Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2018
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to
_________.
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Commission File Number 001-34941
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its
charter)
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Nevada
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37-1454128
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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299 South Main Street, Suite 2225 Salt Lake City,
UT 84111
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(Address of principal executive offices)
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(435) 645-2000
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(Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). ☒
Yes ☐ No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark if whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable
date: Common Stock, $0.01 par value,
19,766,486 shares as of May 8, 2018.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
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1
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2
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9
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17
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18
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19
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19
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19
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19
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19
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19
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20
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Exhibit 31
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Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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Exhibit 32
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Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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PARK CITY GROUP,
INC.
Consolidated Condensed Balance Sheets
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Assets
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Current Assets
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Cash
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$14,828,160
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$14,054,006
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Receivables,
net allowance for doubtful accounts of $584,193 and $392,250 at
March 31, 2018 and June 30, 2017, respectively
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6,713,690
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4,009,127
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Prepaid
expense and other current assets
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1,282,667
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643,600
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Total Current Assets
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22,824,517
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18,706,733
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Property and equipment, net
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1,985,021
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2,115,277
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Other Assets:
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Long-term
receivables, deposits, and other assets
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1,136,711
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2,540,291
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Investments
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477,884
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477,884
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Customer
relationships
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952,650
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1,051,200
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Goodwill
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20,883,886
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20,883,886
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Capitalized
software costs, net
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193,441
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137,205
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Total Other Assets
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23,644,572
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25,090,466
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Total Assets
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$48,454,110
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$45,912,476
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Liabilities and Shareholders’ Equity
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Current liabilities
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Accounts
payable
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$1,253,560
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$565,487
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Accrued
liabilities
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1,264,721
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2,084,980
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Deferred
revenue
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2,360,394
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2,350,846
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Lines
of credit
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3,230,000
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2,850,000
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Current
portion of notes payable
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186,495
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318,616
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Total current liabilities
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8,295,170
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8,169,929
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Long-term liabilities
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Notes
payable, less current portion
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1,641,064
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1,996,953
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Other
long-term liabilities
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14,642
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36,743
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Total liabilities
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9,950,876
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10,203,625
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Commitments and contingencies
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Stockholders’ equity:
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Preferred
stock; $0.01 par value, 30,000,000 shares authorized;
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Series
B Preferred, 700,000 shares authorized; 625,375 shares issued and
outstanding at March 31, 2018 and June 30, 2017;
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6,254
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6,254
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Series
B-1 Preferred, 550,000 shares authorized; 212,402 and 285,859
shares issued and outstanding at March 31, 2018 and June 30, 2017,
respectively
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2,124
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2,859
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Common
stock, $0.01 par value, 50,000,000 shares authorized; 19,765,437
and 19,423,821 issued and outstanding at March 31, 2018 and June
30, 2017, respectively
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197,657
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194,241
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Additional
paid-in capital
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76,634,385
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75,489,189
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Accumulated
deficit
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(38,337,186)
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(39,983,692)
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Total stockholders'
equity
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38,503,234
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35,708,851
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Total liabilities and stockholders’ equity
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$48,454,110
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$45,912,476
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See accompanying notes to consolidated condensed financial
statements.
PARK CITY GROUP, INC.
Consolidated Condensed Statements
of Operations
(unaudited)
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Three Months
Ended
March
31,
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Nine
Months Ended
March
31,
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Revenue
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$5,278,783
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$4,748,652
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$15,715,654
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$13,750,786
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Operating
expense:
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Cost
of services and product support
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1,805,256
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1,342,772
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4,649,620
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3,736,691
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Sales
and marketing
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1,574,663
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1,350,726
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4,781,752
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3,702,975
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General
and administrative
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1,293,727
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1,006,605
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3,569,584
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2,967,842
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Depreciation
and amortization
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165,189
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106,899
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487,815
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336,340
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Total
operating expense
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4,838,835
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3,807,002
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13,488,771
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10,743,848
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Income from operations
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439,948
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941,650
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2,226,883
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3,006,938
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Other
expense:
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17,730
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(4,729)
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(12,157)
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(18,052)
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Income
before income taxes
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457,678
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936,921
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2,214,726
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2,988,886
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(Provision)
for income taxes:
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(349)
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(35,471)
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(76,063)
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(94,655)
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Net income
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457,329
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901,450
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2,138,663
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2,894,231
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Dividends
on preferred stock
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(146,611)
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(202,036)
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(426,737)
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(584,288)
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Net
income applicable to common shareholders
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$310,718
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$699,414
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$1,711,926
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$2,309,943
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Weighted
average shares, basic
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19,648,000
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19,390,000
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19,519,000
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19,331,000
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Weighted
average shares, diluted
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20,321,000
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20,353,000
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20,250,000
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20,251,000
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Basic
income per share
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$0.02
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$0.04
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$0.09
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$0.12
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Diluted
income per share
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$0.02
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$0.03
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$0.08
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$0.11
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See accompanying notes to consolidated condensed financial
statements.
Consolidated Condensed Statements
of Cash Flows
(Unaudited)
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Nine
Months
Ended
March 31,
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Cash
Flows Operating Activities:
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Net
income
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$2,138,663
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$2,894,231
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization
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487,815
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336,340
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Stock
compensation expense
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489,748
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961,589
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Bad
debt expense
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295,050
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230,700
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(Increase)
decrease in:
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Trade
receivables
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(2,999,613)
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(444,022)
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Long-term
receivables, prepaids and other assets
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764,513
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(1,722,362)
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(Decrease)
increase in:
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Accounts
payable
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688,073
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169,504
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Accrued
liabilities
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(98,821)
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92,281
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Deferred
revenue
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9,548
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(558,576)
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Net
cash provided by operating activities
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1,774,976
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1,959,685
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Cash
Flows from Investing Activities:
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Capitalization
of software costs
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(111,241)
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-
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Purchase
of property and equipment
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(204,004)
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(337,777)
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Purchase
of long-term investments
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-
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(3,150)
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Net
cash used in investing activities
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(315,245)
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(340,927)
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Cash
Flows from Financing Activities:
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Proceeds
from exercise of options and warrants
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666,903
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121,625
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Net
increase in lines of credit
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380,000
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130,432
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Proceeds
from employee stock purchase plans
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244,417
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223,465
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Proceeds
from issuance of note payable
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56,078
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207,345
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(488,897)
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(7,932)
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Payments
on notes payable and capital leases
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(544,088)
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(194,539)
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Redemption
of Series B-1 Preferred
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(999,990)
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-
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Net
cash provided by (used in) financing activities
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(685,577)
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480,396
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Net
increase in cash and cash equivalents
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774,154
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2,099,154
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Cash
and cash equivalents at beginning of period
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14,054,006
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11,443,388
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Cash
and cash equivalents at end of period
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$14,828,160
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$13,542,542
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Supplemental
Disclosure of Cash Flow Information:
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Cash
paid for income taxes
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$79,820
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$64,655
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Cash
paid for interest
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$136,500
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$31,004
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Supplemental
Disclosure of Non-Cash Investing and Financing
Activities:
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Common
stock to pay accrued liabilities
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$971,127
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$770,858
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Preferred
stock to pay accrued liabilities
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$200,000
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$300,000
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Dividends
accrued on preferred stock
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$426,737
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$584,288
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Dividends
paid with preferred stock
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$-
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$557,071
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See accompanying notes to consolidated condensed financial
statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Overview
Park City Group, Inc. (the
“Company”) is the parent company of ReposiTrak Inc.,
a compliance, supply chain, and MarketPlace B2B e-commerce services
platform that partners with retailers and wholesalers, and their
suppliers, to accelerate sales, control risks, and improve supply
chain efficiencies.
The Company’s supply chain and MarketPlace
services provide its customers with greater flexibility in sourcing
products by enabling them to choose new suppliers and integrate
them into their supply chain faster and more cost effectively, and
it helps them to more efficiently manage these relationships,
enhancing revenue while lowering working capital, labor costs and
waste. The Company’s food safety and compliance solutions
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”).
The
Company’s services are delivered though proprietary software
products designed, developed, marketed and supported by the
Company. These products are designed to provide transparency and to
facilitate improved business processes among all key constituents
in the supply chain, starting with the retailer and moving back to
suppliers and eventually to raw material providers. The Company
provides cloud-based applications and services that address
e-commerce, supply chain, food safety and compliance activities.
The principal customers for the Company’s products are
multi-store food retail store chains and their suppliers, branded
food manufacturers, food wholesalers and distributors, and other
food service businesses.
The Company has a hub and spoke business model.
The Company is typically engaged by retailers and distributors
(“Hubs”), which in turn have it engage their
suppliers (“Spokes”) to contract for the Company's services.
The bulk of the Company’s revenue is from recurring
subscription payments from these suppliers often based on a monthly
volume metric between the Hub and the Spoke. The Company also has a
professional services business, which conducts customization,
implementation, and training, 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. In a few
instances, the Company will also sell its software in the form of a
use license.
The
Company is incorporated in the state of Nevada. The Company has
three principal subsidiaries: PC Group, Inc., a Utah corporation
(98.76% owned); Park City Group, Inc., a Delaware corporation (100%
owned); and ReposiTrak, Inc., a Utah corporation (100% owned). All
intercompany transactions and balances have been eliminated in
consolidation.
The
Company’s principal executive offices are located at 299
South Main Street, Suite 2225, Salt Lake City, Utah 84111. Its
telephone number is (435) 645-2000. Its website address is
http://www.parkcitygroup.com, and ReposiTrak’s website
address is http://repositrak.com.
Recent Developments
Redemption of Shares of Series B Preferred Stock
The Company’s First Amended and Restated
Certificate of Designation of the Relative Rights, Powers and
Preferences of the Series B-1 Preferred Stock
(the “Series B-1
Preferred”), as amended (the
“Series B-1
COD”), provides the
Company’s Board of Directors with the right to redeem any or
all of the outstanding shares of the Company’s Series B-1
Preferred for a cash payment of $10.70 per share at any time upon
providing the holders of Series B-1 Preferred at least ten days
written notice that sets forth the date on which the redemption
will occur (the “Redemption
Notice”).
On January 27, 2018, the Company’s Board of
Directors approved the redemption of 93,457 of the 305,859 issued
and outstanding shares of the Company’s Series B-1 Preferred
(the “Redemption
Shares”), and on February
6, 2018, the Company delivered a Redemption Notice to certain
holders of the Series B-1 Preferred notifying the holders of the
Company’s intent to redeem their Redemption Shares on
February 7, 2018 (the “Redemption
Date”) (the
“Series B-1
Redemption”). On the
Redemption Date, the Company paid an aggregate total of $1.0
million to the holders of shares of Series B-1 Preferred, resulting
in the redemption of 93,457 shares of Series B-1 Preferred.
Following the Series B-1 Redemption,
212,402 shares of Series B-1 Preferred remain issued and
outstanding.
Basis of Financial Statement Presentation
The
interim financial information of the Company as of March 31, 2018
and for the three and nine months ended March 31, 2018 and 2017 is
unaudited, and the balance sheet as of June 30, 2017 is derived
from audited financial statements. The accompanying condensed
consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim
financial statements. Accordingly, they omit or condense notes and
certain other information normally included in financial statements
prepared inaccordance with U.S. generally accepted accounting
principles. The accounting policies followed for quarterly
financial reporting conform with the accounting policies disclosed
in Note 2 to the Notes to Financial Statements included in our
Annual Report on Form 10-K for the year ended June 30, 2017.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial information for the interim periods
reported have been made. All such adjustments are of a normal
recurring nature. The results of operations for the three and nine
months ended March 31, 2018 are not necessarily indicative of the
results that can be expected for the fiscal year ending June 30,
2018. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and the notes thereto included in our Annual Report on
Form 10-K for the year ended June 30, 2017.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The
financial statements presented herein reflect the consolidated
financial position of Park City Group, Inc. and our subsidiaries.
All inter-company transactions and balances have been eliminated in
consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management
to make estimates and assumptions that materially affect the
amounts reported in the consolidated financial statements. Actual
results could differ from these estimates. The methods, estimates
and judgments the Company uses in applying its most critical
accounting policies have a significant impact on the results it
reports in its financial statements. The Securities and Exchange
Commission has defined the most critical accounting policies as
those that are most important to the portrayal of the
Company’s financial condition and results and require the
Company to make its most difficult and subjective judgments, often
as a result of the need to make estimates of matters that are
inherently uncertain. Based on this definition, the Company’s
most critical accounting policies include: income taxes, goodwill
and other long-lived asset valuations, revenue recognition,
stockbased compensation, and capitalization of software
development costs.
Earnings
Per Share
Basic
net income per common share (“Basic EPS”) excludes dilution and
is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted net income
per common share (“Diluted
EPS”) reflects the potential dilution that could occur
if stock options or other contracts to issue shares of common stock
were exercised or converted into common stock. The computation of
Diluted EPS does not assume exercise or conversion of securities
that would have an antidilutive effect on net income per
common share.
The
following table presents the components of the computation of basic
and diluted earnings per share for the periods
indicated:
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Numerator
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Net
income applicable to common shareholders
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$310,718
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$699,414
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$1,711,926
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$2,309,943
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Denominator
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Weighted
average common shares outstanding, basic
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19,648,000
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19,390,000
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19,519,000
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19,331,000
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Warrants
to purchase common stock
|
673,000
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963,000
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731,000
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920,000
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Weighted
average common shares outstanding, diluted
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20,321,000
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20,353,000
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20,250,000
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20,251,000
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Net
income per share
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Basic
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$0.02
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$0.04
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$0.09
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$0.12
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Diluted
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$0.02
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$0.03
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$0.08
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$0.11
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Reclassifications
Certain prior year amounts have been reclassified to conform with
the current year’s presentation. These reclassifications
have no impact on the previously reported
results.
NOTE 3. EQUITY
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Restricted Stock Units
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Weighted Average Grant Date Fair Value
($/share)
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Outstanding
at June 30, 2017
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982,613
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$6.01
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Granted
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9,897
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12.12
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Vested
and issued
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(119,186)
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7.36
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Forfeited
|
(28,264)
|
10.96
|
|
Outstanding
at March 31, 2018
|
845,060
|
$5.73
|
The
number of restricted stock units outstanding at March 31, 2018
included 638 units that have vested but for which shares of common
stock had not yet been issued pursuant to the terms of the
agreement.
As
of March 31, 2018, there was approximately $4.8 million of
unrecognized stock-based compensation expense under our equity
compensation plans, which is expected to be recognized on a
straight-line basis over a weighted average period of 4.5
years.
Warrants
The
following tables summarize information about warrants outstanding
and exercisable at March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Range
of
exercise
prices
Warrants
|
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
|
|
Weighted
average
exercise
price
|
|
$4.00
|
1,085,068
|
1.85
|
$4.00
|
1,085,068
|
$4.00
|
|
$6.45-10.00
|
100,481
|
.74
|
$7.29
|
100,481
|
$7.29
|
|
|
1,185,549
|
1.75
|
$4.28
|
1,185,549
|
$4.28
|
Preferred Stock
The
Company’s certificate of incorporation currently authorizes
the issuance of up to 30,000,000 shares of ‘blank
check’ preferred stock with designations, rights, and
preferences as may be determined from time to time by the
Company’s Board of Directors, of which 700,000 shares are
currently designated as Series B Preferred Stock
(“Series B
Preferred”) and 550,000 shares are designated as
Series B-1 Preferred. As of March 31, 2018, a total of
625,375 shares of Series B Preferred and 212,402 shares of Series
B-1 Preferred were issued and outstanding. Both classes of
Series B Preferred Stock pay dividends at a rate of 7% per annum if
paid by the Company in cash, or 9% if paid by the Company in
additional shares of Series B Preferred (“PIK Shares”), the Company may
elect to pay accrued dividends on outstanding shares of Series B
Preferred in either cash or by the issuance of PIK
Shares.
In
July 2017, the Company issued 20,000 shares of Series B-1 Preferred
in satisfaction of an accrued bonus payable to the Company’s
Chief Executive Officer.
On
February 6, 2018, the Company delivered a Redemption Notice to
certain holders of the Series B-1 Preferred notifying the
holders of the Company’s intent to redeem their Redemption
Shares on February 7, 2018 (the “Redemption Date”) (the
“Series B-1
Redemption”). On the Redemption Date, the Company paid
an aggregate total of $999,990 to the holders of shares of Series
B-1 Preferred, resulting in the redemption of 93,457 shares
of Series B-1 Preferred.
Management believes
the Series B-1 Preferred favorably impacts the
Company’s overall cost of capital in that it is: (i)
perpetual and, therefore, an equity instrument that positively
impacts the Company’s coverage ratios. (ii) possesses a below
market dividend rate relative to similar instruments. (iii) offers
the flexibility of a paid-in-kind (PIK) payment option.
and (iv) is without covenants. After exploring alternative options
for redeeming the Series B-1 Preferred, management determined
that alternative financing options were materially more expensive,
or would impair the Company’s net cash position, which
management believes could cause customer concerns and negatively
impact the Company’s ability to attract new
business.
NOTE 4. RELATED PARTY TRANSACTIONS
During the nine months ended March 31, 2018, the
Company continued to be a party to a Service Agreement with Fields
Management, Inc. (“FMI”), pursuant to which FMI provided certain
executive management services to the Company, including designating
Randall K. Fields to perform the functions of President and Chief
Executive Officer for the Company. Mr. Fields also serves as the
Company’s Chairman of the Board of Directors
and controls FMI. The
Company had payables of $230,150 and $77,628 to FMI at March 31,
2018 and June 30, 2017, respectively, under this Agreement. In
addition, in the first quarter of fiscal 2017, 20,000 shares of
Series B-1 Preferred were paid to FMI in satisfaction of an accrued
bonus payable to Mr. Fields.
Randall
K. Fields and Robert W. Allen each beneficially own Series B-1
Preferred. As a result of the Series B-1 Redemption, the Company
paid an aggregate of $889,159 and $110,831 to Messrs. Fields and
Allen, respectively, in consideration for the redemption of 83,099
and 10,358 shares of Series B-1 Preferred. See Note 3.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In May
2014, August 2015, April 2016, May 2016, September 2017 and
November 2017, 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,
NarrowScope Improvements and Practical Expedients, ASU
2017-14, Income Statement -
Reporting Comprehensive Income (ASC Topic 606), Revenue Recognition (ASC Topic 606),
and Revenue from Contracts with
Customers (ASC Topic 606): Amendments to SEC Paragraphs
pusuant to Staff Accounting Bulletin No. 116 and SEC Release No.
33-10403, 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 industryspecific
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 fiscal years, and
interim periods within those years, beginning after December 15,
2017. Early adoption is permitted for annual periods beginning
after December 15, 2016. This standard may be applied
retrospectively to all prior periods presented, or retrospectively
with a cumulative adjustment to retained earnings in the year of
adoption. 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 Statements and related disclosures, as
well as identifying the required changes to our policies, processes
and controls. The Company is conducting its assessment in order to
be able to state the impact of this ASU on our financial position
and results of operation.
In
January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic
350), Simplifying the Test for Goodwill Impairment. The
amendments 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
August 2016, 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 December 15, 2017, 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.
In March 2016, 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 December 15,
2016, 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 February 2016, 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 December 15,
2018, including interim periods within those fiscal years. Early
adoption is permitted. The Company is in the process of assessing
the impact, but based on current commitments does not anticipate
adoption to have a material impact on its consolidated financial
statements.
NOTE 6. SUBSEQUENT EVENTS
Subsequent to
March 31, 2018, the Company issued 1,049 shares of common stock in
connection with the vesting of employee stock
grants.
In accordance with the Subsequent Events Topic of
the FASB ASC 855, we have evaluated subsequent events, through the
filing date and noted no additional subsequent events that are
reasonably likely to impact the financial
statements.
ITEM 2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements. The words or phrases “would be,”
“will allow,” “intends to,” “will
likely result,” “are expected to,” “will
continue,” “is anticipated,”
“estimate,” “project,” or similar
expressions are intended to identify “forward-looking
statements.” Actual results could differ materially from
those projected in the forward-looking statements as a result of a
number of risks and uncertainties, including those risks factors
contained in our June 30, 2017 Annual Report on Form 10-K,
incorporated herein by reference. Statements made herein are
as of the date of the filing of this Form 10-Q with the Securities
and Exchange Commission and should not be relied upon as of any
subsequent date. Unless otherwise required by applicable law,
we do not undertake, and specifically disclaim any obligation, to
update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date
of such statement.
Overview
Park City Group, Inc. (the
“Company”) is the parent company of ReposiTrak Inc.,
a compliance, supply chain, and MarketPlace B2B e-commerce services
platform that partners with retailers and wholesalers, and their
suppliers, to accelerate sales, control risks, and improve supply
chain efficiencies.
The Company’s supply chain and MarketPlace
services provide its customers with greater flexibility in sourcing
products by enabling them to choose new suppliers and integrate
them into their supply chain faster and more cost effectively, and
it helps them to more efficiently manage these relationships,
enhancing revenue while lowering working capital, labor costs and
waste. Our food safety and compliance solutions 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”).
The
Company’s services are delivered though proprietary software
products designed, developed, marketed and supported by the
Company. These products are designed to provide transparency and
facilitate improved business processes among all key constituents
in the supply chain, starting with the retailer and moving back to
suppliers and eventually to raw material providers. The Company
provides cloud-based applications and services that address
e-commerce, supply chain, food safety and compliance activities.
The principal customers for the Company’s products are
multi-store food retail store chains and their suppliers, branded
food manufacturers, food wholesalers and distributors, and other
food service businesses.
The Company has a hub and spoke business model.
The Company is typically engaged by retailers and distributors
(“Hubs”), which in turn have it engage their
suppliers (“Spokes”) to contract with the Company for its
services. The bulk of the Company’s revenue is from recurring
subscription payments from these suppliers often based on a monthly
volume metric between the Hub and the Spoke. The Company also has a
professional services business, which conducts customization,
implementation, and training, 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. In a few
instances, the Company will also sell its software in the form of a
license.
The
Company is incorporated in the state of Nevada. The Company has
three principal subsidiaries: PC Group, Inc., a Utah corporation
(98.76% owned); Park City Group, Inc., a Delaware corporation (100%
owned); and ReposiTrak, Inc., a Utah corporation (100% owned). All
intercompany transactions and balances have been eliminated in
consolidation.
Our
principal executive offices of the Company are located at 299 South
Main Street, Suite 2225, Salt Lake City, Utah 84111. Our telephone
number is (435) 645-2000. Our website address is
http://www.parkcitygroup.com, and ReposiTrak’s website
address is http://repositrak.com.
Redemption of Shares of Series B Preferred Stock
Section 4 of the Company’s First Amended and
Restated Certificate of Designation of the Relative Rights, Powers
and Preferences of the Series B-1 Preferred Stock
(“Series B-1
Preferred”), as amended (the
“Series B-1
COD”), provides the
Company’s Board of Directors with the right to redeem any or
all of the outstanding shares of the Company’s Series B-1
Preferred for a cash payment of $10.70 per share at any time upon
providing the holders of Series B-1 Preferred at least ten days
written notice that sets forth the date on which the redemption
will occur (the “Redemption
Notice”).
On January 27, 2018, the Company’s Board of
Directors approved the redemption of 93,457 of the 305,859 issued
and outstanding shares of the Company’s Series B-1 Preferred
(the “Redemption
Shares”), and on February
6, 2018, the Company delivered a Redemption Notice to certain
holders of the Series B-1 Preferred notifying the holders of the
Company’s intent to redeem their Redemption Shares on
February 7, 2018 (the “Redemption
Date”) (the
“Series B-1
Redemption”). On the
Redemption Date, the Company paid an aggregate total of $1.0
million to the holders of shares of Series B-1 Preferred, resulting
in the redemption of 93,457 shares of Series B-1 Preferred.
Following the Series B-1 Redemption,
212,402 shares of Series B-1 Preferred remain issued and
outstanding.
Results of Operations
Comparison of the Three Months Ended March 31, 2018 to the Three
Months Ended March 31, 2017.
Revenue
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Revenue
|
$5,278,783
|
$4,748,652
|
$530,131
|
11%
|
Revenue was $5,278,783 and $4,748,652 for the
three months ended March 31, 2018 and 2017, respectively, a 11%
increase. This increase
was driven by growth in all services, and in particular the
addition of revenues from the Company’s MarketPlace
e-commerce services, which did not exist in the prior comparable
period. By revenue type, recurring subscription
revenue, including revenue attributable to
ReposiTrak, grew year-over-year and were enhanced by the
addition of transaction fees from MarketPlace, while one-time
consulting fees were down versus the comparable period. Management
anticipates that total revenue in subsequent periods will continue
to grow compared to comparable year-ago periods due to the
continued roll-out of MarketPlace and higher subscription revenue,
including revenue attributable to
ReposiTrak.
Cost of Services and Product Support
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Cost
of services and product support
|
$1,805,256
|
$1,342,772
|
$462,484
|
34%
|
|
Percent
of total revenue
|
34%
|
28%
|
|
|
Cost of services
and product support was $1,805,256 and $1,342,772 for the three
months ended March 31, 2018 and 2017, respectively, a 34% increase.
This increase is primarily attributable to costs related to new
product introductions, including MarketPlace and expansion of
ReposiTrak compliance capabilities to include new attributes. In
particular, the Company incurred certain expenses categorized at
Cost of Services associated with the introduction of new business
lines for the Company’s MarketPlace ecommerce platform,
as well as higher development costs associated with the
introduction of new compliance applications and the convergence of
the Company’s service offerings.
Sales and Marketing Expense
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
$1,574,663
|
$1,350,726
|
$223,937
|
17%
|
|
Percent
of total revenue
|
30%
|
28%
|
|
|
Sales
and marketing expense was $1,574,663 and $1,350,726 for the three
months ended March 31, 2018 and 2017, respectively, a 17%
increase. This increase in sales and marketing expense is due
to an increase in head count and salary expense associated with the
expansion of the Company’s sales team and associated expense,
and to a lesser extent higher marketing expense associated with
advertising, trade shows and promotional activities.
General and Administrative Expense
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
General
and administrative
|
$1,293,727
|
$1,006,605
|
$287,122
|
29%
|
|
Percent
of total revenue
|
25%
|
21%
|
|
|
General and administrative expense was $1,293,727 and $1,006,605
for the three months ended March 31, 2018 and 2017, respectively, a
29% increase. This increase is primarily attributable to an
increase in salary expense and higher software expense and
professional fees associated with the execution of the
Company’s Project 10x plan to automate and optimize processes
to accommodate growth, offset in part by lower stock compensation
expense. While no assurances can be given, management currently
anticipates that the percentage increase in general and
administrative expense will decrease in subsequent periods as the
Company completes its Project 10x plan.
Depreciation and Amortization Expense
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$165,189
|
$106,899
|
$58,290
|
55%
|
|
Percent
of total revenue
|
3%
|
2%
|
|
|
Depreciation and amortization expense was $165,189 and $106,899 for
the three months ended March 31, 2018 and 2017, respectively, an
increase of 55%. This increase is primarily due to the
purchase of fixed assets during the quarter ended September 30,
2017 to support the growth of the business.
Other Income and Expense
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Net
other income (expense)
|
$17,730
|
$(4,729)
|
$22,459
|
NM%
|
|
Percent
of total revenue
|
|
|
|
|
Net other income was $17,730 for the three months ended March 31,
2018 compared to net other expense of $4,729 for the three months
ended March 31, 2017. Other income and expense was positive in
the quarter versus negative in the comparable period a year ago due
to an increase in interest income as a result of a higher yields on
the company’s cash balance and lower fees on equipment
financing versus the comparable period a year ago.
Preferred
Dividends
|
|
Fiscal Quarter Ended
March 31,
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
$146,611
|
$202,036
|
$(55,425)
|
-27%
|
|
Percent
of total revenue
|
3%
|
4%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $146,611 for the three months
ended March 31, 2018, compared to dividends accrued on the Series
B-1 Preferred of $202,036 for the year ended
March 31, 2017. This decrease was due to the redemption of $1.0
million of the Company’s Series B-1 Preferred in the period
as well as the Company’s decision to begin paying the
dividend related to its Series B-1 Preferred in cash as opposed to
additional shares of Series B-1 Preferred.
Comparison of the Nine Months Ended March 31, 2018 to the
Nine
Months
Ended March 31, 2017.
Revenue
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
Revenue
|
$15,715,654
|
$13,750,786
|
$1,964,868
|
14%
|
Revenue was
$15,715,654 and $13,750,786 for the nine months ended March 31,
2018 and 2017, respectively, a 14% increase. This increase was
driven by growth in all services, and in particular the addition of
revenues from the sale of Supply Chain products and services and
revenue from the Company’s MarketPlace ecommerce
services, the latter of which did not exist in the prior comparable
period. By revenue type, recurring subscription revenue, including
revenue attributable to ReposiTrak, grew year-over-year
and were enhanced by the addition of transaction fees from
MarketPlace, while onetime consulting fees were down versus
the comparable period.
Cost of Services and Product Support
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
Cost
of services and product support
|
$4,649,620
|
$3,736,691
|
$912,929
|
24%
|
|
Percent
of total revenue
|
30%
|
27%
|
|
|
Cost of
services and product support was $4,649,620 and $3,736,691 for the
nine months ended March 31, 2018 and 2017, respectively, a 24%
increase. This increase is primarily attributable to costs related
to new product introductions, including MarketPlace and expansion
of ReposiTrak compliance capabilities to include new attributes. In
particular, the Company incurred certain expenses categorized as
Cost of Services associated with the introduction of new business
lines for the Company’s MarketPlace ecommerce platform,
as well as higher development costs associated with the
introduction of new compliance applications and the convergence of
the Company’s service offerings.
Sales and Marketing Expense
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
$4,781,752
|
$3,702,975
|
$1,078,777
|
29%
|
|
Percent
of total revenue
|
30%
|
27%
|
|
|
Sales and marketing expense was $4,781,752 and
$3,702,975 for the nine
months ended March 31, 2018 and 2017,
respectively, a 29% increase. This increase in sales and
marketing and salary expense is due to an increase in head count
associated with the expansion of the Company’s sales team and
associated expenses, and to a lesser extent higher marketing
expense associated with advertising, trade shows and promotional
activities.
General and Administrative Expense
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
General
and administrative
|
$3,569,584
|
$2,967,842
|
$601,742
|
20%
|
|
Percent
of total revenue
|
23%
|
22%
|
|
|
General and administrative expense was
$3,569,584 and $2,967,842 for the nine
months ended March 31, 2018 and 2017,
respectively, a 20% increase. This increase is primarily
attributable to an increase in software expense and professional
fees associated with the execution of the Company’s plan to
automate and optimize processes to accommodate growth, and to a
lesser extent higher salary expense, offset in part by lower stock
compensation expense.
Depreciation and Amortization Expense
|
|
Nine Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$487,815
|
$336,340
|
$151,475
|
45%
|
|
Percent
of total revenue
|
3%
|
2%
|
|
|
Depreciation and amortization expense was
$487,815 and $336,340 for the nine
months ended March 31, 2018 and 2017,
respectively, an increase of 45%. This increase is
primarily due to the purchase of fixed assets in the quarter ended
September 30, 2017 to support the growth of the
business.
Other Income and Expense
|
|
Nine Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Net
other (expense)
|
$(12,157)
|
(18,052)
|
$5,895
|
-33%
|
|
Percent
of total revenue
|
|
|
|
|
Net other expense was $12,157 for
the nine
months ended March 31, 2018 compared
to net other expense of $18,052 for the nine
months ended March 31, 2017.
This decrease was due to a higher cash balance and an increase in
interest income on that cash balance as a result of a higher
yields, and lower fees on equipment financing, versus the
comparable period a year ago.
Preferred Dividends
|
|
Nine Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
$426,737
|
$584,288
|
$157,551
|
-27%
|
|
Percent
of total revenue
|
3%
|
4%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $426,737 for the nine months
ended March 31, 2018, compared to dividends accrued on the Series
B-1 Preferred of $584,288 for the nine months
ended March 31, 2017. This decrease was due to the Company’s
redemption of $1.0 million of the Company’s Series B-1
Preferred in the period as well as the Company’s decision to
begin paying the dividend related to its Series B-1 Preferred in
cash as opposed to shares of Series B-1
Preferred.
Inflation
We
do not believe that inflation or changing prices have had a
material impact on our historical operations or
profitability.
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.
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$14,828,160
|
$14,054,006
|
$774,154
|
6%
|
We have historically funded our operations with
cash from operations, equity financings, and borrowings from the
issuance of debt. Cash was $14,828,160 and $14,054,006 at March 31,
2018 and June 30, 2017, respectively. This 6% increase
is
principally the result of increased cash flows from operation, due
to higher revenue offset by the payment of $999,990 resulting from
the redemption of Series B-1 Preferred. Management currently does
not have any plans to redeem any additional shares of Series B-1
Preferred in the near term.
Net Cash Flows from Operating Activities
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
$1,774,976
|
$1,959,685
|
$(184,709)
|
-9%
|
Net cash provided
by operating activities is summarized as
follows:
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
Net
Income
|
$2,138,663
|
$2,894,231
|
|
Noncash
expense and income, net
|
1,272,613
|
1,528,629
|
|
Net
changes in operating assets and liabilities
|
(1,636,300)
|
(2,463,175)
|
|
|
$1,774,976
|
$1,959,685
|
Net
cash used in operating activities decreased as a result of lower
net income and non-cash expenses, offset in part by a lower
reduction in operating assets and liabilities. Noncash
expense decreased by $256,016 in the nine months
ended March 31, 2018 compared to March 31, 2017. Noncash
expense decreased as a result of a decrease in stock
compensation, offset in part by an increase in bad debt accrual.
The reduction in operating assets fell versus the comparable period
due to reduction in trade receivables, offset in part by an
increase in accounts payable.
Net Cash Flows used in Investing Activities
|
|
Nine Months Ended
March 31,
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
$315,245
|
$340,927
|
$(25,682)
|
-8%
|
Net
cash used in investing activities for the nine months ended March
31, 2018 was $315,245 compared to net cash used in investing
activities of $340,927 for the nine months ended March 31,
2017. This decrease in cash used in investing activities for
the nine months ended March 31, 2018 is due to an decrease in fixed
asset purchases offset in part by the capitalization of software
costs.
Net Cash Flows from Financing Activities
|
|
Nine Months Ended
March31,
|
|
|
|
|
|
|
|
|
Cash
(used in) provided by financing activities
|
$(685,577)
|
$480,396
|
$(1,165,973)
|
NM%
|
|
|
|
|
|
|
Net cash used in financing activities totaled
$685,577 for the nine months ended March 31, 2018 as compared to
cash flows provided by financing activities of $480,396 for the
nine months ended March 31, 2017. The decrease in net cash
provided by financing activities is primarily attributable to the
redemption of $1.0
million of the Company’s Series B-1 Preferred
as well the payment of dividends on
the Series B-1 Preferred in cash, offset in part by proceeds from
the exercise of warrants.
Working Capital
At March 31, 2018,
the Company had working capital of $14,529,347 when compared with
working capital of $10,536,804 at June 30, 2017. This $3,992,543
increase in working capital is primarily due to an increase of
$2,704,563 in accounts receivable, an increase of $774,154 in cash,
an increase of $639,067 in prepaid expenses and other current
assets, a reduction of $820,259 in accrued liabilities, and a
reduction of $132,121 in notes payable, offset in part by an
increase of $688,073 in accounts payable, an increase of $380,000
in lines of credit, and the redemption of $999,990 of Series B-1
Preferred. Management currently does not have any plans to redeem
any additional shares of Series B-1 Preferred in the near term.
While no assurances can be given, management currently believes
that the Company will increase its working capital position in
subsequent periods.
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$22,824,517
|
$18,706,733
|
$4,117,784
|
22%
|
Current
assets as of March 31, 2018 totaled $22,824,517 an increase of
$4,117,784 when compared to $18,706,733 as of June 30,
2017. The increase in current assets is attributable to an
increase of $2,704,563 in accounts receivable, an increase in cash
of $774,154 in cash, and an increase of $639,067 in prepaid
expenses and other current assets.
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$8,295,170
|
$8,169,929
|
$125,241
|
2%
|
Current
liabilities totaled $8,295,170 as of March 31, 2018 as compared to
$8,169,929 as of June 30, 2017. The comparative increase in
current liabilities is principally due to an increase of $688,073
in accounts payable, an increase of $380,000 in lines of credit,
and an increase of $9,548 in deferred revenue, offset in part by a
reduction of $820,259 in accrued liabilities and a reduction of
$132,121 in notes payable.
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, revenues, and results of operation, liquidity
or capital expenditures.
Contractual Obligations
Total
contractual obligations and commercial commitments as of March 31,
2018 are summarized in the following table (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt Obligations
|
$1,827,559
|
$190,138
|
$391,419
|
$425,540
|
$820,462
|
|
Capital
Lease Obligations
|
-
|
-
|
-
|
-
|
-
|
|
Operating
Lease Obligations
|
233,066
|
233,066
|
-
|
-
|
-
|
|
Purchase
Obligations
|
-
|
-
|
-
|
-
|
-
|
|
Other
Long-Term Liabilities Reflected on the Balance Sheet under
GAAP
|
-
|
-
|
-
|
-
|
-
|
|
Total
|
$2,060,625
|
$423,204
|
$391,419
|
$425,540
|
$820,462
|
Recent Accounting Pronouncements
In May
2014, August 2015, April 2016, May 2016, September 2017 and
November 2017, 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,
NarrowScope Improvements and Practical Expedients, ASU
2017-14, Income Statement -
Reporting Comprehensive Income (ASC Topic 606), Revenue Recognition (ASC Topic 606),
and Revenue from Contracts with
Customers (ASC Topic 606): Amendments to SEC Paragraphs
pusuant to Staff Accounting Bulletin No. 116 and SEC Release No.
33-10403, 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 industryspecific
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 fiscal years, and
interim periods within those years, beginning after December 15,
2017. Early adoption is permitted for annual periods beginning
after December 15, 2016. This standard may be applied
retrospectively to all prior periods presented, or retrospectively
with a cumulative adjustment to retained earnings in the year of
adoption. 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 Statements and related disclosures, as
well as identifying the required changes to our policies, processes
and controls. The Company is conducting its assessment in order to
be able to state the impact of this ASU on our financial position
and results of operation.
In January 2017, the FASB issued ASU
2017-04, Intangibles—Goodwill and
Other (Topic 350), Simplifying the Test for Goodwill
Impairment. The amendments 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 August 2016, 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 December 15, 2017, 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.
In March 2016, 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 December 15,
2016, 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 February 2016, 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 December 15,
2018, including interim periods within those fiscal years. Early
adoption is permitted. The Company is in the process of assessing
the impact, but based on current commitments does not anticipate
adoption to have a material impact on its consolidated financial
statements.
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Our
business is currently conducted principally in the United
States. As a result, our financial results are not affected by
factors such as changes in foreign currency exchange rates or
economic conditions in foreign markets. We do not engage in
hedging transactions to reduce our exposure to changes in currency
exchange rates, although if the geographical scope of our business
broadens, we may do so in the future.
Our
exposure to risk for changes in interest rates relates primarily to
our investments in short-term financial
instruments. Investments in both fixed rate and floating rate
interest earning instruments carry some interest rate
risk. The fair value of fixed rate securities may fall due to
a rise in interest rates, while floating rate securities may
produce less income than expected if interest rates
fall. Partly as a result of this, our future interest income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if we are forced to sell
securities that have fallen in estimated fair value due to changes
in interest rates. However, as substantially all of our cash
consist of bank deposits and short-term money market instruments,
we do not expect any material change with respect to our net income
as a result of an interest rate change.
Our
exposure to interest rate changes related to borrowing has been
limited, and we believe the effect, if any, of near-term changes in
interest rates on our financial position, results of operations and
cash flows should not be material. At March 31, 2018, the debt
portfolio was composed of approximately 94% variable rate debt and
6% fixed rate debt.
|
|
March 31, 2018
(unaudited)
|
|
|
Fixed
rate debt
|
$322,099
|
6%
|
|
Variable
rate debt
|
4,735,460
|
94%
|
|
Total
debt
|
$5,057,559
|
100%
|
The table
that follows presents fair values of principal amounts and weighted
average interest rates for our investment portfolio as of March 31,
2018:
|
Cash:
|
|
Weighted Average
Interest Rate
|
|
Cash
|
$14,828,160
|
1.55%
|
ITEM
4. CONTROLS AND
PROCEDURES
|
(a)
|
Evaluation of disclosure controls and procedures.
Under the supervision and with the
participation of our Management, including our principal executive
officer and principal financial officer, periodically evaluates the
effectiveness of the design and operations of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of March
31, 2018. Based on this evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer believe that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports submitted under
the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms,
including to ensure that information required to be disclosed by
the Company is accumulated and communicated to management,
including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding
required disclosure.
|
|
(b)
|
Changes in internal controls over financial reporting.
The Company’s Chief Executive
Officer and Chief Financial Officer have determined that there have
been no changes in the Company’s internal control over
financial reporting during the period covered by this report
identified in connection with the evaluation described in the above
paragraph that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over
financial reporting.
|
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, involved in various legal proceedings
incidental to the conduct of our business. Historically, the
outcome of all such legal proceedings has not, in the aggregate,
had a material adverse effect on our business, financial condition,
results of operations or liquidity. There is currently no
pending or threatened material legal proceeding that, in the
opinion of management, could have a material adverse effect on our
business or financial condition.
There
are no risk factors identified by the Company in addition to the
risk factors previously disclosed in Part I, Item 1A, “Risk
Factors” in our Annual Report on Form 10-K for the year ended
June 30, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
ITEM 3. DEFAULTS UPON
SENIOR SECURITIES
None.
ITEM 5. OTHER
INFORMATION
None.
|
|
|
Amendment
No. 1 to Services Agreement, by and between
the Company, Randall K. Fields, and Fields Management, Inc., dated
May 8, 2018.
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
101.INS
|
|
XBRL
Instance Document
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
In
accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
PARK CITY GROUP, INC.
|
|
|
|
|
|
|
|
Date: May 10, 2018
|
By:
|
/s/ Randall K. Fields
|
|
|
|
|
Randall K. Fields
|
|
|
|
|
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
|
Date: May 10, 2018
|
By:
|
/s/ Todd Mitchell
|
|
|
|
|
Todd Mitchell
|
|
|
|
|
Chief Financial Officer
(Principal Financial Officer & Principal Accounting
Officer)
|
|