PARK CITY GROUP INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Glimpses |
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 Form 10-K 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 Form 10-K 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. (the "Company") is a Software-as-a-Service ("SaaS")
provider. The Company's technology helps companies to synchronize their systems
with those of their trading partners to make more informed business decisions.
We provide companies with greater flexibility in sourcing products by enabling
them to choose new suppliers and integrate them into their supply chain faster
and more cost effectively, and we help them to more efficiently manage these
relationships, enhancing revenue while lowering working capital, labor costs and
waste. Our ReposiTrak food safety solutions also help reduce a company's
potential regulatory, legal, and criminal risk from its supply chain partners by
providing a way for them to ensure these suppliers are compliant with food
safety regulations, such as the Food Safety Modernization Act ("FSMA").



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Fiscal Year

Our fiscal year ends on . References to fiscal 2017 refer to the fiscal year ended .


Sources of Revenue

The Company derives revenue from four sources: (i) subscription fees, (ii) hosting, premium support and maintenance service fees beyond the standard services offered, (iii) professional services consisting of development services, consulting, training and education, and (iv) license fees.


Subscription revenue is driven primarily by the number of connections between
retailers and suppliers. Historically, subscription revenue was largely based on
some sort of volumetric metric, including the number of stores and SKU's, or the
volume of economic activity between a retailer and its suppliers. However, as
our ReposiTrak business has grown, and as it tends to encompass all of a
retailer's suppliers, our subscription revenue is increasingly based on a
negotiated flat fee per supplier. Subscription revenue contains arrangements
with customers accessing our applications, which includes the use of the
application, application and data hosting, subscription-based maintenance of the
application and standard support included with the subscription.

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. Premium support services include technical assistance for
our software products and unspecified product upgrades and enhancements on a
when and if available basis beyond what is offered with our basic subscription
package.

Professional services revenue is comprised of revenue from development,
consulting, education and training. Development services include customizations
and integrations for a client's specific business application. Consulting,
education and training include implementation and best practices consulting. Our
professional services fees are more frequently billed on a fixed price/fixed
scope, but may also be billed on a time and materials basis. We have determined
that the professional services element of our software and subscription
arrangements is not essential to the functionality of the software.

License arrangements are a time-specific and perpetual license. Software license
maintenance agreements are typically annual contracts with customers that are
paid in advance or according to terms specified in the contract. These
agreements provide the customer with access to new software enhancements,
maintenance releases, patches, updates and technical support personnel.

Other Metrics - Non-GAAP Financial Measures


To supplement our financial statements, we also provide 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 provide useful information to
management and investors regarding certain financial and business trends
relating to our financial condition and results of 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. 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 U.S. generally accepted accounting principles.


We commenced operations in the software development and professional services
business during 1990. 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
expenses during the reporting period. On an ongoing basis, management evaluates
its estimates and assumptions. Management bases its estimates and judgments 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.

Management believes the following critical accounting policies, among others,
will affect its more significant judgments and estimates used in the preparation
of our consolidated financial statements.



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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 whether or not to realize the deferred income tax assets
and assesses the valuation allowance quarterly.

Goodwill and Other Long-Lived Asset Valuations


Goodwill is assigned to specific reporting units and is reviewed for possible
impairment at least annually or more frequently 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.

Revenue Recognition

We recognize revenue when all of the following conditions are satisfied: (i)
there is persuasive evidence of an arrangement, (ii) the service has been
provided to the customer, (iii) the collection of our fees is probable, and (iv)
the amount of fees to be paid by the customer is fixed or determinable.

We recognize subscription, hosting, premium support, and maintenance revenue
ratably over the length of the agreement beginning on the commencement dates of
each agreement or when revenue recognition conditions are satisfied. Revenue
from license and professional services agreements are recognized as delivered.

Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.


Agreements with multiple deliverables such as subscriptions, support, and
professional services, are accounted for separately if the deliverables have
standalone value upon delivery. Subscription services have standalone value as
the services are typically sold separately. When considering whether
professional services have standalone value, the Company considers the following
factors: (i) availability of services from other vendors, (ii) the nature and
timing of professional services, and (iii) sales of similar services sold
separately. Multiple deliverable arrangements are separated into units of
accounting and the total contract consideration is allocated to each unit based
on relative selling prices.

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for
awards of equity instruments based on the grant-date fair value of those awards.
The Company records compensation expense on a straight-line basis. The fair
value of options granted are estimated at the date of grant using a
Black-Scholes option pricing model with assumptions for the risk-free interest
rate, expected life, volatility, dividend yield and forfeiture rate.

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.



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Results of Operations - Fiscal Years Ended , 2016 and 2015

Revenue


        Year Ended    $            %      Year Ended    $          %      Year Ended
        June 30, 2017 Change       Change June 30, 2016 Change     Change June 30, 2015
Revenue
Revenue  $18,939,263   $4,928,570   35%    $14,010,693   $361,978   3%     $13,648,715



During the fiscal year ended , the Company had revenue of
$18,939,263 compared to $14,010,693 for the year ended , a 35%
increase. This $4,928,570 increase in total revenue was principally due to the
growth of ReposiTrak related products. This was partially offset by a decrease
resulting from license and maintenance fees in the prior year that did not recur
in the current period.

During the fiscal year ended , the Company had revenue of $14,010,693 compared to $13,648,715 for the year ended , a 3% increase. This $361,978 increase in total revenue was principally due to $550,000 net decrease in revenue attributable to ReposiTrak offset by a $912,000 increase in other revenue. The decrease in the revenue attributable to ReposiTrak was due to the acquisition of ReposiTrak which resulted in the elimination of subscription and management fees. The decreased fees from ReposiTrak as a customer were partially offset by revenue generated by the ReposiTrak foods safety offerings.


Management believes that revenue will increase in subsequent periods primarily
as a result of growth in ReposiTrak customers and revenue, and secondarily due
to the Company's strategy of pursuing new contracts with suppliers ("Spokes") to
connect to retail customers ("Hubs").

Cost of Services and Product Support


                         Year Ended    $            %        Year Ended    $           %        Year Ended
                         June 30, 2017 Change       Change   June 30, 2016 Change      Change   June 30, 2015

Cost of service and
product support           $5,318,042    $1,038,318   24%      $4,279,724    $(976,527)  -19%     $5,256,251
Percent of total revenue  28%                                 31%                                39%



Cost of services and product support was $5,318,042 or 28% of total revenue, and
$4,279,724 or 31% of total revenue for the years ended  and 2016,
respectively, a 24% increase.  This period over period increase of $1,038,318 is
principally due to (i) a $450,000 increase in cost of goods sold, (ii) a
$400,000 increase in employee related expense, (iii) capitalization of software
development costs of $183,000 in fiscal 2016, and (iv) a $5,000 increase in
other product support costs.

Cost of services and product support was $4,279,724 or 31% of total revenue, and
$5,256,251 or 39% of total revenue for the years ended  and 2015,
respectively, a 19% decrease.  This period over period decrease of $976,527 is
principally due to (i) a $752,000 decrease in employee related expense, (ii)
capitalization of software development costs of $183,000 in the second, third,
and fourth quarters of fiscal 2016, and (iii) a $42,000 decrease in other
product support costs.

Management expects service and a product support to increase in absolute value in subsequent periods, but to continue to fall as a percentage of total revenue.

Sales and Marketing Expense


                         Year Ended    $           %        Year Ended    $           %        Year Ended
                         June 30, 2017 Change      Change   June 30, 2016 Change      Change   June 30, 2015

Sales and marketing $5,097,072 $(273,933) -5% $5,371,005 $(570,344) -10% $5,941,349 Percent of total revenue 27%

                                38%                                44%



The Company's sales and marketing expense was $5,097,072, or 27% of total
revenue, and $5,371,005 or 38% of total revenue, for the fiscal years ended  and 2016, respectively, a 5% decrease. Sales and marketing expense
decreased principally due to a decrease in marketing and promotional expense of
$283,000, which were partially offset by an increase in other sales related
costs of $9,000.



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The Company's sales and marketing expense was $5,371,005, or 38% of total
revenue, and $5,941,349 or 44% of total revenue, for the fiscal years ended  and 2015, respectively, a 10% decrease. Sales and marketing expense
decreased principally due to (i) a decrease in marketing and promotional expense
of $411,000, and (ii) a decrease of $230,000 in employee related costs and
travel expense, which were partially offset by an increase in other sales
related costs of $70,000.

Management expects sales and marketing expense to increase in absolute value in subsequent periods, but to continue to fall as a percentage of total revenue.

General and Administrative Expense


                           Year Ended    $          %        Year Ended    $             %        Year Ended
                           June 30, 2017 Change     Change   June 30, 2016 Change        Change   June 30, 2015

General and administrative $4,136,996 $971,919 31% $3,165,077 $(1,114,564) -26% $4,279,641 Percent of total revenue 22%

                               23%                                  31%



The Company's general and administrative expense was $4,136,996, or 22% of total
revenue, and $3,165,077 or 23% of total revenue for the years ended  and 2016, respectively, a 31% increase. This $971,919 increase is
principally due to (i) employee related costs, and travel expense of
approximately $564,000, (ii) increased bad debt expense of $278,000, and (iii)
an increase of $130,000 related to infrastructure, professional fees and
donations..

The Company's general and administrative expense was $3,165,077, or 23% of total
revenue, and $4,279,641 or 31% of total revenue for the years ended  and 2015, respectively, a 26% decrease. This $1,114,564 decrease is
principally due to (i) reductions in employee related costs, and travel expense
of approximately $1.2 million, and (ii) decreased bad debt expense of
$119,000. These decreases were partially offset by increases in facility costs
of $97,000 and professional fees of $108,000 incurred in connection with the
acquisition of ReposiTrak.

Management expects general and administrative expense to increase in absolute
value in subsequent periods, but to continue to fall as a percentage of total
revenue.

Depreciation and Amortization Expense


                              Year Ended    $          %        Year Ended    $            %        Year Ended
                              June 30, 2017 Change     Change   June 30, 2016 Change       Change   June 30, 2015

Depreciation and amortization $486,024 $(21,422) -4% $507,446



    $(260,719)   -34%     $768,165
Percent of total revenue       3%                                4%                                  6%



The Company's depreciation and amortization expense was $486,024 and $507,446
for the year ended  and 2016, respectively, a 4%
decrease. Depreciation and amortization expense decreased by $21,422 for the
year ended,  when compared to the year ended  due to
decreased depreciation expense as many assets have become fully depreciated,
this has been partially offset by the amortization of capitalized software.

The Company's depreciation and amortization expense was $507,446 and $768,165
for the year ended  and 2015, respectively, a 34%
decrease. Depreciation and amortization expense decreased by $260,719 for the
year ended,  when compared to the year ended  due to
decreased customer list amortization due to the impairment charge taken in the
fiscal year ended .

Impairment and Other Charges

The Company recognized a non-cash impairment charge of $1.5 million during the
year ended , due principally to decreased margins on customers
acquired in connection with the Prescient acquisition. In management's
determination, the carrying value of these relationships exceeded their
estimated fair values as determined by future discounted cash flow
projections. When projecting the stream of future cash flows for purposes of
determining long-lived asset recoverability, management makes assumptions,
incorporating market conditions, sales growth rates, and operating expense.



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Other Income and Expense


                           Year Ended    $         %        Year Ended    $           %        Year Ended
                           June 30, 2017 Change    Change   June 30, 2016 Change      Change   June 30, 2015

Other (expense) and income $(16,028) $-4,910 -24% $(20,938) $(263,559) -109% $242,621 Percent of total revenue <1%

                              <1%                                2%



Net other income (expense) was net other expense of $16,028 when compared with
net other expense of $20,938 for the year ended  and ,
respectively. This decrease of $4,910 for the year ended  when
compared to the year ended  is primarily due an increase in net
interest expense partially offset by a gain on sale of furniture associated with
the Company's relocation.

Net other income (expense) was net other expense of $20,938 when compared with
net other income of $242,621 for the year ended  and ,
respectively. This decrease of $263,559 for the year ended  when
compared to the year ended  is primarily due to interest income on
notes receivable during the 2015 period that were eliminated as a result of the
consolidation of ReposiTrak for the same period in 2016 and a loss on the
disposition of investments of $26,128 for the year ended .

Preferred Dividends



                         Year Ended    $         %        Year Ended    $   

% Year Ended

                         June 30, 2017 Change    Change   June 30, 2016 

Change Change

Preferred dividends $790,811 $61,523 8% $729,288 $160,467 28% $568,821 Percent of total revenue 4%

                               5%                                4%



Dividends accrued on the Company's Series B Preferred and Series B-1 Preferred
was $790,811 for the year ended , compared to dividends accrued on
the Series B Preferred of $729,288 for the year ended . This
$61,523 increase is primarily attributable to the determination by the Company
to pay dividends in kind for the year ended .

Dividends accrued on the Company's Series B Preferred and Series B-1 Preferred
was $729,288 for the year ended , compared to dividends accrued on
the Series B Preferred of $568,821 for the year ended . This
$160,467 increase is primarily attributable to the determination by the Company
to pay dividends in kind for the year ended , which resulted in an
adjustment to dividends in the current period. All dividends accrued were paid
through the issuance of 66,013 shares of Series B-1 Preferred.

Financial Position, Liquidity and Capital Resources


We believe 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 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    $          %        Year Ended
                          June 30, 2017 Change       Change   June 30, 2016 Change     Change   June 30, 2015

Cash and Cash Equivalents $14,054,006 $2,610,618 23% $11,443,388

$117,816 1% $11,325,572




We have historically funded our operations with cash from operations, equity
financings and debt borrowings. Cash and cash equivalents was $14,054,006 and
$11,443,388 at , and , respectively, a 23% increase,
and $11,443,388 and $11,325,572 at , and ,
respectively, a 1% increase. The $2,610,618 increase during the year ended  when compared to the year ended  is principally the result
of cash flow from operations, due to increased net income during the period,
while the $117,816 increase from the year ended  to the comparable
period ended  is principally the result of cash flow from
operations.



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Net Cash Flows from Operating Activities


                         Year Ended    $            %        Year Ended    $             %        Year Ended
                         June 30, 2017 Change        Change  June 30, 2016 Change        Change   June 30, 2015

Cash flows provided by operating activities $2,257,138 $1,753,915 349% $503,223 $(1,204,374) -71% $1,707,597

Net cash provided by operating activities is summarized as follows:


                                                    2017         2016         2015

Net income (loss)                                    $3,777,532   $666,503     $(3,849,773)
Noncash expense and income, net                      2,088,149    1,612,026

5,368,927

Net changes in operating assets and liabilities      (3,608,543)  (1,775,306)  188,443
                                                     $2,257,138   $503,223     $1,707,597



Noncash expense increased by $476,123 in the year ended  compared
to .  Noncash expense increased as a result of a $278,000 increase
in bad debt expense, a $256,000 increase in stock compensation expense,
partially offset by a $21,000 decrease in depreciation and amortization expense,
and a $47,000 decrease related to gains and losses.

Noncash expense decreased by $3,756,901 in the year ended  compared
to .  Noncash expense decreased as a result of a $1,750,000
decrease in stock compensation expense, a $1,756,000 decrease in depreciation
and amortization expense, which includes a $1,496,000 impairment charge, a
$158,000 decrease in charitable non-cash donations, and a decrease of $119,000
in bad debt expense, offset by a $26,000 increase on the loss of short-term
marketable securities.

Net Cash Flows used in Investing Activities


                         Year Ended    $           %        Year Ended    $             %        Year Ended
                         June 30, 2017 Change      Change   June 30, 2016 Change        Change   June 30, 2015

Cash flows used in investing activities $1,950,702 1,585,061 434% $365,641 $(2,241,236) -86% $2,606,877




Net cash flows used in investing activities for the year ended  was
$1,950,702 compared to net cash flows used in investing activities of $365,641
for the year ended . This $1,585,061 increase in cash used in
investing activities for the year ended  when compared to the same
period in 2016 was purchases of property and equipment of $1,957,000, which
included approximately $1.6 million for the purchase of a small aircraft to
facilitate key personnel travelling to the Company's growing network of
customers.

Net cash flows used in investing activities for the year ended  was
$365,641 compared to net cash flows used in investing activities of $2,606,877
for the year ended . This $2,241,236 decrease in cash used in
investing activities for the year ended  when compared to the same
period in 2015 was the result of funds loaned to ReposiTrak during the year
ended , which were eliminated due to the acquisition of ReposiTrak
and consolidation of the Company's financial statements. This decrease was
partially offset by the investment in long-term investments and capitalization
of software cost.

Net Cash Flows from Financing Activities


                          Year Ended    $            %        Year Ended    $             %        Year Ended
                          June 30, 2017  Change      Change   June 30, 2016 Change        Change   June 30, 2015

Cash flows provided by
(used in) financing
activities                 $2,304,182    $2,323,948   118%     $(19,766)     $(8,892,059)  -100%    $8,872,293


Net cash flows provided by financing activities totaled $2,304,182 for the year
ended  compared to cash flows used in financing activities of
$19,766 for the year ended . The change in net cash related to
financing activities is primarily attributable to cash from the issuance of
notes payable and increases in lines of credit of $2,175,000 used primarily for
the purchase property and equipment. There were also increases in proceeds from
employee stock plans of $24,000 and from the issuance of stock upon exercise of
warrants of $123,000.

Net cash flows used in financing activities totaled $19,766 for the year ended
 compared to cash flows provided by financing activities of
$8,872,293 for the year ended . The change in net cash related to
financing activities is primarily attributable to cash from the issuance of
stock during the year ended  and increased proceeds from lines of
credit, partially offset by (i) a decrease in payments on notes payable, and
(ii) a decrease in dividends paid in cash. The Company has the option to pay
quarterly preferred dividends in kind and has made this election for each
quarter beginning with the quarter ended .



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Liquidity and Working Capital

At , the Company had positive working capital of $10,536,804, as
compared with positive working capital of $7,346,632 at , and
positive working capital of $5,032,139 at .  This $3,190,172
increase in working capital is principally due to the increased cash flows from
operations which is a result of increased net income.  The substantial increase
in accounts receivable in the year ended  compared to the year
ended  is principally due to extended payment terms on long term
agreements. Increases in accrued liabilities in the year ended 
compared to the year ended  is principally due to accruals related
to stock based compensation and other compensation based accruals.

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


                         Year Ended    $            %        Year Ended    $            %        Year Ended
                         June 30, 2017 Change       Change   June 30, 2016 Change       Change   June 30, 2015
Current assets            $18,706,733   $3,821,296   26%      $14,885,437  

$1,455,847 11% $13,429,590

Current assets as of , totaled $18,706,733, an increase of $3,821,296 when compared to $14,885,437 as of . The increase in current assets is attributable to an increase in cash and accounts receivable.

Current assets as of , totaled $14,885,437, an increase of $1,455,847 when compared to $13,429,590 as of . The increase in current assets is attributable to an increase in accounts receivable.


                         Year Ended    $         %        Year Ended    $           %        Year Ended
                         June 30, 2017 Change    Change   June 30, 2016 Change      Change   June 30, 2015

Current liabilities $8,169,929 $631,124 8% $7,538,805 $(858,646) -10% $8,397,451

Current liabilities totaled $8,169,929 and $7,538,805 as of , and
2016, respectively. The $631,124 comparative increase in current liabilities is
principally due to an increase in accrued liabilities and an increase in lines
of credit. This increase was partially offset by a decrease in deferred revenue.

Current liabilities totaled $7,538,805 and $8,397,451 as of , and
2015, respectively. The $858,646 comparative decrease in current liabilities is
principally due to a decrease in accrued liabilities. This decrease was
partially offset by an increase in deferred revenue.

While no assurances can be given, management currently intends to continue to
reduce its indebtedness in subsequent periods utilizing existing cash resources
and projected cash flow from operations. In addition, management may also
continue to pay down, pay off or refinance certain of the Company's
indebtedness. Management believes that these initiatives will enable us to
address our debt service requirements during the next 12 months without
negatively impacting our working capital, as well as fund our currently
anticipated operations and capital spending requirements.

Contractual Obligations

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


                             Payment Due by Year


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

Operating lease obligations $438,725 $275,709 $163,016 $- $-

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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Recent Accounting Pronouncements


In , the FASB issued ASU 2017-04, Intangibles-Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this
Update simplify how an entity is required to test goodwill for impairment by
eliminating Step 2 from the goodwill impairment test. An entity should apply the
amendments in this Update on a prospective basis In , the FASB
issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the
Test for Goodwill Impairment. The amendment in this Update simplify how an
entity is required to test goodwill for impairment by eliminating Step 2 from
the goodwill impairment test. An entity should apply the amendments in this
Update on a prospective basis. The Company notes that this guidance applies to
its reporting requirements and will implement the new guidance accordingly.

In , the FASB issued ASU 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash Payments. Historically,
there has been a diversity in practice in how certain cash receipts/payments are
presented and classified in the statement of cash flows under Topic 230. To
reduce the existing diversity in practice, this update addresses multiple cash
flow issues. The amendments in this update are effective for fiscal years
beginning after , and interim periods within those fiscal
years. Early adoption is permitted. The Company notes that this guidance applies
to its reporting requirements and will implement the new guidance accordingly.

Through , the Financial Accounting Standards Board ("FASB") issued
ASU 2014-09 (ASC Topic 606), Revenue from Contracts with Customers, ASU 2015-14
(ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective
Date, ASU 2016-10 (ASC Topic 606) Revenue from Contracts with Customers,
Identifying Performance Obligations and Licensing, ASU 2016-12 (ASC Topic 606)
Revenue from Contracts with Customers, Narrow Scope Improvements and Practical
Expedients, and ASU 2016-20 (ASC Topic 606) Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with Customers, respectively.
 ASC Topic 606 outlines a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry specific guidance. It
also requires entities to disclose both quantitative and qualitative information
that enable financial statements users to understand the nature, amount, timing,
and uncertainty of revenue and cash flows arising from contracts with customers.
The amendments in these ASUs are effective for the Company's fiscal year
starting . The two permitted transition methods under the new
standard are the full retrospective method, in which case the standard would be
applied to each prior reporting period presented, or the modified retrospective
method, in which case the cumulative effect of applying the standard would be
recognized at the date of initial application. The Company currently anticipates
adopting the standard using the full retrospective method. We are in the process
of completing our analysis on the impact this guidance will have on our
Consolidated Financial Statementsand related disclosures, as well as identifying
the required changes to our policies, processes and controls. The Company is
still conducting its assessment and will continue to evaluate the impact of this
ASU on our financial position and results of operation.

In , the FASB issued ASU 2016-09 (ASC Topic 718), Stock
Compensation-Improvements to Employee Share-Based Payment Accounting. The
amendments in this ASU are intended to simplify several areas of accounting for
share-based compensation arrangements, including the income tax consequences,
classification on the consolidated statement of cash flows and treatment of
forfeitures. The amendments in this ASU are effective for annual periods
beginning after , and interim periods within those annual
periods. Early adoption is permitted. The Company is in the process of assessing
the impact, if any, of this ASU on its consolidated financial statements.

In , the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU
amends a number of aspects of lease accounting, including requiring lessees to
recognize operating leases with a term greater than one year on their balance
sheet as a right-of-use asset and corresponding lease liability, measured at the
present value of the lease payments. The amendments in this ASU are effective
for fiscal years beginning after , including interim periods
within those fiscal years. Early adoption is permitted. The Company is in the
process of assessing the impact on its consolidated financial statements.

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