UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
or
001-34941
(Commission file number)
PARK CITY GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada
State or other jurisdiction of incorporation
5282 South Commerce Drive, Suite D292
Murray, Utah 84107
(Address of principal executive offices)
37-1454128
(IRS Employer Identification No.)
(435) 645-2000
(Registrant's telephone number, including area code)
Title of each Class
Common Stock, $0.01 Par Value
Trading Symbol
PCYG
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Securities registered pursuant to Section 12(g) of the Act: None
I ndicate by check mark whether the registrant (1) has filed all reports required to be filed by Sec(cid:66)on 13 or 15(d) of the Securi(cid:66)es 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.
[X] Yes [ ] No
I ndicate by check mark whether the registrant has submi(cid:67)ed electronically every I nterac(cid:66)ve Data File required to be submi(cid:67)ed pursuant to Rule 405 of Regula(cid:66)on S-T (§
229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No
I ndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller repor(cid:66)ng 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
Non-accelerated filer
[ ]
[X]
Accelerated filer
Smaller reporting company
Emerging Growth Company
[ ]
[X]
[ ]
I f an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transi(cid:66)on period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
I ndicate by check mark whether the registrant has filed a report on and a(cid:67)esta(cid:66)on to its management’s assessment of the effec(cid:66)veness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
The aggregate market value of the vo(cid:66)ng and non-vo(cid:66)ng common stock held by non-affiliates of the issuer as December 31, 2020 which is the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $55,192,000 (at a closing price of $4.79 per share).
As of September 28, 2021, 19,395,152 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
I tems 10, 11, 12, 13 and 14 of Part I I I incorporate by reference certain informa(cid:66)on from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
Business
Risk Factors
Properties
Legal Proceedings
Mine Safety Disclosures
E
TABL OF CONTENTS TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED JUNE 30, 2021
PART I
PART II
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020
Notes to Consolidated Financial Statements
Exhibit 31
Exhibit 32
Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Table of Contents
FORWARD-LOOKING STATEMENTS
This A nnual Report on Form 10-K contains forward-looking statements. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,”
“will con(cid:38)nue,” “is an(cid:38)cipated,” “es(cid:38)mate,” “project,” or similar expressions are intended to iden(cid:38)fy “forward-looking statements.” A ctual results could differ materially from those
projected in the forward-looking statements as a result of a number of risks and uncertain(cid:38)es, including the risk factors set forth below and elsewhere in this Report. See “Risk
Factors” and “Management’s Discussion and A nalysis of Financial Condi(cid:38)on and Results of O pera(cid:38)ons.” Statements made herein are as of the date of the filing of this A nnual
Report on Form 10-K with the Securi(cid:38)es and Exchange Commission 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 obliga(cid:38)on, to update any forward-looking statements to reflect occurrences, developments, unan(cid:38)cipated events or circumstances a(cid:51)er
the date of such statement.
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Table of Contents
ITEM I.
BUSINESS
Overview
P
ART I
Park City Group, I nc., a Nevada corpora(cid:66)on (“Park City Group”, “We”, “us”, “our” or the “Company”) is a So(cid:77)ware-as-a-Service (“SaaS”) provider, and the parent
company of ReposiTrak, I nc., a Utah corpora(cid:66)on (“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.
The Company’s services are grouped in three applica(cid:66)on suites: (i) ReposiTrak MarketPlace (“MarketPlace”), encompassing the Company’s supplier discovery and
B2B e-commerce solu(cid:66)ons, which helps the Company’s customers find new suppliers and source hard to find items, (ii) ReposiTrak Compliance and Food Safety (“Compliance
and Food Safety”) solu(cid:66)ons, which help the Company’s customers vet suppliers to mi(cid:66)gate 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.
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 effec(cid:66)vely, and it helps them to more efficiently manage these rela(cid:66)onships, enhancing revenue while
lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solu(cid:66)ons help reduce a company’s poten(cid:66)al 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 (“FSMA”).
The Company’s services are delivered though proprietary so(cid:77)ware products designed, developed, marketed and supported by the Company. These products provide
visibility and facilitate improved business processes among all key cons(cid:66)tuents in the supply chain, star(cid:66)ng with the retailer and moving backwards to suppliers and
eventually to raw material providers. The Company provides cloud-based applica(cid:66)ons and services that address e-commerce, supply chain, food safety and compliance
ac(cid:66)vi(cid:66)es. The principal customers for the Company’s products are household name mul(cid:66)-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 (“Hubs”), which in turn require their suppliers
(“Spokes”) to utilize the Company’s services.
The Company is incorporated in the state of Nevada and has three principal subsidiaries: P C Group, I nc., a Utah corpora(cid:66)on (98.76% owned) (“PCG Utah”); Park City
Group, I nc., a Delaware corpora(cid:66)on (100% owned) (“P CG Delaware”); and ReposiTrak (100% owned) (collec(cid:66)vely, the “ Subsidiaries”). All intercompany transac(cid:66)ons and
balances have been eliminated in the Company’s consolidated financial statements, which contain the opera(cid:66)ng results of the opera(cid:66)ons of P CG Delaware and ReposiTrak.
Park City Group has no business operations separate from the operations conducted through its Subsidiaries.
The Company’s principal execu(cid:66)ve offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. I ts telephone number is (435) 645-2000. I ts
website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.
Recent Developments
During the second half of fiscal year 2021, ReposiTrak launched two new products designed to expand market share in the manufacturing segment: Cer(cid:66)ficate of
Analysis Automa(cid:66)on and Ac(cid:66)ve-Q M S for Q uality Management. Both solu(cid:66)ons were developed at the request of exis(cid:66)ng Compliance Management Solu(cid:66)on customers and
improve compe(cid:66)(cid:66)veness in the manufacturing/food supply chain with synergis(cid:66)c solu(cid:66)ons for growth in exis(cid:66)ng customers and increasing compe(cid:66)(cid:66)veness for new
business focused on quality management.
The quality management solution also has application in the retail sector, in central commissaries, distribution centers, and even task management in stores.
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Table of Contents
Another major new product ini(cid:66)a(cid:66)ve commenced in February 2021, as ReposiTrak joined with a group of major retailers and wholesalers to form the Food
Traceability Leadership Consor(cid:66)um (“FTLC”), in response to the Food and Drug Administra(cid:66)on's (“FDA”) announcement regarding the increase of food traceability
requirements under the FSM A. The expanded traceability requirements proposed by the FDA have far reaching consequences for the US food supply chain, from farms to
fisheries down to retail stores, due to new, detailed documentation requirements designed to support more effective recalls.
These new proposed requirements create substan(cid:66)al 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 frac(cid:66)ous array of inoperable systems that could lead to massive opera(cid:66)onal complexity and expense
escala(cid:66)on. The FTLC founding members worked collabora(cid:66)vely with ReposiTrak to develop a complete food traceability solu(cid:66)on that meets all the FDA FSM A proposed
repor(cid:66)ng requirements at a very large manageable cost, based on the ReposiTrak supply chain pla(cid:84)orm which tracks product/shipment data in a similar manner today for
cost and inventory control purposes.
The new solu(cid:66)on, called the ReposiTrak Traceability Network, is launching in September 2021 with phased roll outs at suppliers and retailers, and is expected to
scale rapidly throughout fiscal year 2022, based on the existing Compliance Management user network.
COVID-19
There are many uncertain(cid:66)es regarding COVI D-19, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it
will impact its services, customers, employees, vendors, and business partners. W hile the pandemic did not materially adversely affect the Company’s financial results and
business opera(cid:66)ons in the Company’s fiscal years ended June 30, 2020 or 2021, we are unable to predict the impact that COVI D-19 will have on its future financial posi(cid:66)on
and opera(cid:66)ng results due to numerous uncertain(cid:66)es. The Company expects to con(cid:66)nue to assess the evolving impact of COVI D-19 and intends to make adjustments to its
responses accordingly.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. O n April 23, 2020, the Company received
proceeds from a loan in the amount of approximately $1.1 million from its lender, U.S. Bank Na(cid:66)onal Associa(cid:66)on (the “Lender”), pursuant to approval by the U.S. Small
Business Administra(cid:66)on (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protec(cid:66)on Program (“PPP Loan”) created as part of the
CARES Act administered by the SBA. I n accordance with the requirements of the CARES Act, the Company used the proceeds from the P P P Loan primarily for payroll costs,
covered rent payments, and covered u(cid:66)li(cid:66)es during the eight-week period commencing on the date of loan approval. The P P P Loan was scheduled to mature on April 23, 2022,
with a 1.00% interest rate, and was subject to the terms and condi(cid:66)ons applicable to all loans made pursuant to the Paycheck Protec(cid:66)on Program as administered by the SBA
under the CARES Act. The PPP Loan was forgiven on December 19, 2020.
Company History
The Company’s technology has its genesis in the opera(cid:66)ons of Mrs. Fields Cookies, a company co-founded by Randall K. Fields, the Company’s Chief Execu(cid:66)ve
O fficer. The Company began opera(cid:66)ons u(cid:66)lizing patented computer so(cid:77)ware and profit op(cid:66)miza(cid:66)on consul(cid:66)ng services to help its retail clients reduce their inventory and
labor costs.
O n January 13, 2009, the Company acquired 100% of Prescient Applied I ntelligence, I nc., a Delaware corpora(cid:66)on (“Prescient”), a provider of solu(cid:66)ons for retailers
which, among other things, captured information about transactions between retailers and their suppliers.
In February 2014, Prescient changed its name to Park City Group, Inc. As a result, both Park City Group and PCG Delaware were named Park City Group, Inc.
I n June 2015, the Company elected to exercise an op(cid:66)on to acquire a 75% interest in ReposiTrak from Leavi(cid:67) Partners, LP for a cash payment and nego(cid:66)ated the
purchase of the remaining 25% with an exchange of shares of the Company. As a result, ReposiTrak became a wholly owned subsidiary of the Company.
As of June 30, 2020, the Company completed its Supply Chain and Compliance and Food Safety, and MarketPlace supplier discovery and B2B e-commerce solution. As
a result, the Company is now largely capable of delivering its services through a single ReposiTrak branded user interface.
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Table of Contents
Target Industries Overview
The Company develops its so(cid:77)ware and services for mul(cid:66)-store retail chains, wholesalers and distributors, and their suppliers . The bulk of the Company’s
customers are in the U.S. consumer retail sector for food and general merchandise, although the Company’s so(cid:77)ware and services are not sold exclusively to this customer
base, and the Company believes that its software and services are also applicable to a wide variety of other potential customers domestically and abroad.
Backdrop
The U.S. consumer retail sector in general, and food and general merchandise retailers more acutely, are facing pressure from several significant forces. These
include (i) increased compe(cid:66)(cid:66)ve pressures from the rise of online retailers, (ii) increased regulatory and tort risks, par(cid:66)cularly for food retailers, as a result of the passage
of the FSM A which placed greater responsibility for the safety of products on the par(cid:66)cipants in the food supply chain, and (iii) the pressure from consumers to increase
product diversity, and in particular, the number of smaller, localized vendors.
Solutions and Services
The Company’s so(cid:77)ware and services are designed to address the business problems faced by our customers. These solu(cid:66)ons are delivered via a cloud-based
infrastructure and grouped in three product application suites that mirror the workflow of the Company’s customers as they manage the activities of their supply chain.
Key Application Suites
●
●
●
ReposiTrak MarketPlace is the Company’s supplier discovery and B2B e-commerce solu(cid:66)on. MarketPlace provides the Company’s customers with greater flexibility in
sourcing products by enabling them to screen and choose suppliers based on a wide variety of criteria, including, but not limited to, predetermined compliance
characteris(cid:66)cs, and then to integrate these suppliers into their supply chain faster and more cost effec(cid:66)vely. MarketPlace helps the Company’s customers respond to
compe(cid:66)(cid:66)ve pressures from online retailers by providing them with greater capabili(cid:66)es to increase local sourcing, tailor their product offering to local market tastes,
and stock their stores appropriately for local events. MarketPlace is also beneficial to suppliers connected to ReposiTrak’s pla(cid:84)orm in that they can use MarketPlace
to highlight the products that they sell to generate incremental sales. The business model for MarketPlace is evolving as the Company’s customers help to develop new
use cases for the applica(cid:66)on. I n some situa(cid:66)ons, the Company acts as an agent for suppliers or provides supply chain technology services. I n other situa(cid:66)ons, at the
customer’s request, the Company may act as the supplier for certain products.
ReposiTrak Compliance and Food Safety Solu(cid:30)ons help the Company’s customers reduce poten(cid:66)al regulatory and legal risk from their supply chain partners. The
Company does this by providing a way of gathering the array of documents that may be needed for the customer to determine that its suppliers are compliant with a
wide variety of criteria including, but not limited to, food safety regula(cid:66)ons, such as those required by the FM SA and general business compliance standards such as
adequate liability insurance. The Company’s Compliance and Food Safety solu(cid:66)ons currently include four main applica(cid:66)ons: Vendor Valida(cid:66)on, Compliance
Management, Quality Management Systems (“QMS”) and Track & Trace. ReposiTrak also hosts and is integrated with the food safety audit database of the Safe Q uality
Food I ns(cid:66)tute (“SQFI”). SQ FI is one of the leading schemas for cer(cid:66)fying that a food retailer ’s suppliers are compliant with Global Food Safety I ni(cid:66)a(cid:66)ve (“GFSI”)
standards, which many food retailers require of their suppliers as a condi(cid:66)on of doing business. SQ FI is owned and operated by the Food Marke(cid:66)ng I ns(cid:66)tute (“FMI”),
one of the food industry’s largest trade associations.
ReposiTrak Supply Chain Solutions help the Company’s customers to more efficiently manage rela(cid:66)onships with suppliers so that they can “stock less and sell more” by
reducing inventory, labor costs and waste while also increasing revenue. The Company is a leader in helping its customers to manage their rela(cid:66)onship with Direct
Store Delivery (“DSD”) suppliers. The Company has observed that its customers are shi(cid:77)ing a greater percentage of their product mix to DSD suppliers to lower their
opera(cid:66)ng costs. Through a process known as Scan Based Trading the Company enables its customers to sell products from DSD suppliers on a consignment basis,
which lowers their working capital requirements by shi(cid:77)ing the financial burden of the inventory to the supplier. O ther Supply Chain solu(cid:66)ons include ScoreTracker,
Vendor Managed I nventory, Store Level O rdering and Replenishment, Enterprise Supply Chain Planning, Fresh Market Manager and Ac(cid:66)onManager®, all of which are
designed to aid the Company’s customer in managing inventory, product mix and labor while improving sales through the reduc(cid:66)on of out of stocks by improving
visibility and forecasting.
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Table of Contents
Professional Services
The Company has two professional services groups: (i) the Business Analy(cid:66)cs Group offers business-consul(cid:66)ng services to suppliers and retailers in the grocery,
convenience store and specialty retail industries, and (ii) the Professional Services Group provides consul(cid:66)ng services to ensure that our solu(cid:66)ons are seamlessly integrated
into our customers’ business processes as quickly and efficiently as possible.
Technology, Development and Operations
Product Development
The Company’s product development strategy is focused on crea(cid:66)ng common technology elements that can be leveraged in mul(cid:66)ple applica(cid:66)ons across our core
markets. To remain competitive, the Company is currently designing, coding and testing new products and developing expanded functionality of its current products.
Operations
We currently serve our customers from a third-party data center hos(cid:66)ng facility. Along with the Company’s Statement on Standards for A(cid:67)esta(cid:66)on Engagements
(“SSAE”) No. 16 cer(cid:66)fica(cid:66)on Service O rganiza(cid:66)on Control (“SOC2”), the third-party facility is also a SSAE No. 16 – SO C2 cer(cid:66)fied loca(cid:66)on and is secured by around-the-clock
guards, biometric screening and escort-controlled access, and is supported by on-site backup generators in the event of a power failure.
Customers
The Company is currently engaged primarily by food related consumer goods retailers, wholesalers, and their suppliers. The bulk of the Company’s customers are in
the U.S. consumer retail sector for food and general merchandise. However, the Company is opportunis(cid:66)c and will offer its solu(cid:66)ons to a wide variety of other poten(cid:66)al
customers. Target Corporation accounted for approximately 9.2% of the Company’s total revenue in the fiscal year ended June 30, 2021.
Sales, Marketing and Customer Support
Sales and Marketing
Through a focused and dedicated sales effort designed to address the requirements of each of its solu(cid:66)ons, the Company believes it is well posi(cid:66)oned to understand
its customers’ businesses, trends in the marketplace, competitive products and opportunities for new product development.
The Company’s primary marke(cid:66)ng objec(cid:66)ves have been to increase awareness of our solu(cid:66)ons, generate sales leads and develop new customer rela(cid:66)onships. To
this end, the Company a(cid:67)ends industry trade shows, conducts direct marke(cid:66)ng programs, publishes industry trade ar(cid:66)cles, par(cid:66)cipates in interviews and selec(cid:66)vely
advertises in industry publications.
I n fiscal 2016 the Company embarked on a process of repurposing the Company’s supply chain applica(cid:66)ons so that they can be delivered via ReposiTrak’s highly
scalable online infrastructure and launching its MarketPlace supplier discovery and B2B e-commerce solu(cid:66)on on this same infrastructure. As a result, the Company is now
largely capable of delivering its services through a single ReposiTrak branded user interface.
W ith the convergence of the Company’s solu(cid:66)ons to a single delivery pla(cid:84)orm, the Company also reorganized its sale force and reoriented its marke(cid:66)ng efforts. This
process involved streamlining the sales force to enable cross-selling by reducing regional account managers and shi(cid:77)ing our sales emphasis towards the Company’s inside
sales team located at its corporate headquarters in Murray, Utah.
Customer Support
The Company’s global customer support group responds to both business and technical inquiries from its customers rela(cid:66)ng to how to use its solu(cid:66)ons and is
available to customers by telephone and email. Basic customer support during business hours is available to customers. Premier customer support includes extended
availability and additional services and is available along with additional support services such as developer support and partner support for an additional fee.
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Table of Contents
Competition
The Company competes with a myriad of so(cid:77)ware vendors, developers and integrators, B2B exchanges, consul(cid:66)ng firms, focused solu(cid:66)on providers, and business
intelligence technology pla(cid:84)orms. Although our compe(cid:66)tors are o(cid:77)en considerably larger companies in size with larger sales forces and marke(cid:66)ng budgets, the Company
believes that its deep industry knowledge, the breadth and depth of our offerings, and our rela(cid:66)onships with key industry, wholesaler, and other trade groups and
associations, gives it a competitive advantage.
Patents and Proprietary Rights
The Company relies on a combina(cid:66)on of trademark, copyright, trade secret and patent laws in the United States and other jurisdic(cid:66)ons as well as confiden(cid:66)ality
procedures and contractual provisions to protect our proprietary technology and our name. We also enter into confiden(cid:66)ality agreements with our employees, consultants
and other third parties and control access to software, documentation and other proprietary information.
The Company has been awarded nine U.S. patents, and a number of U.S. registered trademarks and U.S. copyrights rela(cid:66)ng to its so(cid:77)ware technology and solu(cid:66)ons.
The Company’s patent por(cid:84)olio has been transferred to an unrelated third party, although the Company retains the right to use the licensed patents in connec(cid:66)on with its
business. The Company’s policy is to con(cid:66)nue to seek patent protec(cid:66)on for all developments, inven(cid:66)ons and improvements that are patentable and have poten(cid:66)al value to
the Company and to protect its trade secrets and other confiden(cid:66)al and proprietary informa(cid:66)on, and the Company intends to defend its intellectual property rights to the
extent its resources permit.
The Company is not aware of any patent infringement claims against it; however, there are no assurances that li(cid:66)ga(cid:66)on to enforce patents issued to the Company to
protect proprietary informa(cid:66)on, or to defend against the Company’s alleged infringement of the rights of others will not occur. Should any such li(cid:66)ga(cid:66)on occur, the Company
may incur significant li(cid:66)ga(cid:66)on costs, and it may result in resources being diverted from other planned ac(cid:66)vi(cid:66)es, which may have a materially adverse effect on the
Company’s operations and financial condition.
Employees
As of June 30, 2021, the Company employed a total of 70 employees. O f these employees, 15 are located overseas. The Company plans to con(cid:66)nue expanding its
offshore workforce to augment its analy(cid:66)cs services offerings, expand its professional services and to provide addi(cid:66)onal programming resources. The employees are not
represented by any labor union.
Reports to Security Holders
The Company is subject to the informa(cid:66)onal requirements of the Securi(cid:66)es Exchange Act of 1934, as amended (the “Exchange A ct”). Accordingly, it files annual,
quarterly and other reports and informa(cid:66)on with the Securi(cid:66)es and Exchange Commission (“SEC”). The SEC maintains an I nternet site (www.sec.gov) that contains reports,
proxy and informa(cid:66)on statements, and other informa(cid:66)on regarding issuers that file electronically with the SEC. Copies of these reports, proxy and informa(cid:66)on statements
and other information may be obtained by electronic request at the following e-mail address: publicinfo@sec.gov.
Government Regulation and Approval
Like all businesses, the Company is subject to numerous federal, state and local laws and regula(cid:66)ons, including regula(cid:66)ons rela(cid:66)ng to patent, copyright, and
trademark law matters.
Cost of Compliance with Environmental Laws
The Company currently has no costs associated with compliance with environmental regula(cid:66)ons and does not an(cid:66)cipate any future costs associated with
environmental compliance; however, there can be no assurance that it will not incur such costs in the future.
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ITEM 1A.
R
ISK FACTORS
A n investment in our Common Stock is subject to many risks. You should carefully consider the risks described below, together with all of the other informa(cid:38)on included in
this A nnual Report on Form 10-K (this “A nnual Report”), including the financial statements and the related notes, before you decide whether to invest in our Common Stock. O ur
business, opera(cid:38)ng results and financial condi(cid:38)on could be harmed by any of the following risks. The trading price of our Common Stock could decline due to any of these risks, and
you could lose all or part of your investment.
Risks Related to the Company
We have incurred losses in the past and there can be no assurance that we will operate profitably in the future.
O ur marke(cid:66)ng strategy emphasizes sales of subscrip(cid:66)on-based services, instead of annual licenses, and using Spokes to connect to our Hubs. This strategy has
resulted in the development of a founda(cid:66)on of retail and wholesale Hubs to which suppliers can be “connected”, thereby accelera(cid:66)ng future growth. I f, however, this
marke(cid:66)ng strategy fails, revenue and opera(cid:66)ons will be nega(cid:66)vely affected. We had net income of $ 4,117,395 for the year ended June 30, 2021, compared to a net income of
$1,593,269 for the year ended June 30, 2020. Although we generated net income in the year ended June 30, 2021, there can be no assurance that we will achieve profitability
in future periods. We cannot provide assurance that we will continue to generate revenue or have sustainable profits. If we do not operate profitably in the future, our current
cash resources will be used to fund our opera(cid:66)ng losses. Con(cid:66)nued losses would have an adverse effect on the long-term value of our Common Stock and any investment in
the Company.
Although our cash resources are currently sufficient, our long-term liquidity and capital requirements may be difficult to predict, which may adversely affect our long-term cash
position.
Historically, we have been successful in raising capital when necessary, including through private placements, a registered direct offering, and stock issuances to
our officers and directors, including our Chief Execu(cid:66)ve O fficer, to pay our indebtedness and fund our opera(cid:66)ons, in addi(cid:66)on to cash flow from opera(cid:66)ons. I f we are
required to seek addi(cid:66)onal financing in the future in order to fund our opera(cid:66)ons, re(cid:66)re our indebtedness and otherwise carry out our business plan, there can be no
assurance that such financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought,
would be available on terms deemed to be commercially acceptable and in our best interests.
O ur business is dependent upon the con(cid:30)nued services of our founder and Chief Execu(cid:30)ve O fficer, Randall K. Fields. Should we lose the services of Mr. Fields, our opera(cid:30)ons will
be negatively impacted.
O ur business is dependent upon the exper(cid:66)se and con(cid:66)nued service of our founder and Chief Execu(cid:66)ve O fficer, Randall K. Fields. Mr. Fields is essen(cid:66)al to our
opera(cid:66)ons. Accordingly, an investor must rely on Mr. Fields’ management decisions that will con(cid:66)nue to control our business affairs. We currently maintain key man
insurance on Mr. Fields’ life in the amount of $5,000,000; however, that coverage would be inadequate to compensate for the loss of his services. The loss of the services of
Mr. Fields would have a materially adverse effect upon our business.
Risk Relating to Business Operations
Quarterly and annual operating results may fluctuate, which makes it difficult to predict future performance.
Management expects a significant por(cid:66)on of our revenue stream to come from the sale of subscrip(cid:66)ons, and to a lesser extent, transac(cid:66)ons processed though
MarketPlace, license sales, maintenance and professional services charged to new customers. These amounts will fluctuate and are uncertain because predic(cid:66)ng future
sales is difficult and involves specula(cid:66)on. I n addi(cid:66)on, we may poten(cid:66)ally experience significant fluctua(cid:66)ons in future opera(cid:66)ng results caused by a variety of factors, many
of which are outside of our control, including:
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our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers’ requirements;
the renewal rates for our subscriptions and other services;
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changes in our pricing policies, whether initiated by us or as a result of competition;
the cost, timing and management effort for the introduction of new services, including new features to our existing services;
the rate of expansion and productivity of our sales force;
new product and service introductions by our competitors;
variations in the revenue mix of editions or versions of our service;
technical difficulties or interruptions in our service;
general economic condi(cid:66)ons that may adversely affect either our customers’ ability or willingness to purchase addi(cid:66)onal subscrip(cid:66)ons or upgrade their services, or
delay a prospective customer’s purchasing decision, or reduce the value of new subscription contracts or affect renewal rates;
timing of additional expenses and investments in infrastructure to support growth in our business;
regulatory compliance costs;
consolidation in the food industry;
the timing of customer payments and payment defaults by customers;
extraordinary expenses such as litigation or other dispute-related settlement payments;
the impact of new accounting pronouncements;
the timing of stock awards to employees and the related financial statement impact; and
system or service failures, security breaches or network downtime.
Future opera(cid:66)ng results may fluctuate because of the foregoing factors, making it difficult to predict opera(cid:66)ng results. Period-to-period comparisons of opera(cid:66)ng
results are not necessarily meaningful and should not be relied upon as an indicator of future performance. I n addi(cid:66)on, a large por(cid:66)on of our expense will be fixed in the
short-term, particularly with respect to facilities and personnel making future operating results sensitive to fluctuations in revenue.
We face threats from compe(cid:30)ng and emerging technologies that may affect our profitability, as well as compe(cid:30)tors that are larger and have greater financial and opera(cid:30)onal
resources that may give them an advantage in the market.
Markets for our type of so(cid:77)ware products and that of our compe(cid:66)tors are characterized by development of new so(cid:77)ware, so(cid:77)ware solu(cid:66)ons or enhancements that
are subject to constant change; rapidly evolving technological change; and unan(cid:66)cipated changes in customer needs. Because these markets are subject to such rapid
change, the life cycle of our products is difficult to predict. As a result, we are subject to the following risks: whether or how we will respond to technological changes in a
(cid:66)mely or cost-effec(cid:66)ve manner; whether the products or technologies developed by our compe(cid:66)tors will render our products and services obsolete or shorten the life cycle of
our products and services; and whether our products and services will achieve market acceptance.
Moreover, many of our compe(cid:66)tors are larger and have greater financial and opera(cid:66)onal resources than we do. This may allow them to offer be(cid:67)er pricing terms to
customers in the industry, which could result in a loss of poten(cid:66)al or current customers or could force us to lower prices. O ur compe(cid:66)tors may have the ability to devote
more financial and opera(cid:66)onal resources to the development of new technologies that provide improved opera(cid:66)ng func(cid:66)onality and features to their product and service
offerings. I f successful, their development efforts could render our product and service offerings less desirable to customers, again resul(cid:66)ng in the loss of customers or a
reduction in the price we can demand for our offerings. Any of these actions could have a significant effect on revenue.
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We face risks associated with new product introductions.
O ur future revenue is dependent upon the successful and (cid:66)mely development of new and enhanced versions of our products and poten(cid:66)al product offerings suitable
to the customers’ needs. I f we fail to successfully upgrade exis(cid:66)ng products and develop new products, and those new products do not achieve market acceptance, our
revenue will be negatively impacted.
It may be difficult for us to assess risks associated with potential new product offerings:
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it may be difficult for us to predict the amount of service and technological resources that will be needed by customers of new offerings, and if we underes(cid:66)mate the
necessary resources, the quality of our service will be negatively impacted, thereby undermining the value of the product to the customer;
technological issues between us and our customers may be experienced in capturing data necessary for new product offerings, and these technological issues may
result in unforeseen conflicts or technological setbacks when implemen(cid:66)ng these products, which could result in material delays and even result in a termina(cid:66)on of
the engagement;
a customer’s experience with new offerings, if negative, may prevent us from having an opportunity to sell additional products and services to that customer;
if customers do not use our products as recommends and/or fail to implement any needed correc(cid:66)ve ac(cid:66)on(s), it is unlikely that customers will experience the
business benefits from these products and may, therefore, be hesitant to continue the engagement as well as acquire any other products from us; and
delays in proceeding with the implementation of new products for a new customer will negatively affect our cash flow and our ability to predict cash flow.
We cannot accurately predict renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.
O ur customers have no obliga(cid:66)on to renew their subscrip(cid:66)ons for our service a(cid:77)er the expira(cid:66)on of their ini(cid:66)al subscrip(cid:66)on period. O ur renewal rates may decline
or fluctuate as a result of factors, including customer dissa(cid:66)sfac(cid:66)on with our service, customers’ ability to con(cid:66)nue their opera(cid:66)ons and spending levels, consolida(cid:66)on,
and deteriora(cid:66)ng general economic condi(cid:66)ons. I f our customers do not renew their subscrip(cid:66)ons for our service or reduce the level of service at the (cid:66)me of renewal, our
revenue will decline, and our business will suffer.
O ur future success also depends in part on our ability to increase rates, sell addi(cid:66)onal features and services, or addi(cid:66)on subscrip(cid:66)ons to our current customers.
This may also require increasingly sophis(cid:66)cated and costly sales and marke(cid:66)ng efforts that are targeted at senior management. I f these strategies fail, we will need to
refocus our efforts toward other solu(cid:66)ons, which could lead to increased development and marke(cid:66)ng costs, delayed revenue streams, and otherwise nega(cid:66)vely affect our
operations.
If our Compliance and Food Safety solu(cid:30)ons do not perform as expected, whether as a result of operator error or otherwise, it could impair our opera(cid:30)ng results and
reputation.
O ur success depends on the food safety market’s confidence that we can provide reliable, high-quality repor(cid:66)ng for our customers. We believe that our customers
are likely to be par(cid:66)cularly sensi(cid:66)ve to product defects and operator errors, including if our systems fail to accurately report issues that could reduce the liability of our
clients in the event of a product recall. I n addi(cid:66)on, our reputa(cid:66)on and the reputa(cid:66)on of our products can be adversely affected if our systems fail to perform as expected.
However, if our customers or poten(cid:66)al customers fail to implement and use our systems as suggested by us, they may not be able to deal with a recall as effec(cid:66)vely as they
could have. As a result, the failure or perceived failure of our products to perform as expected, could have a material adverse effect on our revenue, results of opera(cid:66)ons and
business.
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If a customer is sued because of a recalled product we could be joined in that suit, the defense of which would impair our operating results.
We believe our Compliance and Food Safety solu(cid:66)ons would be helpful in the event of a recall. However, their ul(cid:66)mate usefulness is dependent on how the customer
uses our products, which is in many ways out of our control. Similarly, a customer which is a defendant in a product liability case could claim that had our services
performed as represented the extent of poten(cid:66)al liability would have been minimized and therefore, we should have some contributory liability in the case. Defending such a
claim could have a material adverse effect on our revenue, results of operations and business.
The deployment of our services, or consulta(cid:30)on provided by our personnel, could result in li(cid:30)ga(cid:30)on naming us as a party, which li(cid:30)ga(cid:30)on could result in a material and adverse
effect on us, and our results of operations.
O ur Compliance and Food Safety solu(cid:66)ons are marketed to poten(cid:66)al customers based, in part, on our service’s ability to reduce a company’s poten(cid:66)al regulatory,
legal, and criminal risk from its supply chain partners. I n the event li(cid:66)ga(cid:66)on is commenced against a customer based on issues caused by a cons(cid:66)tuent in the supply chain,
or consulta(cid:66)on provided by our personnel, we could be joined or named in such li(cid:66)ga(cid:66)on. As a result, we could face substan(cid:66)al defense costs. I n addi(cid:66)on, any adverse
determination resulting in such litigation could have a material and adverse effect on us, and our results of operations.
We face risks relating to the sale and delivery of merchandise to customers.
We depend on a number of other companies to perform func(cid:66)ons cri(cid:66)cal to our ability to deliver products to our customers, including maintaining inventory,
preparing merchandise for shipment to our customers and delivering purchased merchandise on a (cid:66)mely basis. We also depend on the delivery services that we and they
u(cid:66)lize. We also depend on our partners to ensure proper labelling of products. I ssues or concerns regarding, product safety, labelling, content or quality could result in
consumer or governmental claims. In limited circumstances, we sell merchandise that we have purchased. In these instances, we assume the risks related to inventory.
We face risks associated with proprietary protection of our software.
Our success depends on our ability to develop and protect existing and new proprietary technology and intellectual property rights. We seek to protect our software,
documenta(cid:66)on and other wri(cid:67)en materials primarily through a combina(cid:66)on of patents, trademarks, and copyright laws, trade secret laws, confiden(cid:66)ality procedures and
contractual provisions. W hile we have a(cid:67)empted to safeguard and maintain our proprietary rights, there are no assurances that we will be successful in doing so. O ur
competitors may independently develop or patent technologies that are substantially equivalent or superior to ours.
Despite our efforts to protect our proprietary rights, unauthorized par(cid:66)es may a(cid:67)empt to copy aspects of our products or obtain and use informa(cid:66)on that we regard
as proprietary. I n some types of situa(cid:66)ons, we may rely in part on ‘shrink wrap’ or ‘point and click’ licenses that are not signed by the end user and, therefore, may be
unenforceable under the laws of certain jurisdic(cid:66)ons. Policing unauthorized use of our products is difficult. W hile we are unable to determine the extent to which piracy our
so(cid:77)ware exists, so(cid:77)ware piracy can be expected to be a persistent problem, par(cid:66)cularly in foreign countries where the laws may not protect proprietary rights as fully as the
United States. We can offer no assurance that our means of protec(cid:66)ng our proprietary rights will be adequate or that our compe(cid:66)tors will not reverse engineer or
independently develop similar technology.
We may discover software errors in our products that may result in a loss of revenue, injury to our reputation or subject us to substantial liability.
Non-conformi(cid:66)es or bugs (“errors”) may be found from (cid:66)me to (cid:66)me in our exis(cid:66)ng, new or enhanced products a(cid:77)er commencement of commercial shipments,
resul(cid:66)ng in loss of revenue or injury to our reputa(cid:66)on. I n the past, we have discovered errors in our products and as a result, have experienced delays in the shipment of
products. Errors in our products may be caused by defects in third-party so(cid:77)ware incorporated into our products. I f so, we may not be able to fix these defects without the
coopera(cid:66)on of these so(cid:77)ware providers. Because these defects may not be as significant to the so(cid:77)ware provider as they are to us, we may not receive the rapid coopera(cid:66)on
that may be required. We may not have the contractual right to access the source code of third-party so(cid:77)ware, and even if we do have access to the code, we may not be able
to fix the defect. I n addi(cid:66)on, our customers may use our service in unan(cid:66)cipated ways that may cause a disrup(cid:66)on in service for other customers a(cid:67)emp(cid:66)ng to access their
data. Since our customers use our products for cri(cid:66)cal business applica(cid:66)ons, any errors, defects or other performance problems could hurt our reputa(cid:66)on and may result in
damage to our customers’ business. I f that occurs, customers could elect not to renew, delay or withhold payment to us, we could lose future sales or customers may make
warranty or other claims against us, which could result in an increase in our provision for doub(cid:84)ul accounts, an increase in collec(cid:66)on cycles for accounts receivable or the
expense and risk of litigation. These potential scenarios, successful or otherwise, would likely be time consuming and costly.
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Interruptions or delays in service from our third-party data center hosting facility could impair the delivery of our service and harm our business.
We currently serve our customers from a third-party data center hos(cid:66)ng facility located in the United States. Any damage to, or failure of, our systems generally
could result in interrup(cid:66)ons in our service. As we con(cid:66)nue to add capacity, we may move or transfer our data and our customers’ data. Despite precau(cid:66)ons taken during this
process, any unsuccessful data transfers may impair the delivery of our service. Further, any damage to, or failure of, our systems generally could result in interrup(cid:66)ons in
our service. I nterrup(cid:66)ons in our service may reduce our revenue, cause us to issue credits or pay penal(cid:66)es, cause customers to terminate their subscrip(cid:66)ons and adversely
affect our renewal rates and our ability to a(cid:67)ract new customers. O ur business will also be harmed if our customers and poten(cid:66)al customers believe our service is
unreliable.
As part of our current disaster recovery arrangements, our produc(cid:66)on environment and all of our customers’ data is currently replicated in near real-(cid:66)me in a
separate facility physically located in a different region of the United States. We do not control the opera(cid:66)on of these facili(cid:66)es, and they are vulnerable to damage or
interrup(cid:66)on from earthquakes, floods, fires, power loss, telecommunica(cid:66)ons failures and similar events. They may also be subject to break-ins, sabotage, inten(cid:66)onal acts of
vandalism and similar misconduct. Despite precau(cid:66)ons taken at these facili(cid:66)es, the occurrence of a natural disaster or an act of terrorism, a decision to close the facili(cid:66)es
without adequate no(cid:66)ce or other unan(cid:66)cipated problems at these facili(cid:66)es could result in lengthy interrup(cid:66)ons in our service. Even with the disaster recovery arrangements,
our service could be interrupted.
If our security measures are breached and unauthorized access is obtained to a customer’s data, our data or our informa(cid:30)on technology systems, our service may be perceived
as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.
O ur service involves the storage and transmission of customers’ proprietary informa(cid:66)on, and security breaches could expose us to a risk of loss of this informa(cid:66)on,
li(cid:66)ga(cid:66)on and possible liability. These security measures may be breached as a result of third-party ac(cid:66)on, including inten(cid:66)onal misconduct by computer hackers, employee
error, malfeasance or otherwise during transfer of data to addi(cid:66)onal data centers or at any (cid:66)me, and result in someone obtaining unauthorized access to our customers’
data or our data, including our intellectual property and other confiden(cid:66)al business informa(cid:66)on, or our informa(cid:66)on technology systems. Addi(cid:66)onally, third par(cid:66)es may
a(cid:67)empt to fraudulently induce employees or customers into disclosing sensi(cid:66)ve informa(cid:66)on, such as user names, passwords or other informa(cid:66)on in order to gain access to
our customers’ data or our data, including our intellectual property and other confiden(cid:66)al business informa(cid:66)on, or our informa(cid:66)on technology systems. Because the
techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized un(cid:66)l launched against a target, we may be unable
to an(cid:66)cipate these techniques or to implement adequate preventa(cid:66)ve measures. Any security breach could result in a loss of confidence in the security of our service,
damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
I n the ordinary course of our business, we collect and store sensi(cid:66)ve data, including intellectual property, our proprietary business informa(cid:66)on and that of our
customers, suppliers and business partners, and personally iden(cid:66)fiable informa(cid:66)on of our customers and employees, in our data centers and on our networks. The secure
processing, maintenance and transmission of this informa(cid:66)on is cri(cid:66)cal to our opera(cid:66)ons and business strategy. Despite our security measures, our informa(cid:66)on technology
and infrastructure may be vulnerable to a(cid:67)acks by hackers or breached due to employee error, malfeasance or other disrup(cid:66)ons. Any such breach could compromise our
networks and the informa(cid:66)on stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of informa(cid:66)on could result in legal
claims or proceedings, liability under laws that protect the privacy of personal informa(cid:66)on, and regulatory penal(cid:66)es, disrupt our opera(cid:66)ons and the services we provide to
customers, and damage our reputa(cid:66)on, and cause a loss of confidence in our products and services, which could adversely affect our business/opera(cid:66)ng margins, revenues
and competitive position.
The secure processing, maintenance and transmission of this informa(cid:66)on is cri(cid:66)cal to our opera(cid:66)ons and business strategy, and we devote significant resources to
protecting our information. The expenses associated with protecting our information could reduce our operating margins.
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Weakened global economic conditions may adversely affect our industry, business and results of operations.
The rate at which our customers purchase new or enhanced services depends on several factors, including general economic condi(cid:66)ons. The United States and other
key interna(cid:66)onal economies have experienced in the past a downturn in which economic ac(cid:66)vity was impacted by falling demand for a variety of goods and services,
restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to
the economy. These condi(cid:66)ons affect the rate of informa(cid:66)on technology spending and could adversely affect our customers’ ability or willingness to purchase our enterprise
cloud compu(cid:66)ng services, delay prospec(cid:66)ve customers’ purchasing decisions, reduce the value or dura(cid:66)on of their subscrip(cid:66)on contracts or affect renewal rates, all of
which could adversely affect our operating results.
COVID-19 could potentially affect our sales and disrupt our operations and could have a material adverse impact on the Company.
The global COVI D-19 pandemic could adversely impact our opera(cid:66)ons or those of our customers. The extent to which COVI D-19 impacts our opera(cid:66)ons and those of
our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence. I f the public con(cid:66)nues to avoid public spaces,
including retail stores, or if we, or any of our customers encounter any disrup(cid:66)ons to our or their respec(cid:66)ve opera(cid:66)ons, facili(cid:66)es or stores, or if our customers were to
par(cid:66)ally or fully shut down due to COVI D-19, then we or they may be prevented or delayed from effec(cid:66)vely opera(cid:66)ng our or their business, respec(cid:66)vely, and the marke(cid:66)ng
and sale of our services and our financial results could be adversely affected.
Risks Relating to Our Common Stock
Our quarterly results of operations may fluctuate in the future, which could result in volatility in our stock price.
O ur quarterly revenue and results of opera(cid:66)ons have varied in the past and may fluctuate as a result of a variety of factors. I f our quarterly revenue or results of
opera(cid:66)ons fluctuate, the price of our Common Stock could decline substan(cid:66)ally. Fluctua(cid:66)ons in our results of opera(cid:66)ons may be due to several factors, including, but not
limited to, those listed and identified throughout this “Risk Factors” section.
The limited public market for our stock may adversely affect an investor’s ability to liquidate an investment in us.
Although our Common Stock is currently quoted on the NASDAQ Capital Market, there is limited trading ac(cid:66)vity. We can give no assurance that an ac(cid:66)ve market will
develop, or if developed, that it will be sustained. I f an investor acquires shares of our Common Stock, the investor may not be able to liquidate our shares should there be a
need or desire to do so.
Future issuances of our shares may lead to future dilu(cid:30)on in the value of our Common Stock, will lead to a reduc(cid:30)on in shareholder vo(cid:30)ng power and may prevent a change in
control.
The shares may be substantially diluted due to the following:
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issuance of Common Stock in connec(cid:66)on with funding agreements with third par(cid:66)es and future issuances of Common Stock and the Company’s Preferred Stock, par
value $0.01 (“Preferred Stock ”) by the Board of Directors; and
the Board of Directors has the power to issue addi(cid:66)onal shares of Common Stock and Preferred Stock and the right to determine the vo(cid:66)ng, dividend, conversion,
liquidation, preferences and other conditions of the shares without shareholder approval.
Stock issuances may result in reduc(cid:66)on of the book value or market price of outstanding shares of Common Stock. I f we issue any addi(cid:66)onal shares of Common
Stock or Preferred Stock, propor(cid:66)onate ownership of Common Stock and vo(cid:66)ng power will be reduced. Further, any new issuance of Common Stock or Preferred Stock may
prevent a change in control or management.
Our officers and directors have significant control over us, which may lead to conflicts with other stockholders over corporate governance.
O ur officers and directors control approximately 41% of our Common Stock. Randall K. Fields, our Chief Execu(cid:66)ve O fficer, controls 34% of our Common Stock.
Consequently, Mr. Fields, individually, and our officers and directors, as stockholders ac(cid:66)ng together, can significantly influence all ma(cid:67)ers requiring approval by our
stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions.
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O ur corporate charter contains authorized, unissued “blank check” Preferred Stock issuable without stockholder approval with the effect of dilu(cid:30)ng then current stockholder
interests.
O ur ar(cid:66)cles of incorpora(cid:66)on currently authorize the issuance of up to 30,000,000 shares of ‘blank check’ Preferred Stock with designa(cid:66)ons, rights, and preferences
as may be determined from (cid:66)me to (cid:66)me by our Board of Directors, of which 700,000 shares are currently designated as Series B Conver(cid:66)ble Preferred Stock (“Series B
Preferred”) and 550,000 shares are designated as Series B-1 Preferred Stock (“Series B-1 Preferred”). As of June 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.
O ur Board of Directors is empowered, without stockholder approval, to issue one or more addi(cid:66)onal series of Preferred Stock with dividend, liquida(cid:66)on, conversion,
vo(cid:66)ng, or other rights that could dilute the interest of, or impair the vo(cid:66)ng power of, our Common Stockholders. The issuance of an addi(cid:66)onal series of Preferred Stock could
be used as a method of discouraging, delaying or preventing a change in control.
We have not paid dividends on our Common Stock, and investors should consider the poten(cid:30)al for us to pay dividends on our Common Stock as a factor when determining
whether to invest in us.
We have not paid dividends on our Common Stock and do not an(cid:66)cipate the declara(cid:66)on of any dividends pertaining to our Common Stock in the foreseeable future.
We intend to retain earnings, if any, to finance the development and expansion of our business. O ur Board of Directors will determine our future dividend policy at their sole
discre(cid:66)on, and future dividends will be con(cid:66)ngent upon future earnings, if any, obliga(cid:66)ons of the stock issued, our financial condi(cid:66)on, capital requirements, general
business condi(cid:66)ons and other factors. Future dividends may also be affected by covenants contained in loan or other financing documents, which we may executed in the
future. Therefore, there can be no assurance that dividends will ever be paid on our Common Stock.
Our officers and directors have limited liability and indemnification rights under our organizational documents, which may impact our results.
Our officers and directors are required to exercise good faith and high integrity in the management of our affairs. Our articles of incorporation and bylaws, however,
provide that the officers and directors shall have no liability to the stockholders for losses sustained or liabili(cid:66)es incurred which arise from any transac(cid:66)on in their
respec(cid:66)ve managerial capaci(cid:66)es unless they violated their duty of loyalty, did not act in good faith, engaged in inten(cid:66)onal misconduct or knowingly violated the law,
approved an improper dividend or stock repurchase or derived an improper benefit from the transac(cid:66)on. As a result, an investor may have a more limited right to ac(cid:66)on than
he would have had if such a provision were not present. O ur ar(cid:66)cles of incorpora(cid:66)on and bylaws also require us to indemnify our officers and directors against any losses
or liabili(cid:66)es they may incur as a result of the manner in which they operate our business or conduct our internal affairs, provided that the officers and directors reasonably
believe such actions to be in, or not opposed to, our best interests, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations.
ITEM 2.
P
PRO ERTIES
Our principal place of business operations is located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. We lease approximately 10,000 square feet at
this corporate office loca(cid:66)on, consis(cid:66)ng primarily of office space, conference rooms and storage areas. O ur telephone number is (435) 645-2000. O ur website address is
http://www.parkcitygroup.com.
ITEM 3.
LEGAL PROCEEDINGS
We are, from (cid:66)me to (cid:66)me, 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 condi(cid:66)on, results of opera(cid:66)ons or liquidity. There are no pending or threatened material
legal proceedings at this time.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
-12-
Table of Contents
ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Share Price History
R
PA T II
O ur Common Stock is traded on the NASDAQ Capital Market under the trading symbol “P CYG”. The following table sets forth the high and low sales prices of our
Common Stock for the periods indicated:
Fiscal Quarter Ended
September 30
December 31
March 31
June 30
Dividend Policy
Quarterly Common Stock Price Ranges
2021
2020
High
Low
High
Low
5.45
5.53
7.91
6.97
$
$
$
$
3.72
3.80
4.75
4.80
$
$
$
$
8.25
6.17
5.73
6.22
$
$
$
$
4.76
4.27
3.33
3.40
$
$
$
$
O utstanding shares of Series B Preferred and Series B-1 Preferred each accrue dividends at the rate per share of 7% per annum if paid by the Company in cash, and
9% per annum if paid by the Company in addi(cid:66)onal shares of Series B-1 Preferred. Dividends on the Series B Preferred and Series B-1 Preferred are payable quarterly. To date,
the Company has not paid dividends on its Common Stock. Our present policy is to retain future earnings (if any) for use in our operations and the expansion of our business.
Holders of Record
At June 30, 2021, there were 636 holders of record of our Common Stock with 19,351,935 shares issued and outstanding, 3 holders of Series B Preferred with 625,375
shares issued and outstanding, and 4 holders of Series B-1 Preferred with 212,402 shares issued and outstanding. The number of holders of record and shares of Common
Stock issued and outstanding was calculated by reference to the books and records of the Company’s transfer agent.
Issuance of Securities
We issued shares of our Common Stock in unregistered transac(cid:66)ons during fiscal year 2021. All of the shares of Common Stock issued in non-registered
transac(cid:66)ons were issued in reliance on Sec(cid:66)on 3(a)(9) and/or Sec(cid:66)on 4(a)(2) of the Securi(cid:66)es Act of 1933, as amended (the “Securi(cid:38)es A ct”) and were reported in our
Q uarterly Reports on Form 10-Q and in our Current Reports on Form 8-K filed with the SEC during the fiscal year ended June 30, 2021. 40,217 shares of Common Stock were
issued subsequent to June 30, 2021.
Share Repurchase Program
On May 9, 2019, our Board of Directors approved of the repurchase of up to $4.0 million shares of our Common Stock, which repurchases may be made in privately
nego(cid:66)ated transac(cid:66)ons 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 discre(cid:66)on to determine the dollar amount of shares to be repurchased and the (cid:66)ming of any repurchases in compliance with applicable laws and
regula(cid:66)ons, including Rule 12b-18 of the Exchange Act. O n March 17, 2020, given the extreme uncertainty due to COVI D-19 at the (cid:66)me, the Board suspended the Share
Repurchase Program.
O n May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4 million to $6 million. The Share Repurchase
Program expires 24 months following May 18, 2021, and it may be suspended for periods of (cid:66)me or discon(cid:66)nued at any (cid:66)me, at the Board’s discre(cid:66)on. The total remaining
authoriza(cid:66)on for future shares of Common Stock repurchases under our Share Repurchase Program was $2,050,885 as of June 30, 2021. From (cid:66)me-to-(cid:66)me, our Board may
authorize further increases to our Share Repurchase Program.
-13-
Table of Contents
The following table provides informa(cid:66)on about repurchases of our Common Stock registered pursuant to Sec(cid:66)on 12 of the Exchange Act, during the years ended June
30, 2021 and 2020:
Period (1)
Year Ended June 30, 2020:
July 1, 2019 – September 30, 2019
October 1, 2019 – December 31, 2019
January 1, 2020 – March 31, 2020
April 1, 2020 – June 30, 2020
Year Ended June 30, 2021:
July 1, 2020 – September 30, 2020
October 1, 2020 – December 31, 2020
January 1, 2021 – March 31, 2021
April 1, 2021 – June 30, 2021
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
79,954
174,615
157,616
-
-
-
84,081
126,927
$
$
$
$
$
$
$
6.43
4.80
5.11
-
-
-
6.04
6.30
167,554
342,169
499,785
-
-
-
584,586
457,659
$
$
$
$
$
$
$
$
3,000,235
2,162,557
1,359,123
1,359,123
1,359,123
1,359,123
2,850,880
2,050,885
(1) We close our books and records on the last calendar day of each month to align our financial closing with our business processes.
ITEM 6.
SEL CTED FINANCIAL DATA
E
The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and A nalysis is intended to assist the reader in understanding our results of opera(cid:38)ons and financial condi(cid:38)on. Management’s
Discussion and A nalysis is provided as a supplement to, and should be read in conjunc(cid:38)on with, our audited consolidated financial statements beginning on page F-1 of this
A nnual Report on Form 10-K (this "A nnual Report"). This A nnual Report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of
Sec(cid:38)on 27A of the Securi(cid:38)es A ct. A ll statements, other than statements of historical fact, included in this A nnual Report that address ac(cid:38)vi(cid:38)es, events or developments that we
expect, project, believe, or an(cid:38)cipate will or may occur in the future, including ma(cid:68)ers having to do with expected and future revenue, our ability to fund our opera(cid:38)ons and repay
debt, business strategies, expansion and growth of opera(cid:38)ons and other such ma(cid:68)ers, are forward-looking statements. These statements are based on certain assump(cid:38)ons and
analyses made by our management in light of its experience and its percep(cid:38)on of historical trends, current condi(cid:38)ons, expected future developments, and other factors it believes
are appropriate in the circumstances. These statements are subject to a number of assump(cid:38)ons, risks and uncertain(cid:38)es, including general economic and business condi(cid:38)ons, the
business opportuni(cid:38)es (or lack thereof) that may be presented to and pursued by us, our performance on our current contracts and our success in obtaining new contracts, our
ability to a(cid:68)ract and retain qualified employees, and other factors, many of which are beyond our control. You are cau(cid:38)oned that these forward-looking statements are not
guarantees of future performance and those actual results or developments may differ materially from those projected in such statements.
Overview
The Company is a SaaS provider, and the parent company of ReposiTrak, a B2B e-commerce, compliance, and supply chain management pla(cid:84)orm company 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. The Company’s fiscal year ends on June 30. References to fiscal 2021 refer to the fiscal year ended June 30, 2021.
-14-
Table of Contents
Sources of Revenue
The principal customers for the Company’s products are mul(cid:66)-store retail chains, wholesalers and distributors, and their suppliers. The Company has a Hub and
Spoke business model, whereby the Company is typically engaged by Hubs, which in turn require Spokes to u(cid:66)lize the Company’s services. The Company derives revenue from
five sources: (i) subscription fees, (ii) transaction based fees, (iii) professional services fees, (iv) license fees, and (v) hosting and maintenance fees
A significant por(cid:66)on of the Company’s revenue is generated from its Supply Chain solu(cid:66)ons and Compliance and Food Safety solu(cid:66)ons in the form of recurring
subscrip(cid:66)on payments from the suppliers. Subscrip(cid:66)on fees can be based on a nego(cid:66)ated flat fee per supplier, or some volumetric metric, such as the number of stores, or
the volume of economic ac(cid:66)vity between a retailer and its suppliers. Subscrip(cid:66)on revenue contains arrangements with customers for use of the applica(cid:66)on, applica(cid:66)on and
data hosting, maintenance of the application, and standard support.
Revenue from the Company’s MarketPlace sourcing solu(cid:66)on is transac(cid:66)onal, based on the volume of products sourced via the applica(cid:66)on. MarketPlace revenue can
come from several sources depending on the customer ’s specific requirements. These include ac(cid:66)ng as an agent for a supplier, providing supply chain technology services,
and enabling a Hub to reduce its number of new suppliers by acting as the supplier for any number of products.
The Company also provides professional consul(cid:66)ng services targe(cid:66)ng implementa(cid:66)on, assessments, profit op(cid:66)miza(cid:66)on and support func(cid:66)ons for its applica(cid:66)ons
and related products, for which revenue is recognized on a percentage-of-comple(cid:66)on or pro rata basis over the life of the subscrip(cid:66)on, depending on the nature of the
engagement. Premier customer support includes extended availability and addi(cid:66)onal services and is available along with addi(cid:66)onal support services such as developer
support and partner support for an addition fee.
I n some instances, the Company will sell its so(cid:77)ware in the form of a license. License arrangements are a (cid:66)me-specific and perpetual license. So(cid:77)ware license
maintenance agreements are typically annual contracts, paid in advance or according to terms specified in the contract. W hen sold as a license, the Company’s so(cid:77)ware, is
usually accompanied by a corresponding Maintenance and/or Hosting Agreement to support the service.
So(cid:77)ware maintenance agreements provide the customer with access to new so(cid:77)ware enhancements, maintenance releases, patches, updates and technical support
personnel. O ur hos(cid:66)ng services provide remote management and maintenance of our so(cid:77)ware and customers’ data, which is physically located in third-party
facilities. Customers access ‘hosted’ software and data through a secure internet connection.
Revenue Recognition
Effec(cid:66)ve July 1, 2018, we adopted the Financial Accoun(cid:66)ng Standards Board’s Accoun(cid:66)ng 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 accoun(cid:66)ng model u(cid:66)lized for the recogni(cid:66)on of revenue and certain expense arising from contracts with customers. We
adopted ASU 2014-09 using a “modified retrospec(cid:66)ve” 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.
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Table of Contents
Other Metrics – Non-GAAP Financial Measures
To supplement our financial statements, historically we have provided investors with Adjusted EBI TDA and non-GAAP income per share, both of which are non-GAAP
financial measures. We believe that these non-GAAP measures may provide useful informa(cid:66)on regarding certain financial and business trends rela(cid:66)ng to our financial
condi(cid:66)on and opera(cid:66)ons. O ur management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analyses and planning
purposes. These measures are also presented to our Board of Directors.
These non-GAAP measures should not be considered a subs(cid:66)tute for, or superior to, financial measures calculated in accordance with generally accepted
accoun(cid:66)ng principles in the United States of America (“GAAP”). These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be
recorded in the Company’s financial statements and are subject to inherent limita(cid:66)ons. I nvestors should review the reconcilia(cid:66)ons of non-GAAP financial measures to the
comparable GAAP financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condi(cid:66)on and Results of O pera(cid:66)ons discusses the Company’s financial statements, which have been
prepared in accordance with GAAP. The prepara(cid:66)on of our financial statements requires management to make es(cid:66)mates and assump(cid:66)ons that affect reported amounts of
assets and liabili(cid:66)es, the disclosure of con(cid:66)ngent assets and liabili(cid:66)es at the date of the financial statements and the reported amount of revenue and expense during the
reporting period.
O n an ongoing basis, management evaluates its es(cid:66)mates and assump(cid:66)ons based on historical experience of opera(cid:66)ons 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 liabili(cid:66)es that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Income Taxes
I n 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 jurisdic(cid:66)ons, based on es(cid:66)mates and assump(cid:66)ons, to realize the benefit of these assets. I f these es(cid:66)mates and assump(cid:66)ons 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 quarterly whether to
realize the deferred income tax assets and assesses the valuation allowance.
Goodwill and Other Long-Lived Asset Valuations
Goodwill is assigned to specific repor(cid:66)ng units and is reviewed for possible impairment at least annually or upon the occurrence of an event or when circumstances
indicate that a repor(cid:66)ng 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 an(cid:66)cipated cumula(cid:66)ve undiscounted cash flows of the related asset or group of assets is
less than the carrying value. I n that event, a loss is recognized based on the amount by which the carrying value exceeds the es(cid:66)mated fair market value of the long-lived
asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate.
Stock-Based Compensation
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The
Company records compensa(cid:66)on expense on a straight-line basis. The fair value of any op(cid:66)ons granted are es(cid:66)mated at the date of grant using a Black-Scholes op(cid:66)on pricing
model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.
-16-
Table of Contents
Capitalization of Software Development Costs
The Company accounts for research costs of computer so(cid:77)ware to be sold, leased or otherwise marketed as expense un(cid:66)l technological feasibility has been
established for the product. O nce technological feasibility is established, all so(cid:77)ware costs are capitalized un(cid:66)l the product is available for general release to customers.
Judgment is required in determining when technological feasibility of a product is established.
We have determined that technological feasibility for our so(cid:77)ware products is reached shortly a(cid:77)er a working prototype is complete and meets or exceeds design
specifica(cid:66)ons including func(cid:66)ons, features, and technical performance requirements. Costs incurred a(cid:77)er technological feasibility is established have been and will
con(cid:66)nue to be capitalized un(cid:66)l such (cid:66)me as when the product or enhancement is available for general release to customers. The Company capitalized so(cid:77)ware development
costs of $171,733 in the fiscal year ended June 30, 2021.
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 condi(cid:66)on, revenue and
results of operation, liquidity or capital expenditures.
Recent Accounting Pronouncements
I n August 2018, the FASB issued ASU 2018-15 Intangibles – Goodwill and O ther Internal-Use So(cid:51)ware (Subtopic 350-40) – Customer’s A ccoun(cid:38)ng for Implementa(cid:38)on
Costs Incurred in a Cloud Compu(cid:38)ng A rrangement That is a Service Contract. The amendments in this update apply to an en(cid:66)ty who is a customer in a hos(cid:66)ng arrangement
accounted for as a service contract. The update requires a customer in a hos(cid:66)ng arrangement to capitalize certain implementa(cid:66)on costs. Costs associated with the
applica(cid:66)on development stage of the implementa(cid:66)on 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 implementa(cid:66)on costs should be expensed over the term of the hos(cid:66)ng arrangement, which is the noncancelable period plus
periods covered by an op(cid:66)on to extend if the customer is reasonably certain to exercise the op(cid:66)on. I mpairment of the capitalized costs should be considered similar to other
intangibles. The effec(cid:66)ve date of this update is effec(cid:66)ve for annual repor(cid:66)ng periods beginning a(cid:77)er December 15, 2019 for public en(cid:66)(cid:66)es and a(cid:77)er December 15, 2020 for
all other en(cid:66)(cid:66)es with early adop(cid:66)on permi(cid:67)ed. The Company is a customer in a hos(cid:66)ng 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 consolidated financial statements.
I n August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effec(cid:66)ve for fiscal years beginning a(cid:77)er
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 consolidated financial statements.
I n June 2018, the FASB issued ASU 2018-07 Compensa(cid:38)on – Stock Compensa(cid:38)on (Topic 718), Improvements to Nonemployee Share-Based Payment A ccoun(cid:38)ng. The
amendments in this update expand the scope of Topic 718 to include share-based payment transac(cid:66)ons for acquiring goods and services from nonemployees. Prior to this
update, equity-based payments to non-employees was accounted for under Subtopic 505-50 resul(cid:66)ng in significant differences between the accoun(cid:66)ng for share-based
payments to non-employees as compared to employees. O ne 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 con(cid:66)nually revalued un(cid:66)l the service/goods are rendered. The update also indicates that share-based awards related to
financing and awards granted to a customer in conjunc(cid:66)on with selling goods or services are not included in Topic 718. This standard is effec(cid:66)ve for interim and annual
repor(cid:66)ng periods beginning a(cid:77)er December 15, 2018 for public en(cid:66)(cid:66)es and December 15, 2019 for all other en(cid:66)(cid:66)es. Early adop(cid:66)on is permi(cid:67)ed, but no earlier than an
en(cid:66)ty’s adop(cid:66)on date of Topic 606. 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 consolidated financial statements.
I n January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and O ther (Topic 350): Simplifying the Test for Goodwill Impairment, which amends and simplifies
the accoun(cid:66)ng standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothe(cid:66)cal purchase price alloca(cid:66)on.
A goodwill impairment will now be the amount a repor(cid:66)ng unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that repor(cid:66)ng unit.
The new standard is effec(cid:66)ve for annual and any interim impairment tests for periods beginning a(cid:77)er 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 consolidated financial statements.
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Table of Contents
I n 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 excep(cid:66)on of
short-term leases) a lease liability, which is a lessee’s obliga(cid:66)on 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.
Effec(cid:66)ve July 1, 2019, the Company adopted the requirements of Accoun(cid:66)ng Standards Update No. 2016-02, Leases (Topic 842) ("A SU 2016-02"). All amounts and
disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for repor(cid:66)ng periods beginning a(cid:77)er 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.
Results of Operations – Fiscal Years Ended June 30, 2021 and 2020
Revenue
Revenue
Year Ended
June 30, 2021
21,007,076
$
$
Change
$
969,022
%
Change
Year Ended
June 30, 2020
20,038,054
5% $
During the fiscal year ended June 30, 2021, the Company had revenue of $21,007,076 compared to $20,038,054 for the year ended June 30, 2020, a 5% increase. The
increase in revenue was due to growth in both subscrip(cid:66)on revenue and Marketplace revenue, par(cid:66)ally offset by approximately $145,500 in one-(cid:66)me license revenue that
occurred in 2020 that did not reoccur in 2021.
During fiscal 2021, as COVI D-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in
increased revenue a(cid:67)ributable to MarketPlace. These products largely consisted of personel protec(cid:66)ve equipment ("PPE") which includes nitrile gloves, masks, freezers and
telecommunica(cid:66)on equipment. W hile the Company has experienced a significant increase in Marketplace revenue for P P E during the height of COVI D-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 service and product support
Percent of total revenue
Year Ended
June 30, 2021
6,884,647
$
$
Change
%
Change
$
(112,777)
-2% $
33%
Year Ended
June 30, 2020
6,997,424
35%
Cost of services and product support was $6,884,647 or 33% of total revenue, and $6,997,424 or 35% of total revenue for the years ended June 30, 2021 and 2020,
respec(cid:66)vely, a 2% decrease. This decrease is primarily the result of (i) higher expense associated to MarketPlace and the sales of P P E; and (ii) an increase in
hardware/software non-capitalized items required for updating our information systems security, maintaining equipment licensing and other database systems.
W hile we have experienced a significant increase in Marketplace costs and corresponding revenue during the pandemic due to demand in P P E, 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
$
-18-
Year Ended
June 30, 2021
4,995,578
$
24%
$
Change
(779,731)
%
Change
Year Ended
June 30, 2020
5,775,309
29%
-14% $
Table of Contents
The Company’s sales and marke(cid:66)ng expense was $4,995,578, or 24% of total revenue, and $5,775,309, or 29% of total revenue, for the fiscal years ended June 30,
2021 and 2020, respec(cid:66)vely, a 14% decrease. This decrease in sales and marke(cid:66)ng expense is due primarily to a decrease in variable compensa(cid:66)on, a reduc(cid:66)on in trade
show expense, and lower sales and marketing travel expense.
General and Administrative Expense
General and administrative
Percent of total revenue
Year Ended
June 30, 2021
5,214,936
$
$
$
Change
266,493
25%
%
Change
Year Ended
June 30, 2020
4,948,443
25%
5% $
The Company’s general and administra(cid:66)ve expense was $5,214,936, or 25% of total revenue, and $4,948,443 or 25% of total revenue for the years ended June 30,
2021 and 2020, respec(cid:66)vely, a 5% increase. General and administra(cid:66)ve expense increased year over year due to an increase in bad debt expense and higher insurance
costs. These increases were par(cid:66)ally offset by lower general overhead due to cost cu(cid:95)ng measures and natural reduc(cid:66)ons due to our “work from home” status since April of
2020.
Depreciation and Amortization Expense
Depreciation and amortization
Percent of total revenue
Year Ended
June 30, 2021
1,019,515
$
$
$
Change
180,649
5%
%
Change
Year Ended
June 30, 2020
838,866
4%
22% $
The Company’s deprecia(cid:66)on and amor(cid:66)za(cid:66)on expense was $1,019,515 and $838,866 for the years ended June 30, 2021 and 2020, respec(cid:66)vely, a 22% increase. This
increase is due to the expansion of new equipment for the Company’s informa(cid:66)on technology infrastructure, buildout of our corporate headquarters, and expansion of our
data center completed in June 2020.
Other Income and Expense
Other income and (expense)
Percent of total revenue
Year Ended
June 30, 2021
1,301,892
$
$
$
Change
1,144,716
6%
%
Change
728% $
Year Ended
June 30, 2020
157,176
1%
O ther income was $1,301,892 compared to $157,176 for the years ended June 30, 2021, and 2020, respec(cid:66)vely, a 728% increase. O ther income increased due to
recogni(cid:66)on of a gain on debt ex(cid:66)nguishment and higher interest income resul(cid:66)ng from an increase of total cash held in short term investments offset in part by the increase
in interest expense associated with financing arrangements for equipment purchased under a lease arrangement with a bank. The financing arrangement was paid off in
August 2020.
Preferred Dividends
Preferred dividends
Percent of total revenue
Year Ended
June 30, 2021
$
Change
%
Change
$
586,444
$
-
-% $
3%
Year Ended
June 30, 2020
586,444
3%
Dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred was $568,444 for the years ended June 30, 2021 and 2020, respec(cid:66)vely. Dividends
remained flat in the comparable periods.
-19-
Table of Contents
Financial Position, Liquidity and Capital Resources
We believe that our exis(cid:66)ng cash and short-term investments, together with funds generated from opera(cid:66)ons, are sufficient to fund opera(cid:66)ng and investment
requirements for at least the next twelve months. O ur future capital requirements will depend on many factors, including macroeconomic condi(cid:66)ons, 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.
Cash and Cash Equivalents
Year Ended
June 30, 2021
24,070,322
$
$
$
Change
3,724,992
%
Change
Year Ended
June 30, 2020
20,345,330
18% $
We have historically funded our opera(cid:66)ons with cash from opera(cid:66)ons, equity financings, and borrowings from the issuance of debt, including our exis(cid:66)ng line of
credit with U.S. Bank N.A.
Cash was $24,070,322 and $20,345,330 at June 30, 2021 and 2020, respec(cid:66)vely. This 18% increase is principally the result of growth in both so(cid:77)ware and
MarketPlace revenue, collection of accounts receivable, and extinguished debt.
Net Cash Flows from Operating Activities
Cash provided by operating activities
Net cash provided by operating activities is summarized as follows:
Net income
Noncash expense and income, net
Net changes in operating assets and liabilities
Year Ended
June 30, 2021
5,401,815
$
$
Change
%
Change
$
1,205,676
29% $
Year Ended
June 30, 2020
4,196,139
2021
4,117,395
1,388,831
(104,411)
5,401,815
$
$
2020
1,593,269
2,084,287
518,583
4,196,139
$
$
Net cash provided by opera(cid:66)ng ac(cid:66)vi(cid:66)es for the year ended June 30, 2021 was $5,401,815 compared to net cash provided by in opera(cid:66)ng ac(cid:66)vi(cid:66)es of $4,916,139
for the year ended June 30, 2020. Net cash provided by opera(cid:66)ng ac(cid:66)vi(cid:66)es increased 29% due largely to higher revenues and lower opera(cid:66)ng costs. Noncash
expense decreased by $695,456 in the year ended June 30, 2021 compared to June 30, 2020 as a result of gain on debt ex(cid:66)nguishment and an increase in deprecia(cid:66)on and
amortization offset by a decrease in stock compensation expense.
Net Cash Flows Used in Investing Activities
Cash used in investing activities
Year Ended
June 30, 2021
(318,873)
$
$
Change
331,549
%
Change
Year Ended
June 30, 2020
(650,422)
-51% $
Net cash used in inves(cid:66)ng ac(cid:66)vi(cid:66)es for the year ended June 30, 2021 was $318,873 compared to net cash used in inves(cid:66)ng ac(cid:66)vi(cid:66)es of $650,422 for the year ended
June 30, 2020. This decrease in cash used in inves(cid:66)ng ac(cid:66)vi(cid:66)es for the year ended June 30, 2021 was primarily due to the buildout of new Murray, UT headquarters and
expansion of our data center that was completed in 2020 that did not occur in the same period in 2021.
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Table of Contents
Net Cash Flows from Financing Activities
Cash used in financing activities
Year Ended
June 30, 2021
(1,357,950)
$
$
Change
%
Change
$
451,860
-25% $
Year Ended
June 30, 2020
(1,809,810)
Net cash used in financing activities totaled $1,357,950 for the year ended June 30, 2021 compared to net cash used in financing activities of $1,809,810 for the year
ended June 30, 2020. The decrease in net cash used in financing activities is primarily attributable to the August 2020 payoff of a financing arrangement with a bank partially
offset by a decrease in our stock buyback program.
Liquidity and Working Capital
At June 30, 2021, the Company had posi(cid:66)ve working capital of $20,400,991, as compared with posi(cid:66)ve working capital of $ 18,236,664 at June 30, 2020. This
$2,164,327 increase in working capital is primarily due to an increase in cash resulting from higher revenue.
Current assets
As of
June 30,
2021
29,701,774
$
As of
June 30,
2020
27,148,911
$
Variance
Dollars
Percent
$
2,552,863
9%
Current assets as of June 30, 2021 totaled $29,701,774, an increase of $2,552,863, as compared to $27,148,911 as of June 30, 2020. The increase in current assets is
primarily a(cid:67)ributable to an increase in cash of $3,724,992, a decrease in contract assets and prepaid expense of $1,056,512 and a decrease in accounts receivable of
$115,617.
Current liabilities
As of
June 30,
2021
9,300,783
$
As of
June 30,
2020
8,912,247
$
Variance
Dollars
Percent
$
388,536
4%
Current liabili(cid:66)es totaled $9,300,783 as of June 30, 2021 as compared to $8,912,247 as of June 30, 2020. The compara(cid:66)ve increase in current liabili(cid:66)es is primarily
a(cid:67)ributable to an increase of $1,340,000 in our line of credit, $161,356 decrease comprised of accrued liabili(cid:66)es and accounts payable, offset by a decrease of $790,108 of
current portion of the notes payable and extinguished debt.
W hile no assurances can be given, management currently believes that the Company will con(cid:66)nue to increase its cash flow from opera(cid:66)ons and working capital
position in subsequent periods, and that it will have adequate cash resources to fund its operations and satisfy its debt obligations for at least the next 12 months.
Contractual Obligations
Total contractual obligations and commercial commitments as of June 30, 2021 are summarized in the following table:
Operating lease obligations
Payment Due by Year
Total
695,370
$
Less than 1
Year
1-3 Years
3-5 Years
$
90,156
$
194,326
$
214,783
More than 5
Years
196,105
$
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Table of Contents
Inflation
The impact of infla(cid:66)on has historically not had a material effect on the Company’s financial condi(cid:66)on or results from opera(cid:66)ons; however, higher rates of infla(cid:66)on
may cause retailers to slow their spending in the technology area, which could have an impact on the Company’s sales.
ITEM 7A.
QU NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A
Each of our contracts require payment in U.S. dollars. We therefore do not engage in hedging transac(cid:66)ons to reduce our exposure to changes in currency exchange
rates, although in the event any future contracts are denominated in a foreign currency, we may do so in the future. As a result, our financial results are not affected by
factors such as changes in foreign currency exchange rates.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder in this Annual Report is set forth in the financial statements and the notes thereto beginning on Page F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Under the supervision and with the par(cid:66)cipa(cid:66)on of our Management, including our principal execu(cid:66)ve officer and principal financial officer, we conducted an
evalua(cid:66)on of the effec(cid:66)veness of the design and opera(cid:66)ons of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of June 30, 2021. Based on this evalua(cid:66)on, the Company’s Chief Execu(cid:66)ve O fficer and Chief Financial O fficer concluded 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 informa(cid:66)on 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.
(b)
Management’s Annual Report on Internal Control over Financial Reporting.
We are responsible for establishing and maintaining adequate internal control over financial repor(cid:66)ng (as defined in Rule 13a-15(f) under the Exchange Act). O ur
internal control over financial repor(cid:66)ng is a process designed to provide reasonable assurance regarding the reliability of financial repor(cid:66)ng and the prepara(cid:66)on of
financial statements for external purposes of GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control objectives.
Management is responsible for establishing and maintaining adequate internal control over financial repor(cid:66)ng for the Company. W ith our par(cid:66)cipa(cid:66)on, an
evalua(cid:66)on of the effec(cid:66)veness of our internal control over financial repor(cid:66)ng was conducted as of June 30, 2021, based on the framework and criteria established in
I nternal Control I ntegrated Framework (2013) issued by the Commi(cid:67)ee of Sponsoring O rganiza(cid:66)ons of the Treadway Commission. Based on this evalua(cid:66)on, our Chief
Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of June 30, 2021.
(c)
Changes in Internal Controls over Financial Reporting.
O ur Chief Execu(cid:66)ve O fficer and Chief Financial O fficer have determined that there has been no change, in the Company’s internal control over financial repor(cid:66)ng
during the period covered by this report iden(cid:66)fied in connec(cid:66)on with the evalua(cid:66)on described in the above paragraph that have materially affected, or are reasonably likely
to materially affect, Company’s internal control over financial reporting.
ITEM 9B.
OT ER INFORMATION
H
None.
-22-
Table of Contents
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
R
PA T III
The informa(cid:66)on required by this item will be incorporated by reference from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
ITEM 11.
EXECUTIVE COMPENSATION
The informa(cid:66)on required by this item will be incorporated by reference from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The informa(cid:66)on required by this item will be incorporated by reference from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The informa(cid:66)on required by this item will be incorporated by reference from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The informa(cid:66)on required by this item will be incorporated by reference from Park City Group, I nc.’s defini(cid:66)ve proxy statement, to be filed with the Securi(cid:66)es and
Exchange Commission on or before October 28, 2021.
-23-
Table of Contents
T
PAR IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits, Financial Statements and Schedules
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
14.1
21
23.1
31.1
31.2
32.1
Description
Articles of Incorporation (Incorporated by reference from the Company’s Definitive Proxy Statement on Schedule 14C dated June 5, 2002). (1)
Cer(cid:66)ficate of Amendment (I ncorporated by reference from Exhibit 3.3 to the Company’s Q uarterly Report on Form 10-Q SB for the quarter ended Sept 30,
2005, dated November 10, 2005). (2)
Cer(cid:66)ficate of Amendment (I ncorporated by reference from Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2006,
dated September 29, 2006). (3)
Certificate of Amendment (Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 28, 2017). (13)
Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.1 the Company’s Current Report on Form 8-K dated October 21, 2016). (11)
Cer(cid:66)ficate of Designa(cid:66)on of the Series B Conver(cid:66)ble Preferred Stock (I ncorporated by reference from Exhibit 3.1 to the Company’s Current Report on
Form 8-K dated July 21, 2010). (4)
Fourth Amended and Restated Cer(cid:66)ficate of Designa(cid:66)on of the Rela(cid:66)ve Rights, Powers and Preferences of the Series B Preferred Stock of Park City Group,
Inc. (Incorporated by reference from Exhibit 4.1 the Company’s Current Report on Form 8-K dated January 14, 2016). (10)
First Amended and Restated Cer(cid:66)ficate of Designa(cid:66)on of the Rela(cid:66)ve Rights, Powers and Preferences of the Series B-1 Preferred Stock of Park City Group,
Inc. (Incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K dated January 14, 2016). (10)
Amendment to Loan Agreement and Note, by and between U.S. Bank Na(cid:66)onal Associa(cid:66)on and the Company, dated September 15, 2009 (I ncorporated by
reference from Exhibit 10.1 the Company’s Current Report on Form 8-K dated September 30, 2009). (5)
Amendment to Loan Agreement and Note, by and between U.S. Bank Na(cid:66)onal Associa(cid:66)on and the Company, dated May 5, 2010 (I ncorporated by reference
from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 6, 2010). (6)
Second Amended and Restated 2011 Stock Incentive Plan, dated April 1, 2013 (Incorporated by reference from Exhibit 10.1 to the Company’s Registration
Statement on Form S-8, dated September 4, 2013). (7)
Second Amended and Restated 2011 Employee Stock Purchase Plan, dated April 1, 2013 (Incorporated by reference from Exhibit 10.2 to the Company’s
Registration Statement on Form S-8, dated September 4, 2013). (7)
Fields Employment Agreement (Incorporated by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K dated September 11, 2014). (9)
Services Agreement (Incorporated by reference from the Company’s Form 10-K dated September 11, 2014).(9)
Amendment No. 1 to the Employment Agreement, by and between Park City Group, I nc., Randall K. Fields and Fields Management, I nc., dated July 1, 2016
(Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated November 7, 2016). (12)
Amendment No. 1 to the Second Amended and Restated 2011 Stock I ncen(cid:66)ve Plan of Park City Group, I nc., dated August 3, 2017 (I ncorporated by
reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-8 dated November 9, 2017) (15)
Amendment No. 1 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, I nc., dated August 3, 2017 (I ncorporated
by reference from Exhibit 10.2 to the Company’s Registration Statement on Form S-8 dated November 9, 2017) (15)
Amendment to Services Agreement (I ncorporated by reference from Exhibit 10.1 to the Company’s Q uarterly Report on Form 10-Q dated May 10, 2018).
(16)
Amendment to Note, by and between U.S. Bank Na(cid:66)onal Associa(cid:66)on and the Company, dated January 9, 2019 (I ncorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated January 15, 2019). (17)
Master Lease Agreement, dated January 9, 2019 (I ncorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January
15, 2019). (17)
Employment Agreement by and between John Merrill and Park City Group, I nc., dated May 29, 2019 (I ncorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated May 31, 2019). (18)
Loan Agreement by and between U.S. Bank Na(cid:66)onal Associa(cid:66)on and the Company, dated April 23, 2020 (I ncorporated by reference from Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated April 27, 2020). (19)
Amendment No. 2 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, I nc., dated March 17, 2021 (I ncorporated
by reference from Exhibit 10.1 to the Company’s Form S-8 dated April 12, 2021). (20)
Code of Ethics and Business Conduct (I ncorporated by reference from the Company’s Annual Report Form 10-KSB for the period ended June 30, 2008,
dated September 29, 2008). (8)
List of Subsidiaries (I ncorporated by reference from the Company’s Annual Report on Form 10-K for the period ended June 30, 2017, dated September 13,
2017). (14)
Consent of Haynie & Company, dated September 28, 2021*
Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
*
Incorporated by reference from our Form DEF 14C dated June 5, 2002.
Incorporated by reference from our Form 10-QSB for the year ended Sept 30, 2005.
Incorporated by reference from our Form 10-KSB dated September 29, 2006.
Incorporated by reference from our Form 8-K dated July 21, 2010.
Incorporated by reference from our Form 8-K dated September 30, 2009.
Incorporated by reference from our Form 8-K dated May 6, 2010.
Incorporated by reference from our Registration Statement on Form S-8 dated September 4, 2013.
Incorporated by reference from our Form 10-KSB dated September 29, 2008.
Incorporated by reference from our Form 10-K dated September 11, 2014.
Incorporated by reference from our Form 8-K dated January 14, 2016.
Incorporated by reference from our Form 8-K dated October 21, 2016.
Incorporated by reference from our Form 10-Q dated November 7, 2016.
Incorporated by reference from our Form 8-K dated July 28, 2017.
Incorporated by reference from our Form 10-K dated September 13, 2017.
Incorporated by reference from our Registration Statement on Form S-8 dated November 9, 2017.
Incorporated by reference from our Form 10-Q dated May 10, 2018.
Incorporated by reference from our Form 8-K dated January 15, 2019.
Incorporated by reference from our Form 8-K dated May 31, 2019.
Incorporated by reference from our Form 8-K dated April 27, 2020.
Incorporated by reference from our Form 8-K dated April 12, 2021.
Filed herewith
-24-
Table of Contents
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
A
SIGN TURES
Date: September 28, 2021
PARK CITY GROUP, INC.
(Registrant)
By: /s/ Randall K. Fields
Principal Executive Officer,
Chair of the Board and Director
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
/s/ Randall K. Fields
Randall K. Fields
/s/ John Merrill
John Merrill
/s/ Robert W. Allen
Robert W. Allen
/s/ Peter J. Larkin
Peter J. Larkin
/s/ Ronald C. Hodge
Ronald C. Hodge
Chair of the Board and Director,
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)
Director, and Compensation
Committee Chair
Director
Date
September 28, 2021
September 28, 2021
September 28, 2021
September 28, 2021
Director, and Audit Committee Chair
September 28, 2021
-25-
Table of Contents
To the Board of Directors and
Stockholders of Park City Group, Inc.
Opinion on the Financial Statements
REP RT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
O
We have audited the accompanying consolidated balance sheets of Park City Group, I nc. (the Company) as of June 30, 2021 and 2020, and the related statements of income,
stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2021, and the related notes (collec(cid:66)vely referred to as the financial
statements). I n our opinion, the financial statements present fairly, in all material respects, the financial posi(cid:66)on of the Company as of June 30, 2021 and 2020, and the
results of its opera(cid:66)ons and its cash flows for each of the years in the two-year period ended June 30, 2021, in conformity with accoun(cid:66)ng principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. O ur responsibility is to express an opinion on the Company’s financial statements based on
our audits. We are a public accoun(cid:66)ng firm registered with the Public Company Accoun(cid:66)ng O versight Board (United States) (P CAO B) and are required to be independent with
respect to the Company in accordance with the U.S. federal securi(cid:66)es laws and the applicable rules and regula(cid:66)ons of the Securi(cid:66)es and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the P CAO B. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial repor(cid:66)ng. As part of our audits, we are required to obtain an understanding of internal control over financial repor(cid:66)ng, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
O ur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
O ur audits also included evalua(cid:66)ng the accoun(cid:66)ng principles used and significant es(cid:66)mates made by management, as well as evalua(cid:66)ng the overall presenta(cid:66)on of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The cri(cid:66)cal audit ma(cid:67)ers communicated below are ma(cid:67)ers arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit commi(cid:67)ee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjec(cid:66)ve, or complex judgments. The communica(cid:66)on of cri(cid:66)cal audit ma(cid:67)ers does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Multiple Element Arrangements
Description of the Matter:
The Company recognized approximately $21 million in revenue during the year ended June 30, 2021. As discussed in Note 2 to the financial statements, the Company
enters into several different types of revenue arrangements that o(cid:77)en consist of mul(cid:66)ple performance obliga(cid:66)ons. Management must use judgment to determine the
appropriate value and allocation of revenue to these performance obligations.
Audi(cid:66)ng management’s assump(cid:66)ons and judgments can be complex, involves judgment, and requires a thorough understanding of the Company’s various revenue
streams.
How We Addressed the Matter in Our Audit:
We obtained and reviewed documenta(cid:66)on to support the revenue recogni(cid:66)on criteria. We tested performance obliga(cid:66)ons by reviewing the underlying contracts,
evalua(cid:66)ng management’s determina(cid:66)on of the method and (cid:66)ming of measuring revenue, and tes(cid:66)ng management’s alloca(cid:66)on of revenue to the performance
obliga(cid:66)ons. Lastly, we tested the design and opera(cid:66)ng effec(cid:66)veness of internal controls over the revenue cycle as well as the I nforma(cid:66)on Technology General
Controls as these heavily impact the revenue cycle.
Haynie & Company
Salt Lake City, Utah
September 28, 2021
We have served as the Company’s auditor since 2016.
F-1
Table of Contents
R
PA K CITY GROUP, INC.
Consolidated Balance Sheets
Assets
Current Assets
Cash
Receivables, net of allowance for doubtful accounts of $234,693 and $251,954 at June 30, 2021 and 2020, 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 Shareholders’ 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:
June 30,
2021
June 30,
2020
$
$
24,070,322
3,891,699
1,248,936
490,817
20,345,330
4,007,316
2,300,754
495,511
29,701,774
27,148,911
2,589,194
3,003,402
22,414
47,987
408,925
695,371
525,600
20,883,886
171,732
22,414
77,030
838,726
781,137
657,000
20,883,886
18,539
22,755,915
23,278,732
$
55,046,883
$
53,431,045
$
$
467,194
988,092
1,755,341
6,000,000
90,156
-
-
407,497
1,123,528
1,845,347
4,660,000
85,767
310,242
479,866
9,300,783
8,912,247
605,214
-
-
695,369
610,512
629,484
9,905,997
10,847,612
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 June 30, 2021 and 2020;
Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at June 30, 2021 and 2020,
respectively
Common Stock, $0.01 par value, 50,000,000 shares authorized; 19,351,935 and 19,484,485 issued and outstanding at June 30,
2021 and 2020, respectively
Additional paid-in capital
Accumulated deficit
6,254
2,124
6,254
2,124
193,522
74,298,924
(29,359,938)
194,847
75,271,097
(32,890,889)
45,140,886
42,583,433
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
F-2
$
55,046,883
$
53,431,045
Table of Contents
PARK CITY G OUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
R
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
Unrealized gain 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 earnings per share
Diluted earnings per share
See accompanying notes to consolidated financial statements.
F-3
For the Years Ended June 30,
2021
2020
$
21,007,076
$
20,038,054
6,884,647
4,995,578
5,214,936
1,019,515
18,114,676
6,997,424
5,775,309
4,948,443
838,866
18,560,042
2,892,400
1,478,012
237,269
(106,680)
61,953
1,109,350
224,908
(67,732)
-
-
4,194,292
1,635,188
(76,897)
(41,919)
4,117,395
1,593,269
(586,444)
(586,444)
$
3,530,951
$
1,006,825
19,502,000
19,754,000
0.18
0.18
$
$
19,651,000
19,863,000
0.05
0.05
$
$
Table of Contents
PARK CITY GROUP, INC. A D SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)
N
Series B
Preferred Stock
Series B-1
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Total
Balance, June 30, 2019
625,375
6,254
212,402
2,124
19,793,372
197,936
76,908,566
(33,897,714) 43,217,166
Stock issued for:
Accrued compensation
Cash
Preferred Dividends-Declared
Stock Buyback
Net income
Balance, June 30, 2020
Stock issued for:
Accrued compensation
Cash
Preferred Dividends-Declared
Stock Buyback
Net income
Balance, June 30, 2021
-
-
-
-
-
625,375
-
-
-
-
-
625,375
$
$
-
-
-
-
-
6,254
-
-
-
-
-
6,254
-
-
-
-
-
212,402
-
-
-
-
-
212,402
$
$
-
-
-
-
-
2,124
-
-
-
-
-
2,124
76,575
26,723
-
(412,185)
766
267
-
396,223
120,657
-
(4,122) (2,154,349)
-
19,484,485
$
-
194,847
-
$75,271,097
-
-
(586,444)
396,989
120,924
(586,444)
(2,158,471)
-
1,593,269
1,593,269
$(32,890,889) $42,583,433
46,376
32,082
-
(211,008)
464
321
-
216,789
117,166
-
(2,110) (1,306,128)
-
19,351,935
$
-
193,522
-
$74,298,924
-
-
(586,444)
217,253
117,487
(586,444)
(1,308,238)
-
4,117,395
4,117,395
$(29,359,938) $45,140,886
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
PARK CITY GROUP, INC. A D SUBSIDIARIES
Consolidated Statements of Cash Flows
N
Cash flows from 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
Stock compensation expense
Bad debt expense
Gain on debt extinguishment
Decrease (increase) in:
Trade receivables
Long-term receivables, prepaids and other assets
Increase (decrease) 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
Capitalization of software development costs
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from employee stock purchase plans
Proceeds from issuance of note payable
Net increase in lines of credit
Dividends paid
Common stock buy-back
Payments on notes payable and capital leases
Net cash used in financing activities
Net increase 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
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Common Stock to pay accrued liabilities
Dividends accrued on Preferred Stock
Right-of-use asset
See accompanying notes to consolidated financial statements.
F-5
For the Years Ended June 30,
2021
2020
$
4,117,395
$
1,593,269
1,019,515
85,766
336,695
1,056,205
(1,109,350)
(199,437)
465,978
59,697
(254,601)
(85,766)
(90,282)
803,002
81,604
399,681
800,000
-
(205,718)
1,279,674
(122,797)
(278,255)
(81,605)
(72,716)
5,401,815
4,196,139
(147,140)
(171,733)
(318,873)
117,487
-
1,340,000
(586,444)
(1,308,238)
(920,755)
(650,422)
-
(650,422)
120,923
1,109,350
-
(586,444)
(2,158,471)
(295,168)
(1,357,950)
(1,809,810)
3,724,992
1,735,907
20,345,330
18,609,423
$
24,070,322
$
20,345,330
$
$
$
$
$
167,185
103,411
$
$
100,158
16,042
217,253
586,444
-
$
$
$
396,989
586,444
862,741
Table of Contents
NOTE 1.
DESCRIPTION OF BUSINESS
Summary of Business
R
PA K CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2021 and June 30, 2020
Park City Group, I nc., a Nevada corpora(cid:66)on (“Park City Group”, “We”, “us”, “our” or the “Company”) is a So(cid:77)ware-as-a-Service (“SaaS”) provider, and the parent
company of ReposiTrak, I nc., a Utah corpora(cid:66)on (“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.
The Company’s services are grouped in three applica(cid:66)on suites: (i) ReposiTrak MarketPlace (“MarketPlace”), encompassing the Company’s supplier discovery and
B2B e-commerce solu(cid:66)ons, which helps the Company’s customers find new suppliers, (ii) ReposiTrak Compliance and Food Safety (“Compliance and Food Safety”) solu(cid:66)ons,
which help the Company’s customers vet suppliers to mi(cid:66)gate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain (“Supply Chain”) solu(cid:66)ons,
which help the Company’s customers to more efficiently manage their various transactions with their suppliers.
Recent Developments
During the second half of fiscal year 2021, ReposiTrak launched two new products designed to expand market share in the manufacturing segment: Cer(cid:66)ficate of
Analysis Automa(cid:66)on and Ac(cid:66)ve-Q M S for Q uality Management. Both solu(cid:66)ons were developed at the request of exis(cid:66)ng Compliance Management Solu(cid:66)on customers and
improve compe(cid:66)(cid:66)veness in the manufacturing/food supply chain with synergis(cid:66)c solu(cid:66)ons for growth in exis(cid:66)ng customers and increasing compe(cid:66)(cid:66)veness for new
business focused on quality management.
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 ini(cid:66)a(cid:66)ve commenced in February 2021, as ReposiTrak joined with a group of major retailers and wholesalers to form the Food
Traceability Leadership Consor(cid:66)um (FTLC), in response to the FDA’s announcement regarding the increase of food traceability requirements under the Food Safety
Moderniza(cid:66)on Act. The expanded traceability requirements proposed by the FDA have far reaching consequences for the US food supply chain, from farms to fisheries down
to retail stores, due to new, detailed documentation requirements designed to support more effective recalls.
These new proposed requirements create substan(cid:66)al 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 frac(cid:66)ous array of inoperable systems that could lead to massive opera(cid:66)onal complexity and expense
escala(cid:66)on. The FTLC founding members worked collabora(cid:66)vely with ReposiTrak to develop a complete food traceability solu(cid:66)on that meets all the FDA FSM A proposed
repor(cid:66)ng requirements at a very large manageable cost, based on the ReposiTrak supply chain pla(cid:84)orm which tracks product/shipment data in a similar manner today for
cost and inventory control purposes.
The new solu(cid:66)on, called the ReposiTrak Traceability Network, is launching in September 2021 with phased roll outs at suppliers and retailers, and is expected to
scale rapidly through out fiscal year 2022, based on the existing Compliance Management user network.
COVID-19. There are many uncertain(cid:66)es regarding COVI D-19, and the Company is closely monitoring the impact of the pandemic on all aspects of its business,
including how it will impact its services, customers, employees, vendors, and business partners. W hile the pandemic did not materially adversely affect the Company’s
financial results and business opera(cid:66)ons during the fiscal years ended June 30, 2021 or June 30, 2020, we are unable to predict the impact that COVI D-19 will have on its
future financial posi(cid:66)on and opera(cid:66)ng results due to numerous uncertain(cid:66)es. The Company expects to con(cid:66)nue to assess the evolving impact of COVI D-19 and intends to
make adjustments to its responses accordingly.
Paycheck Protec(cid:38)on Loan. O n 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 Administra(cid:66)on (the “SBA”) for the Lender to fund the Company’s request for a loan under
the SBA’s Paycheck Protec(cid:66)on Program (“PPP Loan”) created as part of the CARES Act administered by the SBA. O n December 19, 2020, the SBA authorized full forgiveness in
the amount of approximately $1.1 million under the P P P Loan, and the Company will not need to make any payments on the P P P Loan that U.S. Bank Na(cid:66)onal Associa(cid:66)on
facilitates as an SBA lender. U.S. Bank Na(cid:66)onal Associa(cid:66)on has applied the forgiveness amount the SBA authorized, plus all accrued interest, to the Company’s P P P Loan. The
requirements under this program are established by the SBA. All requests for PPP Loan forgiveness are subject to SBA eligibility.
F-6
Table of Contents
NOTE 2.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements presented herein reflect the consolidated financial posi(cid:66)on of Park City Group and our Subsidiaries. All inter-company transac(cid:66)ons and
balances have been eliminated in consolidation.
Use of Estimates
The prepara(cid:66)on of consolidated financial statements in conformity with U.S. generally accepted accoun(cid:66)ng principles (“GAAP”) requires management to make
es(cid:66)mates and assump(cid:66)ons that materially affect the amounts reported in the consolidated financial statements. Actual results could differ from these es(cid:66)mates. The
methods, es(cid:66)mates, and judgments the Company uses in applying its most cri(cid:66)cal accoun(cid:66)ng policies have a significant impact on the results it reports in its financial
statements. The Securi(cid:66)es and Exchange Commission (the “SEC”) has defined the most cri(cid:66)cal accoun(cid:66)ng policies as those that are most important to the portrayal of the
Company’s financial condi(cid:66)on and results and require the Company to make its most difficult and subjec(cid:66)ve judgments, o(cid:77)en because of the need to make es(cid:66)mates of
ma(cid:67)ers that are inherently uncertain. Based on this defini(cid:66)on, the Company’s most cri(cid:66)cal accoun(cid:66)ng policies include revenue recogni(cid:66)on, goodwill, other long-lived asset
valuations, income taxes, stock-based compensation, and capitalization of software development costs.
Concentration of Credit Risk and Significant Customers
The Company maintains cash in bank deposit accounts, which, at (cid:66)mes, may exceed federally insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Financial instruments, which poten(cid:66)ally subject the Company to
concentra(cid:66)on of credit risk, consist primarily of trade receivables. I n the normal course of business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing evalua(cid:66)ons of its customers and maintains allowances for possible losses. The provision is based on the overall composi(cid:66)on of our accounts
receivable aging, our prior history of accounts receivable write-offs, and our experience with specific customers.
O ther factors indica(cid:66)ng significant risk include customers that have filed for bankruptcy or customers for which we have less payment history to rely upon. We rely
on historical trends of bad debt as a percentage of total revenue and apply these percentages to the accounts receivable which when realized have been within the range of
management’s expectations. The Company does not require collateral from its customers.
The Company’s accounts receivable are derived from sales of products and services primarily to customers opera(cid:66)ng mul(cid:66)loca(cid:66)on retail and grocery stores. The
Company writes off accounts receivable when they are determined to be uncollectible. Changes in the allowances for doubtful accounts are recorded as bad debt expense and
are included in general and administra(cid:66)ve expense in our consolidated financial statements. Amounts that have been invoiced are recorded in accounts receivable (current
and long-term), and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
The Company had two customers that accounted for greater than 10% of accounts receivable at June 30, 2021. Customer A had a balance of $967,300 and $0 and
customer B had a balance of $404,155 and $122,000, for June 30, 2021 and June 30, 2020, respectively.
Prepaid Expense and Other Current Assets
Prepaid expense and other current assets include amounts for which payment has been made but the services have not yet been consumed. The Company’s prepaid
expense is made up primarily of prepayments for hosted so(cid:77)ware applica(cid:66)ons used in the Company’s opera(cid:66)ons, maintenance agreements on hardware and so(cid:77)ware, and
other miscellaneous amounts for insurance, membership fees and professional fees. Prepaid expense is amor(cid:66)zed on a pro-rata basis to expense accounts as the services
are consumed typically by the passage of time or as the service is used.
Depreciation and Amortization
F-7
Table of Contents
Depreciation and amortization of property and equipment is computed using the straight-line method based on the following estimated useful lives:
Furniture and fixtures
Computer equipment
Equipment under capital leases
Long-term use equipment
Leasehold improvements
Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of the improvements.
Amortization of intangible assets are computed using the straight-line method based on the following estimated useful lives:
Customer relationships
Acquired developed software
Developed software
Goodwill
Years
5-7
3
3
10
See below
Years
10
5
3
See below
Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Other intangible assets are amortized over their useful lives.
Warranties
The Company offers a limited warranty against so(cid:77)ware defects. Customers who are not completely sa(cid:66)sfied with their so(cid:77)ware purchase may a(cid:67)empt to be
reimbursed for their purchases outside the warranty period. For the years ending June 30, 2021 and 2020, the Company did not incur any expense associated with warranty
claims.
Adoption of ASC 718, Compensation – Stock Compensation
From (cid:66)me to (cid:66)me, the Company issues shares of common stock as share-based compensa(cid:66)on to employees and non-employees. The Company accounts for its
share-based compensa(cid:66)on to employees in accordance with FASB ASC 718, Compensa(cid:38)on – Stock Compensa(cid:38)on. Stock-based compensa(cid:66)on 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.
I n prior periods through September 30, 2019, the Company accounted for share-based compensa(cid:66)on issued to non-employees and consultants in accordance with
the provisions of FASB ASC 505-50, Equity - Based Payments to Non-Employees. Measurement of share-based payment transac(cid:66)ons with non-employees is based on the fair
value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment
transac(cid:66)on is determined at the performance comple(cid:66)on date. For interim periods, the fair value is es(cid:66)mated, and the percentage of comple(cid:66)on is applied to that es(cid:66)mate to
determine the cumulative expense recorded.
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 consolidated
financial statements.
Adoption of ASU 2016-02 “Leases (Topic 842)”
I n 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 excep(cid:66)on
of short-term leases) a lease liability, which is a lessee’s obliga(cid:66)on 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.
Effec(cid:66)ve July 1, 2019, the Company adopted the requirements of Accoun(cid:66)ng Standards Update No. 2016-02, "Leases (Topic 842)" ("A SU 2016-02"). All amounts and
disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for repor(cid:66)ng periods beginning a(cid:77)er 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.
F-8
Table of Contents
The Company adopted the requirements of ASU 2016-02 u(cid:66)lizing the modified retrospec(cid:66)ve method of transi(cid:66)on to iden(cid:66)fied leases as of July 1, 2019 (the “effective
date”). The recogni(cid:66)on of addi(cid:66)onal opera(cid:66)ng lease liabili(cid:66)es was $82,517 for the current por(cid:66)on and $760,172 for the long-term por(cid:66)on and corresponding opera(cid:66)ng
right-of-use assets were recorded in the amount of $842,689. This represents the opera(cid:66)ng lease exis(cid:66)ng as of the effec(cid:66)ve date which has a lease term of three years with
the option for two additional three-year terms.
O n June 21, 2018, the Company entered into an office lease at 5258 South Commerce Drive Suite D292, Murray, Utah 84107, providing for the lease of approximately
9,800 square feet, commencing on March 1, 2019. The monthly rent is $10,200. The ini(cid:66)al term of the lease is three years. The Company has the op(cid:66)on of renewing for an
additional two three-year terms.
Revenue Recognition
The Company recognizes revenue as it transfers control of deliverables (products, solu(cid:66)ons and services) to its customers in an amount reflec(cid:66)ng the considera(cid:66)on
to which it expects to be en(cid:66)tled. To recognize revenue, the Company applies the following five step approach: (1) iden(cid:66)fy the contract with a customer, (2) iden(cid:66)fy the
performance obliga(cid:66)ons in the contract, (3) determine the transac(cid:66)on price, (4) allocate the transac(cid:66)on price to the performance obliga(cid:66)ons in the contract, and (5)
recognize revenue when a performance obliga(cid:66)on is sa(cid:66)sfied. The Company accounts for a contract based on the terms and condi(cid:66)ons the par(cid:66)es agree to, the contract has
commercial substance and collectability of considera(cid:66)on is probable. The Company applies judgment in determining the customer ’s ability and inten(cid:66)on to pay, which is
based on a variety of factors including the customer’s historical payment experience.
The Company may enter into arrangements that consist of mul(cid:66)ple performance obliga(cid:66)ons. Such arrangements may include any combina(cid:66)on of its deliverables. To
the extent a contract includes mul(cid:66)ple promised deliverables, the Company applies judgment to determine whether promised deliverables are capable of being dis(cid:66)nct and
are dis(cid:66)nct in the context of the contract. I f these criteria are not met, the promised deliverables are accounted for as a combined performance obliga(cid:66)on. For arrangements
with mul(cid:66)ple dis(cid:66)nct performance obliga(cid:66)ons, the Company allocates considera(cid:66)on among the performance obliga(cid:66)ons based on their rela(cid:66)ve standalone selling price.
Standalone selling price is the price at which the Company would sell a promised good or service separately to the customer. W hen not directly observable, the Company
typically es(cid:66)mates standalone selling price by using the expected cost plus a margin approach. The Company typically establishes a standalone selling price range for its
deliverables, which is reassessed on a periodic basis or when facts and circumstances change.
For performance obliga(cid:66)ons where control is transferred over (cid:66)me, revenue is recognized based on the extent of progress towards comple(cid:66)on of the performance
obliga(cid:66)on. The selec(cid:66)on of the method to measure progress towards comple(cid:66)on requires judgment and is based on the nature of the deliverables to be provided. Revenue
related to fixed-price contracts for applica(cid:66)on development and systems integra(cid:66)on services, consul(cid:66)ng 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 applica(cid:66)on maintenance, tes(cid:66)ng 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 606-10-55-18.
I f the Company’s 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 informa(cid:66)on; such
es(cid:66)mates and changes in es(cid:66)mates involve the use of judgment. The cumula(cid:66)ve impact of any revision in es(cid:66)mates is reflected in the financial repor(cid:66)ng period in which the
change in es(cid:66)mate becomes known and any an(cid:66)cipated losses on contracts are recognized immediately. Revenue related to fixed-price hos(cid:66)ng and infrastructure services is
recognized based on the Company’s right to invoice for services performed for contracts in which the invoicing is representa(cid:66)ve of the value being delivered, in accordance
with the prac(cid:66)cal expedient in ASC 606-10-55-18. I f the Company’s invoicing is not consistent with value delivered, revenue is recognized on a straight-line basis unless
revenue is earned and obliga(cid:66)ons are fulfilled in a different pa(cid:67)ern. The revenue recogni(cid:66)on method applied to the types of contracts described above provides the most
faithful depiction of performance towards satisfaction of the Company’s performance obligations.
Revenue related to the Company’s so(cid:77)ware license arrangements that do not require significant modifica(cid:66)on or customiza(cid:66)on of the underlying so(cid:77)ware is
recognized when the so(cid:77)ware is delivered as control is transferred at a point in (cid:66)me. For so(cid:77)ware license arrangements that require significant func(cid:66)onality enhancements
or modifica(cid:66)on of the so(cid:77)ware, revenue for the so(cid:77)ware license and related services is recognized as the services are performed in accordance with the methods described
above. I n so(cid:77)ware hos(cid:66)ng arrangements, the rights provided to the customer, such as ownership of a license, contract termina(cid:66)on provisions and the feasibility of the client
to operate the so(cid:77)ware, are considered in determining whether the arrangement includes a license or a service. Revenue related to so(cid:77)ware maintenance and support is
generally recognized on a straight-line basis over the contract period.
F-9
Table of Contents
Management expects that incremental commission fees paid as a result of obtaining a contract are recoverable and therefore the Company capitalized them as
contract costs. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amor(cid:66)za(cid:66)on period of the asset that the Company
otherwise would have recognized is one year or less.
Revenue related to transac(cid:66)on-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 (cid:66)me to (cid:66)me, the Company may enter into arrangements with third party suppliers to resell products or services. I n such cases, the Company evaluates whether
the Company is the principal (i.e. report revenue on a gross basis) or agent (i.e. report revenue on a net basis). I n doing so, the Company first evaluates whether it controls the
good or service before it is transferred to the customer. I f the Company controls the good or service before it is transferred to the customer, the Company is the principal; if
not, the Company is the agent. Determining whether the Company controls the good or service before it is transferred to the customer may require judgment.
The Company provides customers with assurance that the related deliverable will func(cid:66)on as the par(cid:66)es intended because it complies with agreed-upon
specifications. General updates or patch fixes are not considered an additional performance obligation in the contract.
Variable considera(cid:66)on is es(cid:66)mated using either the sum of probability weighted amounts in a range of possible considera(cid:66)on amounts (expected value), or the
single most likely amount in a range of possible considera(cid:66)on amounts (most likely amount), depending on which method be(cid:67)er predicts the amount of considera(cid:66)on to
which we may be en(cid:66)tled. The Company includes in the transac(cid:66)on price variable considera(cid:66)on only to the extent it is probable that a significant reversal of revenue
recognized will not occur when the uncertainty associated with the variable considera(cid:66)on is resolved. The Company’s es(cid:66)mates of variable considera(cid:66)on and determina(cid:66)on
of whether to include es(cid:66)mated amounts in the transac(cid:66)on price may involve judgment and is based largely on an assessment of its an(cid:66)cipated performance and all
information that is reasonably available to the Company.
The Company assesses the (cid:66)ming of the transfer of goods or services to the customer as compared to the (cid:66)ming of payments to determine whether a significant
financing component exists. As a prac(cid:66)cal expedient, the Company does not assess the existence of a significant financing component when the difference between payment
and transfer of deliverables is a year or less. I f the difference in (cid:66)ming 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 the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its services,
not to receive or provide financing from or to customers. The Company does not consider set up or transi(cid:66)on fees paid upfront by its 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 considera(cid:66)on in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to
considera(cid:66)on that is uncondi(cid:66)onal (i.e. only the passage of (cid:66)me is required before payment is due). For example, we recognize a receivable for revenue related to our
transac(cid:66)on 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 posi(cid:66)on at their net es(cid:66)mated realizable value. We maintain an allowance for doub(cid:84)ul accounts to provide for the es(cid:66)mated 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 considera(cid:66)on that is condi(cid:66)onal upon factors other than the passage of (cid:66)me. Contract assets are presented in current and other assets
in our consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts u(cid:66)lizing the output method of revenue recogni(cid:66)on. The table below
shows movements in contract assets:
Balance – June 30, 2020
Revenue recognized during the period but not billed
Amounts reclassified to accounts receivable
Other
Balance – June 30, 2021
(1) Contract asset balances for June 30, 2021 include a current and a long-term contract asset, $1,248,936 and $408,925, respectively.
F-10
Contract
assets
3,139,480
-
(1,391,313)
(90,306)
1,657,861 (1)
$
$
Table of Contents
O ur contract assets and liabili(cid:66)es are reported at the end of each repor(cid:66)ng period. The difference between the opening and closing balances of our contract assets
and deferred revenue primarily results from the (cid:66)ming difference between our performance obliga(cid:66)ons 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:
Balance – June 30, 2020
Amounts billed but not recognized as revenue
Revenue recognized related to the opening balance of deferred revenue
Other
Balance – June 30, 2021
Contract liability
1,845,347
$
1,665,648
(1,755,654)
-
1,755,341
$
O ur contract assets and liabili(cid:66)es are reported in a net posi(cid:66)on on a contract by contract basis at the end of each repor(cid:66)ng period. The difference between the
opening and closing balances of our contract assets and deferred revenue primarily results from the (cid:66)ming difference between our performance obliga(cid:66)ons 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.
Disaggregation of Revenue
The table below presents disaggregated revenue from contracts with customers by contract-type. All revenues for the years ending June 30, 2020 and 2021 were
generated from sales in North America. We believe this disaggrega(cid:66)on best depicts the nature, amount, (cid:66)ming and uncertainty of our revenue and cash flows that may be
affected by industry, market and other economic factors:
Recurring - Subscription, Support and Services
Non - Recurring - Services
Non - Recurring - License
Transaction Based - Marketplace
Total
Software Development Costs
Year Ended, June 30
2021
17,733,134
37,121
-
3,236,821
21,007,076
$
$
2020
16,043,245
849,288
218,250
2,927,271
20,038,054
$
$
Chg $
1,689,889
(812,167)
(218,250)
309,550
969,022
$
$
Chg %
11%
-96%
-100%
11%
5%
The Company accounts for research costs of computer so(cid:77)ware to be sold, leased or otherwise marketed as expense un(cid:66)l technological feasibility has been
established for the product. O nce technological feasibility is established, the company will occasionally capitalize so(cid:77)ware costs un(cid:66)l the product is available for general
release to customers. I n these instances, the Company determines technological feasibility for its so(cid:77)ware products to have been reached when a working prototype is
complete and meets or exceeds design specifica(cid:66)ons including func(cid:66)ons, features, and technical performance requirements. The Company capitalized so(cid:77)ware development
costs of $171,733 in the fiscal year ended June 30, 2021.
Research and Development Costs
Research and development costs include personnel costs, engineering, consul(cid:66)ng, and contract labor and are expensed as incurred for so(cid:77)ware that has not
achieved technological feasibility.
Advertising Costs
Advertising is expensed as incurred. Advertising costs were approximately $5,000 and $54,048 for the years ended June 30, 2021 and 2020, respectively.
Income Taxes
The Company recognizes deferred tax liabili(cid:66)es and assets for the expected future tax consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities.
F-11
Table of Contents
Earnings Per Share
Basic net income per common share (“Basic EP S”) excludes dilu(cid:66)on and is computed by dividing net income applicable to common shareholders by the weighted
average number of shares of the Company’s common stock, par value $0.01 (“Common Stock”) outstanding during the period. Diluted net income per common share (“Diluted
EPS”) reflects the poten(cid:66)al dilu(cid:66)on that could occur if stock op(cid:66)ons 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 years ended June 30, 2021 and 2020 warrants to purchase 1,085,068 shares of Common Stock were included in the computa(cid:66)on of diluted EP S and warrants
to purchase 23,737 shares were excluded due to the an(cid:66)-dilu(cid:66)ve effect. Warrants to purchase shares of Common Stock were outstanding at prices ranging $4.00 from to
$10.00 per share at June 30, 2021.
The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated:
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
Stock-Based Compensation
Year ended June 30,
2021
2020
$
3,530,951
$
1,006,825
19,502,000
252,000
19,651,000
212,000
19,754,000
19,863,000
$
$
0.18
0.18
$
$
0.05
0.05
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The
Company records compensa(cid:66)on expense on a straight-line basis. The fair value of op(cid:66)ons granted are es(cid:66)mated at the date of grant using a Black-Scholes op(cid:66)on pricing
model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of twelve months or less to be cash equivalents. Cash and cash
equivalents are stated at fair value.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, cash equivalents, receivables, payables, accruals and notes payable. The carrying amount of cash, cash
equivalents, receivables, payables and accruals approximates fair value due to the short-term nature of these items. The notes payable also approximate fair value based on
evaluations of market interest rates.
F-12
Table of Contents
NOTE 3.
RECEIVABLES
Accounts receivable consist of the following at June 30:
Accounts receivable
Allowance for doubtful accounts
2021
5,375,598
(234,963)
5,140,635
$
$
2020
6,560,024
(251,954)
6,308,070
$
$
Accounts receivable consist of trade accounts receivable and unbilled amounts recognized as revenue during the year for which invoicing occurs subsequent to
year-end. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recogni(cid:66)on criteria
have been met.
NOTE 4.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following at June 30:
Computer equipment
Furniture and equipment
Leasehold improvements
Less accumulated depreciation and amortization
Depreciation expense for the years ended June 30, 2021 and 2020 was $561,348 and $619,277, respectively.
NOTE 5.
CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following at June 30:
Capitalized software costs
Less accumulated amortization
Amortization expense for the years ended June 30, 2021 and 2020 was $18,539 and $52,326, respectively.
NOTE 6.
ACQUISITION RELATED INTANGIBLE ASSETS, NET
Customer relationships consist of the following at June 30:
Customer relationships
Less accumulated amortization
Amortization expense for the years ended June 30, 2021 and 2020 was $131,400 and $131,400, respectively.
Estimated aggregate amortization expense per year are as follows:
Years ending June 30:
2022
2023
2024
2025
F-13
2021
4,069,543
2,237,684
807,816
7,115,043
(4,525,849)
2,589,194
$
$
2020
3,974,792
2,185,295
807,816
6,697,903
(3,964,501)
3,003,402
2021
2,909,044
(2,737,312)
171,732
$
$
2020
2,737,312
(2,718,773)
18,539
2021
5,537,161
(5,011,561)
525,600
$
$
2020
5,537,161
(4,880,161)
657,000
$
$
$
$
$
$
$
$
$
$
131,400
131,400
131,400
131,400
Table of Contents
NOTE 7.
ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
Accrued stock-based compensation
Accrued compensation
Accrued other liabilities
Accrued taxes
Accrued dividends
NOTE 8.
NOTES PAYABLE
The Company had the following notes payable obligations at June 30:
Notes Payable:
Note payable to a bank, due in monthly installments of $29,097 bearing interest at 4.99% due April 1, 2023 secured by related
capital equipment
Unsecured Paycheck Protection Program loans which carries an interest rate of 1%. Principle payments begin on November 23, 2020
in the amount of $61,429.
Less current portion notes payable
2021
348,265
293,130
56,333
146,004
144,360
988,092
$
$
2020
252,959
383,088
207,003
136,117
144,361
1,123,528
2021
2020
-
-
-
-
-
$
920,754
1,109,350
2,030,104
(790,108)
1,239,996
$
$
$
$
$
$
$
Paycheck Protection Loan. O n December 19, 2020, the SBA authorized full forgiveness in the amount of approximately $1.1 million under the P P P Loan, whereby the Company
will not need to make any payments on the P P P Loan that U.S. Bank Na(cid:66)onal Associa(cid:66)on facilitates as an SBA lender. U.S. Bank Na(cid:66)onal Associa(cid:66)on has applied the
forgiveness amount the SBA authorized, plus all accrued interest, to the Company’s PPP Loan. The requirements under this program are established by the SBA. All requests for
PPP Loan forgiveness are subject to SBA eligibility.
NOTE 9.
LINES OF CREDIT
O n January 10, 2021, the Company and U.S. Bank entered into an amendment (the “Amendment”) to the outstanding Stand-Alone Revolving Note (the “Revolving
Note”), preferred accompanying addendum. Pursuant to the Amendment, the par(cid:66)es agreed to (i) extend the maturity date to December 31, 2021 and (ii) increase the interest
rate in the event of a default to 5% per annum.
The line of credit, as amended, is scheduled to mature on December 31, 2021. The balance on the line of credit at June 30, 2021 and June 30, 2020 was $6,000,000
and $4,660,000, respectively.
NOTE 10.
DEFERRED REVENUE
Deferred revenue consisted of the following at June 30:
Subscription
Other
2021
1,513,729
241,612
1,755,341
$
$
2020
1,596,228
249,119
1,845,347
$
$
F-14
Table of Contents
NOTE 11.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deduc(cid:66)ble temporary differences and opera(cid:66)ng loss and tax credit
carry forwards and deferred tax liabili(cid:66)es are recognized for taxable differences. Temporary differences are the differences between the reported amounts of assets and
liabili(cid:66)es and their tax bases. Deferred tax assets are reduced by a valua(cid:66)on allowance when, in the opinion of management, it is more likely than not that some por(cid:66)on or
all of the deferred tax assets will not be realized. Deferred tax assets and liabili(cid:66)es are adjusted for the effects of changes in tax laws and rates on the date of enactment. Due
to the tax rates being changed in 2018 we have used a federal and state blended rate of 26%.
Net deferred tax liabilities consist of the following components at June 30:
Deferred tax assets:
NOL carryover
Allowance for bad debts
Accrued expenses
Depreciation
Amortization
Valuation allowance
Net deferred tax asset
2021
2020
$
$
17,044,800
61,000
77,200
(630,200)
(687,500)
27,788,000
65,500
52,000
(700,400)
(565,100)
(15,865,300)
-
$
(26,640,000)
-
$
The income tax provision differs from the amounts of income tax determined by applying the US federal income tax rate to pretax income from con(cid:66)nuing opera(cid:66)ons
for the years ended June 30, 2021 and 2020 due to the following:
Book income
Stock for services
Change in accrual
Life insurance
Meals and entertainment
Change in allowance
Change in depreciation
PPP & EIDL loan forgiveness
NOL utilization
Valuation allowance
2021
2020
$
$
1,062,891
(25,679)
25,286
17,626
3,505
(4,488)
(52,113)
(288,431)
(738,597)
-
-
$
$
414,250
4.625
(3,726)
17,626
8,874
27,594
(168,095)
-
(301,148)
-
-
At June 30, 2021, the Company had net opera(cid:66)ng loss carry-forwards of approximately $65,557,000 that may be offset against past and future taxable income from
the year 2020 through 2037. A significant por(cid:66)on of the net opera(cid:66)ng loss carryforwards began to expire in 2019. No tax benefit has been reported in the June 30, 2021
consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net opera(cid:66)ng loss carryforwards for Federal income tax repor(cid:66)ng purposes are subject to
annual limita(cid:66)ons. I n January of 2009 the Company acquired Prescient Applied I ntelligence, I nc. which had significant net opera(cid:66)ng loss carry-forwards. Due to the change
in ownership, Prescient's net opera(cid:66)ng loss carryforwards may be limited as to use in future years. The limita(cid:66)on will be determined on a year-to-year basis. I n June of 2015
the Company acquired Repositrak, Inc. which had significant net operating loss carryforwards. Due to the change in ownership, Repositrak's net operating loss carryforwards
may be limited as to use in future years. The limitation will be determined on a year-to-year basis.
The Company determines whether it is more likely than not that a tax posi(cid:66)on will be sustained upon examina(cid:66)on based upon the technical merits of the posi(cid:66)on. I f
the more-likely-than-not threshold is met, the Company measures the tax posi(cid:66)on to determine the amount to recognize in the financial statements. The Company performed a
review of its material tax positions in accordance with these recognition and measurement standards.
F-15
Table of Contents
The Company has concluded that there are no significant uncertain tax posi(cid:66)ons requiring disclosure, and there are not material amounts of unrecognized tax
benefits.
The Company includes interest and penal(cid:66)es arising from the underpayment of income taxes in the consolidated statements of opera(cid:66)ons in the provision for
income taxes. As of June 30, 2021, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdic(cid:66)on and various state jurisdic(cid:66)ons. W ith few excep(cid:66)ons, the Company is no longer subject to U.S.
federal, state and local income tax examinations by tax authorities for years before June 30, 2018.
NOTE 12.
COMMITMENTS AND CONTINGENCIES
Leases
O n May 1, 2019, the Company completed the expansion of new equipment for the Company’s informa(cid:66)on technology infrastructure, buildout of its corporate
headquarters, and expansion of its colloca(cid:66)on data center, which it completed using approximately $1,269,000 (the “ Lease A mount”) of funds provided by U.S. Bank to
finance equipment and services related to the Company’s expansion and reloca(cid:66)on pursuant to that certain lease agreement, originally entered into by and between the
Company and U.S. Bank on January 9, 2019 (the “Lease A greement”). Pursuant to the Lease Agreement, as of May 1, 2019, U.S. Bank is now leasing back the property and
equipment purchased by the Company. Pursuant to the Lease Agreement, commencing May 1, 2019, the ini(cid:66)al term of the lease shall be 48 months, the Lease Amount shall
accrue interest at a rate of 5.0% per annum, and the Company shall be required to make monthly rental payments in the amount of approximately $29,097 per month. O n July
30, 2020 the Company made an early repayment of the en(cid:66)re outstanding balance on the note payable due to U.S. Bank in the amount of $960,208. The repayment amount
included $64,721 of accrued interest. No repayment penalties were incurred as a result of the transaction.
O n June 21, 2018 the Company entered into an office lease at 5252 South Commerce Drive Suite D292, Murray, Utah 84107, providing for the lease of approximately
9,800 square feet for a period of three years, commencing on March 1, 2019. The monthly rent is $10,200.
Minimum future payments, including principal and interest, under the non-cancelable capital leases are as follows:
Year ending June 30:
2022
$
81,600
From (cid:66)me to (cid:66)me the Company may enter into or exit from diminu(cid:66)ve opera(cid:66)ng lease agreements for equipment such as copiers, temporary back up servers, etc.
These leases are not of a material amount and thus will not in the aggregate have a material adverse effect on our business, financial condi(cid:66)on, results of opera(cid:66)on or
liquidity.
NOTE 13.
EMPLOYEE BENEFIT PLAN
The Company offers an employee benefit plan under Benefit Plan Sec(cid:66)on 401(k) of the I nternal Revenue Code. Employees who have a(cid:67)ained the age of 18 are eligible
to par(cid:66)cipate. The Company, at its discre(cid:66)on, may match employee’s contribu(cid:66)ons at a percentage determined annually by the Board of Directors. The Company does not
currently match contributions. There were no expenses for the years ended June 30, 2021 and 2020.
NOTE 14.
STOCKHOLDERS EQUITY
Officers and Directors Stock Compensation
Effective October 2018, the Board of Directors approved the following compensation for directors who are not employed by the Company:
Annual cash compensa(cid:66)on of $75,000 payable at the rate of $18,750 per quarter. The Company has the right to pay this amount in the form of shares of the Company’s
Common Stock.
Upon appointment, outside independent directors receive a grant of $150,000 payable in shares of the Company’s restricted Common Stock calculated based on the
market value of the shares of Common Stock on the date of grant. The shares vest ratably over a five-year period.
Reimbursement of all travel expense related to performance of Directors’ duties on behalf of the Company.
●
●
●
F-16
Table of Contents
Officers, Key Employees, Consultants and Directors Stock Compensation.
I n January 2013, the Board of Directors approved the Second Amended and Restated 2011 Stock Plan (the “A mended 2011 Plan”), which Amended 2011 Plan was
approved by shareholders on March 29, 2013. Under the terms of the Amended 2011 Plan, all employees, consultants and directors of the Company are eligible to
participate. The maximum aggregate number of shares of Common Stock that may be granted under the Amended 2011 Plan is 675,000 shares.
A Commi(cid:67)ee of independent members of the Company’s Board of Directors administers the Amended 2011 Plan. The exercise price for each share of Common Stock
purchasable under any incen(cid:66)ve stock op(cid:66)on granted under the Amended 2011 Plan shall be not less than 100% of the fair market value of the Common Stock, as determined
by the stock exchange on which the Common Stock trades on the date of grant. I f the incen(cid:66)ve stock op(cid:66)on is granted to a shareholder who possesses more than 10% of the
Company’s vo(cid:66)ng power, then the exercise price shall be not less than 110% of the fair market value on the date of grant. Each op(cid:66)on shall be exercisable in whole or in
installments as determined by the Committee at the time of the grant of such options. All incentive stock options expire after 10 years. If the incentive stock option is held by a
shareholder who possesses more than 10% of the Company's vo(cid:66)ng power, then the incen(cid:66)ve stock op(cid:66)on expires a(cid:77)er five years. I f the op(cid:66)on holder is terminated, then the
incen(cid:66)ve stock op(cid:66)ons granted to such holder expire no later than three months a(cid:77)er the date of termina(cid:66)on. For op(cid:66)on holders granted incen(cid:66)ve stock op(cid:66)ons exercisable
for the first (cid:66)me during any fiscal year and in excess of $100,000 (determined by the fair market value of the shares of Common Stock as of the grant date), the excess shares
of Common Stock shall not be deemed to be purchased pursuant to incentive stock options.
During the years ended June 30, 2021 and 2020 the Company issued 40,883 and 61,551 shares to its directors and 37,575 and 41,747 shares to employees and
consultants, respec(cid:66)vely, under the Amended 2011 Plan. The Company, under its Share Repurchase Program, repurchased 211,008 and 412,185 shares of its Common Stock
during the years ended June 30, 2021 and 2020, respec(cid:66)vely. Those shares were cancelled and returned to authorized but unissued shares. The Company holds no Treasury
Stock. Vested and issued shares under the Amended 2011 plan for the fiscal year ending June 30, 2021 and June 30, 2020, totaling 9,357 and 16,059, respectively are included
in the rollforward of Restricted Stock units below.
Restricted Stock Units
Outstanding at July 1, 2019
Granted
Vested and issued
Forfeited
Outstanding at June 30, 2020
Granted
Vested and issued
Forfeited
Outstanding at June 30, 2021
Restricted Stock
Units
Weighted
Average Grant
Date Fair Value
($/share)
$
866,274
1,008
(16,059)
(13,799)
837,424
13,249
(9,357)
-
841,316
5.47
4.96
9.33
7.74
5.36
6.35
8.74
-
5.34
The number of restricted stock units outstanding at June 30, 2021 included 9,288 units that have vested but for which shares of Common Stock had not yet been
issued pursuant to the terms of the agreement.
As of June 30, 2021, there was approximately $4.5 million of unrecognized stock-based compensa(cid:66)on expense under our equity compensa(cid:66)on plans, which is
expected to be recognized on a straight-line basis over a weighted average period of 2.51 years.
F-17
Table of Contents
Warrants
O utstanding warrants were issued in connec(cid:66)on with private placements of the Company’s Common Stock and with the restructuring of the Series B Preferred that
occurred in March of 2018. The following table summarizes information about fixed stock warrants outstanding at June 30, 2021:
Warrants Outstanding
at June 30, 2021
Warrants Exercisable
at June 30, 2021
Range of
exercise prices
Number
Outstanding
Weighted average
remaining contractual
life (years)
Weighted average
exercise price
Number
exercisable
Weighted average
exercise price
$
$
4.00
10.00
Preferred Stock
1,085,068
23,737
1,108,805
1.60
1.57
1.60
$
$
$
4.00
10.00
4.13
1,085,068
23,737
1,108,805
$
$
$
4.00
10.00
4.13
The Company’s ar(cid:66)cles of incorpora(cid:66)on currently authorizes the issuance of up to 30,000,000 shares of ‘blank check’ preferred stock, par value $0.01 (“Preferred
Stock”) with designa(cid:66)ons, rights, and preferences as may be determined from (cid:66)me to (cid:66)me by the Company’s Board of Directors, 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-1 Preferred Stock (“Series B-1 Preferred”). 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 by the Company by the issuance of addi(cid:66)onal shares of Series B
Preferred, or Series B-1 Preferred, as applicable.
The Company does business with some of the largest retailers and wholesalers in the World. Management believes the Series B-1 Preferred favorably impacts the
Company’s overall cost of capital in that it is: (i) perpetual and, therefore, an equity instrument that posi(cid:66)vely impacts the Company’s coverage ra(cid:66)os, (ii) possesses a below
market dividend rate rela(cid:66)ve to similar instruments, (iii) offers the flexibility of a paid-in-kind (P I K) payment op(cid:66)on, and (iv) is without covenants. A(cid:77)er exploring alterna(cid:66)ve
op(cid:66)ons for redeeming the Series B-1 Preferred, management determined that alterna(cid:66)ve financing op(cid:66)ons were materially more expensive, or would impair the Company’s
net cash position, which management believes could cause customer concerns and negatively impact the Company’s ability to attract new business.
Sec(cid:66)on 4 of the Company’s First Amended and Restated Cer(cid:66)ficate of Designa(cid:66)on of the Rela(cid:66)ve 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 (cid:66)me upon providing the holders of Series B-1 Preferred at least ten days wri(cid:67)en no(cid:66)ce that sets forth the date on which the
redemption will occur (the “Redemption Notice”).
As of June 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 of the repurchase of up to $4.0 million shares of our Common Stock, which repurchases may be made in privately
nego(cid:66)ated transac(cid:66)ons 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 discre(cid:66)on to determine the dollar amount of shares to be repurchased and the (cid:66)ming of any repurchases in compliance with applicable laws and
regula(cid:66)ons, including Rule 12b-18 of the Exchange Act. O n March 17, 2020, given the extreme uncertainty due to COVI D-19 at the (cid:66)me, the Board suspended the Share
Repurchase Program.
O n May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4 million to $6 million. The Share Repurchase
Program expires 24 months following May 18, 2021, and it may be suspended for periods of (cid:66)me or discon(cid:66)nued at any (cid:66)me, at the Board’s discre(cid:66)on. The total remaining
authoriza(cid:66)on for future shares of Common Stock repurchases under our Share Repurchase Program was $2,050,885 as of June 30, 2021. From (cid:66)me-to-(cid:66)me, our Board may
authorize further increases to our Share Repurchase Program.
F-18
Table of Contents
The following table provides informa(cid:66)on about repurchases of our Common Stock registered pursuant to Sec(cid:66)on 12 of the Exchange Act, during the years ended June
30, 2021 and 2020:
Period (1)
Year Ended June 30, 2020
July 1, 2019 – September 30, 2019:
October 1, 2019 – December 31, 2019:
January 1, 2020 – March 31, 2020:
April 1, 2020 – June 30, 2020:
Year Ended June 30, 2021
July 1, 2020 – September 30, 2020:
October 1, 2020 – December 31, 2020:
January 1, 2021 – March 31, 2021:
April 1, 2021 – June 30, 2021:
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
79,954
174,615
157,616
-
-
-
84,081
126,927
$
$
$
$
$
$
$
$
6.43
4.80
5.11
-
-
-
6.04
6.30
167,554
342,169
499,785
-
-
-
584,586
457,659
$
$
$
$
$
$
$
$
3,000,235
2,162,557
1,359,123
1,359,123
1,359,123
1,359,123
2,850,880
2,050,885
(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 15.
RECENT ACCOUNTING PRONOUNCEMENTS
I n August 2018, the FASB issued ASU 2018-15 Intangibles – Goodwill and O ther Internal-Use So(cid:51)ware (Subtopic 350-40) – Customer’s A ccoun(cid:38)ng for Implementa(cid:38)on
Costs Incurred in a Cloud Compu(cid:38)ng A rrangement That is a Service Contract. The amendments in this update apply to an en(cid:66)ty who is a customer in a hos(cid:66)ng arrangement
accounted for as a service contract. The update requires a customer in a hos(cid:66)ng arrangement to capitalize certain implementa(cid:66)on costs. Costs associated with the
applica(cid:66)on development stage of the implementa(cid:66)on 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 implementa(cid:66)on costs should be expensed over the term of the hos(cid:66)ng arrangement, which is the noncancelable period plus
periods covered by an op(cid:66)on to extend if the customer is reasonably certain to exercise the op(cid:66)on. I mpairment of the capitalized costs should be considered similar to other
intangibles. The effec(cid:66)ve date of this update is effec(cid:66)ve for annual repor(cid:66)ng periods beginning a(cid:77)er December 15, 2019 for public en(cid:66)(cid:66)es and a(cid:77)er December 15, 2020 for
all other en(cid:66)(cid:66)es with early adop(cid:66)on permi(cid:67)ed. The Company is a customer in a hos(cid:66)ng 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 consolidated financial statements.
I n August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effec(cid:66)ve for fiscal years beginning a(cid:77)er
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 consolidated financial statements.
I n June 2018, the FASB issued ASU 2018-07 Compensa(cid:38)on – Stock Compensa(cid:38)on (Topic 718), Improvements to Nonemployee Share-Based Payment A ccoun(cid:38)ng. The
amendments in this update expand the scope of Topic 718 to include share-based payment transac(cid:66)ons for acquiring goods and services from nonemployees. Prior to this
update, equity-based payments to non-employees was accounted for under Subtopic 505-50 resul(cid:66)ng in significant differences between the accoun(cid:66)ng for share-based
payments to non-employees as compared to employees. O ne 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 con(cid:66)nually revalued un(cid:66)l the service/goods are rendered. The update also indicates that share-based awards related to
financing and awards granted to a customer in conjunc(cid:66)on with selling goods or services are not included in Topic 718. This standard is effec(cid:66)ve for interim and annual
repor(cid:66)ng periods beginning a(cid:77)er December 15, 2018 for public en(cid:66)(cid:66)es and December 15, 2019 for all other en(cid:66)(cid:66)es. Early adop(cid:66)on is permi(cid:67)ed, but no earlier than an
en(cid:66)ty’s adop(cid:66)on date of Topic 606. 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 consolidated financial statements.
F-19
Table of Contents
I n January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and O ther (Topic 350): Simplifying the Test for Goodwill Impairment, which amends and simplifies
the accoun(cid:66)ng standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothe(cid:66)cal purchase price alloca(cid:66)on.
A goodwill impairment will now be the amount a repor(cid:66)ng unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that repor(cid:66)ng unit.
The new standard is effec(cid:66)ve for annual and any interim impairment tests for periods beginning a(cid:77)er 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 consolidated financial statements.
I n 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 excep(cid:66)on of
short-term leases) a lease liability, which is a lessee’s obliga(cid:66)on 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.
Effec(cid:66)ve July 1, 2019, the Company adopted the requirements of Accoun(cid:66)ng Standards Update No. 2016-02, Leases (Topic 842) ("A SU 2016-02"). All amounts and
disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for repor(cid:66)ng periods beginning a(cid:77)er 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.
NOTE 16.
RELATED PARTY TRANSACTIONS
Service Agreement. During the year ended June 30, 2021, the Company con(cid:66)nued to be a party to a Service Agreement with Fields Management, I nc. (“FMI”), pursuant
to which FM I provided certain execu(cid:66)ve management services to the Company, including designa(cid:66)ng Mr. Fields to perform the func(cid:66)ons of President and Chief Execu(cid:66)ve
O fficer for the Company. Mr. Fields, FM I ’s designated execu(cid:66)ve, who also serves as the Company’s Chair of the Board of Directors, controls FM I . The Company had no
payables to FMI at June 30, 2021 and 2020 respectively, under the Service Agreement.
NOTE 17.
SUBSEQUENT EVENTS
I n accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events, through the filing date and noted no further subsequent
events that are reasonably likely to impact the Company’s financial statements.
F-20
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We hereby consent to the incorpora(cid:66)on by reference in this Annual Report on Form 10-K of Park City Group, I nc. for the year ended June 30, 2021 of our report dated
September 28, 2021 included in its Registra(cid:66)on Statement on Form S-8 (No. 333-255189) rela(cid:66)ng to the financial statements for the year ended June 30, 2021 listed in the
accompanying index.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
September 28, 2021
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13A-14(A)
Exhibit 31.1
I, Randall K. Fields, certify that:
1. I have reviewed this Annual Report on Form 10-K of Park City Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial informa(cid:66)on included in this report, fairly present in all material respects the financial condi(cid:66)on,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other cer(cid:66)fying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
informa(cid:66)on rela(cid:66)ng to the registrant, including its consolidated subsidiaries, is made known to me by others within those en(cid:66)(cid:66)es, par(cid:66)cularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial repor(cid:66)ng, or caused such internal control over financial repor(cid:66)ng to be designed under my supervision, to provide
reasonable assurance regarding the reliability of financial repor(cid:66)ng and the prepara(cid:66)on of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effec(cid:66)veness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effec(cid:66)veness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financing repor(cid:66)ng that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant’s other cer(cid:66)fying officer(s) and I have disclosed, based on our most recent evalua(cid:66)on of internal control over financial repor(cid:66)ng, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or opera(cid:66)on of internal control over financial repor(cid:66)ng which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: September 28, 2021
By:
/s/ Randall K. Fields
Randall K. Fields
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13A-14(A)
Exhibit 31.2
I, John Merrill, certify that:
1. I have reviewed this Annual Report on Form 10-K of Park City Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial informa(cid:66)on included in this report, fairly present in all material respects the financial condi(cid:66)on,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other cer(cid:66)fying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material
informa(cid:66)on rela(cid:66)ng to the registrant, including its consolidated subsidiaries, is made known to me by others within those en(cid:66)(cid:66)es, par(cid:66)cularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial repor(cid:66)ng, or caused such internal control over financial repor(cid:66)ng to be designed under my supervision, to provide
reasonable assurance regarding the reliability of financial repor(cid:66)ng and the prepara(cid:66)on of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effec(cid:66)veness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effec(cid:66)veness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financing repor(cid:66)ng that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other cer(cid:66)fying officer(s) and I have disclosed, based on our most recent evalua(cid:66)on of internal control over financial repor(cid:66)ng, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or opera(cid:66)on of internal control over financial repor(cid:66)ng which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: September 28, 2021
By:
/s/ John Merrill
John Merrill
Chief Financial Officer
(Principal Financial Officer & Principal Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. Sec.1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I n connec(cid:66)on with the Annual Report of Park City Group, I nc. (the “Company”) on Form 10-K for the year ending June 30, 2021 as filed with the Securi(cid:66)es and
Exchange Commission on the date hereof (the “Report”), I , Randall K. Fields, Principal Execu(cid:66)ve O fficer of the Company and I , John Merrill, Principal Financial O fficer of the
Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: September 28, 2021
Date: September 28, 2021
By:
By:
/s/ Randall K. Fields
Randall K. Fields
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
/s/ John Merrill
John Merrill
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)