UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2021~~2022

☐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)

200 E. 5th Avenue Suite 100, Naperville, IL 60563

(Address of principal executive offices) (Zip Code)

(877) 260-2010

(Registrant’s telephone number, including area code)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the registrant’s common stock as of August ~~10, 2021~~1, 2022 was ~~11,461,966.~~11,863,758

TRACK GROUP, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, ~~2021~~2022

INDEX

		Page
		~~Page~~

PART I. FINANCIAL INFORMATION

Item 1	Financial Statements	3 1
	Condensed Consolidated Balance Sheets (Unaudited)	3 1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	4 2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited)	5 3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6 4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7 5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 18
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27 26
Item 4	Controls and Procedures	28 26


PART II. OTHER INFORMATION

Item 1	Legal Proceedings	29 28
Item1A	Risk Factors	30 28
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30 28
Item 3	Defaults Upon Senior Securities	30 28
Item 4	Mine Safety Disclosures	30 28
Item 5	Other Information	30 28
Item 6	Exhibits	31 28

Signatures		32 29

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited) June 30,			September 30,			(Unaudited) June 30, 2022			September 30, 2021
Assets	2021			2020
Current assets:
Cash	$	8,277,137		$	6,762,099		$	4,914,133		$	8,421,162
Accounts receivable, net of allowance for doubtful accounts of $2,679,079 and $2,654,173, respectively		6,476,717			5,546,213
Accounts receivable, net of allowance for doubtful accounts of $75,995 and $91,262, respectively								5,430,618			7,163,615
Prepaid expense and deposits		895,145			866,389			922,060			998,589
Inventory, net of reserves of $0 and $6,483, respectively		136,542			124,606
Inventory, net of reserves of $0 and $0, respectively								817,772			305,210
Total current assets		15,785,541			13,299,307			12,084,583			16,888,576
Property and equipment, net of accumulated depreciation of $2,866,631 and $2,531,631, respectively		234,765			378,764
Monitoring equipment, net of accumulated depreciation of $5,768,050 and $6,639,883, respectively		3,150,399			2,065,947
Intangible assets, net of accumulated amortization of $18,150,085 and $16,390,721, respectively		21,489,550			21,171,045
Property and equipment, net of accumulated depreciation of $1,830,814 and $2,615,967, respectively								158,136			202,226
Monitoring equipment, net of accumulated depreciation of $6,425,640 and $5,977,093, respectively								3,578,188			3,068,100
Intangible assets, net of accumulated amortization of $18,245,022 and $17,607,457, respectively								18,336,050			20,434,143
Goodwill		8,518,579			8,220,380			8,221,857			8,519,998
Deferred tax asset		727,521			432,721			-			101,159
Other assets		4,349,103			2,166,743			3,953,193			4,309,040
Total assets	$	54,255,458		$	47,734,907		$	46,332,007		$	53,523,242

Liabilities and Stockholders’ Equity (Deficit)
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	2,356,618		$	2,199,215		$	1,610,734		$	2,821,982
Accrued liabilities		3,795,542			14,958,628			2,358,058			4,350,030
Current portion of long-term debt		552,555			30,914,625			474,353			526,134
Total current liabilities		6,704,715			48,072,468			4,443,145			7,698,146
Long-term debt, net		43,647,848			418,575
Long-term debt, net of current portion								43,082,508			43,452,216
Long-term liabilities		30,877			164,487			352,002			3,650
Total liabilities		50,383,440			48,655,530			47,877,655			51,154,012

Commitments and contingencies (Note 16 and Note 23)
Commitments and contingencies (Notes 16 and 23)

Stockholders’ equity (deficit):
Common stock, $0.0001 par value: 30,000,000 shares authorized; 11,461,966 and 11,414,150 shares outstanding, respectively		1,146			1,141
Series A Convertible Preferred stock, $0.0001 par value: 1,200,000 shares authorized; 0 shares outstanding		0			0
Common stock, $0.0001 par value: 30,000,000 shares authorized; 11,863,758 and 11,524,978 shares outstanding, respectively								1,186			1,152
Series A Convertible Preferred stock, $0.0001 par value: 1,200,000 shares authorized; 0 shares outstanding								0			0
Paid in capital		302,267,862			302,270,242			302,324,386			302,250,954
Accumulated deficit		(297,565,167	)		(302,270,933	)		(302,286,667	)		(298,828,527	)
Accumulated other comprehensive loss		(831,823	)		(921,073	)		(1,584,553	)		(1,054,349	)
Total equity (deficit)		3,872,018			(920,623	)		(1,545,648	)		2,369,230
Total liabilities and stockholders’ equity (deficit)	$	54,255,458		$	47,734,907		$	46,332,007		$	53,523,242

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

~~Table of Contents~~

-1-

TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	June 30,			June 30,			June 30,			June 30,			June 30,			June 30,			June 30,			June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenue:
Monitoring and other related services	$	10,183,133		$	8,325,697		$	29,197,152		$	24,587,212		$	8,836,622		$	10,183,133		$	27,148,837		$	29,197,152
Product sales and other		124,687			158,213			374,403			449,255			137,460			124,687			905,020			374,403
Total revenue		10,307,820			8,483,910			29,571,555			25,036,467			8,974,082			10,307,820			28,053,857			29,571,555

Cost of revenue:
Monitoring, products and other related services		4,150,583			3,379,934			11,752,833			9,848,520			4,200,635			4,150,583			12,284,432			11,752,833
Depreciation and amortization included in cost of revenue		521,386			482,797			1,535,083			1,464,396			809,234			521,386			2,465,998			1,535,083
Total cost of revenue		4,671,969			3,862,731			13,287,916			11,312,916			5,009,869			4,671,969			14,750,430			13,287,916

Gross profit		5,635,851			4,621,179			16,283,639			13,723,551			3,964,213			5,635,851			13,303,427			16,283,639

Operating expense:
General & administrative		2,868,839			2,329,520			7,583,410			8,064,593			2,734,162			2,868,839			8,003,178			7,583,410
Selling & marketing		703,014			487,786			1,867,880			1,671,767			778,656			703,014			2,197,237			1,867,880
Research & development		332,588			281,820			974,451			901,712			583,492			332,588			1,799,821			974,451
Depreciation & amortization		434,348			505,585			1,476,178			1,530,811			400,062			434,348			1,231,634			1,476,178
Total operating expense		4,338,789			3,604,711			11,901,919			12,168,883			4,496,372			4,338,789			13,231,870			11,901,919

Operating income		1,297,062			1,016,468			4,381,720			1,554,668
Operating income (loss)														(532,159	)		1,297,062			71,557			4,381,720

Other income (expense):
Interest expense, net		(468,955	)		(622,869	)		(1,674,499	)		(1,821,726	)		(450,582	)		(468,955	)		(1,390,318	)		(1,674,499	)
Currency exchange rate gain (loss)		191,058			535,141			1,133,900			(655,791	)		(750,124	)		191,058			(460,033	)		1,133,900
Other income (loss), net		0			0			1,000,782			(4,347	)		(1,593,099	)		0			(959,628	)		1,000,782
Total other income (expense)		(277,897	)		(87,728	)		460,183			(2,481,864	)		(2,793,805	)		(277,897	)		(2,809,979	)		460,183
Income (loss) before income taxes		1,019,165			928,740			4,841,903			(927,196	)		(3,325,964	)		1,019,165			(2,738,422	)		4,841,903
Income tax (benefit) expense		(178,876	)		514,678			136,137			612,426			279,095			(178,876	)		719,718			136,137
Net income (loss) attributable to common shareholders		1,198,041			414,062			4,705,766			(1,539,622	)		(3,605,059	)		1,198,041			(3,458,140	)		4,705,766
Foreign currency translation adjustments		36,762			8,497			89,250			76,987			(527,431	)		36,762			(530,204	)		89,250
Comprehensive income (loss)	$	1,234,803		$	422,559		$	4,795,016		$	(1,462,635	)	$	(4,132,490	)	$	1,234,803		$	(3,988,344	)	$	4,795,016
Net income/(loss) per share – basic:
Net income/(loss) per share	$	0.10		$	0.04		$	0.41		$	(0.14	)
Net income (loss) per share													$	(0.31	)	$	0.10		$	(0.30	)	$	0.41
Weighted average shares outstanding		11,460,694			11,414,150			11,436,609			11,362,416			11,566,869			11,460,694			11,546,673			11,436,609
Net income/(loss) per share – diluted:
Net income/(loss) per share	$	0.10		$	0.04		$	0.39		$	(0.14	)
Net income (loss) per share – diluted:
Net income (loss) per share													$	(0.31	)	$	0.10		$	(0.30	)	$	0.39
Weighted average shares outstanding		12,015,742			11,414,150			12,051,679			11,362,416			11,566,869			12,015,742			11,546,673			12,051,679

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

~~Table of Contents~~

-2-

TRACK GROUP, INC. AND SUBSIDIARIES

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

(Unaudited)

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

Balance September 30, 2020		11,414,150	$	1,141	$	302,270,242		$	(302,270,933	)	$	(921,073	)	$	(920,623	)
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	)		0			0			0
Cash received for options/warrants exercised																		-		0		10,570			0			0			10,570
Tax withheld on issuance of Common Stock																		-		0		(3,076	)		0			0			(3,076	)
Foreign currency translation adjustments																		-		0		0			0			(22,858	)		(22,858	)
Net loss																		-		0		0			(305,322	)		0			(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		-		0		0			0			317,835			317,835			-		0		0			0			20,085			20,085
Net income		-		0		0			1,323,494			0			1,323,494			-		0		0			452,241			0			452,241
Balance December 31, 2020		11,414,150	$	1,141	$	302,270,242		$	(300,947,439	)	$	(603,238	)	$	720,706
Balance March 31, 2022																		11,541,452	$	1,154	$	302,258,446		$	(298,681,608	)	$	(1,057,122	)	$	2,520,870

Issuance of Common Stock for options/warrants exercised																		37,306		4		(4	)		0			0			0
Tax withheld on issuance of Common Stock																		-		0		(28,368	)		0			0			(28,368	)
Issuance of Restricted Common Stock to employees for services																		285,000		28		(28	)		0			0			0
Amortization of equity-based compensation granted to employees																		-		0		94,340			0			0			94,340
Foreign currency translation adjustments		-		0		0			0			(265,347	)		(265,347	)		-		0		0			0			(527,431	)		(527,431	)
Issuance of Common Stock for options/warrants exercised		39,640		4		(4	)		0			0			0
Net income		-		0		0			2,184,231			0			2,184,231
Balance March 31, 2021		11,453,790	$	1,145	$	302,270,238		$	(298,763,208	)	$	(868,585	)	$	2,639,590

Foreign currency translation adjustments		-		0		0			0			36,762			36,762
Issuance of Common Stock for options/warrants exercised		8,176		1		(1	)		0			0			0
Tax withheld on issuance of Common Stock for options/warrants exercised		-		0		(2,375	)		0			0			(2,375	)
Net income		-		0		0			1,198,041			0			1,198,041
Balance June 30, 2021		11,461,966	$	1,146	$	302,267,862		$	(297,565,167	)	$	(831,823	)	$	3,872,018
Net loss																		-		0		0			(3,605,059	)		0			(3,605,059	)
Balance June 30, 2022																		11,863,758	$	1,186	$	302,324,386		$	(302,286,667	)	$	(1,584,553	)	$	(1,545,648	)

Common Stock

Paid-in

Accumulated

Comprehensive

Shares

Amount

Capital

Deficit

Income (Loss)

Total

Balance September 30, 2019

11,401,650

$ 1,140

$ 302,250,556

$ (302,152,292 )

$ (1,001,602 )

$ (902,198 )

Share-based compensation

-

0

19,687

0

0

19,687

Issuance of Common Stock to employees for services

12,500

1

(1 )

0

0

0

Foreign currency translation adjustments

-

0

0

0

(64,098 )

(64,098 )
Net loss

-

0

0

(232,625 )

0

(232,625 )
Balance December 31, 2019

11,414,150

1,141

302,270,242

(302,384,917 )

(1,065,700 )

(1,179,234 )

Foreign currency translation adjustments

-

0

0

0

132,588

132,588

Net loss

-

0

0

(1,721,059 )

0

(1,721,059 )
Balance March 31, 2020

11,414,150

$ 1,141

302,270,242

(304,105,976 )

(933,112 )

(2,767,705 )

Foreign currency translation adjustments

-

0

0

0

8,497

8,497

Net income

-

0

0

414,062

0

414,062

Balance June 30, 2020

11,414,150

$ 1,141

$ 302,270,242

$ (303,691,914 )

$ (924,615 )

$ (2,345,146 )

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

Balance September 30, 2020		11,414,150	$	1,141	$	302,270,242		$	(302,270,933	)	$	(921,073	)	$	(920,623	)

Foreign currency translation adjustments		-		0		0			0			317,835			317,835
Net income		-		0		0			1,323,494			0			1,323,494
Balance December 31, 2020		11,414,150	$	1,141	$	302,270,242		$	(300,947,439	)	$	(603,238	)	$	720,706

Foreign currency translation adjustments		-		0		0			0			(265,347	)		(265,347	)
Issuance of Common Stock for options/warrants exercised		39,640		4		(4	)		0			0			0
Net income		-		0		0			2,184,231			0			2,184,231
Balance March 31, 2021		11,453,790	$	1,145	$	302,270,238		$	(298,763,208	)	$	(868,585	)	$	2,639,590

Foreign currency translation adjustments		-		0		0			0			36,762			36,762
Issuance of Common Stock for options/warrants exercised		8,176		1		(1	)		0			0			0
Tax withheld on issuance of Common Stock for options/warrants exercised		-		0		(2,375	)		0			0			(2,375	)
Net income		-		0		0			1,198,041			0			1,198,041
Balance June 30, 2021		11,461,966	$	1,146	$	302,267,862		$	(297,565,167	)	$	(831,823	)	$	3,872,018

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

~~Table of Contents~~

-3-

TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income (loss)	$	4,705,766		$	(1,539,622	)	$	(3,458,140	)	$	4,705,766
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		3,011,261			2,995,207			3,697,632			3,011,261
Bad debt expense		107,429			190,697
Bad debt expense (recovery)								(39,724	)		107,429
Stock based compensation		0			19,687			94,340			0
Deferred income tax expense (benefit)								279,367			(266,753	)
Loss on monitoring equipment included in cost of revenue		307,776			400,888			218,118			307,776
Amortization of debt issuance costs		11,111			0			105,783			11,111
Amortization of monitoring center assets included in cost of revenue		28,687			0			363,077			28,687
Income on extinguishment of debt		(1,000,756	)		0			0			(1,000,756	)
Income on forgiveness of accrued vendor expenses								(633,471	)		0
Foreign currency exchange (gain)/loss		(1,133,900	)		655,791			460,033			(1,133,900	)
Change in assets and liabilities:
Accounts receivable, net		(942,127	)		1,448,833			1,502,015			(942,127	)
Inventories		4,200			26,500			109,934			4,200
Prepaid expense, deposits, and other assets		(2,520,763	)		267,608			(170,821	)		(2,254,010	)
Accounts payable		150,222			(2,039,014	)		(1,197,458	)		150,222
Accrued liabilities		949,143			949,192			(1,142,174	)		949,143
Net cash provided by operating activities		3,678,049			3,375,767			188,511			3,678,049

Cash flow from investing activities:
Purchase of property and equipment		(115,577	)		(63,374	)		(68,382	)		(115,577	)
Capitalized software		(1,305,520	)		(1,089,879	)		(560,167	)		(1,305,520	)
Purchase of monitoring equipment and parts		(2,350,770	)		(810,042	)		(2,413,539	)		(2,350,770	)
Net cash used in investing activities		(3,771,867	)		(1,963,295	)		(3,042,088	)		(3,771,867	)

Cash flow from financing activities:
Principal payments on long-term debt		(155,069	)		(27,446	)		(378,775	)		(155,069	)
Payment of deferred financing fees		(271,084	)		0			0			(271,084	)
Tax withholdings related to net share settlement of equity-based awards								(31,444	)		0
Proceeds from exercise of stock options								10,570			0
Proceeds from notes payable		1,943,213			933,200			0			1,943,213
Net cash provided by financing activities		1,517,060			905,754
Net cash provided by (used in) financing activities								(399,649	)		1,517,060

Effect of exchange rate changes on cash		91,796			(184,292	)		(253,803	)		91,796

Net increase in cash		1,515,038			2,133,934
Net increase (decrease) in cash								(3,507,029	)		1,515,038
Cash, beginning of period		6,762,099			6,896,711			8,421,162			6,762,099
Cash, end of period	$	8,277,137		$	9,030,645		$	4,914,133		$	8,277,137

Cash paid for interest	$	673,109		$	26,160		$	1,855,187		$	673,109
Cash paid for taxes							$	201,956		$	566,869

Non-cash investing and financing activities
Interest previously in accrued liabilities and added to Notes Payable (See Note 19)	$	12,531,556		$	0		$	0		$	12,531,556

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

~~Table of Contents~~

-4-

TRACK GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(1)~~

(1) BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial information of Track Group, Inc. and subsidiaries (collectively, the “Company” or “Track Group”) has been prepared in accordance with the Instructions to Form ~~10-Q~~10-Q and Article 8 of Regulation ~~S-X~~S-X promulgated by the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, ~~2021,~~ 2022, and results of its operations for the three and nine months ended June 30, ~~2021.~~ 2022. These financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form ~~10-K~~10-K for the year ended September 30, ~~2020,~~ 2021, filed with the SEC on December ~~23, 2020.~~16, 2021 (the “Annual Report”). The results of operations for the three and nine months ended June 30, ~~2021~~ 2022 may not be indicative of the results for the fiscal year ending September 30, ~~2021.~~2022.

As of June 30, ~~2021~~ 2022 and September 30, ~~2020,~~ 2021, the Company had an accumulated deficit of ~~$297,565,167~~$302,286,667 and ~~$302,270,933,~~$298,828,527, respectively. The Company had ~~net income of $4,705,766 for the nine months ended June 30, 2021 and incurred~~ a net loss of ~~$1,539,622~~$(3,458,140) and net income $4,705,766 for the nine months ended June 30, ~~2020. The~~2022 and 2021, respectively. As of June 30, 2022, the Company ~~may continue to incur losses and require additional financial resources. The Company also has~~had $42,864,000 of debt maturing in July 2024 and six notes payable maturing between ~~February~~January 2, 2024 and February 17, 2025 related to the construction of two monitoring centers in Chile totaling ~~$1,776,876 at June 30, 2021. See~~$976,471 (See Note ~~19.~~19). The Company’s ~~transition to~~continuation of profitable operations is dependent upon generating a level of revenue adequate to support its cost structure, which it has achieved on an operating basis, although the Company needs to resolve its largest debt obligation which matures on July 1, 2024. Management has evaluated the significance of these conditions and has determined that the Company can meet its operating obligations for a reasonable period of time. The Company expects to fund operations using cash on hand and through operational cash flows through the upcoming twelve months.

~~(2)~~(2) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Track Group, Inc. and its active subsidiaries, Track Group Analytics Limited, Track Group Americas, Inc., Track Group International LTD., and Track Group - Chile SpA. All significant inter-company transactions have been eliminated in consolidation. Certain prior year amounts on the consolidated statement of cash flows have been reclassified to conform to the current period presentation. These reclassifications have no impact on the previously reported results.

~~(3)~~(3) RECENT ACCOUNTING STANDARDS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies, which are adopted by the Company as of the specified effective date.

Recently ~~Adopted Accounting Standards~~

~~In February 2016, FASB issued Accounting Standards Update (“~~~~ASU~~~~”) No. 2016-02, “~~~~Leases (Topic 842)”~~. 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 were effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. The Company adopted ASU 2016-02 on October 1, 2019. See Note 16 for the impact the adoption had on our consolidated financial position, results of operations and cash flows.

~~Table of Contents~~

~~Recently~~ Issued Accounting Standards

In January 2017, the FASB issued Accounting Standards Update (“ASU ~~2017-04,~~”) 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ~~The new guidance~~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~~ASU 2017-04 became effective for accelerated filing companies ~~will be effective~~ for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and all other entities should adopt the amendments in ~~this update~~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 does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.

In June 2016, the FASB issued ASU ~~2016-13,~~2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-03”). ASU ~~2016-13~~2016-13 adds a current expected credit loss (“CECL”) impairment model to ~~U.S.~~ 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 beginning of the period of adoption. ASU ~~2016-13 is~~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~~2016-13 in fiscal year ~~2023.~~2024. The Company does not expect the application of the CECL impairment model to have a significant impact on our allowance for uncollectible amounts for accounts receivable.

~~(4)~~

- 5-

(4) 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.

~~(5)~~(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~~“Business Combinations”~~”), 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 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.

8
~~Table of Contents~~
~~(6)~~(6) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) as currently reported under 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 at the prevailing exchange rate at June 30, ~~2021.~~2022.

~~(7)~~(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 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 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.

- 6-

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 June 30, ~~2021~~ 2022 and ~~2020,~~2021, there were ~~15,000~~327,674 and ~~685,259~~15,000 outstanding common share equivalents that were not included in the computation of Basic EPS and Diluted EPS for the ~~three and~~ nine months ended June 30, ~~2021~~ 2022 and ~~2020,~~2021, respectively, as their effect would be anti-dilutive.

At June 30, 2022, 0 options and warrants had exercise prices that were below the market price of $0.70, and have been excluded in the basic and diluted earnings per share calculations. At June 30, 2021, 551,486 ~~stock~~ options and warrants had exercise prices that were below the market price of $2.75, and have been included in the basic and diluted earnings per share calculations. ~~At June 30, 2020, all stock option and warrant exercise prices were above the market price of $0.25, respectively, and thus have not been included in the basic earnings per share calculation.~~

The common stock equivalents outstanding as of June 30, ~~2021~~ 2022 and ~~June 30, 2020~~2021 consisted of the following:

June 30,

June 30,

June 30,

June 30,

2021

2020

2022

2021

Exercisable common stock options and warrants

566,486

685,259

327,674 566,486
Total common stock equivalents

566,486

685,259

327,674 566,486

~~(8)~~(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 ~~a contract liability.~~deferred revenue.
The balance of accounts receivables at June 30, 2022, September 30, 2021 and October 1, 2020 are $5,430,618, $7,163,615 and $5,546,213, respectively. The balances of ~~accounts receivable, net~~ the deferred revenue at June 30, 2022, September 30, 2021 and ~~contract liabilities at~~ October 1, ~~2019 were $6,763,236 and $389,229, respectively. The balance of the contract liabilities at June 30, 2021 and September 30,~~ 2020 ~~were $14,021~~are $14,401, $22,500 and $147,921, respectively, and are included in accrued liabilities on the Consolidated Balance Sheets. The Company recognized $10,512 and $110,027 of deferred revenue in the three and nine months ended June 30, 2022, respectively, and $42,062 and $133,997 of deferred revenue in the three and nine months ended June 30, 2021, ~~respectively, and $70,346 and $219,404 of deferred revenue in the three and nine months ended June 30, 2020,~~ respectively.

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 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 agreed upon terms within the contract. Payment terms are generally 30 days from invoice date.

9
~~Table of 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.
- 7-

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

Three Months Ended
June 30, 2021

Three Months Ended
June 30, 2020

Three Months Ended
June 30, 2022

Three Months Ended
June 30, 2021

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

United States

$ 7,542,836

73 %

$ 5,891,741

69 % $ 6,466,124 72
%
$ 7,542,836 73
%
Latin America

2,649,575

26 %

2,441,429

29 % 2,362,203 26
%
2,649,575 26
%
Other

115,409

1 %

150,740

2 % 145,755 2
%
115,409 1
%
Total

$ 10,307,820

100 %

$ 8,483,910

100 % $ 8,974,082 100
%
$ 10,307,820 100
%

Nine Months Ended
June 30, 2021

Nine Months Ended
June 30, 2020

Nine Months Ended
June 30, 2022

Nine Months Ended
June 30, 2021

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

Total
Revenue

% of Total
Revenue

United States

$ 21,740,027

74 %

$ 16,885,664

67 % $ 19,918,449 71
%
$ 21,740,027 74
%
Latin America

7,521,894

25 %

7,704,645

31 % 7,189,118 26
%
7,521,894 25
%
Other

309,634

1 %

446,158

2 % 946,290 3
%
309,634 1
%
Total

$ 29,571,555

100 %

$ 25,036,467

100 % $ 28,053,857 100
%
$ 29,571,555 100
%

The above table includes total revenue for the Company, of which monitoring and other related services is the majority (approximately ~~99% and 98%~~97% for the nine months ended June 30, ~~2021,~~ 2022, and ~~2020, respectively)~~ approximately 99% for the nine months ended June 30, 2021) of the Company’s revenue. For the nine months ended June 30, 2022, Latin America includes the Bahamas, Chile, Puerto Rico, Panama and the U.S. Virgin Islands. Other includes Canada and Saudi Arabia. For the nine months ended June 30, 2021, Latin America includes the Bahamas, Chile, Mexico, Puerto Rico and the U.S. Virgin Islands. Other includes Canada and Saudi ~~Arabia in the nine months ended June 30, 2021 and Canada, New Zealand, Saudi Arabia, South Africa and Vietnam in the nine months ended June 30, 2020.~~Arabia.

~~(9)~~
(9) PREPAID EXPENSE AND DEPOSITS

As of June 30, ~~2021,~~ 2022 and September 30, ~~2020,~~ 2021, the outstanding balance of prepaid expense and deposits was ~~$895,145~~$922,060 and ~~$866,389,~~$998,589, respectively. These balances are comprised largely of tax deposits, prepaid bond insurance, vendor deposits and other prepaid supplier expense.

~~(10)~~(10) INVENTORY

Inventory is valued at the lower of the cost or net realizable value. Cost is determined using the standard costing method. Net realizable value is determined based on the item selling price. Inventory is periodically reviewed in order to identify obsolete or damaged items or impaired values.
10
~~Table of Contents~~

Inventory consists of ~~finished goods that are to be shipped to customers~~printed circuit boards and other parts used in the assembly of monitoring equipment and for minor repairs of ~~ReliAlert™, Shadow,~~ReliAlert® and other tracking devices. Completed and shipped ~~ReliAlert™~~ReliAlert® and other tracking devices are reflected in Monitoring Equipment. As of June 30, ~~2021,~~ 2022 and September 30, ~~2020,~~ 2021, inventory consisted of the following:

June 30,
2021

September 30,
2020

June 30,
2022

September 30,
2021

Finished goods inventory

$ 136,542

$ 131,089

Monitoring equipment component inventory
$ 817,772 $ 305,210
Reserve for damaged or obsolete inventory

0

(6,483 ) 0 0
Total inventory, net of reserves

$ 136,542

$ 124,606

$ 817,772 $ 305,210

The Company uses a ~~third-party~~third-party fulfillment service ~~provider. As a result~~provider that assembles all of ~~this service,~~ the ~~Company’s employees do not actively assemble~~ new ~~product or repair~~products and repairs the majority of damaged inventory or monitoring equipment shipped directly from ~~suppliers. Purchases of monitoring equipment are recognized directly.~~suppliers and customers. Management believes this process reduces maintenance and fulfillment costs associated with inventory and monitoring equipment. Management reviews inventory regularly to identify damaged or obsolete inventory and reserves for potential losses. The Company recorded charges of ~~$11,103~~$0 during both the three months and ~~$35,123~~nine months ended June 30, 2022. The Company recorded charges of $0 and $11,103, respectively, during the three months and nine months ended June 30, 2021 ~~and 2020, respectively,~~ for inventory that was obsolete, lost or damaged. Obsolete, lost and damaged inventory charges are included in Monitoring, products & other related service costs in the Condensed Consolidated Statement of Operations.

- 8-
~~(11)~~
(11) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of June 30, ~~2021~~ 2022 and September 30, ~~2020:~~2021:

June 30,
2021

September 30,
2020

June 30,
2022

September 30,
2021

Equipment, software and tooling

$ 1,391,426

$ 1,272,635

$ 1,388,322 $ 1,332,379
Automobiles

5,501

5,156

4,397 5,034
Leasehold improvements

1,353,162

1,290,708

381,764 1,268,486
Furniture and fixtures

351,307

341,896

214,467 212,294
Total property and equipment before accumulated depreciation

3,101,396

2,910,395

Total property and equipment
1,988,950 2,818,193
Accumulated depreciation

(2,866,631 )

(2,531,631 ) (1,830,814
)
(2,615,967
)
Property and equipment, net of accumulated depreciation

$ 234,765

$ 378,764

$ 158,136 $ 202,226

Property and equipment depreciation expense for the three months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was $36,002 and $43,275, ~~$74,777,~~ respectively. Property and equipment depreciation expense for the nine months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was $111,232 and $267,740, ~~and $235,555,~~ respectively. During the three month period ending June 30, 2022, the Company wrote-off $771,417 of fully depreciated fixed assets.

~~(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 between one and five years. Monitoring equipment as of June 30, ~~2021~~ 2022 and September 30, ~~2020~~ 2021 was as follows:

June 30,
2021

September 30,
2020

June 30,
2022

September 30,
2021

Monitoring equipment

$ 8,918,449

$ 8,705,830

$ 10,003,828 $ 9,045,193
Less: accumulated depreciation

(5,768,050 )

(6,639,883 ) (6,425,640
)
(5,977,093
)
Monitoring equipment, net of accumulated depreciation

$ 3,150,399

$ 2,065,947

$ 3,578,188 $ 3,068,100

Depreciation of monitoring equipment for the three months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was ~~$367,924~~$343,507 and ~~$356,668,~~$367,924, respectively. Depreciation of monitoring equipment for the nine months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was ~~$1,078,268~~$1,061,916 and ~~$1,084,869,~~$1,078,268, respectively. Depreciation expense for monitoring devices is recognized in cost of revenue. During the nine months ended June 30, ~~2021~~ 2022 and ~~June 30, 2020,~~2021, the Company recorded charges of ~~$296,673~~$218,118 and ~~$400,888,~~$296,673, respectively, for devices that were lost, stolen or damaged. Lost, stolen and damaged items are included in ~~Monitoring,~~monitoring, products & other related service costs in the Condensed Consolidated Statement of Operations.

11
~~Table of Contents~~
~~(13)~~(13) INTANGIBLE ASSETS

The following table summarizes intangible assets at June 30, ~~2021~~ 2022 and September 30, ~~2020,~~ 2021, respectively:

Intangible assets:

June 30,
2021

September 30,
2020

June 30,
2022

September 30,
2021

Patent & royalty agreements

$ 21,170,565

$ 21,170,565

$ 21,120,565 $ 21,120,565
Developed technology

16,210,093

14,134,562

15,319,478 14,919,562
Customer relationships

1,860,000

1,860,000

0 1,860,000
Trade name

320,776

318,438

141,029 141,473
Website

78,201

78,201

Total intangible assets

39,639,635

37,561,766

36,581,072 38,041,600
Accumulated amortization

(18,150,085 )

(16,390,721 ) (18,245,022
)
(17,607,457
)
Intangible assets, net of accumulated amortization

$ 21,489,550

$ 21,171,045

$ 18,336,050 $ 20,434,143

The intangible assets summarized above were purchased or developed on various dates from ~~January 2010~~ July 2011 through June 30, ~~2021. The assets have useful lives ranging from three to twenty years.~~ 2022. Amortization expense for the three months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was ~~$544,534~~$829,788 and ~~$556,937,~~$544,534, respectively. Amortization expense for the nine months ended June 30, ~~2021~~ 2022 and ~~2020~~2021 was $2,524,485 and $1,665,253, ~~and $1,674,783,~~ respectively. During the three month period ending June 30, 2022, the Company wrote-off $1,860,000 of fully amortized intangible assets.

- 9-
~~(14)~~
(14) GOODWILL

The following table summarizes the activity of goodwill at June 30, ~~2021~~ 2022 and September 30, ~~2020,~~ 2021, respectively:

June 30,

September 30,

2021

2020

Balance - beginning of period

$ 8,220,380

$ 8,187,911

Effect of foreign currency translation on goodwill

298,199

32,469

Balance - end of period

$ 8,518,579

$ 8,220,380

June 30,
2022

September 30,
2021

Balance - beginning of year
$ 8,519,998 $ 8,220,380
Effect of foreign currency translation on goodwill
(298,141
)
299,618
Balance - end of year
$ 8,221,857 $ 8,519,998

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. NoNaN impairment of goodwill was recognized through June 30, ~~2021.~~2022.

~~(15)~~(15) OTHER ASSETS

As of June 30, ~~2021~~ 2022 and September 30, ~~2020,~~ 2021, respectively, the ~~outstanding~~ balance of other assets was ~~4,349,103~~$3,953,193 and ~~$2,166,743,~~$4,309,040, respectively. Other assets at June 30, ~~2021~~ 2022are comprised largely of cash used as collateral for Performance Bonds ~~(as defined in Note 23) for an international customer,~~ as well as contractually required monitoring center and other equipment, right of use assets, lease deposits ~~insurance costs~~ and other long-term assets. The Company anticipates these ~~Performance Bonds~~performance bonds will be reimbursed to the Company upon completion of its contracts with the customer. See Note 23.

The Company is 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 will be owned by the customer when construction is completed. The Company ~~has~~ incurred approximately ~~$1.3~~$1.9 million in costs ~~for~~completing the two monitoring centers and related equipment at in Chile as of June 30, 2022. The Santiago monitoring center was completed in June 2021 and ~~estimates~~ the ~~total to construct~~ Puerto Montt monitoring center was completed in January 2022, and ~~equip~~monthly amortization began in the ~~locations will be approximately $2.0 million. The cost~~month of ~~these assets~~completion for each monitoring center over the life of the new contract. Amortization of the monitoring centers is ~~amortized monthly~~recorded in Monitoring, products and other related services in cost of revenue on the Condensed Consolidated Statement of ~~Operations over~~Operations. Amortization of costs related to the ~~life of~~monitoring centers for the ~~new contract.~~three and nine months ended June 30, 2022 were approximately $0.1 million and $0.3 million, respectively. The Company will record revenue from the customer based on a contractually agreed upon unit per day amount during the contract period. See Note 19 for details of the borrowings related to the monitoring centers construction and equipment.

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~~Table of Contents~~
~~(16)~~(16) LEASES
~~Effective October 1, 2019, the Company adopted the new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) “~~~~ASC Topic 842~~” which modified lease accounting for lessees to create transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted the new lease standard utilizing the modified retrospective transaction method, under which amounts in prior periods were not restated. For contracts existing at the time of the adoption, the Company elected not to reassess (a) whether any are or contain leases, (b) lease classification, and (c) initial direct costs. Upon adoption on October 1, 2019, the Company recorded $597,289 right of use assets and lease liabilities. The adoption of the new standard did not impact the Company’s Statements of Operations or Statements of Cash Flows.

The following table shows right of use assets and lease liabilities and the associated financial statement line items as of June 30, ~~2021~~ 2022 and September 30, ~~2020.~~ 2021.

June 30, 2021

September 30, 2020

June 30, 2022

September 30, 2021

Operating lease
asset

Operating lease liability

Operating lease
asset

Operating lease liability

Operating lease
asset

Operating lease liability

Operating lease
asset

Operating lease liability

Other assets

$ 222,947

$ -

$ 375,397

$ -

$ 475,189 $ - $ 165,963 $ -
Accrued liabilities

192,070

-

210,910

- 123,187 - 162,313
Long-term liabilities

30,877

-

164,487

- 352,002 - 3,650

The following table summarizes the supplemental cash flow information for the nine months ended June 30, ~~2021~~ 2022 and ~~2020:~~2021:

June 30,
2021

June 30,
2020

June 30,
2022

June 30,
2021

Cash paid for noncancelable operating leases included in operating cash flows

$ 229,638

$ 280,758

$ 203,953 $ 229,638

Right of use assets obtained in exchange for operating lease liabilities:

$ 2,245

$ 0

$ 496,567 $ 2,245
- 10-

The future minimum lease payments under noncancelable operating leases with terms greater than one year as of June 30, ~~2021~~ 2022 are:

Operating
Leases

Operating
Leases

From July 2021 to September 2021

$ 59,609

From October 2021 to September 2022

170,169

From October 2022 to September 2023

3,612

From July 2022 to June 2023
$ 138,019
From July 2023 to June 2024
97,183
From July 2024 to June 2025
88,340
From July 2025 to June 2026
90,091
From July 2026 to June 2027
91,877
From July 2027 to June 2028
15,362
Undiscounted cash flow

233,390

520,872
Less: imputed interest

(10,443 ) (45,683
)
Total

$ 222,947

$ 475,189

Reconciliation to lease liabilities:

Lease liabilities - current

$ 192,070

$ 123,187
Lease liabilities - long-term

30,877

352,002
Total lease liabilities

$ 222,947

$ 475,189

The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of June 30, ~~2021~~ 2022 were ~~1.1~~4.4 years and 8%4.3%, respectively. The Company’s lease discount rates are generally based on the estimates of its incremental borrowing rate as the discount rates implicit in the Company’s leases cannot be readily determined.

13
~~Table of Contents~~
~~(17)~~(17) ACCRUED LIABILITES

Accrued liabilities consisted of the following as of June 30, ~~2021~~ 2022 and September 30, ~~2020, respectively:~~2021:

June 30,
2021

September 30,
2020

June 30,
2022

September 30,
2021

Accrued payroll, taxes and employee benefits

$ 1,989,977

$ 1,607,920

$ 1,304,565 $ 2,279,454
Deferred revenue

14,021

147,921

14,401 22,500
Accrued taxes - foreign and domestic

154,394

324,221

185,833 23,022
Accrued other expense

109,565

117,264

115,855 236,386
Accrued legal and other professional costs

703,783

725,547

199,915 738,306
Accrued costs of revenue

447,656

309,470

321,945 248,963
Right of use liability

192,070

210,910

123,187 162,313
Deferred financing fees

180,000

0

88,685 180,000
Accrued interest

4,076

11,515,375

3,672 459,086
Total accrued liabilities

$ 3,795,542

$ 14,958,628

$ 2,358,058 $ 4,350,030

~~On March 1, 2021 accrued interest outstanding related to the Conrent Amended Facility Agreement was capitalized, increasing the principal of the outstanding loan. See Note 19.~~
~~(18)~~(18) RELATED PARTIES

ETS Limited is currently the beneficial owner of 4,871,745 shares of the Company's common stock, $0.0001 par value per share (“Common Stock (“”) (the “Track Group Shares”) held by ADS Securities LLC (“ADS”) under an agreement dated September 28, 2017, pursuant to which ADS transferred all of the Track Group Shares to ETS Limited in exchange for all of the outstanding shares of ETS Limited. A Director of ETS Limited was elected to the Company's current Board of Directors (the “Board”) on February 7, ~~2018.~~2018 and is still serving on the Board in his current capacity as a senior executive at ADS.

On September 8, 2020, the Company received a letter from ADS informing the Company that ADS had been assigned the right to payment under that certain Loan Facility dated September 14, 2015, by and between Sapinda Asia Limited and the Company (the “~~Sapinda Loan Agreement~~”). On September 30, 2020, the Company and ADS settled the outstanding amount due under the Sapinda Loan Agreement for $2.7 million. The Company recorded a gain of approximately $0.7 million during the fiscal year ended September 30, 2020.

- 11-
~~(19)~~
(19) DEBT OBLIGATIONS

Debt obligations, net of debt issuance costs, as of June 30, ~~2021~~ 2022 and September 30, ~~2020~~ 2021, consisted of the following:

June 30,
2021

September 30,
2020

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, net of unamortized issuance costs of $360,602, bearing interest at a rate of 4% per annum, payable in arrears annually beginning July 1, 2022, with all principal and accrued and unpaid interest due on July 1, 2024. The Company paid $581,045 interest on this loan during the nine months ended June 30, 2021 and intends to make its interest payments every six months going forward.

$ 42,503,398

$ 30,400,000

Note payable with BMO Harris Bank for a Paycheck Protection Program (“PPP”) loan with the U.S. Small Business Administration (“SBA”), bearing interest at a rate of 1% per annum, with a maturity of May 19, 2022. The loan was forgiven on January 8, 2021.

0

933,200

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.

83,960

0

Note Payable Agreement with Banco Santander, net of unamortized issuance costs of $26,099 at June 30, 2021, bearing interest at a rate of 5.04% per annum, with a maturity date of May 11, 2024.

394,615

0

Note Payable Agreement with Banco Estado, net of unamortized issuance costs of $18,885 at June 30, 2021, bearing interest at a rate of 3.50% per annum, with a maturity date of January 2, 2024.

321,123

0

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.

183,643

0

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $389 at June 30, 2021, bearing interest at a rate of 2.54% per annum, with a maturity date of March 4, 2024.

121,576

0

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $34,498 at June 30, 2021, bearing interest at a rate of 3.12% per annum, with a maturity date of February 17, 2025.

592,088

0

Total debt obligations

44,200,403

31,333,200

Less: current portion

(552,555 )

(30,914,625 )
Long-term debt, less current portion

$ 43,647,848

$ 418,575

14
~~Table of Contents~~

June 30,
2022

September 30,
2021

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. Unamortized issuance costs at June 30, 2022 are $240,401. The Company paid $876,331 and $862,043 interest on this loan on January 5, 2022 and June 30, 2022, respectively and intends to make its interest payments every six months going forward.
$ 42,623,599 $ 42,533,449

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.
43,301 70,176

Note Payable Agreement with Banco Santander, net of unamortized issuance costs of $13,707, bearing interest at a rate of 5.04% per annum, with a maturity date of May 11, 2024.
212,843 332,354

Note Payable Agreement with Banco Estado, net of unamortized issuance costs of $9,251, bearing interest at a rate of 3.50% per annum, with a maturity date of January 2, 2024.
168,188 279,869

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.
96,454 153,984

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $198, bearing interest at a rate of 2.54% per annum, with a maturity date of March 4, 2024.
62,619 101,447

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $20,053, bearing interest at a rate of 3.12% per annum, with a maturity date of February 17, 2025.
349,857 507,071

Total debt obligations
43,556,861 43,978,350
Less: current portion
(474,353
)
(526,134
)
Long-term debt, less current portion
$ 43,082,508 $ 43,452,216

On October 21, 2020, the Company requested, in writing, an additional extension to the maturity date of the $30.4 million Amended Facility Agreement. On November 25, 2020, the noteholders who owned the securities from Conrent used to finance the Amended Facility Agreement (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 extends the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalizes the accrued and unpaid interest increasing the outstanding principal amount and reduces the interest rate of 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~~Amended Facility for total principal of $42,931,556. Conrent forgave $67,556 of the total amount due and the ~~new Amended Facility~~ principal and interest due under the Amended Facility became $42,864,000. Interest payments are scheduled to be made on ~~July 1, 2022, July 1, 2023~~ June 30 and ~~on July 1, 2024 with the principal payment.~~ December 31 each year, which began June 30, 2021. We ~~will begin~~began amortizing deferred financing fees of approximately $360,000 on July 1, 2021. As of June 30, ~~2021, $42,864,000~~2022, $42,864,000 of principal and $0 of interest was owed to Conrent.

On May 19, 2020, the Company received net proceeds of $933,200 from a potentially forgivable loan from the SBA pursuant to the PPP enacted by Congress under the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “~~CARES Act~~~~”) administered by the SBA (the “~~~~PPP Loan~~~~”). On December 8, 2020, the Company filed the application for forgiveness with BMO Harris Bank National Association (the “~~~~Lender~~”) and on January 8, 2021, the Company received a notification from the Lender that the SBA remitted funds to fully repay the PPP Loan, and that the funds were utilized to pay-off and close the PPP Loan and that the PPP Loan was fully forgiven.
On January 6, 2021, the Company borrowed 70,443,375 Chilean Pesos (~~“CLP”~~(“CLP”) ~~($101,186 USD)~~($101,186USD) from HP Financial Services Chile ~~Limitada.~~Limitada (the “HP Note 1”). To facilitate the ~~Loan,~~HP Note 1, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The ~~loan~~HP Note 1 was used to purchase PABX (private automatic branch exchange phone equipment) for the construction of the Gendarmeria de Chile monitoring centers in Santiago and Puerto Montt, ~~Chile.~~Chile (the “Santiago Monitoring Center” and “Puerto Montt Monitoring Center”, respectively). The ~~loan~~HP Note 1 bears an interest rate of 6.56% per annum, payable monthly with principal beginning February 2021, and a maturity date of February 6, 2024.
- 12-

On January 12, 2021, the Company borrowed 347,198,500CLP ~~($482,965 USD)~~ ($482,965USD), net of 2,801,500CLP fees ~~($3,897 USD)~~($3,897USD), from Banco ~~Santander.~~Santander (the “Banco Santander Note”). To facilitate the ~~Loan,~~Banco Santander Note, the Company entered into a Note Payable Agreement with Banco Santander as the lender. The ~~loan~~Banco Santander Note was used ~~to comply with~~for the construction of ~~Gendarmeria de Chile monitoring center in~~the Santiago ~~Chile~~Monitoring Center and remodeling a temporary monitoring center. The ~~loan~~Banco Santander Note 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)~~ ($27,275USD) in broker fees which are amortized over the life of the loan.

On February 2, 2021, the Company borrowed 247,999,300CLP ~~($338,954 USD)~~ ($338,954USD), net of 2,000,700CLP fees ~~($2,734USD)~~($2,734USD), from Banco ~~Estado.~~Estado (the “Banco Estado Note”). To facilitate the ~~Loan,~~Banco Estado Note, the Company entered into a Note Payable Agreement with Banco Estado as the lender. The ~~loan provided~~Banco Estado Note was used for the construction of the ~~Gendarmeria de Chile monitoring center in~~ Santiago ~~city~~Monitoring Center and computer equipment for Gendarmeria branch offices. The ~~loan~~Banco Estado Note bears an interest at a rate of 3.50% per annum, initially having a ~~6-month~~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 ~~($19,304 USD)~~ ($19,304USD) in broker fees which are amortized over the life of the loan.

15
~~Table of Contents~~
On February 4, 2021, the Company borrowed 149,794,432CLP ~~($205,330 USD)~~ ($205,330USD) from HP Financial Services Chile ~~Limitada.~~Limitada (the “HP Note 2”). To facilitate the ~~Loan,~~HP Note 2, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The ~~loan~~HP Note 2 was used to purchase computer equipment for the ~~Gendarmeria de Chile monitoring center in~~ Santiago ~~Chile.~~Monitoring Center. The ~~loan~~HP Note 2 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 ~~($136,564 USD)~~ ($136,564USD), net of 210,485CLP fees ~~($286 USD)~~($286USD), from Banco de ~~Chile.~~Chile (the “Banco de Chile Note 1”). To facilitate the ~~Loan,~~Banco de Chile Note, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The ~~loan provided~~Banco de Chile Note was used to purchase HVAC equipment for ~~Gendarmeria~~the Santiago Monitoring Center. The Banco de Chile ~~monitoring center in Santiago, Chile. The loan~~Note bears an 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 ~~($678,214 USD)~~ ($678,214USD) from Banco de ~~Chile.~~Chile (the “Banco de Chile Note 2”). To facilitate the ~~Loan,~~Banco de Chile Note 2, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The ~~loan proceeds will be~~Banco de Chile Note 2 was used as working capital and to ~~comply with~~complete the construction of the ~~Gendarmeria monitoring center in~~ Puerto Montt ~~Chile.~~Monitoring Center. The ~~loan~~Banco de Chile Note 2 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 ~~($38,317 USD)~~ ($38,317USD) in broker fees which are amortized over the life of the loan.
All the notes payable listed above are unsecured.

The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of June 30, ~~2021:~~2022:

Twelve months ended June 30:

Total

Total

2022

$ 552,555

2023

604,073

$ 474,353
2024

500,856

406,696
2025

42,983,392

42,959,422
Total

44,640,876

43,840,471
Issuance costs

(440,473 ) (283,610
)
Debt obligations, net of unamortized issuance costs

$ 44,200,403

$ 43,556,861

~~(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.~~
~~The Company is authorized to issue~~Common Stock and 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 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 June 30, ~~2021,~~ 2022, there were no0 shares of ~~preferred stock~~Preferred Stock outstanding.

NoNaN dividends were paid during the ~~three- and nine-month period~~nine months ended June 30, ~~2021~~ 2022 or ~~2020, respectively.~~2021.

- 13-
Series A Convertible Preferred Stock

On October 12, 2017, the Company filed a Certificate of Designation of the Relative Rights and Preferences (“Certificate of Designation”) with the Delaware Division of Corporations, designating 1,200,000 shares of the Company’s ~~preferred stock~~Preferred Stock as Series A ~~Preferred.~~Preferred (“Series A Preferred”). Shares of Series A Preferred rank senior to the Company’s ~~common stock,~~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.

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 Series A Preferred is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding shares of our ~~common stock.~~Common Stock.
16
~~Table of Contents~~

The Series A Preferred has no separate dividend rights; however, whenever the Board declares a dividend on the Company’s ~~common stock,~~Common Stock, if ever, each holder of record of a share of Series A Preferred shall be entitled to receive an amount equal to such dividend declared on one share of ~~common stock~~Common Stock multiplied by the number of shares of ~~common stock~~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~~liquidation preference of $35.00 per share, and is convertible, at the holder’s option, into ten shares of the Company’s ~~common stock,~~Common Stock, subject to adjustments as set forth in the Certificate of Designation, at any time beginning five hundred and forty days after the date of issuance.

As of June 30, ~~2021, no~~2022, 0 shares of Series A Preferred were issued and outstanding.

~~(21)~~(21) STOCK OPTIONS AND WARRANTS

Stock Incentive Plan

At the annual meeting of stockholders on ~~March 21, 2011,~~ April 13, 2022, our stockholders approved the ~~2012~~2022 Omnibus Equity ~~Compensation~~Incentive Plan (the “~~2012~~2022 Plan”)., previously approved by the Company’s Board. The ~~2012~~2022 Plan provides for the grant of incentive ~~stock~~ options and nonqualified ~~stock~~ options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, other stock-based awards and performance-based awards to employees and certain non-employees who provide services to the Company in lieu of cash. A total of ~~90,000~~500,000 shares ~~were initially~~are authorized for issuance pursuant to awards granted under the ~~2012~~2022 Plan. At the 2015 annual meeting of stockholders held on May 19, 2015, our stockholders approved a 713,262 share increase to the total number of shares authorized under the 2012 Plan. Warrants for Board members vest immediately, and warrants issued to employees vest annually over either a two or three-year period after the grant date.

The 2022 Plan supersedes and replaces the Company’s 2012 Equity Compensation Plan (the “2012 Plan”). As of June 30, 2020, the Board ~~of Directors~~ suspended further awards under the 2012 Plan. Any awards outstanding under the 2012 Plan ~~until further notice.~~will remain subject to the 2012 Plan. All shares of Common Stock remaining authorized and available for issuance under the 2012 Plan and any shares subject to outstanding awards under the 2012 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under our 2022 Plan. On April 13, 2022, the Company issued 285,000 restricted shares to members of its executive team from the 2022 Plan valued at $370,500. The Company recorded expense of $0$94,340 and ~~$19,687~~$0 for the nine months ended June 30, ~~2021~~ 2022 and ~~2020,~~2021, respectively, related to the ~~vesting of common stock awarded prior to the suspension of the 2012~~2022 Plan. ~~On February 11, 2021 and April 15, 2021, former members of the Board of Directors received 39,640 and 8,176~~There were 250,384 shares of Common Stock ~~by exercising95,872 and 22,901 warrants, respectively, through a net exercise provision of the Common Stock Purchase Warrant Agreement. There were 27,218 shares of common stock~~ available ~~for issuance~~ under the ~~2012~~2022 Plan as of June 30, ~~2021.~~2022.

All Options and Warrants

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 nine months ended June 30, 2021 and 2020, the Company granted no options and warrants to purchase shares of common stock under the 2012 Plan. The warrants for Board members vest immediately and expire five years from grant date and warrants or options issued to employees vest annually over either a two to three-year period and expire five years after the final vesting date of the grant. The Company recorded expense of $0 for the nine months ended June 30, ~~2021~~ 2022 and ~~2020,~~2021, respectively, related to the issuance and vesting of outstanding ~~stock~~ options and warrants.
During the nine months ended June 30, 2022 and 2021, the Company granted 0 options or warrants under the 2012 Plan. All options and warrants outstanding under the 2012 Plan have vested and are exercisable at as of June 30, ~~2021 and no future issuances are expected under the 2012 Plan.~~2022.

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).

17
~~Table of Contents~~
- 14-

A summary of stock option (warrant) activity for the ~~three~~nine months ended June 30, ~~2021~~ 2022 is presented below:

Shares Under Option

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

Shares Under Option

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (years)

Aggregate Intrinsic Value

Outstanding as of September 30, 2020

685,259

$ 1.56

1.90 years

$ -

Outstanding as of September 30, 2021
457,075 $ 1.74 1.04 $ 779,977
Granted

-

0

- -
Expired/Cancelled

-

0

(29,304
)
1.20
Exercised

(118,773 )

(1.19 )

(100,097
)
1.23
Outstanding as of June 30, 2021

566,486

$ 1.64

1.14 years

$ 835,516

Exercisable as of June 30, 2021

566,486

$ 1.64

1.14 years

$ 835,516

Outstanding as of June 30, 2022
327,674 1.95 0.51 $ 0
Exercisable as of June 30, 2022
327,674 1.95 0.51 $ 0

The intrinsic value of options and warrants outstanding and exercisable is based on the Company’s share price of ~~$2.75~~$0.70 at June 30, ~~2021.~~2022.

~~(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 nine months ended June 30, ~~2021~~ 2022 and ~~2020,~~2021, the Company incurred a net income (loss) for income tax purposes of ~~$4,705,766~~$(3,458,140) and ~~($1,539,622)~~$4,705,766, respectively. The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, 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

~~From~~The Company is, from time to time, ~~claims are made against~~involved in various legal proceedings incidental to the ~~Company~~conduct of our business. Historically, the outcome of nearly all such legal proceedings has not, in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties, and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not haveaggregate, had a material adverse ~~impact~~effect on ~~the Company’s~~our business, financial ~~position or~~condition, results of ~~operations.~~operations or liquidity. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.

SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior).On March 24, 2017, SecureAlert Inc. filed a complaint before the Federal Administrative Tribunal, asserting the failure by defendants to pay claimant amounts agreed to, and due under, the Pluri Annual Contract for the Rendering of Monitoring Services of Internees, through Electric Bracelets, in the Islas Marias Penitentiary Complex dated July 15, 2011, entered into by and between the Organo Administrativo Desconcentrado Prevencion y Readaptacion Social (“OADPRS”) of the then Public Security Department, and presently, an agency of the National Security Commission of the Department of the Interior, and SecureAlert, Inc., presently Track Group, Inc. The Company’s claim amount is upwards of $6.0 million. The Supreme Court took action to resolve previous, conflicting decisions regarding the jurisdiction of such claims and determined that such claims will be resolved by the Federal Administrative Tribunal. Subsequently, plaintiff filed an Amparo action before the Collegiate Court, seeking an appeal of the Federal Administrative Court’s earlier decision against plaintiff. The Collegiate Court issued a ruling in August 2019 that the matter of dispute was previously resolved by a lower court in 2016. The Company ~~disagrees~~disagreed with this ruling and on November 11, 2020 made a re-demand of the OADPRS for payment due under the July 15, 2011 contract. The OADPRS failed to respond within its allotted 3 months’ time-period and the Company filed an Amparo Action on May 6, 2021, which was dismissed. The Company additionally filed a motion for annulment with the Federal Administrative Tribunal on August 4, 2021, which was denied. The Company is ~~pending.~~presently reviewing 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.

18
~~Table of Contents~~
- 15-

~~Blaike Anderson v. Track Group, Inc., et. al.~~On June 24, 2019, Blaike Anderson filed a complaint seeking unspecified damages in the State Court of Marion County, Indiana, alleging liability on the part of defendants for providing a defective ankle monitoring device and failure to warn plaintiff regarding the condition thereof. The Company removed the matter to federal court and subsequently filed its answer denying Plaintiff’s allegations in August 2019. On July 1, 2021 the parties reached a settlement, and the case was dismissed with prejudice on July 22, 2021 pursuant to a joint stipulation of the parties.
Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation. On January 23, 2020, the Company was served with a summons for an Adversary Action pending against International Surveillance Services Corporation (“ISS”), a subsidiary of the Company, now known as Track Group – Puerto Rico Inc., in the United States District Court for the District of Puerto Rico seeking to avoid and recover allegedly constructive fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stem from payments made to ISS between 2014 and 2017, which the Company believes were properly made in accordance with a contract between ISS and the government of Puerto Rico, through the Oficina de Servicios con Antelacion a Juicio, originally signed in 2011. The Company is confident that all payments it received were earned and due under applicable law and ~~has~~ produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020. On August 26, 2021, the Court entered an order staying the Adversary Action pending the Court’s confirmation of the Commonwealth’s Proposed Plan of Adjustment, which was confirmed on March 15, 2022, and effective April 15, 2022. On April 14, 2022, the newly appointed Avoidance Action Trustee moved to establish case management procedures, which motion was granted in part on May 23, 2022, further extending the stay. The parties ~~remain~~are continuing to discuss resolution during the stay, including participation in ~~discussion regarding a resolution to~~court-ordered mediation, which would take place in the ~~matter.~~coming months.

Eli Sabag v. Track Group, Inc., et al. On March 12, 2020, Eli Sabag commenced an arbitration with the International Centre for Dispute Resolution, Case Number ~~01-20-0003-6931.~~01-20-0003-6931. The arbitration claim, as it pertains to the Company, alleges breach of the Share Purchase Agreement (“~~SPA”~~SPA”) between the Company and Sabag. Sabag alleges that the Company breached the SPA because it failed to pay him his earn-out after it sold or leased a sufficient number of GPS Global Tracking devices to meet the earn-out milestone, or alternatively, breached the SPA by failing to act in “good faith” to allow Sabag to achieve his earn-out. Sabag further claims that the Company fraudulently induced Sabag to sell GPS Global Tracking and Surveillance System Ltd. to the Company. To avoid the uncertainty and expense of continued arbitration, the Company reached a settlement of $1.6 million with the claimant on June 10, 2022. The ~~Company has entered its appearance and~~settlement is recorded on ~~July 17, 2020, filed its Answer denying~~ the ~~allegations~~Condensed Consolidated Statement of the claim and asserting numerous defenses. The Company continues to vigorously defend against the allegations. An arbitration is scheduled for April 2022. The Company has not accrued any potential loss after consultation with outside legal counsel.Operations as “Other income (loss), net”.

Jeffrey Mohamed Abed v. Track Group, Inc., et al. On June 7, 2021, Jeffrey Mohamed Abed filed a complaint seeking unspecified damages in the Superior Court of the State of California in Case No.21 STCV 21345, alleging strict products liability, negligence and breach of implied warranty premised upon injuries sustained by ~~the Plaintiff~~Abed who was involved in an automobile accident while wearing a GPS tracking device of the 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 a potential loss has ~~not yet~~ been ~~served~~made, after consultation with legal counsel.
Track Group Chile SpA. v. Republic of Chile. On January 24, 2022, Track Group Chile SpA. initiated a judicial action in the Court of Justice of Chile to settle a contract dispute with the ~~lawsuit.~~Republic of Chile. The Company asserts that it has complied with its contractual obligations and that any delays in so doing were not attributable to the Company. The Company remains confident in its position and no accrual for a potential loss has been made, after consultation with legal counsel.

Jesus Valle Gonzalez, et al. v. Track Group-Puerto Rico, et al. On May 9, 2022 Plaintiff, Jesus Valle Gonzalez filed a Complaint in the Court of First Instance, San Juan Superior Court, Commonwealth of Puerto Rico against the Company, and associated parties alleging the death of his mother on June 8, 2016 was as 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. Plaintiff in this matter asserts his claim now having reached the age of majority. Plaintiff is requesting damages of no less than $1.5 million. The Company disputes the Plaintiff’s claims, and the Company’s Answer and Affirmative Defenses were filed June 29, 2022.
Monitoring Equipment
The Company leases monitoring equipment 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.
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The Company’s 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 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. No change to the Company’s accounting treatment of devices occurred with the adoption of ASC 842.
Operating lease revenue associated with the Company’s monitoring equipment for the three and nine months ended June 30, 2022 and 2021 are shown in the table below:

Three months ended
June 30,

Nine months ended
June 30,

2022

2021

2022

2021

Monitoring equipment operating revenue
$ 7,355,582 $ 8,773,942 $ 22,807,064 $ 25,164,256
Performance Bonds

As of June 30, ~~2021,~~2022, the Company has two performance bonds in connection with a foreign customer totaling ~~$2,508,585,~~$2,004,961 (“Performance Bonds”), of which ~~$1,755,976~~$1,403,446 is held in an interest-bearing account on behalf of the customer and is recorded in Other Assets on the Consolidated Balance Sheet. The remaining amount of ~~$752,609~~$601,515 is guaranteed by a foreign financial institution on behalf of the Company. The amounts held on the two Performance Bonds will be released approximately 90 days after the expiration of the Performance Bonds, ~~as follows: $327,945~~of which $262,106 expires on January 18, ~~2022~~ 2023 and ~~$1,428,031~~$1,141,340 expires on July 2, 2024.
In March 2021, the Company ~~has~~ placed a ~~$714,032~~ deposit into an interest-bearing account with a financial institution to replace the performance bond expiring on July 2, 2024, whereby the portion guaranteed by the financial institution will increase from 30% to 65% of the total bond. At June 30, 2022, including interest, the value of this deposit is $675,499. The current bond expiring July 2, 2024 will be released following completion of the transaction.

The Company pays interest on the full amount of the Performance Bonds to the financial institution providing the guarantee at 3.5% interest per annum for the Performance Bond ~~expiring~~which will expire in January ~~2022~~ 2023 and 2.8% interest per annum for the Performance Bond expiring in July 2024. ~~Related~~The Company recorded interest expense ~~recorded~~ for the ~~nine~~three months ended June 30, 2022 and 2021 of ~~$43,490. During~~$11,144 and $6,161, respectively. The Company recorded interest expense for the nine months ended June 30, ~~2020 the Company expensed $12,484 related to the Performance Bond which expires on January 18, 2022.~~2022 and 2021 of $44,560 and $43,490, respectively.

~~(24)~~(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 no subsequent events that are reasonably likely to impact the financial statements.

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Item 2. ~~Management’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 (the “Annual Report”), and those described from time to time in our reports filed with the Securities and Exchange Commission ~~(“SEC”~~(“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, 2020,~~ 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”, “our”, and “us” refer to Track Group, Inc., a Delaware corporation.

General

Our ~~core~~ business is based on the 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~~”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.

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®XC 4 - ReliAlert®XC4 is our flagship GPS device, which is the safest and most reliable monitoring device ever made. It is the only one-piece GPS device with 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, a 95db siren, embedded RF technology, anti-tampering capability, increased battery life and sleep mode.
ReliAlert®-XC 3 - Advanced features enable agencies to effectively track offender movements and communicate directly with offenders in real-time, through a patented, on-board two/three-way voice communication technology. This device includes an enhanced GPS antenna and GPS module for higher sensitivity GPS, enhanced voice audio quality, increased battery performance of 50+ hours, 3G cellular capabilities, improved tamper sensory and durability enhancements.
Shadow~~. Our~~ - Driven by customer demand to improve the performance and affordability of offender tracking devices, ~~utilize patented technology~~Shadow is a small and ~~are securely attached around an offender’s ankle with~~light device featuring a ~~tamper resistant strap that cannot be adjusted or removed without detection, unless~~mobile charging capability. The device is 3G compliant and fully supported by ~~a supervising officer, and which are activated through services provided by our monitoring centers. The ReliAlert~~^TM and Shadow units are intelligent devices 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 ReliAlert^TM platform also incorporates voice communication technology that provides officers with 24/7/365 voice communication with the offenders. Both devices are FCC, CE and PTCRB certified and protected by numerous patents and trademarks.global mobility providers.
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Monitoring Center 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, 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.
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Data Analytics Services. - Our ~~TrackerPAL~~^TMIntelliTrack, TrackerPAL® software, ~~TrackerPAL~~^TMIntelliTrack Mobile, TrackerPAL® Mobile, combined with our Data Analytic analysis tools, provide an integrated platform allowing case managers and law enforcement officers quick access views of an offender’s travel behavior, mapping, and inference on patterns. Our ~~advanced~~ data analytics ~~service offers a highly complex~~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 ~~reporting mechanism that combines modern statistical methods, developed using computer science~~modeling to proactively analyze information on community-released offenders to discover hidden relationships and ~~used by intelligence agencies that separate noteworthy events from normal events, rank offender cases according~~patterns in their behaviors and to ~~their need for supervision, and relate decision-relevant metrics to benchmarks in real-time.~~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 business. Although we still manufacture patented tracking technology, we see the physical goods as only a small part of the integrated offender monitoring solutions we provide. Accordingly, rather than receiving a payment just for a piece of manufactured equipment, the Company receives a recurring stream of revenue for ongoing device agnostic subscription contracts. As part of our strategy, we continue to expand our device-agnostic platform to not only collect, but also store, analyze, assess and correlate location data for both accountability and auditing reasons, as well as to use for predictive analytics and assessment of effective and emerging techniques in criminal behavior and rehabilitation. We believe a high-quality customer experience along with knowledgeable ~~salespersons~~salespeople who can convey the value of our 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 and other monitoring services is critical to the development and sale of innovative technologies and integrated solutions today and 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, 2020, filed with the SEC on December 23, 2020.~~Report. During the nine months ended June 30, ~~2021,~~2022, there have been no material changes to the 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, revenue and 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 has adversely impacted both the Company’s revenue and costs by disrupting its operations in Chile, causing shortages within the supply chain and postponing certain sales opportunities as some government agencies delay new RFP (Request for Proposal) ~~processes. (See Item 1A - Risk Factors).~~processes or decisions. Notwithstanding the challenges, the monitoring being performed by the Company’s significant customers across the globe have remained operational, as have key business partners providing manufacturing and call center ~~services. Furthermore,~~services, and at this time the Company has not experienced unusual payment interruptions from any large ~~customers~~customers. As the conditions have improved with respect to COVID-19, both our Chile office and the ~~majority of Company employees are effectively working from home to mitigate the challenges created by COVID-19, although there are now plans to reopen offices~~corporate headquarters in the ~~US and Chile later this year.~~greater-Chicago area have recently reopened. However, the Company is operating in a rapidly changing environment, soand the extent to which COVID-19 impacts its business, operations and financial results ~~from this point~~going forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors ~~include the following:~~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.

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Results of Operations

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended June 30, ~~2020~~2021

Revenue

For the three months ended June 30, ~~2021,~~2022, the Company recognized total revenue from operations of ~~$10,307,820~~$8,974,082 compared to ~~$8,483,910~~$10,307,820 for the three months ended June 30, ~~2020, an increase~~2021, a decrease of ~~$1,823,910~~$1,333,738 or approximately ~~21%~~13%. The ~~$1,823,910 increase~~$1,333,738 decrease in total revenue was largely the result of ~~an increase~~a decrease in domestic monitoring revenue and other related ~~services. For the three months ended June 30, 2021, the Company recognized revenue from monitoring and other related~~ services, ~~of $10,183,133 compared to $8,325,697 for the three months ended June 30, 2020,~~partially offset by an increase ~~of $1,857,436 or approximately 22%. This growth~~in product sales. The decrease in monitoring and other related services revenue ~~is more predictable than product sales. Monitoring and other related service revenue, which comprises~~was principally the ~~substantial majority~~result of ~~total revenue, increased due to growth~~a decrease of our North American monitoring operations driven by clients in Illinois, ~~Indiana, Chile, Michigan,~~Virginia, and ~~Virginia,~~the Bahamas, partially offset by ~~a decrease~~increases in revenue in ~~Mexico~~Canada and ~~a U.S. reseller of our services.~~Chile.

Product sales and other revenue for the three months ended June 30, ~~2021 decreased~~2022 was $137,460 as compared to $124,687 ~~from $158,213~~ in the same period in ~~2020, a decrease~~2021, an increase of ~~$33,526~~$12,773 or approximately ~~21%~~10%.

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 initially caused by the slowdown of many chip makers and logistics companies due to COVID-19. The shortage, which could last through at least the remainder of ~~2021,~~2022, has been exacerbated by the surge in demand for a wide variety of products across several industries, all of which require varying amounts of semiconductors. As a result, until such time as chip manufacturers are able to meet global demand, our future operating results may be negatively impacted. ~~See~~ ~~Item 1A. Risk Factors~~.

Cost of Revenue

During the three months ended June 30, ~~2021,~~2022, cost of revenue totaled ~~$4,671,969~~$5,009,869 compared to cost of revenue during the three months ended June 30, ~~2020~~2021 of ~~$3,862,731,~~$4,671,969, an increase of ~~$809,238~~$337,900 or approximately ~~21%~~7%. The increase in cost of revenue was largely the result of higher ~~monitoring costs of $565,012, higher commission costs of $138,874, higher server costs of $125,479, higher freight costs of $62,481 and higher~~ depreciation and amortization costs of ~~$38,589.~~$287,849, higher device repair costs of $290,794 and higher communication costs of $70,646. These increases were partially offset by lower monitoring center costs of $275,008 and lower device lost stolen and damaged ~~devices of $81,515 and lower repair~~ costs of ~~$63,458.~~$55,513.

Depreciation and amortization included in cost of revenue for the three months ended June 30, ~~2021~~2022 was $809,235 compared to depreciation and ~~2020 totaled~~amortization of $521,386 ~~and $482,797, respectively,~~during the three months ended June 30, 2021, an increase of ~~$38,589.~~$287,849. These costs represent the depreciation of ~~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 the amortization of our new software monitoring platform and other new software initiatives, which began on July 1, 2021, partially offset by a decrease in depreciation expense related to fully depreciated devices. We believe the equipment lives on which the depreciation is based 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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Gross Profit and Margin

During the three months ended June 30, 2022, gross profit totaled $3,964,213, resulting in a gross margin of approximately 44%. During the three months ended June 30, 2021, gross profit totaled $5,635,851, ~~representing an increase of $1,014,672 or approximately 22% compared to the same period last year,~~ resulting in a gross margin of approximately 55% ~~compared to $4,621,179 or a gross margin of approximately 54% during the three months ended June 30, 2020.~~. The ~~increase~~decrease in absolute gross profit of ~~$1,014,672~~$1,671,638, or ~~22%~~approximately 30%, is due to ~~an increase in~~lower revenue ~~of $1,823,910, offset by associated~~and increases in certain costs of revenue, including depreciation and amortization, device repair costs
and communication costs, partially offset by lower monitoring ~~activity, commission~~ costs ~~server costs, freight~~ and ~~depreciation of devices.~~lost, stolen and damaged costs.

General and Administrative Expense

During the three months ended June 30, ~~2021,~~2022, general and administrative expense totaled ~~$2,868,839~~$2,734,162 compared to ~~$2,329,520~~$2,868,839 for the three months ended June 30, ~~2020.~~2021. The ~~increase~~decrease of ~~$539,319~~$134,677, or approximately ~~23%~~5%, in general and administrative expense resulted largely from ~~higher legal and professional fees~~lower bonus expense of ~~$271,660, higher payroll and payroll taxes of $123,687, higher~~$368,834, lower bad debt expense of ~~$58,277, higher~~$141,905 and lower severance expense of ~~$42,082,~~$54,405. These costs were offset by higher ~~travel~~payroll and ~~entertainment expense~~related taxes and benefits of ~~$26,774~~$132,558, higher insurance costs of $104,748, higher stock-based compensation costs of $94,340, and higher ~~insurance expense~~outside service costs of ~~$26,547.~~$93,961.
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Selling and Marketing Expense

During the three months ended June 30, ~~2021,~~2022, selling and marketing expense ~~increased~~totaled $778,656 compared to $703,014 ~~compared to $487,786~~ for the three months ended June 30, ~~2020.~~2021. The increase in expense of ~~$215,228,~~$75,642, or approximately ~~44%~~11%, is principally the result of higher ~~consulting~~travel related costs of $47,841 and ~~outside service~~higher trade show expense of ~~$103,738, higher payroll and payroll taxes of $91,165 and higher travel and entertainment expense of $14,616.~~$30,997.

Research and Development Expense

During the three months ended June 30, ~~2021,~~2022, research and development expense totaled ~~$332,588~~$583,492 compared to ~~$281,820~~$332,588 for the three months ended June 30, ~~2020, an~~2021. The increase in expense of ~~$50,768~~$250,904, or approximately ~~18%. The increase~~75%, resulted largely from ~~higher~~continuous improvements of our existing software, resulting in increased payroll and ~~taxes~~related tax expense of ~~$39,925~~$199,246 after the implementation and ~~higher dues and subscriptions of $6,107. In addition, we are significantly enhancing our technology platform to improve the efficiency~~subsequent amortization of our new monitoring software, ~~firmware, user interface~~increased outside service costs of $32,363 and ~~automation.~~increased travel expense of $9,078. As a result of ~~these improvements, $407,839 was capitalized as~~the implementation of our new monitoring software on July 1, 2021, capitalization of developed technology decreased to $249,642 during the three months ended June 30, ~~2021 and $409,149~~2022, which represents technology projects currently in development compared to the $407,839 which was capitalized in the three months ended June 30, ~~2020.~~2021. A portion of this expense would have been recognized as research and development expense, absent the significant enhancements to the technology.

Depreciation and Amortization Expense

During the three months ended June 30, ~~2021,~~2022, depreciation and amortization expense totaled ~~$434,348~~$400,062 compared to ~~$505,585~~$434,348 for the three months ended June 30, ~~2020,~~2021, a decrease of ~~$71,237~~$34,286 or approximately ~~14%~~8%, largely due to fully depreciated assets.

Total Operating Expense

During the three months ended June 30, ~~2021,~~2022, total operating expense ~~increased~~was $4,496,372 compared to $4,338,789 ~~compared to $3,604,711~~ for the three months ended June 30, ~~2020,~~2021, an increase of ~~$734,078~~$157,583, or approximately ~~20%~~4%. The increase is principally due to the factors disclosed above.

Operating Income (loss)

During the three months ended June 30, ~~2021,~~2022, operating loss was $(532,159) compared to operating income ~~was~~of $1,297,062 ~~compared to $1,016,468~~ for the three months ended June 30, ~~2020, an improvement~~2021, a reduction of ~~$280,594~~$1,829,221, or approximately ~~28%~~141%. This ~~improvement~~reduction was due to ~~an increase~~a decrease in gross profit of ~~$1,014,672,~~$1,671,638, which resulted from ~~higher~~lower revenue ~~of $1,823,910, partially offset by the~~and higher cost of revenue directly related to ~~additional~~the amortization of our new monitoring ~~devices. This increase in gross profit was~~software platform, higher device repair costs and higher communication costs. These increases were partially offset by ~~an increase in operating expense of $734,078, primarily due to higher general~~lower monitoring center costs and ~~administrative expense~~lower device lost stolen and damaged costs. In addition, the Company incurred higher selling and marketing and research and development costs. These increases were partially offset by lower general and administrative expenses and depreciation and amortization expenses in operating expense.

Other Income (Expense)

For the three months ended June 30, ~~2021,~~2022, other income (expense) totaled ~~($277,897)~~an expense of $2,793,805 compared to ~~other (expense)~~an expense of ~~($87,728)~~$277,897 for the three months ended June 30, ~~2020, an increase in net expense of $190,169.~~2021. The increase in other expense for the three months ended June 30, 2022 is largely due to ~~lower positive~~the settlement of litigation of $1,600,000 and unfavorable currency exchange rate movements of ~~$344,083~~$941,182 compared to the third fiscal quarter of ~~2020, partially offset by lower interest expense of $153,914.~~fiscal 2021. See Note ~~19.~~23 to the Condensed Consolidated Financial Statements.

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Net Income (Loss) Attributable to Common Stockholders

The Company had net ~~income~~loss attributable to common stockholders of $(3,605,059), for the three months ended June 30, 2022, compared to net income of $1,198,041 for the three months ended June 30, 2021, ~~compared to~~ a ~~net income attributable to common stockholders~~reduction of ~~$414,062 for the three months ended June 30, 2020, an improvement of $783,979.~~$4,803,100. This ~~improvement~~decline is largely due to ~~improved~~lower operating income ~~a tax benefit related to foreign operations~~ and ~~lower interest expense, partially offset by lower positive currency exchange rate movements.~~higher income taxes.
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Nine ~~months~~Months Ended June 30, ~~2021~~2022 Compared to Nine ~~months~~Months Ended June 30, ~~2020~~2021

Revenue

For the nine months ended June 30, ~~2021,~~2022, the Company recognized revenue from operations of ~~$29,571,555,~~$28,053,857, compared to ~~$25,036,467~~$29,571,555 for the nine months ended June 30, ~~2020, an increase~~2021, a decrease of ~~$4,535,088~~$1,517,698, or approximately ~~18%~~5%. Of this ~~total~~ revenue, $27,148,837 and $29,197,152, ~~and $24,587,212,~~respectively, are from monitoring and other related services, ~~respectively, an increase~~a decrease of ~~$4,609,940~~$2,048,315, or approximately ~~19%~~7%. The ~~increase~~decrease in revenue was principally the result of ~~an increase in total growth~~a decrease of our North American monitoring operations driven by clients in Illinois, ~~Michigan,~~Virginia, the Bahamas and ~~Puerto Rico,~~Indiana, partially offset by increases of our customers in ~~Chile, a U.S. reseller of our services,~~Saudi Arabia, Canada and Mexico. The decrease in revenue in Chile is largely due to a reduction in the number of offenders monitored caused by the impact of COVID-19 on the Chilean courts when compared to the same period in 2021.Chile.

Other revenue for the nine months ended June 30, ~~2021 decreased~~2022 increased to ~~$374,403~~$905,020 from ~~$449,255~~$374,403 in the same period in 2021 largely due to ~~lower license~~product sales ~~and maintenance revenue and lower product sales.~~to a foreign customer.

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 initially caused by the slowdown of many chip makers and logistics companies due to COVID-19. The shortage, which could last through at least the remainder of ~~2021,~~2022, has been exacerbated by the surge in demand for a wide variety of products across several industries, all of which require varying amounts of semiconductors. As a result, until such time as chip manufacturers are able to meet global demand, our future operating results may be negatively ~~impacted. See Item 1A. Risk Factors.~~impacted, due to the potential inability to meet customer demands.

Cost of Revenue

During the nine months ended June 30, ~~2021,~~2022, cost of revenue totaled ~~$13,287,916~~$14,750,430 compared to cost of revenue during the nine months ended June 30, ~~2020~~2021 of ~~$11,312,916,~~$13,287,916, an increase of ~~$1,975,000~~$1,462,514, or approximately ~~17%~~11%. The increase in cost of revenue was largely the result of higher ~~monitoring~~depreciation and amortization costs of ~~$1,361,810, higher commission costs of $447,927,~~$930,915, higher server costs of ~~$245,326,~~$328,456, higher ~~freight~~device repair costs of ~~$185,306~~$215,392, higher contract software maintenance costs of $130,821, higher communication costs of $129,944 and higher ~~depreciation and amortization~~product sales costs of ~~$70,687. These costs were~~$105,734, partially offset by lower ~~repair~~monitoring costs of ~~$162,680, lower drug testing costs of $97,882~~$292,518, and lower lost, stolen and damaged ~~devices~~costs of ~~$93,112.~~$89,658. The higher depreciation and amortization costs are largely due to the amortization of our new monitoring software which began in July 2021.

Depreciation and amortization included in cost of revenue for the nine months ended June 30, 2022 and 2021 totaled $2,465,998 and $1,535,083, respectively. The increase in depreciation and amortization costs of $930,915 is largely due to the amortization of our new software monitoring platform and other new software initiatives of $947,268, which began on July 1, 2021 and ~~2020 totaled $1,535,083 and $1,464,396, respectively. This $70,687 or approximately 5% increase~~a slight decrease in ~~costs represents an increase in the number of~~depreciation expense related to devices. Devices are depreciated over a one to five-year useful life. Royalty agreements are ~~being~~ amortized over a ten-year useful life. The Company believes these equipment and software 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. Amortization of a patent related to GPS and satellite tracking is also included in cost of sales.

Gross Profit and Margin

During the nine months ended June 30, ~~2021,~~2022, gross profit totaled ~~$16,283,639,~~$13,303,427, resulting in a gross margin of approximately ~~55%~~47%, compared to ~~$13,723,551,~~$16,283,639, or a gross margin of approximately 55% during the nine months ended June 30, ~~2020.~~2021. The ~~increase~~decrease in absolute gross profit of ~~$2,560,088~~$2,980,212, or ~~19%~~approximately 18%, is due to ~~an increase~~a decrease in revenue of ~~$4,609,940, offset by associated~~$1,517,698 and increases in certain costs of revenue, including ~~monitoring activity, commission~~higher depreciation and amortization costs of $930,915, higher server costs, ~~freight~~higher device repair costs, higher software maintenance costs, higher communication costs and ~~depreciation of devices.~~higher product sales costs, partially offset by lower monitoring costs and lower lost, stolen and damaged costs.

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General and Administrative Expense

During the nine months ended June 30, ~~2021,~~2022, general and administrative expense totaled ~~$7,583,410~~$8,003,178 compared to ~~$8,064,593~~$7,583,410 for the nine months ended June 30, ~~2020.~~2021. The ~~decrease~~increase of ~~$481,183~~$419,768, or approximately 6%, in general and administrative ~~expense~~costs resulted largely from ~~lower~~higher legal and professional fees of $259,343, higher payroll and payroll taxes of ~~$292,979,~~$251,278, higher insurance costs of $168,140, higher consulting costs of $148,866, higher stock-based compensation costs of $94,340, higher fees and licenses of $65,777, higher travel and entertainment costs of $67,472 and higher training and recruiting costs of $31,237. These costs were partially offset by lower bonus expense of $493,344, lower bad debt expense of ~~$83,268, lower travel and entertainment expenses of $63,231~~$147,153 and lower ~~consulting and outside service expenses~~severance expense of ~~$36,228.~~$61,611.
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Selling and Marketing Expense

During the nine months ended June 30, ~~2021,~~2022, selling and marketing expense totaled ~~$1,867,880~~$2,197,237 compared to ~~$1,671,767~~$1,867,880 for the nine months ended June 30, ~~2020. The $196,113,~~2021. This increase of $329,357, or approximately ~~12% increase~~18%, resulted largely from higher payroll and related taxes of $115,839, higher consulting and outside service ~~expenses~~costs of ~~$146,218,~~$52,691, higher ~~payroll and taxes of $142,385, partially offset by lower~~ travel and entertainment ~~expenses~~costs of ~~$80,745.~~$78,699 and trade show costs of $48,517.

Research and Development Expense

During the nine months ended June 30, ~~2021,~~2022, research and development expense totaled ~~$974,451~~$1,799,821 compared to research and development expense for the nine months ended June 30, ~~2020~~2021 totaling ~~$901,712,~~$ 974,451, an increase of ~~$72,739~~$825,370, or approximately ~~8%. The increase~~85%, resulted largely from ~~higher~~continuous improvements of our existing software, resulting in increased payroll and ~~taxes~~related tax expense of ~~$82,432~~$743,348 after our implementation and subsequent commencement of amortization of our new monitoring software, higher outside service costs of $51,992 and higher ~~dues and subscriptions~~travel costs of $15,658 partially offset by lower travel and entertainment expenses of $28,530. In addition, we are significantly enhancing our technology platform to improve the efficiency of our software, firmware, user interface, and automation.$28,000. As a result of ~~these improvements, $1,305,520 was capitalized as~~the implementation of our new monitoring software on July 1, 2021, capitalization of developed technology decreased to $560,167 during the nine months ended June 30, ~~2021 and $1,089,879~~2022, which represents technology projects currently in development compared to the $1,305,520 which was capitalized ~~during~~in the nine months ended June 30, ~~2020.~~2021. A portion of this expense would have been recognized as research and development expense, absent the significant enhancements to the technology.

Depreciation and Amortization Expense

During the nine months ended June 30, ~~2021,~~2022, depreciation and amortization expense totaled ~~$1,476,178~~$1,231,634, compared to ~~$1,530,811~~$1,476,178 for the nine months ended June 30, ~~2020. The $54,633~~2021. This decrease of $244,544, or approximately ~~4% decrease~~17%, was largely ~~the result of~~due to fully ~~amortized~~depreciated assets.

Total Operating Expense

During the nine months ended June 30, ~~2021,~~2022, total operating expense ~~decreased~~increased to ~~$11,901,919~~$13,231,870 compared to ~~$12,168,883~~$11,901,919 for the nine months ended June 30, ~~2020, a decrease~~2021, an increase of ~~$266,964~~$1,329,951, or approximately 2%11%. The ~~decrease~~increase was largely due to ~~lower~~higher general and administrative expense of ~~$481,183~~$419,768, higher selling and ~~lower depreciation and amortization~~marketing expense of ~~$54,633.~~$329,357 and higher research and development costs of $825,370 as disclosed above. These costs were partially offset by ~~higher selling~~lower depreciation and ~~marketing expense~~amortization of ~~$196,113 and higher research and development expense of $72,739.~~$244,544.

Operating Income

During the nine months ended June 30, ~~2021,~~2022, operating income was ~~$4,381,720~~$71,557 compared to ~~$1,554,668~~$4,381,720 for the nine months ended June 30, ~~2020, an improvement~~2021, a reduction of ~~$2,827,052~~$4,310,163, or approximately ~~182%~~98%. This ~~improvement~~decline was due to ~~an increase~~a reduction in gross profit of ~~$2,560,088~~$2,980,212 and ~~a reduction~~an increase in operating expense of ~~$266,964.~~$1,329,951.

Other Income ~~and Expense~~(Expense)

For the nine months ended June 30, ~~2021,~~2022, other income (expense) totaled ~~$460,183~~$(2,809,979) compared to other ~~(expense)~~income of ~~($2,481,864)~~$460,183 for the nine months ended June 30, ~~2020.~~2021. The ~~decrease~~increase in ~~expense~~other income (expense) of ~~$2,942,047 in net other expense~~$(3,270,162) was ~~largely~~ a result of ~~positive~~negative currency exchange rate movements of ~~$1,789,691,~~$(1,593,933) and a decrease in other income, net of $(1,960,410), which was partially offset by a reduction in interest expense of $284,181. In the nine-months ended June 30, 2022, other income, net, largely represents a litigation settlement of $(1,600,000), partially offset by $633,471 of accrued expenses forgiven by a vendor. See Note 23 to the Condensed Consolidated Financial Statements. Other income, net for the nine-months ended June 30, 2021 largely represents a gain on forgiveness of loans of $1,000,756 ~~and lower interest expense of $147,227.~~in the nine months ended June 30, 2021.

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Net ~~income (loss)~~Income (Loss) Attributable to Common Shareholders

The Company had a net ~~income~~loss from continuing operations for the nine months ended June 30, ~~2021~~2022 totaling ~~$4,705,766~~$(3,458,140) compared to a net ~~loss~~income of ~~($1,539,622)~~$4,705,766 for the nine months ended June 30, ~~2020,~~2021, representing ~~an improvement~~a decline of ~~$6,245,388~~$8,163,906, or approximately ~~406%~~173%.

Liquidity and Capital Resources

The Company is currently self-funded through net cash provided by operating activities. ~~As of June 30, 2021, approximately $42.9 million of principal and no interest was owed to Conrent Invest S.A. (~~~~“Conrent”~~~~) under a loan (the “~~~~Conrent Facility Agreement~~”) that matures on July 1, 2024. Pursuant to an amendment to the Conrent Facility Agreement dated December 21, 2020, previously accrued interest was capitalized and added to the original principal of $30.4 million, following the approval by the noteholders who owned the securities from Conrent used to finance the Conrent Facility Agreement (the “~~Noteholders~~”), effective March 1, 2021. See Note 19 to the Condensed Consolidated Financial Statements. The Company recorded a gain of $67,556 in other income/expense in the nine months ended June 30, 2021 related to the partial forgiveness on the Conrent Facility Agreement.

InOn May 19, 2020, wethe Company received net proceeds of ~~approximately~~ $933,200 from a potentially forgivable loan from the ~~U.S.~~United States Small Business Administration (“(the “SBA”) pursuant to the Paycheck Protection Program (“(the “PPP”) enacted by Congress under the Coronavirus Aid, Relief, and Economic Security Act (15 U.S.C. 636(a)(36)) (the “CARES Act”) administered by the SBA (the “PPP Loan”). On December 8, 2020, the Company filed the application for forgiveness with BMO Harris Bank National Association (the “Lender”) and on January 8, 2021, the Company received a notification from the Lender that the SBA remitted funds to fully repay the PPP Loan, and that the funds were utilized to pay-off and close the PPP Loan and that the PPP Loan was fully forgiven.
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On October 21, 2020, the Company requested, in writing, an additional extension to the maturity date of that certain facility agreement between the Company and Conrent Invest, S.A. (“Conrent"), dated December 30, 2013, as amended on February 24, 2019, and further amended on January 7, 2020 (the "Amended Facility Agreement"), which previously provided for a $30.4 million unsecured debt facility. On November 25, 2020, the investors who owned the securities from Conrent used to finance the facility (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 (the "Amended Facility") which extends the maturity date of the agreement to July 1, 2024, capitalizes the accrued and unpaid interest increasing the outstanding principal amount and reduces the interest rate of 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 Amended Facility for total principal of $42,931,556. Conrent forgave $67,556 of the aggregate amount due under the Amended Facility and the principal and interest due under the Amended Facility became $42,864,000. Interest payments are scheduled to be made on June 30 and December 31 each year, which began on June 30, 2021. We began amortizing deferred financing fees of approximately $360,000 on July 1, 2021. As of June 30, 2022, $42,864,000 of principal and $0 interest was owed to Conrent.
On January 6, 2021, the Company borrowed 70,443,375 Chilean Pesos (“CLP”) ($101,186USD) from HP Financial Services Chile Limitada (the “HP Note 1”). To facilitate the HP Note 1, the Company entered into a Note Payable Agreement with HP Financial Services Chile Limitada as the lender. The HP Note 1 was used to purchase PABX (private automatic branch exchange phone equipment) for the construction of the Gendarmeria de Chile monitoring centers in Santiago and Puerto Montt, Chile (the “Santiago Monitoring Center” and “Puerto Montt Monitoring Center”, respectively). The HP Note 1 bears interest at a 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 (the “Banco Santander Note”). To facilitate the Banco Santander Note, the Company entered into a Note Payable Agreement with Banco Santander as the lender. The Banco Santander Note was used for the construction of the Santiago Monitoring Center and remodeling a temporary monitoring center. The Banco Santander Note bears 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 ~~recorded a gain~~also paid 19,607,843CLP ($27,275USD) in broker fees which are amortized over the life of ~~$933,200 in other income/expense in~~ the ~~nine months ended June 30, 2021 related to the forgiveness on this~~ loan.

~~During the nine months ended June 30,~~On February 2, 2021, the Company ~~received an aggregate of 1,415,243,935~~borrowed 247,999,300CLP ($~~1,943,213 USD)~~338,954USD), net of 2,000,700CLPfees ($2,734USD), from ~~four lenders related principally to~~Banco Estado (the “Banco Estado Note”). To facilitate the Banco Estado Note, the Company entered into a Note Payable Agreement with Banco Estado as the lender. The Banco Estado Note was used for the construction of ~~two monitoring centers~~the Santiago Monitoring Center and computer equipment for Gendarmeria branch offices. The Banco Estado Note bears interest at a 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 ~~Chile. See~~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 (the “HP Note 192”). 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 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 99,808,328CLP ($136,564USD), net of 210,485CLP fees ($286USD), from Banco de Chile (the “Banco de Chile Loan 1”). To facilitate the Banco de Chile Loan 1, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The Banco de Chile Loan 1 was used to purchase HVAC equipment for the Santiago Monitoring Center. The Banco de Chile Loan 1 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 Loan 2”). To facilitate the Banco de Chile Loan 2, the Company entered into a Note Payable Agreement with Banco de Chile as the lender. The Banco de Chile Loan 2 was used as working capital and to complete the construction of the Puerto Montt Monitoring Center. The Banco de Chile Loan 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.
Management will continue to seek other sources of capital, refinancing options, prepayment of debt at a discount and potentially other transactions including the exchange of some debt for an equity related security to reduce its total debt and assist in meeting all of its future obligations. While management believes it will be successful in completing one or more of these alternatives prior to the ~~Condensed Consolidated Financial Statements.~~maturity of the Amended Facility in July 2024, no assurances can be given.

Other than the above-mentioned items, no borrowings or sales of equity securities occurred during the nine months ended June 30, ~~2021~~2022 or during the year ended September 30, ~~2020.~~2021.
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Net Cash Flows ~~from~~Provided by Operating ~~Activities.~~Activities

During the nine months ended June 30, ~~2021,~~2022, we had cash flows ~~provided by~~from operating activities of ~~$3,678,049,~~$188,511, compared to cash flows ~~provided by~~from operating activities of ~~$3,375,767~~$3,678,049 for the nine months ended June 30, ~~2020,~~2021, representing a ~~$302,282 increase~~$3,489,538 decrease, or approximately 9%95%. The ~~increase~~decrease in cash from operations was largely the result of ~~an increase~~lower operating income and a decrease in ~~net income,~~accounts payable and accrued liabilities, partially offset by ~~an increase in prepaid~~a lower use of cash related to performance bonds and ~~other~~monitoring center assets ~~largely associated with the award of~~and a ~~new contract in Chile and an increase~~decline in accounts receivable.

Net Cash Flows ~~from~~(used in) Investing ~~Activities.~~Activities

The Company used ~~$3,771,867~~($3,042,088) of cash ~~for~~from investing activities during the nine months ended June 30, ~~2021,~~2022, compared to ~~$1,963,295~~($3,771,867) of cash used by investing activities during the nine months ended June 30, ~~2020.~~2021. Cash used for investing activities was used for ~~significant enhancements of our software platform and~~ purchases of monitoring and other equipment to meet customer demand and enhancements of certain software during the nine months ended June 30, ~~2021. Purchases~~2022. For the nine months ended June 30, 2022, capitalized software decreased by $745,353 compared to the nine months ended June 30, 2021 as the Company completed its new software platform in the third fiscal quarter of 2021, which was partially offset by increased purchases of monitoring equipment and parts ~~increased $1,540,728,~~of $62,769 compared to the ~~prior period, largely due to increased demand from customers and an increase in capitalized software of $215,641 as the Company completes its new software platform.~~nine months ended June 30, 2021.

Net Cash Flows ~~from~~(used in) Provided by Financing ~~Activities.~~Activities

The Company ~~was provided $1,517,060~~used ($399,649) of cash from financing activities during the nine months ended June 30, ~~2021, compared to $905,754~~2022, which was largely the result of loan principal payments of $(378,775). The Company was provided $1,517,060 of cash ~~provided from~~for financing activities during the nine months ended June 30, ~~2020. The $1,517,060 received in the nine months ended June 30,~~ 2021, ~~was due to~~which included net cash proceeds of $1,672,129 from four lenders related principally to the construction of two monitoring centers in Chile, partially offset by loan principal payments of $155,069. ~~The $905,754 of cash provided by operations during the nine months ended June 30, 2020 was largely due to cash proceeds from the $933,200 PPP loan.~~
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~~Non-Cash Investing and Financing Activities~~

The Company recorded $12,531,556 in non-cash financing activities during the nine months ended June 30, 2021, compared to $0 during the nine months ended June 30, 2020. On March 1, 2021, the Company and Conrent finalized the Amended Facility Agreement and $12,531,556 of accrued interest to the note payable was transferred to the principal amount. See Note 19 to the Condensed Consolidated Financial Statements.
Liquidity, Working Capital and ~~Management’s~~Management’s Plan

As of June 30, ~~2021,~~2022, the Company had unrestricted cash of ~~$8,277,137~~$4,914,133, compared to unrestricted cash of ~~$6,762,099~~$8,421,162 as of September 30, ~~2020.~~2021. As of June 30, ~~2021,~~2022, we had a working capital of ~~$9,080,826,~~$7,641,438, compared to a working capital ~~deficit~~ of ~~$34,773,161~~$9,190,430 as of September 30, ~~2020.~~2021. This ~~increase~~decrease in working capital of ~~$43,853,987~~$1,548,992 is principally due to the ~~3-year extension~~purchase of ~~the Conrent loan of $30,400,000~~monitoring equipment and ~~the capitalization interest to increase the loan balance to $42,864,000 on March 1, 2021, which is now due on July 1, 2024.~~parts, partially offset by cash provided by operations.

On May 19, 2020, the Company received net proceeds of $933,200 from a loan from the SBA pursuant to the PPP enacted by Congress under the CARES Act, which was fully forgiven on January 8, 2021. See Note 19 to the Consolidated Financial Statements.
~~On December 4, 2019, the Company requested that Conrent extend the maturity of the Conrent Facility Agreement from April 1, 2020 to July 1, 2021, which was approved on January 10, 2020 (the “~~~~Amended Facility Agreement~~~~”).~~ On October 21, 2020, the Company requested, in writing, an additional extension to 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 extends the maturity date of the ~~Amended Facility Agreement~~agreement to July 1, 2024, (“~~Amended Facility~~~~”). Pursuant to~~capitalizes the ~~Amended Facility, previously~~ accrued and unpaid interest ~~was capitalized and added to~~increasing the ~~original~~outstanding principal ~~of $30.4 million following Conrent’s receipt of the Noteholders approval, which was completed in the second fiscal quarter of 2021,~~amount and reduces the interest rate of the Amended Facility from 8% to 4%. ~~The~~On June 28, 2021, the Company restarted interest payments to Conrent which will be made semi-annually going forward. See Note 19 to the Consolidated Financial Statements.
During the fiscal year ended September 30, 2021, the Company borrowed approximately $2.0 million through six notes payable, as outlined above, to fund the construction of monitoring centers in Chile required by our new contract. These six notes mature between January 2024 to February 2025, and the principal ~~amount~~repayments on these six notes have all commenced with the current balance of the ~~Amended Facility~~six notes totaling just over $900,000 at June 30, ~~2021 was $42,864,000, excluding financing fees. At June 30, 2021, there is $0 unpaid interest related to the Amended Facility.~~2022. See Note 19 to the Consolidated Financial Statements.

The Company believes it will be able to continue to fund future operations using cash on hand, utilizing operational cash flows and through ~~operational cash flows.~~other financings or refinancing.

Inflation

We do not believe that inflation has had a material impact on our operations or profitability over the ~~last few years.~~four-year period ending in 2020; however, the rise in inflation in 2021 and 2022 has adversely impacted both the Company’s cost of labor and materials, and virtually all other operating expenses.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company footprint extends to a number of countries outside the United States, and we intend to continue to examine international opportunities. As a result, our 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.

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Foreign Currency Risks

The Company conducts business with foreign customers whose contracts are principally in U.S. dollars or in one instance, in local currency. We had ~~$4,534,424~~$4,668,573 and ~~$6,374,742~~$4,534,424 in foreign currency revenue ~~from sources~~ outside of the United States for the nine months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. We made and received payments in a foreign ~~currency~~currencies during the periods indicated, which resulted in foreign exchange loss of $460,033 and a foreign currency gain of $1,133,900 ~~and foreign exchange loss of ($655,791)~~ in the nine months ended June 30, ~~2021~~2022 and ~~2020,~~2021, 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 COVID-19, the conflict in Ukraine, inflation, and the government policies ~~issued as a result of COVID-19.~~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 foreign currency exchange contracts or derivative financial instruments 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 strategies which make use of these or other instruments in order to minimize the effects of foreign currency exchange on our business.

Item 4. Controls 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 June 30, ~~2021~~2022 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 June 30, ~~2021.~~2022.

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 June 30, ~~2021~~2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~From~~The Company is, from time to time, ~~claims are made against~~involved in various legal proceedings incidental to the ~~Company~~conduct of our business. Historically, the outcome of nearly all such legal proceedings has not, in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties, and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not haveaggregate, had a material adverse ~~impact~~effect on ~~the Company’s~~our business, financial ~~position or~~condition, results of ~~operations.~~operations or liquidity. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.

SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior).On March 24, 2017, SecureAlert Inc. filed a complaint before the Federal Administrative Tribunal, asserting the failure by defendants to pay claimant amounts agreed to, and due under, the Pluri Annual Contract for the Rendering of Monitoring Services of Internees, through Electric Bracelets, in the Islas Marias Penitentiary Complex dated July 15, 2011, entered into by and between the Organo Administrativo Desconcentrado Prevencion y Readaptacion Social (“OADPRS”) of the then Public Security Department, and presently, an agency of the National Security Commission of the Department of the Interior, and SecureAlert, Inc., presently Track Group, Inc. The Company’s claim amount is upwards of $6.0 million. The Supreme Court took action to resolve previous, conflicting decisions regarding the jurisdiction of such claims and determined that such claims will be resolved by the Federal Administrative Tribunal. Subsequently, plaintiff filed an Amparo action before the Collegiate Court, seeking an appeal of the Federal Administrative Court’s earlier decision against plaintiff. The Collegiate Court issued a ruling in August 2019 that the matter of dispute was previously resolved by a lower court in 2016. The Company ~~disagrees~~disagreed with this ruling and on November 11, 2020 made a re-demand of the OADPRS for payment due under the July 15, 2011 contract. The OADPRS failed to respond within its allotted 3 months’ time-period and the Company filed an Amparo Action on May 6, 2021, which was dismissed. The Company additionally filed a motion for annulment with the Federal Administrative Tribunal on August 4, 2021, which was denied. The Company is ~~pending.~~presently reviewing 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.

~~Blaike Anderson v. Track Group, Inc., et. al.~~On June 24, 2019, Blaike Anderson filed a complaint seeking unspecified damages in the State Court of Marion County, Indiana, alleging liability on the part of defendants for providing a defective ankle monitoring device and failure to warn plaintiff regarding the condition thereof. The Company removed the matter to federal court and subsequently filed its answer denying Plaintiff’s allegations in August 2019. On July 1, 2021 the parties reached a settlement, and the case was dismissed with prejudice on July 22, 2021 pursuant to a joint stipulation of the parties.
Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation. On January 23, 2020, the Company was served with a summons for an Adversary Action pending against International Surveillance Services Corporation (“ISS”), a subsidiary of the Company, now known as Track Group – Puerto Rico Inc., in the United States District Court for the District of Puerto Rico seeking to avoid and recover allegedly constructive fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stem from payments made to ISS between 2014 and 2017, which the Company believes were properly made in accordance with a contract between ISS and the government of Puerto Rico, through the Oficina de Servicios con Antelacion a Juicio, originally signed in 2011. The Company is confident that all payments it received were earned and due under applicable law and ~~has~~ produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020. On August 26, 2021, the Court entered an order staying the Adversary Action pending the Court’s confirmation of the Commonwealth’s Proposed Plan of Adjustment, which was confirmed on March 15, 2022, and effective April 15, 2022. On April 14, 2022, the newly appointed Avoidance Action Trustee moved to establish case management procedures, which motion was granted in part on May 23, 2022, further extending the stay. The parties ~~remain~~are continuing to discuss resolution during the stay, including participation in ~~discussion regarding a resolution to~~court-ordered mediation, which would take place in the ~~matter.~~coming months.

Eli Sabag v. Track Group, Inc., et al. On March 12, 2020, Eli Sabag commenced an arbitration with the International Centre for Dispute Resolution, Case Number 01-20-0003-6931. The arbitration claim, as it pertains to the Company, alleges breach of the Share Purchase Agreement (“~~SPA”~~SPA”) between the Company and Sabag. Sabag alleges that the Company breached the SPA because it failed to pay him his earn-out after it sold or leased a sufficient number of GPS Global Tracking devices to meet the earn-out milestone, or alternatively, breached the SPA by failing to act in “good faith” to allow Sabag to achieve his earn-out. Sabag further claims that the Company fraudulently induced Sabag to sell GPS Global Tracking and Surveillance System Ltd. to the Company. ~~The~~To avoid the uncertainty and expense of continued arbitration, the Company ~~has entered its appearance and~~reached a settlement of $1.6 million with the claimant on July 17, 2020, filed its Answer denying the allegations of the claim and asserting numerous defenses. The Company continues to vigorously defend against the allegations. An arbitration is scheduled for AprilJune 10, 2022. The ~~Company has not accrued any potential loss after consultation with outside legal counsel.~~settlement is recorded on the Condensed Consolidated Statement of Operations as “Other income (loss), net”.

Jeffrey Mohamed Abed v. Track Group, Inc., et al. On June 7, 2021, Jeffrey Mohamed Abed filed a complaint seeking unspecified damages in the Superior Court of the State of California in Case No. 21 STCV 21345, alleging strict products liability, negligence and breach of implied warranty premised upon injuries sustained by ~~the Plaintiff~~Abed who was involved in an automobile accident while wearing a GPS tracking device of the 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 a potential loss has ~~not yet~~ been ~~served~~made, after consultation with legal counsel.
-27-
Track Group Chile SpA. v. Republic of Chile. On January 24, 2022, Track Group Chile SpA. initiated a judicial action in the Court of Justice of Chile to settle a contract dispute with the ~~lawsuit.~~Republic of Chile. The Company asserts that it has complied with its contractual obligations and that any delays in so doing were not attributable to the Company. The Company remains confident in its position and no accrual for a potential loss has been made, after consultation with legal counsel.

29
Jesus Valle Gonzalez, et al. v. Track Group-Puerto Rico, et al. On May 9, 2022 Plaintiff, Jesus Valle Gonzalez filed a Complaint in the Court of First Instance, San Juan Superior Court, Commonwealth of Puerto Rico against the Company, and associated parties alleging the death of his mother on June 8, 2016 was as 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. Plaintiff in this matter asserts his claim now having reached the age of majority. Plaintiff is requesting damages of no less than $1.5 million. The Company disputes the Plaintiff’s claims, and the Company’s Answer and Affirmative Defenses were filed June 29, 2022.
~~Table of Contents~~

Item 1A. Risk 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, 2020, filed on December 23, 2020.~~Report. You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly 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.

~~The global semiconductor shortage could impact the Company’s future results.~~
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 initially caused by the slowdown of many chip makers and logistics companies due to COVID-19. The shortage, which could last through at least the remainder of 2021, has been exacerbated by the surge in demand for a wide variety of products across several industries, all of which require varying amounts of semiconductors. To meet current demand, the Company has orders for printed circuit board assemblies (~~“PCBAs”~~) required to manufacture new devices which it began receiving in May 2021. However, the lead times for certain components required by our PCBAs are now up to one year or more. As a result, until such time as chip manufacturers are able to meet global demand, our future operating results may be negatively impacted.
~~As of August 10, 2021, other than mentioned above, there have been no material changes to the risk factors disclosed in the above-referenced Form 10-K.~~
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

30
~~Table of Contents~~
Item 6. Exhibits

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

Exhibit
Number
Title of Document
31(i)
Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
31(ii)
Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
32
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith).
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31
~~Table of Contents~~
-28-

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: August 10, ~~2021~~2022
By:
/s/ Derek Cassell
Derek Cassell, Chief Executive Officer
Principal Executive Officer
Date: August 10, ~~2021~~2022
By:
/s/ Peter K. Poli
Peter K. Poli, Chief Financial Officer
(Principal Accounting Officer)

32

-29-

	Three Months Ended June 30, 2021					Three Months Ended June 30, 2020					Three Months Ended June 30, 2022					Three Months Ended June 30, 2021
	Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue

United States	$	7,542,836		73	%	$	5,891,741		69	%	$	6,466,124		72	%	$	7,542,836		73	%
Latin America		2,649,575		26	%		2,441,429		29	%		2,362,203		26	%		2,649,575		26	%
Other		115,409		1	%		150,740		2	%		145,755		2	%		115,409		1	%
Total	$	10,307,820		100	%	$	8,483,910		100	%	$	8,974,082		100	%	$	10,307,820		100	%

	Nine Months Ended June 30, 2021					Nine Months Ended June 30, 2020					Nine Months Ended June 30, 2022					Nine Months Ended June 30, 2021
	Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue

United States	$	21,740,027		74	%	$	16,885,664		67	%	$	19,918,449		71	%	$	21,740,027		74	%
Latin America		7,521,894		25	%		7,704,645		31	%		7,189,118		26	%		7,521,894		25	%
Other		309,634		1	%		446,158		2	%		946,290		3	%		309,634		1	%
Total	$	29,571,555		100	%	$	25,036,467		100	%	$	28,053,857		100	%	$	29,571,555		100	%

	June 30, 2021		September 30, 2020			June 30, 2022		September 30, 2021
Finished goods inventory	$	136,542	$	131,089
Monitoring equipment component inventory						$	817,772	$	305,210
Reserve for damaged or obsolete inventory		0		(6,483	)		0		0
Total inventory, net of reserves	$	136,542	$	124,606		$	817,772	$	305,210

Intangible assets:	June 30, 2021			September 30, 2020
							June 30, 2022			September 30, 2021

Patent & royalty agreements	$	21,170,565		$	21,170,565		$	21,120,565		$	21,120,565
Developed technology		16,210,093			14,134,562			15,319,478			14,919,562
Customer relationships		1,860,000			1,860,000			0			1,860,000
Trade name		320,776			318,438			141,029			141,473
Website		78,201			78,201
Total intangible assets		39,639,635			37,561,766			36,581,072			38,041,600
Accumulated amortization		(18,150,085	)		(16,390,721	)		(18,245,022	)		(17,607,457	)
Intangible assets, net of accumulated amortization	$	21,489,550		$	21,171,045		$	18,336,050		$	20,434,143

	June 30, 2022			September 30, 2021
Balance - beginning of year	$	8,519,998		$	8,220,380
Effect of foreign currency translation on goodwill		(298,141	)		299,618
Balance - end of year	$	8,221,857		$	8,519,998

	June 30, 2021				September 30, 2020				June 30, 2022				September 30, 2021
	Operating lease asset		Operating lease liability		Operating lease asset		Operating lease liability		Operating lease asset		Operating lease liability		Operating lease asset		Operating lease liability

Other assets	$	222,947	$	-	$	375,397	$	-	$	475,189	$	-	$	165,963	$	-
Accrued liabilities				192,070		-		210,910		-		123,187		-		162,313
Long-term liabilities				30,877		-		164,487		-		352,002		-		3,650

	June 30, 2021		June 30, 2020		June 30, 2022		June 30, 2021
Cash paid for noncancelable operating leases included in operating cash flows	$	229,638	$	280,758	$	203,953	$	229,638

Right of use assets obtained in exchange for operating lease liabilities:	$	2,245	$	0	$	496,567	$	2,245

	Operating Leases			Operating Leases
From July 2021 to September 2021	$	59,609
From October 2021 to September 2022		170,169
From October 2022 to September 2023		3,612
From July 2022 to June 2023				$	138,019
From July 2023 to June 2024					97,183
From July 2024 to June 2025					88,340
From July 2025 to June 2026					90,091
From July 2026 to June 2027					91,877
From July 2027 to June 2028					15,362
Undiscounted cash flow		233,390			520,872
Less: imputed interest		(10,443	)		(45,683	)
Total	$	222,947		$	475,189

Reconciliation to lease liabilities:
Lease liabilities - current	$	192,070	$	123,187
Lease liabilities - long-term		30,877		352,002
Total lease liabilities	$	222,947	$	475,189

	June 30, 2021			September 30, 2020

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, net of unamortized issuance costs of $360,602, bearing interest at a rate of 4% per annum, payable in arrears annually beginning July 1, 2022, with all principal and accrued and unpaid interest due on July 1, 2024. The Company paid $581,045 interest on this loan during the nine months ended June 30, 2021 and intends to make its interest payments every six months going forward.	$	42,503,398		$	30,400,000

Note payable with BMO Harris Bank for a Paycheck Protection Program (“PPP”) loan with the U.S. Small Business Administration (“SBA”), bearing interest at a rate of 1% per annum, with a maturity of May 19, 2022. The loan was forgiven on January 8, 2021.		0			933,200

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.		83,960			0

Note Payable Agreement with Banco Santander, net of unamortized issuance costs of $26,099 at June 30, 2021, bearing interest at a rate of 5.04% per annum, with a maturity date of May 11, 2024.		394,615			0

Note Payable Agreement with Banco Estado, net of unamortized issuance costs of $18,885 at June 30, 2021, bearing interest at a rate of 3.50% per annum, with a maturity date of January 2, 2024.		321,123			0

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.		183,643			0

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $389 at June 30, 2021, bearing interest at a rate of 2.54% per annum, with a maturity date of March 4, 2024.		121,576			0

Note Payable Agreement with Banco de Chile, net of unamortized issuance costs of $34,498 at June 30, 2021, bearing interest at a rate of 3.12% per annum, with a maturity date of February 17, 2025.		592,088			0

Total debt obligations		44,200,403			31,333,200
Less: current portion		(552,555	)		(30,914,625	)
Long-term debt, less current portion	$	43,647,848		$	418,575

Twelve months ended June 30:	Total			Total
2022	$	552,555
2023		604,073		$	474,353
2024		500,856			406,696
2025		42,983,392			42,959,422
Total		44,640,876			43,840,471
Issuance costs		(440,473	)		(283,610	)
Debt obligations, net of unamortized issuance costs	$	44,200,403		$	43,556,861

	Shares Under Option			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Shares Under Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding as of September 30, 2020		685,259		$	1.56		1.90 years	$	-
Outstanding as of September 30, 2021											457,075		$	1.74		1.04	$	779,977
Granted		-			0						-			-
Expired/Cancelled		-			0						(29,304	)		1.20
Exercised		(118,773	)		(1.19	)					(100,097	)		1.23
Outstanding as of June 30, 2021		566,486		$	1.64		1.14 years	$	835,516
Exercisable as of June 30, 2021		566,486		$	1.64		1.14 years	$	835,516
Outstanding as of June 30, 2022											327,674			1.95		0.51	$	0
Exercisable as of June 30, 2022											327,674			1.95		0.51	$	0

Exhibit Number		Title of Document

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

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	Track Group, Inc.

Date: August 10, ~~2021~~2022	By:	/s/ Derek Cassell
		Derek Cassell, Chief Executive Officer Principal Executive Officer

Date: August 10, ~~2021~~2022	By:	/s/ Peter K. Poli
		Peter K. Poli, Chief Financial Officer (Principal Accounting Officer)