TRAK 10-K & 10-Q changes, risk factors and insider trading

Our investment in and commercial relationship with SPAR Group, Inc. (“SPAR”), as well as our obligations under indebtedness incurred in connection with a portion of our investment, may not generate the returns or benefits we anticipate and expose us to additional risks.

As of June 30, 2026, we beneficially owned approximately 14.8% of SPAR’s outstanding common stock. Based on the facts and circumstances existing at that time, including our lack of control or significant influence over SPAR’s operating and financial policies, our investment was accounted for at fair value, with changes in fair value reflected in our results of operations. On July 1, 2026, we acquired an additional 4,709,837 shares of SPAR common stock, increasing our beneficial ownership to approximately 31% of SPAR’s outstanding common stock. Our investment in SPAR was acquired through a series of transactions, including purchases for cash and other consideration and the receipt of shares as consideration for services provided to SPAR. In connection with the July 2026 acquisition, we issued an unsecured promissory note (the “Note”) in the original principal amount of approximately $2.6 million. In addition to our equity investment, we have a commercial relationship with SPAR pursuant to which we provide certain services intended to assist SPAR in developing products and improving its operational processes. We entered into these transactions based on our expectation that our investment and commercial relationship with SPAR could generate a positive return and contribute to the growth of our business over time. There can be no assurance that these expectations will be realized.

Risks Related to Our Equity Investment. Our investment in SPAR is subject to risks associated with an equity investment in a publicly traded company, including fluctuations in the market price and liquidity of SPAR’s common stock and risks relating to SPAR’s business, financial condition and results of operations, many of which are outside our control. SPAR may not successfully execute its business strategy or may otherwise perform differently than we anticipated when making our investment. As a result, the value of our investment could decline, potentially significantly, which could adversely affect our results of operations and financial condition.

Although we beneficially own a significant minority interest in SPAR, we do not control SPAR or its board of directors or management. Accordingly, SPAR may make strategic, operational, financing or capital allocation decisions with which we disagree or that adversely affect the value of our investment. Our ability to dispose of some or all of our SPAR shares also may be limited by the trading liquidity of SPAR’s common stock, applicable securities laws and regulations, contractual restrictions, if any, and prevailing market conditions. Consequently, we may be unable to realize the value of our investment at the time or on the terms we desire.

Our increased ownership interest also may affect the accounting treatment of our investment. As a result of the increase in our ownership interest, we are evaluating whether we have the ability to exercise significant influence over SPAR and, therefore, whether our investment should be accounted for under the equity method of accounting. If we determine that we have the ability to exercise significant influence over SPAR, we would be required to account for our investment under the equity method from the date such significant influence is determined to have arisen. Under the equity method, our results of operations would include our proportionate share of SPAR’s earnings or losses, subject to applicable accounting adjustments, regardless of whether SPAR distributes cash to us. A change from fair value accounting to the equity method could materially affect the manner in which SPAR’s operating performance and our investment are reflected in our financial statements and could increase the volatility or complexity of our reported financial results.

Risks Related to the Note Issued in Connection with Our Investment. Our obligation to make principal and interest payments under the Note is independent of the performance or value of our investment in SPAR and the success of our commercial relationship with SPAR. Accordingly, even if the value of our SPAR investment declines, the investment becomes less liquid, or our commercial relationship with SPAR does not generate the anticipated benefits, we will remain obligated to make payments under the Note when due. The Note contains customary events of default and provides for acceleration under certain circumstances. Required payments under the Note will reduce cash otherwise available for operations, investments, acquisitions, dividends, share repurchases or other corporate purposes. If we were unable to satisfy our obligations under the Note when due, a resulting default or acceleration could adversely affect our liquidity, financial condition and results of operations.

Risks Related to Our Commercial Relationship with SPAR. We provide services to SPAR relating to product development and improvements to certain business and operational processes. We have devoted, and expect to continue to devote, management time, personnel and other resources to this relationship. There can be no assurance that these activities will result in increased revenue, additional commercial opportunities or other benefits commensurate with the resources we devote to the relationship. The benefits we may realize from our relationship with SPAR depend in part on matters outside our control, including SPAR’s business performance, financial condition, strategic priorities, implementation of product and process improvements and continued willingness and ability to engage us to provide services. If the anticipated benefits of the relationship do not materialize, or if the scope of our relationship with SPAR is reduced or terminated, we may not realize the anticipated return on the resources devoted to the relationship, which could adversely affect our business, financial condition and results of operations.

Additional Risks Arising from Our Relationship with SPAR. Our position as both a significant shareholder of SPAR and a commercial counterparty may give rise to potential conflicts of interest in connection with transactions between us and SPAR, the negotiation of commercial arrangements, the exchange of confidential or competitively sensitive information, and the allocation of business opportunities. Transactions between us and SPAR also may be subject to heightened scrutiny because of the size of our ownership interest. Our ownership of SPAR common stock also subjects us to reporting, disclosure and other requirements under the federal securities laws applicable to significant beneficial owners. Compliance with these requirements may increase our administrative costs and may restrict the timing or manner in which we acquire or dispose of SPAR securities.

During the fiscal year ended June 30, 2026, the Company generated revenue of $23.3 million, compared with $22.6 million for the fiscal year ended June 30, 2025, representing an increase of approximately 3%. The increase in revenue was primarily attributable to growth in recurring subscription revenue across the Company’s compliance, supply chain and traceability solutions.

Demand for the Company’s subscription-based services continues to be influenced by increased regulatory requirements, food safety and traceability initiatives, and greater demand for transparency throughout the food supply chain. These factors have increased the compliance, documentation and traceability requirements applicable to grocery retailers, wholesalers, distributors and their suppliers. As adoption of these requirements has expanded, the Company has experienced increased demand for its compliance and traceability services.

The Company continues to focus its sales and marketing efforts on recurring subscription-based software services while placing less emphasis on non-recurring transactional revenue. Certain customers may, from time to time, elect to purchase specific services or licenses on a non-recurring basis. Accordingly, the Company expects that a portion of its revenue may continue to be derived from non-recurring transactions; however, its strategy remains focused on increasing recurring subscription revenue.

Cost of services and product support was $3.3 million, or 14% of total revenue, for the fiscal year ended June 30, 2026, compared with $3.7 million, or 16% of total revenue, for the fiscal year ended June 30, 2025, representing a decrease of approximately 10%. The decrease was primarily attributable to the capitalization of certain qualifying software development costs that otherwise would have been recognized as expense during the period. This decrease was partially offset by increased cybersecurity costs and higher offshore development costs associated with the Company’s Traceability initiative.

Sales and marketing expense was $5.8 million, or 25% of total revenue, for the fiscal year ended June 30, 2026, compared with $5.8 million, or 26% of total revenue, for the fiscal year ended June 30, 2025, representing a decrease of approximately 2%. The decrease was primarily attributable to lower personnel costs resulting from a reduction in marketing staff and lower trade show expenses. The Company also continued to utilize artificial intelligence and other technology-enabled tools to enhance the efficiency and targeting of its sales and marketing activities.

Net other income was $1,676,124 for the fiscal year ended June 30, 2026, compared with $1,426,834 for the fiscal year ended June 30, 2025, representing an increase of $249,290, or approximately 17%. The increase was primarily attributable to higher interest income and a favorable year-over-year change in unrealized gains on investments, partially offset by lower realized gains on investments. Interest income may fluctuate in future periods based on changes in market interest rates and the amount of cash and investments held by the Company.

Dividends accrued on the Company’s Series B Preferred Stock and Series B-1 Preferred Stock were $167,804 and $360,306 for the fiscal years ended June 30, 2026 and 2025, respectively, representing a decrease of approximately 53%. The decrease was primarily attributable to the redemption and retirement of shares of Preferred Stock during fiscal 2026.

Since inception of the redemption program, the Company has redeemed and retired an aggregate of 676,912 shares of Series B Preferred Stock and Series B-1 Preferred Stock at a redemption price of $10.70 per share, for total consideration of approximately $7.2 million. As of June 30, 2026, approximately $1.7 million of Preferred Stock remained outstanding and subject to redemption. The Company currently intends to redeem the remaining outstanding Preferred Stock on or before December 31, 2026, subject to the availability of sufficient cash and other applicable considerations.

Our future capital requirements will depend on a number of factors, including general macroeconomic conditions, our rate of revenue growth, sales and marketing activities, investments in research and development, capital expenditures, strategic investments, including our investment in SPAR Group, Inc., and other uses of capital, and continued market acceptance of our products and services.

Historically, the Company has funded its operations through cash generated from operations, equity financings and borrowings under a revolving credit facility with U.S. Bank N.A. In March 2024, the Company terminated its revolving credit facility and currently has no outstanding borrowings under a credit facility.

Cash and cash equivalents were $27.3 million as of June 30, 2026, compared with $28.6 million as of June 30, 2025, representing a decrease of $1.3 million, or approximately 5%. During fiscal 2026, operating activities provided $8.2 million of cash, while investing activities used $4.1 million and financing activities used $5.4 million of cash.

Net cash provided by operating activities was $8.2 million for fiscal 2026, compared with $8.4 million for fiscal 2025, representing a decrease of approximately $0.2 million. The year-over-year change primarily reflected an approximately $3.0 million decrease in noncash adjustments to net income, partially offset by a $0.6 million increase in net income and an approximately $2.2 million favorable change in operating assets and liabilities. The decrease in noncash adjustments primarily reflected $2.3 million of common stock received in settlement of accounts receivable and lower depreciation and amortization expense, partially offset by higher bad debt expense.

Net cash used in investing activities was $4.1 million for fiscal 2026, compared with nominal net cash provided by investing activities in fiscal 2025. The increase in cash used in investing activities was primarily attributable to $3.0 million advanced under the SPAR note receivable and approximately $1.0 million of capitalized software development costs.

Net cash used in financing activities was $5.4 million for fiscal 2026, compared with $5.0 million for fiscal 2025. The increase in cash used in financing activities was primarily attributable to higher repurchases of the Company’s common stock, partially offset by lower redemptions of Preferred Stock and lower payments on notes payable and finance lease obligations.

At June 30, 2026, the Company had working capital of $24.2 million, compared with $28.2 million at June 30, 2025, representing a decrease of approximately $3.9 million. The decrease was attributable to a $0.9 million decrease in current assets and a $3.0 million increase in current liabilities. The decrease also partially reflected our investment in SPAR Group, Inc. during the quarter ended June 30, 2026, described below.

The decrease in current assets primarily reflected a $1.3 million decrease in cash and cash equivalents and a $0.1 million decrease in prepaid expenses and other current assets, partially offset by a $0.5 million increase in accounts receivable. The increase in current liabilities primarily reflected increases of approximately $1.4 million in accrued liabilities, $1.3 million in deferred revenue and $0.2 million in accounts payable.

The Company previously maintained a revolving credit facility with U.S. Bank N.A. On March 15, 2024, the Company elected not to renew the facility. No amounts were outstanding under the facility at the time of termination. As of June 30, 2026, the Company had no outstanding bank debt and no borrowing availability under the former credit facility.

The Company expects that cash generated from operations, together with its existing cash and short-term investments, will be used to fund its operating requirements and other anticipated uses of capital. Significant anticipated uses of cash include the following:

Quarterly Cash Dividends. The Company has paid quarterly cash dividends since fiscal 2023. In June 2025, the Board of Directors approved an increase in the quarterly cash dividend to $0.02 per share, or $0.08 per share on an annualized basis, beginning with the dividend payable with respect to the quarter ended September 30, 2025. The declaration and payment of future dividends are subject to the discretion of the Board of Directors and will depend on, among other factors, the Company’s financial condition, results of operations, cash requirements and other factors deemed relevant by the Board.

Preferred Stock Redemptions. Since inception of the Company’s preferred stock redemption program, the Company has redeemed an aggregate of 676,912 shares of Series B Preferred Stock and Series B-1 Preferred Stock at a redemption price of $10.70 per share, for total consideration of approximately $7.2 million. The Series B-1 Preferred Stock was fully redeemed during fiscal 2024. As of June 30, 2026, approximately $1.7 million of Series B Preferred Stock remained outstanding and subject to redemption.

SPAR Group Transactions

On March 17, 2026, the Company, through its subsidiary PC Group Inc., entered into a financing arrangement with SPAR Marketing Force, Inc. providing up to $4.0 million of funding, of which $3.0 million has been advanced. The arrangement provides for interest income at 8.0% and includes additional return components in the form of equity consideration and contingent price protection provisions. These features may increase the effective yield on the loan but also introduce variability in expected returns and earnings due to potential fair value adjustments and contingent cash flows. As a result, the Company's future results of operations may be impacted by changes in the market price of SPAR Group, Inc. common stock and the timing and issuance of equity consideration.

On March 29, 2026, the Company entered into an amendment (the “Amendment”) to that certain Services Agreement dated March 13, 2026 (the “Agreement”) by and between the Company and SPAR Group, Inc. (the “Client”), which Agreement was entered into in the ordinary course of business. Under the terms of the Agreement, the Company agreed to provide certain services the (“Services”) to the Client for a one-year term beginning March 13, 2026. In accordance with the terms of the Agreement, the Client was to pay the Company in cash for the Services provided thereunder.

Under the terms of the Amendment, the Company can elect to receive payment for the Services in cash, shares of common stock, par value $0.01 per share, of the Client (“Client Stock”), or a combination thereof. Any issuance of Client Stock pursuant to the Amendment shall be valued based upon the volume weighted average price (“VWAP”) of Client Stock for the five (5) trading days immediately preceding the applicable issuance date.

On May 29, 2026, the Company elected to receive payment of an outstanding balance owed to the Company under an amendment (the “Amendment”) to that certain Services Agreement dated March 13, 2026 (the “Agreement”) by and between the Company and SPAR Group, Inc. (the “Client”) in shares of common stock, par value $0.01 per share, of the Client (“Client Stock”), resulting in the issuance by Client to the Company of 3,190,569 shares of Client Stock at a deemed value of $0.728710119 per share, in consideration of the payment of $2,325,000 otherwise payable to the Company under the terms of the Agreement.

On July 1, 2026 (the “Closing Date”), the Company entered into Stock Purchase Agreements with William Bartels (“Bartels”) and WHB Services, Inc. Incentive Savings Plan and Trust (“WHB”) (together, the “Agreements”). Under the terms of the Agreements, on the Closing Date, the Company is to be issued an aggregate of 4,709,837 shares of common stock (the “SPAR Shares”) of Client. Aggregate contingent consideration due under the Agreements on the Closing Date by the Company for the SPAR Shares is approximately $3.3 million consisting of (i) a previously paid non-refundable deposit of $100,000 (the “Deposit”); (ii) $139,883 to be paid upon delivery to the Company of the SPAR Shares held by William Bartels; (iii), $485,118 to be paid upon delivery to the Company of the SPAR shares held by WHB; and (iv) the issuance of an unsecured promissory note in the principal amount of $2,571,885 (the “Note”). The Note bears interest at 6.0% per annum and matures on the fourth anniversary of its issuance. Principal is payable in annual cash installments of $725,000, together with all accrued and unpaid interest, on each of the first three anniversaries of the Note, with the remaining outstanding principal and accrued interest due at maturity on July 1, 2030. The Note may be prepaid at any time without premium or penalty and contains customary events of default, including payment defaults and bankruptcy events. Upon an event of default, the holder may accelerate all outstanding amounts due under the Note. The Note also provides for automatic acceleration upon certain change-of-control transactions involving the Company or upon the sale of substantially all of the Company’s assets. In addition, amounts remaining outstanding become payable to the seller’s designated heirs or beneficiaries within sixty (60) days following the seller’s death.

The Company is currently evaluating the accounting treatment of these features, including potential derivative accounting. The ultimate impact on earnings may vary based on future equity pricing and market conditions. The loan is unsecured, and the Company is exposed to credit risk associated with the Borrower's financial condition.

In November 2022, the FDA issued the final rule under the Food Safety Modernization Act Section 204(d) (“FSMA 204”) relating to traceability for high-risk foods. The rule became effective on January 20, 2023, and applies broadly to entities that manufacture, process, pack, or hold foods designated on the FDA’s Food Traceability List (“FTL”). The FTL encompasses 16 food categories, representing thousands of products commonly distributed across grocery, convenience, and foodservice channels.

FSMA 204 requires impacted entities to establish traceability programs capable of capturing, creating, maintaining, and sharing specified Key Data Elements (“KDEs”) at defined Critical Tracking Events (“CTEs”) throughout the supply chain. These records must be retained for a minimum of two years and be retrievable within 24 hours upon request by the FDA. Compliance necessitates the management of substantial volumes of supply chain data across a highly fragmented network of more than one million facilities.

In March 2025, the FDA extended the compliance deadline for FSMA 204 by 30 months to July 20, 2028. Despite this extension, adoption of traceability solutions continues to accelerate due to commercial and competitive pressures. Several major retailers have announced traceability requirements that exceed the scope of FSMA 204, including requirements for additional data elements, application across all food categories (not limited to the FTL), and implementation timelines preceding FDA enforcement.

Traceability is fundamentally a supply chain data management challenge, which aligns with the Company’s core competencies. The Company has developed the ReposiTrak Traceability Network (“RTN”), a scalable, cloud-based solution designed to facilitate compliant traceability through low-cost, rapid deployment across supplier, distributor, and retailer networks. The RTN connects thousands of supply chain participants and is designed to support end-to-end traceability, improve recall responsiveness, and enhance food safety outcomes.

Patent-Pending Technology

The Company has developed proprietary, patent-pending technologies designed to address critical challenges associated with large-scale traceability data management. These innovations focus on (i) the automated detection and correction of errors in supply chain traceability data and (ii) the generation of compliant traceability records without reliance on case-level scanning or probabilistic methods.

The first patent-pending technology relates to the use of advanced algorithms and machine learning techniques to identify inconsistencies, omissions, and inaccuracies within traceability datasets and to automatically correct such errors in real time. This capability is intended to materially improve data integrity, reduce manual intervention, and increase confidence in compliance with regulatory requirements.

The second patent-pending technology relates to the Company’s ability to generate end-to-end traceability records across distribution environments without requiring physical scanning of individual cases. This approach leverages system-level data integration and validation techniques to create compliant Key Data Element records at each Critical Tracking Event, enabling scalable deployment in high-volume distribution operations.

These patent-pending innovations are integral to the Company’s traceability platform and are designed to enhance scalability, reduce implementation complexity, and differentiate the Company’s offering in a rapidly evolving regulatory and commercial environment.

Revenue was $5,883,198 and $5,913,732 for the three months ended March 31, 2026 and 2025, respectively, a 1% decrease year-over-year. The decrease in revenue was due to the timing of a large increase in onboarding fees that occurred in fiscal 2025 that did not occur in the same period of fiscal 2026 offset partially by growth in all lines of business.

Cash and cash equivalents was $26,409,558 and $28,568,805 at March 31, 2026 and June 30, 2025, respectively. This $2,159,247 decrease is primarily the result of a note receivable issued to SPAR Marketing offset by higher revenue and the corresponding cash receipts.

On March 17, 2026, the Company, through its subsidiary PC Group Inc., entered into a financing arrangement with SPAR Marketing Force, Inc. providing up to $4.0 million of funding, of which $3.0 million has been advanced. The arrangement provides for interest income at 8.0% and includes additional return components in the form of equity consideration and contingent price protection provisions. These features may increase the effective yield on the loan but also introduce variability in expected returns and earnings due to potential fair value adjustments and contingent cash flows. As a result, the Company's future results of operations may be impacted by changes in the market price of SPAR Group, Inc. common stock and the timing and issuance of equity consideration.

The Company is currently evaluating the accounting treatment of these features, including potential derivative accounting. The ultimate impact on earnings may vary based on future equity pricing and market conditions. The loan is unsecured, and the Company is exposed to credit risk associated with the Borrower's financial condition.