PARK CITY GROUP INC - Quarter Report: 2017 December (Form 10-Q)
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 December 31, 2017
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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, 19,638,174 shares
as of February 7, 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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3
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4
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8
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15
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16
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PART II – OTHER INFORMATION
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17
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17
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17
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17
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17
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17
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18
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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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December 31,
2017
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June 30,
2017
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Current Assets
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Unaudited
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Cash
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$14,818,508
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$14,054,006
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Receivables,
net allowance for doubtful accounts of $484,613 and $392,250 at
December 31, 2017 and June 30, 2017, respectively
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5,860,874
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4,009,127
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Prepaid
expense and other current assets
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789,057
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643,600
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Total Current Assets
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21,468,439
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18,706,733
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Property and equipment, net
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2,066,482
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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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1,773,819
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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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985,500
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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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217,956
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137,205
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Total Other Assets
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24,339,045
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25,090,466
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Total Assets
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$47,873,966
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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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$639,418
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$565,487
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Accrued
liabilities
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1,582,041
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2,084,980
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Deferred
revenue
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2,409,816
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2,350,846
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Lines
of credit
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2,850,000
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2,850,000
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Current
portion of notes payable
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255,071
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318,616
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Total current liabilities
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7,736,346
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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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1,951,412
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1,996,953
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Other
long-term liabilities
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22,009
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36,743
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Total liabilities
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9,709,767
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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 December 31, 2017 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; 305,859 and 285,859
shares issued and outstanding at December 31, 2017 and June 30,
2017, respectively
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3,059
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2,859
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Common
stock, $0.01 par value, 50,000,000 shares authorized; 19,534,586
and 19,423,821 issued and outstanding at December 31, 2017 and June
30, 2017, respectively
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195,348
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194,241
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Additional
paid-in capital
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76,542,022
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75,489,189
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Accumulated
deficit
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(38,582,484)
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(39,983,692)
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Total stockholders'
equity
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38,164,199
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35,708,851
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Total liabilities and stockholders' equity
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$47,873,966
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$45,912,476
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See accompanying notes to consolidated condensed financial
statements.
PARK CITY GROUP, INC.
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Three
Months Ended
December
31,
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Six
Months Ended
December
31,
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2017
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2016
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2017
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2016
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Revenues
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$5,724,706
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$4,785,589
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$10,436,871
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$9,002,134
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Operating
expenses:
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Cost
of services and product support
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1,426,351
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1,190,404
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2,844,364
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2,393,919
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Sales
and marketing
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1,621,149
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1,159,073
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3,207,089
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2,352,249
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General
and administrative
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1,140,085
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938,087
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2,275,855
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1,961,237
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Depreciation
and amortization
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163,825
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112,861
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322,628
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229,441
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Total
operating expenses
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4,351,410
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3,400,425
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8,649,936
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6,936,846
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Income from operations
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1,373,296
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1,385,164
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1,786,935
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2,065,288
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Other
expense:
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Interest
expense
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(7,696)
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(6,836)
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(29,887)
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(13,323)
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Income
before income taxes
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1,365,600
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1,378,328
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1,757,048
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2,051,965
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(Provision)
benefit for income taxes:
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(15,116)
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-
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(75,714)
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(59,184)
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Net income
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1,350,484
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1,378,328
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1,681,334
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1,992,781
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Dividends
on preferred stock
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(162,966)
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(195,448)
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(280,126)
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(382,252)
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Net
income applicable to common shareholders
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$1,187,518
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$1,182,880
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$1,401,208
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$1,610,529
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Weighted
average shares, basic
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19,487,000
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19,338,000
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19,455,000
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19,302,000
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Weighted
average shares, diluted
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20,338,000
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20,313,000
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20,340,000
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19,493,000
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Basic
income per share
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$0.06
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$0.06
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$0.07
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$0.08
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Diluted
income per share
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$0.06
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$0.06
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$0.07
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$0.08
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See accompanying notes to consolidated condensed financial
statements.
PARK CITY GROUP, INC.-
Consolidated Condensed Statements
of Cash Flows
(Unaudited)
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Six
Months
Ended
December 31,
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2017
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2016
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Cash
Flows Operating Activities:
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Net
income
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$1,681,334
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$1,992,781
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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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322,628
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229,441
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Stock
compensation expense
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388,099
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578,080
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Bad
debt expense
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195,050
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155,700
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(Increase)
decrease in:
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Trade
receivables
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(2,046,797)
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(2,269,610)
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Long-term
receivables, prepaids and other assets
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621,015
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43,232
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(Decrease)
increase in:
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Accounts
payable
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73,931
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(97,020)
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Accrued
liabilities
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74,383
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21,385
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Deferred
revenue
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58,970
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(274,922)
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Net
cash provided by operating activities
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1,368,613
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379,067
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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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(177,643)
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(19,499)
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Net
cash used in investing activities
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(288,884)
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(19,499)
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Cash
Flows From Financing Activities:
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Proceeds
from employee stock purchase plans
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119,790
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113,987
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Proceeds
from issuance of note payable
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56,078
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-
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Net
increase in lines of credit
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-
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250,000
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Proceeds
from exercise of options and warrants
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-
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35,000
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Payments
on notes payable and capital leases
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(165,164)
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(133,891)
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Dividends
paid
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(325,931)
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(5,288)
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Net
cash provided by (used in) financing activities
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(315,227)
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259,808
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Net
increase in cash and cash equivalents
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764,502
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619,376
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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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$14,818,508
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$12,062,764
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Supplemental
Disclosure of Cash Flow Information:
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Cash
paid for income taxes
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$75,714
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$59,184
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Cash
paid for interest
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$123,921
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$22,452
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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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$734,350
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$655,107
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Preferred
stock to pay accrued liabilities
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$200,000
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$100,000
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Dividends
accrued on preferred stock
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$280,126
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$382,252
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Dividends
paid with preferred stock
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$-
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$364,271
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See accompanying notes to consolidated condensed financial
statements.
PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Park
City Group, Inc. 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
we help 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 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, and 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 sign up 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 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.
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.
Basis of Financial Statement Presentation
The
interim financial information of the Company as of December 31,
2017 and for the three and six months ended December 31, 2017 and
2016 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 in accordance 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 six
months ended December 31, 2017 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,
stock-based 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 anti-dilutive 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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Three Months Ended
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Six Months Ended
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December 31,
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December 31,
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2017
|
2016
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2017
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2016
|
|
Numerator
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Net
income applicable to common shareholders
|
$1,187,518
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$1,182,880
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$1,401,208
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$1,610,529
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Denominator
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Weighted
average common shares outstanding, basic
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19,487,000
|
19,338,000
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19,455,000
|
19,302,000
|
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Warrants
to purchase common stock
|
851,000
|
975,000
|
885,000
|
191,000
|
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Weighted
average common shares outstanding, diluted
|
20,338,000
|
20,313,000
|
20,340,000
|
19,493,000
|
|
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Net
income per share
|
|
|
|
|
|
Basic
|
$0.06
|
$0.06
|
$0.07
|
$0.08
|
|
Diluted
|
$0.06
|
$0.06
|
$0.07
|
$0.08
|
Reclassifications
Certain prior-year amounts have been reclassified to conform with
the current year’s presentation.
NOTE 3. EQUITY
|
Restricted
Stock Units
|
Restricted
Stock Units
|
Weighted Average Grant Date Fair Value
($/share)
|
|
|
|
|
|
Outstanding
at June 30, 2017
|
982,613
|
$6.01
|
|
Granted
|
9,897
|
12.12
|
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Vested
and issued
|
(95,201)
|
7.21
|
|
Forfeited
|
(13,669)
|
11.89
|
|
Outstanding
at December 31, 2017
|
883,640
|
$5.86
|
The
number of restricted stock units outstanding at December 31, 2017
included 3,380 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 December 31, 2017, there was approximately $5.2MM 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 December 31, 2017:
|
|
Warrants Outstanding
at December 31, 2017
|
Warrants Exercisable
at December 31, 2017
|
|||
|
Range of
exercise prices
|
Number
Outstanding
|
Weighted average
remaining contractual life (years)
|
Weighted average exercise price
|
Number
exercisable
|
Weighted average
exercise price
|
|
$3.45 – 4.00
|
1,271,618
|
1.82
|
$3.94
|
1,271,618
|
$3.94
|
|
$6.45 – 10.00
|
100,481
|
.99
|
$7.29
|
100,481
|
$7.29
|
|
|
1,372,099
|
1.76
|
$4.18
|
1,372,099
|
$4.18
|
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 Stock
(“Series B-1
Preferred”). As of
December 31, 2017, a total of 625,375 shares of Series B Preferred
and 305,859 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. Management believes the Series B-1
Preferred favorably impacts the Company’s overall cost of
capital in that it is (i) is perpetual and, therefore, an equity
instrument that positively impacts the Company’s coverage
ratios; (ii) posesses 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 six months ended December 31, 2017, 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 $45,200 and $77,628 to FMI at December 31,
2017 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.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, August 2015, April 2016, May 2016,
and September 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, and ASU 2016-12 (ASC
Topic 606) Revenue from Contracts with
Customers, Narrow-Scope Improvements and Practical
Expedients, 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 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 still conducting its assessment and will
continue to evaluate 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
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, 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 the holders
of the Series B-1 Preferred notifying the holders of the
Company’s intent to redeem the Redemption Shares, on a pro
rata basis, 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 for the
redemption of a total of 93,457 shares of Series B-1
Preferred. Following
the Series B-1 Redemption, a total of 212,402 shares of Series B-1
Preferred remain issued and outstanding.
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. 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
we help 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, and 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 sign up 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 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.
Results of Operations
Comparison of the Three Months Ended December 31, 2017 to the Three
Months Ended December 31, 2016.
Revenue
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Revenue
|
$5,724,706
|
$4,785,589
|
$939,117
|
20%
|
Revenue
was $5,724,706 and $4,785,589 for the three months ended December
31, 2017 and 2016, respectively, a 20% increase. This increase
was driven by growth in all services, and in particular growth of
supply chain revenues.
Cost of Services and Product Support
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Cost
of services and product support
|
$1,426,351
|
$1,190,404
|
$235,947
|
20%
|
|
Percent
of total revenue
|
25%
|
25%
|
|
|
Cost
of services and product support was $1,426,351 and $1,190,404 for
the three months ended December 31, 2017 and 2016, respectively, a
20% 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.
Sales and Marketing Expense
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Sales
and marketing
|
$1,621,149
|
$1,159,073
|
$462,076
|
40%
|
|
Percent
of total revenue
|
28%
|
24%
|
|
|
Sales
and marketing expense was $1,621,149 and $1,159,073 for the three
months ended December 31, 2017 and 2016, respectively, a 40%
increase. This increase in sales and marketing 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
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
General
and administrative
|
$1,140,085
|
$938,087
|
$201,998
|
22%
|
|
Percent
of total revenue
|
20%
|
20%
|
|
|
General and administrative expense was $1,140,085 and $938,087 for
the three months ended December 31, 2017 and 2016, respectively, an
22% 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
general administrative expenses, offset in part by lower stock
compensation expense.
Depreciation and Amortization Expense
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Depreciation
and amortization
|
$163,825
|
$112,861
|
$50,964
|
45%
|
|
Percent
of total revenue
|
3%
|
2%
|
|
|
Depreciation and amortization expense was $163,825 and $112,861 for
the three months ended December 31, 2017 and 2016, respectively, an
increase of 45%. 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
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Net
other expense
|
$7,696
|
6,836
|
$860
|
13%
|
|
Percent
of total revenue
|
NM
|
NM
|
|
|
Net other expense was $7,696 for the three months ended December
31, 2017 compared to net other expense of $6,836 for the three
months ended December 31, 2016. This increase in other expense
is primarily due to increased interest expense associated with
investment in the growth of the business. The increase is partially
offset by an increase in interest income from cash
equivalents.
Preferred Dividends
|
|
Fiscal Quarter Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Preferred
dividends
|
$162,966
|
$195,448
|
$32,482
|
(17)%
|
|
Percent
of total revenue
|
3%
|
4%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $162,966 for the three
months ended December 31, 2017, compared to dividends accrued on
the Series B-1 Preferred of $195,448 for the year ended
December 31, 2016. This decrease is due to 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.
Comparison of the Six Months Ended December 31, 2017 to the Six
Months Ended December 31, 2016.
Revenue
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Revenue
|
$10,436,871
|
$9,002,134
|
$1,434,737
|
16%
|
Revenue was $10,436,871 and $9,002,134 for
the six months ended December 31, 2017 and 2016,
respectively, a 16% increase. This increase was driven by
growth in all services, as well as the addition of incremental
revenues associated with our MarketPlace
initiative.
Cost of Services and Product Support
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Cost
of services and product support
|
$2,844,364
|
$2,393,919
|
$450,445
|
19%
|
|
Percent
of total revenue
|
27%
|
27%
|
|
|
Cost of services and product support was
$2,844,364 and $2,393,919 for the six months ended December 31, 2017 and 2016,
respectively, a 19% increase. This increase is primarily
attributable to costs related to new product introductions,
including MarketPlace and expansion of ReposiTrak compliance
capabilities to include new features and
attributes.
Sales and Marketing Expense
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Sales
and marketing
|
$3,207,089
|
$2,352,249
|
$854,840
|
36%
|
|
Percent
of total revenue
|
31%
|
26%
|
|
|
Sales and marketing expense was $3,207,089 and
$2,352,249 for the six months ended December 31, 2017 and 2016,
respectively, a 36% increase. This increase in sales and
marketing 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
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
General
and administrative
|
$2,275,855
|
$1,961,237
|
$314,618
|
16%
|
|
Percent
of total revenue
|
22%
|
22%
|
|
|
General and administrative expense was
$2,275,855 and $1,961,237 for the six months ended December 31, 2017 and 2016,
respectively, a 16% 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 general administrative expenses, offset in
part by lower stock compensation
expense.
Depreciation and Amortization Expense
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Depreciation
and amortization
|
$322,628
|
$229,441
|
$93,187
|
41%
|
|
Percent
of total revenue
|
3%
|
3%
|
|
|
Depreciation and amortization expense was
$322,628 and $229,441 for the six months ended December 31, 2017 and 2016,
respectively, an increase of 41%. 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
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Net
other expense
|
$29,887
|
$13,323
|
$16,564
|
124%
|
|
Percent
of total revenue
|
NM
|
NM
|
|
|
Net other expense was $29,887 for
the six months ended December 31, 2017 compared to net
other expense of $13,323 for the six months ended December 31, 2016. This
increase in other expense is primarily due to increases interest
expense associated with investment in the growth of the business.
The increase is partially offset by an increase in interest income
from cash equivalents.
Preferred Dividends
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Preferred
dividends
|
$280,126
|
$382,252
|
$(102,126)
|
(27)%
|
|
Percent
of total revenue
|
3%
|
4%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $280,126 for the six
months ended December 31, 2017, compared to dividends accrued on
the Series B-1 Preferred of $382,252 for the six months
ended December 31, 2016. This decrease is due to 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.
|
|
As of
|
Variance
|
||
|
|
December 31, 2017
|
June 30, 2017
|
Dollars
|
Percent
|
|
Cash
and cash equivalents
|
$14,818,508
|
$14,054,006
|
$764,502
|
5%
|
We have historically funded our operations with
cash from operations, equity financings, and borrowings from the
issuance of debt. Cash was $14,818,508 and $14,054,006 at December
31, 2017 and June 30, 2017, respectively. This 5%
increase is principally the
result of increased cash flows from operations, due to higher
revenue and increase of net income.
Net Cash Flows from Operating Activities
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Cash
provided by operating activities
|
$1,368,613
|
379,067
|
$989,546
|
261%
|
Net cash provided
by operating activities is summarized as
follows:
|
|
Six Months Ended
December 31,
|
|
|
|
2017
|
2016
|
|
Net
Income
|
$1,681,334
|
$1,992,781
|
|
Noncash
expense and income, net
|
905,777
|
963,221
|
|
Net
changes in operating assets and liabilities
|
(1,218,498)
|
(2,576,935)
|
|
|
$1,368,613
|
$379,067
|
Noncash expense decreased by $57,444 in the six months
ended December 31, 2017 compared to December 31, 2016.
Noncash expense decreased as a result of a decrease in stock
compensation, offset in part by an increase in bad debt
expense.
Net Cash Flows used in Investing Activities
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Cash
used in investing activities
|
$288,884
|
$19,499
|
$269,385
|
NM%
|
Net
cash used in investing activities for the six months ended December
31, 2017 was $288,884 compared to net cash used in investing
activities of $19,499 for the six months ended December 31,
2016. This increase in cash used in investing activities for
the six months ended December 31, 2017 is due to an increase in
fixed asset purchase as well as capitalization of software
costs.
Net Cash Flows from Financing Activities
|
|
Six Months Ended
December 31,
|
Variance
|
||
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Cash
(used in) provided by financing activities
|
$(315,227)
|
$259,808
|
$(575,035)
|
NM%
|
|
|
|
|
|
|
Net
cash used in financing activities totaled $315,227 for the six
months ended December 31, 2017 as compared to cash flows provided
by financing activities of $259,808 for the six months ended
December 31, 2016. The decrease in net cash provided by
financing activities is primarily attributable to payment of
dividends, and the absent of an increase in borrowing from our line
of credit.
Working Capital
At December 31, 2017, the Company had working capital of
$13,732,093 when compared with working capital of $10,536,804 at
June 30, 2017. This $3,195,289 increase in working capital is
primarily due to an increase of $764,502 in cash, an increase of
$1,851,747 in accounts receivable, and an increase of $145,457 in
prepaid expenses and other current assets, and partially offset by
an increase of $58,970 in deferred revenue, decrease of $502,939 in
accrued liabilities, an increase of $73,931 in accounts payable and
a decrease of $63,545 in current portion notes payable. While no
assurances can be given, management currently believes that the
Company will increase its working capital position in subsequent
periods.
|
|
As of
December 31,
|
As of
June 30,
|
Variance
|
|
|
|
2017
|
2017
|
Dollars
|
Percent
|
|
Current
assets
|
$21,468,439
|
$18,706,733
|
$2,761,706
|
15%
|
Current
assets as of December 31, 2017 totaled $21,468,439, an increase of
$2,761,706 when compared to $18,706,733 as of June 30,
2017. The increase in current assets is attributable to an
increase in cash and accounts receivable.
|
|
As of
December 31,
|
As of
June 30,
|
Variance
|
|
|
|
2017
|
2016
|
Dollars
|
Percent
|
|
Current
liabilities
|
$7,736,346
|
$8,169,929
|
$(433,583)
|
(5)%
|
Current
liabilities totaled $7,736,346 as of December 31, 2017 as compared
to $8,169,929 as of June 30, 2017. The comparative decrease in
current liabilities is principally due to an increase of $73,931 in
accounts payable and a $58,970 increase in deferred revenue. These
were offset by a decrease of $502,939 in accrued liabilities and a
decrease of $63,545 in the current portion of 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 December
31, 2017 are summarized in the following table (in
thousands):
|
|
Payment Due by Year
|
||||
|
|
Total
|
Less than 1 Year
|
1-3 Years
|
3-5 Years
|
More than 5 Years
|
|
Long-Term
Debt Obligations
|
$2,206,483
|
$255,071
|
$400,180
|
$426,812
|
$1,124,420
|
|
Capital
Lease Obligations
|
-
|
-
|
-
|
-
|
-
|
|
Operating
Lease Obligations
|
301,994
|
267,186
|
34,808
|
-
|
-
|
|
Purchase
Obligations
|
-
|
-
|
-
|
-
|
-
|
|
Other
Long-Term Liabilities Reflected on the Balance Sheet under
GAAP
|
-
|
-
|
-
|
-
|
-
|
|
Total
|
$2,508,477
|
$522,257
|
$434,988
|
$426,812
|
$1,124,420
|
Recent Accounting Pronouncements
In May 2014, August 2015, April 2016, May 2016,
and September 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, and ASU 2016-12 (ASC
Topic 606) Revenue from Contracts with
Customers, Narrow-Scope Improvements and Practical
Expedients, 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 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 still conducting
its assessment and will continue to evaluate 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 December 31, 2017, the
debt portfolio was composed of approximately 93% variable-rate debt
and 7% fixed-rate debt.
|
|
December 31, 2017
(unaudited)
|
Percent of
Total Debt
|
|
Fixed
rate debt
|
$330,867
|
7%
|
|
Variable
rate debt
|
4,725,616
|
93%
|
|
Total
debt
|
$5,056,483
|
100%
|
The table
that follows presents fair values of principal amounts and weighted
average interest rates for our investment portfolio as of December
31, 2017:
|
Cash:
|
Aggregate
Fair Value
|
Weighted Average Interest Rate
|
|
Cash
|
$14,818,508
|
<1%
|
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 December
31, 2017. 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.
|
PART II
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.
ITEM 1A. RISK
FACTORS
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.
None
ITEM 3. DEFAULTS UPON
SENIOR SECURITIES
None.
ITEM 5. OTHER
INFORMATION
None.
ITEM 6. EXHIBITS
|
|
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
|
SIGNATURES
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: February 8, 2018
|
By:
|
/s/ Randall K. Fields
|
|
|
|
|
Randall K. Fields
|
|
|
|
|
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
|
Date: February 8, 2018
|
By:
|
/s/ Todd Mitchell
|
|
|
|
|
Todd Mitchell
|
|
|
|
|
Chief Financial Officer
(Principal Financial Officer & Principal Accounting
Officer)
|
|
-18-