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. 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

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 2021 refer to the fiscal year ended June 30, 2021.





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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.

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.





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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. The Company capitalized software development costs of $171,733 in the fiscal year ended June 30, 2021.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial 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 development stage of the implementation should be capitalized and costs with the other stages should be expensed. For instance, costs for training and data conversion should be expensed. The capitalized implementation costs should be expensed over the term of the hosting arrangement, which is the noncancelable period plus periods covered by an option to extend if the customer is reasonably certain to exercise the option. Impairment of the capitalized costs should be considered similar to other intangibles. The 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 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 consolidated financial statements.

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 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 consolidated financial statements.






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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, 2021 and 2020



Revenue


        Year Ended    $          %      Year Ended
        June 30, 2021 Change     Change June 30, 2020

Revenue $21,007,076 $969,022 5% $20,038,054

During the fiscal year ended June 30, 2021, the Company had revenue of $21,007,076 compared to $20,038,054 for the year ended June 30, 2020, a 5% increase. The increase in revenue was due to growth in both subscription revenue and Marketplace revenue, partially offset by approximately $145,500 in one-time license revenue that occurred in 2020 that did not reoccur in 2021.

During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of personel protective equipment ("PPE") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company has experienced a significant increase in Marketplace revenue for PPE during the height of COVID-19, it is uncertain whether demand for PPE will continue at the same level. As a result, we may experience reduced demand for MarketPlace attributable to PPE as the pandemic begins to abate.

Cost of Services and Product Support




                                    Year Ended    $            %      Year Ended
                                    June 30, 2021 Change       Change June 30, 2020

Cost of service and product support $6,884,647 $(112,777) -2% $6,997,424 Percent of total revenue

             33%                               35%

Cost of services and product support was $6,884,647 or 33% of total revenue, and $6,997,424 or 35% of total revenue for the years ended June 30, 2021 and 2020, respectively, a 2% decrease. This decrease is primarily the result of (i) higher expense associated to MarketPlace and the sales of PPE; and (ii) an increase in hardware/software non-capitalized items required for updating our information systems security, maintaining equipment licensing and other database systems.

While we have experienced a significant increase in Marketplace costs and corresponding revenue during the pandemic due to demand in PPE, it is unclear what level of ongoing Marketplace costs we may experience as the pandemic begins to abate.



Sales and Marketing Expense


                         Year Ended    $           %      Year Ended
                         June 30, 2021 Change      Change June 30, 2020

Sales and marketing       $4,995,578    $(779,731)  -14%   $5,775,309
Percent of total revenue  24%                              29%





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The Company's sales and marketing expense was $4,995,578, or 24% of total revenue, and $5,775,309, or 29% of total revenue, for the fiscal years ended June 30, 2021 and 2020, respectively, a 14% decrease. This decrease in sales and marketing expense is due primarily to a decrease in variable compensation, a reduction in trade show expense, and lower sales and marketing travel expense.

General and Administrative Expense




                           Year Ended    $          %      Year Ended
                           June 30, 2021 Change     Change June 30, 2020

General and administrative $5,214,936 $266,493 5% $4,948,443 Percent of total revenue 25%

                             25%

The Company's general and administrative expense was $5,214,936, or 25% of total revenue, and $4,948,443 or 25% of total revenue for the years ended June 30, 2021 and 2020, respectively, a 5% increase. General and administrative expense increased year over year due to an increase in bad debt expense and higher insurance costs. These increases were partially offset by lower general overhead due to cost cutting measures and natural reductions due to our "work from home" status since April of 2020.

Depreciation and Amortization Expense




                              Year Ended    $          %      Year Ended
                              June 30, 2021 Change     Change June 30, 2020

Depreciation and amortization $1,019,515 $180,649 22% $838,866 Percent of total revenue 5%

                              4%

The Company's depreciation and amortization expense was $1,019,515 and $838,866 for the years ended June 30, 2021 and 2020, respectively, a 22% increase. This increase is due to the expansion of new equipment for the Company's information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center completed in June 2020.



Other Income and Expense


                           Year Ended    $            %      Year Ended
                           June 30, 2021 Change       Change June 30, 2020

Other income and (expense) $1,301,892 $1,144,716 728% $157,176 Percent of total revenue 6%

                                1%

Other income was $1,301,892 compared to $157,176 for the years ended June 30, 2021, and 2020, respectively, a 728% increase. Other income increased due to recognition of a gain on debt extinguishment and higher interest income resulting from an increase of total cash held in short term investments offset in part by the increase in interest expense associated with financing arrangements for equipment purchased under a lease arrangement with a bank. The financing arrangement was paid off in August 2020.



Preferred Dividends


                         Year Ended    $      %      Year Ended
                         June 30, 2021 Change Change June 30, 2020

Preferred dividends $586,444 $- -% $586,444 Percent of total revenue 3%

                          3%

Dividends accrued on the Company's Series B Preferred and Series B-1 Preferred was $568,444 for the years ended June 30, 2021 and 2020, respectively. Dividends remained flat in the comparable periods.





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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.




                          Year Ended    $            %      Year Ended
                          June 30, 2021 Change       Change June 30, 2020

Cash and Cash Equivalents $24,070,322 $3,724,992 18% $20,345,330

We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank N.A.

Cash was $24,070,322 and $20,345,330 at June 30, 2021 and 2020, respectively. This 18% increaseis principally the result of growth in both software and MarketPlace revenue, collection of accounts receivable, and extinguished debt.

Net Cash Flows from Operating Activities




                                          Year Ended    $            %         Year Ended
                                          June 30, 2021 Change        Change   June 30, 2020

Cash provided by operating activities $5,401,815 $1,205,676 29% $4,196,139

Net cash provided by operating activities is summarized as follows:




                                                2021         2020

Net income                                       $4,117,395   $1,593,269
Noncash expense and income, net                  1,388,831    2,084,287

Net changes in operating assets and liabilities (104,411) 518,583

$5,401,815   $4,196,139

Net cash provided by operating activities for the year ended June 30, 2021 was $5,401,815 compared to net cash provided by in operating activities of $4,916,139 for the year ended June 30, 2020. Net cash provided by operating activities increased 29% due largely to higher revenues and lower operating costs. Noncash expense decreased by $695,456 in the year ended June 30, 2021 compared to June 30, 2020as a result of gain on debt extinguishment and an increase in depreciation and amortization offset by a decrease in stock compensation expense.

Net Cash Flows Used in Investing Activities




                                  Year Ended    $         %      Year Ended
                                  June 30, 2021 Change    Change June 30, 2020

Cash used in investing activities $(318,873) 331,549 -51% $(650,422)

Net cash used in investing activities for the year ended June 30, 2021 was $318,873 compared to net cash used in investing activities of $650,422 for the year ended June 30, 2020. This decrease in cash used in investing activities for the year ended June 30, 2021 was primarily due to the buildout of new Murray, UT headquarters and expansion of our data center that was completed in 2020 that did not occur in the same period in 2021.





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Net Cash Flows from Financing Activities




                                  Year Ended    $          %      Year Ended
                                  June 30, 2021  Change    Change June 30, 2020

Cash used in financing activities $(1,357,950) $451,860 -25% $(1,809,810)

Net cash used in financing activities totaled $1,357,950 for the year ended June 30, 2021 compared to net cash used in financing activities of $1,809,810 for the year ended June 30, 2020. The decrease in net cash used in financing activities is primarily attributable to the August 2020 payoff of a financing arrangement with a bank partially offset by a decrease in our stock buyback program.

Liquidity and Working Capital

At June 30, 2021, the Company had positive working capital of $20,400,991, as compared with positive working capital of $18,236,664at June 30, 2020. This $2,164,327 increase in working capital is primarily due to an increase in cash resulting from higher revenue.




               As of         As of
               June 30,      June 30,      Variance


               2021          2020           Dollars      Percent

Current assets  $29,701,774   $27,148,911   $2,552,863   9%

Current assets as of June 30, 2021 totaled $29,701,774, an increase of $2,552,863, as compared to $27,148,911 as of June 30, 2020. The increase in current assets is primarily attributable to an increase in cash of $3,724,992, a decrease in contract assets and prepaid expense of $1,056,512 and a decrease in accounts receivable of $115,617.




                    As of          As of
                    June 30,     June 30,     Variance


                    2021          2020         Dollars    Percent

Current liabilities $9,300,783 $8,912,247 $388,536 4%

Current liabilities totaled $9,300,783 as of June 30, 2021 as compared to $8,912,247 as of June 30, 2020. The comparative increase in current liabilities is primarily attributable to an increase of $1,340,000 in our line of credit, $161,356 decrease comprised of accrued liabilities and accounts payable, offset by a decrease of $790,108 of current portion of the notes payable and extinguished debt.

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, 2021 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

Operating lease obligations               $695,370   $90,156   $194,326   $214,783   $196,105





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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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