGENCIES

~~Legal Matters~~

~~We are,~~

The Company is, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of nearly 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.

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~~Lazar Leybovich et al. v. SecureAlert, Inc.~~On March 29, 2012, Lazar Leybovich, Dovie Leybovich and Ben Leybovich filed a complaint in the 11th Circuit Court in and for Miami-Dade County, Florida alleging breach of contract with regard to certain Stock Redemption Agreements. On May 2, 2016, the Court resolved this case in favor of the Company by granting the Company’s motion for Summary Judgment. The Plaintiffs filed a Notice of Appeal on June 1, 2016 challenging the Court’s ruling on the motion for Summary Judgment. Plaintiff’s appeal succeeded and will result in a trial occurring within the next four to eight months. We intend to defend the case vigorously.

~~Boggs et al. v. Judicial Electronic Monitoring, SecureAlert, Inc. et al.~~On December 3, 2015, Candace Boggs et al. filed a complaint in the State Court of Dougherty County, Georgia, alleging breach of contract and negligence in monitoring of certain offenders in Dougherty County, Georgia, as well as a request for punitive damages in an amount sufficient to deter similar conduct in the future. Plaintiffs withdrew their complaint in February 2016, but refiled the complaint on October 12, 2016. The Company’s motion for Summary Judgment was denied on February 27, 2017 and a Notice of Appeal was filed by The Company’s counsel on April 15, 2017. We are awaiting a ruling on an oral argument that took place on December 13, 2017 regarding a new statute which exempts vendors who assist law enforcement officials. We believe the allegations are inaccurate and are defending the case vigorously. We believe the probability of incurring a material loss to be remote.

~~Track Group, Inc. v. I.C.S. of the Bahamas Co. Ltd.~~On May 18, 2016, the Company filed a complaint in the District Court of the Third Judicial District in Salt Lake County, Utah alleging breach of contract, under the terms of a loan agreement and promissory note between the Company and I.C.S. of the Bahamas Co. Ltd (“~~ICS~~”). The Company’s damages of unpaid principal and interest on the Promissory Note are in the amount of $230,000.00, plus per annum interest. The Defendant’s initial Counterclaims were dismissed; however, the Court granted the Defendant leave to amend. The Amended Counter Claims were filed on June 23, 2017. The Company’s Motion to Dismiss the Amended Counterclaims was denied on September 19, 2017. The Company filed an Answer to the Amended Counterclaims on October 3, 2017. Once the discovery period ends on March 30, 2018, the Company will proceed with a Motion for Summary Judgment. We believe we will be successful in this action for amounts owed under the loan agreement and promissory note; however, the Company may encounter problems enforcing a favorable judgment in the foreign jurisdiction where ICS resides.

~~Track Group Inc. v. I.C.S. of the Bahamas Co. Ltd.~~On September 26, 2016, the Company filed a Notice of Arbitration with the International Centre for Dispute Resolution, alleging breach of contract by ICS. Under the terms of the Commercial and Monitoring Representative Agreement dated November 30, 2010 (the “~~C&M Agreement~~”) by and between the Company and ICS, any dispute must be resolved by binding arbitration. The Company asserts that ICS has failed to pay the Company fees owed to it under the C&M Agreement. The amount owed to the Company is approximately $1.0 million. Depositions were completed in August of 2017. The arbitration hearing took place on January 31, 2018 and we expect a ruling within 30 days. The Company is confident it will be successful in the arbitration; however, the Company may encounter problems enforcing a successful arbitration award in the foreign jurisdiction where ICS resides.

~~John Merrill v. Track Group, Inc. and Guy Dubois.~~On November 30, 2016, the Company was served with a complaint filed by John Merrill, the former Chief Financial Officer of the Company, in District Court of the Third Judicial District in Salt Lake County, Utah alleging breach of contract, among other causes of action, related to Mr. Merrill’s termination of employment. Mr. Merrill is seeking not less than $590,577 plus interest, attorney fees and costs. Mr. Merrill’s employment with the Company was terminated effective September 27, 2016. The Company filed an Answer with Counter Claims on December 21, 2016. The Company filed a motion for Summary Judgment on January 16, 2018 and we expect a ruling within six months. We intend to defend the case vigorously and believe the allegations and claims are without merit.

~~Michael Anthony Johnson v. Community Corrections of Marion County and Track Group, Inc.On February 28, 2017, the Company was notified that Mr. Johnson, the Plaintiff, had filed a~~ ~~pro se~~ complaint in the United States District Court for the Southern District of Indiana, asserting violations of his rights under 28 U.S.C. Sec.1331. Mr. Johnson alleges damages of at least $250,000. We believe the allegations and claims are unfounded and without merit. The Company plans to file a motion for Summary Judgment before the end of February 2018. We will defend the case vigorously and believe the probability of incurring a material loss to be remote.

SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior).On March 24, 2017, SecureAlert Inc. (a predecessor entity to Track Group, Inc. or the Company) filed a complaint before the Federal Administrative Tribunal, asserting the failure by ~~Defendants~~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 Company’s claim amount is upwards of $6.0 million. On March 28, 2017, the Federal Administrative Tribunal rejected our claim, based on its determination that this case should be resolved by a Civil Court and not by the Federal Administrative Tribunal. For that reason, on April 25, 2017,Although preliminary rulings have been unfavorable to the Company, ~~filed an appeal before the Collegiate Tribunals against the decision of the Federal Administrative Tribunal. Counsel estimates the Tribunal should have a ruling on or before June 30, 2018. If~~ the Company’s ~~appeal is successful,~~counsel continues to review its remaining claims and analyzing its options. Based upon the ~~case~~fee arrangement the Company has with its counsel, we anticipate the future liabilities attributable to legal expense will be ~~sent back to the Federal Administrative Tribunal for a resolution on the merits of the case.~~

minimal.

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~~Inversiones Tecnologicas SpA~~

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 produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020. The parties held a mediation on November 1, 2022 but were unable to reach an agreement but left open the possibility of additional discussions. The Company remains confident in its position and no accrual for a potential loss has been made, after consultation with legal counsel.

Jeffrey Mohamed Abed v. Track Group, ~~Chile SpA.~~Inc., et al. On ~~October 10, 2014, Inversiones Tecnologicas SpA (a.k.a. Position)~~June 7, 2021, Jeffrey Mohamed Abed filed a complaint ~~before~~seeking unspecified damages in the ~~Civil~~Superior Court of ~~Santiago,~~the State of California in ~~order to collect $1.0 million~~Case No.21 STCV 21345, alleging strict products liability, negligence and breach of ~~fees for alleged services rendered with occasion~~implied warranty premised upon injuries sustained by Abed who was involved in an automobile accident while wearing a GPS tracking device of the ~~public tender~~Company. The Company was served on October 15, 2021 and filed its Answer and Affirmative Defenses on November 12, 2021. On January 11, 2022 the Company issued discovery, and the discovery process remains ongoing. The Company disputes Abed’s claims and will defend the case vigorously. The Company remains confident in its position and no accrual for the adjudication of the contract ID 634-66-LP13 labeled “Telematics Surveillance of Convicts.” On April 13, 2017, the Court issued its decision, rejecting the Plaintiff’s claim, under the consideration that insufficient evidence of a ~~service agreement between~~ potential loss has been made, after consultation with legal counsel.

Track Group Chile ~~SpA (formerly Secure Alert~~SpA. v. Republic of Chile. On January 24, 2022, Track Group Chile ~~SpA)~~SpA. initiated a judicial action in the Court of Justice of Chile to settle a contract dispute with the Republic of Chile. The Company asserts that it has complied with its contractual obligations and ~~Inversiones Tecnologicas SpA, was submitted~~that any delays in so doing were not attributable to the Court. Moreover, the fact that Secure Alert Chile SpA was incorporated after the facts on which the lawsuit is based, led to the complete dismissal of the claim. Position filed an appeal on May 4, 2017. A hearing on the Appeal may be scheduled in late February, 2018.Company. The Company ~~expects the court to make~~remains confident in its position and no accrual for a ~~decision within three months of the hearing date.~~

~~Pablo Gonzalez-Cruz,~~potential loss has been made, after consultation with legal counsel.

Jesus Valle Gonzalez, et al. v. Track Group-Puerto Rico, et al. On ~~June~~May 9, ~~2017, the~~ 2022 Plaintiff ~~Pablo Gonzalez-Cruz, and relatives of the Plaintiff,~~Jesus Valle Gonzalez filed a ~~Complaint~~complaint in the Court of First Instance, San Juan Superior Court, ~~Common Wealth~~Commonwealth of Puerto Rico against the Company, and associated parties alleging the death of his ~~daughter~~ mother on June 8, 2016 was a ~~direct and immediate~~ result of the gross negligence ~~and guilty indifferent actions and omissions~~ of all the defendants. This claim follows a similar claim made against the Company in June 2017 by different relatives of the deceased which was settled on September 5, 2018. Plaintiff in this matter asserts his claim now having reached the age of majority and is requesting damages of no less than ~~$2.0~~$1.5 million. On October 5, 2022, the Plaintiff voluntarily dismissed the case without prejudice, and refiled the case on January 10, 2023. The Company disputes the Plaintiff’s claims and has filed its Answer and Affirmative Defenses to the re-filed complaint. Based on the preliminary stage of the proceedings and after consultation with legal counsel, no accrual for a potential loss has been made.

Michael Matthews v. Track Group, Inc., et al. On December 13, 2022, Plaintiff Michael Matthews filed a complaint in the Circuit Court of Cook County, Illinois (2022 L 011050) against the Company and other defendants alleging wrongful arrest and incarceration and a deprivation of his rights following his purportedly erroneous violation of home monitoring program requirements. The Company disputes the allegations of the complaint, has retained counsel, and intends to vigorously defend the case. Based on the preliminary stage of the proceedings and after consultation with legal counsel, no accrual for a potential loss has been made.

Monitoring Equipment and Other Related Services

The Company leases monitoring equipment and provides monitoring services to its customers with contract terms varying from month-to-month to several years and each daily contract price varies. Devices supplied to customers are not serial number unique and a single device may be used by multiple customers over its useful life. If a leased device is returned for repair, it will likely be replaced with a different device from a different customer or possibly a new device.

The Company’s ~~Answer~~tracking devices are considered operating leases under ASC 842 as transfer of control of the asset does not occur at the end of the lease, a single device is not specific to a customer and ~~Appearance were filed August 13, 2017. We~~devices may be used by multiple customers throughout their life cycle. Due to the movement of devices from customer to customer, relatively few long-term contracts, the measurement of the equipment life and the present value of the equipment’s fair values would not be a measurement to qualify the devices as sales-type leases.

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Operating lease and monitoring revenue associated with the Company’s monitoring equipment for the three and six months ended March 31, 2023 and 2022 are ~~currently~~shown in the ~~discovery period.~~

~~(23) SUBSEQUENT EVENTS~~

(24) SUBSEQUENT EVENTS

In accordance with the Subsequent Events Topic of the FASB, ASC 855, we have evaluated ~~subsequent~~ events through the filing date and noted ~~that, other than~~ the following subsequent to the end of the quarter.

On April 26, 2023, the Company and Conrent entered into an amendment to the facility agreement (the "Amendment") originally executed by and between the parties on December 30, 2013, as ~~disclosed~~amended on June 30, 2015, July 19, 2018, February 24, 2019, January 10, 2020 and December 21, 2020 (the “Amended Facility Agreement”), containing certain provisions of the Company's existing $42.864 million unsecured debt facility. The Amendment is effective on April 28, 2023 and extends the maturity date from July 1, 2024 to July 1, 2027. Furthermore, the Amendment: (i) amends the applicable Interest Rate and (ii) removes section 3.7 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent.

For additional information on the above ~~no additional~~ subsequent ~~events have occurred that are reasonably likely to impact~~event, see the ~~financial statements.~~

Item 2. ~~Mana~~g~~ement’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”, or, this “Report”) contains information that constitutes ~~“forward-looking statements”~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~“Exchange Act”). Generally, the statements contained in this ~~Quarterly~~ Report ~~on Form 10-Q~~ that are not purely historical can be considered to be ~~“forward-looking statements.~~“forward-looking statements”. These statements represent our expectations, hopes, beliefs, anticipations, commitments, intentions, and strategies regarding the future. They may be identified by the use of words or phrases such as ~~“believes,~~“believes” ~~“expects,~~, “expects” ~~“intends,~~, “intends” ~~“anticipates,~~, “anticipates” ~~“should,~~, “should” ~~“plans,~~, “plans” ~~“estimates,~~, “estimates” ~~“projects,~~, “projects” ~~“potential,~~, “potential”, and ~~“will,~~“will” among others. Forward-looking statements include, but are not limited to, statements contained in ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue, and expense levels in the future and the sufficiency of our existing assets to fund future operations and capital spending needs. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in ~~“Risk Factors”~~“Risk Factors” in our most recent Annual Report on Form 10-K, and those described from time to time in our reports filed with the ~~SEC.~~

Securities and Exchange Commission (“SEC”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto that are contained in this Report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2022, and Current Reports on Form 8-K that have been filed with the SEC through the date of this Report. Except as otherwise indicated, as used in this Report, the terms “the “Company”,” “Track Group”, “we”, “weour”,” and “~~our,” “~~us,” refer to Track Group, Inc., a Delaware corporation.

Our ~~core~~ business is based on the ~~manufacture and~~ leasing of patented tracking and monitoring solutions to federal, state and local law enforcement agencies, both in the ~~U.S~~U.S. and abroad, for the electronic monitoring of offenders and offering unique data analytics services on a platform-as-a-service (“PaaS”) business model. Currently, ~~we deploy~~the Company deploys offender-based management services that combine patented GPS tracking technologies, ~~fulltime~~full-time 24/7/365 global monitoring capabilities, case management, and proprietary data analytics. ~~We offer~~The Company offers customizable tracking solutions that leverage real-time tracking data, ~~best practices~~best-practices monitoring, and analytics capabilities to create complete, end-to-end tracking solutions.

Devices - Our devices consist principally of the ~~ReliAlert~~TM~~product line, which is supplemented by the Shadow~~ReliAlert® product line. These devices are generally leased on a daily rate basis and may be combined with our monitoring center services, proprietary software and data analytics subscription to provide an end-to-end PaaS.

~~ReliAlert~~TM~~and Shadow.~~ Our tracking devices utilize patented technology and are securely attached around an offender’s ankle with a tamper resistant strap that cannot be adjusted or removed without detection, unless by a supervising officer, and

ReliAlert®XC4 is our flagship GPS device, which is ~~activated through services provided~~among the safest and most reliable monitoring devices ever made and was certified in 2020 by ~~our monitoring centers. The ReliAlert~~TMthe Federal Communications Commission and ~~Shadow units are intelligent devices~~PCS Type Certification Review Board. It is the only one-piece GPS device with integrated computer circuitry, utilizing both GPS and RF, and constructed from case-hardened plastics designed to promptly notify the intervention centers of any attempt made to breach applicable protocols, or to remove or otherwise tamper with the device or optical strap housing. The ReliAlertTM~~platform also incorporates~~patented 3-way voice communication to assist intervention efforts, now on the LTE network with increased battery life. This device includes on-board processing, secondary location technology, ~~that provides officers~~a 95db siren, embedded RF technology, anti-tampering capability, increased battery life and sleep mode.

ReliAlert®-XC 3 is our predecessor device which had advanced features enable agencies to effectively track offender movements and communicate directly with ~~24/7/365~~offenders in real-time, through a patented, on-board two/three-way voice communication ~~with the offenders. Both devices are FCC, CE~~technology. This device includes an enhanced GPS antenna and ~~PTCRB certified~~GPS module for higher sensitivity GPS, enhanced voice audio quality, increased battery performance of 50+ hours, 3G cellular capabilities, improved tamper sensory, and ~~protected by numerous patents and trademarks.~~

durability enhancements.

Monitoring Center ~~Services.~~Services - Our monitoring ~~center facilities~~centers provide live 24/7/365 monitoring of all alarms generated from our devices, as well as customer and technical support. Our monitoring center operators play a vital role, and as such, ~~we staff our centers~~are staffed with ~~highly-trained,~~highly trained, bi-lingual individuals. These operators act as an extension of agency resources receiving alarms, communicating and intervening with offenders regarding violations and interacting with supervision staff, all pursuant to agency-established protocols. The facilities have redundant power source, battery ~~back-up~~backup and triple redundancy in voice, data and IP. ~~The Company has established monitoring centers in the U.S. and Chile. In addition, the Company has~~We have assisted in the establishment of monitoring centers for customers and local partners in the United States, Chile and other global ~~locations~~locations.

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Data Analytics ~~Services.~~Services - Our ~~TrackerPAL~~IntelliTrack, TrackerPAL® software, ~~TrackerPAL~~IntelliTrack Mobile, TrackerPAL® Mobile, combined with our Data Analytic analysis tools, provide an integrated platform allowing case managers and law enforcement ~~officers’~~officers quick access views of an offender’s travel behavior, mapping, and ~~provide~~ inference on patterns. Our ~~advanced~~ data analytics services help facilitate the discovery and communication of meaningful patterns in diverse locations and behavioral data that helps agencies reduce risks and improve decision making. Our analytics applications use various combinations of statistical analysis procedures, data and text mining and predictive modeling to proactively analyze information on community-released offenders to discover hidden relationships and patterns in their behaviors and to predict future outcomes.

Other Services - The Company offers smartphone applications specifically designed for the criminal justice market, including a domestic violence app that creates a mobile geo-zone around a survivor and an alcohol monitoring app linked to a police-grade breathalyzer.

Business Strategy

We are committed to helping our customers improve offender rehabilitation and re-socialization outcomes through our innovative hardware, software and services. We treat our business as a service ~~offers~~business. Although we still manufacture patented tracking technology, we see the physical goods as only a highly complex predictive reporting mechanism that combines modern statistical methods, developed using computer science and used by intelligence agencies that separate noteworthy events from normal events, ranksmall part of the integrated offender ~~cases according to their need~~monitoring solutions we provide. Accordingly, rather than receiving a payment just for ~~supervision, and relate decision-relevant metrics to benchmarks in real-time.~~

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~~Strategy~~

~~Our global growth~~manufactured equipment, the Company receives a recurring stream of revenue for ongoing device agnostic subscription contracts. As part of our strategy, ~~is to~~we continue to expand ~~service offerings on a subscription basis that empower professionals in security, law enforcement, corrections~~our device-agnostic platform to not only collect, but also store, analyze, assess and ~~rehabilitation organizations worldwide with a single-sourced, real-time, end-to-end offender management solution that integrates reliable intervention technologies~~correlate location data for both accountability and auditing reasons, as well as to ~~support re-socialization, monitoring, and~~use for predictive analytics ~~for offenders. In selective circumstances, we will also assist agencies by operating offender pay programs. To accomplish these objectives, we have~~ and ~~will continue to innovate~~assessment of effective and ~~grow~~emerging techniques in criminal behavior and rehabilitation. We believe a high-quality customer experience along with knowledgeable salespeople who can convey the value of our ~~portfolio of proprietary and non-proprietary real-time monitoring and intervention~~ products and services greatly enhances our ability to attract and retain customers. Therefore, our strategy also includes building and expanding our own direct sales force and our third-party distribution network to effectively reach more customers and provide them with a world-class sales and post-sales support experience. In addition, we are developing related-service offerings to address adjacent market opportunities in both the public and private sectors. We believe continual investment in research and development (“R&D”), including smartphone ~~applications. These products include GPS, RF, drug and alcohol testing for offenders, domestic violence~~ applications and ~~predictive analytics. Given~~other monitoring services is critical to the ~~flexibility~~development and sale of ~~our platform, our device technology, tracking, monitoring,~~innovative technologies and ~~analytical capabilities, we believe that our~~integrated solutions ~~may apply to other industry verticals that require tracking, monitoring~~today and ~~predictive analytics such as those entities responsible for pre-trial participants or individuals on bail.~~

in the future.

Critical Accounting Policies

From time to time, management reviews and evaluates certain accounting policies that are considered to be significant in determining our results of operations and financial position.

A description of the Company’s critical accounting policies that affect the preparation of the Company’s financial statements is set forth in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2017~~,2022, filed with the SEC on December ~~19, 2017~~.16, 2022. During the ~~three~~six months ended ~~December~~March 31, ~~2017~~2023, there have been no material changes to the ~~Company's~~Company’s critical accounting policies.

The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, ~~revenues~~revenue and ~~expenses.~~expense. By their nature, these judgments are subject to an inherent degree of uncertainty. We assess the reasonableness of our estimates, including those related to bad debts, inventories, right of use assets, estimated useful lives, intangible assets, warranty obligations, product liability, revenue, legal matters and income taxes. We base our estimates on historical experience as well as available current information on a regular basis. Management uses this information to form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Government Regulation

Our operations are subject to various federal, state, local and international laws and regulations. We are not involved in any pending or, to our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations.

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The COVID-19 pandemic adversely impacted both the Company’s revenue and costs in the past by disrupting its operations in Chile, causing shortages within the supply chain and postponing certain sales opportunities as some government agencies delayed new RFP (Request for Proposal) processes or decisions. Notwithstanding the challenges, the monitoring being performed by the Company’s significant customers across the globe and key business partners providing manufacturing and call center services have all remained operational. In addition, both our Chile office and the corporate headquarters in the greater-Chicago area have been open nearly eighteen months. However, the Company is operating in a rapidly changing environment, and the extent to which COVID-19 impacts its business, operations and financial results going forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the development of widespread testing or a vaccine; the ability of our supply chain to meet the Company’s need for equipment; the ability to sell and provide services and solutions if shelter in place restrictions and people working from home are extended to ensure employee safety; the volatility of foreign currency exchange rates and the subsequent effect on international transactions; and any closures of clients’ offices or the courts on which they rely.

Results of Operations

Three Months Ended ~~December~~March 31, ~~2017,~~2023 Compared to Three Months Ended ~~December~~March 31, ~~2016~~

2022

Revenue

For the three months ended ~~December~~March 31, ~~2017,~~2023, the Company recognized total revenue from operations of ~~$7,490,694~~$8,308,046 compared to ~~$7,671,490~~$9,484,119 for the three months ended ~~December~~March 31, ~~2016,~~2022, a decrease of ~~$180,796~~$1,176,073, or 2%approximately 12%. The decrease in ~~revenue was~~monitoring revenues is driven principally by fluctuations in court proceedings where active devices are assigned to customers in Illinois, California, the ~~result of (i) a loss of a Caribbean customer whose contract ended in November 2016,~~Bahamas and Canada, partially offset by ~~(ii)~~ an increase in ~~total growth of our North American~~ monitoring ~~operations driven by clients~~revenues for customers in ~~Indiana~~Nevada and ~~Virginia,~~Panama.

Product sales and ~~(iii) growth of offender monitoring in Chile.~~

~~Other~~other revenue for the three months ended ~~December~~March 31, ~~2017~~2023 decreased to ~~$139,889~~$129,021 from ~~$406,477~~$641,633 in the same period in ~~2016 largely~~2022, a decrease of $512,612 or approximately 80%, primarily due to ~~lower sales~~purchases from a partner in Saudi Arabia in February 2022.

The industry in which the Company operates, as well as many other industries (automotive, consumer products and medical devices), has been impacted by the global semiconductor shortage. The availability of ~~consumable items. We will continue~~semiconductor parts continued to ~~focus on recurring subscription based opportunities as opposed to equipment sales.~~

improve in the first half of fiscal 2023; however, long lead times remain with certain parts.

Cost of Revenue

During the three months ended ~~December~~March 31, ~~2017,~~2023, cost of revenue totaled ~~$3,019,149~~$4,565,241 compared to cost of revenue during the three months ended ~~December~~March 31, ~~2016~~2022 of ~~$4,127,556,~~$4,945,134, a decrease of ~~$1,108,407~~$379,893 or ~~27%~~approximately 8%. The decrease in cost of revenue was largely theresult of ~~decreases indevice~~lower monitoring center costs of ~~$437,307,~~$133,427, lowercommunication costs of ~~$286,326,~~$165,182, lower ~~customs~~hardware purchases of $49,534, and lower product sales costs of ~~$189,879~~$109,934, partially offset by higher depreciation and ~~lower monitoring~~amortization costs of ~~$158,554. During the three-month period ended December 31, 2016, we incurred one-time~~$50,799 and higher lost, stolen, and damaged costs of $371,144, which is reflected in monitoring, products and other related services in the condensed consolidated income statement, that did not reoccur in the three months ended December 31, 2017. Excluding these one-time costs, cost of revenue for the three-months ended December 31, 2017 would have decreased $575,206, or 15%, compared to the same period in 2016.

$58,176.

Depreciation and amortization included in cost of revenue for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016~~2022 totaled ~~$477,142~~$843,714 and ~~$445,493, respectively.~~$792,915, respectively, an increase of $50,799. These costs represent the depreciation of ~~TrackerPAL™~~,~~ReliAlert™~~ReliAlert® and other monitoring devices, as well as the amortization of monitoring software and certain royalty agreements. The increase in depreciation and amortization costs is largely due to an increase in device depreciation expense of $86,881, offset by a decrease in amortization for discontinued product, Shadow, of $36,082. Devices are depreciated over either a three- or five-year useful life. Monitoring software is amortized over a seven-year life. Royalty agreements~~. We believe this life is~~ are being amortized over a ten-year useful life. The Company believes these lives are appropriate due to ~~rapid~~ changes in electronic monitoring technology and the corresponding potential for obsolescence. Management periodically assesses the useful life of the devices for appropriateness. ~~Amortization of a patent related to GPS and satellite tracking is also included in cost of sales.~~

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Impairment cost for equipment and parts for the three months ended December 31, 2017 and 2016 were $0 and $74,787, respectively. These costs relate to disposal of obsolete inventory, monitoring equipment and parts for enhancements to our various devices and monitoring platform.

Gross Profit and Margin

During the three months ended ~~December~~March 31, ~~2017,~~2023, gross profit totaled ~~$4,471,545, representing an increase of $927,611 or 26% compared to the same period last year and~~$3,742,805, resulting in a gross margin of ~~60% compared to $3,543,934 or a gross margin of 46% during the three months ended December 31, 2016. The increase in gross~~margin is largely due to the lower costs of revenue mentioned above. Excluding the one-time costs of revenue previously mentioned, gross profit for the three-months ended December 31, 2016 would have been $3,915,078 and gross profit margin would have been 51%approximately 45%.

~~General and Administrative Expense~~

During the three months ended ~~December~~March 31, ~~2017,~~2022, gross profit totaled $4,538,985, resulting in a gross margin of approximately 48%. The decrease in absolute gross profit of $796,180 or approximately 18% is due to lower revenue, partially offset by a decrease in communication services and monitoring center costs.

General and Administrative Expense

During the three months ended March 31, 2023, general and administrative expense totaled ~~$3,657,738~~$2,869,799 compared to ~~$3,175,054~~$2,770,657 for the three months ended ~~December~~March 31, ~~2016.~~2022. The increase of ~~$482,684~~$99,142 or ~~15%~~approximately 4% in general and administrative ~~costs~~expense resulted largely from ~~an increase in~~higher insurance costs of $93,849, higher stock-based compensation ~~expense~~ of ~~$562,216,~~$51,458, and higher payroll and payroll taxes of $180,572. These costs were offset by lower legal and professional fees of ~~$147,903~~$159,873.

Selling and higher wages and benefit costs of $137,161, partially offset by lower bad debt expense of $172,642, lower recruiting costs of $63,303, lower repair and maintenance costs of $52,776, lower rent expense of $36,125 and lower outside labor expenses of $28,283.

~~Restructuring Costs~~

Marketing Expense

During the three months ended ~~December~~March 31, ~~2016, we recorded $566,330~~2023, selling and marketing expense totaled $768,871 compared to $720,709 for the three months ended March 31, 2022. The increase in expense of ~~costs related to~~$48,162 or approximately 7% is principally the ~~relocation~~result of ~~our headquarters from Salt Lake City, Utah to our existing Chicagoland office. These costs include the transfer~~higher travel and entertainment cots of ~~our own monitoring center activities to a highly-specialized third party, severance pay related to a reduction~~$21,192 and higher payroll and taxes of ~~approximately 65 monitoring center employees, as well as other support employees~~$44,924, partially offset by lower consulting and ~~moving costs. All costs related to the relocation were paid in the fiscal year ended September 30, 2017. See Note 17 to the Condensed Consolidated Financial Statements.~~

~~Selling~~outside service expenses of $19,113.

Research and ~~Marketing~~Development Expense

During the three months ended ~~December~~March 31, ~~2017, selling~~2023, research and ~~marketing~~development expense ~~decreased to $409,737~~totaled $706,772 compared to ~~$589,768~~$625,477 for the three months ended ~~December~~March 31, ~~2016.~~2022. The ~~reduction~~increase in ~~expenses~~expense of ~~$180,031,~~$81,295 or approximately ~~31%~~13% was primarily due to an increase in payroll, dues and subscriptions, and consulting and outside services expenses.

Depreciation and Amortization Expense

During the three months ended March 31, 2023, depreciation and amortization expense totaled $247,574 compared to $414,771 for the three months ended March 31, 2022, a decrease of $167,197 or approximately 40%, largely due to an impairment of our developed technology intangible assets in the fourth quarter of fiscal 2022 .

Total Operating Expense

During the three months ended March 31, 2023, total operating expense increased to $4,593,016 compared to $4,531,614 for the three months ended March 31, 2022, an increase of $61,402 or approximately 1%. The increase is principally due to the factors disclosed above.

Operating Income (Loss)

During the three months ended March 31, 2023, operating loss was ($850,211) compared to operating income of $7,371 for the three months ended March 31, 2022, representing a significant reduction of $857,582. This reduction was principally due to a decrease in gross profit of $796,180.

Other Income (Expense)

For the three months ended March 31, 2023, other expense totaled ($329,184) compared to other income of $571,664 for the three months ended March 31, 2022, a decrease of $900,848. The decrease in other income is largely due to a vendor forgiving $633,471 of accrued expenses in 2022 and negative currency exchange rate movements of $324,577 between the US Dollar vs. the Chilean Peso, compared to the second fiscal quarter of 2022.

Net Income (Loss) Attributable to Common Stockholders

The Company had net loss attributable to common stockholders of ($1,485,258) for the three months ended March 31, 2023, compared to a net income attributable to common stockholders of $452,241 for the three months ended March 31, 2022, a decrease of $1,937,499. This decrease is due to a higher operating loss, a decrease in currency exchange rate gain and higher income tax expense related to Chile tax on certain payments made to the to the U.S. parent company and Chile estimated tax payments.

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Six months Ended March 31, 2023 Compared to Six months Ended March 31, 2022

Revenue

For the six months ended March 31, 2023, the Company recognized total revenue from operations of $17,163,737 compared to $19,079,775 for the six months ended March 31, 2022, a decrease of $1,916,038, or approximately 10%. The decrease in monitoring revenues is driven principally by fluctuations in court proceedings where active devices are assigned to customers in Illinois, California, the Bahamas and Canada, partially offset by an increase in monitoring revenues for customers in Nevada and Panama.

Product sales and other revenue for the six months ended March 31, 2023 decreased to $694,930 from $767,560 in the same period in 2022, a decrease of $72,630 or approximately 9%, primarily due to purchases from a partner in Saudi Arabia in February 2022.

The industry in which the Company operates, as well as many other industries (automotive, consumer products and medical devices), have been impacted by the global semiconductor shortage. The availability of semiconductor parts continued to improve in the first half of fiscal 2023; however, long lead times remain with certain parts.

Cost of Revenue

During the six months ended March 31, 2023, cost of revenue totaled $9,240,254 compared to cost of revenue during the six months ended March 31, 2022 of $9,740,561, a decrease of $500,307 or approximately 5%. The decrease in cost of revenue was largely the result of lower monitoring center costs of $223,870, lower communication costs of $174,671, lower software maintenance costs of $44,929, lower product sales costs of $96,558 and lower commission costs of $44,990, partially offset by higher server costs of $59,385, higher lost, stolen and damaged costs of $25,523 and higher device repair costs of $36,846.

Depreciation and amortization included in cost of revenue for the six months ended March 31, 2023 and 2022 totaled $1,616,733 and $1,656,764, respectively, a decrease of $40,031. These costs represent the depreciation of ReliAlert® and other monitoring devices, as well as the amortization of monitoring software and certain royalty agreements. The decrease in depreciation and amortization costs is largely due to a decrease in amortization for discontinued product, Shadow, of $75,200, offset by an increase in device depreciation expense of $35,169. Devices are depreciated over either a three- or five-year useful life. Monitoring software is amortized over a seven-year life. Royalty agreements are being amortized over a ten-year useful life. The Company believes these lives are appropriate due to changes in electronic monitoring technology and the corresponding potential for obsolescence. Management periodically assesses the useful life of the devices for appropriateness.

Gross Profit and Margin

During the six months ended March 31, 2023, gross profit totaled $7,923,483, resulting in a gross margin of approximately 46%. During the six months ended March 31, 2022, gross profit totaled $9,339,214, resulting in a gross margin of approximately 49%. The decrease in absolute gross profit of $1,415,731 or approximately 15% is due to lower revenue, partially offset by a decrease in certain costs of revenue.

General and Administrative Expense

During the six months ended March 31, 2023, general and administrative expense totaled $5,624,320 compared to $5,269,016 for the six months ended March 31, 2022. The increase of $355,304 or approximately 7% in general and administrative expense resulted largely from higher payroll and payroll taxes of $314,831, bad debt costs of $100,042, higher insurance costs of $183,663, higher stock-based compensation of $113,209 and higher travel and entertainment costs of $60,321. These costs were offset by lower legal and professional fees of $295,077, lower training and recruiting costs of $51,917, lower fees and licenses of $33,389 and lower board of director fees of $25,000.

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Selling and Marketing Expense

During the six months ended March 31, 2023, selling and marketing expense totaled $1,498,341 compared to $1,418,581 for the six months ended March 31, 2022. The increase in expense of $79,760 or approximately 6% is principally the result of higher travel and entertainment cots of $49,523 and higher payroll and taxes of $59,746, partially offset by lower consulting and outside service ~~costs of $84,438, lower travel related~~ expenses of ~~$41,489 and lower wages and benefits of $31,546.~~

$24,343.

Research and Development Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2023, research and development expense totaled ~~$163,946~~$1,296,577 compared to ~~$488,178~~$1,216,329 for the ~~three~~six months ended ~~December~~March 31, ~~2016, a decrease~~2022. The increase in expense of ~~$324,232~~$80,248 or approximately ~~66%. The decreaseresulted largely from lower wages~~7% was primarily due to increases in consulting and ~~benefits of $203,349 and lower~~ outside service costs of $96,078. In addition, we are significantly enhancing our technology platform to improve the efficiency of our software, firmware, user interface, and automation. As a result of these improvements, $254,899 was capitalized as developed technology during the three months ended December 31, 2017 and $570,093 was capitalized in the three months ended December 31, 2016. A portion of these expenses would have been recognized as research and development expense, absent the significant enhancements to the technology.

services expenses.

Depreciation and Amortization Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2023, depreciation and amortization expense totaled ~~$564,740~~$495,283 compared to ~~$575,111~~$831,572 for the ~~three~~six months ended ~~December~~March 31, ~~2016,~~2022, a decrease of ~~$10,371~~$336,289 or approximately 40%, largely due to intangible assets that were fully amortized in the period and an impairment of intangible assets recorded in the fourth quarter of fiscal 2022.

Total Operating Expense

During the six months ended March 31, 2023, total operating expense increased to $8,914,521 compared to $8,735,498 for the six months ended March 31, 2022, an increase of $179,023 or approximately 2%.

The increase is principally due to the factors disclosed above.

Operating Income (Loss)

During the six months ended March 31, 2023, operating loss was ($991,038) compared to operating income of $603,716 for the six months ended March 31, 2022, a reduction of $1,594,754 or approximately 264%. This reduction was principally due to a decrease in gross profit of $1,415,731.

Other Income and Expense

For the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2023, other ~~income (expense)~~expense totaled ~~$717,975~~($265,583) compared to ~~$763,252~~($16,174) for the ~~three~~six months ended ~~December~~March 31, ~~2016, a decrease in net expense~~2022, an increase of ~~$45,277 or approximately 6%.~~$249,409. The ~~decrease~~increase in other ~~income (expense)~~expense is largely due to a vendor forgiving $633,471 of accrued expenses in 2022 partially offset by positive currency exchange rate movements of $264,852 between the US Dollar vs. the Chilean Peso, compared to the first half of fiscal 2022, and lower net interest expense of $119,210.

Net Income (Loss) Attributable to Common Stockholders

The Company had net loss attributable to common stockholders of ($1,448,874) for the six months ended March 31, 2023, compared to net income attributable to common stockholders of $146,919 for the six months ended March 31, 2022. This decrease is due to lower operating income and a vendor forgiving $633,471 of accrued expenses in 2022, partially offset by ~~higher~~positive currency exchange rate movements, lower interest expense ~~net.~~

and lower income tax expense.

Liquidity and Capital Resources

The Company is currently self-funded through net cash provided by operating activities.

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~~Net Loss Attributable~~

On October 21, 2020, the Company requested, in writing, an additional extension to ~~Common Shareholders~~

~~The~~the maturity date of the $30.4 million Amended Facility Agreement. On November 25, 2020, the Noteholders held a meeting to address the Company’s request and approved a new maturity date of July 1, 2024. On December 21, 2020, Conrent and the Company ~~had Net loss attributable~~signed the Amended Facility, which extended the maturity date of the Amended Facility Agreement to ~~common shareholders~~July 1, 2024, capitalized the accrued and unpaid interest which increased the outstanding principal amount and reduced the interest rate of ~~$1,042,591~~the Amended Facility from 8% to 4%. On March 1, 2021, Conrent completed their documentation and the updated registration process to implement these changes and the Company transferred $12,531,556 of accrued interest to the note payable for total principal of $42,931,556. Conrent forgave $67,556 of the ~~three months ended~~amount due and the new Amended Facility principal and interest became $42,864,000. Interest payments were scheduled to be made on June 30 and December 31 ~~2017, compared to a Net loss attributable to common shareholders~~each year, which began on June 30, 2021. We began amortizing deferred financing fees of ~~$2,613,759 for the three months ended December 31, 2016, a decrease of $1,571,168 or 60%.~~ ~~This decrease in net loss is largely due tohigher~~gross profit, the absence of restructuring costs, lower selling and marketing expense, lower research and development costs and lower currency exchange expense. These amounts were offset by higher stock-based compensation costs.

~~Liquidity and Capital Resources~~

Historically, we have been unable to finance our business solely from cash flows from operating activities. During prior periods, the Company supplemented cash flows to finance the business from borrowings under a credit facility, a revolving line of credit from one of our shareholders, receipt of certain disgorgement funds, and from the sale and issuance of debt securities.approximately $360,000 on July 1, 2021. As of ~~December~~March 31, ~~2017, excluding~~2023, $42,864,000 of principal and $428,640 of interest ~~$3.4 million~~ was owed to ~~Sapinda under~~Conrent. On April 26, 2023, the~~Sapinda~~ Company and Conrent entered into an amendment to the facility agreement (the "Amendment") originally executed by and between the parties on December 30, 2013, as amended on June 30, 2015, July 19, 2018, February 24, 2019, January 10, 2020 and December 21, 2020 (the “Amended Facility Agreement”), containing certain provisions of the Company's existing $42.864 million unsecured debt facility. The Amendment is effective on April 28, 2023 and extends the maturity date from July 1, 2024 to July 1, 2027. Furthermore, the Amendment: (i) amends the applicable Interest Rate and (ii) removes section 3.7 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent.

On January 6, 2021, the Company borrowed 70,443,375 Chilean Pesos (“CLP”) ($101,186USD) from HP Financial Services Chile Limitada. To facilitate the Loan, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as lender. The loan was used to purchase PABX (private automatic branch exchange phone equipment) for the construction of the Gendarmeria de Chile monitoring centers in Santiago and ~~$30.4 million~~Puerto Montt, Chile. The loan bears an interest rate of 6.56% per annum, payable monthly with principal beginning February 2021, and a maturity date of February 6, 2024.

On January 12, 2021, the Company borrowed 347,198,500CLP ($482,965USD), net of 2,801,500CLP fees ($3,897USD), from Banco Santander. To facilitate the Loan, the Company entered into a Note Payable Agreement with Banco Santander as lender. The loan was ~~owed~~used to ~~Conrent under~~comply with the~~Conrent~~ construction of Gendarmeria de Chile monitoring center in Santiago, Chile and remodeling a temporary monitoring center. The loan bears an interest at a rate of 5.04% per annum, payable monthly with principal beginning February 2021, and a maturity of May 11, 2024. The Company also paid 19,607,843CLP ($27,275USD) in broker fees which are amortized over the life of the loan.

On February 2, 2021, the Company borrowed 247,999,300CLP ($338,954USD), net of 2,000,700CLP fees ($2,734USD), from Banco Estado. To facilitate the Loan, ~~Agreement.~~ the Company entered into a Note Payable Agreement with Banco Estado as lender. The loan provided was used for the construction of the Gendarmeria de Chile monitoring center in Santiago and computer equipment for Gendarmeria branch offices. The loan bears an interest rate of 3.50% per annum, initially having a 6-month grace period with the first payment including the 6 months of interest plus 1 month of principal on August 2, 2021, then monthly interest with principal, and a maturity date of January 2, 2024. The Company also paid 14,124,294CLP ($19,304USD) in broker fees which are amortized over the life of the loan.

On February 4, 2021, the Company borrowed 149,794,432CLP ($205,330USD) from HP Financial Services Chile Limitada. To facilitate the Loan, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as lender. The loan was used to purchase computer equipment for the Gendarmeria de Chile monitoring center in Santiago, Chile. The loan bears an interest at a rate of 6.61% per annum, payable monthly with principal beginning March 2021, and a maturity of March 4, 2024.

On February 5, 2021, the Company borrowed of 99,808,328CLP ($136,564USD), net of 210,485CLP fees ($286USD), from Banco de Chile. To facilitate the Loan, the Company entered into a Note Payable Agreement with Banco de Chile as lender. The loan provided was used to purchase HVAC equipment for Gendarmeria de Chile monitoring center in Santiago, Chile. The loan bears an interest rate of 2.54% per annum, payable monthly with principal beginning March 2021, and a maturity date of March 4, 2024.

On February 15, 2021, the Company borrowed 500,000,000CLP ($678,214USD) from Banco de Chile. To facilitate the Loan, the Company entered into a Note Payable Agreement with Banco de Chile as lender. The loan proceeds were used as working capital and to complete the construction of the Gendarmeria monitoring center in Puerto Montt, Chile. The loan bears an interest at a rate of 3.12% per annum, payable monthly with principal beginning March 2021, and a maturity of February 17, 2025. The Company also paid 28,248,588CLP ($38,317USD) in broker fees which are amortized over the life of the loan.

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No borrowings or sales of equity securities occurred during the ~~three~~six months ended ~~December~~March 31, ~~2017.~~

~~On October 9, 2017,~~2023 or during the ~~Company entered into a Debt Exchange Agreement with Conrent regarding total debt and unpaid interest of approximately $34.7 million 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. Management continues to negotiate with Conrent regarding terms for the Debt Exchange acceptable to Noteholders with the objective of reaching an agreement acceptable to both Conrent and the Noteholders before the Debt matures on July 31, 2018.

year ended September 30, 2022.

Net Cash Flows ~~from~~Provided by Operating Activities.

During the~~three~~ six months ended ~~December~~March 31, ~~2017, we incurred a net loss of $1,042,591 and~~2023, we had cash flows from operating activities of ~~$328,210,~~$2,133,053, compared to ~~a net loss from continuing operations of $2,613,759 and~~ cash flows from operating activities of ~~$2,136,796~~$1,263,350 for the~~three~~ six months ended ~~December~~March 31,~~2016.~~ 2022, representing an increase of $869,703 or approximately 69%. The ~~decrease of~~increase in cash flows from operations ~~compared to the prior year period~~ was largely the result of ~~an increase~~decreases in ~~prepaid expenses and deposits, a decrease~~our net operating assets, mainly driven by decreases in accounts ~~payable,~~receivable and ~~higher accounts receivable, partially offset by improved operating results.~~

prepaid expense, deposits, deferred tax assets and other assets.

Net Cash Flows ~~from~~Used in Investing Activities.

The Company used ~~$594,726~~$3,548,322 of cash for investing activities during the~~three~~ six months ended ~~December~~March 31,~~, 2017,~~ 2023, compared to ~~$1,401,455~~$2,359,136 of cash used for investing activities during the~~three~~ six months ended ~~December~~March 31,~~2016.~~ ~~Cash~~ 2022. The increase in cash used for investing activities was ~~used for significant enhancements of our software platform and used for~~primarily related to purchases of monitoring and other equipment to complete the swap of 3G devices and meet customer demand during the ~~three~~six months ended ~~December~~March 31, ~~2017.~~

2023.

Net Cash Flows ~~from~~Used in Financing Activities.

The Company used ~~$17,289~~$276,666 of cash for financing activities during thethree months ended ~~December~~March 31,~~2017,~~ 2023, which was the result of loan principal payments on Chile’s long-term debt, compared to ~~$17,266~~$249,142 of cash used infor financing activities during the~~three~~ six months ended ~~December~~March 31,~~2016.~~

2022.

Liquidity, Working Capital and ~~Management’s~~Management’s Plan

As of~~December~~ March 31,~~, 2017, we~~ 2023 the Company had unrestricted cash of ~~$1,755,437,~~$4,014,530 compared to unrestricted cash of ~~$2,027,321 as ofSeptember 30, 2017. As ofDecember 31, 2017, we had a working capital deficit of $28,965,590, compared to a working capital deficit of $30,874,107~~$5,311,104 as of September 30, ~~2017.~~2022. As of March 31, 2023, the Company had working capital of $5,228,419, compared to working capital of $7,296,297 as of September 30, 2022. This ~~increase~~decrease in working capital of $2,067,878 is principally due to ~~a transfer~~the purchase of ~~a short-term bond from a long-term asset of $2,860,358, partially~~monitoring equipment, offset by a decrease in ~~cash due~~operating liabilities.

On October 21, 2020, the Company requested, in writing, an additional extension to ~~additional~~the maturity date of the Amended Facility Agreement. On November 25, 2020, the Noteholders held a meeting to address the Company’s request and approved a new maturity date of July 1, 2024. On December 21, 2020, Conrent and the Company signed an Amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024, capitalized ~~software~~the accrued and unpaid interest which increased the outstanding principal amount and reduced the interest rate of ~~$254,899~~the Amended Facility Agreement from 8% to 4%. On June 30, 2021, the Company restarted interest payments to Conrent which have been made semi-annually since that time.

On April 26, 2023, the Company and ~~purchases~~Conrent entered into a new amendment to the Facility Agreement which further extended the maturity date from July 1, 2024 to July 1, 2027, established an escalation in the interest rate and required the Company to pay certain fees to Conrent.

During the fiscal year ended September 30, 2021, the Company borrowed approximately $1.95 million through six notes payable to fund the construction of monitoring ~~equipment of $311,142.~~

Oncenters in Chile required by our new contract. These six notes mature between January 2024 to February 2025 and the principal repayments on these six notes have all commenced. No additional funds were borrowed during the six months ended March ~~13, 2017,~~31, 2023 or borrowed during the ~~Company successfully extended the Sapinda Loan Agreement from~~fiscal year end September 30, ~~2017~~2022.

Inflation

The rise in inflation in fiscal 2022 and the first half of fiscal 2023 has adversely impacted the Company’s cost of labor, materials and other operating expenses. We expect cost inflation to ~~September 30, 2020. In addition, management is currently exploring options~~remain elevated throughout the rest of fiscal 2023 but anticipate continued supply chain productivity and pricing actions to ~~restructure the debt owed under the Conrent Loan Agreement, which may include exchanging debt for equity or extending the maturity~~mitigate some of the ~~Conrent Loan Agreement.~~

inflationary pressures.

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The Company incurred a net loss of $1,042,591 and $2,613,759 for the three months ended December 31, 2017 and 2016, respectively. The Company may continue to incur losses until it is able to achieve a level of revenues adequate to support its cost structure. In addition, although no assurances can be given, in the event that management is able to successfully restructure the debt owed under the Conrent Loan Agreement, management has evaluated the significance of all conditions and determined that it will have adequate cash flow from operations to meet its operating obligations and provide for its working capital requirements for the upcoming twelve months. However, in the event we are unable to successfully restructure the debt under the Conrent Loan Agreement, our available cash resources together with cash flow from operations will be inadequate to satisfy out working capital requirements.

~~We do not believe that inflation has had a material impact on our historical operations or profitability.~~

Off-Balance Sheet Financial Arrangements

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation that provides financing, liquidity, market risk, or credit risk support to the ~~Company, except as described below.~~

Payments due in less than 1 year

Payments due in 1 – 3 years

Payments due in 3 – 5 years

Total

Operating leases
$329,252
$479,023
$58,808
$867,083

As of December 31, 2017, the Company’s total future minimum lease payments under noncancelable operating leases were $867,083. The Company’s facility leases typically have original terms not exceeding 5 years and generally contain multi-year renewal options.

The Company footprint extends to ~~several~~a number of countries outside the United States, and we intend to continue to examine international opportunities. As a result, our ~~revenues~~revenue and results of operations are affected by fluctuations in currency exchange rates, interest rates, transfer pricing changes, taxes and other uncertainties inherent in doing business in more than one currency. In addition, our operations are exposed to risks that are associated with changes in social, political and economic conditions in the foreign countries in which we operate, including changes in the laws and policies that govern foreign investment, as well as, to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment.

Foreign Currency Risks

We had ~~$2,561,305~~$3,085,549 and ~~$2,795,781~~$3,050,246 in foreign currency revenue from sources outside of the United States for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively. We made and received payments in a foreign currency during the periods indicated, which resulted in a foreign exchange gain of ~~$55,072~~$554,943 and ~~$116,442~~$290,091 in the ~~three~~six months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively. Fluctuations in the exchange loss or gain in any given period are due to the strengthening or weakening of the U.S. dollar against the Chilean Peso and Canadian dollar which have been magnified by global matters, inflation, and the government policies established to address those issues. Changes in currency exchange rates affect the relative prices at which we sell our products and purchase goods and services. Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect of these fluctuations on our future business, product pricing, results of operations, or financial condition. We ~~do not use~~periodically enter into small, simple forward foreign currency exchange contracts or derivative financial instruments to mitigate the risk of repatriating funds converted from foreign currency into U.S. dollars for hedging ~~or speculative~~ purposes. To the extent foreign sales become a more significant part of our business in the future, we may seek to implement additional strategies which make use of these or other instruments in order to minimize the effects of foreign currency exchange on our ~~business.~~

business and/or require some international customers to receive invoices and make payments in US dollars.

Item 4. ~~Contr~~olsControls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to the Company is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~March 31, ~~2017~~2023 was completed pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms as of ~~December~~March 31, ~~2017.~~

2023.

Changes in Internal Controls

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There was no change in our internal control over financial reporting during our quarter ended ~~December~~March 31, ~~2017~~2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~We are,~~Proceedings

The Company is, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of nearly 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. (a predecessor entity to Track Group, Inc. or the Company) filed a complaint before the Federal Administrative Tribunal, asserting the failure by ~~Defendants~~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 Company’s claim amount is upwards of $6.0 million. On March 28, 2017, the Federal Administrative Tribunal rejected our claim, based on its determination that this case should be resolved by a Civil Court and not by the Federal Administrative Tribunal. For that reason, on April 25, 2017,Although preliminary rulings have been unfavorable to the Company, ~~filed~~the Company’s counsel continues to review its remaining claims and analyzing its options. Based upon the fee arrangement the Company has with its counsel, we anticipate the future liabilities attributable to legal expense will be minimal.

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 ~~appeal before the Collegiate Tribunals~~Adversary Action pending against ~~the decision~~International Surveillance Services Corporation (“ISS”), a subsidiary of the ~~Federal Administrative Tribunal. Counsel estimates~~Company, now known as Track Group – Puerto Rico Inc., in the ~~Tribunal should have~~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 ~~ruling~~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 produced documentation supporting its position in an informal document exchange with the Commonwealth on ~~or before June 30, 2018. If~~July 6, 2020. The parties held a mediation on November 1, 2022 and were unable to reach an agreement but left open the ~~Company’s appeal is successful, the case will be sent back to the Federal Administrative Tribunal~~possibility of additional discussions. The Company remains confident in its position and no accrual for a ~~resolution on the merits of the case.~~

~~Inversiones Tecnologicas SpA~~potential loss has been made, after consultation with legal counsel.

Jeffrey Mohamed Abed v. Track Group, ~~Chile SpA.~~Inc., et al. On ~~October 10, 2014, Inversiones Tecnologicas SpA (a.k.a. Position)~~June 7, 2021, Jeffrey Mohamed Abed filed a complaint ~~before~~seeking unspecified damages in the ~~Civil~~Superior Court of ~~Santiago,~~the State of California in ~~order to collect $1.0 million~~Case No. 21 STCV 21345, alleging strict products liability, negligence and breach of ~~fees for alleged services rendered with occasion~~implied warranty premised upon injuries sustained by Abed who was involved in an automobile accident while wearing a GPS tracking device of the ~~public tender~~Company. The Company was served on October 15, 2021 and filed its Answer and Affirmative Defenses on November 12, 2021. On January 11, 2022 the Company issued discovery, and the discovery process remains ongoing. The Company disputes Abed’s claims and will defend the case vigorously. The Company remains confident in its position and no accrual for the adjudication of the contract ID 634-66-LP13 labeled “Telematics Surveillance of Convicts.” On April 13, 2017, the Court issued its decision, rejecting the Plaintiff’s claim, under the consideration that insufficient evidence of a ~~service agreement between~~ potential loss has been made, after consultation with legal counsel.

Track Group Chile ~~SpA (formerly Secure Alert~~SpA. v. Republic of Chile. On January 24, 2022, Track Group Chile ~~SpA)~~SpA. initiated a judicial action in the Court of Justice of Chile to settle a contract dispute with the Republic of Chile. The Company asserts that it has complied with its contractual obligations and ~~Inversiones Tecnologicas SpA, was submitted~~that any delays in so doing were not attributable to the Court. Moreover, the fact that Secure Alert Chile SpA was incorporated after the facts on which the lawsuit is based, led to the complete dismissal of the claim. Position filed an appeal on May 4, 2017. A hearing on the Appeal may be scheduled in late February, 2018.Company. The Company ~~expects the court to make~~remains confident in its position and no accrual for a ~~decision within three months of the hearing date.~~

~~Pablo Gonzalez-Cruz,~~potential loss has been made, after consultation with legal counsel.

Jesus Valle Gonzalez, et al. v. Track Group-Puerto Rico, et al. On ~~June~~May 9, ~~2017, the~~2022 Plaintiff ~~Pablo Gonzalez-Cruz, and relatives of the Plaintiff,~~Jesus Valle Gonzalez filed a ~~Complaint~~complaint in the Court of First Instance, San Juan Superior Court, ~~Common Wealth~~Commonwealth of Puerto Rico against the Company, and associated parties alleging the death of his ~~daughter~~mother on June 8, 2016 was a ~~direct and immediate~~ result of the gross negligence ~~and guilty indifferent actions and omissions~~ of all the defendants. This claim follows a similar claim made against the Company in June 2017 by different relatives of the deceased which was settled on September 5, 2018. Plaintiff in this matter asserts his claim now having reached the age of majority and is requesting damages of no less than ~~$2.0~~$1.5 million. On October 5, 2022, the Plaintiff voluntarily dismissed the case without prejudice, and refiled the case on January 10, 2023. The ~~Company’s~~Company disputes the Plaintiff’s claims, and has filed its Answer and ~~Appearance were~~Affirmative Defenses to the re-filed complaint. Based on the preliminary stage of the proceedings and after consultation with legal counsel, no accrual for a potential loss has been made.

-28-

Table of Contents

Michael Matthews v. Track Group, Inc., et al. On December 13, 2022, Plaintiff Michael Matthews filed ~~August 13, 2017. We are currently~~a complaint in the ~~discovery period.~~

Circuit Court of Cook County, Illinois (2022 L 011050) against the Company and other defendants alleging wrongful arrest and incarceration and a deprivation of his rights following his purportedly erroneous violation of home monitoring program requirements. The Company disputes the allegations of the complaint, has retained counsel, and intends to vigorously defend the case. Based on the preliminary stage of the proceedings and after consultation with legal counsel, no accrual for a potential loss has been made.

Item 1A. Risk F~~actors~~

Factors

Our results of operations and financial condition are subject to numerous risks and uncertainties described in our Annual Report on Form 10-K for our fiscal year ended September 30, ~~2017,~~2022, filed on December ~~19, 2017.~~16, 2022. You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly ~~Report.~~Report and other reports we file with the SEC. Should any of these risks materialize or deteriorate further, our business, financial condition and future prospects could be negatively impacted. ~~As of February~~ 8~~, 2018, there have been no material changes to the disclosures made in the above-referenced Form 10-K.~~

(a)Exhibits Required by Item 601 of Regulation S-K

~~(a)~~

~~Exhibits Required by Item 601 of Regulation S-K~~

Exhibit Number		Title of Document
~~10.1+~~		Monitoring Services Agreement, dated December 18, 2017, by and between Track Group, Inc. and Marion County Community Corrections Agency, by and through Marion County Community Corrections Board (filed herewith).

31(i)		Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
31(ii)
~~31(ii)~~		Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
32
32		Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith).

101.INS		Inline XBRL ~~INSTANCE DOCUMENT~~Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema
~~101.SCH~~ 101.CAL		Inline XBRL ~~TAXONOMY EXTENSION SCHEMA~~Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
~~101.CAL~~ 101.LAB		Inline XBRL ~~TAXONOMY EXTENSION CALCULATION LINKBASE~~Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
~~101.DEF~~104		Cover Page Interactive Data File (embedded within the Inline XBRL ~~TAXONOMY EXTENSION DEFINITION LINKBASE~~document and contained in Exhibit 101)

~~101.LAB~~		~~XBRL TAXONOMY EXTENSION LABEL LINKBASE~~

~~101.PRE~~		~~XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE~~

+ Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements 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.

Date: ~~February~~ 8~~, 2018~~ May 11, 2023	By:	/s/ Derek Cassell
		Derek Cassell, Chief Executive Officer (Principal Executive ~~Officer~~ Officer)

Date: ~~February 8, 2018~~May 11, 2023	By:	/s/ Peter K. Poli
		Peter K. Poli, Chief Financial Officer (Principal Financial and Accounting Officer)

		Page

PART I. FINANCIAL INFORMATION		1

Item 1	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) (Unaudited)	2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	34
	Notes to Condensed Consolidated Financial Statements (Unaudited)	45
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2127
Item 4	Controls and Procedures	2127

PART II. OTHER INFORMATION		28

Item 1	Legal Proceedings	2328
Item1A	Risk Factors	29
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2429
Item 3	Defaults Upon Senior Securities	2429
Item 4	Mine Safety Disclosures	2429
Item 5	Other Information	2429
Item 6	Exhibits	2529

Signatures		2630

	March 31, 2023				September 30, 2022
	Operating lease asset		Operating lease liability		Operating lease asset		Operating lease liability

Other assets	$	497,614			$	575,716	$	-
Accrued liabilities				168,481		-		177,431
Long-term liabilities				329,133		-		398,285

	Six Months Ended March 31, 2023		Six Months Ended March 31, 2022

Cash paid for noncancelable operating leases included in operating cash flows	$	141,525	$	135,146
Right of use assets obtained in exchange for operating lease liabilities	$	5,382	$	78,458

	Operating Leases
From April 2023 to March 2024	$	185,721
From April 2024 to March 2025		122,034
From April 2025 to March 2026		93,379
From April 2026 to March 2027		95,166
From April 2027 to March 2028		40,210
Thereafter		193
Undiscounted cash flow		536,703
Less: imputed interest		(39,089	)
Total	$	497,614
Reconciliation to lease liabilities:
Lease liabilities - current	$	168,481
Lease liabilities - long-term		329,133
Total lease liabilities	$	497,614

	March 31, 2023		September 30, 2022
Accrued payroll, taxes and employee benefits	$	1,500,901	$	1,412,055
Deferred revenue		1,292		3,299
Accrued taxes - foreign and domestic		327,269		371,293
Accrued other expense		100,121		123,752
Accrued legal and other professional costs		89,536		57,905
Accrued costs of revenue		381,936		352,060
Right of use liability		168,481		177,431
Deferred financing fees		-		88,685
Accrued interest		443,718		455,963
Total accrued liabilities	$	3,013,254	$	3,042,443

Assets	December 31, 2017 (unaudited)	September 30, 2017
Current assets:
Cash	$1,755,437	$2,027,321
Accounts receivable, net of allowance for doubtful accounts of $3,432,985 and $3,268,095, respectively	5,526,000	5,438,564
Note receivable, current portion	234,733	234,733
Prepaid expenses and other	4,219,135	854,122
Inventory, net of reserves of $26,934, respectively	172,347	261,810
Total current assets	11,907,652	8,816,550
Property and equipment, net of accumulated depreciation of $1,862,347 and $1,778,634, respectively	883,039	903,100
Monitoring equipment, net of accumulated amortization of $4,767,061 and $4,906,925, respectively	3,460,685	3,493,012
Intangible assets, net of accumulated amortization of $10,444,569 and $9,839,032, respectively	24,410,468	24,718,655
Goodwill	8,275,308	8,226,714
Other assets	785,195	2,989,101
Total assets	$49,722,347	$49,147,132

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	2,529,632	2,769,835
Accrued liabilities	8,021,419	6,650,291
Current portion of long-term debt, net of discount of $130,067 and $185,811, respectively	30,322,191	30,270,531
Total current liabilities	40,873,242	39,690,657
Long-term debt, net of current portion	3,466,468	3,480,717
Total liabilities	44,339,710	43,171,374

Stockholders’ equity:
Common stock, $0.0001 par value: 30,000,000 shares authorized; 10,462,433 and 10,480,984 shares outstanding, respectively	1,046	1,048
Additional paid-in capital	300,978,608	300,717,861
Accumulated deficit	(295,109,920)	(294,067,329)
Accumulated other comprehensive loss	(487,097)	(675,822)
Total equity	5,382,637	5,975,758
Total liabilities and stockholders’ equity	$49,722,347	$49,147,132

	Three Months Ended December 31,
	2017	2016
Revenues:
Monitoring services	$7,350,805	$7,265,013
Other	139,889	406,477
Total revenues	7,490,694	7,671,490

Cost of revenues:
Monitoring, products and other related services	2,542,007	3,607,276
Depreciation & amortization included in cost of revenues	477,142	445,493
Impairment of monitoring equipment and parts	-	74,787
Total cost of revenues	3,019,149	4,127,556

Gross profit	4,471,545	3,543,934

Operating expenses:
General & administrative	3,657,738	3,175,054
Restructuring costs	-	566,330
Selling & marketing	409,737	589,768
Research & development	163,946	488,178
Depreciation & amortization	564,740	575,111
Total operating expenses	4,796,161	5,394,441
Loss from operations	(324,616)	(1,850,507)

Other income (expense):
Interest expense, net	(673,827)	(647,103)
Currency exchange rate loss	(55,072)	(116,442)
Other income/expense, net	10,924	293
Total other income (expense)	(717,975)	(763,252)
Net loss attributable to common shareholders	(1,042,591)	(2,613,759)
Foreign currency translation adjustments	188,725	(493,572)
Comprehensive loss	$(853,866)	$(3,107,331)
Net loss per common share, basic and diluted	$(0.10)	$(0.25)
Weighted average common shares outstanding, basic and diluted	10,476,346	10,333,516

Cash paid for interest	$10,708	$4,587

Supplemental schedule of non-cash investing and financing activities:
Non-cash transfer of inventory to monitoring equipment	$81,893	$62,193

	Three months ended December 31, 2016 Previously Reported	Net Change	Three months ended December 31, 2016 (Revised)
Cost of revenues:
Monitoring, products & other related services	$2,933,622	$673,654	$3,607,276

General & administrative expenses	3,768,099	(593,045)	3,175,054
Selling & marketing	627,749	(37,981)	589,768
Research & development	530,806	(42,628)	488,178

	December 31,	December 31,
	2017	2016
Exercisable common stock options and warrants	570,467	526,901
Total common stock equivalents	570,467	526,901

	March 31, 2023		September 30, 2022
Monitoring equipment component boards inventory	$	991,754	$	1,053,245
Reserve for damaged or obsolete inventory		-		-
Total inventory, net of reserves	$	991,754	$	1,053,245

	December 31,	September 30,
	2017	2017
Finished goods inventory	$199,281	$288,744
Reserve for damaged or obsolete inventory	(26,934)	(26,934)
Total inventory, net of reserves	$172,347	$261,810

	December 31, 2017	September 30, 2017
Equipment, software and tooling	$1,045,090	$1,028,081
Automobiles	40,048	52,230
Leasehold improvements	1,351,025	1,307,802
Furniture and fixtures	309,223	293,621
Total property and equipment before accumulated depreciation	2,745,386	2,681,734
Accumulated depreciation	(1,862,347)	(1,778,634)
Property and equipment, net of accumulated depreciation	$883,039	$903,100

	December 31, 2017	September 30, 2017
Other intangible assets:
Patent & royalty agreements	21,170,565	21,170,565
Developed technology	11,410,921	11,116,738
Customer relationships	1,860,000	1,860,000
Trade name	335,350	332,183
Website	78,201	78,201
Total intangible assets	34,855,037	34,557,687
Accumulated amortization	(10,444,569)	(9,839,032)
Intangible assets, net	$24,410,468	$24,718,655

	Employee -related	Other costs	Total
Liability at September 30, 2016	$-	$-	$-
Accrued expenses	448,330	118,000	$566,330
Payments	-	-	-
Liability at December 31, 2016	$448,330	$118,000	$566,330

	March 31, 2023			September 30, 2022

The unsecured loan (the “Amended Facility Agreement”) from Conrent Invest S.A. (“Conrent”) whereby, as of March 1, 2021, the Company had borrowed $42,864,000, bearing interest at a rate of 4% per annum, payable in arrears annually beginning July 1, 2021, with all principal and accrued and unpaid interest due on July 1, 2024. Interest payments are scheduled to be made on June 30 and December 31 each year. Unamortized issuance costs at March 31, 2023 are $136,350. As of March 31, 2023, $42,864,000 of principal and $428,640 of interest was owed to Conrent.	$	42,727,650		$	42,653,649

The unsecured Note Payable Agreement with HP Financial Services Chile Limitada bearing interest at a rate of 6.56% per annum, with a maturity date of February 6, 2024.		28,437			35,335

The unsecured Note Payable Agreement with Banco Santander, net of unamortized issuance costs of $9,725, bearing interest at a rate of 5.04% per annum, with a maturity date of May 11, 2024.		154,047			177,463

The unsecured Note Payable Agreement with Banco Estado, net of unamortized issuance costs of $5,675, bearing interest at a rate of 3.50% per annum, with a maturity date of January 2, 2024.		104,609			135,521

The unsecured Note Payable Agreement with HP Financial Services Chile Limitada bearing interest at a rate of 6.61% per annum, with a maturity date of March 4, 2024.		65,823			79,375

The unsecured Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $85, bearing interest at a rate of 2.54% per annum, with a maturity date of March 4, 2024.		42,150			51,278

The unsecured Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $16,799, bearing interest at a rate of 3.12% per annum, with a maturity date of February 17, 2025.		296,709			303,303

Total debt obligations		43,419,425			43,435,924
Less: current portion		(545,865	)		(456,681	)
Long-term debt, less current portion	$	42,873,560		$	42,979,243

	December 31, 2017	September 30, 2017

Unsecured facility agreement with an entity whereby, as of June 30, 2015, the Company may borrow up to $30.4 million bearing interest at a rate of 8% per annum, payable in arrears semi-annually, with all principal and accrued and unpaid interest due on July 31, 2018. A $1.2 million origination fee was paid and recorded as a debt discount and will be amortized as interest expense over the term of the loan. As of December 31, 2017, the remaining debt discount was $130,067. We did not pay interest on this loan during the three months ended December 31, 2017.	$30,269,933	$30,214,189

Loan Agreement whereby the Company can borrow up to $5.0 million at 8% interest per annum on borrowed funds maturing on September 30, 2020.	3,399,644	3,399,644

Non-interest bearing notes payable to a Canadian governmental agency assumed in conjunction with the G2 acquisition.	105,593	123,393

Capital lease with effective interest rate of 12%. Lease matures August 15, 2019.	13,489	14,022

Total debt obligations	33,788,659	33,751,248
Less current portion	(30,322,191)	(30,270,531)
Long-term debt, net of current portion	$3,466,468	$3,480,717

Fiscal Year	Total
2018	$30,452,258
2019	43,842
2020	3,422,626
2021	-
2022	-
Debt discount	(130,067)
Total	$33,788,659

Twelve months ended March 31:	Total
2023	$	545,865
2024		43,042,193
Total		43,588,058
Issuance costs		(168,633	)
Debt obligations, net of unamortized issuance costs	$	43,419,425

	Dec. 31, 2017	Sept. 30, 2017

Related party loan with an interest rate of 3% and 8% per annum for undrawn and borrowed funds, respectively. Principal and interest due September 30, 2020.	$3,399,644	$3,399,644
Total related-party debt obligations	$3,399,644	$3,399,644

	Three Months Ended December 31
	2017	2016
Expected stock price volatility	120%	119%
Risk-free interest rate	1.92%	0.60%
Expected life of options/warrants	5 years	2 Years

	Shares Under Option	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding as of September 30, 2017	600,842	$8.51	4.90 years	$-
Granted	30,797	$4.87
Expired/Cancelled	(1,172)	$(19.29)
Exercised	-	$-
Outstanding as of December 31, 2017	630,467	1.78	4.63	$-
Exercisable as of December 31, 2017	570,467	1.84	4.67	$-

	Three months ended March 31,
	2023		2022
Monitoring equipment operating revenue	$	6,827,744	$	7,457,025

	Six months ended March 31,
	2023		2022
Monitoring equipment operating revenue	$	13,805,186	$	15,451,482

	Payments due in less than 1 year	Payments due in 1 – 3 years	Payments due in 3 – 5 years	Total
Operating leases	$329,252	$479,023	$58,808	$867,083