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PARK CITY GROUP INC - Quarter Report: 2021 September (Form 10-Q)

pcyg20210930_10q.htm
 


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________ to _________.

 

Commission File Number 001-34941

 

PARK CITY GROUP, INC.

(Exact name of small business issuer as specified in its charter)

 

Nevada

 

37-1454128

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

5282 South Commerce Drive, Suite D292, Murray, Utah 84107

(Address of principal executive offices)

 

(435) 645-2000

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

PCYG

Nasdaq Capital Market

 

 

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 every Interactive Data File required to be submitted 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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

  

Emerging growth company

 

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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes   ☒ No 

 

As of November 15, 2021, 19,399,016 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

 



 

 

 

 

PARK CITY GROUP, INC.

 

TABLE OF CONTENTS

 

   

Page

 

PART I - FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

 
     
 

Consolidated Condensed Balance Sheets as of September 30, 2021 and June 30, 2021 (Unaudited)

1

 

Consolidated Condensed Statements of Operations for the Three Months Ended September 30, 2021 and 2020 (Unaudited)

2

 

Consolidated Condensed Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020 (Unaudited)

3

 

Consolidated Statements of Stockholders’ Equity for September 30, 2021 and 2020 (Unaudited)

4

 

Notes to Consolidated Condensed Financial Statements

6

     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

14

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

     

Item 4.

Controls and Procedures

22

     
 

PART II OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

23

     

Item 1A.

Risk Factors

23

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

     

Item 3.

Defaults Upon Senior Securities

23

     

Item 5.

Other Information

23

     

Item 6.

Exhibits

23

     

Signatures

 

24

     

 

 

 

 

 

 
 

PARK CITY GROUP, INC.

Consolidated Condensed Balance Sheets (Unaudited)

 

Assets

 

September 30,

2021

  

June 30,

2021

 

Current Assets:

        

Cash

 $20,431,158  $24,070,322 

Receivables, net of allowance for doubtful accounts of $252,278 and $234,693 at September 30, 2021 and June 30, 2021, respectively

  3,997,676   3,891,699 

Contract asset – unbilled current portion

  984,155   1,248,936 

Prepaid expense and other current assets

  684,310   490,817 

Total Current Assets

  26,097,299   29,701,774 
         

Property and equipment, net

  1,017,202   2,589,194 
         

Other Assets:

        

Deposits and other assets

  22,414   22,414 

Prepaid expense – less current portion

  34,907   47,987 

Contract asset – unbilled long-term portion

  291,833   408,925 

Operating lease – right-of-use asset

  673,319   695,371 

Customer relationships

  492,750   525,600 

Goodwill

  20,883,886   20,883,886 

Capitalized software costs, net

  157,420   171,732 
         

Total Other Assets

  22,556,529   22,755,915 
         

Total Assets

 $49,671,030  $55,046,883 
         

Liabilities and Stockholders' Equity

        

Current liabilities:

        

Accounts payable

 $371,825  $467,194 

Accrued liabilities

  738,283   988,092 

Contract liability - deferred revenue

  1,758,710   1,755,341 

Lines of credit

  -   6,000,000 

Operating lease liability - current

  91,297   90,156 
         

Total current liabilities

  2,960,115   9,300,783 
         

Long-term liabilities:

        

Operating lease liability – less current portion

  582,022   605,214 
         

Total liabilities

  3,542,137   9,905,997 
         

Stockholders equity:

        

Preferred Stock; $0.01 par value, 30,000,000 shares authorized;

        

Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at September 30, 2021 and June 30, 2021;

  6,254   6,254 

Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively

  2,124   2,124 

Common Stock, $0.01 par value, 50,000,000 shares authorized; 19,387,552 and 19,351,935 issued and outstanding at September 30, 2021 and June 30, 2021, respectively

  193,878   193,522 

Additional paid-in capital

  74,486,369   74,298,924 

Accumulated deficit

  (28,559,732

)

  (29,359,938

)

         

Total stockholders equity

  46,128,893   45,140,886 
         

Total liabilities and stockholders equity

 $49,671,030  $55,046,883 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

PARK CITY GROUP, INC.

Consolidated Condensed Statements of Operations (Unaudited)

 

  

Three Months Ended

September 30,

 
  

2021

  

2020

 
         

Revenue

 $4,559,677  $5,225,402 
         

Operating expense:

        

Cost of revenue and product support

  846,487   1,980,957 

Sales and marketing

  1,188,893   1,283,041 

General and administrative

  1,096,656   1,081,925 

Depreciation and amortization

  261,164   248,500 
         

Total operating expense

  3,393,200   4,594,423 
         

Income from operations

  1,166,477   630,979 
         

Other income (expense):

        

Interest income

  55,156   34,341 

Interest expense

  (2,898

)

  (70,545

)

Other gain (loss)

  (83,081

)

  - 

Unrealized gain (loss) on short term investments

  (149,291

)

  (16,263

)

         

Income before income taxes

  986,363   578,512 
         

(Provision) for income taxes:

  (39,546

)

  (23,686

)

Net income

  946,817   554,826 
         

Dividends on preferred stock

  (146,611

)

  (146,611

)

         

Net income applicable to Common Stockholders

 $800,206  $408,215 
         

Weighted average shares, basic

  19,383,000   19,489,000 

Weighted average shares, diluted

  19,669,000   19,642,000 

Basic income per share

 $0.04  $0.02 

Diluted income per share

 $0.04  $0.02 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

PARK CITY GROUP, INC.

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

   

Three Months Ended

September 30,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net income

  $ 946,817     $ 554,826  

Adjustments to reconcile net income to net cash used in operating activities:

               

Depreciation and amortization

    261,164       248,500  

Amortization of operating right-of-use asset

    22,051       20,965  

Stock compensation expense

    88,246       93,432  

Bad debt expense

    125,000       125,000  

Loss on sale of property and equipment

    107,820       -  

Gain on disposal of assets

    (24,737

)

    -  

(Increase) decrease in:

               

Accounts receivables

    (258,029

)

    (1,154,077

)

Long-term receivables, prepaid and other assets

    129,335       691,245  

(Decrease) increase in:

               

Accounts payable

    (95,369

)

    57,515  

Accrued liabilities

    (165,555

)

    501,063  

Operating lease liability

    (22,051

)

    (20,965

)

Deferred revenue

    3,369       105,844  

Net cash provided by operating activities

    1,118,061       1,223,348  
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    -       (12,925

)

Sale of property and equipment

    1,374,085       -  

Net cash provided by (used in) investing activities

    1,374,085       (12,925

)

                 

Cash flows financing activities:

               

Net decrease in lines of credit

    (6,000,000

)

    -  

Common Stock buy-back

    (41,276

)

    -  

Proceeds from employee stock purchase plan

    56,577       50,328  

Dividends paid

    (146,611

)

    (146,611

)

Proceeds from issuance of notes payable

    -       620,000  

Payments on notes payable and capital leases

    -       (920,754

)

Net cash used in financing activities

    (6,131,310

)

    (397,037

)

                 

Net increase (decrease) in cash and cash equivalents

    (3,639,164

)

    813,386  
                 

Cash and cash equivalents at beginning of period

    24,070,322       20,345,330  

Cash and cash equivalents at end of period

  $ 20,431,158     $ 21,158,716  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for income taxes

  $ 172,342     $ 25,899  

Cash paid for interest

  $ 2,898     $ 70,545  

Cash paid for operating leases

  $ 30,600     $ 30,600  
                 

Supplemental disclosure of non-cash investing and financing activities:

               

Common Stock to pay accrued liabilities

  $ 172,500     $ 5,405  

Dividends accrued on preferred stock

  $ 146,611     $ 146,611  

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

PARK CITY GROUP, INC.

Consolidated Statements of Stockholders Equity (Deficit) (Unaudited)

 

  

Series B

Preferred Stock

  

Series B-1

Preferred Stock

  

Common Stock

  

Additional

Paid-In

  

Accumulated

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Total

 
                                     

Balance, June 30, 2021

  625,375  $6,254   212,402  $2,124   19,351,935  $193,522  $74,298,924  $(29,359,938) $45,140,886 

Stock issued for:

                                    

Accrued compensation

  -   -   -   -   29,316   293   172,207   -   172,500 

Employee stock plan

  -   -   -   -   13,901   139   56,438   -   56,577 

Stock buyback

  -   -   -   -   (7,600)  (76)  (41,200)  -   (41,276)

Preferred Dividends-Declared

  -   -   -   -   -   -   -   (146,611)  (146,611)

Net income

  -   -   -   -   -   -   -   946,817   946,817 

Balance, September 30, 2021

  625,375  $6,254   212,402  $2,124   19,387,552  $193,878  $74,486,369  $(28,559,732) $46,128,893 

 

 

-4-

 

PARK CITY GROUP, INC.

Consolidated Statements of Stockholders Equity (Deficit) (Unaudited)

 

  

Series B

      

Series B-1

      

 

      

Additional

  

 

     
  

Preferred Stock

      

Preferred Stock

       Common Stock       

Paid-In

   Accumulated      
  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Total

 
                                     

Balance, June 30, 2020

  625,375  $6,254   212,402  $2,124   19,484,485  $194,847  $75,271,097  $(32,890,889

)

 $42,583,433 

Stock issued for:

                                    

Accrued compensation

  -   -   -   -   1,302   13   5,392   -   5,405 

Employee stock plan

  -   -   -   -   13,980   140   50,188   -   50,328 

Stock buyback

  -   -   -   -   -   -   -   -   - 

Preferred Dividends-Declared

  -   -   -   -   -   -   -   (146,611

)

  (146,611

)

Net income

  -   -   -   -   -   -   -   554,826   554,826 

Balance, September 30, 2020

  625,375  $6,254   212,402  $2,124   19,499,767  $195,000  $75,326,677  $(32,482,674

)

 $43,047,381 

 

 

 

 

 

PARK CITY GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1.  OVERVIEW OF OPERATIONS AND BASIS FOR PRESENTATION

 

Overview

 

Park City Group, Inc., a Nevada corporation (“Park City Group”, “We”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation (“ReposiTrak”) which operates a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies, and source hard-to-get-things.

 

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

 

The Company’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 Compliance and Food Safety 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 of 2011 (“FSMA”).

 

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards 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 household name multi-store food retail 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 wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services.

 

The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“PCG Utah”); Park City Group, Inc., a Delaware corporation (100% owned) (“PCG Delaware”); and ReposiTrak (100% owned) (collectively, the “Subsidiaries”). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the operating results of the operations of PCG Delaware and ReposiTrak. Park City Group has no business operations separate from the operations conducted through its Subsidiaries.

 

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.

 

 

Basis of Financial Statement Presentation

 

The interim financial information of the Company as of September 30, 2021 and for the three months ended September 30, 2021 is unaudited, and the balance sheet as of June 30, 2021 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") 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. GAAP. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended June 30, 2021. 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 months ended September 30, 2021 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2021. 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, 2021. 

 

 

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. GAAP 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 U.S. Securities and Exchange Commission (“SEC”) 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 because of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include revenue recognition, goodwill, other long-lived asset valuations, income taxes, stock-based compensation, and capitalization of software development costs.

 

Revenue Recognition

 

We recognize revenue as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenue, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. We account for a contract based on the terms and conditions the parties agree to, the contract has commercial substance and collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.

 

We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.

 

 

For performance obligations where control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenue related to fixed-price contracts for application development and systems integration services, consulting or other technology services is recognized as the service is performed using the output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed and when value is transferred to a customer. Revenue related to fixed-price application maintenance, testing and business process services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18.

 

If our invoicing is not consistent with the value delivered, revenue is recognized as the service is performed based on the method described above. The output method measures the results achieved and value transferred to a customer, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenue related to fixed-price hosting and infrastructure services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenue is recognized on a straight-line basis unless revenue is earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations.

 

Revenue related to our software license arrangements that do not require significant modification or customization of the underlying software is recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenue for the software license and related services is recognized as the services are performed in accordance with the methods described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Revenue related to software maintenance and support is generally recognized on a straight-line basis over the contract period.

 

Revenue related to transaction-based or volume-based contracts is recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided.

 

From time-to-time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenue on a gross basis) or agent (i.e. report revenue on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment.

 

We provide customers with assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications. General updates or patch fixes are not considered an additional performance obligation in the contract.

 

Variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.

 

 

We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.

 

Trade Accounts Receivable and Contract Balances

 

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, we recognize a receivable for revenue related to our transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors.

 

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in current and other assets in our consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts utilizing the output method of revenue recognition. The table below shows movements in contract assets:

 

  

Contract assets

 

Balance – June 30, 2021

 $1,657,861 

Revenue recognized during the period but not billed

  - 

Amounts reclassified to accounts receivable

  (318,296

)

Other

  (63,577

)

Balance – September 30, 2021

 $1,275,988(1) 

 

 

(1)

Contract asset balances for September 30, 2021 include a current and a long-term contract asset of $984,155 and $291,833, respectively.

 

Our contract assets and liabilities are reported at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

 

The table below shows movements in the deferred revenue balances (current and noncurrent) for the period:

 

  

Contract liability

 

Balance – June 30, 2021

 $1,755,341 

Amounts billed but not recognized as revenue

  965,635 

Revenue recognized related to the opening balance of deferred revenue

  (962,266

)

Other

  - 

Balance – September 30, 2021

 $1,758,710 

 

 

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

 

Disaggregation of Revenue

 

The table below presents disaggregated revenue from contracts with customers by contract-type. We believe this disaggregation best depicts the nature, amount, timing and uncertainty of our revenue and cash flows that may be affected by industry, market, and other economic factors:

 

  

Three Months Ended

September 30

         
  

2021

  

2020

  

Chg $

  

Chg %

 

Recurring - Subscription, Support and Services

 $4,405,444  $4,002,665  $402,779   10

%

Non - Recurring - Services

  50,900   133,149   (82,249

)

  -62

%

Transaction Based - Marketplace

  103,333   1,089,588   (986,255

)

  -91

%

Total

 $4,559,677  $5,225,402  $(665,725

)

  -13

%

 

Earnings Per Share

 

Basic net income per share of Common Stock (“Basic EPS”) excludes dilution and is computed by dividing net income applicable to Common Stockholders by the weighted average number of Common Stock outstanding during the period. Diluted net income per share of Common Stock (“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 share of Common Stock.

 

The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated:

 

  

Three Months Ended

September 30,

 
  

2021

  

2020

 

Numerator

        

Net income applicable to Common Stockholders

 $800,206  $408,215 
         

Denominator

        

Weighted average Common Stock outstanding, basic

  19,383,000   19,489,000 

Warrants to purchase Common Stock

  286,000   153,000 

Weighted average Common Stock outstanding, diluted

  19,669,000   19,642,000 
         

Net income per share

        

Basic

 $0.04  $0.02 

Diluted

 $0.04  $0.02 

 

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

 

Restricted Stock Units

 

Restricted

Stock Units

  

Weighted Average Grant Date Fair Value

($/share)

 
         

Outstanding at June 30, 2021

  841,316  $5.34 

Granted

  24,752   6.06 

Vested and issued

  (9,900

)

  6.06 

Forfeited

  -   - 

Outstanding at September 30, 2021

  856,168  $5.35 

 

As of September 30, 2021, there were 9,288 restricted stock units outstanding that had vested but for which shares of Common Stock had not yet been issued pursuant to the terms of the applicable agreement.

 

As of September 30, 2021, there was approximately $4.6 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 2.24 years.

 

Warrants

 

Outstanding warrants were issued in connection with private placements of the Company’s Common Stock and with the restructuring of the Series B Preferred that occurred in March of 2018. The following table summarizes information about fixed stock warrants outstanding at September 30, 2021:

 

Warrants Outstanding

at September 30, 2021

  

Warrants Exercisable

at September 30, 2021

 

Range of

exercise prices

  

Number

Outstanding

  

Weighted average

remaining contractual life (years)

  

Weighted average exercise price

  

Number

exercisable

  

Weighted average

exercise price

 
$4.00   1,085,068   1.35  $4.00   1,085,068  $4.00 
$10.00   23,737   1.32  $10.00   23,737  $10.00 
     1,108,805   1.35  $4.13   1,108,805  $4.13 

 

Preferred Stock

 

The Company’s articles of incorporation currently authorizes the issuance of up to 30,000,000 shares of ‘blank check’ preferred stock, par value $0.01 (“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”).  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 by the issuance of additional shares of Series B Preferred, or Series B-1 Preferred, as applicable.

 

The Company does business with some of the largest retailers and wholesalers in the World. 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.

 

 

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”).

 

As of September 30, 2021, a total of 625,375 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were issued and outstanding. 

 

Share Repurchase Program

 

On May 9, 2019, our Board of Directors approved the repurchase of up to $4.0 million in shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 12b-18 of the Exchange Act.

 

On March 17, 2020, given the extreme uncertainty due to COVID-19 at the time, the Board suspended the Share Repurchase Program.

 

On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4.0 million to $6.0 million. The Share Repurchase Program expires 24 months following May 18, 2021, and it may be suspended for periods of time or discontinued at any time, at the Board’s discretion.

 

On August 31, 2021, our Board of Directors approved increasing its Share Repurchase program by $10 million in shares of our Common Stock. The total remaining authorization for future shares of Common Stock repurchases under our Share Repurchase Program was $12,009,609 as of September 30, 2021. Our Board may authorize further increases, suspend, reduce, or discontinue our Share Repurchase Program at any time, at the Board’s discretion.

 

The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the three months ended  September 30, 2021:

 

Period

 (1)

 

 

Total Number of Shares Purchased

  

Average Price Paid Per Share

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

  

Remaining Amount Available for Future Share Repurchases Under the Plans or Programs

 
                 

July 1, 2021 – September 30, 2021:

  7,600  $5.43   718,394  $12,009,609 

 

(1)

We close our books and records on the last calendar day of each month to align our financial closing with our business processes.

 

 

NOTE 4.  RELATED PARTY TRANSACTIONS

 

During the three months ended September 30, 2021, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“FMI”), pursuant to which FMI provides 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, FMI’s designated executive, who also serves as the Company’s Chair of the Board of Directors, controls FMI. The Company had no payables to FMI at September 30, 2021 and June 30, 2021, respectively, under the Service Agreement. 

 

 

 

NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS

 

In August 2018, the FASB issued ASU 2018-15 Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40) Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. The Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. Company adopted the standard during the second quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07 Compensation Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted the standard during the first quarter of fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). All amounts and disclosures set forth in this Annual Report on Form 10-K have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company adopted the standard during fiscal year 2020. This standard did not have a material impact on the Company’s consolidated financial statements.

 

 

NOTE 6.  SUBSEQUENT EVENTS 

 

On October 6, 2021, the Company and U.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the "Revolving Credit Agreement") and accompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023.

 

In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the filing date and noted no subsequent events other than provided above that are reasonably likely to impact the Company’s financial statements.

 

 

 

2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this "Report") 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, 2021 Annual Report on Form 10-K, incorporated by reference herein. Statements made herein are as of the date of the filing of this Report with the Securities and Exchange Commission ("SEC") 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. ("Park City Group", “we”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation ("ReposiTrak"), a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform company that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, improve supply chain efficiencies, and source hard-to-get-things.

 

The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace, encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers and source hard to find items, (ii) ReposiTrak Compliance and Food Safety ("Compliance and Food Safety") solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain ("Supply Chain") solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers.

 

The Company’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 Compliance and Food Safety 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 of 2011 (“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 wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services.

 

The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) ("PCG Utah"); Park City Group, Inc., a Delaware corporation (100% owned) ("PCG Delaware"); and ReposiTrak (100% owned) (collectively, the "Subsidiaries"). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the operating results of the operations of PCG Delaware and ReposiTrak. Park City Group has no business operations separate from the operations conducted through its Subsidiaries.

 

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.

 

 

Recent Developments

 

New Product Initiatives

 

During the second half of fiscal year 2021, ReposiTrak launched two new products designed to expand market share in the manufacturing segment: Certificate of Analysis Automation and Active-QMS for Quality Management. Both solutions were developed at the request of existing Compliance Management Solution customers to improve competitiveness in the manufacturing/food supply chain with synergistic solutions for growth in existing customers and increasing competitiveness for new business focused on quality management.

 

The quality management solution also has application in the retail sector, in central commissaries, distribution centers, and even task management in stores.

 

Another major new product initiative commenced in February 2021, as ReposiTrak joined with a group of major retailers and wholesalers to form the Food Traceability Leadership Consortium (“FTLC”), in response to the Food and Drug Administration's (“FDA”) announcement regarding the increase of food traceability requirements under the FSMA. The expanded traceability requirements proposed by the FDA have far reaching consequences for the US food supply chain, from farms to fisheries down to retail stores, due to new, detailed documentation requirements designed to support more effective recalls.

 

These new proposed requirements create substantial data and records management challenges for all supply chain trading partners, many of whom do not have this capability today. The risk is that the supply chain will become fractious array of inoperable systems that could lead to massive operational complexity and expense escalation. The FTLC founding members worked collaboratively with ReposiTrak to develop a complete food traceability solution that meets all the FDA FSMA proposed reporting requirements at a very large manageable cost, based on the ReposiTrak supply chain platform which tracks product/shipment data in a similar manner today for cost and inventory control purposes.

 

The new solution, called the ReposiTrak Traceability Network, launched in September 2021 with phased roll outs at suppliers and retailers, and is anticipated to scale in the latter half of fiscal year 2022, based on the existing Compliance Management user network.

 

Revolving Credit Agreement

 

On October 6, 2021, the Company and U.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the "Revolving Credit Agreement") and accompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023.

 

 

COVID-19

 

There are many uncertainties regarding COVID-19, and the Company is closely monitoring the ongoing impact of the pandemic on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners now and in the future. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s quarter ended September 30, 2021, in the fiscal years ended June 30, 2020 or 2021, we are unable to predict the impact that COVID-19 will have on its future financial position and operating results due to numerous uncertainties. The Company will continue to assess the potential business risks associated with COVID-19 and intends to make adjustments to its responses accordingly.

 

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On April 23, 2020, the Company received proceeds from a loan in the amount of approximately $1.1 million from its lender, U.S. Bank National Association (the “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES Act administered by the SBA. In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 23, 2022, with a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan was forgiven on December 19, 2020.

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020.

 

Revenue

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Revenue

  $ 4,559,677     $ 5,225,402     $ (665,725

)

    -13

%

 

Revenue was $4,559,677 and $5,225,402 for the three months ended September 30, 2021 and 2020, respectively, a 13% decrease. The decrease in revenue was due to significant Marketplace revenue during the height of COVID-19 that occurred in 2020 that did not reoccur in 2021. This was partially offset by revenue growth in subscription, services and other recurring revenue.

 

During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of personal protective equipment ("PPE") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company experienced a significant increase in Marketplace revenue for PPE during the height of COVID-19, it is uncertain what or if demand for PPE will continue during fiscal 2022. As a result, we may experience significant swings in MarketPlace revenue as the pandemic continues to abate. 

 

Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a certain percentage of customers that will require buying a particular service outright (i.e. a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when we are able.

 

Cost of Services and Product Support

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Cost of services and product support

  $ 846,487     $ 1,980,957     $ (1,134,470

)

    -57

%

Percent of total revenue

    19

%

    38

%

               

 

 

Cost of services and product support was $846,487 and $1,980,957 for the three months ended September 30, 2021 and 2020, respectively, a 57% decrease. This decrease is primarily the result of lower procurement costs of PPE and other cost of service expense associated with lower MarketPlace transactions.

 

While we experienced a significant increase in Marketplace costs and corresponding revenue during fiscal 2021 due to demand in PPE, it is uncertain what level of ongoing Marketplace costs we may experience for fiscal 2022. 

 

Sales and Marketing Expense

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Sales and marketing

  $ 1,188,893     $ 1,283,041     $ (94,148

)

    -7

%

Percent of total revenue

    26

%

    25

%

               

 

Sales and marketing expense were $1,188,893 and $1,283,041 for the three months ended September 30, 2021 and 2020, respectively, a 7% decrease. This decrease in sales and marketing expense is primarily due to a decrease in variable sales compensation associated with lower total revenue.

 

General and Administrative Expense

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

General and administrative

  $ 1,096,656     $ 1,081,925     $ 14,731       1

%

Percent of total revenue

    24

%

    21

%

               

 

General and administrative expense was $1,096,656 and $1,081,925 for the three months ended September 30, 2021 and 2020, respectively, a 1% increase. The increase in general and administrative expense is primarily due to an increase in insurance and other benefit costs.

 

Depreciation and Amortization Expense

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Depreciation and amortization

  $ 261,164     $ 248,500     $ 12,664       5

%

Percent of total revenue

    6

%

    5

%

               

 

Depreciation and amortization expense was $261,164 and $248,500 for the three months ended September 30, 2021 and 2020, respectively, an increase of 5%. This increase is due to the expansion of new equipment for the Company’s information technology infrastructure, buildout of our corporate headquarters, and expansion of our data center completed in June 2020.

 

Other Income and Expense

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Net other income (expense)

  $ (180,114

)

  $ (52,467

)

  $ 127,647       243

%

Percent of total revenue

    -4

%

    -1

%

               

 

Net other expense was $180,114 for the three months ended September 30, 2021 compared to net other expense of $52,467 for the three months ended September 30, 2020. Other expense increased due to (1) unrealized losses of certain short-term investments held in U.S. treasuries and other securities, and (2) a loss on the sale of assets, and (3) partially offset by an increase in interest income generated from an increase in total cash held in short term investments, and (4) a decrease in interest expense due to payoff of financing arrangements for equipment purchased under a lease arrangement with a bank in August 2020.

 

 

Preferred Dividends

 

   

Fiscal Quarter Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Preferred dividends

  $ 146,611     $ 146,611     $ -       -

%

Percent of total revenue

    3

%

    3

%

               

 

Dividends accrued on the Company’s Series B-1 Preferred was $146,611 for the three months ended September 30, 2021 and for the three months ended September 30, 2020. Dividends remained flat in the comparable periods.

 

Financial Position, Liquidity and Capital Resources

 

We believe that our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including macroeconomic conditions, our rate of revenue growth, sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products and services.

 

   

As of

   

Variance

 
   

September 30,

2021

   

June 30,

2021

   

Dollars

   

Percent

 

Cash and cash equivalents

  $ 20,431,158     $ 24,070,322     $ (3,639,164

)

    -15

%

 

We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank N.A., which was revised on October 6, 2021 (see Note 6).

 

Cash was $20,431,158 and $24,070,322 at September 30, 2021 and June 30, 2021, respectively. This 15% decrease is principally the result of a $6 million payoff of financing arrangements with a bank, partially offset by lower overall cash operating expenses and collections on accounts receivable.

 

Net Cash Flows from Operating Activities

 

   

Three Months Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Cash provided by operating activities

  $ 1,118,061     $ 1,223,348     $ (105,287 )     -9

%

 

Net cash provided by operating activities is summarized as follows:

 

   

Three Months Ended

September 30,

 
   

2021

   

2020

 

Net income

  $ 946,817     $ 554,826  

Noncash expense and income, net

    579,544       487,897  

Net changes in operating assets and liabilities

    (408,300

)

    180,625  
    $ 1,118,061     $ 1,223,348  

 

Net cash provided by operating activities for the three months ended September 30, 2021 was $1,118,061, as compared to net cash provided by in operating activities of $1,223,348 for the three months ended September 30, 2020. Net cash provided by operating activities decreased 9% due largely to the decrease in MarketPlace sales. Noncash expense increased by $91,647 in the three months ended September 30, 2021 compared to three months ended September 30, 2020 as a result of loss on sale of property and equipment and an increase in depreciation and amortization.

 

 

Net Cash Flows Used in Investing Activities

 

   

Three Months Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Cash provided by (used in) investing activities

  $ 1,374,085     $ (12,925

)

  $ 1,387,010       10,731

%

 

Net cash provided by investing activities for the three months ended September 30, 2021 was $1,374,085 compared to net cash used in investing activities of $12,925 for the three months ended September 30, 2020. This increase in cash provided by investing activities for the three months ended September 30, 2021 was due to the sale of property and equipment.

 

Net Cash Flows from Financing Activities

 

   

Three Months Ended

September 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Cash used in financing activities

  $ (6,131,310

)

  $ (397,037

)

  $ 5,734,273       1,444

%

 

Net cash used in financing activities totaled $6,131,310 for the three months ended September 30, 2021 as compared to cash used in financing activities of $397,037 for the three months ended September 30, 2020. The increase in net cash used in financing activities is primarily attributable to the payoff of our line of credit arrangement with a bank.

 

Liquidity and Working Capital

 

At September 30, 2021, the Company had positive working capital of $23,137,184, as compared with positive working capital of $20,400,991 at June 30, 2021.  This $2,736,193 increase in working capital is primarily due to a decrease in cash as a result of the $6 million payoff of a financing arrangement with a bank.

 

   

As of

September 30,

   

As of

June 30,

   

Variance

 
   

2021

   

2021

   

Dollars

   

Percent

 

Current assets

  $ 26,097,299     $ 29,701,774     $ (3,604,475

)

    -12

%

 

Current assets as of September 30, 2021 totaled $26,097,299, a decrease of $3,604,475, as compared to $29,701,774 as of June 30, 2021. The decrease in current assets is primarily attributable to a net decrease in cash of $3,639,164 paying off a credit arrangement, a decrease in contract assets and prepaid expense of $71,288 and an increase in accounts receivable of $105,977.

 

   

As of

September 30,

   

As of

June 30,

   

Variance

 
   

2021

   

2020

   

Dollars

   

Percent

 

Current liabilities

  $ 2,960,115     $ 9,300,783     $ (6,340,668

)

    -68

%

 

Current liabilities totaled $2,960,115 as of September 30, 2021 as compared to $9,300,783 as of June 30, 2021. The comparative decrease in current liabilities is primarily attributable to the corresponding payoff of $6,000,000 in our line of credit.

 

 

Subsequent to September 30, 2021, the Company and U.S. Bank N.A. executed the Credit Agreement, with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023. Any amounts drawn down by the Company under the Credit Agreement will accrue interest at an annual rate equal to 1.75% plus the one-month LIBOR rate. In addition, the Credit Agreement contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, the Company must maintain liquid assets equal to the outstanding balance of the Note, and maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1.

 

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

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue, and results of operation, liquidity or capital expenditures.

 

Contractual Obligations

 

Total contractual obligations and commercial commitments as of September 30, 2021 are summarized in the following table:

 

   

Payment Due by Year

 
   

Total

   

Less than 1 Year

   

1-3 Years

   

3-5 Years

   

More than 5 Years

 

Operating lease obligation

    673,319       122,400       244,800       244,800       61,319  

 

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 expense 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 and other long-lived assets assigned to specific reporting units are 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 

 

Effective July 1, 2018, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606), and its related amendments (“ASU 2014-09”). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers.

 

ASU 2014-09 represents a change in the accounting model utilized for the recognition of revenue and certain expense arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, accordingly, revenue and expense totals for all periods before July 1, 2018 reflect those previously reported under the prior accounting model and have not been restated.

 

See Note 2 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Report for a full description of the impact of the adoption of new accounting standards on our financial statements. Following the adoption of this guidance, the revenue recognition for our sales arrangements remained materially consistent with our historical practice and there have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

 

Share-Based Compensation

 

The Company accounts for its share-based compensation to employees and non-employees in accordance with FASB ASC 718, Compensation Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service or vesting period.

 

Leases

 

Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as discussed further in Note 5. All amounts and disclosures set forth in this Report have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our business is 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 September 30, 2021, the debt portfolio was composed of approximately 0% fixed rate debt and 0% variable rate debt.

 

The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of September 30, 2021:

 

Cash:

 

Aggregate

Fair Value

   

Weighted Average

Interest Rate

 

Cash

  $ 20,431,158       1.43

%

 

ITEM 4.  CONTROLS AND PROCEDURES

 

(a)

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, an evaluation of 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 amended (the "Exchange Act"), as of September 30, 2021 was completed. Based on this evaluation, our 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC 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 fiscal year ended June 30, 2021.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 5.  OTHER INFORMATION

 

None.

 

ITEM 6.  EXHIBITS

 

10.1

 

Revolving Credit Note and Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 8, 2021).

10.2

 

Addendum to Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on October 8, 2021).

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

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.

32.2

 

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

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 is formatted in iXBRL. 

 

 

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:  November 15, 2021

By:  

/s/ Randall K. Fields

   
   

Randall K. Fields 

   
   

Chair of the Board and Chief Executive Officer

(Principal Executive Officer)

   

 

 

 

PARK CITY GROUP, INC. 

 
         

Date: November 15, 2021

By:  

/s/ John R. Merrill

   
   

John R. Merrill

   
   

Chief Financial Officer

(Principal Financial Officer & Principal Accounting Officer)

   

 

 

-24-