FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including the risk factors set forth below and elsewhere in this Annual Report. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Statements made herein are as of the date of the filing of this Annual Report with the Securities 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 obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

 

 

PART I

 

ITEM I.

BUSINESS

 

Overview

 

ReposiTrak, Inc., a Nevada corporation (“ReposiTrak”, “We”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) which operates a business-to-business (“B2B”) e-commerce, compliance & traceability, and supply chain management platform that partners with retailers, wholesalers, distributors and their product suppliers to (a) help them manage specific programs, such as out-of-stock management and scan-based trading; (b) reduce risk in their supply chain by managing compliance documents and data; ensure compliance with new regulatory requirements supporting traceability; and (c) improve product ordering and forecasting in order to accelerate sales, control risks, and improve supply chain efficiencies.

 

The Company’s services are grouped in three application suites:

 

	1.	ReposiTrak Compliance Management (“Compliance”) solutions, which helps the Company’s customers vet suppliers and reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”);
	2.	ReposiTrak Traceability Network (“Traceability” or “RTN”), which helps the Company’s customers comply with federal regulatory requirements of traceability and provides the lowest cost, easiest to use way to manage the capture and sharing of key data elements (“KDEs”) now required by Section 204d of FSMA 2011 as designated products move through the supply chain at each ‘event’ known as a ‘critical tracking event’ or “CTE”, which includes tracking from farm to shelf; and
	3.	ReposiTrak Supply Chain Solutions (“Supply Chain”), which help the Company’s customers to more efficiently manage various interactions with their suppliers. In other words, it provides customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to manage these relationships more efficiently, enhancing revenue while lowering working capital, labor costs and reducing waste.

 

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers.

 

The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety, compliance and traceability activities. The principal customers for the Company’s products are household name multi-store food retail chains and restaurants including 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.

 

On December 21, 2023, the Company effected a change of its corporate name from Park City Group, Inc. to ReposiTrak, Inc. The Company is incorporated in the State of Nevada and has two principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“PCG Utah”), and Park City Group, Inc., a Delaware corporation (100% owned) (“PCG Delaware” and together with PCG Utah, the “Subsidiaries”). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the Company’s results from operations. The Company has no business operations separate from the operations conducted through its Subsidiaries.

 

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.repositrak.com.

 

Recent Developments

 

Corporate Name Change

 

In connection with the rebranding of the Company, on December 21, 2023, the Company effected a change of its corporate name from Park City Group, Inc. to ReposiTrak, Inc., pursuant to a short-form merger with its wholly- owned subsidiary, ReposiTrak, Inc., a Utah corporation, with the Company remaining as the surviving entity.

 

Transfer of Listing from NASDAQ to NYSE

 

The Company filed a Registration Statement on Form 8-A in connection with the transfer of the listing of its common stock, par value $0.01 per share (“Common Stock”), from the Nasdaq Capital Market of The Nasdaq Stock Market LLC (“Nasdaq”) to the New York Stock Exchange (the “NYSE”). The Company commenced the trading of its Common Stock on the NYSE on November 2, 2023 under the symbol “TRAK.” Trading on the Nasdaq Capital Market ceased concurrently with the NYSE listing.

 

Dividend Payment

 

On September 19, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.0165 per share ($0.066 per year), payable to shareholders of record on September 30, 2024, to be paid to shareholders of record on or about November 13, 2024. Based on the closing price on September 30, 2024, this represented an annual dividend yield of approximately 0.35%. Subsequent quarterly dividends will be paid within 45 days of each record date of December 31, March 31, June 30 and September 30.

 

Redemption and Retirement of Preferred Stock

 

On August 29, 2023, the Board approved the redemption and retirement of its Series B Preferred and Series B-1 Preferred for their stated value, or $10.70 for each share of Preferred Stock, resulting in an aggregate purchase price of $8,964,214 (the “Preferred Redemption”).  The Preferred Redemption is to occur over a three-year period beginning August 29, 2023.

 

 

 

As of June 30, 2024, a total of 8,905 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were redeemed and retired, for aggregate consideration of $95,284 and $2,272,701 in the case of Series B Preferred and Series B-1 Preferred, respectively, resulting in a total of 616,470 shares of Series B Preferred and 0 shares of Series B-1 Preferred issued and outstanding at June 30, 2024.

 

Global Pandemics, Bank Failures, and Geopolitical Conflicts

 

The impact of global pandemics, including COVID 19, banking failures, geopolitical conflicts, including the war in Ukraine and in the Middle East, creates much uncertainty in the global marketplace. Management continues to monitor the ongoing impact of these events on all aspects of its business, including how they impact its services, customers, employees, vendors, and business partners now and in the future. While these events did not materially adversely affect the Company’s financial results and business operations during the years ended June 30, 2024 or 2023, we are unable to predict the impact that these events, including geopolitical conflicts, will have on its future financial position and operating results due to numerous uncertainties.

 

Federal Regulation & Traceability: FSMA 204(d) and USDA SOE

 

In 2020, the United States Food & Drug Administration (“FDA”) announced the “New Era of Smarter Food Safety” blueprint. It “outlines achievable goals to enhance traceability, improve predictive analytics, respond more rapidly to outbreaks, address new business models, reduce contamination of food, and foster the development of stronger food safety cultures.”

 

In November 2022, the FDA announced the final rule on the Food Safety Modernization Act Section 204(d) (“FSMA 204”) - Traceability for High-Risk Foods. On January 20, 2023, the rule became effective and applies to any person or Company that manufactures, processes, packs or hold foods the FDA considers to be high risk for food borne illness, the so-called Food Traceability List (“FTL”). The FTL is comprised of 16 product categories of food, which represent thousands of products commonly sold in grocery and convenience stores, and all restaurants. As a result, every grocery distributor, wholesaler and retailer, and the food service supply chain, must now institute a traceability program that enables the capture, creation and sharing of specific Key Data Elements (“KDEs”) prescribed by the FDA and required for traceability, at each designated Critical Tracking Event (“CTE”) in the supply chain, for thousands of items.

 

FSMA 204 requires the traceability data records to be stored for two years, and be retrievable such that specific data records can be presented within 24 hours of a request from the FDA. FSMA 204 is ultimately about supply chain data recording record keeping, resulting is an enormous amount of data to manage, across more than one million supply chain and retail facilities. The deadline for compliance with FSMA 204 is January 20, 2026, and nearly every company impacted will require some type of technical systems support to meet the requirement. 

 

While the FTL includes thousands of product types, the FDA has made it clear in its communications that the list is only the beginning. The FDA states that it would “encourage the voluntary adoption of these practices industry-wide,” There are some strong early indications that the industry will move to complete traceability of all food products within the next few years.

 

Traceability is, by definition, a supply chain data management issue, which is ReposiTrak’s core expertise. That is why we have made it our goal to develop a traceability solution that is easy, inexpensive and meets FDA’s requirements. The ReposiTrak Traceability Network (“RTN”) is a growing traceability solution, connecting thousands of supplier locations to thousands of food wholesaler and retail locations, using low cost, easy to deploy technology, on the ReposiTrak platform. As the largest connected network of food suppliers, wholesalers and retailers in the world, the ReposiTrak Traceability Network is positioned to provide end-to-end traceability to provide a safer food supply chain, tighten controls on food waste, and implement a food recall response that saves lives and money.

 

Company History

 

The Company’s technology has its genesis in the operations of Mrs. Fields Cookies, a company co-founded by Randall K. Fields, the Company’s Chief Executive Officer. The Company began operations utilizing patented computer software and profit optimization consulting services to help its retail clients reduce their inventory and labor costs.

 

On January 13, 2009, the Company acquired 100% of Prescient Applied Intelligence, Inc., a Delaware corporation (“Prescient”), a provider of solutions 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.

 

 

In June 2015, the Company elected to exercise an option to acquire a 75% interest in ReposiTrak from Leavitt Partners, LP for a cash payment and negotiated 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.

 

As of June 30, 2023, the Company was substantially complete with its Audit Management solution providing a wide variety of Good Manufacturing Practices (“GMP”) and Global Food Safety Initiative (“GFSI”) approved audits. The new solution will help improve quality and safety by making audits more efficient and accurate through better corrective actions management and documentation.

 

In connection with the rebranding of the Company, on December 21, 2023, the Company effected a change of its corporate name from Park City Group, Inc. to ReposiTrak, Inc., pursuant to a short-form merger with its wholly owned subsidiary, ReposiTrak, Inc., a Utah corporation, with the Company remaining as the surviving entity.

 

Target Industries Overview

 

The Company develops its software and services for multi-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, convenience store, and general merchandise, although the Company’s software 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, which includes food, convenience store, and general merchandise retailers more specifically, are facing pressure from several significant forces. These include (i) increased competitive pressures from the rise of online retailers, (ii) increased regulatory and tort risks, particularly for food retailers, as a result of the passage of the FSMA which placed greater responsibility for the safety of products on the participants 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 software and services are designed to address the business problems faced by our customers. These solutions 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.

 

The Company’s services are grouped in three application suites:

 

	1.	ReposiTrak Compliance Management (“Compliance”) solutions, which helps the Company’s customers vet suppliers and reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”);
	2.	ReposiTrak Traceability Network (“Traceability” or “RTN”), which helps the Company’s customers comply with federal regulatory requirements of traceability and provides the lowest cost, easiest to use way to manage the capture and sharing of key data elements (“KDEs”) now required by Section 204d of FSMA 2011 as designated products move through the supply chain at each ‘event’ known as a ‘critical tracking event’ or “CTE”, which includes tracking from farm to shelf; and
	3.	ReposiTrak Supply Chain Solutions (“Supply Chain”), which help the Company’s customers to more efficiently manage various interactions with their suppliers. In other words, it provides customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to manage these relationships more efficiently, enhancing revenue while lowering working capital, labor costs and reducing waste.

 

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers.

 

The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety, compliance and traceability activities. The principal customers for the Company’s products are household name multi-store food retail chains and restaurants including 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.

Professional Services

 

The Company has two professional services groups: (i) the Business Analytics Group offers business-consulting services to suppliers and retailers in the grocery, convenience store and specialty retail industries; and (ii) the Professional Services Group provides consulting services to ensure that our solutions 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 creating common technology elements that can be leveraged in multiple applications 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 hosting facility. Along with the Company’s Statement on Standards for Attestation Engagements (“SSAE”) No. 16 certification Service Organization Control (“SOC2”), the third-party facility is also a SSAE No. 16 – SOC2 certified location and is secured by around-the-clock guards, biometric screening and escort-controlled access, and is supported by multiple 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, convenience stores, and general merchandise. However, the Company is opportunistic and will offer its solutions to a wide variety of other potential customers. No single customer exceeded 10% of the Company’s total revenue in the fiscal year ended June 30, 2024.

 

Sales, Marketing and Customer Support

 

Sales and Marketing

 

Through a focused and dedicated sales effort designed to address the requirements of each of its solutions, the Company believes it is well positioned to understand its customers’ businesses, trends in the marketplace, competitive products and opportunities for new product development. 

 

 

The Company’s primary marketing objectives have been to increase awareness of our solutions, generate sales leads and develop new customer relationships. To this end, the Company attends industry trade shows, conducts direct marketing programs and webinars, publishes industry trade articles, participates in interviews and selectively advertises in industry publications.

 

In fiscal 2016, the Company embarked on a process of repurposing the Company’s supply chain applications so that they can be delivered via ReposiTrak’s highly scalable online infrastructure. As a result, the Company is now largely capable of delivering its services through a single ReposiTrak branded user interface.

 

With the convergence of the Company’s solutions to a single delivery platform, the Company also reorganized its sale force and reoriented its marketing efforts. This process involved streamlining the sales force to enable cross-selling by reducing regional account managers and shifting our sales emphasis towards the Company’s inside remote sales team located largely in Utah.

 

Customer Support

 

The Company’s global customer support group responds to both business and technical inquiries from its customers relating to how to use its solutions 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.

 

Competition

 

The Company competes with various software vendors, developers and integrators, B2B exchanges, consulting firms, focused solution providers, and business intelligence technology platforms. Although our competitors are often considerably larger companies in size with larger sales forces and marketing budgets, the Company believes that its deep industry knowledge, the breadth and depth of our offerings, and our long-standing relationships with key industry, wholesaler, and other trade groups and associations, gives it a competitive advantage.

 

Patents and Proprietary Rights

 

The Company relies on a combination of trademark, copyright, trade secret and patent laws in the U.S. and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our name. We also enter into confidentiality 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 relating to its software technology and solutions. The Company’s patent portfolio has been transferred to an unrelated third party, although the Company retains the right to use the licensed patents in connection with its business. The Company’s policy is to continue to seek patent protection for all developments, inventions and improvements that are patentable and have potential value to the Company and to protect its trade secrets and other confidential and proprietary information, 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 litigation to enforce patents issued to the Company to protect proprietary information, or to defend against the Company’s alleged infringement of the rights of others will not occur. Should any such litigation occur, the Company may incur significant litigation costs, and it may result in resources being diverted from other planned activities, which may have a material adverse effect on the Company’s operations and financial condition.

 

Employees

 

As of June 30, 2024, the Company employed a total of 73 employees. Of these employees, 21 are located overseas. The Company plans to continue expanding its offshore workforce to augment its analytics services offerings, expand its professional services and to provide additional programming resources. The employees are not represented by any labor union.

 

 

Reports to Security Holders

 

The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, it files annual, quarterly and other reports and information with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of these reports, proxy and information 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 regulations, including regulations relating to patent, copyright, and trademark law matters.

 

Cost of Compliance with Environmental Laws

 

The Company currently has no costs associated with compliance with environmental regulations and does not anticipate any future costs associated with environmental compliance; however, there can be no assurance that it will not incur such costs in the future. 

 

ITEM 1A.

RISK FACTORS

 

An investment in our Common Stock is subject to many risks. You should carefully consider the risks described below, together with all of the other information included in this Annual Report, including the financial statements and the related notes, before you decide whether to invest in our Common Stock. Our business, operating results and financial condition 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.

 

Our marketing strategy emphasizes sales of subscription-based services, instead of annual licenses, and using Spokes to connect to our Hubs. This strategy has resulted in the development of a foundation of retail and wholesale Hubs to which suppliers can be “connected”, thereby accelerating future growth. If, however, this marketing strategy fails, revenue and operations will be negatively affected. We had net income of $5,958,290 for the year ended June 30, 2024, compared to a net income of $5,590,289 for the year ended June 30, 2023. Although we generated a year over year increase in net income in the year ended June 30, 2024, there can be no assurance that we will continue to increase net income and/or 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 operating losses. Continued losses would have an adverse effect on the long-term value of our Common Stock and any investment in the Company.

 

Our business is dependent upon the continued services of our founder and Chief Executive Officer, Randall K. Fields. Should we lose the services of Mr. Fields, our operations will be negatively impacted.

 

Our business is dependent upon the expertise and continued service of our founder and Chief Executive Officer, Randall K. Fields. Mr. Fields is essential to our operations. Accordingly, an investor must rely on Mr. Fields’ management decisions that will continue to control our business affairs. The loss of the services of Mr. Fields may have a materially adverse effect upon our business.

 

Quarterly and annual operating results may fluctuate, which makes it difficult to predict future performance.

 

Management expects a significant portion of our revenue stream to come from the sale of monthly subscriptions and professional services charged to new customers. These amounts will fluctuate and are uncertain because predicting future sales is difficult and involves speculation. In addition, we may potentially experience significant fluctuations in future operating results caused by a variety of factors, many of which are outside of our control, including:

 

●

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;

 

●

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 conditions that may adversely affect either our customers’ ability or willingness to purchase additional subscriptions 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 expense 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 expense 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 operating results may fluctuate because of the foregoing factors, making it difficult to predict operating results. Period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon as an indicator of future performance. In addition, a large portion of our expenses 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 competing and emerging technologies that may affect our revenue growth and profitability, as well as competitors that are larger and have greater financial and operational resources that may give them an advantage in the market.

 

Markets for our type of software products and that of our competitors are characterized by development of new software, software solutions or enhancements that are subject to constant change; rapidly evolving technological change; and unanticipated 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 timely or cost-effective manner; whether the products or technologies developed by our competitors 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 competitors are larger and have greater financial and operational resources than we do. This may allow them to offer better pricing terms to customers in the industry, which could result in a loss of potential or current customers or could force us to lower prices. Our competitors may have the ability to devote more financial and operational resources to the development of new technologies that provide improved operating functionality and features to their product and service offerings. If successful, their development efforts could render our product and service offerings less desirable to customers, again resulting 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.

 

We face risks associated with new product introductions.

 

Our future revenue is dependent upon the successful and timely development of new and enhanced versions of our products and potential product offerings suitable to the customers’ needs. If we fail to successfully upgrade existing 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:

 

●

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 underestimate 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 implementing these products, which could result in material delays and even result in a termination 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 recommended and/or fail to implement any needed corrective action(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.

 

Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period. Our renewal rates may decline or fluctuate as a result of factors, including customer dissatisfaction with our services, customers’ ability to continue their operations and spending levels, consolidation, other competitive solutions, taking the process in-house, and deteriorating general economic conditions. If our customers do not renew their subscriptions for our services or reduce the level of service at the time of renewal, our revenue will decline, and our business will suffer.

 

Our future success also depends in part on our ability to increase rates, sell additional features and services, or sell additional subscriptions to our current customers. This may also require increasingly sophisticated and costly sales and marketing efforts that are targeted at senior management. If these strategies fail, we will need to refocus our efforts toward other solutions, which could lead to increased development and marketing costs, delayed revenue streams, and otherwise negatively affect our operations.

 

If our compliance and food safety solutions do not perform as expected, whether as a result of operator error or otherwise, it could impair our operating results and reputation.

 

Our success depends on the food safety market’s confidence that we can provide reliable, high-quality reporting for our customers. We believe that our customers are likely to be particularly sensitive 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. In addition, our reputation and the reputation of our products can be adversely affected if our systems fail to perform as expected. However, if our customers or potential customers fail to implement and use our systems as suggested by us, they may not be able to deal with a recall as effectively as they otherwise 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 operations and business.

 

 

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 solutions would be helpful in the event of a recall. However, their ultimate usefulness is dependent on how the customer uses our products, which is in many ways out of our control. Similarly, a customer that is a defendant in a product liability case could claim that had our services performed as represented the extent of potential 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 consultation provided by our personnel, could result in litigation naming us as a party, which litigation could result in a material and adverse effect on us, and our results of operations.

 

Our compliance and food safety solutions are marketed to potential customers based, in part, on our service’s ability to reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners. In the event litigation is commenced against a customer based on issues caused by a constituent in the supply chain, or consultation provided by our personnel, we could be joined or named in such litigation. As a result, we could face substantial defense costs. In addition, 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 functions critical 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 timely basis. We also depend on the delivery services that we and they utilize. We also depend on our partners to ensure proper labeling of products. Issues or concerns regarding product safety, labeling, 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, documentation and other written materials primarily through a combination of patents, trademarks, and copyright laws, trade secret laws, confidentiality procedures and contractual provisions. While we have attempted to safeguard and maintain our proprietary rights, there are no assurances that we will be successful in doing so. Our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours.

 

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. In some types of situations, 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 jurisdictions. Policing unauthorized use of our products is difficult. While we are unable to determine the extent to which piracy of our software exists, software piracy can be expected to be a persistent problem, particularly in foreign countries where the laws may not protect proprietary rights as fully as the U.S. We can offer no assurance that our means of protecting our proprietary rights will be adequate or that our competitors 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-conformities or bugs (“errors”) may be found from time to time in our existing, new or enhanced products after commencement of commercial shipments, resulting in loss of revenue or injury to our reputation. In 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 software incorporated into our products. If so, we may not be able to fix these defects without the cooperation of these software providers. Because these defects may not be as significant to the software provider as they are to us, we may not receive the rapid cooperation that may be required. We may not have the contractual right to access the source code of third-party software, and even if we do have access to the code, we may not be able to fix the defect. In addition, our customers may use our service in unanticipated ways that may cause a disruption in service for other customers attempting to access their data. Since our customers use our products for critical business applications, any errors, defects or other performance problems could hurt our reputation and may result in damage to our customers’ business. If that occurs, 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 doubtful accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation. Customers could also elect not to renew their subscription or delay or withhold payment to us. These potential scenarios, successful or otherwise, would likely be time-consuming and costly.

 

 

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 hosting facility located in the U.S. Any damage to, or failure of, our systems generally could result in interruptions in our service. As we continue to add capacity, we may move or transfer our data and our customers’ data. Despite precautions 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 interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable. 

 

As part of our current disaster recovery arrangements, our production environment and all of our customers’ data is currently replicated in near real-time in a separate facility physically located in a different region of the U.S. We do not control the operation of these facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions 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 information 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.

 

Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise during transfer of data to additional data centers or at any time, and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information, such as usernames, passwords or other information in order to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative 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.

 

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, damage our reputation and cause a loss of confidence in our products and services, which could adversely affect our business/operating margins, revenues and competitive position.

 

 

The secure processing, maintenance and transmission of this information is critical to our operations and business strategy, and we devote significant resources to protecting our information. The expense associated with protecting our information could reduce our operating margins.

 

A delay in the deadline for compliance with FSMA 204 may slow the adoption of our technology as a compliance tool for FMSA, therefore negatively affecting our revenue.

 

Section 204(d) of the FMSA (“FSMA 204”) went into effect in January 2023, and the deadline for compliance is January 20, 2026.  In the event the FDA delays the deadline for compliance, and the industry or our customers likewise delay the rate of information technology spending in response, our customers’ ability or willingness to purchase our enterprise cloud computing services could adversely affect our operating results, and such affect may be material.

 

Failure or delay by our customers in the implementation of Section 204(d) of the FSMA may slow the adoption of our technology as a compliance tool for FMSA 204.

 

In September 2020, the FDA proposed FSMA 204, which was published in November 2022 and went into effect in January 2023.  FSMA 204 will apply to all foods on the FDA’s Food Traceability List.  In the event (i) FSMA 204 is modified to the extent of applicability of the rules of FSMA 204 to various food industry sectors, (ii) the penalties for violations of FSMA 204 are reduced or eliminated, or (iii) delay or failure by the industry to adopt practices in compliance with FSMA 204, in each case, could slow the adoption of our technology as a compliance tool for FSMA 204, which could have a material adverse effect on our business, results of operations, and financial condition.

 

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 conditions. The U.S. and other key international economies have experienced in the past a downturn in which economic activity 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. For example, in March 2022, the U.S. Consumer Price Index (“CPI”), which measures a wide-ranging basket of goods and services, rose 8.5% from the same month a year ago, which represents the largest CPI increase since December of 1981.  While the CPI has come off its March 2022 highs, the Company’s general business strategy may be adversely affected by any such inflationary fluctuations, economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability or willingness to purchase our enterprise cloud computing services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts or affect renewal rates, all of which could adversely affect our operating results, or cause us to increase our prices to maintain the same level of profitability.

 

Geopolitical conflicts could potentially affect our sales and disrupt our operations and could have a material adverse impact on the Company.

 

Geopolitical conflicts, including the recent wars in Ukraine and the Middle East, could adversely impact our operations or those of our customers. The extent to which these events impact our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence. If the uncertainty surrounding geopolitical conflicts and in the global marketplace continues, or if we, or any of our customers encounter any disruptions to our or their respective operations, facilities or stores, then we or they may be prevented or delayed from effectively operating our or their business, respectively, and the marketing 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 the price of our Common Stock.

 

Our quarterly revenue and results of operations have varied in the past and may fluctuate as a result of a variety of factors. If our quarterly revenue or results of operations fluctuate, the price of our Common Stock could decline substantially. Fluctuations in our results of operations 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 Common Stock may adversely affect an investor’s ability to liquidate an investment in us.

 

Although our Common Stock is currently quoted on the New York Stock Exchange, there is limited trading activity. We can give no assurance that an active market will develop, or if developed, that it will be sustained. If an investor acquires shares of our Common Stock, the investor may not be able to liquidate such shares of our Common Stock should there be a need or desire to do so.

 

Future issuances of our shares may lead to future dilution in the value of our Common Stock, will lead to a reduction in shareholder voting power and may prevent a change in control.

 

The shares of our Common Stock may be substantially diluted due to the issuance of Common Stock in connection with funding agreements with third parties and future issuances of Common Stock and the Company’s Preferred Stock, par value $0.01 (“Preferred Stock”). Common Stock and/or Preferred Stock issuances may result in reduction of the book value or market price of outstanding shares of Common Stock. If we issue any additional shares of Common Stock or Preferred Stock, proportionate ownership of Common Stock and voting 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.

 

Our officers and directors control approximately 45% of our Common Stock. Randall K. Fields, our Chief Executive Officer, controls 34% of our Common Stock. Consequently, Mr. Fields, individually, and our officers and directors, as stockholders acting together, can significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions.

 

Our corporate charter contains authorized, unissued “blank check” Preferred Stock issuable without stockholder approval with the effect of diluting then current stockholder interests.

 

Our articles of incorporation currently authorize the issuance of up to 30,000,000 shares of “blank check” Preferred Stock with designations, rights, and preferences as may be determined from time to time by our Board of Directors, of which 700,000 shares are currently designated as Series B Convertible 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, 2024, a total of 616,470 shares of Series B Preferred and 0 shares of Series B-1 Preferred were issued and outstanding.

 

Our Board of Directors is empowered, without stockholder approval, to issue one or more additional series of Preferred Stock with dividend, liquidation, conversion, voting, or other rights that could dilute the interest of, or impair the voting power of, holders of our Common Stock. The issuance of an additional series of Preferred Stock could be used as a method of discouraging, delaying or preventing a change in control.

 

Although we have recently declared quarterly cash dividends on our Common Stock, investors should consider the potential for us to terminate the payment of dividends as a factor when determining whether to invest in us.

 

Historically, we have not paid dividends on our Common Stock. Although we recently declared quarterly cash dividends on our Common Stock, in the future we may elect to retain earnings, if any, to finance the development and expansion of our business.  Our Board of Directors will determine our future dividend policy at their sole discretion, and future dividends will be contingent upon future earnings, if any, obligations of the stock issued, our financial condition, capital requirements, general business conditions and other factors. Future dividends may also be affected by covenants contained in loan or other financing documents, which we may execute in the future. Therefore, there can be no assurance that quarterly dividends will continue to 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 liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase or derived an improper benefit from the transaction. As a result, an investor may have a more limited right to action than they would have had if such a provision were not present. Our articles of incorporation and bylaws also require us to indemnify our officers and directors against any losses or liabilities 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 1B.

UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 1C.

CYBERSECURITY

 

 

Risk Management and Strategy

 

We recognize the critical importance of developing, implementing, and maintaining cybersecurity measures to maintain the security, confidentiality, integrity, and availability of our business systems and confidential information, including personal information and intellectual property. To this end, our processes are designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems (including such risks associated with the use of any third-party service providers) that may result in adverse effects on the confidentiality, integrity, and availability of these systems and the data residing therein. These processes are managed and monitored by third-party experts under supervision of management, and, where necessary or desired, include mechanisms, controls, technologies, systems, and other processes designed to prevent or mitigate data loss, theft, misuse, or other security incidents or vulnerabilities affecting the data. We also consult with outside advisors and experts to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future threats and trends, and their impact on our risk environment.

 

We consider cybersecurity, along with other significant risks that we face, within our overall enterprise risk management framework.  Our processes and resources are also designed to help enable us to actively identify, protect, detect, respond to, and recover from risks and threats. Nevertheless, we face certain ongoing cybersecurity risk threats that, if realized, are reasonably likely to materially affect us. As of the date of this report, we have not identified cybersecurity threats that have materially affected, or are reasonably likely to materially affect, our business, results of operations, or financial condition.

 

Governance

 

Third-party experts assist our senior management team in assessing and managing material risks from cybersecurity threats.  All employees and consultants are directed to report to our senior management any irregular or suspicious activity that could indicate a cybersecurity threat or incident. The Audit Committee of our Board of Directors evaluates our cybersecurity assessment and management policies, including quarterly discussions with our senior officers and independent registered accounting firm.

 

 

ITEM 2.

PROPERTIES

 

Our principal place of business operations is located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. We lease approximately 5,000 square feet at this corporate office location, consisting primarily of office space, conference rooms and storage areas. Our telephone number is (435) 645-2000. Our website address is http://www.repositrak.com.

 

ITEM 3.

LEGAL PROCEEDINGS

 

We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity.  There are no pending or threatened material legal proceedings at this time.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Share Price History

 

Our Common Stock is traded on the New York Stock Exchange (“NYSE”) under the trading symbol “TRAK”. Prior to November 2, 2023, our Common Stock was traded on the Nasdaq Capital Market under the trading symbol “PCYG”.

 

The following table sets forth the high and low sales prices of our Common Stock for the periods indicated:

 

		Quarterly Common Stock Price Ranges
		2024								2023
Fiscal Quarter Ended		High				Low				High				Low
September 30		$	10.25			$	8.27			$	6.60			$	4.31
December 31		$	11.27			$	8.50			$	5.64			$	4.57
March 31		$	17.32			$	9.66			$	6.60			$	4.83
June 30		$	17.96			$	14.23			$	10.50			$	6.24

 

 

Dividends  

 

Outstanding 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 additional shares of Series B-1 Preferred. Dividends on the Series B Preferred and Series B-1 Preferred are payable quarterly.

 

During the year ended June 30, 2024, the Company paid a quarterly cash dividend of $0.015 per share of Common Stock for the quarter ended September 30, 2023 and paid quarterly cash dividend of $0.0165 per share for each of the quarters ended December 31, 2023, March 31, 2024 and June 30, 2024. We currently intend to continue to declare and pay a quarterly cash dividend on Common Stock equal to $0.0165 per share ($0.066 per year) following our board of directors' periodic review of our financial condition and results of operations for each fiscal quarter. The dividend rate and the continued payment of dividends will depend upon our board of directors' consideration of a number of factors, including capital requirements, our financial condition and results of operations, statutory and regulatory limitations, tax considerations and general economic conditions. Although we have declared a quarterly dividend on our Common Stock, we may in the future discontinue the payment of quarterly dividends in the event we elect to retain future earnings, if any, for use in our operations and the expansion of our business.

 

Holders of Record

 

At June 30, 2024, there were 613 holders of record of our Common Stock with 18,234,893 shares issued and outstanding, 3 holders of Series B Preferred with 616,470 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.

 

Common Stock Share Repurchase Program

 

On May 9, 2019, our Board of Directors approved the repurchase of up to $4.0 million in shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 10b-18 of the Exchange Act. On March 17, 2020, the Board, given the extreme uncertainty due to COVID-19 at the time, suspended the Share Repurchase Program.

 

On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the number of shares of Common Stock available to repurchase under the Share Repurchase Program by an additional $4 million bringing the total number of Common Stock authorized to repurchase under the Share Repurchase Program to $8.0 million.

 

On August 31, 2021, our Board of Directors approved a further increase to its Share Repurchase program to $12.0 million in shares of our Common Stock which added an additional $4 million to the Share Repurchase Program.

 

On May 10, 2022, our Board of Directors approved an increase of $9.0 million in the number of shares of Common Stock available to repurchase under the Share Repurchase Program.

 

Since inception of the Share Repurchase Program through June 30, 2024, a total of $21,000,000 in shares of Common Stock have been approved under the Share Repurchase Program, and 2,122,703 shares of Common Stock have been repurchased at an average purchase price of $6.13, resulting in $7,992,206 remaining available to repurchase under the current Share Repurchase Program. From time-to-time, our Board of Directors may authorize further increases to our Share Repurchase Program. In addition, the Share Repurchase Program may also be suspended for periods of time or discontinued at any time, at the Board’s discretion.

 

 

The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the years ended June 30, 2024 and 2023: 

 

														Remaining
														Amount
														Available for
										Dollars				Future
		Total								Expended				Share
		Number								by Period				Repurchases
		of Shares				Average				Under the				Under the
		Purchased				Price Paid				Plans or				Plans or
Period (1)		by Period				Per Share				Programs				Programs
Year Ended June 30, 2023:
July 1, 2022 – September 30, 2022			20,859			$	4.97			$	103,657			$	10,713,447
October 1, 2022 – December 31, 2022			88,741			$	5.05			$	448,266			$	10,265,181
January 1, 2023 – March 31, 2023			74,150			$	5.79			$	429,271			$	9,835,910
April 1, 2023 – June 30, 2023			47,847			$	6.86			$	328,129			$	9,507,781
Year Ended June 30, 2024:
July 1, 2023 – September 30, 2023			155,025			$	8.53			$	1,322,082			$	8,185,698
October 1, 2023 – December 31, 2023			22,012			$	8.79			$	193,492			$	7,992,206
January 1, 2024 – March 31, 2024			-			$	-			$	-			$	7,992,206
April 1, 2024 – June 30, 2024			-			$	-			$	-			$	7,992,206

 

(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.

SELECTED FINANCIAL DATA

 

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 Analysis is intended to assist the reader in understanding our results of operations and financial condition. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K (this "Annual Report"). This Annual Report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). All statements, other than statements of historical fact, included in this Annual Report that address activities, events or developments that we expect, project, believe, or anticipate will or may occur in the future, including matters having to do with expected and future revenue, our ability to fund our operations and repay debt, business strategies, expansion and growth of operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including general economic and business conditions, the business opportunities (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 attract and retain qualified employees, and other factors, many of which are beyond our control. You are cautioned 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

 

ReposiTrak, Inc. is a SaaS which operates a B2B e-commerce, compliance & traceability, and supply chain management platform that partners with retailers, wholesalers, distributors and their product suppliers to (a) help them manage specific programs, such as out-of-stock management and scan-based trading; (b) reduce risk in their supply chain by managing compliance documents and data; ensure compliance with new regulatory requirements supporting traceability; and (c) improve product ordering and forecasting in order to accelerate sales, control risks, and improve supply chain efficiencies. The Company’s fiscal year ends on June 30. References to fiscal 2024 refer to the fiscal year ended June 30, 2024, and references to fiscal 2023 refer to the fiscal year ended June 30, 2023.

 

 

Sources of Revenue

 

The principal customers for the Company’s products are multi-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 their Spokes to utilize the Company’s services. The Company’s services are grouped in three application suites: 

 

ReposiTrak Compliance Management (“Compliance”) solutions, which helps the Company’s customers vet suppliers and reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”);

 

ReposiTrak Traceability Network (“Traceability” or “RTN”), which helps the Company’s customers comply with federal regulatory requirements of traceability and provides the lowest cost, easiest to use way to manage the capture and sharing of key data elements (“KDEs”) now required by Section 204d of FSMA 2011 as designated products move through the supply chain at each ‘event’ known as a ‘critical tracking event’ or “CTE”, which includes tracking from farm to shelf; and

 

ReposiTrak Supply Chain Solutions (“Supply Chain”), which help the Company’s customers to more efficiently manage various interactions with their suppliers. In other words, it provides customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to manage these relationships more efficiently, enhancing revenue while lowering working capital, labor costs and reducing waste.

 

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 portion of the Company’s revenue is generated from its Compliance and Supply Chain Food Safety solutions, with a growing portion of the revenue derived from its newest Traceability solution. The revenue generated is primarily in the form of a recurring subscription payment from the suppliers. Subscription fees can be based on a negotiated flat fee per supplier, or some volumetric metric, such as the number of stores, or the volume of economic activity between a retailer and its suppliers. Subscription revenue contains arrangements with customers for use of the application, application and data hosting, maintenance of the application, and standard support.

 

The Company also provides professional consulting services targeting implementation, assessments, profit optimization and support functions for its applications and related products, for which revenue is recognized on a percentage-of-completion or pro rata basis over the life of the subscription, depending on the nature of the engagement. 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.

 

In rare instances, the Company may sell its software in the form of a license. License arrangements are a time-specific and perpetual license. Software license maintenance agreements are typically annual contracts, paid in advance or according to terms specified in the contract. When sold as a license, the Company’s software is usually accompanied by a corresponding maintenance and/or hosting agreement to support the service.

 

Software maintenance agreements provide the customer with access to new software enhancements, maintenance releases, patches, updates and technical support personnel. Our hosting services provide remote management and maintenance of our software and customers’ data, which is physically located in third-party facilities. Customers access “hosted” software and data through a secure internet connection. 

 

Revenue Recognition

 

Effective July 1, 2018, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2014-09: Revenue from Contracts with Customers (Topic 606), and its related amendments (“ASU 2014-09”). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers.

 

ASU 2014-09 represents a change in the accounting model utilized for the recognition of revenue and certain expense arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, accordingly, revenue and expense totals for all periods before July 1, 2018 reflect those previously reported under the prior accounting model and have not been restated.

 

 

Other Metrics – Non-GAAP Financial Measures

 

To supplement our financial statements, historically we have provided investors with adjusted EBITDA and non-GAAP income per share, both of which are non-GAAP financial measures. We believe that these non-GAAP measures may provide useful information regarding certain financial and business trends relating to our financial condition and operations. Our 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 substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the U.S. (“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 limitations. Investors should review the reconciliations 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 Condition and Results of Operations” discusses the Company’s financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reporting period.

 

On an ongoing basis, management evaluates its estimates and assumptions based on historical experience of operations and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Income Taxes

 

In determining the carrying value of the Company’s net deferred income tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s statements of operations. Management evaluates 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 reporting units and is reviewed for possible impairment at least annually or upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment.

 

The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate. 

 

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 compensation expense on a straight-line basis. The fair value of any options granted are estimated at the date of grant using a Black-Scholes option pricing model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.

 

 

Capitalization of Software Development Costs

 

The Company accounts for research costs of computer software to be sold, leased or otherwise marketed as expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until 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 software products is reached shortly after a working prototype is complete and meets or exceeds design specifications including functions, features, and technical performance requirements. Costs incurred after technological feasibility is established have been and will continue to be capitalized until such time as when the product or enhancement is available for general release to customers.

 

Available-for-Sale Debt Investments  

 

We classify our investments in fixed income securities as available-for-sale debt investments. Our available-for-sale debt investments primarily consist of U.S. government, U.S. government agency, non-U.S. government and agency, corporate debt, U.S. agency mortgage-backed securities, commercial paper and certificates of deposit. These available-for-sale debt investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of available-for-sale debt investments sold. These investments are recorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments are included as a separate component of accumulated other comprehensive income (“AOCI”). We classify our investments as current based on the nature of the investments and their availability for use in current operations.

 

Impairment Consideration of Investments  

 

For our available-for-sale debt securities in an unrealized loss position, we determine whether a temporary or permanent credit loss exists. In this assessment, which requires judgment, among other factors, we consider the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If factors indicate a permanent credit loss exists, an allowance for credit loss is recorded to other income (loss), net, limited by the amount that the fair value is less than the amortized cost basis. The amount of fair value change relating to all other factors will be recognized in other comprehensive income (“OCI”).

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue and results of operation, liquidity or capital expenditures.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Effective July 1, 2019, the Company adopted the requirements of ASU 2016-02. All amounts and disclosures set forth in this Annual Report have been updated to comply with ASU 2016-02, with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

 

Results of Operations – Fiscal Years Ended June 30, 2024 and 2023

 

Revenue

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Revenue		$	20,453,320			$	1,354,410				7	%		$	19,098,910

 

 

During the fiscal year ended June 30, 2024, the Company had revenue of $20,453,320 as compared to $19,098,910 for the year ended June 30, 2023, an increase of 7%. The increase in revenue was due to growth in recurring subscription revenue, in all lines of business, which includes compliance, supply chain and traceability. This is the result of growing industry and consumer response to food contaminations and food safety hazards, whether biological, chemical, physical, or allergenic. The risks have elevated regulatory requirements, documentation requisites, and principally “where does your food come from” transparency on grocery retailers and their suppliers. As more and more retailers, wholesalers and distributors adopt the increased regulatory disclosure requirements, the Company has seen a corresponding rise in demand for its services.

 

Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a small percentage of customers that will, from time to time, require buying a particular service outright (i.e., a license). Nonetheless, we will continue to deemphasize non-recurring transactional revenue when we are able.

 

 

Cost of Services and Product Support

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Cost of service and product support		$	3,416,450			$	107,105				3	%		$	3,309,345
Percent of total revenue			17	%											17	%

 

Cost of services and product support was $3,416,450, or 17% of total revenue, and $3,309,345 or 17% of total revenue for the years ended June 30, 2024 and 2023, respectively, an increase of 3%. This increase is primarily the result of cybersecurity spending and increased offshore developer headcount and support services in effort to support the acceleration and expansion of the FSMA 204 initiative. Given the demand in traceability the Company has also expended additional resources on further upgrading its information security services and confidentiality protocols to increase protection of customer data. 

 

Sales and Marketing Expense

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Sales and marketing		$	5,492,719			$	559,314				11	%		$	4,933,405
Percent of total revenue			27	%											26	%

 

The Company’s sales and marketing expense was $5,492,719, or 27% of total revenue, as compared to $4,933,405, or 26% of total revenue, for the fiscal years ended June 30, 2024 and 2023, respectively, an increase of 11%. The increase in sales and marketing expense was primarily the result of an increase in commission, trade show expense, investment in FSMA 204 traceability marketing, and higher sales travel expense. As the pandemic concerns have been reduced, customers and prospects are returning to in person meetings and participation in large tradeshows. The largest contributors to the increase in sales and marketing expense has been an increase in commission and FSMA 204 traceability marketing. We believe the uptick in marketing costs will flatten over the next twelve months as awareness of the 2026 traceability regulatory deadline approaches.

 

General and Administrative Expense

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
General and administrative		$	5,330,437			$	644,654				14	%		$	4,685,783
Percent of total revenue			26	%											25	%

 

The Company’s general and administrative expense was $5,330,437, or 26% of total revenue, and $4,685,783 or 25% of total revenue for the years ended June 30, 2024 and 2023, respectively, an increase of 14%. The increase in general and administrative expense was primarily due to refund of payroll taxes associated with the Employee Retention Credit (“ERC”) that occurred in the prior fiscal year that did not reoccur in fiscal 2024. The ERC was a refund of certain payroll taxes for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts. During the prior fiscal year, the Company received approximately $1.175 million in payroll tax refunds, net of fees. The ERC credit was partially offset by increases in bad debt expense and increases in cost of benefits for employees.

 

Depreciation and Amortization Expense

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Depreciation and amortization		$	1,189,483			$	109,684				10	%		$	1,079,799
Percent of total revenue			6	%											6	%

 

 

The Company’s depreciation and amortization expense was $1,189,483 and $1,079,799 for the years ended June 30, 2024 and 2023, respectively, an increase of 10%. The increase was due to additional assets acquired in the prior fiscal year. Given the rising global hacks on software companies, banks, and financial institutions, we spent approximately $440,000 on security, backup, storage, and redundancy. The upgrades were financed through a leasing agent with an effective APR rate of 4.78%.

 

Other Income and Expense

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Net other income		$	1,308,550			$	487,468				59	%		$	821,082
Percent of total revenue			6	%											4	%

 

Net other income was $1,308,550 compared to net other income of $821,082 for the years ended June 30, 2024 and 2023, respectively. Other income increased due to higher cash balances and an increase in interest income attributable to higher interest rates on fixed income instruments. As the Federal Reserve begins to cut rates in the future, it is unlikely the Company will be able to maintain the same interest income on its existing cash balances without taking additional credit risk.

 

Preferred Dividends

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Preferred dividends		$	549,645			$	(36,799	)			-6	%		$	586,444
Percent of total revenue			3	%											3	%

 

Dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred was $549,645 and $586,444 for the years ended June 30, 2024 and 2023, respectively, a decrease of 6%. Dividends decreased due to the redemption and retirement of Preferred Stock. Although no assurances can be given, the Company announced that it intends to redeem all of the Series B and B-1 Preferred stock over three years which commenced August of 2023.

 

Financial Position, Liquidity and Capital Resources

 

We believe that our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including macroeconomic conditions, our rate of revenue growth, sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products and services.

 

		As of								Variance
		June 30, 2024				June 30, 2023				Dollars				Percent
Cash and cash equivalents		$	25,153,862			$	23,990,879			$	1,162,983				5	%

 

We have historically funded our operations with cash from operations, equity financings, and borrowings from our existing line of credit with U.S. Bank N.A. (the “Bank”), which was revised on October 6, 2021, and again in 2022. In March 2024, given our strong financial position, we terminated the credit facility with our bank.

 

Cash was $25,153,862 and $23,990,879 at June 30, 2024 and 2023, respectively. This 5% increase is primarily the result of higher revenue and the corresponding cash receipts from customers. It also includes higher interest income earnings associated with growing cash balances.

 

Net Cash Flows from Operating Activities

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Cash provided by operating activities		$	6,964,401			$	(1,895,618	)			-21	%		$	8,860,019

 

 

Net cash provided by operating activities is summarized as follows:

 

		Year Ended				Year Ended
		June 30, 2024				June 30, 2023
Net income		$	5,958,290			$	5,590,289
Noncash expense and income, net			1,992,120				2,828,231
Net changes in operating assets and liabilities			(986,009	)			441,499
		$	6,964,401			$	8,860,019

 

Net cash provided by operating activities for the year ended June 30, 2024 was $6,694,401 compared to net cash provided by operating activities of $8,860,019 for the year ended June 30, 2023. Net cash provided by operating activities decreased 21% due principally to the receipt of the ERC refund in fiscal 2023, that did not reoccur in fiscal 2024, an increase in accounts receivable due to an increase in subscription sales, and a decrease in accounts payable and other obligations that had become due. Noncash expense decreased by $836,111 for the year ended June 30, 2024 compared to the year ended June 30, 2023 as a result of a decrease in bad debt expense and stock compensation expense offset by an increase in depreciation and amortization.

 

Net Cash Flows Used in Investing Activities

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Cash used in investing activities		$	(100,707	)		$	(802,480	)			-89	%		$	(903,187	)

 

Net cash used in investing activities for the year ended June 30, 2024 was $100,007 compared to net cash used in investing activities of $903,187 for the year ended June 30, 2023. This decrease in cash used in investing activities for the for fiscal 2024 was due to capitalization of certain software costs and purchases of property and equipment in the prior fiscal year that did not occur in the current fiscal year.

 

Net Cash Flows from Financing Activities

 

		Year Ended				$				%				Year Ended
		June 30, 2024				Change				Change				June 30, 2023
Cash used in financing activities		$	(5,700,711	)		$	273,810				5	%		$	(5,426,901	)

 

Net cash used in financing activities totaled $5,700,711 for the year ended June 30, 2024 compared to net cash used in financing activities of $5,426,901 for the year ended June 30, 2023. The increase in net cash used in financing activities is due to the payment of higher Common Stock dividends, the purchase of Common Stock under the Share Repurchase Program, and the redemption and retirement of shares of Preferred Stock.

 

Liquidity and Working Capital

 

At June 30, 2024, the Company had positive working capital of $24,757,025, as compared with positive working capital of $23,042,199 at June 30, 2023. This $1,714,826 increase in working capital is primarily due to an increase in accounts receivable and decrease in prepaid and other assets offset by a decrease in contract liabilities and an increase in deferred revenue. Cash and cash equivalents also increased due to cash receipts from customers who have signed up for, among other offerings, the ReposiTrak Traceability Network.

 

		As of				As of				Variance
		June 30, 2024				June 30, 2023				Dollars				Percent
Current assets		$	29,300,167			$	27,274,620			$	2,025,547				7	%

 

 

Current assets totaled $29,300,167 as of June 30, 2024, as compared to $27,274,620 as of June 30, 2023. The increase in current assets is primarily attributable to the increase in cash and accounts receivables offset by a decrease of prepaid expense and other current assets.

 

		As of				As of				Variance
		June 30, 2024				June 30, 2023				Change				Percent
Current liabilities		$	4,543,142			$	4,232,421			$	310,721				7	%
Current ratio			6.45	%			6.44	%		$	0.00				0	%

 

 

Current liabilities totaled $4,543,142 as of June 30, 2024 as compared to $4,232,421 as of June 30, 2023. The increase in current liabilities is primarily attributable to the increase in deferred revenue offset by a decrease in accrued liabilities and financing lease liabilities due to capital expenditures on cybersecurity, storage and other information technology services. As of June 30, 2024, the Company had zero bank debt.

 

On October 6, 2021, the Company and the Bank executed a Revolving Credit Agreement (the "Revolving Credit Agreement”) and accompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaced the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provided the Company with a $10.0 million revolving line of credit that matured on March 31, 2023. The Credit Agreement contained customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, the Company must maintain liquid assets equal to $12 million and maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1.

 

On April 28, 2023, the Company and the Bank executed an amendment to the Credit Agreement (the “Amendment”), with an effective date of March 31, 2023. The Amendment sets forth that (1) the Company will increase its liquidity requirement from $10 million to $12 million, which the Company currently maintains over $22 million in cash and a current ratio of over 6:1, and (2) draws on the facility accrue interest at the annual rate, equal to 1.75% plus the one-month SOFR rate, instead of the previous LIBOR rate. As of March 31, 2024, the balance of the facility was zero. The Company had zero bank debt at June 30, 2024.

 

On March 15, 2024, given its strong financial position, the Company chose not to renew the Revolving Credit Agreement.  There were no amounts due at the time of renewal.

 

While no assurances can be given, management currently believes that the Company will continue to increase its cash flow from operations and working capital position in subsequent periods. The Company’s increase in anticipated cash flow from operations and working capital position is expected to be offset by the use of cash required to fund the Company’s quarterly cash dividends of $0.015 per share, announced on September 28, 2022, December 30, 2022, February 10, 2023, March 21, 2023, June 20, 2023, September 19, 2023, and of $0.0165 per share, announced on December 12, 2023, March 18, 2024 and June 18, 2024, as well as the  redemption and retirement of the Company’s Series B Convertible Preferred Stock and Series B-1 Preferred Stock (together, the “Preferred Stock”) for their stated value, or $10.70 for each share of Preferred Stock, resulting in an aggregate purchase price of $8,964,214. 

 

Contractual Obligations

 

Total contractual obligations and commercial commitments as of June 30, 2024 are summarized in the following table:

 

		Operating Leases				Financing Leases
Less than 1Year		$	75,491			$	220,267
1-3 Years			157,842				-
3-5 Years			54,449				-
Total lease payments			287,782				220,267
Less imputed interest			(24,734	)			(2,296	)
Total		$	263,048			$	217,971

 

 

Inflation

 

The impact of inflation has historically not had a material effect on the Company’s financial condition or results from operations; however, higher rates of inflation may cause retailers to slow their spending in the technology area, which could have an impact on the Company’s sales.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Each of our contracts require payment in U.S. dollars. We therefore do not engage in hedging transactions 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 participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations 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, 2024. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer 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 information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

(b)	Management’s Annual Report on Internal Control over Financial Reporting.

 

We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation 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 reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of June 30, 2024, based on the framework and criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of June 30, 2024.

 

 

(c)	Changes in Internal Controls over Financial Reporting.

 

Our Chief Executive Officer and Chief Financial Officer have determined that there has been no change in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

 

  

 

ITEM 9C.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this item will be incorporated by reference from ReposiTrak, Inc.’s definitive proxy statement, to be filed with the Securities and Exchange Commission on or before October 28, 2024 (the “Proxy Statement”).

 

ITEM 11.

EXECUTIVE COMPENSATION

 

The information required by this item will be incorporated by reference from ReposiTrak, Inc.’s Proxy Statement.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this item will be incorporated by reference from ReposiTrak, Inc.’s Proxy Statement.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this item will be incorporated by reference from ReposiTrak, Inc.’s Proxy Statement.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this item will be incorporated by reference from ReposiTrak, Inc.’s Proxy Statement.

 

PART IV

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibits, Financial Statements and Schedules

 

Exhibit Number		Description
2.1		Agreement and Plan of Merger by and between ReposiTrak, Inc. and Park City Group, Inc. d/b/a ReposiTrak (Incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K dated December 18, 2023).
3.1		Articles of Incorporation (Incorporated by reference from the Company’s Definitive Proxy Statement on Schedule 14C dated June 5, 2002).
3.2		Certificate of Amendment (Incorporated by reference from Exhibit 3.3 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended Sept 30, 2005, dated November 10, 2005).
3.3		Certificate of Amendment (Incorporated 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).
3.4		Certificate of Amendment (Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 28, 2017).
3.5		Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.1 the Company’s Current Report on Form 8-K dated October 21, 2016).

 

 

3.6		Articles of Merger filed with the Nevada Secretary of State (Incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 18, 2023).
4.1		Certificate of Designation of the Series B Convertible Preferred Stock (Incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 21, 2010).
4.2		Fourth Amended and Restated Certificate of Designation of the Relative 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).
4.3		First Amended and Restated Certificate of Designation of the Relative 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).
10.1		Amendment to Loan Agreement and Note, by and between U.S. Bank National Association and the Company, dated September 15, 2009 (Incorporated by reference from Exhibit 10.1 the Company’s Current Report on Form 8-K dated September 30, 2009).
10.2		Amendment to Loan Agreement and Note, by and between U.S. Bank National Association and the Company, dated May 5, 2010 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 6, 2010).
10.3		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).
10.4		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).
10.5		Fields Employment Agreement (Incorporated by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K dated September 11, 2014).
10.6		Services Agreement (Incorporated by reference from the Company’s Annual Report on Form 10-K dated September 11, 2014).
10.7		Amendment No. 1 to the Employment Agreement, by and between Park City Group, Inc., Randall K. Fields and Fields Management, Inc., 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).
10.8		Amendment No. 1 to the Second Amended and Restated 2011 Stock Incentive Plan of Park City Group, Inc., dated August 3, 2017 (Incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-8 dated November 9, 2017)
10.9		Amendment No. 1 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, Inc., dated August 3, 2017 (Incorporated by reference from Exhibit 10.2 to the Company’s Registration Statement on Form S-8 dated November 9, 2017)
10.10		Amendment to Services Agreement (Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 10, 2018).
10.11		Amendment to Note, by and between U.S. Bank National Association and the Company, dated January 9, 2019 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 15, 2019).
10.12		Master Lease Agreement dated January 9, 2019 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 15, 2019).
10.13		Employment Agreement by and between John Merrill and Park City Group, Inc., dated May 29, 2019 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 31, 2019).
10.14		Loan Agreement by and between U.S. Bank National Association and the Company, dated April 23, 2020 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 27, 2020).
10.15		Amendment No. 2 to the Second Amended and Restated 2011 Employee Stock Purchase Plan of Park City Group, Inc., dated March 17, 2021 (Incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-8 dated April 12, 2021).
10.16		Revolving Credit Note and Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association. (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 12, 2021).
10.17		Addendum to Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association. (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 12, 2021).

 

 

10.18		Employment Agreement by and between Park City Group, Inc. and John Merrill, dated September 6, 2022 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 8, 2022).
10.19		2023 Omnibus Equity Incentive Plan (Incorporated by reference from Appendix A to the Company’s Definitive Proxy Statement on Schedule 14 A filed October 3, 2023).
10.20		2023 Employee Stock Plan (Incorporated by reference from Appendix B to the Company’s Definitive Proxy Statement on Schedule 14 A filed October 3, 2023).
14.1		Code of Ethics and Business Conduct (Incorporated by reference from the Company’s Annual Report Form 10-KSB for the period ended June 30, 2008, dated September 29, 2008).
21		List of Subsidiaries (Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ended June 30, 2017, dated September 13, 2017).
23.1		Consent of Haynie & Company, dated September 30, 2024*
31.1		Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
31.2		Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002 *
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *
97		ReposiTrak, Inc. Clawback Policy*
101.INS		Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document*
101.SCH		Inline XBRL Taxonomy Extension Schema*
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase*
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase*
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase*
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase*
104		Cover page formatted as Inline XBRL and contained in Exhibit 101

 

*	Filed herewith

 

 

SIGNATURES

 

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.

 

	REPOSITRAK, INC.
		(Registrant)
Date:    September 30, 2024	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	Date
/s/ Randall K. Fields	Chair of the Board and Director,	September 30, 2024
Randall K. Fields	Chief Executive Officer
	(Principal Executive Officer)
/s/ John Merrill	Chief Financial Officer	September 30, 2024
John Merrill	(Principal Financial Officer &
	Principal Accounting Officer)
/s/ Robert W. Allen	Director, and Compensation	September 30, 2024
Robert W. Allen	Committee Chair
/s/ Peter J. Larkin	Director	September 30, 2024
Peter J. Larkin
/s/ Ronald C. Hodge	Director, and Audit Committee Chair	September 30, 2024
Ronald C. Hodge

 

REPOSITRAK, INC.

Consolidated Balance Sheets

 

 

See accompanying notes to consolidated financial statements.

 

 

REPOSITRAK, INC.

Consolidated Statements of Operations

 

 

See accompanying notes to consolidated financial statements.

 

 

REPOSITRAK, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Deficit)

 

 

See accompanying notes to consolidated financial statements.

 

 

REPOSITRAK, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

 

See accompanying notes to consolidated financial statements.

 

 

PARK CITY GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2024 and June 30, 2023

 

NOTE 1.

DESCRIPTION OF BUSINESS

 

Overview

 

ReposiTrak, Inc., a Nevada corporation (“ReposiTrak”, “We”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) which operates a business-to-business (“B2B”) e-commerce, compliance & traceability, and supply chain management platform that partners with retailers, wholesalers, distributors and their product suppliers to (a) help them manage specific programs, such as out-of-stock management and scan-based trading; (b) reduce risk in their supply chain by managing compliance documents and data; ensure compliance with new regulatory requirements supporting traceability; and (c) improve product ordering and forecasting in order to accelerate sales, control risks, and improve supply chain efficiencies.

 

The Company’s services are grouped in three application suites:

 

	1.	ReposiTrak Compliance Management (“Compliance”) solutions, which helps the Company’s customers vet suppliers and reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”);
	2.	ReposiTrak Traceability Network (“Traceability” or “RTN”), which helps the Company’s customers comply with federal regulatory requirements of traceability and provides the lowest cost, easiest to use way to manage the capture and sharing of key data elements (“KDEs”) now required by Section 204d of FSMA 2011 as designated products move through the supply chain at each ‘event’ known as a ‘critical tracking event’ or “CTE”, which includes tracking from farm to shelf; and
	3.	ReposiTrak Supply Chain Solutions (“Supply Chain”), which help the Company’s customers to more efficiently manage various interactions with their suppliers. In other words, it provides customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and it helps them to manage these relationships more efficiently, enhancing revenue while lowering working capital, labor costs and reducing waste.

 

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers.

 

The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety, compliance and traceability activities. The principal customers for the Company’s products are household name multi-store food retail chains and restaurants including 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.

 

On December 21, 2023, the Company effected a change of its corporate name from Park City Group, Inc. to ReposiTrak, Inc. The Company is incorporated in the State of Nevada and has two principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“PCG Utah”), and Park City Group, Inc., a Delaware corporation (100% owned) (“PCG Delaware” and together with PCG Utah, the “Subsidiaries”). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the Company’s results from operations. The Company has no business operations separate from the operations conducted through its Subsidiaries.

 

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.repositrak.com.

 

NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

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

 

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Use of Estimates

 

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

 

Concentration of Credit Risk and Significant Customers

 

The Company maintains cash in bank deposit accounts, which, at times, 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 potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing evaluations of its customers and maintains allowances for possible losses. The provision is based on the overall composition of our accounts receivable aging, our prior history of accounts receivable write-offs, and our experience with specific customers.

 

Other factors indicating 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 operating multilocation 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 administrative 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 one customer that accounted for greater than 10% of accounts receivable at June 30, 2024. The customer had a balance of $962,300 and $962,300 for June 30, 2024 and June 30, 2023, 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 software applications used in the Company’s operations, maintenance agreements on hardware and software, and other miscellaneous amounts for insurance, membership fees and professional fees. Prepaid expense is amortized 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

 

Depreciation and amortization of property and equipment is computed using the straight-line method based on the following estimated useful lives:

 

		Years
Furniture and fixtures		5 - 7
Computer equipment		3
Equipment under capital leases		3
Long-term use equipment		10
Leasehold improvements		See below

 

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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:

 

		Years
Customer relationships		10
Acquired developed software		5
Developed software		3
Goodwill		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 software defects. Customers who are not completely satisfied with their software purchase may attempt to be reimbursed for their purchases outside the warranty period. For the years ending June 30, 2024 and 2023, the Company did not incur any expense associated with warranty claims.

 

Adoption of ASC 718, Compensation – Stock Compensation

 

From time to time, the Company issues shares of common stock as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“Topic 718”). Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service or vesting period.

 

In prior periods through September 30, 2019, the Company accounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC Subtopic 505-50, Equity – Equity-based Payments to Non-employees (“Subtopic 505-50”). Measurement of share-based payment transactions 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 transaction is determined at the performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

 

The Company adopted Topic 718 during the second quarter of fiscal year 2020. Topic 718 did not have a material impact on the Company’s consolidated financial statements.

 

Adoption of ASU 2016-02 “Leases (Topic 842)”

 

Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company adopted the requirements of ASU 2016-02 utilizing the modified retrospective method of transition to identified leases as of July 1, 2019 (the “Effective Date”). The recognition of additional operating lease liabilities was $82,517 for the current portion and $760,172 for the long-term portion and corresponding operating right-of-use assets were recorded in the amount of $842,689. This represents the operating lease existing as of the Effective Date which has a lease term of three years with the option for two additional three-year terms.

 

On June 21, 2018, the Company entered into an office lease at 5282 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 initial term of the lease was three years. The Company had the option of renewing for an additional two three-year terms.

 

On March 1, 2022, the Company exercised the option to renew the office lease for an additional three-year term. Terms of the lease were modified to reduce the space from 9,800 square feet to approximately 5,000 square feet commencing March 1, 2022. The monthly rent was reduced to $5,871 per month with an annual increase of 3% each year. The Company has the option of renewing for an additional three-year term.

 

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Revenue Recognition

 

The Company recognizes revenue as it transfers control of deliverables (products, solutions and services) to its customers in an amount reflecting the consideration to which it expects to be entitled. To recognize revenue, the Company applies the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when a performance obligation is satisfied. The Company accounts for a contract based on the terms and conditions the parties agree to, if the contract has commercial substance and if collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.

 

The Company may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of its deliverables. To the extent a contract includes multiple promised deliverables, the Company applies judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, the Company allocates consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which the Company would sell a promised good or service separately to the customer. When not directly observable, the Company typically estimates 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 obligations where control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenue related to fixed-price contracts for application development and systems integration services, consulting or other technology services is recognized as the service is performed using the output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed and when value is transferred to a customer. Revenue related to fixed-price application maintenance, testing and business process services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), paragraph 606-10-55-18 (“ASC 606-10-55-18”).

 

If 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 information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenue related to fixed-price hosting and infrastructure services is recognized based on the Company’s 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. If the Company’s invoicing is not consistent with value delivered, revenue is recognized on a straight-line basis unless revenue is earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of the Company’s performance obligations.

 

Revenue related to the Company’s software license arrangements that do not require significant modification or customization of the underlying software is recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenue for the software license and related services is recognized as the services are performed in accordance with the methods described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Revenue related to software maintenance and support is generally recognized on a straight-line basis over the contract period.

 

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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 amortization period of the asset that the Company otherwise would have recognized is one year or less.

 

Revenue related to transaction-based or volume-based contracts is recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided.

 

From time to time, the Company may enter into arrangements with third party suppliers to resell products or services. In 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). In doing so, the Company first evaluates whether it controls the good or service before it is transferred to the customer. If 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 function as the parties intended because it complies with agreed-upon specifications. General updates or patch fixes are not considered an additional performance obligation in the contract.

 

Variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. The Company includes in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and is based largely on an assessment of its anticipated performance and all information that is reasonably available to the Company.

 

The Company assesses the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, 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. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of 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 transition 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 consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, we recognize a receivable for revenue related to our transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors.

 

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

 

		Contract
		assets
Balance – June 30, 2023		$	295,011
Revenue recognized during the period but not billed			-
Amounts reclassified to accounts receivable			(10,000	)
Other			4,721
Balance – June 30, 2024		$	289,732	(1)

 

(1)

Contract asset balances for June 30, 2024 include a current and a long-term contract asset of $181,680 and $108,052, respectively.

 

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

 

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

 

		Contract
		liability
Balance – June 30, 2023		$	1,903,001
Amounts billed but not recognized as revenue			2,441,234
Revenue recognized related to the opening balance of deferred revenue			(1,903,001	)
Balance – June 30, 2024		$	2,441,234

 

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

 

Disaggregation of Revenue

 

The table below presents disaggregated revenue from contracts with customers by contract-type. All revenues for the years ending June 30, 2024 and 2023 were generated from sales in North America. We believe this disaggregation best depicts the nature, amount, timing and uncertainty of our revenue and cash flows that may be affected by industry, market and other economic factors:

 

		Year Ended, June 30
		2024				2023				Chg $				Chg %
Recurring revenue – subscription and support services		$	20,357,893			$	19,028,993			$	1,328,900				7	%
Non-recurring revenue – setup and training services			95,427				69,917				25,510				36	%
Total		$	20,453,320			$	19,098,910			$	1,354,410				7	%

 

Software Development Costs

 

The Company accounts for research costs of computer software to be sold, leased or otherwise marketed as expense until technological feasibility has been established for the product. Once technological feasibility is established, the company will occasionally capitalize software costs until the product is available for general release to customers. In these instances, the Company determines technological feasibility for its software products to have been reached when a working prototype is complete and meets or exceeds design specifications including functions, features, and technical performance requirements.

 

Research and Development Costs

 

Research and development costs include personnel costs, engineering, consulting, and contract labor and are expensed as incurred for software that has not achieved technological feasibility.

 

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Advertising Costs

 

Advertising is expensed as incurred. Advertising costs were approximately $22,625 and $20,735 for the years ended June 30, 2024 and 2023, respectively.

 

Income Taxes

 

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.

 

Earnings Per Share

 

Basic net income per common share (“Basic EPS”) excludes dilution 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 potential dilution that could occur if stock options or other contracts to issue shares of Common Stock were exercised or converted into Common Stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per share of Common Stock.

 

For the year ended June 30, 2024, warrants to purchase 1,108,805 shares of Common Stock were included in the computation of Diluted EPS, and no warrants to purchase shares of Common Stock were excluded the computation of Diluted EPS due to the anti-dilutive effect. For the year ended June 30, 2023, warrants to purchase 1,085,068 shares of Common Stock were included in the computation of Diluted EPS, and warrants to purchase 23,737 shares of Common Stock were excluded the computation of Diluted EPS due to the anti-dilutive effect. Warrants to purchase shares of Common Stock were outstanding at prices ranging $4.00 from to $10.00 per share at June 30, 2024.

 

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

 

		Year ended June 30,
		2024				2023
Numerator
Net income applicable to common shareholders		$	5,408,645			$	5,003,845
Denominator
Weighted average common shares outstanding, basic			18,202,000				18,406,000
Warrants to purchase Common Stock			729,000				360,000
Weighted average common shares outstanding, diluted			18,931,000				18,766,000
Net income per share
Basic		$	0.30			$	0.27
Diluted		$	0.29			$	0.27

 

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 compensation expense on a straight-line basis. The fair value of options granted are estimated at the date of grant using a Black-Scholes option 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.

 

Available-for-Sale Debt Investments  

 

We classify our investments in fixed income securities as available-for-sale debt investments. Our available-for-sale debt investments primarily consist of U.S. government, U.S. government agency, non-U.S. government and agency, corporate debt, U.S. agency mortgage-backed securities, commercial paper and certificates of deposit. These available-for-sale debt investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of available-for-sale debt investments sold. These investments are recorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments are included as a separate component of accumulated other comprehensive income (“AOCI”). We classify our investments as current based on the nature of the investments and their availability for use in current operations.

 

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Impairment Consideration of Investments  

 

For our available-for-sale debt securities in an unrealized loss position, we determine whether a temporary or permanent credit loss exists. In this assessment, which requires judgment, among other factors, we consider the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If factors indicate a permanent credit loss exists, an allowance for credit loss is recorded to other income (loss), net, limited by the amount that the fair value is less than the amortized cost basis. The amount of fair value change relating to all other factors will be recognized in other comprehensive income (“OCI”).

 

NOTE 3.

RECEIVABLES

 

Accounts receivable consist of the following at June 30:

 

		2024				2023
Accounts receivable		$	3,906,200			$	2,693,122
Allowance for doubtful accounts			(227,573	)			(170,103	)
		$	3,678,627			$	2,523,019

 

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 recognition criteria have been met.

 

NOTE 4.

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost and consist of the following at June 30:

 

		2024				2023
Computer equipment		$	2,684,626			$	2,611,309
Furniture and equipment			180,976				180,976
Leased equipment			629,947				629,947
Leasehold improvements			681,314				681,314
			4,176,863				4,103,546
Less accumulated depreciation and amortization			(3,663,586	)			(3,117,246	)
		$	513,277			$	986,300

 

Depreciation expense for the years ended June 30, 2024 and 2023 was $546,341 and $541,942, respectively.

 

NOTE 5.

CAPITALIZED SOFTWARE COSTS

 

Capitalized software costs consist of the following at June 30:

 

		2024				2023
Capitalized software costs		$	3,678,289			$	3,678,289
Less accumulated amortization			(3,293,668	)			(2,980,008	)
		$	384,621			$	698,281

 

Amortization expense for the years ended June 30, 2024 and 2023 was $313,659 and $185,452, respectively.

 

NOTE 6.

ACQUISITION RELATED INTANGIBLE ASSETS, NET

 

Customer relationships consist of the following at June 30:

 

		2024				2023
Customer relationships		$	5,537,161			$	5,537,161
Less accumulated amortization			(5,405,761	)			(5,274,361	)
		$	131,400			$	262,800

 

Amortization expense for the years ended June 30, 2024 and 2023 was $131,400 and $131,400, respectively.

 

---

 

NOTE 7.

ACCRUED LIABILITIES

 

Accrued liabilities consist of the following at June 30:

 

		2024				2023
Accrued stock-based compensation		$	172,170			$	387,044
Accrued compensation and other liabilities			730,089				682,901
Accrued taxes			231,935				131,178
Accrued dividends			420,581				418,877
		$	1,554,775			$	1,620,000

 

NOTE 8.

LINE OF CREDIT

 

On October 6, 2021, the Company and U.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the “Revolving Credit Agreement”) and accompanying addendum (the “Addendum”), and Stand-Alone Revolving Note (the “Note” and collectively with the Revolving Credit Agreement and Addendum, the “Credit Agreement”), with an effective date of September 30, 2021.

 

The Credit Agreement replaced the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provided the Company with a $10.0 million revolving line of credit that matured on March 31, 2023. The Credit Agreement contained customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, the Company must maintain liquid assets equal to $12 million and maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1.

 

On April 28, 2023, the Company and the Bank executed an amendment to the Credit Agreement (the “Amendment”), with an effective date of March 31, 2023. The Amendment to the Credit Agreement sets forth that (1) the Company will increase its liquidity requirement from $10 million to $12 million, which the Company currently maintains over $22 million in cash and a current ratio of over 6:1, and (2) draws on the facility accrue interest at the annual rate, equal to 1.75% plus the one-month SOFR rate, instead of the previous LIBOR rate. As of June 30, 2024, the balance of the facility was zero. The Company had zero bank debt at June 30, 2024.

 

On March 15, 2024, given its strong financial position, the Company chose not to renew the Revolving Credit Agreement.  There were no amounts due at the time of renewal.

 

Furthermore, the Credit Agreement contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, the Company must maintain liquid assets equal to $12 million and maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1.

 

NOTE 9.

DEFERRED REVENUE

 

Deferred revenue consisted of the following at June 30:

 

		2024				2023
Subscription		$	2,085,621			$	1,543,455
Other			355,613				359,546
		$	2,441,234			$	1,903,001

 

NOTE 10.

INCOME TAXES

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities 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:

 

		2024				2023
Deferred tax assets:
NOL carryover		$	1,825,300			$	9,539,700
Capital loss carryover			38,600				38,600
Allowance for bad debts			59,200				44,200
Accrued expense			167,300				199,000
Operating lease ROU			2,900				1,000
Depreciation			(120,000	)			(247,500	)
Amortization			(1,075,600	)			(932,100	)
Valuation allowance			(897,700	)			(8,642,900	)
Net deferred tax asset		$	-			$	-

 

---

 

The income tax provision differs from the amounts of income tax determined by applying the US federal income tax rate to pretax income from continuing operations for the years ended June 30, 2024 and 2023 due to the following:

 

		2024				2023
Book income		$	1,549,156			$	1,453,475
Stock for services			71,490				15,824
Change in accrual			(31,672	)			16,586
Life insurance			51,239				14,933
Meals and entertainment			1,961				844
Change in allowance			14,942				(9,357	)
Change in depreciation			84,332				(181,879	)
Unrealized gain			(17,432	)			2,536
Operating lease ROU			447				1,002
Excess			-				-
Capital loss carryover			-				-
NOL utilization			(1,724,463	)			(1,313,964	)
Valuation allowance			-				-
		$	-			$	-

 

At June 30, 2024, the Company had net operating loss carryforwards of approximately $7,020,239 that may be offset against past and future taxable income from the year 2024 forward. A significant portion of the net operating loss carryforwards began to expire in 2019. No tax benefit has been reported in the June 30, 2024 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 operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. In January of 2009 the Company acquired Prescient Applied Intelligence, Inc. which had significant net operating loss carryforwards. Due to the change in ownership, Prescient’s (subsequently renamed Park City Group then ReposiTrak) net operating loss carryforwards may be limited as to use in future years. The limitation will be determined on a year-to-year basis. In June of 2015 the Company acquired ReposiTrak, 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. In December of 2023 ReposiTrak was merged into the Park City Group subsidiary (subsequently named ReposiTrak) which caused the remaining original ReposiTrak entity net operating loss carryforwards to be lost.

 

The Company determines whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, the Company measures the tax position 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.

 

The Company has concluded that there are no significant uncertain tax positions requiring disclosure, and there are not material amounts of unrecognized tax benefits.

 

The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of June 30, 2024, the Company had no accrued interest or penalties related to uncertain tax positions.

 

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NOTE 11.

COMMITMENTS AND CONTINGENCIES

 

Leases

 

On May 1, 2019, the Company completed the expansion of new equipment for the Company’s information technology infrastructure, buildout of its corporate headquarters, and expansion of its collocation data center, which it completed using approximately $1,269,000 (the “Lease Amount”) of funds provided by U.S. Bank to finance equipment and services related to the Company’s expansion and relocation pursuant to that certain lease agreement, originally entered into by and between the Company and U.S. Bank on January 9, 2019 (the “Lease Agreement”). 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 initial 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. On July 30, 2020 the Company made an early repayment of the entire 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.

 

On June 21, 2018 the Company entered into an office lease at 5282 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.

 

On March 1, 2022, the Company exercised the option to renew the office lease for an additional three-year term. Terms of the lease were modified to reduce the space to approximately 5,000 square feet commencing March 1, 2022. The monthly rent is $5,871 with an annual increase of 3% each year. The Company has the option of renewing for an additional three-year term.

 

Minimum future payments, including principal and interest, under the non-cancelable capital leases are as follows:

 

Year ending June 30:
2025		$	49,828

 

From time to time the Company may enter into or exit from diminutive operating 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 condition, results of operation or liquidity.

 

NOTE 12.

EMPLOYEE BENEFIT PLAN

 

The Company offers an employee benefit plan under Benefit Plan Section 401(k) of the Internal Revenue Code. Employees who have attained the age of 18 are eligible to participate. The Company, at its discretion, may match employee’s contributions at a percentage determined annually by the Board of Directors. During the period, the Company did not match contributions. There were no expenses for the years ended June 30, 2024 and 2023.

 

NOTE 13.

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 compensation 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 cash or 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.

 

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Officers, Key Employees, Consultants and Directors Stock Compensation

 

 

In January 2013, the Board of Directors approved the Second Amended and Restated 2011 Stock Plan (the “Amended 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. The Company’s Amended 2011 Plan terminated on April 1, 2023, and no new awards were granted under the 2011 Plan thereafter. Awards outstanding under the 2011 Plan remain subject to the 2011 Plan. Any shares subject to outstanding awards under the 2011 Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2023 Plan, as defined below.

 

In August 2023, our Board of Directors approved the 2023 Omnibus Equity Incentive Plan (the “2023 Plan”), which plan was approved by shareholders on November 20, 2023. Under the terms of the 2023 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 2023 Plan is 400,000 shares. A Committee of independent members of the Company’s Board of Directors administers the 2023 Plan.

 

In August 2023, our Board of Directors approved the 2023 Employee Stock Purchase Plan (the “2023 ESPP”), which plan was approved by shareholders on November 20, 2023. Under the terms of the 2023 ESPP, all full- and part-time employees of the Company are eligible to participate. The maximum aggregate number of shares of Common Stock that may be granted under the 2023 ESPP is 50,000 shares. A Committee of independent members of the Company’s Board of Directors administers the 2023 ESPP.

 

The Company issued 0 and 38,291 shares to its directors during the years ended June 30, 2024 and 2023, respectively, under the Amended 2011 Plan. The Company issued 0 and 43,523 shares to employees and consultants during the years ended June 30, 2024 and 2023, respectively, under the Amended 2011 Plan.

 

The Company issued 18,978 and 0 shares to its directors during the years ended June 30, 2024 and 2023, respectively, under the 2023 Plan. The Company issued 64,266 and 0 shares to employees and consultants during the years ended June 30, 2024 and 2023, respectively, under the 2023 Plan.

 

The Company issued 19,635 and 0 shares to its employees during the years ended June 30, 2024 and 2023, respectively, under its 2023 ESPP.

 

The Company holds no treasury stock.

 

Vested and issued shares under the Amended 2011 plan for the fiscal year ending  June 30, 2024 and  June 30, 2023 totaling 0 and 25,995, respectively, and vested and issued shares under the 2023 Plan for the fiscal year ending  June 30, 2024 and June 30, 2023 totaling 69,437 and 0, respectively are included in the roll-forward of restricted stock units below.

 

Restricted Stock Units

 

						Weighted
						Average
		Restricted				Grant Date
		Stock				Fair Value
		Units				($/share)
Outstanding at July 1, 2022			906,155				5.34
Granted			61,859				5.02
Vested and issued			(25,995	)			5.77
Forfeited			(34,568	)			5.52
Outstanding at June 30, 2023			907,451				5.30
Granted			15,130				10.55
Vested and issued			(69,437	)			5.53
Forfeited			-				-
Outstanding at June 30, 2024			853,144				5.37

 

The number of restricted stock units outstanding at June 30, 2024 includes 2,483 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, 2024, there was approximately $4.6 million of unrecognized stock-based compensation obligations under our equity compensation plans. The stock-based compensation obligation is in connection with certain employment agreements which have a deferral option at the Board’s discretion. At the end of the deferral period, the stock-based compensation expense associated with the obligation is expected to be recognized on a straight-line basis over a period of three years.

 

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Warrants

 

Outstanding warrants were issued in connection 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, 2024:

 

Warrants Outstanding																Warrants Exercisable
at June 30, 2024																at June 30, 2024
Range of								Weighted average				Weighted								Weighted
exercise				Number				remaining contractual				average				Number				average
prices				Outstanding				life (years)				exercise price				exercisable				exercise price
$	4.00				1,085,068				1.60			$	4.00				1,085,068			$	4.00
$	10.00				23,737				1.57			$	10.00				23,737			$	10.00
					1,108,805				1.60			$	4.13				1,108,805			$	4.13

 

Preferred Stock

 

The Company’s articles of incorporation currently authorizes the issuance of up to 30,000,000 shares of ‘blank check’ preferred stock, par value $0.01 (“Preferred Stock”) with designations, rights, and preferences as may be determined from time to time 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 additional 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 positively impacts the Company’s coverage ratios; (ii) possesses a below market dividend rate relative to similar instruments; (iii) offers the flexibility of a paid-in-kind (PIK) payment option; and (iv) is without covenants. After exploring alternative options for redeeming the Series B-1 Preferred, management determined that alternative financing options 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.

 

Preferred Redemption

 

Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock, as amended (the “Series B-1 COD”) provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).

 

On August 29, 2023, the Board approved the redemption and retirement of its Series B Preferred and Series B-1 Preferred for their stated value, or $10.70 for each share of Preferred Stock, resulting in an aggregate purchase price of $8,964,214 (the “Preferred Redemption”). The Preferred Redemption is to occur over a three year period beginning August 29, 2023.

 

As of June 30, 2024, a total of 616,470 shares of Series B Preferred and 0 shares of Series B-1 Preferred were issued and outstanding. Since inception, a total of 221,307 Preferred shares at the redemption price of $10.70 per share have been redeemed for a total of $2,367,985.

 

The following table provides information about the redemption and retirement of the Series B Preferred during the year ended June 30, 2024:

 

		Series B Preferred
										Dollars				Remaining
										Expended				Amount
		Total								by Period				Available
		Number of								under the				for Future
		Shares				Price Paid				Preferred				Preferred
Period (1)		Redeemed				Per Share				Redemption				Redemption
July 1, 2023 – September 30, 2023:			-			$	10.70			$	-
October 1, 2023 – December 31, 2023:			-			$	10.70			$	-			$	6,691,513
January 1, 2024 – March 31, 2024:			-			$	10.70			$	-			$	6,691,513
April 1, 2024 – June 30, 2024:			8,905			$	10.70			$	95,284			$	6,596,229
Total			8,905							$	95,284			$	6,596,229

 

(1)	We close our books and records on the last calendar day of each month to align our financial closing with our business processes.

 

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The following table provides information about the redemption and retirement of the Series B-1 Preferred during the three months ended June 30, 2024:

 

		Series B-1 Preferred
										Dollars				Remaining
										Expended				Amount
		Total								by Period				Available
		Number of								under the				for Future
		Shares				Price Paid				Preferred				Preferred
Period (1)		Redeemed				Per Share				Redemption				Redemption
July 1, 2023 – September 30, 2023:			-			$	10.70			$	-
October 1, 2023 – December 31, 2023:			70,093			$	10.70			$	749,995			$	1,522,706
January 1, 2024 – March 31, 2024:			70,093			$	10.70			$	749,995			$	772,711
April 1, 2024 – June 30, 2024:			72,216			$	10.70			$	772,711			$	-
Total			212,402							$	2,272,701			$	-

 

(1)	We close our books and records on the last calendar day of each month to align our financial closing with our business processes.

 

Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock, as amended (the “Series B-1 COD”) provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).

 

As of June 30, 2024, a total of 616,470 shares of Series B Preferred and 0 shares of Series B-1 Preferred were issued and outstanding.

 

Share Repurchase Program

 

On May 9, 2019, our Board of Directors approved the repurchase of up to $4.0 million in shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 10b-18 of the Exchange Act.

 

On March 17, 2020, the Board, given the extreme uncertainty due to COVID-19 at the time, suspended the Share Repurchase Program.

 

On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the number of shares of Common Stock available to repurchase under the Share Repurchase Program by an additional $4 million bringing the total number of Common Stock authorized to repurchase under the Share Repurchase Program to $8.0 million.

 

On August 31, 2021, our Board of Directors approved a further increase to its Share Repurchase program to $12.0 million in shares of our Common Stock which added an additional $4 million to the Share Repurchase Program.

 

On May 10, 2022, our Board of Directors approved an increase of $9.0 million in the number of shares of Common Stock available to repurchase under the Share Repurchase Program.

 

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Since inception of the Share Repurchase Program through June 30, 2024, a total of $21,000,000 in shares of Common Stock have been approved under the Share Repurchase Program, and 2,122,703 shares of Common Stock have been repurchased at an average purchase price of $6.13, resulting in $7,992,206 remaining available to repurchase under the current Share Repurchase Program. From time-to-time, our Board of Directors may authorize further increases to our Share Repurchase Program. In addition, the Share Repurchase Program may also be suspended for periods of time or discontinued at any time, at the Board’s discretion.

 

The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the years ended June 30, 2024 and 2023:

 

														Remaining
														Amount
														Available for
										Dollars				Future
		Total								Expended				Share
		Number								by Period				Repurchases
		of Shares				Average				Under the				Under the
		Purchased				Price Paid				Plans or				Plans or
Period (1)		by Period				Per Share				Programs				Programs
Year Ended June 30, 2023:
July 1, 2022 – September 30, 2022			20,859			$	4.97			$	103,657			$	10,713,447
October 1, 2022 – December 31, 2022			88,741			$	5.05			$	448,266			$	10,265,181
January 1, 2023 – March 31, 2023			74,150			$	5.79			$	429,271			$	9,835,910
April 1, 2023 – June 30, 2023			47,847			$	6.86			$	328,129			$	9,507,781
Year Ended June 30, 2024:
July 1, 2023 – September 30, 2023			155,025			$	8.53			$	1,322,082			$	8,185,698
October 1, 2023 – December 31, 2023			22,012			$	8.79			$	193,492			$	7,992,206
January 1, 2024 – March 31, 2024			-			$	-			$	-			$	7,992,206
April 1, 2024 – June 30, 2024			-			$	-			$	-			$	7,992,206

 

(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 14.

RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

Effective July 1, 2019, the Company adopted the requirements of ASU 2016-02. All amounts and disclosures set forth in this Annual Report have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

 

NOTE 15.

RELATED PARTY TRANSACTIONS

 

Service Agreement. During the year ended June 30, 2024, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“FMI”), pursuant to which FMI provided certain executive management services to the Company, including designating Mr. Fields to perform the functions of President and Chief Executive Officer for the Company. Mr. Fields, FMI’s designated executive, who also serves as the Company’s Chair of the Board of Directors, controls FMI. The Company had no payables to FMI at June 30, 2024 and 2023 respectively, under the Service Agreement.

 

During the year ended  June 30, 2024, the Company, the Company redeemed and retired and aggregate of $95,284 in Series B Preferred and $2,272,701 in Series B-1 Preferred from Mr. Randall K. Fields, affiliates of Mr. Fields, and Robert W. Allen. Mr. Allen is a director of the Company.

 

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NOTE 16.

SUBSEQUENT EVENTS

 

In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events, through the filing date and noted no events have occurred subsequent to June 30, 2024 that are reasonably likely to impact the Company’s financial statements.