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 ~~December~~March 31, ~~2024~~2025

☐ 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 ~~February~~May 31, 2025, was 11,863,758.

Table of Contents

TRACK GROUP, INC.

FORM 10-Q

For the Quarterly Period Ended ~~December~~March 31, ~~2024~~2025

INDEX

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2024
Item 4.	Controls and Procedures	2025
PART II. OTHER INFORMATION		25
Item 1.	Legal Proceedings	2125
Item1A.	Risk Factors	2126
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2126
Item 3.	Defaults Upon Senior Securities	2126
Item 4.	Mine Safety Disclosures	2126
Item 5.	Other Information	2126
Item 6.	Exhibits	2226
Signatures		2327

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			September 30,
	March 31,			September 30,
	2024			2024
	2025			2024
Assets
Current assets:
Cash	$	3,~~740~~416,~~043~~045		$	3,574,215
Accounts receivable, net of allowance for credit losses of $525,141 and $432,904, respectively		5,319,041			4,428,535
Accounts receivable, net of allowance for credit losses of $396,667 and $432,904, respectively		5,085,595			4,428,535
Prepaid expense and deposits		~~420~~432,~~680~~520			638,293
Inventory, net of reserves of $99,041 and $82,848, respectively		811,992			582,481
Inventory, net of reserves of $88,024 and $82,848, respectively		915,816			582,481
Assets held for sale		-			969,481
Total current assets		109,~~291~~849,~~756~~976			10,193,005
Property and equipment, net of accumulated depreciation of $293,419 and $430,003, respectively		351,353			317,206
Property and equipment, net of accumulated depreciation of $300,052 and $430,003, respectively		392,423			317,206
Monitoring equipment, net of accumulated depreciation of $5,145,204 and $5,982,972, respectively		4,550,033			4,598,864
Monitoring equipment, net of accumulated depreciation of $5,295,826 and $5,982,972, respectively		4,367,904			4,598,864
Intangible assets, net of accumulated amortization of $19,954,086 and $19,699,966, respectively		13,415,776			13,959,571
Intangible assets, net of accumulated amortization of $20,460,576 and $19,699,966, respectively		13,337,224			13,959,571
Goodwill		7,~~913~~859,~~369~~645			7,941,190
Other assets, net		1,~~238~~160,~~608~~885			660,170
Total assets	$	3736,~~760~~968,~~895~~057		$	37,670,006
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	32,~~336~~398,~~084~~228		$	3,082,467
Accrued liabilities		23,~~542~~318,~~932~~453			2,639,318
Liabilities held for sale		-			732,028
Total current liabilities		5,~~879~~716,~~016~~681			6,453,813
Long-term debt, net of current portion		42,~~659~~680,~~634~~070			42,639,197
Long-term liabilities		~~679~~631,~~823~~709			186,407
Total liabilities		49,~~218~~028,~~473~~460			49,279,417
Commitments and contingencies (Note 22)
Stockholders’ equity (deficit):
Common stock, $0.0001 par value: 30,000,000 shares authorized; 11,863,758 and 11,863,758 shares outstanding, respectively		1,186			1,186
Preferred stock, $0.0001 par value: 20,000,000 shares authorized; 0 shares outstanding		-			-
Series A Convertible Preferred stock, $0.0001 par value: 1,200,000 shares authorized; 0 shares outstanding		-			-
Paid in capital		302,600,546			302,600,546
Accumulated deficit		(315,~~274~~791,~~178~~294	)		(312,691,811	)
Accumulated other comprehensive income (loss)		1,~~214~~129,~~868~~159			(1,519,332	)
Total stockholders’ equity (deficit)		(1112,~~457~~060,~~578~~403	)		(11,609,411	)
Total liabilities and stockholders’ equity	$	37,760,895		$	37,670,006
Total liabilities and stockholders’ equity (deficit)	$	36,968,057		$	37,670,006

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

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TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended December 31,
	Three Months Ended						Six Months Ended
	2024			2023
	March 31,			March 31,			March 31,			March 31,
Revenue:
	2025			2024			2025			2024
Monitoring and other related services	$	8,441,307		$	8,674,485
Revenue:
Product sales and other		227,021			292,487
Monitoring and other related services	$	7,867,975		$	8,758,650		$	16,309,282		$	17,433,136
Total revenue		8,668,328			8,966,972
Product sales and other		484,345			232,570			711,366			525,057
Cost of revenue:
Total revenue		8,352,320			8,991,220			17,020,648			17,958,193
Monitoring, products and other related services		3,508,762			3,973,989
Cost of revenue:
Depreciation & amortization included in cost of revenue		735,224			789,463
Monitoring, products and other related services		3,515,023			4,230,498			7,023,784			8,204,487
Total cost of revenue		4,243,986			4,763,452
Depreciation & amortization included in cost of revenue		723,331			793,887			1,458,556			1,583,351
Gross profit		4,424,342			4,203,520
Total cost of revenue		4,238,354			5,024,385			8,482,340			9,787,838
Operating expense:
Gross profit		4,113,966			3,966,835			8,538,308			8,170,355
General & administrative		2,431,118			2,757,887
Operating expense:
Selling & marketing		901,189			706,531
General & administrative		2,127,145			3,173,866			4,558,263			5,931,753
Research & development		669,391			682,463
Selling & marketing		964,743			810,441			1,865,932			1,516,972
Depreciation & amortization		227,553			239,760
Research & development		750,650			701,183			1,420,040			1,383,646
Loss on sale of subsidiary		66,483			-
Depreciation & amortization		227,385			236,524			454,938			476,284
Total operating expense		4,295,734			4,386,641
Loss on sale of subsidiary		-			-			66,483			-
Operating income (loss)		128,608			(183,121	)
Total operating expense		4,069,923			4,922,014			8,365,656			9,308,655
Other income (expense):
Operating income (loss)		44,043			(955,179	)		172,652			(1,138,300	)
Interest income		2,839			48,162
Other income (expense):
Interest expense		(571,798	)		(486,084	)
Interest expense, net		(565,844	)		(428,868	)		(1,134,804	)		(866,791	)
Currency exchange rate gain (loss)		(134,~~499,262~~830	)		~~538~~(519,~~945~~933	)		(1,464,432	)		19,013
Total other income (expense)		(2,068,221	)		101,023
Other income (expense), net		-			(3,443	)		-			(3,443	)
Income (loss) before income taxes		(1,939,613	)		(82,098	)
Total other income (expense)		(531,014	)		(952,244	)		(2,599,236	)		(851,221	)
Income tax expense (benefit)		71,236			(82,559	)
Income (loss) before income taxes		(486,971	)		(1,907,423	)		(2,426,584	)		(1,989,521	)
Net income (loss) attributable to common stockholders		(2,010,849	)		461
Income tax expense (benefit)		30,145			(4,348	)		101,381			(86,907	)
Release of cumulative translation adjustment for sale of subsidiary		1,390,913			-
Net income (loss) attributable to common shareholders		(517,116	)		(1,903,075	)		(2,527,965	)		(1,902,614	)
Equity adjustment for sale of subsidiary		571,518			-
Release of cumulative translation adjustment for sale of subsidiary		-			-			1,390,913			-
Foreign currency translation adjustments		771,769			(106,702	)
Equity adjustment for sale of subsidiary		-			-			571,518			-
Comprehensive income (loss)	$	723,351		$	(106,241	)
Foreign currency translation adjustments		(85,709	)		(36,754	)		686,060			(143,456	)
Net income (loss) per share – basic
Comprehensive income (loss)	$	(602,825	)	$	(1,939,829	)	$	120,526		$	(2,046,070	)
Net income (loss) per common share	$	(0.17	)	$	0.00
Net income (loss) per share –basic:
Weighted average common shares outstanding		11,863,758			11,863,758
Net income (loss) per share	$	(0.04	)	$	(0.16	)	$	(0.21	)	$	(0.17	)
Net income (loss) per share – diluted
Weighted average shares outstanding		11,863,758			11,863,758			11,863,758			11,863,758
Net income (loss) per common share	$	(0.17	)	$	0.00
Net income (loss) per share – diluted:
Weighted average common shares outstanding		11,863,758			11,863,758
Net income (loss) per share	$	(0.04	)	$	(0.16	)	$	(0.21	)	$	(0.17	)
Weighted average shares outstanding		11,863,758			11,863,758			11,863,758			11,863,758

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

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TRACK GROUP, INC. AND SUBSIDIARIES

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

(Unaudited)

	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			~~Income (~~Loss)			Total
Balance September 30, 2024		11,863,758	$	1,186	$	302,600,546	$	(312,691,811	)	$	(1,519,332	)	$	(11,609,411	)
Release cumulative translation adjustment for sale of subsidiary		-		-		-		-			1,390,913			1,390,913
Foreign currency translation adjustments		-		-		-		-			771,769			771,769
Equity adjustment for sale of subsidiary		-		-		-		(571,518	)		571,518			-
Net loss		-		-		-		(2,010,849	)		-			(2,010,849	)
Balance December 31, 2024		11,863,758	$	1,186	$	302,600,546	$	(315,274,178	)	$	1,214,868		$	(11,457,578	)
Foreign currency translation adjustments		-		-		-		-			(85,709	)		(85,709	)
Net loss		-		-		-		(517,116	)		-			(517,116	)
Balance March 31, 2025		11,863,758	$	1,186	$	302,600,546	$	(315,791,294	)	$	1,129,159		$	(12,060,403	)

	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			~~Income (~~Loss)			Total
Balance September 30, 2023		11,863,758	$	1,186	$	302,597,115	$	(309,610,397	)	$	(1,480,837	)	$	(8,492,933	)
Stock-based compensation		-		-		3,431		-			-			3,431
Foreign currency translation adjustments		-		-		-		-			(106,702	)		(106,702	)
Net income		-		-		-		461			-			461
Balance December 31, 2023		11,863,758	$	1,186	$	302,600,546	$	(309,609,936	)	$	(1,587,539	)	$	(8,595,743	)
Foreign currency translation adjustments		-		-		-		-			(36,754	)		(36,754	)
Net loss		-		-		-		(1,903,075	)		-			(1,903,075	)
Balance March 31, 2024		11,863,758	$	1,186	$	302,600,546	$	(311,513,011	)	$	(1,624,293	)	$	(10,535,572	)

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

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TRACK GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended December 31,
	Six Months Ended March 31,
	2024			2023
	2025			2024
Cash flows from operating activities:
Net income (loss)	$	(2,~~010~~527,~~849~~965	)	$	~~461~~(1,902,614	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		~~962~~1,~~777~~913,494			12,~~029~~059,~~223~~635
Bad debt expense		92249,~~237~~281			~~120~~203,~~703~~972
Sales allowance		-(60,000	)		(356,~~065~~935	)
Allowance for obsolete inventory		165,~~192~~175			-
Stock based compensation		-			3,431
Loss on monitoring equipment included in cost of revenue		92,743			98,673
Deferred Taxes		16,484			-
Amortization of debt issuance costs		21,018			35,413
Loss on monitoring equipment included in cost of revenue		179,631			147,087
Amortization of monitoring center assets included in cost of revenue		-			134,317
Amortization of debt issuance costs		41,454			68,847
Foreign currency exchange (gain) loss		1,499,262			(538,945	)
Amortization of monitoring center assets included in cost of revenue		-			261,487
Loss on disposal of assets		92			-
Foreign currency exchange (gain) loss		1,464,432			(19,013	)
Right of use assets/liabilities		2,695			-
Loss on disposal of assets		397			3,443
Loss on sale of subsidiary		66,483			-
Change in assets and liabilities:
Accounts receivable, net		(1,~~465~~329,~~656~~253	)		(1,~~238~~274,~~726~~177	)
Inventories, net		(~~245~~338,~~703~~511	)		~~315~~313,~~648~~040
Current assets held for sale		719,201			-
Prepaid expense, deposits and other assets		(~~235~~243,~~544~~334	)		63276,~~261~~330
Noncurrent assets		(10,614	)		-
Accounts payable		~~259~~(678,~~245~~611	)		~~480~~846,~~200~~413
Accrued liabilities		~~695~~1,~~606~~474,477			~~141~~1,~~731~~000,005
Current liabilities held for sale		(732,028	)		-
Other current liabilities		58,246			-
Net cash provided by (used in) operating activities		(217,292	)		642,325
Net cash provided by operating activities		271,134			2,044,821
Cash flow from investing activities:
Cash flow used in investing activities:
Purchase of property and equipment		(4190,~~696~~210	)		-(3,280	)
Capitalized software		(~~404~~814,~~244~~360	)		(~~369~~1,~~524~~151,324	)
Purchase of monitoring equipment and parts		(~~507~~857,~~048~~277	)		(~~486~~755,~~991~~912	)
Proceeds from sale of subsidiary, net of cash included in sale		748,715			-
Net cash used in investing activities		(~~204~~1,~~273~~013,132	)		(~~856~~1,~~515~~910,516	)
Cash flow from financing activities:
Cash flow used in financing activities:
Principal payments on long-term debt		(11,399	)		(~~124~~212,~~338~~482	)
Payment of deferred financing fees		(52,440	)		-(38,339	)
Net cash used in financing activities		(63,839	)		(~~124~~250,~~338~~821	)
Effect of exchange rate changes on cash		(~~356~~359,~~178~~743	)		12(295,~~218~~028	)
Net decrease in cash		(~~841~~1,~~582~~165,580	)		(~~326~~411,~~310~~544	)
Cash and cash held for sale, beginning of period (See Note 1)		4,581,625			4,057,195
Cash, end of period	$	3,~~740~~416,~~043~~045		$	3,~~730~~645,~~885~~651
Cash paid for interest	$	742,~~536~~617		$	29432,~~720~~874
Cash paid for taxes	$	~~759~~91,076		$	~~239~~29,334

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

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TRACK GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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 and Article 8 of Regulation 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 ~~December~~March 31, ~~2024~~2025 and results of its operations for the three and six months ended ~~December~~March 31, ~~2024~~2025. 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 for the year ended September 30, 2024, filed with the SEC on December 23, 2024. The results of operations for the three and six months ending ~~December~~March 31, ~~2024~~2025, may not be indicative of the results for the fiscal year ending September 30, 2025.

As of ~~December~~March 31, ~~2024~~2025 and September 30, 2024, the Company had an accumulated deficit of $315,~~274~~791,~~178~~294 and $312,691,811, respectively. The Company had net loss of ($2,~~010~~527,~~849)~~965 for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and a net ~~income~~loss of $~~461~~1,902,614 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. On April 27, 2023, the Company announced a three-year extension of its $42.9 million debt to July 1, 2027 (See Note 18). The Company’s ability to return to profitable operations is dependent upon generating a level of revenue adequate to support its cost structure. Management has evaluated the significance of these conditions, as well as the change in the maturity date, and has determined that the Company can meet its operating obligations for a reasonable period. The Company expects to fund operations using cash on hand and through operational cash flows through the upcoming twelve months.

Sale of Subsidiary

In the first quarter of fiscal 2025, we completed the sale of our Chile subsidiary and recognized a $66,483 loss recorded in Loss on sale of subsidiary in the Condensed Consolidated Statements of Operations and Comprehensive Income for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025. This loss is in addition to a $757,130 impairment on assets held for sale in the fourth quarter of fiscal 2024.

Cash and Cash Held for Sale

Cash and cash held for sale consisted of the following:

	December 31, 2024		September 30, 2024
	March 31, 2025		September 30, 2024
Cash	$	3,~~740~~416,~~043~~045	$	3,574,215
Cash held for sale		-		1,007,410
Total cash and cash held for sale	$	3,~~740~~416,~~043~~045	$	4,581,625

(2) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Track Group, Inc. and its active wholly-owned subsidiaries, Track Group Analytics Limited, Track Group Americas, Inc., and Track Group International LTD., as well as activity for our recently sold subsidiary, Track Group - Chile SpA. All significant inter-company transactions have been eliminated in consolidation.

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(3) RECENT ACCOUNTING STANDARDS

The Company evaluates all Accounting Standards Updates (each an “ASU”, and collectively, “ASUs”) issued by the Financial Accounting Standards Board (“FASB”) for consideration of their applicability to our consolidated financial statements.

New Accounting Standards or Updates Adopted in Fiscal 2025

No new accounting standards or updates were adopted in Fiscal 2025.

Recent Accounting Standards or Updates Not Yet Effective

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. The ASU incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our consolidated financial statements or related disclosures.

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In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This accounting standards update will be effective for us for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses.” The Board is issuing the amendments in this Update to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this Update should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this Update or (2) retrospectively to any or all prior periods presented in the financial statements. The Company will review the guidance in ASU 2024-03 and will adopt disclosures as applicable in fiscal year 2028.

No other new accounting pronouncements issued or effective as of ~~December~~March 31, ~~2024~~2025 have had or are expected to have a material impact on our consolidated financial statements.

(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) 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, which are not required to be recorded in determining net income (loss), but rather are reported as a separate component of stockholders’ equity. The New Israeli Shekel and the Canadian Dollar are used as functional currencies of the following operating subsidiaries: (i) Track Group International Ltd.; and (ii) Track Group Analytics Limited, respectively. The Chilean Peso is the functional currency of our recently sold subsidiary, Track Group - Chile SpA. The balance sheets of all subsidiaries have been converted into United States Dollars at the prevailing exchange rate at ~~December~~March 31, ~~2024~~2025.

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(6) NET INCOME 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.

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 to purchase Common Stock (“warrants”). At ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, there were no stock options or warrants outstanding.

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(7) REVENUE RECOGNITION

Our revenue is predominantly derived from two sources: (i) monitoring services, and (ii) product sales.

Monitoring and Other Related Services

Monitoring services include two components: (i) lease contracts pursuant to which the Company provides monitoring services and leased 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. The Company recognizes revenue on leased devices and monitoring services at the end of each month the services have been provided and payment terms are 30 days from the invoice date. Payment due or received from the customers prior to rendering the associated services are recorded as deferred revenue.

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 shipment, but may vary per contract. Payment terms are generally 30 days from invoice date. When purchasing products (such as ReliAlert® devices) from the Company, customers may, but are not required to, enter into monitoring service contracts with us. The Company recognizes revenue on monitoring services for customers that have previously purchased devices at the end of each month that monitoring services have been provided.

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. There were no multiple element arrangements during the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024.

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.

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Other Matters

The Company considers an arrangement with payment terms longer than the Company’s normal terms not to be fixed or determinable. Normal payment terms for the sale of monitoring services and products are due upon receipt to 30 days. The Company sells devices and services directly to end users and to distributors. Distributors do not have general rights of return. Also, distributors may not have price protection or stock protection rights with respect to devices sold to them by us. Generally, title and risk of loss pass to the buyer upon delivery of the devices.

Shipping and handling fees charged to customers are included as part of total revenue. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of revenue.

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

	Three Months Ended December 31, 2024					Three Months Ended December 31, 2023
	Three Months Ended March 31, 2025					Three Months Ended March 31, 2024
	Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue
United States	$	6,~~473~~434,~~657~~249		7577	%	$	6,~~457~~523,~~328~~541		7273	%
Latin America		1,~~973~~667,~~054~~521		2320	%		2,~~332~~334,~~787~~474		26	%
Other		221,617		2	%		176,857		2	%
Canada		250,550		3	%		133,205		1	%
Total	$	8,~~668~~352,~~328~~320		100	%	$	8,~~966~~991,~~972~~220		100	%

	Six Months Ended March 31, 2025					Six Months Ended March 31, 2024
	Total Revenue		% of Total Revenue			Total Revenue		% of Total Revenue

United States		12,907,906		76	%	$	12,980,869		72	%
Latin America		3,640,575		21	%		4,667,261		26	%
Canada		472,167		3	%		310,063		2	%
Total	$	17,020,648		100	%	$	17,958,193		100	%

The above table includes total revenue for the Company, of which monitoring and other related services is the majority of the Company’s revenue (approximately 94% and 97% for the three months ended March 31, 2025 and 2024, respectively, and approximately 96% and 97% for the six months ended March 31, 2025 and 2024, respectively). Latin America includes Bahamas, Chile, Puerto Rico, Brazil, Panama, Caymen Islands, Paraguay and the U.S. Virgin Islands.

The balance of accounts receivable at March 31, 2025 of $5,085,595 includes an unbilled balance of $0, and the balance of accounts receivable at September 30, 2024 of $4,428,535 does not include an unbilled balance of $495,969, which was included in assets held for sale on the Consolidated Balance Sheet. The balance of accounts receivable at October 1, 2023 of $4,536,916 included an unbilled balance of $490,848. Accounts receivable, which is made up of trade receivables for monitoring and other related services, are carried at original invoice amount less allowances for credits and for any potential uncollectible amounts due to credit losses. We make estimates of the expected credit and collectability trends for the allowance for credit losses based on our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from our customers. Expected credit losses are recorded as selling and marketing expense on our Condensed Consolidated Statements of Operations. As of March 31, 2025, the Company had an allowance for credit losses of $396,667, which includes an allowance for credit memos of $10,000. As of September 30, 2024, the Company had an allowance for credit losses of $432,904, which included an allowance for credit memos of $70,000. As of October 1, 2023, the Company had an allowance for credit losses of $178,095, which included allowance for credit memos of $23,065.

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The ~~above~~following table ~~includes~~summarizes ~~total revenue for~~ the ~~Company,~~activity of ~~which~~allowance ~~monitoring~~for ~~and~~credit ~~other~~losses ~~related~~on ~~services~~accounts isreceivable ~~the majority (approximately 97%~~ for the ~~three~~six months ended ~~December~~March 31, ~~2024 and 2023) of the Company’s revenue. Latin America includes Bahamas, Chile, Puerto Rico, Brazil, Panama, Caymen Islands and the U.S. Virgin Islands. Other includes Canada.~~2025:

The balance of accounts receivable at December 31, 2024 of $5,319,041 includes an unbilled balance of $0 and the balance of accounts receivable at September 30, 2024 of $4,428,535 does not include an unbilled balance of $495,969, which was included in assets held for sale on the Consolidated Balance Sheet. The balance of accounts receivable at October 1, 2023 of $4,536,916 included an unbilled balance of $490,848. Accounts receivable, which is made up of trade receivables for monitoring and other related services, are carried at original invoice amount less allowances for credits and for any potential uncollectible amounts due to credit losses. We make estimates of the expected credit and collectability trends for the allowance for credit losses based on our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from our customers. Expected credit losses are recorded as selling and marketing expense on our Condensed Consolidated Statements of Operations. As of December 31, 2024, the Company had an allowance for credit losses of $525,141, which includes an allowance for credit memos of $70,000, at September 30, 2024 an allowance for credit losses of $432,904, which included an allowance for credit memos of $70,000, and at October 1, 2023 an allowance for credit losses of $178,095, which included an allowance for credit memos of $23,065.

	Six Months Ended March 31, 2025
Balance – beginning of period	$	432,904
Increase to provision for credit losses		189,281
Write offs charged against allowance		(225,518	)
Balance – end of period	$	396,667

~~The~~For ~~following~~the ~~table~~three ~~summarizes~~months ~~the~~ended ~~activity~~March of31, ~~allowance~~2025 ~~for~~and ~~credit~~2024, ~~losses~~the onCompany wrote-off accounts ~~receivable~~receivables ~~for~~of $225,518 and $24,819, respectively. For the ~~three~~six months ended ~~December~~March 31, 2025 and 2024:, the Company wrote-off accounts receivables of $225,518 and $24,832, respectively.

	Three Months Ended December 31, 2024
Balance - beginning of period	$	432,904
Increase to provision for credit losses		92,237
Balance - end of period	$	525,141

The balances of deferred revenue at March 31, 2025, September 30, 2024, and October 1, 2023 were $74,385, $0, and $431, respectively. The Company recognized $0 and $150,431 of deferred revenue in the three months ended March 31, 2025 and 2024, respectively, and $0 and $150,431 of deferred revenue in the six months ended March 31, 2025 and 2024, respectively

For the three months ended December 31, 2024 and 2023, the Company wrote-off accounts receivables of $0 and $14, respectively. The balances of deferred revenue at December 31, 2024, September 30, 2024, and October 1, 2023 were $0, $0, and $431, respectively. The Company recognized $0 and $150,431 of deferred revenue in the three months ended December 31, 2024 and 2023, respectively.

(8) PREPAID EXPENSE AND DEPOSITS

As of ~~December~~March 31, ~~2024~~2025 and September 30, 2024, the outstanding balance of prepaid expense and deposits was $~~420~~432,~~680~~520 and $638,293, respectively. These balances are comprised largely of tax deposits, vendor deposits and other prepaid supplier expense.

(9) INVENTORY

Inventory is valued at the lower of the cost or net realizable value. Cost is determined using the first-in/first-out 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.

Inventory consists of parts used for minor repairs of ReliAlert™, and other tracking devices. Inventory also consists of completed circuit boards and the components used to manufacture circuit boards. Completed and shipped ReliAlert™ and other tracking devices are reflected in Monitoring Equipment. As of ~~December~~March 31, ~~2024~~2025 and September 30, 2024, inventory consisted of the following:

	December 31, 2024			September 30, 2024
	March 31, 2025			September 30, 2024
Monitoring equipment component boards inventory	$	~~911~~1,~~033~~003,840		$	665,329
Reserve for damaged or obsolete inventory		(9988,~~041~~024	)		(82,848	)
Total inventory, net of reserves	$	~~811~~915,~~992~~816		$	582,481

The Company uses a third-party fulfillment service provider. As a result of this service, the Company’s employees do not actively assemble new products or repair a significant amount of monitoring equipment shipped directly from suppliers. Purchases of monitoring equipment are recognized directly. 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~~a recovery of $1611,~~192~~017 and charges of $0 during the three months ended ~~December~~March 31, 2025 and 2024, respectively, and ~~2023~~charges of $5,175 and $0 during the six months ended March 31, 2025 and 2024, respectively, for inventory that was obsolete, lost or damaged. Obsolete, lost and damaged items are expensed in Monitoring, products & other related services in the Consolidated Statement of Operations.

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(10) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of ~~December~~March 31, ~~2024~~2025 and September 30, 2024:

	December 31, 2024			September 30, 2024
	March 31, 2025			September 30, 2024
Equipment, software and tooling	$	~~115~~128,~~496~~164		$	114,088
Leasehold improvements		98,979			237,722
Furniture and fixtures		~~127~~130,~~297~~804			120,364
New device fixed assets		~~303~~334,~~000~~528			275,035
Total property and equipment before accumulated depreciation		~~644~~692,~~772~~475			747,209
Accumulated depreciation		(~~293~~300,~~419~~052	)		(430,003	)
Property and equipment, net of accumulated depreciation	$	~~351~~392,~~353~~423		$	317,206

Property and equipment depreciation expense for the three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024 was $7,~~312~~144 and $1816,~~989~~283, respectively. Property and equipment depreciation expense for the six months ended March 31, 2025 and 2024 was $14,455 and $35,272, respectively. Depreciation expense for property and equipment is recognized in operating expense on the Condensed Consolidated Statements of Operations.

(11) MONITORING EQUIPMENT

The Company leases monitoring equipment to agencies for offender tracking under contractual service agreements. The monitoring equipment is depreciated using the straight-line method over an estimated useful life of between one and three years for customer tablets and three to five years for monitoring devices. Monitoring equipment as of ~~December~~March 31, ~~2024~~2025 and September 30, 2024 is as follows:

	December 31, 2024			September 30, 2024
	March 31, 2025			September 30, 2024
Monitoring equipment	$	9,~~695~~663,~~237~~730		$	10,581,836
Less: accumulated depreciation		(5,~~145~~295,~~204~~826	)		(5,982,972	)
Monitoring equipment, net of accumulated depreciation	$	4,~~550~~367,~~033~~904		$	4,598,864

Depreciation of monitoring equipment for the three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024 was $~~447~~445,~~051~~470 and $~~382~~421,~~453~~653, respectively. Depreciation ~~expense~~of ~~for~~ monitoring ~~devices~~equipment isfor ~~recognized in cost of revenue on~~ the ~~Condensed~~six ~~Consolidated Statements of Operations. During the three~~ months ended ~~December~~March 31, ~~2024~~2025 and ~~2023,~~2024 ~~the~~was ~~Company recorded charges of~~ $71892,~~868~~522 and $98804,~~673~~107, respectively~~, for devices that were lost, stolen or damaged~~. ~~Lost,~~Depreciation ~~stolen~~expense orfor ~~damaged~~monitoring ~~items~~devices ~~are~~is ~~included~~recognized in cost of revenue -on ~~Monitoring, products & other related service costs in~~ the Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2025 and 2024, the Company recorded charges of $47,241 and $48,414, respectively, for devices that were lost, stolen or damaged and $39,647 and $0, respectively, for devices that were sold. During the six months ended March 31, 2025 and 2024, the Company recorded charges of $119,108 and $147,087, respectively, for devices that were lost, stolen or damaged and $60,523 and $0, respectively, for devices that were sold. Lost, stolen or damaged items are included in cost of revenue - Monitoring, products & other related service costs in the Condensed Consolidated Statements of Operations.

(12) INTANGIBLE ASSETS

The following table summarizes the activity of intangible assets at ~~December~~March 31, ~~2024~~2025 and September 30, 2024:

	December 31, 2024							September 30, 2024
	March 31, 2025							September 30, 2024
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Patent & royalty agreements	$	21,120,565	$	(15,~~647~~867,~~138~~379	)	$	5,~~473~~253,~~427~~186	$	21,120,565	$	(15,426,897	)	$	5,693,668
Developed technology		12,~~111~~539,~~473~~366		(4,~~169~~455,~~124~~328	)		78,~~942~~084,~~349~~038		12,399,380		(4,133,477	)		8,265,903
Trade name		137,~~824~~869		(137,~~824~~869	)		-		139,592		(139,592	)		-
Total intangible assets	$	33,~~369~~797,~~862~~800	$	(1920,~~954~~460,~~086~~576	)	$	13,~~415~~337,~~776~~224	$	33,659,537	$	(19,699,966	)	$	13,959,571

The intangible assets summarized above were purchased or developed on various dates from July 2011 through ~~December~~March 31, ~~2024~~2025.

Total amortization expense for the three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024 was $~~508~~498,~~414~~102 and $~~627~~592,~~781~~475, respectively. Included in the total amortization expense was $~~288~~277,~~173~~861 and $~~407~~372,~~010~~234 included in cost of revenue on the Condensed Consolidated Statements of Operations for three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, respectively, and $220,241 and $220,~~771~~241 in amortization expense included in operating expense on the Condensed Consolidated Statements of Operations for three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, respectively.

910

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~~The~~Total ~~following~~amortization ~~table~~expense ~~summarizes~~for the ~~future~~six ~~maturities~~months ofended March 31, 2025 and 2024 was $1,006,517 and $1,220,256, respectively. Included in the total amortization expense was $566,034 and $779,244 included in cost of ~~intangible~~revenue ~~assets~~on asthe Condensed Consolidated Statements of ~~December~~Operations for six months ended March 31, 2025 and 2024:, respectively and $440,483 and $441,012 amortization expense included in operating expense on the Condensed Consolidated Statements of Operations for six months ended March 31, 2025 and 2024, respectively.

Twelve months ended December 31:	Amortization
2025		2,440,086
2026		2,768,407
2027		2,804,301
2028		2,246,189
2029		1,688,078
Thereafter		1,468,715
Total	$	13,415,776

The following table summarizes the future maturities of amortization of intangible assets as of March 31, 2025:

Twelve months ended March 31:	Amortization
2026		2,490,084
2027		2,852,923
2028		2,889,077
2029		2,050,566
2030		1,771,062
Thereafter		1,283,512
Total	$	13,337,224

(13) GOODWILL

The following table summarizes the activity of Goodwill at ~~December~~March 31, ~~2024~~2025 and September 30, 2024, respectively:

	Three Months Ended December 31, 2024			Year Ended September 30, 2024
	Six Months Ended March 31, 2025			Year Ended September 30, 2024
Balance - beginning of period	$	7,941,190		$	7,851,466
Effect of foreign currency translation on goodwill		(2781,~~821~~545	)		89,724
Balance - end of period	$	7,~~913~~859,~~369~~645		$	7,941,190

Goodwill is recognized in connection with acquisition transactions in accordance with ASC 805. The Company performs an impairment test for goodwill annually or more frequently if indicators of potential impairment exist. No impairment of goodwill was recognized through ~~December~~March 31, ~~2024~~2025.

(14) OTHER ASSETS

As of ~~December~~March 31, ~~2024~~2025 and September 30, 2024, the balance of other assets was $1,~~238~~160,~~608~~885 and $660,170, respectively. Other assets at ~~December~~March 31, ~~2024~~2025 are comprised largely of right of use assets, lease deposits, cash used as collateral for a performance bond and deferred income tax. Other assets as of ~~December~~March 31, ~~2024~~2025 and September 30, 2024 exclude amounts classified as held for sale on the Condensed Consolidated Balance Sheet of $0 and $246,397, respectively. ~~See Note 23 for additional information.~~

(15) LEASES

Leases as Lessor

Monitoring Equipment and Other Related Services

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

The Company’s 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.

~~Operating lease and monitoring revenue associated with the Company’s monitoring equipment for the three months ended December 31, 2024 and 2023, respectively, are shown in the table below:~~11

	Three Months Ended December 31,
	2024		2023
Monitoring equipment operating revenue	$	7,712,146	$	7,317,614

The Company cannot accurately estimate 5-years of future minimum lease receipts for its devices leased to customers because none of its customers make any contractual commitment regarding the number of active devices utilized in any given year and those quantities of active devices vary significantly for every customer each and every day.

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Operating lease and monitoring revenue associated with the Company’s monitoring equipment for the three months ended March 31, 2025 and 2024, respectively, are shown in the table below:

Three Months Ended

March 31,

Six Months Ended

March 31,

2025

2024

2025

2024

Monitoring equipment operating revenue

7,180,445

7,536,163

14,892,591

14,853,777

Leases as Lessee

The following table shows right of use assets and lease liabilities for real estate and equipment, with the associated financial statement line items as of ~~December~~March 31, ~~2024~~2025 and September 30, 2024.

December 31, 2024

September 30, 2024

March 31, 2025

September 30, 2024

Operating lease asset

Operating lease liability

Operating lease asset

Operating lease liability

Other assets

~~879~~822,~~210~~022

314,767

Accrued liabilities

~~199~~193,~~387~~008

128,360

Long-term liabilities

~~679~~631,~~823~~709

186,407

The following table summarizes the supplemental cash flow information for the three months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024:

	Three Months Ended December 31, 2024		Three Months Ended December 31, 2023
	Six Months Ended March 31, 2025		Six Months Ended March 31, 2024
Cash paid for noncancelable operating leases included in operating cash flows	$	62136,~~087~~264	$	69138,~~940~~870
Right of use assets obtained in exchange for operating lease liabilities	$	627,701	$	4361,~~974~~941

The future minimum lease payments under noncancelable operating leases with terms greater than one year as of ~~December~~March 31, ~~2024~~2025 are:

	Operating Leases
Twelve Months Ended March 31:	Operating Leases
From January 2025 to December 2025	$	236,496
2026	$	227,448
From January 2026 to December 2026		232,672
2027		234,465
From January 2027 to December 2027		207,236
2028		184,949
From January 2028 to December 2028		149,423
2029		150,315
From January 2029 to December 2029		152,013
2030		113,596
Thereafter		-
Undiscounted Cash Flow		~~977~~910,~~840~~773
Less: imputed interest		(9886,~~630~~056	)
Total	$	~~879~~824,~~210~~717
Reconciliation to lease liabilities:
Lease liabilities - current	$	~~199~~193,~~387~~008
Lease liabilities - long-term		~~679~~631,~~823~~709
Total Lease Liabilities	$	~~879~~824,~~210~~717

The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of December 31, 2024 were 4.30 years and 4.7%, 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.12

(16) ACCRUED LIABILITES

Accrued liabilities consisted of the following as of December 31, 2024 and September 30, 2024:

	December 31, 2024		September 30, 2024
Accrued payroll, taxes and employee benefits	$	662,960	$	1,243,926
Accrued taxes - foreign and domestic		172,651		169,951
Accrued other expense		91,515		110,118
Accrued legal and other professional costs		118,812		61,779
Accrued costs of revenue		91,884		214,727
Right of use liability		199,387		128,360
Deferred financing fees		110,310		162,750
Accrued interest		1,095,413		547,707
Total accrued liabilities	$	2,542,932	$	2,639,318

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~~Accrued~~The ~~liabilities~~weighted-average inremaining lease term and discount rate related to the ~~table~~Company’s ~~above~~lease liabilities as of ~~December~~March 31, ~~2024~~2025 ~~and~~were ~~September~~4.07 30years and 4.7%, ~~2024~~respectively. ~~exclude~~The ~~amounts~~Company’s ~~classified~~lease asdiscount ~~held~~rates ~~for~~are ~~sale~~generally based on the estimates of $0its ~~and~~incremental ~~$636,640,~~borrowing ~~respectively.~~rate ~~See~~as ~~Note~~the 23discount ~~for~~rates ~~additional~~implicit ~~information~~in the Company’s leases cannot be readily determined.

(16) ACCRUED LIABILITES

Accrued liabilities consisted of the following as of March 31, 2025 and September 30, 2024:

	March 31, 2025		September 30, 2024
Accrued payroll, taxes and employee benefits	$	1,035,147	$	1,243,926
Deferred revenue		74,385		-
Accrued taxes - foreign and domestic		5,594		169,951
Accrued other expense		94,920		110,118
Accrued legal and other professional costs		46,557		61,779
Accrued costs of revenue		127,319		214,727
Right of use liability		193,008		128,360
Deferred financing fees		110,310		162,750
Accrued interest		1,631,213		547,707
Total accrued liabilities	$	3,318,453	$	2,639,318

Accrued liabilities in the table above as of March 31, 2025 and September 30, 2024 exclude amounts classified as held for sale of $0 and $636,640, respectively.

(17) RELATED PARTIES

ETS Limited is currently the beneficial owner of 4,706,579 shares of the Company's 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 the Track Group Shares to ETS Limited in exchange for all the outstanding shares of ETS Limited. A now former Director of ETS Limited was elected to the Company's current Board of Directors (the “Board”) on February 7, 2018 and is still serving on the Board.

(18) DEBT OBLIGATIONS

Debt obligations, net of debt issuance costs, as of ~~December~~March 31, ~~2024~~2025 and September 30, 2024, consisted of the following:

	December 31, 2024		September 30, 2024
	March 31, 2025		September 30, 2024
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. On April 26, 2023, the Company and Conrent entered into an amendment to the facility agreement, which extended the maturity date from July 1, 2024 to July 1, 2027. Interest payments are scheduled to be made on June 30 each year. Unamortized issuance costs at December 31, 2024 are $204,366. As of December 31, 2024, $42,864,000 of principal and $1,095,413 of interest was owed to Conrent. The Company paid Conrent $0 in interest for the three months ended December 31, 2024 and 2023.	$	42,659,634	$	42,639,197
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. On April 26, 2023, the Company and Conrent entered into an amendment to the facility agreement, which extended the maturity date from July 1, 2024 to July 1, 2027. Interest payments are scheduled to be made on June 30 each year. Unamortized issuance costs at March 31, 2025 are $183,930. As of March 31, 2025, $42,864,000 of principal and $1,631,213 of interest was owed to Conrent. The Company has not paid Conrent any interest for the six months ended March 31, 2025.	$	42,680,070	$	42,639,197
Total debt obligations		42,~~659~~680,~~634~~070		42,639,197
Less: current portion		-		-
Long-term debt, less current portion	$	42,~~659~~680,~~634~~070	$	42,639,197

On December 21, 2020, Conrent and the Company signed an amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalized the accrued and unpaid interest increasing the outstanding principal amount and reduced the interest rate of the Amended Facility from 8% to 4%. On April 26, 2023, the Company and Conrent entered into another amendment to the Amended Facility (the “Amendment”). The Amendment: (i) extended the maturity date from July 1, 2024, to July 1, 2027 (the “Maturity Date”); (ii) amended the applicable interest rate resulting in an escalating interest rate as follows: 4% through June 30, 2024, 5% through June 30, 2025, 5.5% through June 30, 2026, and 6% through the Maturity Date and (iii) removed section 7.3 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent. As of December 31, 2024, $42,864,000 of principal and $1,095,413 of interest was owed to Conrent.13

The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of December 31, 2024:

Twelve months ended December 31:	Total
2025	$	-
2026		-
2027		42,864,000
Total		42,864,000
Issuance costs		(204,366	)
Debt obligations, net of unamortized issuance costs	$	42,659,634

(19) PREFERRED AND COMMON STOCK

The Company is authorized to issue up to 30,000,000 shares of Common Stock and up to 20,000,000 shares of preferred stock, $0.0001 par value per share (“Preferred Stock”). The Company’s Board 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 before any issuance of the Preferred Stock, and to create one or more series of Preferred Stock. As of December 31, 2024, there were no shares of Preferred Stock outstanding.

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NoOn ~~dividends~~December ~~were~~21, ~~paid~~2020, ~~during~~Conrent and the ~~three~~Company ~~months~~signed ~~ended~~an ~~December~~amendment 31to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 or(“Amended Facility”), capitalized the accrued and unpaid interest increasing the outstanding principal amount and reduced the interest rate of the Amended Facility from 8% to 4%. On April 26, 2023, ~~respectively~~the Company and Conrent entered into another amendment to the Amended Facility (the “Amendment”). The Amendment: (i) extended the maturity date from July 1, 2024, to July 1, 2027 (the “Maturity Date”); (ii) amended the applicable interest rate resulting in an escalating interest rate as follows: 4% through June 30, 2024, 5% through June 30, 2025, 5.5% through June 30, 2026, and 6% through the Maturity Date and (iii) removed section 7.3 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent. As of March 31, 2025, $42,864,000 of principal and $1,631,213 of interest was owed to Conrent.

The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of March 31, 2025:

Twelve months ended March 31:	Total
2026	$	-
2027		-
2028		42,864,000
Total		42,864,000
Issuance costs		(183,930	)
Debt obligations, net of unamortized issuance costs	$	42,680,070

(19) PREFERRED AND COMMON STOCK

The Company is authorized to issue up to 30,000,000 shares of Common Stock and up to 20,000,000 shares of preferred stock, $0.0001 par value per share (“Preferred Stock”). The Company’s Board 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 before any issuance of the Preferred Stock, and to create one or more series of Preferred Stock. As of March 31, 2025, there were no shares of Preferred Stock outstanding.

No dividends were paid during the six months ended March 31, 2025 or 2024, respectively.

Common Stock Issuances

There were no issuances of Common Stock in the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025.

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 as Series A Preferred. Shares of Series A Preferred rank senior to the Company’s Common Stock, and all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series A Preferred.

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 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.

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

Each share of Series A Preferred has a Liquidation Preference of $35.00 per share, and is convertible, at the holder’s option, into ten shares of the Company’s 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 ~~December~~March 31, ~~2024~~2025, no shares of Series A Preferred were issued and outstanding.

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(20) STOCK OPTIONS AND WARRANTS

Stock Incentive Plan

At the annual meeting of stockholders on April 13, 2022, our stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”), previously approved by the Company’s Board. The 2022 Plan provides for the grant of incentive options and nonqualified 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 500,000 shares are authorized for issuance pursuant to awards granted under the 2022 Plan.

The 2022 Plan supersedes and replaces the Company’s 2012 Equity Compensation Plan (the “2012 Plan”). As of June 30, 2020, the Board suspended further awards under the 2012 Plan. Any awards outstanding under the 2012 Plan 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.

There were no issuances of restricted shares in the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024.

The Company recorded no expense offor the three months ended March 31, 2025 and 2024, related to the 2022 Plan, and $0 and $3,431 for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023,~~2024 respectively~~, related to the 2022 Plan~~. As of ~~December~~March 31, ~~2024~~2025, there were 215,000 shares of our Common Stock reserved for future issuance under the 2022 Plan and 27,218 shares of our Common Stock reserved for future issuance under the predecessor 2012 Plan.

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 three months and six ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, the Company granted no options or warrants under the 2022 Plan or under the 2012 Plan. The Company recorded no expense for the three and six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, respectively, related to the issuance and vesting of outstanding options and warrants.

There are no outstanding options or warrants at ~~December~~March 31, ~~2024~~2025 and no future issuances are expected.

13As of March 31, 2025, no compensation expense associated with unvested stock options and warrants issued previously to members of the Board of Directors will be recognized over the next year.

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As of December 31, 2024, no compensation expense associated with unvested stock options and warrants issued previously to members of the Board of Directors will be recognized over the next year.

(21) 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.

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.

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.

(22) COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of nearly all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.

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SecureAlert, Inc. v. Federal Government of Mexico (Department of the Interior). On March 24, 2017, SecureAlert Inc. (a predecessor entity to Track Group, Inc. or the Company) filed a complaint as the Plaintiff 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. Although preliminary rulings have been unfavorable to the Company, the Company’s counsel continues to review its remaining claims which are upwards of $4.0 million. Based upon the fee arrangement the Company has with its counsel, we anticipate the future liabilities attributable to legal expense will be minimal.

Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation. OnIn 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 recover allegedly fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations ~~stem~~stemmed from payments made to ISS between 2014 and 2017, ~~which~~by the ~~Company believes were properly made in accordance with a contract between ISS and the~~ government of Puerto Rico, ~~through~~for ~~the~~services ~~Oficina~~rendered. deDuring ~~Servicios~~the ~~con~~quarter ~~Antelacion~~ended aMarch ~~Juicio~~31, ~~originally~~2025, ~~signed~~the ~~in 2011. The~~ Company, iswithout ~~confident~~admitting ~~that~~liability, ~~all~~entered ~~payments~~into ita ~~received~~settlement ~~were~~agreement ~~earned~~with ~~and~~the ~~due~~Commonwealth, ~~under~~resulting ~~applicable~~in ~~law~~the ~~and~~payment ~~produced~~by ~~documentation~~the ~~supporting~~Company ~~its~~of ~~position in~~ an ~~informal~~immaterial ~~document~~amount ~~exchange~~to ~~with~~ the ~~Commonwealth on July 6, 2020~~Trustee. AtA ~~this~~dismissal ~~time,~~of the case ~~remains~~with ~~stayed~~prejudice bywas ~~Court~~entered ~~order.~~on ~~The~~April ~~Company~~7, ~~remains~~2025 ~~confident~~following inthe ~~its~~tender ~~position~~of ~~and~~the nosettlement ~~accrual for a potential loss has been made, after consultation with legal counsel~~payment.

Kevin Barnes v. Track Group, Inc., et. al. On December 28, 2023, the Company was served with a second amended complaint filed in the Circuit Court of Cook County, Illinois naming the Company and alleging strict liability and negligence against the Company and other defendants related to alleged injuries sustained by Barnes from an electronic monitoring device. ~~The~~To ~~Company~~avoid ~~disputes~~the ~~Barnes’~~costs ~~claims~~ and ~~will~~risks ~~defend~~of ~~the~~continued ~~case~~litigation, ~~vigorously.~~the ~~The~~ Company’s ~~remains~~insurer, ~~confident~~without inadmitting ~~its~~liability, ~~position~~settled ~~and~~the nolitigation ~~accrual~~ for aan ~~potential~~immaterial ~~loss~~amount, ~~has~~and ~~been~~the ~~made,~~case ~~after~~was ~~consultation~~dismissed ~~with~~on ~~legal~~April ~~counsel~~9, 2025.

Michael Matthews v. Track Group, Inc., et al. On February 4, 2025, Plaintiff Michael Matthews re-filed a complaint in the Circuit Court of Cook County, Illinois (2025 L 001586) against the Company and other defendants alleging negligence following his alleged erroneous incarceration following violation of home monitoring program requirements. The Company disputes the allegations of the complaint directed at it, has retained counsel, and intends to vigorously defend the case. Based on the preliminary stage of the refiled proceedings and after consultation with legal counsel, no accrual for a potential loss has been made.

(23) SALE OF SUBSIDIARY

On November 1, 2024, the Company announced the entry into a Stock Purchase Agreement dated October 29, 2024, by and between the Company and Inversiones Santa Hortensia SpA, a stock corporation organized under the laws of Chile (“ISA”) (the “Agreement”), pursuant to which the Company agreed to sell to ISA all of the issued and outstanding shares of capital stock of Track Group – Chile SpA (“Track Group Chile”) beneficially owned by the Company (the “Shares”). The purchase price of the Shares was $1.0 million USD, paid at the closing of the transactions contemplated by the Agreement.

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In connection with the execution of the Agreement, the Company and ISA entered into certain related agreements, including a Track Group Chile Transition Services Agreement, the OTD Sale and Service Agreement and the Trademark License Agreement (together, the “Related Agreements”). Under the terms of the Related Agreements, the Company will (i) sell and continue to provide Track Group Chile with certain offender Tracking Devices, and related software and will provide the necessary technical service regarding the products it sells and/or supplies to Track Group Chile; (ii) provide certain transition services to Track Group Chile; and (iii) license to Track Group Chile the right to use the trademark Track Group.

As of September 30, 2024 the Company concluded that Track Group Chile met all of the criteria for classification as held for sale. As a result, the Company measured the assets and liabilities below as held for sale at its fair value, which was a selling price of $1.0 million and accordingly recorded an impairment of $757,130 in the Condensed Consolidated Statements of Operations.

The Company wrote-off the associated assets and liabilities of this entity as of the date of the sale and recorded a pre-tax loss on sale of subsidiary of $66,483, which has been reflected in the Condensed Consolidated Statements of Operations for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025. The Company does not view this sale of subsidiary as a strategic shift in its operations and therefore it did not meet the criteria of discontinued operations.

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The following summarizes the loss on sale of subsidiary:

Proceeds from sale of subsidiary	$	1,000,000
Net assets and liabilities, including $251,285 of cash		324,430
Cumulative translation adjustment released to net loss		(1,390,913	)
Loss on sale of subsidiary	$	(66,483	)

(24) SUBSEQUENT EVENTS

In accordance with the Subsequent Events Topic of FASB ASC 855, we have evaluated subsequent events for their potential impact on the consolidated financial statements and disclosures through the filing date and determined that no subsequent events occurred that were reasonably expected to have an impact on the financial statements presented herein.

1517

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Item 2. 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” 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”). Generally, the statements contained in this Report that are not purely historical can be “forward-looking statements”. These statements represent our expectations, hopes, beliefs, anticipations, commitments, intentions, and strategies regarding the future. They may be identified using words or phrases such as “believes”, “expects”, “intends”, “anticipates”, “should”, “plans”, “estimates”, “projects”, “potential”, and “will” among others. Forward-looking statements include, but are not limited to, statements contained in 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” in our most recent Annual Report on Form 10-K, and those described from time to time in our reports filed with the Securities and Exchange Commission (“SEC”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto that are contained in this Report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, 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. and abroad, for the electronic monitoring of offenders and offering unique data analytics services on a platform-as-a-service (“PaaS”) business model. Currently, we deploy offender-based management services that combine patented GPS tracking technologies, full-time 24/7/365 global monitoring capabilities, case management, and proprietary data analytics. We offer customizable tracking solutions that leverage real-time tracking data, best practices monitoring, and analytics capabilities to create complete, end-to-end tracking solutions.

Devices - Our devices consist principally of the 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®XC4 is our flagship GPS device, which is among the safest and most reliable monitoring devices 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 capabilities, increased battery life and sleep mode.

ReliAlert®XC3 - 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.

Monitoring Center Services - Our monitoring 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, are staffed with highly trained, bilingual 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 sources, battery backup and triple redundancy in voice, data and IP. We have assisted in the establishment of monitoring centers for customers and local partners in the United States, Chile and other global locations.

Data Analytics Services - Our IntelliTrack, TrackerPAL® software, IntelliTrack 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 data analytics services help facilitate the discovery and communication of meaningful patterns in diverse locations and behavioral data that helps agencies reduce risks and improve decision making. Our analytics applications use various combinations of statistical analysis procedures, data and text mining and predictive modeling to proactively analyze information on community-released offenders to discover hidden relationships and patterns in their behaviors and to predict future outcomes.18

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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 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 the 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, 2024, filed with the SEC on December 23, 2024. During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, there have been no 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 credit losses, 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.

Currently, 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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Results of Operations

Three Months Ended ~~December~~March 31, ~~2024~~2025 compared to Three Months Ended ~~December~~March 31, ~~2023~~2024

Revenue

For the three months ended ~~December~~March 31, ~~2024~~2025, the Company recognized total revenue from operations of $8,~~668~~352,~~328~~320 compared to $8,~~966~~991,~~972~~220 for the three months ended ~~December~~March 31, ~~2023~~2024, a decrease of $~~298~~638,~~644~~900 or approximately ~~3.3~~7%. The decrease in monitoring revenues is driven principally by a decrease in people assigned to monitoring for clients in ~~Michigan and~~ Virginia, and due to our recently sold Chilean subsidiary. This decrease was partially offset by revenue increases for clients in Illinois, Puerto Rico and the Bahamas who experienced increases in the number of people assigned to monitoring. These increases and reductions from all of these locations represent typical fluctuations which occur daily.

Product sales and other revenue for the three months ended ~~December~~March 31, ~~2024~~2025 ~~decreased~~increased to $~~227~~484,~~021~~345 from $~~292~~232,~~487~~570 in the same period in ~~2023~~2024, aan ~~decrease~~increase of $65251,~~466~~775 or approximately 22108%. The ~~decrease~~increase in product and other revenue was largely due to ~~decreased~~increased international product sales, principally to a customer in ~~Brazil~~Chile, partially offset by ana ~~increase~~decrease in product sales to a customer in ~~Chile~~Brazil. We continue to largely focus on recurring subscription-based opportunities as opposed to equipment sales.

17The industry in which the Company operates, as well as many other industries (automotive, consumer products and medical devices), have been impacted by the global semiconductor shortage. The availability of semiconductor parts has improved in Fiscal 2024 and the beginning of Fiscal 2025 to within industry acceptable lead times.

The Company’s supply chain will see spot increases in certain areas of operations in Fiscal 2025. Expected increases range from duties levied on a small number of accessories that are custom designs to components sourced out of China. General guidance is that these will increase supply chain operations by less than 10% if announced tariffs remain. As with most technology companies this guidance is fluid, difficult to predict, and changes week-over-week due to US and international governments changing positions. The Company is monitoring the global situation and looks for opportunities to mitigate the impact of tariff increases.

Cost of Revenue

During the three months ended March 31, 2025, cost of revenue totaled $4,238,354 compared to cost of revenue during the three months ended March 31, 2024 of $5,024,385, a decrease of $786,031 or 16%. The decrease in cost of revenue was largely the result of lower device repair costs of $200,578, lower communication costs of $55,510 and lower monitoring center costs of $490,105, partially offset by an increase in server costs of $89,366. The decrease in monitoring center costs was primarily due to Chile monitoring center assets being fully expensed in Fiscal 2024 and the sale of our Chile subsidiary. The decrease in device repair costs was primarily due handling some of the device repairs internally, which began in January.

Depreciation and amortization included in cost of revenue for the three months ended March 31, 2025 and 2024 totaled $723,331 and $793,887, respectively, a decrease of $70,556 or 9%. These costs represent the depreciation of ReliAlert® and other monitoring devices, the amortization of monitoring software and certain royalty agreements, and amortization of a patent related to GPS and satellite tracking. The decrease in depreciation and amortization costs is largely due to a decrease in amortization of $75,000 for fully amortized device royalties. Devices are depreciated over a five-year useful life. Monitoring software is amortized over a seven-year life. Royalty agreements are being amortized over a ten-year useful life. The Company believes these lives are appropriate due to changes in electronic monitoring technology and the corresponding potential for obsolescence. Management periodically assesses the useful life of the devices for appropriateness.

Gross Profit and Margin

During the three months ended March 31, 2025, gross profit totaled $4,113,966, resulting in a gross margin of approximately 49%. During the three months ended March 31, 2024, gross profit totaled $3,966,835, resulting in a gross margin of approximately 44%. The increase in absolute gross profit of $147,131 is due to a decrease in monitoring center costs, partially offset by a decrease in revenue.

General and Administrative Expense

During the three months ended March 31, 2025, general and administrative expense totaled $2,127,145 compared to $3,173,866 for the three months ended March 31, 2024. The decrease of $1,046,721 or approximately 33% is due to a decrease in payroll, benefits, and payroll taxes of $455,071 primarily due to the sale of our Chilean subsidiary on November 1, 2024 and a settlement expense related to a contract dispute of approximately $500,000 in the three months ended March 31, 2024.

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Selling and Marketing Expense

During the three months ended March 31, 2025, selling and marketing expense totaled $964,743 compared to $810,441 for the three months ended March 31, 2024. The increase of $154,302 or approximately 19% resulted largely from higher bad debt expense of $157,043 due to this previously being recorded in general and administrative expense and higher payroll, benefits, and payroll taxes of $65,794 due to open sales and marketing positions in the second quarter of 2024 as well as an increase in bonus accrual for the second quarter of 2025.

Research and Development Expense

During the three months ended March 31, 2025, research and development expense totaled $750,650 compared to $701,183 for the three months ended March 31, 2024. The increase of $49,467 was largely due to higher payroll, benefits and payroll taxes of $33,330 and higher training and recruiting expense of $16,736.

Depreciation and Amortization Expense

During the three months ended March 31, 2025, depreciation and amortization expense totaled $227,385 compared to $236,524 for the three months ended March 31, 2024, a decrease of $9,139 or approximately 4%, largely due to fully depreciated fixed assets.

Total Operating Expense

During the three months ended March 31, 2025, total operating expense decreased to $4,069,923 compared to $4,922,014 for the three months ended March 31, 2024, a decrease of $852,091 or approximately 17%. The decrease is principally due to the factors disclosed above.

Operating Income (Loss)

During the three months ended March 31, 2025, operating income was $44,043 compared to operating loss of $955,179 for the three months ended March 31, 2024. The increase of $999,222 in operating income was principally due to a decrease in cost of revenue and a decrease in operating expense, partially offset by a decrease in revenue.

Other Income (Expense)

For the three months ended March 31, 2025, other expense totaled $531,014 compared to other expense of $952,244 for the three months ended March 31, 2024, an increase of $421,230. The decrease in other expense is largely due to positive currency exchange rate movements of $554,763 between the US Dollar vs. the Chilean Peso, Canadian Dollar, and New Israeli Shekel, compared to the prior fiscal period, partially offset by an increase in interest expense of $136,976 due to the escalating interest rate on the Amended Facility Agreement with Conrent.

Net Income (Loss) Attributable to Common Stockholders

The Company had net loss attributable to common stockholders of $517,116 for the three months ended March 31, 2025, compared to net loss attributable to common stockholders of $1,903,075 for the three months ended March 31, 2024, a decrease in net loss of $1,385,959. This decrease in net loss is largely due to an increase in operating income and positive currency exchange rate movements.

Six Months Ended March 31, 2025 compared to Six Months Ended March 31, 2024

Revenue

For the six months ended March 31, 2025, the Company recognized total revenue from operations of $17,020,648 compared to $17,958,193 for the six months ended March 31, 2024, a decrease of $937,545 or approximately 5%. The decrease in monitoring revenues is driven principally by a decrease in people assigned to monitoring for clients in Virginia, and due to our recently sold Chilean subsidiary. This decrease was partially offset by revenue increases for clients in Illinois, Puerto Rico and the Bahamas who experienced increases in the number of people assigned to monitoring. These increases and reductions from all of these locations represent typical fluctuations which occur daily.

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Product sales and other revenue for the six months ended March 31, 2025 increased to $711,366 from $525,057 in the same period in 2024, an increase of $186,309 or approximately 35%. The increase in product sales and other revenue was largely due to increased international product sales, principally to a customer in Chile, partially offset by a decrease in product sales to a customer in Brazil. We continue to largely focus on recurring subscription-based opportunities as opposed to equipment sales.

The industry in which the Company operates, as well as many other industries (automotive, consumer products and medical devices), have been impacted by the global semiconductor shortage. The availability of semiconductor parts has improved in Fiscal 2024 and the beginning of Fiscal 2025 to within industry acceptable lead times.

Cost of Revenue

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, cost of revenue totaled $48,~~243~~482,~~986~~340 compared to cost of revenue during the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024 of $49,~~763~~787,~~452~~838, a decrease of $~~519~~1,~~466~~305,498 or 1113%. The decrease in cost of revenue was largely the result of lower device repair costs of $49249,~~182~~760, lower communication costs of $61116,~~002~~513 and lower monitoring center costs of $~~347~~837,~~378~~483, partially offset by higher server costs of $102,604. The decrease in monitoring center costs was primarily due to Chile monitoring center assets being fully expensed in Fiscal 2024 and the sale of our Chilean subsidiary. The decrease in device repair costs was primarily due to handling some of the device repairs internally, which began in January.

Depreciation and amortization included in cost of revenue for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024 totaled $~~735~~1,~~224~~458,556 and $~~789~~1,~~463~~583,351, respectively, a decrease of $54124,~~239~~795 or 78%. These costs represent the depreciation of ReliAlert® and other monitoring devices, the amortization of monitoring software and certain royalty agreements, and amortization of a patent related to GPS and satellite tracking. The decrease in depreciation and amortization costs is largely due to a decrease in amortization of $~~112~~187,500 for fully amortized device royalties, partially offset by an increase in device depreciation of $6488,~~598~~415. Devices are depreciated over ~~either~~ a ~~three- or~~ five-year useful life. Monitoring software is amortized over a seven-year life. Royalty agreements are being amortized over a ten-year useful life. The Company believes these lives are appropriate due to changes in electronic monitoring technology and the corresponding potential for obsolescence. Management periodically assesses the useful life of the devices for appropriateness.

Gross Profit and Margin

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, gross profit totaled $48,~~424~~538,~~342~~308, resulting in a gross margin of approximately 5150%. During the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, gross profit totaled $48,~~203~~170,~~520~~355, resulting in a gross margin of approximately 4745%. The increase in absolute gross profit of $~~220~~367,~~822~~953 is due to a decrease in monitoring center costs, partially offset by a decrease in revenue.

General and Administrative Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, general and administrative expense totaled $24,~~431~~558,~~118~~263 compared to $25,~~757~~931,~~887~~753 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. The decrease of $~~326~~1,~~769~~373,490 or approximately 1223% is due to a decrease in payroll, benefits, and payroll taxes of $~~275~~730,~~386~~456 primarily due to the sale of our ~~Chile~~Chilean subsidiary on November 1, 2024 and a ~~decrease~~settlement inexpense ~~bad~~related ~~debt~~to ~~expense~~a contract dispute of approximately $~~120~~500,~~703~~000 ~~due~~in tothe ~~this~~six ~~now~~months ~~being~~ended ~~recorded~~March in31, ~~sales and marketing~~2024.

Selling and Marketing Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, selling and marketing expense totaled $~~901~~1,~~189~~865,932 compared to $~~706~~1,~~531~~516,972 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. The increase of $~~194~~348,~~658~~960 or approximately 2823% resulted largely from higher bad debt expense of $92249,~~237~~281 due to this previously being recorded in general and administrative expense and higher payroll, benefits, and payroll taxes of $~~105~~171,~~674~~469 due to open sales and marketing positions in the ~~first~~six ~~quarter~~months ofended March 31, 2024 as well as an increase in bonus accrual for six months ended March 31, 2025.

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Research and Development Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, research and development expense totaled $~~669~~1,~~391~~420,040 compared to $~~682~~1,~~463~~383,646 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. The nominal ~~decrease~~increase was largely due to ~~decreased~~increased ~~payroll,~~training ~~benefits~~ and ~~payroll~~recruiting ~~taxes~~expense.

Depreciation and Amortization Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, depreciation and amortization expense totaled $~~227~~454,~~553~~938 compared to $~~239~~476,~~760~~284 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, a decrease of $1221,~~207~~346 or approximately 54%, largely due to fully depreciated fixed assets.

Loss on Sale of Subsidiary

On November 1, 2024, we completed the sale of a ~~Chile~~Chilean subsidiary and recognized a loss of $66,483. See Note 23 to the Consolidated Financial Statements for additional information.

Total Operating Expense

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, total operating expense decreased to $48,~~295~~365,~~734~~656 compared to $49,~~386~~308,~~641~~655 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, a decrease of $90942,~~907~~999 or approximately 210%. The decrease is principally due to the factors disclosed above.

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Operating Income (Loss)

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, operating income was $~~128~~172,~~608~~652 compared to operating loss of ($~~183~~1,~~121)~~138,300 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. The increase of $~~311~~1,~~729~~310,952 in operating income was principally due to a decrease in cost of revenue and a decrease in operating expense, partially offset by a decrease in revenue.

Other Income (Expense)

For the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, other expense totaled ($2,~~068~~599,~~221)~~236 compared to other ~~income~~expense of $~~101~~851,~~023~~221 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, an increase of $21,~~169~~748,~~244~~015. The increase in other expense is largely due to annegative ~~increase in~~ currency exchange rate ~~loss~~movements of $21,~~038~~483,~~207~~445 between the US Dollar vs. the Chilean Peso, Canadian Dollar, and New Israeli Shekel, compared to the prior fiscal period and an increase in interest expense of $85268,~~714~~013 due to the escalating interest rate on the Amended Facility Agreement with Conrent.

Net Income (Loss) Attributable to Common Stockholders

The Company had net loss attributable to common stockholders of ($2,~~010~~527,~~849)~~965 for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, compared to net ~~income~~loss attributable to common stockholders of $~~461~~1,902,614 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, an increase in net loss of $2625,~~011,310~~351. This increase in net loss is largely due to annegative ~~increase in~~ currency exchange rate ~~loss~~movements, partially offset by an increase in operating income.

Liquidity and Capital Resources

The company believes that its existing cash and its future cash flow from operations will be sufficient to meet the cash requirements of its existing business for the foreseeable future.

~~On December 21~~Liquidity, ~~2020,~~Working ~~Conrent~~Capital and ~~the~~Management’s Company signed an amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalized the accrued and unpaid interest, increasing the outstanding principal amount and reduced the interest rate of the Amended Facility from 8% to 4%. On April 26, 2023, the Company and Conrent entered into another amendment to the Amended Facility (the “Amendment”). The Amendment: (i) extended the maturity date from July 1, 2024, to July 1, 2027 (the “Maturity Date”); (ii) amended the applicable interest rate resulting in an escalating interest rate as follows: 4% through June 30, 2024, 5% through June 30, 2025, 5.5% through June 30, 2026, and 6% through the Maturity Date; and (iii) removed section 7.3 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay total fees of EUR 225,000 ($238,000USD at conversion rate at time of signing new agreement in April 2023) in five annual installments to Conrent. As of December 31, 2024, $42,864,000 of principal and $1,095,413 of interest was owed to Conrent.Plan

NoAs ~~borrowings~~of orMarch ~~sales~~31, 2025, the Company had unrestricted cash of ~~equity~~$3,416,045, ~~securities~~compared ~~occurred~~to ~~during~~unrestricted ~~the~~cash ~~three~~of ~~months~~$3,574,215 ~~ended~~as ~~December~~of September 30, 2024. As of March 31, 2025, we had working capital of $4,133,295, compared to working capital of $3,739,192 as of September 30, 2024. orThis ~~2023~~increase in working capital of $394,103 is principally due to an increase in accounts receivable and inventory and a decrease in accounts payable, partially offset by an increase in accrued liabilities.

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On December 21, 2020, Conrent and the Company signed an amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalized the accrued and unpaid interest, increasing the outstanding principal amount and reduced the interest rate of the Amended Facility from 8% to 4%. On April 26, 2023, the Company and Conrent entered into another amendment to the Amended Facility (the “Amendment”). The Amendment: (i) extended the maturity date from July 1, 2024, to July 1, 2027 (the “Maturity Date”); (ii) amended the applicable interest rate resulting in an escalating interest rate as follows: 4% through June 30, 2024, 5% through June 30, 2025, 5.5% through June 30, 2026, and 6% through the Maturity Date; and (iii) removed section 7.3 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay total fees of EUR 225,000 ($238,000USD at conversion rate at time of signing new agreement in April 2023) in five annual installments to Conrent. As of March 31, 2025, $42,864,000 of principal and $1,631,213 of interest was owed to Conrent.

During the fiscal year ended September 30, 2021, the Company borrowed approximately $1.95 million through six notes payable to fund the construction of monitoring centers in Chile required by our new contract. Five of the six notes have matured and the remaining note was sold with our Chile subsidiary in the first quarter of fiscal 2025. This remaining note payable was included in liabilities held for sale on the Consolidated Balance Sheet at September 30, 2024.

No additional borrowings or sales of equity securities occurred during the six months ended March 31, 2025 or 2024.

Net Cash Flows Provided by (Used in) Operating Activities.

During the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, we had cash ~~used~~flows infrom operating activities of ($~~217~~271,~~292)~~134, compared to cash ~~provided~~flows byfrom operating activities of $~~642~~2,~~325~~044,821 for the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024, representing a $1,773,687 decrease, ofor ~~$859,617~~approximately 87%. The decrease in cash from operations was largely the result of increases in ~~payments~~inventory ~~to vendors~~ and ~~decreases~~payments into ~~collections from customers~~vendors, partially offset by an increase in ~~operating~~accrued ~~income~~liabilities.

Net Cash Flows Used in Investing Activities.

The Company used $~~204~~1,~~273~~013,132 of cash from investing activities during the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, compared to $~~856~~1,~~515~~910,516 of cash used for investing activities during the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. The decrease of $~~652~~897,~~242~~384 or 7647% was largely the result of proceeds from the sale of our ~~Chile~~Chilean subsidiary, net of cash included in the sale of $748,715.

Net Cash Flows Used in Financing Activities.

The Company used $63,839 of cash for financing activities during the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025, compared to $~~124~~250,~~338~~821 during the ~~three~~six months ended ~~December~~March 31, ~~2023~~2024. ~~Cash~~The ~~used~~decrease ~~for~~of ~~financing~~$186,982 ~~activities~~or 75% was ~~for~~largely ~~payment~~the result of ~~deferred~~a ~~financing~~decrease ~~fees~~in principal payments on long-term debt.

Liquidity, Working Capital and Management’s Plan

As of December 31, 2024, the Company had unrestricted cash of $3,740,043, compared to unrestricted cash of $3,574,215 as of September 30, 2024. As of December 31, 2024, we had working capital of $4,412,740, compared to working capital of $3,739,192 as of September 30, 2024. This increase in working capital of $673,548 is principally due to an increase in cash, accounts receivable and inventory, partially offset by an increase in accounts payable.

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On December 21, 2020, Conrent and the Company signed an amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 (“Amended Facility”), capitalized the accrued and unpaid interest, increasing the outstanding principal amount and reduced the interest rate of the Amended Facility from 8% to 4%. On April 26, 2023, the Company and Conrent entered into another amendment to the facility agreement (the “Amendment”) originally executed by and between the parties on December 30, 2013 and amended multiple times (the “Amended Facility Agreement”). The latest Amendment: (i) extended the maturity date from July 1, 2024, to July 1, 2027; (ii) amended the applicable interest rate resulting in an escalating interest rate as follows: 4% through June 30, 2024, 5% through June 30, 2025, 5.5% through June 30, 2026, and 6% through the maturity date and (iii) removed section 7.3 “Change of Control” of the Amended Facility Agreement. In return, the Company agreed to pay certain fees to Conrent. As of December 31, 2024, $42,864,000 of principal and $1,095,413 of interest was owed to Conrent.

Off-Balance Sheet Financial Arrangements

The Company has not entered 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company footprint extends to several 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

We had $485,173 and $12,~~515~~864,~~051~~698 in foreign currency revenue from sources outside of the United States for the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, respectively. Our foreign currency revenue was made up of sales in our ~~Chile~~Chilean subsidiary prior to the sale in the first quarter of fiscal 2025. We made and received payments in a foreign currency during the periods indicated, and have intercompany loans with foreign subsidiaries, which resulted in a foreign exchange loss of ($1,~~499~~464,~~262~~432) and a foreign exchange gain of $~~538~~19,~~945~~013 in the ~~three~~six months ended ~~December~~March 31, ~~2024~~2025 and ~~2023~~2024, 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, Canadian dollar, and New Israeli Shekel. 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.

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 ~~December~~March 31, ~~2024~~2025, was completed pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms as of ~~December~~March 31, ~~2024~~2025.

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 the quarter ended ~~December~~March 31, ~~2024~~2025, 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

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 recover allegedly fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stem from payments made to ISS between 2014 and 2017, which the Company believes were properly made in accordance with a contract between ISS and the government of Puerto Rico, through the Oficina de Servicios con Antelacion a Juicio, originally signed in 2011. The Company is confident that all payments it received were earned and due under applicable law and produced documentation supporting its position in an informal document exchange with the Commonwealth on July 6, 2020. At this time, the case remains stayed by Court order. The Company remains confident in its position and no accrual for a potential loss has been made, after consultation with legal counsel.25

~~Kevin~~Table ~~Barnes v. Track Group, Inc., et. al. On December 28, 2023, the Company was served with a second amended complaint filed in the Circuit Court~~ of Cook County, Illinois naming the Company and alleging strict liability and negligence against the Company and other defendants related to alleged injuries sustained by Barnes from an electronic monitoring device. The Company disputes Barnes’ claims and will defend the case vigorously. The Company remains confident in its position and no accrual for a potential loss has been made, after consultation with legal counsel.Contents

Commonwealth of Puerto Rico, through its Trustees v. International Surveillance Services Corporation. In January 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 recover allegedly fraudulent transfers and to disallow claims pursuant to United States Bankruptcy and Puerto Rican law. The allegations stemmed from payments made to ISS between 2014 and 2017 by the government of Puerto Rico for services rendered. During the quarter ended March 31, 2025, the Company, without admitting liability, entered into a settlement agreement with the Commonwealth, resulting in the payment by the Company of an immaterial amount to the Trustee. A dismissal of the case with prejudice was entered on April 7, 2025 following the tender of the settlement payment.

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, 2024, filed on December 23, 2024. 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.

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.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Track Group, Inc.
Date: February 7, 2025	By:	/s/ Derek Cassell
Date: May 14, 2025	By:	/s/ Derek Cassell
		Derek Cassell, Chief Executive Officer (Principal Executive Officer)
Date: February 7, 2025	By:	/s/ James A. Berg
Date: May 14, 2025	By:	/s/ James A. Berg
		James A. Berg, Chief Financial Officer (Principal Financial and Accounting Officer)

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Filing Compare · Track Group, Inc.