Financial Analysis

(12) 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. a …

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(7) Debt Obligations Debt obligations, net of debt issuance costs, as of September 30, 2025 and 2024 consisted of the following: September 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 $42,864,000, bearing interest at a rate of 4% per annum, payable in arrears annually beginning July 1, 2021, with all principal and accrued and unpaid interest due on July 1, 2024. On April 26, 2023, the Company and Conrent entered into an amendment to the facility agreement, which extended the maturity date from July 1, 2024 to July 1, 2027. Interest payments are scheduled to be made on June 30 each year. Unamortized issuance costs at September 30, 2025 are $143,056. As of September 30, 2025, $42,864,000 of principal and $2,775,444 of interest was owed to Conrent. The Company has not paid Conrent any interest for the year ended September 30, 2025. The due date for the interest payment has been extended until further notice. $ 42,720,944 $ 42,639,197 Total debt obligations 42,720,944 42,639,197 Less: current portion - - Long-term debt, less current portion $ 42,720,944 $ 42,639,197 On December 21, 2020, Conrent and the Company signed an amendment to the Amended Facility Agreement which extended the maturity date of the Amended Facility Agreement to July 1, 2024 ( Amended Facility ), capitalized the accrued and unpaid interest increasing the outstanding principal amount …

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(10) 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 Companys Board. The 2022 Plan provides for the grant of incentive options and nonqualified options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, other stock-based awards and performance-based awards to employees and certain non-employees who provide services to the Company in lieu of cash. A total of 500,000 shares are authorized for issuance pursuant to awards granted under the 2022 Plan. The 2022 Plan supersedes and replaces the Companys 2012 Equity Compensation Plan (the 2012 Plan ). As of June 30, 2020, the Board suspended further awards under the 2012 Plan. Any awards outstanding under the 2012 Plan will remain subject to the 2012 Plan. All shares of Common Stock remaining authorized and available for issuance under the 2012 Plan and any shares subject to outstanding awards under the 2012 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under our 2022 Plan. There were no issuances of restricted shares in fiscal year 2025 or 2024. On April 13, 2022, the Company issued 285,000 restricted shares, at a grant date value of $1 …

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(11) Income Taxes The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary. Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provision, respectively. For the fiscal years ended September 30, 2025 and 2024, the Company incurred no net losses for income tax purposes. The amount and ultimate realization of the benefits from the net operating losses is dependent, in part, upon the tax laws in effect, our future earnings, and other future events, the effects of which cannot be determined. The Company has established a valuation allowance for all deferred income tax assets not offset by deferred income tax liabilities due to the uncertainty of their realization. Accordingly, there is no benefit for income taxes in the accompanying statements of operations. At September 30, 2025, the Company had federal carryforwards available to offset future taxable income of approximately $148,204,709 net of NOLs whi …

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"Recent Accounting Standards 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 fiscal year 2026 and interim periods beginning in the first quarter of fiscal 2027, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expe …

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(6) Related Parties ETS Limited is currently the beneficial owner of 4,706,579 shares of the Company's Common Stock (the Track Group Shares ) held by ADS Securities LLC ( ADS ) under an agreement dated September 28, 2017, pursuant to which ADS transferred all the Track Group Shares to ETS Limited in exchange for all the outstanding shares of ETS Limited. A former Director of ETS Limited was elected to the Company's Board of Directors (the Board ) on February 7, 2018 and served on the Board until his resignation on June 6, 2025. …

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(3) Revenue Recognition Monitoring and Other Related Services . Monitoring services include two components: (i) lease contracts pursuant to which the Company provides monitoring services and lease devices to distributors or end users and the Company retains ownership of the leased device; and (ii) monitoring services purchased by distributors or end users who have previously purchased monitoring devices and opt to use the Companys monitoring services. Sales of devices and leased GPS devices are required to use the Companys monitoring service and both the GPS leased devices and monitoring services are accounted for as a single performance obligation. Monitoring revenue is recognized ratably over time, as the customer simultaneously receives and consumes the benefit of these services as they are performed. Payment due or received from the customers prior to rendering the associated services are recorded as deferred revenue. 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 transactions associated with the sale of devices and replacement parts comprise a single performance obligation. We satisfy the performance obligation when the Company has transferred control of the product to the customer and they receive substantially all of the benefits. Transfer of control passes to customers upon shipment or upon receipt depending on …

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"(2) Summary of Significant Accounting Policies 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. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the period presented. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts and certain assumptions related to the recoverability of intangible assets and Goodwill. Foreign Currency Translation The Chilean Peso, New Israeli Shekel and the Canadian Dollar are used as functional currencies of the operating subsidiaries: (i) Track Group Chi …

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(16) Subsequent Events In accordance with the Subsequent Events Topic of the 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, except as set forth below, no subsequent events occurred that are reasonably likely to have an impact on the financial statements presented herein. On November 7, 2025, our Israeli subsidiary, Track Group International Ltd., was dissolved.

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