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. 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. 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.




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Overview

The Company is a SaaS provider, and the parent company of ReposiTrak, a B2B e-commerce, compliance, and supply chain management platform company that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies. The Company's fiscal year ends on June 30. References to fiscal 2020 refer to the fiscal year ended June 30, 2020.

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 Spokes to utilize the Company's services. The Company derives revenue from five sources: (i) subscription fees, (ii) transaction based fees, (iii) professional services fees, (iv) license fees, and (v) hosting and maintenance fees

A significant portion of the Company's revenue is generated from its Supply Chain solutions and Compliance and Food Safety solutions in the form of recurring subscription payments 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.

Revenue from the Company's MarketPlace sourcing solution is transactional, based on the volume of products sourced via the application. MarketPlace revenue can come from several sources depending on the customer's specific requirements. These include acting as an agent for a supplier, providing supply chain technology services, and enabling a Hub to reduce its number of new suppliers by acting as the supplier for any number of products.

The Company also provides professional 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 addition fee.

In some instances, the Company will 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 Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606), and its related amendments ("ASU 2014-09"). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers.

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




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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 United States of America ("GAAP"). These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent 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.




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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.

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 August 2018, the FASB issued ASU 2018-15 Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. The update requires a customer in a hosting arrangement to capitalize certain implementation costs. Costs associated with the application developmentstage of the implementation should be capitalized and costs with the other stages should be expensed. For instance, costs for training and data conversion should be expensed. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which is the noncancelable period plus periods covered by an option to extend if the customer is reasonably certain to exercise the option. Impairment of the capitalized costs should be considered similar to other intangibles. The effective date of this update is effective for annual reporting periods beginning after December 15, 2019 for public entities and after December 15, 2020 for all other entities with early adoption permitted. The Company is a customer in a hosting arrangement and may enter into new arrangements in the future. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company's condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company's condensed consolidated financial statements.




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In June 2018, the FASB issued ASU 2018-07 Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to this update, equity-based payments to non-employees was accounted for under Subtopic 505-50 resulting in significant differences between the accounting for share-based payments to non-employees as compared to employees. One of the most significant changes is that non-employee share-based awards (classified as equity awards) may be measured at grant-date fair value and not have to be continually revalued until the service/goods are rendered. The update also indicates that share-based awards related to financing and awards granted to a customer in conjunction with selling goods or services are not included in Topic 718. This standard is effective for interim and annual reporting periods beginning after December 15, 2018 for public entities and December 15, 2019 for all other entities. Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606. The Company adopted the standard during the first quarter of fiscal year 2020. This standard did not have a material impact on the Company's condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which amends and simplifies the accounting standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount a reporting unit's carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company adopted the standard during the fourth quarter of fiscal year 2020. This standard did not have a material impact on the Company's condensed consolidated financial statements.

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

Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). All amounts and disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for 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, 2020 and 2019



Revenue


        Year Ended    $             %      Year Ended
        June 30, 2020 Change        Change June 30, 2019

Revenue $20,038,054 $(1,131,554) -5% $21,169,608

During the fiscal year ended June 30, 2020, the Company had revenue of $20,038,054 compared to $21,169,608 for the year ended June 30, 2019, a 5% decrease. This $1,131,554 decrease was primarily due to our planned reduction of one-time revenue offset by a 13% increase in recurring revenue and the increase in revenue attributable to MarketPlace. Marketplace growth principally reflects the adoption of sourcing hard to find items including personal protection equipment ("PPE") and other items sourced by grocery retailers, convenience stores, medical groups and others in light of the outbreak of COVID-19. Management believes that the awareness of MarketPlace to source hard to get items may result in acceleration of the benefits of MarketPlace to source products traditionally sourced by the Company's retail and wholesale partners.

Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a certain percentage of customers that will require buying a particular service outright (i.e. a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when unnecessary.




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The COVID-19 outbreak has created significant economic uncertainty and volatility, creating uncertainty regarding the impact of such outbreak on our business, operations and financial results. In this regard, the continued duration and impact of the outbreak on our operations and financial results cannot be determined at this time, although management currently believes that our ability to sell and provide our services and solutions resulting from shelter in place restrictions, and the closures of our and our clients' offices and facilities has extended sales cycles, and has therefore had an impact. While no assurances can be given, these events could materially and adversely affect our business, financial condition and results from operations.

Cost of Services and Product Support




                                    Year Ended    $            %      Year Ended
                                    June 30, 2020 Change       Change June 30, 2019

Cost of service and product support $6,997,424 $1,167,340 20% $5,830,084 Percent of total revenue

             35%                               28%

Cost of services and product support was $6,997,424 or 35% of total revenue, and $5,830,084 or 28% of total revenue for the years ended June 30, 2020 and 2019, respectively, an 20% increase. This increase of $1,167,340 is primarily the result of (i) higher expense associated with MarketPlace; and (ii) an increase in hardware/software non-capitalized items required for updating our information systems security, and maintaining equipment licensing and other database systems.



Sales and Marketing Expense


                         Year Ended    $           %      Year Ended
                         June 30, 2020 Change      Change June 30, 2019

Sales and marketing $5,775,309 $(231,288) -4% $6,006,597 Percent of total revenue 29%

                              28%

The Company's sales and marketing expense was $5,775,309, or 29% of total revenue, and $6,006,597, or 28% of total revenue, for the fiscal years ended June 30, 2020 and 2019, respectively, a 4% decrease. This decrease in sales and marketing expense is due to a decrease in commissions from lower revenue and lower professional fees. Additionally, travel expenses decreased as a result of COVID-19 due to the Company suspending all unnecessary business-related travel.

General and Administrative Expense




                           Year Ended    $          %      Year Ended
                           June 30, 2020 Change     Change June 30, 2019

General and administrative $4,948,443 $206,238 4% $4,742,205 Percent of total revenue 25%

                             22%

The Company's general and administrative expense was $4,948,443, or 25% of total revenue, and $4,742,205 or 22% of total revenue for the years ended June 30, 2020 and 2019, respectively, a 4% increase. This $206,238increase is primarily due to an increase in bad debt expense offset by a decrease in rent, travel and professional service fees.




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Depreciation and Amortization Expense




                              Year Ended    $          %      Year Ended
                              June 30, 2020 Change     Change June 30, 2019

Depreciation and amortization $838,866 $237,433 39% $601,433 Percent of total revenue 4%

                              3%

The Company's depreciation and amortization expense was $838,866 and $601,433 for the years ended June 30, 2020 and 2019, respectively, a 39% increase. This increase is primarily due to the expansion of new equipment for the Company's information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center in 2019.

Other Income and Expense




                           Year Ended    $          %      Year Ended
                           June 30, 2020 Change     Change June 30, 2019

Other income and (expense) $157,176 $101,349 182% $55,827

<1%

Percent of total revenue 1%

Other income was $157,176 compared to $55,827 for the year ended June 30, 2019. This increase of $101,349 for the year ended June 30, 2020 when compared to the year ended June 30, 2019 was due to lower interest rates and an increase in interest expense associated with financing arrangements for equipment purchased under a lease arrangement with a bank. Additionally, there was a loss on a sale of investment in the comparable prior period.



Preferred Dividends


                         Year Ended    $      %      Year Ended
                         June 30, 2020 Change Change June 30, 2019

Preferred dividends $586,444 $1 0% $586,443 Percent of total revenue 3%

                          2%

Dividends accrued on the Company's Series B Preferred and Series B-1 Preferred was $586,444 for the year ended June 30, 2020, compared to dividends accrued on the Series B Preferred and Series B-1 Preferred of $586,443 for the year ended June 30, 2019. Dividends remained flat in the comparable periods.

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 and expansion of our sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products.




                          Year Ended    $            %      Year Ended
                          June 30, 2020 Change       Change June 30, 2019

Cash and Cash Equivalents $20,345,330 $1,735,907 9% $18,609,423






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We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank National Association, which line of credit was amended during the quarter ended March 31, 2020 to, among other matters, extend the maturity date to December 31, 2020 and increase the interest rate in the event of a default to 5% per annum.

Cash was $20,345,330 and $18,609,423 at June 30, 2020 and 2019, respectively. This 9% increaseis principally the result of cash flow from operations and from the receipt of approximately $1.1 million in proceeds from the PPP Loan .

Net Cash Flows from Operating Activities




                                          Year Ended    $           %         Year Ended
                                          June 30, 2020 Change       Change   June 30, 2019

Cash provided by operating activities $4,196,139 $(382,716) -8% $4,578,855

Net cash provided by operating activities is summarized as follows:




                                                2020         2019

Net income                                       $1,593,269   $3,902,406
Noncash expense and income, net                  2,084,287    1,663,314

Net changes in operating assets and liabilities 518,583 (986,865)

$4,196,139   $4,578,855

Net cash provided by operating activities for the year ended June 30, 2020 was $4,196,139 compared to net cash provided by in operating activities of $4,578,855 for the year ended June 30, 2019. Net cash provided by operating activities decreased 8% primarily as the result of decreased overall revenue, slower collections on existing accounts as a result of COVID 19, and higher operating expense associated with Marketplace. Noncash expense increased by $420,973 in the year ended June 30, 2020 as compared to June 30, 2019 as a result of an increase in depreciation and accounts payable.

Net Cash Flows Used in Investing Activities




                                  Year Ended    $         %      Year Ended
                                  June 30, 2020 Change    Change June 30, 2019

Cash used in investing activities $(650,422) 319,574 -33% $(969,996)

Net cash used in investing activities for the year ended June 30, 2020 was $650,422 compared to net cash used in investing activities of $969,996 for the year ended June 30, 2019. This decrease in cash used in investing activities for the year ended June 30, 2020 was primarily due to the prior year expansion of new equipment for the Company's information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center in 2019.

Net Cash Flows from Financing Activities




                                          Year Ended    $             %         Year Ended
                                          June 30, 2020  Change       Change    June 30, 2019

Cash provided by (used in) financing
activities                                 $(1,809,810)  $(1,917,935)  -1774%    $108,125




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Net cash used in financing activities totaled $1,809,810 for the year ended June 30, 2020 compared to net cash provided by financing activities of $108,125 for the year ended June 30, 2019. The increase in net cash used in financing activities is primarily attributable to the receipt of approximately $1.1 million from the proceeds from the PPP Loan, offset by an increase in cash used for the buyback of Common Stock.

Liquidity and Working Capital

At June 30, 2020, the Company had positive working capital of $18,236,664, as compared with positive working capital of $17,746,257at June 30, 2019. This $490,407 increase in working capital is primarily due to the receipt of cash from operations and the receipt of approximately $1.1 million from proceeds received from the PPP Loan, offset by cash used in the buyback of Common Stock.




               As of         As of
               June 30,      June 30,      Variance


               2020          2019           Dollars    Percent

Current assets $27,148,911 $26,548,874 $600,037 2%

Current assets as of June 30, 2020 totaled $27,148,911, an increase of $600,037, as compared to $26,548,874 as of June 30, 2019. The increase in current assets is primarily attributable to a decrease in prepaid expense and cash from the proceeds from the PPP Loan, offset by an increase in cash used to buyback Company Common Stock.




                    As of          As of
                    June 30,     June 30,     Variance


                    2020          2019         Dollars   Percent

Current liabilities $8,912,247 $8,802,617 $109,630 1%

Current liabilities totaled $8,912,247 as of June 30, 2020 as compared to $8,802,617 as of June 30, 2019. The comparative increase in current liabilities is primarily attributable to a decrease of $398,637 in accrued liabilities and accounts payable, an increase in operating lease liability of $85,767 due to accounting changes, a decrease of $72,440 in deferred revenue, and an increase in current portion of notes payable of $494,940.

While no assurances can be given, management currently believes that the Company will continue to increase its cash flow from operations and working capital position in subsequent periods, and that it will have adequate cash resources to fund its operations and satisfy its debt obligations for at least the next 12 months.

Contractual Obligations

Total contractual obligations and commercial commitments as of June 30, 2020 are summarized in the following table:




                                         Payment Due by Year


                                                     Less than                      More than
                                         Total       1 Year     1-3 Years 3-5 Years 5 Years

Finance lease obligations                 $920,754    $310,242   610,512   -         -
Operating lease obligation                781,136     85,767     184,925   204,269   306,175
PPP loans                                 1,109,350   479,866    629,484   -         -




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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.

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