# ReposiTrak, Inc. (TRAK) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ReposiTrak, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/50471/000143774923027054/pcyg20230630_10k.htm
Accession: 0001437749-23-027054
Filing date: 2023-09-28
Report date: 2023-06-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TRAK/
All MD&A years: /company/TRAK/mda/
Previous year: /company/TRAK/mda/fy2022/ (FY 2022)
Next year: /company/TRAK/mda/fy2024/ (FY 2024)

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

Park City Group, Inc., a Nevada corporation (“Park City Group”, “we”, “us”, “our” or, the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc. a Utah corporation (“ReposiTrak”), a business-to-business (“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 2023 refer to the fiscal year ended June 30, 2023, and references to fiscal 2022 refer to the fiscal year ended June 30, 2022.

16

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 retailers and wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services. The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace (“MarketPlace”), encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers; (ii) ReposiTrak Compliance and Food Safety (“Compliance and Food Safety”) solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers; and (iii) ReposiTrak’s Supply Chain (“Supply Chain”) solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers. 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 historically has been 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 additional 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 (“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.

17

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.

18

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, 2023 and 2022

Revenue

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Revenue","","$","19,098,910","","","$","1,051,969","","","","6","%","","$","18,046,941"]]
[[/GREPCENT_TABLE]]

During the fiscal year ended June 30, 2023, the Company had revenue of $19,098,910 as compared to $18,046,941 for the year ended June 30, 2022, an increase of 6%. The increase in revenue during the period was due to revenue growth in subscription, services and other recurring revenue in all areas of the business, particularly compliance and supply chain. This is the result of growing industry and consumer concern of 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 risk concerns and disclosure requirements, the Company has seen a rising demand for its services.

During fiscal 2022, 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 personal protective equipment (“PPE”) which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company experienced a significant increase in MarketPlace revenue for PPE during the height of COVID-19, it is uncertain what or if any demand for PPE will continue in fiscal 2024. As a result, we may experience significant swings in MarketPlace revenue as the pandemic continues to abate. 

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, including MarketPlace revenue. However, we believe there will continue to be a small percentage of customers that will require buying a particular service outright (i.e., a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when we are able.

19

Cost of Services and Product Support

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Cost of service and product support","","$","3,309,345","","","$","122,633","","","","4","%","","$","3,186,712"],["Percent of total revenue","","","17","%","","","","","","","","","","","18","%"]]
[[/GREPCENT_TABLE]]

Cost of services and product support was $3,309,345 or 17% of total revenue, and $3,186,712 or 18% of total revenue for the years ended June 30, 2023 and 2022, respectively, an increase of 4%. This increase is primarily the result of (1) increased salary and IT support and maintenance costs. Given the rise in cyber-attacks around the globe, we continue to expand our cyber security infrastructure which includes expenditures on; (1) identification (2) protection (3) detection (4) response, and, (5) recovery. We increased spending by $72,112 in the areas of detection, response and recovery during the period.

Sales and Marketing Expense

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Sales and marketing","","$","4,933,405","","","$","79,479","","","","2","%","","$","4,853,926"],["Percent of total revenue","","","26","%","","","","","","","","","","","27","%"]]
[[/GREPCENT_TABLE]]

The Company’s sales and marketing expense was $4,933,405, or 26% of total revenue, as compared to $4,853,926, or 27% of total revenue, for the fiscal years ended June 30, 2023 and 2022, respectively, an increase of 2%. This increase in sales and marketing expense is primarily due to an increase in trade show expense, investment in FSMA 204 traceability marketing, and higher sales travel expense. As the pandemic continues to abate, many customers and prospects are returning to the “new normal” requiring in person meetings. The largest contributor to the increase in sales and marketing expense has been an increase in travel cost and trade shows. We believe this trend will continue as many of our trading partners, industry associations will continue to require our assistance in addressing their compliance and supply chain needs “in-person.”  Given the complexity of FSMA 204 requirements, our customers require additional assistance in evaluating their locations for onboarding.  In many cases, this requires multiple onsite meetings with distribution centers, warehouse operations, and store locations.

General and Administrative Expense

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["General and administrative","","$","4,685,783","","","$","(30,348",")","","","-1","%","","$","4,716,131"],["Percent of total revenue","","","25","%","","","","","","","","","","","26","%"]]
[[/GREPCENT_TABLE]]

The Company’s general and administrative expense was $4,685,783, or 25% of total revenue, and $4,716,131 or 26% of total revenue for the years ended June 30, 2023 and 2022, respectively, a decrease of 1%. The decrease in general and administrative expense is primarily due to a refund of payroll taxes associated with the Employee Retention Credit (“ERC”). The ERC is a refund or certain payroll taxes for businesses that continued to pay employees while shut down temporarily due to the COVID-19 pandemic or had significant declines in gross receipts. During fiscal 2023, the Company received approximately $1.175 million in payroll tax refunds, net of fees.  The ERC refund was offset by increases in bad debt expense, increase costs of benefits for employees, and higher payroll costs due to a tight labor market.

Depreciation and Amortization Expense

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Depreciation and amortization","","$","1,079,799","","","$","204,248","","","","23","%","","$","875,551"],["Percent of total revenue","","","6","%","","","","","","","","","","","5","%"]]
[[/GREPCENT_TABLE]]

20

The Company’s depreciation and amortization expense was $1,079,799 and $875,551 for the years ended June 30, 2023 and 2022, respectively, an increase of 23%. This increase is due to additional assets acquired in fiscal year 2023. As previously stated in Cost of Services and Product Support, we expend resources on both services and technology infrastructure.  Historically, we spend between $250-$500k per annum on updating our hardware and cybersecurity infrastructure.  During the period, we expended an additional $327,323 on hardware and software for both our Murray, UT datacenter and our Las Vegas data center to further provide redundancy and bolster our technology infrastructure to defend against cyber-attacks.

Other Income and Expense

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Net other income and (expense)","","$","821,082","","","$","1,102,640","","","","392","%","","$","(281,558",")"],["Percent of total revenue","","","4","%","","","","","","","","","","","2","%"]]
[[/GREPCENT_TABLE]]

Net other income was $821,082 compared to net other expense of $281,558 for the years ended June 30, 2023 and 2022, respectively. Other income increased due to (1) an increase in interest income due to rising interest rates on fixed income instruments on excess cash; and (2) offset by realized losses of certain short-term investments held in U.S. treasuries and other securities that occurred in prior fiscal year. Although rising interest rates provided additional interest income, the Company recognized a decline in its bond portfolio and other fixed income instruments on excess cash. The Company has zero bank debt.  However, the Company does recognize interest expense associated with employee credit cards and financing arrangements due to leases or other payment arrangements.

Preferred Dividends

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Preferred dividends","","$","586,444","","","$","-","","","","-","%","","$","586,444"],["Percent of total revenue","","","3","%","","","","","","","","","","","3","%"]]
[[/GREPCENT_TABLE]]

Dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred was $586,444 and $586,444 for the years ended June 30, 2023 and 2022, respectively. 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, 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.

[[GREPCENT_TABLE]]
[["","","As of","","","Variance"],["","","June 30, 2023","","","June 30, 2022","","","Dollars","","","Percent"],["Cash and cash equivalents","","$","23,990,879","","","$","21,460,948","","","$","2,529,931","","","","12","%"]]
[[/GREPCENT_TABLE]]

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., which was revised on October 6, 2021 and again in 2022.

Cash was $23,990,879 and $21,460,948 at June 30, 2023 and 2022, respectively. This 12% increase is principally the result of (1) sales growth, (2) collections of accounts receivable, (3) offset by paying down over $2.6 million of our existing line of credit, and (3) the purchase of common stock under our existing buyback plan, and (4) payment of dividends on both the preferred stock and common stock.   Cash was also impacted by lower overall cash operating expense, receiving cash in advance on subscriptions, and the previously disclosed $1.1 million received in conjunction with the ERC.

Net Cash Flows from Operating Activities

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Cash provided by operating activities","","$","8,860,019","","","$","2,758,402","","","","45","%","","$","6,101,617"]]
[[/GREPCENT_TABLE]]

21

Net cash provided by operating activities is summarized as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","Year Ended June 30, 2022"],["Net income","","$","5,590,289","","","$","4,003,095"],["Noncash expense and income, net","","","2,828,231","","","","2,329,260"],["Net changes in operating assets and liabilities","","","441,499","","","","(230,738",")"],["","","$","8,860,019","","","$","6,101,617"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities for the year ended June 30, 2023 was $8,860,019 compared to net cash provided by operating activities of $6,101,617 for the year ended June 30, 2022. Net cash provided by operating activities increased 45% due largely to (1) higher revenue and collection of monthly subscription fees paid annually in advance, (2) collection of outstanding receivables, (3) an increase in prepaids and other assets and (3) an increase in deferred revenue offset by a decrease in accounts payable. Noncash expense increased by $498,971 for the year ended June 30, 2023 compared to the year ended June 30, 2022 as a result of increased depreciation and amortization of certain assets and an increase in bad debt expense.

Net Cash Flows Used in Investing Activities

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Cash provided by (used in) investing activities","","$","(903,187",")","","$","2,226,449","","","","168","%","","$","1,323,262"]]
[[/GREPCENT_TABLE]]

Net cash used in investing activities for the year ended June 30, 2023 was $903,187 compared to net cash provided by investing activities of $1,323,262 for the year ended June 30, 2022. This increase in cash used in investing activities for the year ended June 30, 2023 was due to the sale of property and equipment in prior fiscal year and the capitalization of software costs incurred in development of the ReposiTrak Traceability Network® (“RTN”).

Net Cash Flows from Financing Activities

[[GREPCENT_TABLE]]
[["","","Year Ended June 30, 2023","","","$ Change","","","% Change","","","Year Ended June 30, 2022"],["Cash used in financing activities","","$","(5,426,901",")","","$","(4,607,352",")","","","-46","%","","$","(10,034,253",")"]]
[[/GREPCENT_TABLE]]

Net cash used in financing activities totaled $5,426,901 for the year ended June 30, 2023 compared to net cash used in financing activities of $10,034,253 for the year ended June 30, 2022. The decrease in net cash used in financing activities is primarily attributable to the $2.6 million payoff of our line of credit arrangement with a bank in prior fiscal year and the purchase of stock under the Share Repurchase Program. This was partially offset with the quarterly payment of cash dividends on common stock declared in prior fiscal year.

Liquidity and Working Capital

At June 30, 2023, the Company had positive working capital of $23,042,199, as compared with positive working capital of $20,485,875 at June 30, 2022. This $2,556,324 increase in working capital is primarily due to a decrease in liability as a result of the payoff of a financing arrangement with a bank. Cash and cash equivalents also increased due to higher sales, cash-in-advance customers, higher rate of return on excess capital and the receipt of the previously disclosed $1.1 million in conjunction of the ERC.

[[GREPCENT_TABLE]]
[["","","As of June 30,","","","As of June 30,","","","Variance"],["","","2023","","","2022","","","Dollars","","","Percent"],["Current assets","","$","27,274,620","","","$","26,582,709","","","$","691,911","","","","3","%"]]
[[/GREPCENT_TABLE]]

22

Current assets as of June 30, 2023 totaled $27,274,620, an increase of $691,911, as compared to $26,582,709 as of June 30, 2022. The increase in current assets is primarily attributable to a net increase in cash and cash equivalents offset with a decrease in contract assets and prepaid expense of $1,195,839 and a decrease in accounts receivable of $642,181.

[[GREPCENT_TABLE]]
[["","","As of June 30,","","","As of June 30,","","","Variance"],["","","2023","","","2022","","","Change","","","Percent"],["Current liabilities","","$","4,232,421","","","$","6,096,834","","","$","(1,864,413",")","","","-31","%"],["Current Ratio","","","6.44","","","","4.36","","","","2.08","","","","48","%"]]
[[/GREPCENT_TABLE]]

Current liabilities totaled $4,232,421 as of June 30, 2023 as compared to $6,096,834 as of June 30, 2022. The decrease in current liabilities is primarily attributable to the corresponding payoff of $2.6 million in our line of credit. As of June 30, 2023, the Company has zero bank debt.

On October 6, 2021, the Company and the Bank executed the Credit Agreement, with an effective date of September 30, 2021 which is amended annually to reflect the needs of the Company.

The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023.

On April 28, 2023, the Company and the Bank executed an Amendment to the existing $10.0 million Credit Agreement, with an effective date of March 31, 2023. The new amendment provisions to the existing $10 million facility are (1) the Company will increase its liquidity requirement from $10 million to $12 million. Currently the Company maintains over $22 million in cash and a current ratio of over 6:1. (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, 2023, the balance of the facility was zero. The Company has zero bank debt.

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.

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 and September 19, 2023, 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 (the “Preferred Redemption”).  The Preferred Redemption is to occur over the next three years from September 12, 2023. The Company believes it will have adequate cash resources to fund its operations, satisfy its debt obligations, and fund its anticipated quarterly cash dividends and Preferred Redemption for at least the next 12 months.

Contractual Obligations

Total contractual obligations and commercial commitments as of June 30, 2023 are summarized in the following table:

[[GREPCENT_TABLE]]
[["","","Operating Leases","","","Financing Leases"],["Less than 1Year","","$","73,291","","","$","234,117"],["1-3 Years","","","153,245","","","","210,345"],["3-5 Years","","","134,536","","","","-"],["Total lease payments","","","361,072","","","","444,462"],["Less imputed interest","","","(39,254",")","","","(19,168",")"],["Total","","$","321,818","","","$","425,294"]]
[[/GREPCENT_TABLE]]

23

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.