UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ___________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip Code)
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(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.
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).
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.
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Large, accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares outstanding of the registrant’s common stock as of August 1, 2025, was
FORM 10-Q
For the Quarterly Period Ended June 30, 2025
INDEX
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Page |
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| 1 | ||
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Item 1. |
1 | |
| 1 | ||
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) |
2 | |
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Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited) |
3 | |
| 4 | ||
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
5 | |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
24 | |
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Item 4. |
25 | |
| 25 | ||
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Item 1. |
25 | |
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Item1A. |
26 | |
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Item 2. |
26 | |
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Item 3. |
26 | |
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Item 4. |
26 | |
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Item 5. |
26 | |
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Item 6. |
26 | |
| 27 | ||
TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, |
September 30, |
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2025 |
2024 |
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Assets |
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Current assets: |
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Cash |
$ | $ | ||||||
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Accounts receivable, net of allowance for credit losses of $ |
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Prepaid expense and deposits |
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Inventory, net of reserves of $ |
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Assets held for sale |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Monitoring equipment, net of accumulated depreciation of $ |
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Intangible assets, net of accumulated amortization of $ |
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Goodwill |
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Other assets, net |
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Total assets |
$ | $ | ||||||
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Liabilities and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
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Accrued liabilities |
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Liabilities held for sale |
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Total current liabilities |
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Long-term debt, net of current portion |
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Long-term liabilities |
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Total liabilities |
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Stockholders’ equity (deficit): |
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Common stock, $ |
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Preferred stock, $ |
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Series A Convertible Preferred stock, $ |
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Paid in capital |
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Accumulated deficit |
( |
) |
( |
) |
||||
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Accumulated other comprehensive income (loss) |
( |
) | ||||||
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Total stockholders’ equity (deficit) |
( |
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( |
) |
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Total liabilities and stockholders’ equity (deficit) |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated statements.
TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
Nine Months Ended |
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June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
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2025 |
2024 |
2025 |
2024 |
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Revenue: |
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Monitoring and other related services |
$ | $ | $ | $ | ||||||||||||
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Product sales and other |
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Total revenue |
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Cost of revenue: |
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Monitoring, products and other related services |
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Depreciation & amortization included in cost of revenue |
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Total cost of revenue |
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Gross profit |
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Operating expense: |
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General & administrative |
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Selling & marketing |
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Research & development |
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Depreciation & amortization |
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Loss on sale of subsidiary |
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Total operating expense |
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Operating income (loss) |
( |
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Other income (expense): |
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Interest expense, net |
( |
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) | ( |
) | ( |
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Currency exchange rate gain (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
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Other income (expense), net |
( |
) | ||||||||||||||
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Total other income (expense) |
( |
) | ( |
) | ( |
) | ||||||||||
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Income (loss) before income taxes |
( |
) | ( |
) | ( |
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Income tax expense (benefit) |
( |
) | ( |
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Net income (loss) attributable to common shareholders |
( |
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) | ( |
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Release of cumulative translation adjustment for sale of subsidiary |
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Equity adjustment for sale of subsidiary |
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Foreign currency translation adjustments |
( |
) | ||||||||||||||
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Comprehensive income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
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Net income (loss) per share – basic: |
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Net income (loss) per share |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
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Weighted average shares outstanding |
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Net income (loss) per share – diluted: |
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Net income (loss) per share |
$ |
$ |
( |
) | $ | ( |
) | $ | ( |
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Weighted average shares outstanding |
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The accompanying notes are an integral part of these condensed consolidated statements.
TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
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Common Stock |
Paid-in |
Accumulated |
Comprehensive |
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Shares |
Amount |
Capital |
Deficit |
Loss |
Total |
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Balance September 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
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Release cumulative translation adjustment for sale of subsidiary |
- | |||||||||||||||||||||||
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Foreign currency translation adjustments |
- | |||||||||||||||||||||||
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Equity adjustment for sale of subsidiary |
- | ( |
) | |||||||||||||||||||||
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Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Balance December 31, 2024 |
$ | $ | $ | ( |
) |
$ |
$ |
( |
) | |||||||||||||||
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Foreign currency translation adjustments |
- | ( |
) | ( |
) | |||||||||||||||||||
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Net loss |
- | ( |
) | ( |
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Balance March 31, 2025 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
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Foreign currency translation adjustments |
- | ( |
) | ( |
) | |||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Balance June 30, 2025 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
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Common Stock |
Paid-in |
Accumulated |
Comprehensive |
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Shares |
Amount |
Capital |
Deficit |
Loss |
Total |
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Balance September 30, 2023 |
$ | $ | $ | ( |
) |
$ | ( |
) |
$ | ( |
) | |||||||||||||
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Stock-based compensation |
- | |||||||||||||||||||||||
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Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||||||||||
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Net income |
- | |||||||||||||||||||||||
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Balance December 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
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Foreign currency translation adjustments |
- | ( |
) | ( |
) | |||||||||||||||||||
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Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Balance March 31, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
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Foreign currency translation adjustments |
- | |||||||||||||||||||||||
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Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Balance June 30, 2024 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
TRACK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended June 30, |
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2025 |
2024 |
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Cash flows provided by operating activities: |
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Net income (loss) |
$ | ( |
) |
$ | ( |
) | ||
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Credit losses |
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Sales allowance |
( |
) | ||||||
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Allowance for obsolete inventory |
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Stock based compensation |
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Deferred taxes |
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Loss on monitoring equipment included in cost of revenue |
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Amortization of debt issuance costs |
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Amortization of monitoring center assets included in cost of revenue |
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Foreign currency exchange (gain) loss |
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Right of use assets/liabilities |
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Loss on disposal of assets |
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Loss on sale of subsidiary |
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Change in assets and liabilities: |
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Accounts receivable, net |
( |
) |
( |
) | ||||
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Inventories, net |
( |
) | ||||||
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Current assets held for sale |
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Prepaid expense, deposits and other assets |
( |
) | ( |
) | ||||
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Noncurrent assets |
( |
) | ||||||
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Accounts payable |
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Accrued liabilities |
( |
) | ||||||
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Current liabilities held for sale |
( |
) | ||||||
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Other current liabilities |
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Net cash provided by operating activities |
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Cash flow used in investing activities: |
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Purchase of property and equipment |
( |
) |
( |
) | ||||
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Capitalized software |
( |
) |
( |
) |
||||
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Purchase of monitoring equipment and parts |
( |
) | ( |
) | ||||
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Proceeds from sale of subsidiary, net of cash included in sale |
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Net cash used in investing activities |
( |
) |
( |
) |
||||
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Cash flow used in financing activities: |
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Principal payments on long-term debt |
( |
) |
( |
) | ||||
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Payment of deferred financing fees |
( |
) | ( |
) | ||||
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Net cash used in financing activities |
( |
) | ( |
) | ||||
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Effect of exchange rate changes on cash |
( |
) | ( |
) | ||||
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Net increase (decrease) in cash |
( |
) | ||||||
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Cash and cash held for sale, beginning of period (See Note 1) |
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Cash, end of period |
$ | $ | ||||||
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Cash paid for interest |
$ | $ | ||||||
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Cash paid for taxes |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated statements.
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 June 30, 2025 and results of its operations for the three and nine months ended June 30, 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 nine months ending June 30, 2025, may not be indicative of the results for the fiscal year ending September 30, 2025 (“Fiscal 2025”).
As of June 30, 2025 and September 30, 2024, the Company had an accumulated deficit of $
Sale of Subsidiary
In the first quarter of Fiscal 2025, we completed the sale of our Chilean subsidiary and recognized a $
Cash and Cash Held for Sale
Cash and cash held for sale consisted of the following:
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June 30, 2025 |
September 30, 2024 |
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Cash |
$ | $ | ||||||
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Cash held for sale |
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Total cash and cash held for sale |
$ | $ | ||||||
(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.
(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.
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 the fiscal year ended September 30, 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 the fiscal year ended September 30, 2028.
No other new accounting pronouncements issued or effective as of June 30, 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 June 30, 2025.
(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, $
(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 nine months ended June 30, 2025 and 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.
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 June 30, 2025 |
Three Months Ended June 30, 2024 |
|||||||||||||||
|
Total Revenue |
% of Total Revenue |
Total Revenue |
% of Total Revenue |
|||||||||||||
|
United States |
% |
$ |
% | |||||||||||||
|
Latin America |
% |
% |
||||||||||||||
|
Other |
% |
% |
||||||||||||||
|
Total |
$ |
% |
$ |
% |
||||||||||||
|
Nine Months Ended June 30, 2025 |
Nine Months Ended June 30, 2024 |
|||||||||||||||
|
Total Revenue |
% of Total Revenue |
Total Revenue |
% of Total Revenue |
|||||||||||||
|
United States |
% |
$ |
% | |||||||||||||
|
Latin America |
% |
% |
||||||||||||||
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Other |
% |
% |
||||||||||||||
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Total |
$ |
% |
$ |
% |
||||||||||||
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
The balance of accounts receivable at June 30, 2025 of $
The following table summarizes the activity of allowance for credit losses on accounts receivable for the nine months ended June 30, 2025:
|
Nine Months Ended June 30, 2025 |
||||
|
Balance – beginning of period |
$ | |||
|
Increase to provision for credit losses |
||||
|
Write offs charged against allowance |
( |
) | ||
|
Balance – end of period |
$ | |||
For the three months ended June 30, 2025 and 2024, the Company wrote-off accounts receivables of $
The balances of deferred revenue at June 30, 2025, September 30, 2024, and September 30, 2023 were $
(8) PREPAID EXPENSE AND DEPOSITS
As of June 30, 2025 and September 30, 2024, the outstanding balance of prepaid expense and deposits was $
(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 June 30, 2025 and September 30, 2024, inventory consisted of the following:
|
June 30, 2025 |
September 30, 2024 |
|||||||
|
Monitoring equipment component boards inventory |
$ | $ | ||||||
|
Reserve for damaged or obsolete inventory |
( |
) | ( |
) | ||||
|
Total inventory, net of reserves |
$ | $ | ||||||
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 a recovery of $
(10) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of June 30, 2025 and September 30, 2024:
|
June 30, 2025 |
September 30, 2024 |
|||||||
|
Equipment, software and tooling |
$ | $ | ||||||
|
Leasehold improvements |
||||||||
|
Furniture and fixtures |
||||||||
|
New device fixed assets |
||||||||
|
Total property and equipment before accumulated depreciation |
||||||||
|
Accumulated depreciation |
( |
) | ( |
) | ||||
|
Property and equipment, net of accumulated depreciation |
$ | $ | ||||||
Property and equipment depreciation expense for the three months ended June 30, 2025 and 2024 was $
(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 and years for customer tablets and to years for monitoring devices. Monitoring equipment as of June 30, 2025 and September 30, 2024 is as follows:
|
June 30, 2025 |
September 30, 2024 |
|||||||
|
Monitoring equipment |
$ | $ | ||||||
|
Less: accumulated depreciation |
( |
) | ( |
) | ||||
|
Monitoring equipment, net of accumulated depreciation |
$ | $ | ||||||
Depreciation of monitoring equipment for the three months ended June 30, 2025 and 2024 was $
During the three months ended June 30, 2025 and 2024, the Company recorded charges of $
(12) INTANGIBLE ASSETS
The following table summarizes the activity of intangible assets at June 30, 2025 and September 30, 2024:
|
June 30, 2025 |
September 30, 2024 |
|||||||||||||||||||||||
|
Gross |
Accumulated Amortization |
Net |
Gross |
Accumulated Amortization |
Net |
|||||||||||||||||||
|
Patent & royalty agreements |
$ | $ | ( |
) |
$ | $ | $ | ( |
) |
$ | ||||||||||||||
|
Developed technology |
( |
) |
( |
) |
||||||||||||||||||||
|
Trade name |
( |
) |
( |
) |
||||||||||||||||||||
|
Total intangible assets |
$ | $ | ( |
) |
$ | $ | $ | ( |
) |
$ | ||||||||||||||
The intangible assets summarized above were purchased or developed on various dates from July 2011 through June 30, 2025.
Total amortization expense for the three months ended June 30, 2025 and 2024 was $
Total amortization expense for the nine months ended June 30, 2025 and 2024 was $
The following table summarizes the future maturities of amortization of intangible assets as of June 30, 2025:
|
Twelve months ended June 30: |
Amortization |
|||
|
2026 |
$ | |||
|
2027 |
||||
|
2028 |
||||
|
2029 |
||||
|
2030 |
||||
|
Thereafter |
||||
|
Total |
$ | |||
(13) GOODWILL
The following table summarizes the activity of Goodwill at June 30, 2025 and September 30, 2024, respectively:
|
Nine Months Ended June 30, 2025 |
Year Ended September 30, 2024 |
|||||||
|
Balance - beginning of period |
$ | $ | ||||||
|
Effect of foreign currency translation on goodwill |
||||||||
|
Balance - end of period |
$ | $ | ||||||
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. impairment of goodwill was recognized through June 30, 2025.
(14) OTHER ASSETS
As of June 30, 2025 and September 30, 2024, the balance of other assets was $
(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 June 30, 2025 and 2024, respectively, are shown in the table below:
|
Three Months Ended June 30, |
Nine Months Ended June 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Monitoring equipment operating revenue |
$ | $ | $ | $ | ||||||||||||
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.
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 June 30, 2025 and September 30, 2024.
|
June 30, 2025 |
September 30, 2024 |
|||||||||||||||
|
Operating lease asset |
Operating lease liability |
Operating lease asset |
Operating lease liability |
|||||||||||||
|
|
$ | $ | ||||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
The following table summarizes the supplemental cash flow information for the nine months ended June 30, 2025 and 2024:
|
Nine Months Ended June 30, 2025 |
Nine Months Ended June 30, 2024 |
|||||||
|
Cash paid for noncancelable operating leases included in operating cash flows |
$ | $ | ||||||
|
Right of use assets obtained in exchange for operating lease liabilities |
$ | $ | ||||||
The future minimum lease payments under noncancelable operating leases with terms greater than one year as of June 30, 2025 are:
|
Twelve Months Ended June 30: |
Operating |
|||
|
2026 |
$ | |||
|
2027 |
||||
|
2028 |
||||
|
2029 |
||||
|
2030 |
||||
|
Thereafter |
- | |||
|
Undiscounted Cash Flow |
||||
|
Less: imputed interest |
( |
) | ||
|
Total |
$ | |||
|
Reconciliation to lease liabilities: |
||||
|
Lease liabilities - current |
$ | |||
|
Lease liabilities - long-term |
||||
|
Total Lease Liabilities |
$ | |||
The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of June 30, 2025 were
(16) ACCRUED LIABILITES
Accrued liabilities consisted of the following as of June 30, 2025 and September 30, 2024:
|
June 30, 2025 |
September 30, 2024 |
|||||||
|
Accrued payroll, taxes and employee benefits |
$ | $ | ||||||
|
Accrued taxes - foreign and domestic |
||||||||
|
Accrued other expense |
||||||||
|
Accrued legal and other professional costs |
||||||||
|
Accrued costs of revenue |
||||||||
|
Right of use liability |
||||||||
|
Deferred financing fees |
||||||||
|
Accrued interest |
||||||||
|
Total accrued liabilities |
$ | $ | ||||||
Accrued liabilities in the table above as of June 30, 2025 and September 30, 2024 exclude amounts classified as held for sale of $
(17) RELATED PARTIES
ETS Limited is currently the beneficial owner of
(18) DEBT OBLIGATIONS
Debt obligations, net of debt issuance costs, as of June 30, 2025 and September 30, 2024, consisted of the following:
|
June 30, 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 $ |
$ | $ | ||||||
|
Total debt obligations |
||||||||
|
Less: current portion |
||||||||
|
Long-term debt, less current portion |
$ | $ | ||||||
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
As of June 30, 2025, $
The following table summarizes our future maturities of debt obligations, net of the amortization of debt discounts as of June 30, 2025:
|
Twelve months ended June 30: |
Total |
|||
|
2026 |
$ | |||
|
2027 |
||||
|
Total |
||||
|
Issuance costs |
( |
) |
||
|
Debt obligations, net of unamortized issuance costs |
$ | |||
(19) PREFERRED AND COMMON STOCK
The Company is authorized to issue up to
dividends were paid during the nine months ended June 30, 2025 or 2024, respectively.
Common Stock Issuances
There were issuances of Common Stock in the nine months ended June 30, 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
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 $
As of June 30, 2025, shares of Series A Preferred were issued and outstanding.
(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
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 issuances of restricted shares in the nine months ended June 30, 2025 and 2024.
The Company recorded expense for the three months ended June 30, 2025 and 2024 related to the 2022 Plan, and expense of $
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 nine months ended June 30, 2025 and 2024, the Company granted options or warrants under the 2022 Plan or under the 2012 Plan. The Company recorded expense for the three and nine months ended June 30, 2025 and 2024, respectively, related to the issuance and vesting of outstanding options and warrants.
There are outstanding options or warrants at June 30, 2025 and no future issuances are expected.
As of June 30, 2025, 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.
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.
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. To avoid the costs and risks of continued litigation, the Company’s insurer, without admitting liability, settled the litigation for an immaterial amount, and the case was dismissed on April 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. On April 7, 2025, the Court placed the case on its Criminal Proceedings Law Division Stay Calendar, effectively staying the matter until the Plaintiff’s criminal case is resolved. 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.
Latavion Crowder v. Track Group, Inc. On July 25, 2025, a complaint was filed against the Company in the Circuit Court of Cook County, Illinois naming the Company as a defendant and alleging claims of strict products liability, negligence, and breach of warranty related to injuries allegedly sustained by Crowder from an electronic monitoring device. The Company disputes Crowder’s claims and will defend the case vigorously. At this preliminary stage, no accrual for a potential loss has been made, after consultation with legal counsel.
(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 $
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 $
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 $
The following summarizes the loss on sale of subsidiary:
|
Proceeds from sale of subsidiary |
$ | |||
|
Net assets and liabilities, including $ |
||||
|
Cumulative translation adjustment released to net loss |
( |
) | ||
|
Loss on sale of subsidiary |
$ | ( |
) |
(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.
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.
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 nine months ended June 30, 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.
Results of Operations
Three Months Ended June 30, 2025 compared to Three Months Ended June 30, 2024
Revenue
For the three months ended June 30, 2025, the Company recognized total revenue from operations of $9,091,442 compared to $9,185,030 for the three months ended June 30, 2024, a decrease of $93,588 or approximately 1%. The decrease in monitoring revenues is driven principally by a decrease in people assigned to monitoring for clients in Washington D.C. and due to our recently sold Chilean subsidiary. This decrease was partially offset by revenue increases for clients in Illinois and Canada 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 June 30, 2025 increased to $1,020,026 from $120,583 in the same period in 2024, an increase of $899,443 or approximately 746%. The increase in product and other revenue was largely due to increased international product sales, principally to customers in Chile and Saudi Arabia. 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 improved in the year ended September 30, 2024 (“Fiscal 2024”) and the beginning of the year ended September 30, 2025 (“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. Increases are expected from duties levied on some 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 June 30, 2025, cost of revenue totaled $4,500,001 compared to cost of revenue during the three months ended June 30, 2024 of $4,915,441, a decrease of $415,440 or 8%. The decrease in cost of revenue was largely the result of lower device repair costs of $175,297, lower communication costs of $158,090 and lower monitoring center costs of $346,513, partially offset by an increase in hardware purchases of $205,111. 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 of Fiscal 2025.
Depreciation and amortization included in cost of revenue for the three months ended June 30, 2025 and 2024 totaled $734,301 and $732,749, respectively, an increase of $1,552. 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. 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 June 30, 2025, gross profit totaled $4,591,441, resulting in a gross margin of approximately 51%. During the three months ended June 30, 2024, gross profit totaled $4,269,589, resulting in a gross margin of approximately 46%. The increase in absolute gross profit of $321,852 is due to a decrease in cost of revenue.
General and Administrative Expense
During the three months ended June 30, 2025, general and administrative expense totaled $2,078,417 compared to $3,091,210 for the three months ended June 30, 2024. The decrease of $1,012,793 or approximately 33% is due to a decrease in payroll, benefits, and payroll taxes of $357,603 primarily due to the sale of our Chilean subsidiary on November 1, 2024 and a settlement expense related to a contract dispute of $496,080 in the three months ended June 30, 2024.
Selling and Marketing Expense
During the three months ended June 30, 2025, selling and marketing expense totaled $858,789 compared to $761,890 for the three months ended June 30, 2024. The increase of $96,899 or approximately 13% resulted largely from higher bad debt expense of $105,381 due to this previously being recorded in general and administrative expense.
Research and Development Expense
During the three months ended June 30, 2025, research and development expense totaled $675,861 compared to $700,168 for the three months ended June 30, 2024. The decrease of $24,307 or approximately 3% was largely due to lower payroll, benefits and payroll taxes of $14,044 and a decrease in outside services of $16,798.
Depreciation and Amortization Expense
During the three months ended June 30, 2025, depreciation and amortization expense totaled $227,568 compared to $234,813 for the three months ended June 30, 2024, a decrease of $7,245 or approximately 3%, largely due to fully depreciated fixed assets.
Total Operating Expense
During the three months ended June 30, 2025, total operating expense decreased to $3,840,635 compared to $4,788,081 for the three months ended June 30, 2024, a decrease of $947,446 or approximately 20%. The decrease is principally due to the factors disclosed above.
Operating Income (Loss)
During the three months ended June 30, 2025, operating income was $750,806 compared to operating loss of $518,492 for the three months ended June 30, 2024. The increase of $1,269,298 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 June 30, 2025, other income totaled $685,190 compared to other expense of $618,556 for the three months ended June 30, 2024, an increase of $1,303,746. The increase in other income is largely due to positive currency exchange rate movements of $1,432,767 between the US Dollar vs. the Canadian Dollar compared to the prior fiscal period, partially offset by an increase in interest expense of $129,020 due to the escalating interest rate on the Amended Facility Agreement with Conrent.
Net Income (Loss) Attributable to Common Stockholders
The Company had income attributable to common stockholders of $1,434,280 for the three months ended June 30, 2025, compared to net loss attributable to common stockholders of $870,079 for the three months ended June 30, 2024, an increase in net income of $2,304,359. This increase in net income is largely due to an increase in operating income and positive currency exchange rate movements.
Nine Months Ended June 30, 2025 compared to Nine Months Ended June 30, 2024
Revenue
For the nine months ended June 30, 2025, the Company recognized total revenue from operations of $26,112,091 compared to $27,143,222 for the nine months ended June 30, 2024, a decrease of $1,031,131 or approximately 4%. The decrease in monitoring revenues is driven principally by a decrease in people assigned to monitoring for clients in Virginia and Washington D.C., and due to our recently sold Chilean subsidiary. This decrease was partially offset by revenue increases for clients in Illinois 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 nine months ended June 30, 2025 increased to $1,731,392 from $645,640 in the same period in 2024, an increase of $1,085,752 or approximately 168%. The increase in product sales and other revenue was largely due to increased international product sales, principally to customers in Chile and Saudi Arabia, 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.
The Company’s supply chain will see spot increases in certain areas of operations in Fiscal 2025. Increases are expected from duties levied on some 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 nine months ended June 30, 2025, cost of revenue totaled $12,982,341 compared to cost of revenue during the nine months ended June 30, 2024 of $14,703,279, a decrease of $1,720,938 or 12%. The decrease in cost of revenue was largely the result of lower device repair costs of $425,057, lower communication costs of $274,603 and lower monitoring center costs of $1,183,997, partially offset by increased hardware purchases of $160,794. 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 of Fiscal 2025.
Depreciation and amortization included in cost of revenue for the nine months ended June 30, 2025 and 2024 totaled $2,192,857 and $2,316,100, respectively, a decrease of $123,243 or 5%. 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 $187,500 for fully amortized device royalties, partially offset by an increase in device depreciation of $95,406. 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 nine months ended June 30, 2025, gross profit totaled $13,129,750, resulting in a gross margin of approximately 50%. During the nine months ended June 30, 2024, gross profit totaled $12,439,943, resulting in a gross margin of approximately 46%. The increase in absolute gross profit of $689,807 is due to a decrease in monitoring center costs and device repair costs, partially offset by a decrease in revenue.
General and Administrative Expense
During the nine months ended June 30, 2025, general and administrative expense totaled $6,636,680 compared to $9,022,963 for the nine months ended June 30, 2024. The decrease of $2,386,283 or approximately 26% is due to a decrease in payroll, benefits, and payroll taxes of $1,088,078 primarily due to the sale of our Chilean subsidiary on November 1, 2024 and a settlement expense related to a contract dispute of approximately $1,003,543 in the nine months ended June 30, 2024.
Selling and Marketing Expense
During the nine months ended June 30, 2025, selling and marketing expense totaled $2,724,721 compared to $2,278,861 for the nine months ended June 30, 2024. The increase of $445,860 or approximately 20% resulted largely from higher bad debt expense of $354,661 due to this previously being recorded in general and administrative expense and higher payroll, benefits, and payroll taxes of $155,840 due to open sales and marketing positions in the nine months ended June 30, 2024 as well as an increase in bonus accrual for nine months ended June 30, 2025.
Research and Development Expense
During the nine months ended June 30, 2025, research and development expense totaled $2,095,901 compared to $2,083,813 for the nine months ended June 30, 2024. The nominal increase was largely due to increased training and recruiting expense, partially offset by a decrease in outside services.
Depreciation and Amortization Expense
During the nine months ended June 30, 2025, depreciation and amortization expense totaled $682,506 compared to $711,097 for the nine months ended June 30, 2024, a decrease of $28,591 or approximately 4%, largely due to fully depreciated fixed assets.
Loss on Sale of Subsidiary
On November 1, 2024, we completed the sale of a 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 nine months ended June 30, 2025, total operating expense decreased to $12,206,291 compared to $14,096,734 for the nine months ended June 30, 2024, a decrease of $1,890,443 or approximately 13%. The decrease is principally due to the factors disclosed above.
Operating Income (Loss)
During the nine months ended June 30, 2025, operating income was $923,459 compared to operating loss of $1,656,791 for the nine months ended June 30, 2024. The increase of $2,580,250 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 nine months ended June 30, 2025, other expense totaled $1,914,047 compared to other expense of $1,469,778 for the nine months ended June 30, 2024, an increase of $444,269. The increase in other expense is largely due to an increase in interest expense of $397,033 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 $1,093,685 for the nine months ended June 30, 2025, compared to net loss attributable to common stockholders of $2,772,693 for the nine months ended June 30, 2024, a decrease in net loss of $1,679,008. This decrease in net loss is largely due to an increase in operating income, partially offset by increases in interest expense and income tax expense.
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.
Liquidity, Working Capital and Management’s Plan
As of June 30, 2025, the Company had unrestricted cash of $4,910,729, compared to unrestricted cash of $3,574,215 as of September 30, 2024. As of June 30, 2025, we had working capital of $4,091,865, compared to working capital of $3,739,192 as of September 30, 2024. This increase in working capital of $352,673 is principally due to an increase in cash, accounts receivable and inventory, partially offset by an increase in accounts payable and accrued liabilities.
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 June 30, 2025, $42,864,000 of principal and $2,172,967 of interest was owed to Conrent; however, on June 30, 2025, the Company requested an extension of the July 1, 2025 interest payment required by the Amendment, until September 30, 2025, which Conrent accepted.
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 nine months ended June 30, 2025 or 2024.
Net Cash Flows Provided by Operating Activities.
During the nine months ended June 30, 2025, we had cash flows from operating activities of $3,055,920, compared to cash flows from operating activities of $1,545,198 for the nine months ended June 30, 2024, representing a $1,510,722 increase, or approximately 98%. The increase in cash from operations was largely the result of an increase in operating income and accrued liabilities and a decrease in payments to vendors, partially offset by an increase in inventories and a decrease in collections from customers.
Net Cash Flows Used in Investing Activities.
The Company used $2,325,538 of cash from investing activities during the nine months ended June 30, 2025, compared to $3,159,935 of cash used for investing activities during the nine months ended June 30, 2024. The decrease of $834,397 or 26% was largely the result of proceeds from the sale of our 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 nine months ended June 30, 2025, compared to $311,868 during the nine months ended June 30, 2024. The decrease of $248,029 or 80% was largely the result of a decrease in principal payments on long-term debt.
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.
Foreign Currency Risks
We had $485,173 and $4,282,685 in foreign currency revenue from sources outside of the United States for the nine months ended June 30, 2025 and 2024, respectively. Our foreign currency revenue was made up of sales in our 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 $210,708 and a foreign exchange loss of $160,028 in the nine months ended June 30, 2025 and 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 June 30, 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 June 30, 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 June 30, 2025, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
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.
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. To avoid the costs and risks of continued litigation, the Company’s insurer, without admitting liability, settled the litigation for an immaterial amount, and the case was dismissed on April 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. On April 7, 2025, the Court placed the case on its Criminal Proceedings Law Division Stay Calendar, effectively staying the matter until the Plaintiff’s criminal case is resolved. 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.
Latavion Crowder v. Track Group, Inc. On July 25, 2025, a complaint was filed against the Company in the Circuit Court of Cook County, Illinois naming the Company as a defendant and alleging claims of strict products liability, negligence, and breach of warranty related to injuries allegedly sustained by Crowder from an electronic monitoring device. The Company disputes Crowder’s claims and will defend the case vigorously. At this preliminary stage, no accrual for a potential loss has been made, after consultation with legal counsel.
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our Annual Report on Form 10-K for the 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.
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(a) Exhibits Required by Item 601 of Regulation S-K
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Exhibit Number |
Title of Document |
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31(i) |
Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002 |
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31(ii) |
Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002 |
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32 |
Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
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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 |
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101.SCH |
Inline XBRL Taxonomy Extension Schema |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
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.
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Track Group, Inc. |
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Date: August 8, 2025 |
By: |
/s/ Derek Cassell |
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Derek Cassell, Chief Executive Officer (Principal Executive Officer) |
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Date: August 8, 2025 |
By: |
/s/ James A. Berg |
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James A. Berg, Chief Financial Officer (Principal Financial and Accounting Officer) |
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