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Note 2 - Significant Accounting Policies

9 Months Ended

Mar. 31, 2026

Significant Accounting Policies [Text Block]

NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The financial statements presented herein reflect the consolidated financial position of ReposiTrak, Inc. and our subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that materially affect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. The methods, estimates, and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results it reports in its financial statements. The U.S. Securities and Exchange Commission (“SEC”) has defined the most critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results and require the Company to make its most difficult and subjective judgments, often because of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include revenue recognition, goodwill, other long-lived asset valuations, income taxes, stock-based compensation, and capitalization of software development costs.

Revenue Recognition

The Company recognizes revenue upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to. The Company applies the five-step model under ASC 606 to all customer contracts and evaluates collectability based on customer creditworthiness and historical experience.

Disaggregation of Revenue

The Company disaggregates revenue into the following categories, which depict the nature, timing, and uncertainty of revenue and cash flows:

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Platform and software-based solutions (SaaS/hosting): Subscription-based access to the Company’s platform and hosted software solutions

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Services: Primarily implementation, onboarding, consulting, and support services

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Transaction- and volume-based fees: Usage-based fees tied to customer activity levels or transaction volumes

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Software licenses: Arrangements providing customers with a right to use software

These categories are consistent with how management evaluates financial performance and how revenue is presented in the financial statements.

Performance Obligations and Transaction Price

Contracts may include multiple performance obligations. The Company determines whether goods and services are distinct and allocates the transaction price to each performance obligation based on relative standalone selling prices (“SSP”). SSP is based on observable prices when available or estimated using a cost-plus-margin approach and is reassessed periodically. Variable consideration is estimated using either the expected value or most likely amount method, depending on which better predicts the amount of consideration to which the Company expects to be entitled. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur.

Timing of Revenue Recognition

Revenue is recognized either over time or at a point in time, depending on when control transfers:

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Over time:
Revenue from platform and software-based solutions (SaaS/hosting), services (including implementation, consulting, maintenance, and support), and transaction- or volume-based arrangements is recognized over time as the customer simultaneously receives and consumes the benefits of the services.

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Point in time:
Revenue from software licenses that do not require significant modification or customization is recognized at the point in time when control transfers, generally upon delivery.

For arrangements involving software licenses with significant customization or integration, revenue is recognized over time as services are performed.

Measurement of Progress

For performance obligations satisfied over time, the Company recognizes revenue using methods that faithfully depict the transfer of control to the customer, including:

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Output methods based on delivery of specified milestones or completed services; and

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Right-to-invoice practical expedient where invoicing corresponds directly with the value transferred.

The Company has elected the practical expedient under ASC 606-10-55-18 to recognize revenue in the amount to which it has a right to invoice when that amount corresponds directly with the value transferred to the customer.

For fixed-price arrangements where invoicing does not reflect value delivered, revenue is recognized based on progress toward completion. Estimates of progress are updated as work is performed, and changes in estimates are recognized in the period identified. Expected losses on contracts are recognized immediately.

Maintenance and support revenue is generally recognized ratably over the contract term.

Principal vs. Agent Considerations

The Company evaluates whether it acts as a principal or an agent in transactions involving third-party goods or services. This determination is based on whether the Company controls the specified good or service before it is transferred to the customer.

Key factors considered include primary responsibility for fulfillment, inventory risk, and discretion in establishing pricing. When the Company acts as a principal, revenue is recorded on a gross basis; when acting as an agent, revenue is recorded on a net basis.

Contract Costs

Incremental costs of obtaining contracts, such as sales commissions, are capitalized when easily identifiable and recoverable. These costs are amortized on a systematic basis consistent with the transfer of the goods or services to which the asset relates. The Company applies a practical expedient to expense such costs as incurred when the amortization period is one year or less.

Contract Balances

The Company records contract assets when revenue is recognized in advance of invoicing and contract liabilities (deferred revenue) when consideration is received in advance of performance. These balances are presented separately on the Company’s balance sheet.

Payment Terms

Payment terms vary by contract but are generally due within 30 to 90 days of invoicing, consistent with industry practice. The Company’s invoicing terms are designed to provide customers with predictable billing arrangements and do not generally include significant financing components.

Significant Financing Component

The Company assesses whether contracts include a significant financing component. As a practical expedient, the Company does not assess financing components when the period between payment and transfer of goods or services is one year or less.

Remaining Performance Obligations

The Company applies the practical expedient under ASC 606 to not disclose remaining performance obligations for contracts with an original expected duration of one year or less and for variable consideration that is allocated entirely to wholly unsatisfied performance obligations.

Significant Judgments

The application of ASC 606 requires significant judgment, including:

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Determining whether performance obligations are distinct

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Estimating standalone selling prices

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Estimating and constraining variable consideration

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Measuring progress toward satisfaction of performance obligations

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Evaluating principal versus agent considerations

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Determining whether arrangements represent software licenses or service-based (hosting/SaaS) solutions, including whether customers can take possession of the software and operate it independently

Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, we recognize a receivable for revenue related to our transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in current and other assets in our consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts utilizing the output method of revenue recognition. The table below shows movements in contract assets:

	*Contract*
	*assets*
Balance – June 30, 2025	$	428,585
Revenue recognized during the period but not billed		413,158
Amounts reclassified to accounts receivable		(203,399	)
Other		(183,936	)
Balance – March 31, 2026	$	454,408		⁽¹⁾

_⁽¹⁾

Contract asset balances for March 31, 2026 include a current and a long-term contract asset of $454,408 and $0, respectively.

Our contract assets and liabilities are reported at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

The table below shows movements in the deferred revenue balances (current and noncurrent) for the period:

	*Contract*
	*liability*
Balance – June 30, 2025	$	3,175,908
Amounts billed but not recognized as revenue		3,644,656
Revenue recognized related to the opening balance of deferred revenue		(3,065,814	)
Balance – March 31, 2026	$	3,754,750

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

Notes Receivable

On March 17, 2026, PC Group, Inc. ("Lender") a subsidiary of the Company, entered into an Amended and Restated Senior Unsecured Promissory Note (the "Note") with SPAR Marketing Force, Inc. (the "Borrower"), pursuant to which the Borrower may obtain financing of up to $4.0 million.

Note Consideration

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Maximum Principal: $4,000,000

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Amount Funded: $3,000,000 as of the reporting date

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Additional Availability: $1,000,000 delayed draw beginning July 17, 2026

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Interest Rate: 8.0% per annum

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Default Rate: 12.0% per annum

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Payment Terms: Monthly interest-only

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Maturity Date: March 16, 2029

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Security: Unsecured

Equity Consideration

In connection with the Note, the Borrower agreed to cause its parent, SPAR Group, Inc., to issue 1,000,000 shares of its common stock (NASDAQ: SGRP) to the Company at a stated value of $0.80 per share, within 30 days of the execution of the Note. As of the reporting date, the shares have not yet been issued. If the equity consideration is not issued as required under the Note, the Company may have rights under the agreement, including potential remedies for non-performance.

Accounting for Equity Consideration

The Company expects that the equity consideration will be accounted for as an additional component of the overall return on the loan receivable. The Company will evaluate whether the equity represents a discount or other yield enhancement in accordance with ASC 835-30 and ASC 310-20, and will recognize such amount over the term of the Note using the effective interest method.

As the shares have not yet been issued, no amount has been recognized related to the equity consideration as of the reporting date.

Price Protection Provisions

The Note includes price protection provisions that may require the Borrower to make cash payments to the Company if:

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Equity is issued below $0.80 per share, or

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The market price of SPAR Group, Inc. common stock is below $0.80 per share at specified dates

Aggregate payments are capped at $800,000.

Embedded Feature Evaluation

The Company has evaluated the price protection provisions and preliminarily concluded that such features are not clearly and closely related to the host loan receivable and therefore may require bifurcation as a derivative instrument under ASC 815. This conclusion is based on the fact that the provisions introduce variability in cash flows based on the equity pricing of SPAR Group, Inc., a third-party issuer, which is not clearly and closely related to a lending arrangement. The final determination is pending completion of the Company’s valuation analysis, which is dependent in part on the issuance and measurement of the related equity consideration.

Credit Risk and Consideration

The loan is unsecured and represents a concentration of credit risk with a single borrower. The Company’s ability to collect principal, interest, and any contingent consideration is dependent on the financial condition and operating performance of the Borrower. The Company monitors the Borrower’s financial condition on an ongoing basis; however, no collateral or other credit enhancements have been obtained to mitigate this risk.

Company Carrying Value

(in thousands)	Amount
Note receivable	$3,000

Disaggregation of Revenue

The table below presents disaggregated revenue from contracts with customers by contract-type. We believe this disaggregation best depicts the nature, amount, timing and uncertainty of our revenue and cash flows that may be affected by industry, market, and other economic factors:

	*Three Months Ended*				*Nine Months Ended*
	*March 31,*				*March 31,*
	*2026*		*2025*		*2026*		*2025*

Recurring revenue – subscription and support services	$	5,867,398	$	5,813,932	$	17,524,516	$	16,547,879
Non-recurring revenue – setup and training services		15,800		99,800		186,960		297,903
Total revenue	$	5,883,198	$	5,913,732	$	17,711,476	$	16,845,782

Earnings Per Share

Basic net income per share of our common stock, $0.01 par value (“Common Stock”) (“Basic EPS”), excludes dilution and is computed by dividing net income applicable to common shareholders by the weighted average number of Common Stock outstanding during the period. Diluted net income per share of Common Stock (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue shares of Common Stock were exercised or converted into Common Stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an antidilutive effect on net income per share of Common Stock.

For the three and nine months ended March 31, 2026 and 2025, warrants to purchase shares of our Common Stock at an exercise price of $10.00 per share were anti-dilutive and not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average price of Common Stock for the quarter.

The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated:

	*Three Months Ended*				*Nine Months Ended*
	*March 31,*				*March 31,*
	*2026*		*2025*		*2026*		*2025*
Numerator
Net income applicable to common shareholders	$	1,951,350	$	1,880,063	$	5,351,551	$	4,892,800

Denominator
Weighted average common shares outstanding, basic		18,205,000		18,254,000		18,254,000		18,249,000
Warrants to purchase Common Stock		633,000		889,000		775,000		873,000
Weighted average common shares outstanding, diluted		18,838,000		19,143,000		19,029,000		19,122,000

Net income per share
Basic	$	0.11	$	0.10	$	0.29	$	0.27
Diluted	$	0.10	$	0.10	$	0.28	$	0.26