UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to _________. |
Commission File Number 001-34941
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 37-1454128 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
5282 South Commerce Drive, Suite D292, Murray, Utah 84107 |
(Address of principal executive offices) |
(435) 645-2000 |
(Registrant’s telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.01 per share | PCYG | Nasdaq Capital Market |
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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]☐ Yes [X]☒ No
As of
Page | ||
PARK CITY Consolidated Condensed Balance Sheets (Unaudited) Assets September 30, 2021 June 30, 2021 Current Assets: Cash Receivables, net of allowance for doubtful accounts of $252,278 and $234,693 at September 30, 2021 and June 30, 2021, respectively Contract asset – unbilled current portion Prepaid expense and other current assets Total Current Assets Property and equipment, net Other Assets: Deposits and other assets Prepaid expense – less current portion Contract asset – unbilled long-term portion Operating lease – right-of-use asset Customer relationships Goodwill Capitalized software costs, net Total Other Assets Total Assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Contract liability - deferred revenue Lines of credit Operating lease liability - current Total current liabilities Long-term liabilities: Operating lease liability – less current portion Total liabilities Stockholders’ equity: Preferred Stock; $0.01 par value, 30,000,000 shares authorized; Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at September 30, 2021 and June 30, 2021; Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively Common Stock, $0.01 par value, 50,000,000 shares authorized; 19,387,552 and 19,351,935 issued and outstanding at September 30, 2021 and June 30, 2021, respectively Additional paid-in capital Accumulated deficit ) ) Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to consolidated condensed financial statements. Consolidated Condensed Statements ofOperations (Unaudited) Three Months Ended September 30, 2021 2020 Revenue Operating expense: Cost of revenue and product support Sales and marketing General and administrative Depreciation and amortization Total operating expense Income from operations Other income (expense): Interest income Interest expense ) ) Other gain (loss) ) Unrealized gain (loss) on short term investments ) ) Income before income taxes (Provision) for income taxes: ) ) Net income Dividends on preferred stock ) ) Net income applicable to Common Stockholders Weighted average shares, basic Weighted average shares, diluted Basic income per share Diluted income per share See accompanying notes to consolidated condensed financial statements. Consolidated Condensed Statements ofCash Flows (Unaudited) Three Months Ended September 30, 2021 2020 Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization Amortization of operating right-of-use asset Stock compensation expense Bad debt expense Loss on sale of property and equipment Gain on disposal of assets ) (Increase) decrease in: Accounts receivables ) ) Long-term receivables, prepaid and other assets (Decrease) increase in: Accounts payable ) Accrued liabilities ) Operating lease liability ) ) Deferred revenue Net cash provided by operating activities Cash flows from investing activities: Purchase of property and equipment ) Sale of property and equipment Net cash provided by (used in) investing activities ) Cash flows financing activities: Net decrease in lines of credit ) Common Stock buy-back ) Proceeds from employee stock purchase plan Dividends paid ) ) Proceeds from issuance of notes payable Payments on notes payable and capital leases ) Net cash used in financing activities ) ) Net increase (decrease) in cash and cash equivalents ) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Cash paid for income taxes Cash paid for interest Cash paid for operating leases Supplemental disclosure of non-cash investing and financing activities: Common Stock to pay accrued liabilities Dividends accrued on preferred stock See accompanying notes to consolidated condensed financial statements. Consolidated Statements of Series B Preferred Stock Series B-1 Preferred Stock Common Stock Additional Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit Total Balance, June 30, 2021 Stock issued for: Accrued compensation Employee stock plan Stock buyback Preferred Dividends-Declared Net income Balance, September 30, 2021 PARK CITYGROUP, INC. Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) Series B Series B-1 Additional Preferred Stock Preferred Stock Paid-In Shares Amount Shares Amount Shares Amount Capital Deficit Total Balance, June 30, 2020 ) Stock issued for: Accrued compensation Employee stock plan Stock buyback Preferred Dividends-Declared ) ) Net income Balance, September 30, 2020 ) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1.OVERVIEW OF OPERATIONS AND BASIS FOR PRESENTATION Overview Park City Group, Inc., a Nevada corporation (“ The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace (“ The Company’s Supply Chain and MarketPlace services provide its customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solutions help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“ The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety and compliance activities. The principal customers for the Company’s products are household name multi-store food retail chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses. The Company has a hub and spoke business model. The Company is typically engaged by retailers and wholesalers (“ The Company is incorporated in the state of Nevada and has The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is Basis of Financial Statement Presentation The interim financial information of the Company as of NOTE 2.SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The financial statements presented herein reflect the consolidated financial position of Park City Group, 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 We recognize revenue as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenue, we apply the following five step approach: We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. For performance obligations where control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenue related to fixed-price contracts for application development and systems integration services, consulting or other technology services is recognized as the service is performed using the output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed and when value is transferred to a customer. Revenue related to fixed-price application maintenance, testing and business process services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC If our invoicing is not consistent with the value delivered, revenue is recognized as the service is performed based on the method described above. The output method measures the results achieved and value transferred to a customer, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenue related to fixed-price hosting and infrastructure services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC Revenue related to our software license arrangements that do not require significant modification or customization of the underlying software is recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenue for the software license and related services is recognized as the services are performed in accordance with the methods described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Revenue related to software maintenance and support is generally recognized on a straight-line basis over the contract period. Revenue related to transaction-based or volume-based contracts is recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided. From time-to-time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenue on a gross basis) or agent (i.e. report revenue on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment. We provide customers with assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications. General updates or patch fixes are not considered an additional performance obligation in the contract. Variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us. We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract. 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 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, 2021 Revenue recognized during the period but not billed Amounts reclassified to accounts receivable ) Other ) Balance – September 30, 2021 (1) Contract asset balances for 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, 2021 Amounts billed but not recognized as revenue Revenue recognized related to the opening balance of deferred revenue ) Other Balance – September 30, 2021 Our contract assets and liabilities are reported in a net position on a 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 September 30 2021 2020 Chg $ Chg % Recurring - Subscription, Support and Services % Non - Recurring - Services ) % Transaction Based - Marketplace ) % Total ) % Earnings Per Share Basic net income per share of Common Stock (“Basic EPS”) excludes dilution and is computed by dividing net income applicable to Common Stockholders 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. The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated: Three Months Ended September 30, 2021 2020 Numerator Net income applicable to Common Stockholders Denominator Weighted average Common Stock outstanding, basic Warrants to purchase Common Stock Weighted average Common Stock outstanding, diluted Net income per share Basic Diluted Reclassifications Certain prior year amounts have been reclassified to conform with the current year’s presentation. NOTE 3.EQUITY Restricted Stock Units Restricted Stock Units Weighted Average Grant Date Fair Value ($/share) Outstanding at June 30, 2021 Granted Vested and issued ) Forfeited Outstanding at September 30, 2021 As of As of Warrants Outstanding at September 30, 2021 Warrants Exercisable at September 30, 2021 Range of exercise prices Number Outstanding Weighted average remaining contractual life (years) Weighted average exercise price Number exercisable Weighted average exercise price Preferred Stock The Company’s articles of incorporation The Company does business with some of the largest retailers and wholesalers in the Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock, as amended (the “Series B-1 COD”) provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”). As of September 30, 2021, a total of 625,375 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were issued and outstanding. Share Repurchase Program On May 9, 2019, our Board of Directors approved the repurchase of up to $4.0 million in shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 12b-18 of the Exchange Act. On March 17, 2020, given the extreme uncertainty due to COVID-19 at the time, the Board suspended the Share Repurchase Program. On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4.0 million to $6.0 million. The Share Repurchase Program expires 24 months following May 18, 2021, and it may be suspended for periods of time or discontinued at any time, at the Board’s discretion. On August 31, 2021, our Board of Directors approved increasing its Share Repurchase program by $10 million in shares of our Common Stock. The total remaining authorization for future shares of Common Stock repurchases under our Share Repurchase Program was $12,009,609 as of September 30, 2021. Our Board may authorize further increases, suspend, reduce, or discontinue our Share Repurchase Program at any time, at the Board’s discretion. The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the three months ended September 30, 2021: Period (1) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Remaining Amount Available for Future Share Repurchases Under the Plans or Programs July 1, 2021 – September 30, 2021: (1) We close our books and records on the last calendar day of each month to align our financial closing with our business processes. NOTE 4.RELATED PARTY TRANSACTIONS During the NOTE 5.RECENT ACCOUNTING PRONOUNCEMENTS In August 2018, the FASB issued ASU In August 2018, the FASB issued ASU In June 2018, the FASB issued ASU Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. NOTE 6.SUBSEQUENT EVENTS On October 6, 2021, the Company and U.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the "Revolving Credit Agreement") and accompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023. In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the filing date and noted no subsequent events other than provided above that are reasonably likely to impact the Company’s financial statements. Forward-Looking Statements This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements.The words or phrases Overview Park City Group, Inc. (" The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace, encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers and source hard to find items, (ii) ReposiTrak Compliance and Food Safety (" The Company’s Supply Chain and MarketPlace services provide its customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solutions help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“ The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products are designed to provide transparency and to facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving back to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety and compliance activities. The principal customers for the Company’s products are multi-store food retail store chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses. The Company has a hub and spoke business model. The Company is typically engaged by retailers and wholesalers (“ The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (" The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com. Recent Developments New Product Initiatives During the second half of fiscal year 2021, ReposiTrak launched The quality management solution also has application in the retail sector, in central commissaries, distribution centers, and even task management in stores. Another major new product initiative commenced in February 2021, as ReposiTrak joined with a group of major retailers and wholesalers to form the Food Traceability Leadership Consortium (“FTLC”), in response to the Food and Drug Administration's (“FDA”) announcement regarding the increase of food traceability requirements under the FSMA. The expanded traceability requirements proposed by the These new proposed requirements create substantial data and records management challenges for all supply chain trading partners, many of whom do not have this capability today. The risk is that the supply chain will become fractious array of inoperable systems that could lead to massive operational complexity and expense escalation. The FTLC founding members worked collaboratively with ReposiTrak to develop a complete food The Revolving Credit Agreement On October 6, 2021, the Company and COVID-19 There are many uncertainties regarding COVID-19, and the Company is closely monitoring the ongoing impact of the pandemic on all aspects of its business, including how it will The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On April 23, 2020, the Company received proceeds from a loan in the amount of approximately $1.1 million from its lender, U.S. Bank National Association (the “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES Act administered by the SBA. In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 23, 2022, with a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan was forgiven on December 19, 2020. Results of Operations Comparison of the Three Months Ended Revenue Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Revenue ) % Revenue was During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a certain percentage of customers that will require buying a particular service outright (i.e. a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when we are able. Cost of Services and Product Support Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Cost of services and product support ) % Percent of total revenue % % Cost of services and product support was While we Sales and Marketing Expense Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Sales and marketing ) % Percent of total revenue % % Sales and marketing expense were General and Administrative Expense Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent General and administrative % Percent of total revenue % % General and administrative expense was Depreciation and Amortization Expense Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Depreciation and amortization % Percent of total revenue % % Depreciation and amortization expense was Other Income and Expense Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Net other income (expense) ) ) % Percent of total revenue % % Net other Fiscal Quarter Ended September 30, Variance 2021 2020 Dollars Percent Preferred dividends % Percent of total revenue % % Dividends accrued on the Company’s Series B-1 Preferred was Financial Position, Liquidity and Capital Resources We believe that our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including macroeconomic conditions, our rate of revenue growth, sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products and services. As of Variance September 30, 2021 June 30, 2021 Dollars Percent Cash and cash equivalents ) % We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank N.A. Cash was Net Cash Flows from Operating Activities Three Months Ended September 30, Variance 2021 2020 Dollars Percent Cash provided by operating activities % Net cash provided by operating activities is summarized as follows: Three Months Ended September 30, 2021 2020 Net income Noncash expense and income, net Net changes in operating assets and liabilities ) Net cash provided by operating activities Three Months Ended September 30, Variance 2021 2020 Dollars Percent Cash provided by (used in) investing activities ) % Net cash Net Cash Flows from Financing Activities Three Months Ended September 30, Variance 2021 2020 Dollars Percent Cash used in financing activities ) ) % Net cash used in financing activities totaled Liquidity and Working Capital At As of September 30, As of June 30, Variance 2021 2021 Dollars Percent Current assets ) % Current assets as of As of September 30, As of June 30, Variance 2021 2020 Dollars Percent Current liabilities ) % Current liabilities totaled Subsequent to September 30, 2021, the Company and U.S. Bank N.A. executed the Credit Agreement, with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit While no assurances can be given, management currently believes that the Company will continue to increase its cash flow from operations and working capital position in subsequent periods, and that it will have adequate cash resources to fund its operations and satisfy its debt Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue, and results of operation, liquidity or capital expenditures. Contractual Total contractual obligations and commercial commitments as of Payment Due by Year Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Operating lease obligation Critical Accounting Policies This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. We commenced operations in the software development and professional services business during 1990. The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates and judgments on historical experience of operations and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our consolidated financial statements. Income Taxes In determining the carrying value of the Company’s net deferred income tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s statements of operations. Management evaluates whether or not to realize the deferred income tax assets and assesses the valuation allowance quarterly. Goodwill and other long-lived assets assigned to specific reporting units are reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate. Revenue Recognition Effective July 1, 2018, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2014-09:Revenue from Contracts with Customers (Topic 606), and its related amendments (“ASU 2014-09”). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers. ASU 2014-09 represents a change in the accounting model utilized for the recognition of revenue and certain expense arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, accordingly, revenue and expense totals for all periods before July 1, 2018 reflect those previously reported under the prior accounting model and have not been restated. See Note 2 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Report for a full description of the impact of the adoption of new accounting standards on our financial statements. Following the adoption of this guidance, the revenue recognition for our sales arrangements remained materially consistent with our historical practice and there have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended June 30, Share-Based Compensation The Company accounts for its share-based compensation to employees and non-employees in accordance with FASB ASC 718, Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service or vesting period. Leases Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as discussed further in Note 5. All amounts and disclosures set forth in this Report have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Our business is conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future. Our exposure to risk for changes in interest rates relates primarily to our investments in short-term financial instruments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change. Our exposure to interest rate changes related to borrowing has been limited, and we believe the effect, if any, of near-term changes in interest rates on our financial position, results of operations and cash flows should not be material. At The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of Cash: Aggregate Fair Value Weighted Average Interest Rate Cash % (a) Evaluation of disclosure controls and procedures. (b) Changes in internal controls over financial reporting. OTHER INFORMATION We are, from time-to-time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. There is currently no pending or threatened material legal proceeding that, in the opinion of management, could have a material adverse effect on our business or financial condition. There are no risk factors identified by the Company in addition to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, None. None. None. Revolving Credit Note and Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 8, 2021). Addendum to Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on October 8, 2021). Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 is formatted in iXBRL. In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PARK CITY GROUP, INC. Date: By: /s/ Randall K. Fields Randall K. Fields Chair of the Board and Chief Executive Officer (Principal Executive Officer) PARK CITY GROUP, INC. Date: By: /s/ John R. Merrill John R. Merrill Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)GROUP, GROUP, INC. $ 20,431,158 $ 24,070,322 3,997,676 3,891,699 984,155 1,248,936 684,310 490,817 26,097,299 29,701,774 1,017,202 2,589,194 22,414 22,414 34,907 47,987 291,833 408,925 673,319 695,371 492,750 525,600 20,883,886 20,883,886 157,420 171,732 22,556,529 22,755,915 $ 49,671,030 $ 55,046,883 $ 371,825 $ 467,194 738,283 988,092 1,758,710 1,755,341 0 6,000,000 91,297 90,156 2,960,115 9,300,783 582,022 605,214 3,542,137 9,905,997 6,254 6,254 2,124 2,124 193,878 193,522 74,486,369 74,298,924 (28,559,732 (29,359,938 46,128,893 45,140,886 $ 49,671,030 $ 55,046,883 Assets Current Assets Cash Contract asset – unbilled current portion Prepaid expense and other current assets Total Current Assets Property and equipment, net Other Assets: Deposits, and other assets Prepaid expense – less current portion Contract asset – unbilled long-term portion Operating lease – right-of-use asset Customer relationships Goodwill Capitalized software costs, net Total Other Assets Total Assets Liabilities and Stockholders’ Equity Current liabilities Accounts payable Accrued liabilities Contract liability – deferred revenue Lines of credit Operating lease liability – current Current portion of notes payable Current portion of paycheck protection program loans Total current liabilities Long-term liabilities Operating lease liability – less current portion Notes payable – less current portion Paycheck protection program loans Total liabilities Commitments and contingencies Stockholders’ equity: Preferred Stock; $0.01 par value, 30,000,000 shares authorized; Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at March 31, 2021 and June 30, 2020, respectively Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at March 31, 2021 and June 30, 2020, respectively Additional paid-in capital Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity $ 4,559,677 $ 5,225,402 846,487 1,980,957 1,188,893 1,283,041 1,096,656 1,081,925 261,164 248,500 3,393,200 4,594,423 1,166,477 630,979 55,156 34,341 (2,898 (70,545 (83,081 0 (149,291 (16,263 986,363 578,512 (39,546 (23,686 946,817 554,826 (146,611 (146,611 $ 800,206 $ 408,215 19,383,000 19,489,000 19,669,000 19,642,000 $ 0.04 $ 0.02 $ 0.04 $ 0.02 Revenue Operating expense: Cost of services and product support Sales and marketing General and administrative Depreciation and amortization Total operating expense Income from operations Other income (expense): Interest income Interest expense Unrealized gain (loss) on short term investments Gain on debt extinguishment Income before income taxes (Provision) for income taxes: Net income Dividends on preferred stock Net income applicable to common shareholders Weighted average shares, basic Weighted average shares, diluted Basic income per share Diluted income per share $ 946,817 $ 554,826 261,164 248,500 22,051 20,965 88,246 93,432 125,000 125,000 107,820 0 (24,737 0 (258,029 (1,154,077 129,335 691,245 (95,369 57,515 (165,555 501,063 (22,051 (20,965 3,369 105,844 1,118,061 1,223,348 0 (12,925 1,374,085 0 1,374,085 (12,925 (6,000,000 0 (41,276 0 56,577 50,328 (146,611 (146,611 0 620,000 0 (920,754 (6,131,310 (397,037 (3,639,164 813,386 24,070,322 20,345,330 $ 20,431,158 $ 21,158,716 $ 172,342 $ 25,899 $ 2,898 $ 70,545 $ 30,600 $ 30,600 $ 172,500 $ 5,405 $ 146,611 $ 146,611 Cash flows operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of operating right of use asset Bad debt expense Stock compensation expense Gain on debt extinguishment (Increase) decrease in: Accounts receivables Long-term receivables, prepaids and other assets (Decrease) increase in: Accounts payable Accrued liabilities Operating lease liability Deferred revenue Net cash provided by operating activities Cash flows investing activities: Purchase of property and equipment Net cash used in investing activities Cash flows financing activities: Net increase in lines of credit Common stock buyback/retirement Proceeds from employee stock plan Dividends paid Payments on notes payable Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Cash paid for income taxes Cash paid for interest Cash paid for operating leases Supplemental disclosure of non-cash investing and financing activities: Common stock to pay accrued liabilities Dividends accrued on preferred stock Right-of-use asset PARKPARK CITYStockholders’Stockholders’ Equity (Deficit) (Unaudited) 625,375 $ 6,254 212,402 $ 2,124 19,351,935 $ 193,522 $ 74,298,924 $ (29,359,938 ) $ 45,140,886 0 0 0 0 29,316 293 172,207 0 172,500 0 0 0 0 13,901 139 56,438 0 56,577 0 0 0 0 (7,600 ) (76 ) (41,200 ) 0 (41,276 ) - 0 - 0 - 0 0 (146,611 ) (146,611 ) - 0 - 0 - 0 0 946,817 946,817 625,375 $ 6,254 212,402 $ 2,124 19,387,552 $ 193,878 $ 74,486,369 $ (28,559,732 ) $ 46,128,893 Accumulated Balance, June 30, 2020 Stock issued for: Accrued compensation Employee stock plan Preferred Dividends-Declared Net income Balance, September 30, 2020 Stock issued for: Accrued compensation Employee stock plan Preferred Dividends-Declared Net income Balance, December 31, 2020 Stock issued for: Accrued compensation Employee stock plan Stock buyback Preferred Dividends-Declared Net income Balance, March 31, 2021 -4- Common Stock Accumulated 625,375 $ 6,254 212,402 $ 2,124 19,484,485 $ 194,847 $ 75,271,097 $ (32,890,889 $ 42,583,433 0 0 0 0 1,302 13 5,392 0 5,405 0 0 0 0 13,980 140 50,188 0 50,328 0 0 0 0 0 0 0 0 0 - 0 - 0 - 0 0 (146,611 (146,611 - 0 - 0 - 0 0 554,826 554,826 625,375 $ 6,254 212,402 $ 2,124 19,499,767 $ 195,000 $ 75,326,677 $ (32,482,674 $ 43,047,381 Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)(continued) Balance, June 30, 2019 Stock issued for: Accrued compensation Employee stock plan Stock buyback Preferred dividends declared Net income Balance, September 30, 2019 Stock issued for: Accrued compensation Stock buyback Preferred dividends declared Net income Balance, December 31, 2019 Stock issued for: Accrued compensation Stock buyback Preferred dividends declared Net income Balance, March 31, 2020 See accompanying notes to consolidated condensed financial statements.SaaS”SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation (“ReposiTrak”) which operates a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies, and source hard-to-get-things.and source hard to find items, (ii) ReposiTrak Compliance and Food Safety (“Compliance and Food Safety”) solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain (“Supply Chain”) solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers.three3 principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“(435) 645-2000.(435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.-6-March 31,September 30, 2021 and for the three and nine months ended March 31,September 30, 2021 is unaudited, and the balance sheet as of June 30, 2020 2021 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordance with U.S. GAAP. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in the Notes to Financial Statements included in our Annual Report on Form 10-K10-K for the year ended June 30, 2020. 2021. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended March 31,September 30, 2021 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K10-K for the year ended June 30, 2020. (1)(1) identify the contract with a customer, (2)(2) identify the performance obligations in the contract, (3)(3) determine the transaction price, (4)(4) allocate the transaction price to the performance obligations in the contract, and (5)(5) recognize revenue when a performance obligation is satisfied. We account for a contract based on the terms and conditions the parties agree to, the contract has commercial substance and collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.-7-606-10-55-18.606-10-55-18.606-10-55-18. If our invoicing is not consistent with value delivered, revenue is recognized on a straight-line basis unless revenue is earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations.numberamount 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. $ 1,657,861 - (318,296 (63,577 $ 1,275,988 (1) Contract assetsBalance – December 31, 2020$2,433,614Revenue recognized during the period but not billed-Amounts reclassified to accounts receivable(458)Other-Balance – March 31, 2021$2,433,156 (1)(1)March 31,September 30, 2021 include a current and a long-term contract asset $2,390,104,of $984,155 and $43,052,$291,833, respectively. $ 1,755,341 965,635 (962,266 0 $ 1,758,710 Contract liabilityBalance – December 31, 2020$1,608,480Amounts billed but not recognized as revenue940,764Revenue recognized related to the opening balance of deferred revenue(1,156,254)Other-Balance – March 31, 2021$1,392,990contract by contractcontract-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. Subscription & Support Professional Services Transaction Based Total $ 4,405,444 $ 4,002,665 $ 402,779 10 50,900 133,149 (82,249 -62 103,333 1,089,588 (986,255 -91 $ 4,559,677 $ 5,225,402 $ (665,725 -13 Numerator Net income applicable to common shareholders Denominator Weighted average common shares outstanding, basic Warrants to purchase common stock Weighted average common shares outstanding, diluted Net income per share Basic Diluted $ 800,206 $ 408,215 19,383,000 19,489,000 286,000 153,000 19,669,000 19,642,000 $ 0.04 $ 0.02 $ 0.04 $ 0.02 Restricted Stock Units Outstanding at December 31, 2020 Granted Vested and issued Forfeited Outstanding at March 31, 2021 841,316 $ 5.34 24,752 6.06 (9,900 6.06 0 0 856,168 $ 5.35 March 31,September 30, 2021, there were 9,288 restricted stock units outstanding that had vested but for which shares of Common Stock had not yet been issued pursuant to the terms of the applicable agreement.March 31,September 30, 2021, there was approximately $4.5$4.6 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of 2.752.24 years.Warrantsand exercisable at March 31,September 30, 2021:During the nine months ended March 31, 2021, the Company’s Board of Directors approved the modification to extend the expiration dates of the Company's existing January 26, 2020 and February 6, 2020 warrants by an additional three years. Accordingly, all outstanding warrants are now set to expire in the quarter ending March 31, 2023. $ 4.00 1,085,068 1.35 $ 4.00 1,085,068 $ 4.00 $ 10.00 23,737 1.32 $ 10.00 23,737 $ 10.00 1,108,805 1.35 $ 4.13 1,108,805 $ 4.13 as amended, currently authorizeauthorizes the issuance of up to 30,000,000 shares of “blank check”‘blank check’ preferred stock, par value $0.01 per share ("(“Preferred Stock"”) with designations, rights, and preferences as may be determined from time-to-timetime to time by the Company’s Board of Directors, (the “Board”), of which 700,000 shares are currently designated as Series B Preferred Stock (“Series B Preferred”) and 550,000 shares are designated as Series B-1B-1 Preferred Stock (“Series B-1B-1 Preferred”). As of March 31, 2021, a total of 625,375 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were issued and outstanding, respectively. Both classes of Series B Preferred Stock pay dividends at a rate of 7% per annum if paid by the Company in cash, or 9% if paid inby the Company by the issuance of additional shares of Series B Preferred, (“PIK Shares”), with the form of dividend payment to be determined by the Company.world.World. Management believes the Series B-1B-1 Preferred favorably impacts the Company’s overall cost of capital in that it is: (i) perpetual and, therefore, an equity instrument that positively impacts the Company’s coverage ratios, (ii) possesses a below market dividend rate relative to similar instruments, (iii) offers the flexibility of a paid-in-kind (“PIK”)(PIK) payment option, and (iii)(iv) is without covenants. After exploring alternative options for redeeming the Series B-1B-1 Preferred, management determined that alternative financing options were significantlymaterially more expensive, or would negatively impactimpair the Company’s net cash position, which management believes could cause customer concerns and weakennegatively impact the Company’s ability to attract new business. 7,600 $ 5.43 718,394 $ 12,009,609 ninethree months ended March 31,September 30, 2021, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“no0 payables to FMI at March 31,September 30, 2021 and June 30, 2020, 2021, respectively, under the Service Agreement. 2018-15 2018-15Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40(Subtopic 350-40) – Customer’s Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.Contract. The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. The update required a customer in a hosting arrangement to capitalize certain implementation costs. Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed. For instance, costs for training and data conversion should be expensed. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which is the noncancelable period plus periods covered by an option to extend if the customer is reasonably certain to exercise the option. Impairment of the capitalized costs should be considered similar to other intangibles. The Company is a customer in a hosting arrangement and may enter into new arrangements in the future. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s condensed consolidated financial statements.2018-13 2018-13Fair Value Measurement (Topic (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s condensed consolidated financial statements.2018-07 – 2018-07Compensation – “Stock Compensation (Topic 718)”718), Improvements to Nonemployee Share-Based Payment Accounting.Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to this update, equity-based payments to non-employees was accounted for under Subtopic 505-50 resulting in significant differences between the accounting for share-based payments to non-employees as compared to employees. One of the most significant changes is that non-employee share-based awards (classified as equity awards) may be measured at grant-date fair value and not have to be continually revalued until the service/goods are rendered. The update also indicates that share-based awards related to financing and awards granted to a customer in conjunction with selling goods or services are not included in Topic 718. The Company adopted the standard during the first quarter of fiscal year 2020. This standard did not have a material impact on the Company’s condensed consolidated financial statements.In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which amends and simplifies the accounting standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount a reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the standard during the fourth quarter of fiscal year 2020. This standard did not have a material impact on the Company’s condensed consolidated financial statements.In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. 2016-02, "2016-02,Leases (Topic 842)"842) ("ASU 2016-022016-02"). All amounts and disclosures set forth in this QuarterlyAnnual Report on Form 10-Q10-K have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02,2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.-12-ITEM MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS“would be”“would be”, “will allow”“will allow”, “intends to”“intends to”, “will“will likely result”result”, “are“are expected to”to”, “will continue”“will continue”, “is anticipated”“is anticipated”, “estimate”“estimate”, “project”“project”, or similar expressions are intended to identify “forward-looking statements”“forward-looking statements”.Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our June 30, 20202021 Annual Report on Form 10-K, incorporated by reference herein.Statements made herein are as of the date of the filing of this Report with the Securities and Exchange Commission ("SEC") and should not be relied upon as of any subsequent date.Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.-13-In December 2020, wea pilottwo new products designed to one state to address emergency and non-emergency grant management requests and reporting requirements. Given strict auditing conditions associated with federal disaster grants, both state and local jurisdictions demand a system that allows them to track grants, have visibility and procurement of compliant materials, vetting of supplier, reconcile payments and reimbursements, track multiple delivery locations, and provide documentation back to the federal government before, during and after a natural disaster or unforeseen event.With many bespoke systems that do not talk to one another or have been historically unreliable paper records, we believe this is a solution we address in private industry every day that can assist federal, state, and local governments going forward.In July 2020, our solutions for stock replenishment, compliance, sourcing, food safety and risk management for the retail supply chain, offered a new technology platform to address chronic imbalancesexpand market share in the manufacturing segment: Certificate of Analysis Automation and Active-QMS for Quality Management. Both solutions were developed at the request of existing Compliance Management Solution customers to improve competitiveness in the manufacturing/food supply chain causedwith synergistic solutions for growth in existing customers and increasing competitiveness for new business focused on quality management.COVID-19 crisis. The online platform, called FoodSourceUSA, will facilitateFDA have far reaching consequences for the identification and redistribution of excess perishableUS food products that are currently goingsupply chain, from farms to wastefisheries down to retail stores, due to dramatically reducednew, detailed documentation requirements designed to support more effective recalls.service sector volume, while servingtraceability solution that meets all the growing number of food-insecure communities aroundFDA FSMA proposed reporting requirements at a very large manageable cost, based on the country.FoodSourceUSA sourcing platform provides visibilitynew solution, called the ReposiTrak Traceability Network, launched in September 2021 with phased roll outs at suppliers and retailers, and is anticipated to excess inventory, process orders and deliver shipment information to government agencies who will manage logistics and delivery. Stakeholdersscale in the system include providerslatter half of fresh meat, producefiscal year 2022, based on the existing Compliance Management user network.dairy products, food banks, pantriesU.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the "Revolving Credit Agreement") and charitable groups serving those in need, alongaccompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a network$10.0 million revolving line of government agenciescredit that matures on March 31, 2023.reimburseimpact its services, customers, employees, vendors, and business partners now and in the providers fairlyfuture. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s quarter ended September 30, 2021, in the fiscal years ended June 30, 2020 or 2021, we are unable to create a sustainable supply chain. Wepredict the impact that COVID-19 will have on its future financial position and operating results due to numerous uncertainties. The Company will continue to work with several states and federal agencies to evaluateassess the potential opportunitybusiness risks associated with COVID-19 and intends to drive additional recurring revenue.March 31,September 30, 2021 to the Three Months Ended March 31,September 30, 2020. Revenue $ 4,559,677 $ 5,225,402 $ (665,725 -13 $6,022,540$4,559,677 and $4,633,244$5,225,402 for the three months ended March 31,September 30, 2021 and 2020, respectively, a 30% increase. This increase13% decrease. The decrease in revenue was primarily due to growth in both MarketPlacesignificant Marketplace revenue and software subscription revenue. One time software license revenueduring the height of COVID-19 that occurred in March 2020 that did not reoccur in March of 20212021. This was approximately $145,500. partially offset by revenue growth in subscription, services and other recurring revenue.personnel protectionpersonal protective equipment (“("PPE”") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company has experienced a significant increase in Marketplace revenue for PPE during the height of COVID-19, it is uncertain whetherwhat or if demand for PPE will continue at the same level.during fiscal 2022. As a result, we may experience reduced demand forsignificant swings in MarketPlace attributable to PPErevenue as the pandemic beginscontinues to abate.The COVID-19 outbreak has created significant economic uncertainty and volatility, creating uncertainty regarding the impact of such outbreak on our business, operations, and financial results. In this regard, the duration and impact of such outbreak on our operations and financial results cannot be determined at this time, although management currently anticipates that our ability to sell and provide our services and solutions resulting from shelter in place restrictions, and the closures of our and our clients’ offices and facilities will have an impact. While no assurances can be given, these events could materially and adversely affect our business, financial condition and results of operations. $ 846,487 $ 1,980,957 $ (1,134,470 -57 19 38 Cost of services and product support Percent of total revenue $2,634,224$846,487 and $1,369,421$1,980,957 for the three months ended March 31,September 30, 2021 and 2020, respectively, a 92% increase.57% decrease. This increase wasdecrease is primarily the result of higherlower procurement costs of PPE and other cost of goods soldservice expense associated with higher transactionallower MarketPlace revenue whereby we identify a vendor, purchase the goods, and sell to the end buyer with a mark-up of the cost.While no assurance can be given, management currently expects cost of services to grow in both absolute terms, and as a percentage of revenue, as the Company continues to grow its MarketPlace business. transactions. have experienced a significant increase in Marketplace costs and corresponding revenue during the pandemicfiscal 2021 due to demand in PPE, it is unclearuncertain what level of ongoing Marketplace costs we may experience as the pandemic begins to abate. Sales and marketing Percent of total revenue $ 1,188,893 $ 1,283,041 $ (94,148 -7 26 25 $1,155,266$1,188,893 and $1,654,189$1,283,041 for the three months ended March 31,September 30, 2021 and 2020, respectively, a 30%7% decrease. This decrease in sales and marketing expense is primarily due to thea decrease in outside contractor fees,variable sales compensation associated with lower travel and tradeshow expense due to COVID.While no assurances can be given, management currently expects sales and marketing expense to continue to decline in subsequent periods as we continue to reduce our operating expense, increase utilization of technology, and realization of efficiencies in our Success Team sales strategy. General and administrative Percent of total revenue $ 1,096,656 $ 1,081,925 $ 14,731 1 24 21 $1,255,410$1,096,656 and $1,179,851$1,081,925 for the three months ended March 31,September 30, 2021 and 2020, respectively, a 6%1% increase. The increase in general and administrative expense is primarily due to an increase in bad debt expense, higher liabilityinsurance and commercial insurance costs, and professional fees. These increases were partially offset by lower general overhead due to cost cutting measures and natural reductions due to our “work from home” status since April of 2020.While no assurances can be given, management currently expects general and administrative expense to decline in subsequent periods and therefore fall as a percentage of total revenue as weother benefit from cost cutting efforts and prior investments in automation and process optimization. Depreciation and amortization Percent of total revenue $ 261,164 $ 248,500 $ 12,664 5 6 5 $259,343$261,164 and $192,860$248,500 for the three months ended March 31,September 30, 2021 and 2020, respectively, an increase of 34%. This increase is due to the expansion of new equipment for the Company’s information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center that was completed in June 2020.Other Income and Expense Net other income (expense) Percent of total revenue Net other income was $64,855 for the three months ended March 31, 2021 compared to net other income $36,122 for the three months ended March 31, 2020. Other income increased due to recognition of a gain on debt extinguishment and higher interest income resulting from an increase of total cash held in short term investments.Preferred Dividends Preferred dividends Percent of total revenue Dividends accrued on the Company’s Series B-1 Preferred was $146,611for the three months ended March 31, 2021 and for the three months ended March 31, 2020.Comparison of the Nine Months Ended March 31, 2021 to the Nine Months Ended March 31, 2020.Revenue Revenue Revenue was $16,422,146 and $14,270,660 for theninemonths ended March 31, 2021 and 2020, respectively, a 15% increase. The increase in revenue was due to growth in both subscription revenue and Marketplace revenue, partially offset by approximately $145,500 in one-time license revenue that occurred in 2020 that did not reoccur in 2021.During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of PPE which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company has experienced a significant increase in Marketplace revenue for PPE during the height of COVID-19, it is uncertain whether demand for PPE will continue at the same level. As a result, we may experience reduced demand for MarketPlace attributable to PPE as the pandemic begins to abate.Cost of Services and Product Support Cost of services and product support Percent of total revenue Cost of services and product support was $6,706,769 and $4,622,844 for theninemonths ended March 31, 2021 and 2020, respectively, a 45% increase. This increase is primarily the result of (i) higher expense associated to MarketPlace and the sales of PPE; and (ii) an increase in hardware/software non-capitalized items required for updating our information systems security, maintaining equipment licensing and other database systems.While we have experienced a significant increase in Marketplace costs and corresponding revenue during the pandemic due to demand in PPE, it is unclear what level of ongoing Marketplace costs we may experience as the pandemic begins to abate.Sales and Marketing Expense Sales and marketing Percent of total revenue Sales and marketing expense was $3,643,602 and $4,515,569 for theninemonths ended March 31, 2021 and 2020, respectively, a 19% decrease. This was due primarily to an decrease in variable compensation, a reduction in trade show expense, and lower sales and marketing travel expense.General and Administrative Expense General and administrative Percent of total revenue General and administrative expense was $3,568,474 and $3,516,313 for theninemonths ended March 31, 2021 and 2020, respectively, a 1% increase. General and administrative expense increased year over year due to an increase in bad debt expense and higher insurance costs.These increases were partially offset by lower general overhead due to cost cutting measures and natural reductions due to our “work from home” status since April of 2020.Depreciation and Amortization Expense Depreciation and amortization Percent of total revenue Depreciation and amortization expense were $769,440 and $609,037 for theninemonths ended March 31, 2021 and 2020, respectively, an increase of 26%5%. This increase is due to the expansion of new equipment for the Company’s information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center completed in June 2020. Net other income (expense) Percent of total revenue $ (180,114 $ (52,467 $ 127,647 243 -4 -1 incomeexpense was $1,263,162$180,114 for thenine three months ended March 31,September 30, 2021 compared to net other incomeexpense of $148,195$52,467 for thenine three months ended March 31,September 30, 2020. Other incomeexpense increased due to recognition(1) unrealized losses of certain short-term investments held in U.S. treasuries and other securities, and (2) a gainloss on debt extinguishmentthe sale of assets, and higher(3) partially offset by an increase in interest income resultinggenerated from an increase ofin total cash held in short term investments, offset in part by the increaseand (4) a decrease in interest expense associated withdue to payoff of financing arrangements for equipment purchased under a lease arrangement with a bank. The financing arrangement was paid offbank in August 2020. Preferred dividends Percent of total revenue $ 146,611 $ 146,611 $ - - 3 3 $439,833$146,611 for the ninethree months ended March 31,September 30, 2021 and for the three months ended September 30, 2020. Dividends remained flat in the comparable period. Cash and cash equivalents $ 20,431,158 $ 24,070,322 $ (3,639,164 -15 $23,176,092$20,431,158 and $20,345,330$24,070,322 at March 31,September 30, 2021 and June 30, 2020,2021, respectively. This 14% increasegrowth in both softwarea $6 million payoff of financing arrangements with a bank, partially offset by lower overall cash operating expenses and MarketPlace revenue, collection ofcollections on accounts receivable, and extinguished debt. Cash provided by operating activities $ 1,118,061 $ 1,223,348 $ (105,287 ) -9 Net income Noncash expense and income, net Net changes in operating assets and liabilities $ 946,817 $ 554,826 579,544 487,897 (408,300 180,625 $ 1,118,061 $ 1,223,348 increased 47%for the three months ended September 30, 2021 was $1,118,061, as compared to net cash provided by in operating activities of $1,223,348 for the three months ended September 30, 2020. Net cash provided by operating activities decreased 9% due largely to higher revenues and lower operating costs.the decrease in MarketPlace sales. Noncash expense decreasedincreased by $846,047$91,647 in the ninethree months ended March 31,September 30, 2021 compared to March 31,three months ended September 30, 2020 as a result of gainloss on debt extinguishmentsale of property and equipment and an increase in depreciation and amortization offset by a decrease in stock compensation expense.amortization. Cash used in investing activities $ 1,374,085 $ (12,925 $ 1,387,010 10,731 used inprovided by investing activities for the ninethree months ended March 31,September 30, 2021 was $105,391$1,374,085 compared to net cash used in investing activities of $642,922$12,925 for the ninethree months ended March 31,September 30, 2020. This decreaseincrease in cash used inprovided by investing activities for the ninethree months ended March 31,September 30, 2021 was primarily due to the buildoutsale of new Murray, UT headquartersproperty and expansion of our data center that was completed in 2020 that did not occur in the same period in 2021. Cash used in financing activities $ (6,131,310 $ (397,037 $ 5,734,273 1,444 $414,400$6,131,310 for the ninethree months ended March 31,September 30, 2021 as compared to cash used in financing activities of $2,357,373$397,037 for the ninethree months ended March 31,September 30, 2020. The decreaseincrease in net cash used in financing activities is primarily attributable to the payoff of a financingour line of credit arrangement with a bank partially offset by a decrease in our stock buyback program.March 31,September 30, 2021, the Company had positive working capital of $20,587,385,$23,137,184, as compared towith positive working capital of $18,236,664$20,400,991 at June 30, 2021. This $2,350,721$2,736,193 increase in working capital is primarily due to an increasea decrease in cash resulting from higher revenue. Current assets $ 26,097,299 $ 29,701,774 $ (3,604,475 -12 March 31,September 30, 2021 totaled $31,273,486, an increase$26,097,299, a decrease of $4,124,575, $3,604,475, as compared to $27,148,911$29,701,774 as of June 30, 2020.2021. The increasedecrease in current assets is primarily attributable to an increasea net decrease in cash of $2,830,762, an increase$3,639,164 paying off a credit arrangement, a decrease in contract assets and prepaid expense of $702,428$71,288 and an increase in accounts receivable of $591,385. Current liabilities $ 2,960,115 $ 9,300,783 $ (6,340,668 -68 $10,686,101$2,960,115 as of March 31,September 30, 2021 as compared to $8,912,247$9,300,783 as of June 30, 2021. The comparative increasedecrease in current liabilities is primarily attributable to an increasethe corresponding payoff of $1,340,000$6,000,000 in our line of credit.$1,223,962 increase comprisedthat matures on March 31, 2023. Any amounts drawn down by the Company under the Credit Agreement will accrue interest at an annual rate equal to 1.75% plus the one-month LIBOR rate. In addition, the Credit Agreement contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of accrued liabilities and accounts payable, offset by a decrease of $790,108 of current portiondefault. Among other things, the Company must maintain liquid assets equal to the outstanding balance of the notes payableNote, andextinguished maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1..obligationsMarch 31,September 30, 2021 are summarized in the following table: Finance lease obligations Operating lease obligation 673,319 122,400 244,800 244,800 61,319 2020.March 31,September 30, 2021, the debt portfolio was composed of approximately 0% fixed rate debt and 100%0% variable rate debt. Fixed rate debt Variable rate debt Total debt March 31,September 30, 2021:Cash: Cash $ 20,431,158 1.43 ROLSCONTROLS AND PROCEDURESMarch 31,September 30, 2021 was completed. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.-21-PARTPART II2020. -22- May 17,November 15, 2021 May 17,November 15, 2021 -23-