PARK CITY GROUP INC
10-Ks and 10-Qs
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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 September 30, 2019
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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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5282
South Commerce Drive, Suite D292, Murray, Utah
84107
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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 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.
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Large accelerated filer
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[ ]
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Accelerated filer
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[X]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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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 whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes
[X] No
Securities registered pursuant to Section 12(b) of the
Act:
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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common
stock, par value $0.01 per share, (“
Common Stock
”)
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PCYG
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Nasdaq
Capital Market
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable
date: Common Stock, $0.01 par value, 19,741,233
shares as of November
7
, 2019.
P
A
RK
C
ITY
GROUP, INC.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
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19
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19
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20
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Exhibit
31
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Certification of
Principal Executive Officer and Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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Exhibit
32
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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PA
R
K C
ITY
GROUP, INC.
Consolidated Condensed Balance Sheets (Unaudited)
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Assets
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September
30,
2019
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June
30,
2019
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Current
assets
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Cash
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$
18,295,443
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$
18,609,423
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Receivables, net of
allowance for doubtful accounts of $272,345 and $145,825 at
September 30, 2019 and June 30, 2019, respectively
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4,073,777
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3,878,658
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Contract asset
– unbilled current portion
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3,024,821
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3,023,694
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Prepaid expense and
other current assets
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472,068
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1,037,099
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Total
current assets
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25,866,109
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26,548,874
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Property
and equipment, net
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3,189,651
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2,972,257
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Other
assets:
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Deposits, and other
assets
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22,414
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17,146
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Contract asset
– unbilled long-term portion
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1,488,310
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1,659,110
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Operating
lease-right-of-use asset
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842,689
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-
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Customer
relationships
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755,550
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788,400
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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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46,349
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70,864
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Total
other assets
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24,039,198
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23,419,406
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Total
Assets
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$
53,094,958
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$
52,940,537
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Liabilities and Stockholders’ Equity
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Current
liabilities
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Accounts
payable
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$
441,096
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$
530,294
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Accrued
liabilities
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1,179,289
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1,399,368
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Contract liability
- deferred revenue
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1,955,425
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1,917,787
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Lines of
credit
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4,660,000
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4,660,000
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Operating lease
liability - current
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82,517
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-
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Current portion of
notes payable
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298,866
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295,168
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Total
current liabilities
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8,617,193
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8,802,617
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Long-term
liabilities
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Operating lease
liability – less current portion
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760,172
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-
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Notes payable, less
current portion
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844,636
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920,754
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Total
liabilities
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10,222,001
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9,723,371
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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 September 30, 2019 and June 30, 2019;
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6,254
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6,254
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Series
B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and
outstanding at September 30, 2019 and June 30, 2019,
respectively
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2,124
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2,124
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Common Stock, $0.01
par value, 50,000,000 shares authorized;
19,741,234
and 19,793,372 issued and
outstanding at September 30, 2019 and June 30, 2019,
respectively
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197,415
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197,936
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Additional paid-in
capital
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76,533,138
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76,908,566
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Accumulated
deficit
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(33,865,974
)
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(33,897,714
)
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Total
stockholders’ equity
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42,872,957
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43,217,166
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Total
liabilities and stockholders’ equity
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$
53,094,958
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$
52,940,537
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See accompanying notes to consolidated condensed financial
statements.
P
A
RK
CITY
GROUP, INC.
Consolidated Condensed Statements
of
Operations
(Unaudited)
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Three Months Ended
September 30,
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2019
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2018
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Revenue:
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$
4,800,084
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$
5,941,994
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Operating
expense:
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Cost
of services and product support
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1,828,114
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1,728,526
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Sales
and marketing
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1,414,863
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1,908,024
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General
and administrative
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1,222,212
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1,143,311
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Depreciation
and amortization
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193,677
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145,375
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Total
operating expense
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4,658,866
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4,925,236
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Income
from operations
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141,218
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1,016,758
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Other
income (expense):
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Interest
income
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82,731
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35,124
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Interest
expense
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(20,598
)
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(10,473
)
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Income
before income taxes
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203,351
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1,041,409
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(Provision)
for income taxes:
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(25,000
)
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(75,000
)
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Net income
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178,351
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966,409
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Dividends
on preferred stock
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(146,611
)
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(146,611
)
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Net income applicable to Common Stockholders
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$
31,740
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$
819,798
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Weighted
average shares, basic
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19,811,000
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19,786,000
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Weighted
average shares, diluted
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20,122,000
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20,363,000
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Basic
income per share
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$
0.00
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$
0.04
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Diluted
income per share
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$
0.00
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$
0.04
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See accompanying notes to consolidated condensed financial
statements.
PA
R
K CITY
GROUP, INC.
Consolidated Condensed Statements
of
Cash Flows
(Unaudited)
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Three Months Ended
September 30,
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2019
|
2018
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Cash
flows from operating activities:
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Net
income
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$
178,351
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$
966,409
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Adjustments
to reconcile net income to net cash used in operating
activities:
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Depreciation
and amortization
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193,677
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145,376
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Stock
compensation expense
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119,567
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95,688
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Bad
debt expense
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125,000
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100,000
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(Increase) decrease in:
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Accounts receivables
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(321,246
)
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1,730,526
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Long-term receivables, prepaid and other assets
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730,563
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(1,326,272
)
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Right-of-use
asset
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(842,689
)
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-
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(Decrease)
increase in:
|
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Accounts payable
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(89,198
)
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(550,914
)
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Accrued liabilities
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(261,758
)
|
666,002
|
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Lease
liabilities
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842,689
|
-
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Deferred revenue
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37,638
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(220,023
)
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Net cash provided by operating activities
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712,594
|
1,606,792
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Cash
flows from investing activities:
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Purchase
of property and equipment
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(353,706
)
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(1,492
)
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Net cash used in investing activities
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(353,706
)
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(1,492
)
|
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Cash
flows financing activities:
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Net
increase in lines of credit
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-
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1,430,000
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Common
Stock buyback/retirement
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(517,360
)
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-
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Proceeds
from employee stock plans
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63,523
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-
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Dividends
paid
|
(146,611
)
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-
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Payments
on notes payable and capital leases
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(72,420
)
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(1,476,543
)
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Net cash
used in financing
activities
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(672,868
)
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(46,543
)
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Net
(decrease) increase in cash and cash equivalents
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(313,980
)
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1,558,757
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Cash
and cash equivalents at beginning of period
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18,609,423
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14,892,439
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Cash and cash equivalents at end of period
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$
18,295,443
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$
16,451,196
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Supplemental
disclosure of cash flow information:
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Cash
paid for income taxes
|
$
79,073
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$
98,039
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Cash
paid for interest
|
$
20,598
|
$
8,274
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Cash
paid for operating leases
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$
30,600
|
$
-
|
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|
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Supplemental
disclosure of non-cash investing and financing
activities:
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Common
Stock to pay accrued liabilities
|
$
77,888
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$
134,546
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Dividends
accrued on preferred stock
|
$
146,611
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$
146,611
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See accompanying notes to consolidated condensed financial
statements.
PA
R
K CI
TY
GROUP,
INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
|
|
Series
B
Preferred
Stock
|
Series
B-1
Preferred
Stock
|
Common
Stock
|
Additional
Paid-In
|
Accumulated
|
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Shares
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Amount
|
Shares
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Amount
|
Shares
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Amount
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Capital
|
Deficit
|
Total
|
|
|
|
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Balance, June 30,
2019
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625,375
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$
6,254
|
212,402
|
$
2,124
|
19,793,372
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$
197,936
|
$
76,908,566
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$
(33,897,714
)
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$
43,217,166
|
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Stock issued
for:
|
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|
|
|
|
|
|
|
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Accrued
compensation
|
-
|
-
|
-
|
-
|
14,542
|
145
|
77,742
|
-
|
77,887
|
|
Employee stock
plan
|
-
|
-
|
-
|
-
|
13,274
|
133
|
63,390
|
-
|
63,523
|
|
Stock
buyback
|
-
|
-
|
-
|
-
|
(79,954
)
|
(799
)
|
(516,560
)
|
|
(517,359
)
|
|
Preferred
Dividends-Declared
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(146,611
)
|
(146,611
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
178,351
|
178,351
|
|
Balance, September
30, 2019
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625,375
|
$
6,254
|
212,402
|
$
2,124
|
19,741,234
|
$
197,415
|
$
76,533,138
|
$
(33,865,974
)
|
$
42,872,957
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2018
|
625,375
|
$
6,254
|
212,402
|
$
2,124
|
19,773,549
|
$
197,738
|
$
76,711,887
|
$
(37,213,677
)
|
$
39,704,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued
for:
|
|
|
|
|
|
|
|
|
|
|
Accrued
compensation
|
-
|
-
|
-
|
-
|
6,592
|
66
|
51,602
|
|
51,668
|
|
Employee stock
plan
|
-
|
-
|
-
|
-
|
12,333
|
123
|
82,755
|
|
82,878
|
|
Preferred Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(146,611
)
|
(146,611
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
966,409
|
966,409
|
|
Balance, September
30, 2018
|
625,375
|
$
6,254
|
212,402
|
$
2,124
|
19,792,474
|
$
197,927
|
$
76,846,244
|
$
(36,393,879
)
|
$
40,658,670
|
P
A
R
K CITY GROUP,
INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. OVERVIEW OF OPERATIONS AND BASIS FOR
PRESENTATION
Overview
Park City Group, Inc. (“
We
”, “
us
”, “
our
” or the “
Company
”) is a Software-as-a-Service
(“
SaaS”
) provider, and the parent company of ReposiTrak
Inc., 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.
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, (ii) ReposiTrak
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 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 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 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); 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 the
Company’s consolidated financial statements,
which contain the operating results of the operations of Park
City Group, Inc. (Delaware) and ReposiTrak, Inc. Park City Group,
Inc. (Nevada) 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
In July
2019, we deployed InApp Pop Up and Online Chat. This application
provides account managers and sales staff with two additional real
time means to facilitate farming of the network to cross sell with
new and existing customers.
In
August 2019, we released our new Out of Stock Management Solution
(OOS). Eliminating out-of-stocks remains a critical challenge for
food retailers as consumers turn to online retailers when their
local store is out of a sought-after item. Previously, retailers
had no viable solution to address this challenge. Our OOS is the
industry’s first solution to address Direct Store Delivery
out-of-stocks which enables retailers to retain customers and
increase revenues.
In
September 2019, we released the “Automated Buy
Process.” This connection platform allows suppliers to sign
up for compliance service, select the appropriate tier, and
purchase the monthly Tier 2 subscription in real time. This is
anticipated to expedite supplier onbfoarding and facilitate faster
payment.
Basis of Financial Statement Presentation
The
interim financial information of the Company as of September 30,
2019 and for the three months ended September 30, 2019 is
unaudited, and the balance sheet as of June 30, 2019 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 the Notes to Financial Statements included in our Annual Report
on Form 10-K for the year ended June 30, 2019. 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,
2019 are not necessarily indicative of the results that can be
expected for the fiscal year ending June 30, 2020. 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, 2019.
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 Quarterly
Report on Form 10-Q 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.
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
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.
Adoption of ASU 2016-02
“
Leases
(Topic 842)
”
In
February 2016, the FASB issued ASU 2016-02 “Leases (Topic
842)”. Under the new guidance, lessees will be required to
recognize for all leases (with the exception of short-term leases)
a lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted basis
and a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified
asset for the lease term.
Effective July 1,
2019, the Company adopted the requirements of 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 Quarterly
Report on Form 10-Q 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 requirements of ASU
2016-02 utilizing the modified retrospective method of transition
to identified leases as of July 1, 2019 (the “effective
date”). T
he recognition of additional operating lease
liabilities was $82,517 for the current portion and $760,172
for the long-term portion and corresponding operating ROU
assets were recorded in the amount of $842,689. This represents the
operating lease existing as of the effective date which has a lease
term of three years with the option for two additional 3- year
terms.
On
June 21, 2018 the Company entered into an office lease at 5252
South Commerce Drive Suite D292, Murray, Utah 84107, providing for
the lease of approximately 9,800 square feet, commencing on March
1, 2019. The monthly rent is $10,200. The initial term of the lease
is three years. The Company has the option of renewing for an
additional two three-year terms.
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 number 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, 2019
|
$
4,682,799
|
|
Revenue
recognized during the period but not billed
|
425,500
|
|
Amounts
reclassified to accounts receivable
|
(595,168
)
|
|
Other
|
-
|
|
Balance –
September 30, 2019
|
$
4,513,131
(1)
|
|
(1)
|
Contract asset balances for September 30, 2019 include a current
and a long-term contract asset, $3,024,821, and $1,488,310,
respectively.
|
The
table below shows movements in the deferred revenue balances
(current and noncurrent) for the period:
|
|
Contract liability
|
|
Balance
–June 30, 2019
|
$
1,917,787
|
|
Amounts
billed but not recognized as revenue
|
(399,431
)
|
|
Revenue
recognized related to the opening balance of deferred
revenue
|
437,069
|
|
Other
|
-
|
|
Balance
– September 30, 2019
|
$
1,955,425
|
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 customer geography and 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:
|
|
For the Three Months Ended September 30, 2019
|
|||
|
Geography
|
Subscription
& support
|
Professional
services
|
Transaction
based
|
Total
|
|
North
America
|
$
4,027,564
|
$
57,340
|
$
702,209
|
4,787,113
|
|
International
|
12,971
|
-
|
-
|
12,971
|
|
Total
|
$
4,040,535
|
$
57,340
|
$
702,209
|
$
4,800,084
|
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,
|
|
|
|
2019
|
2018
|
|
Numerator
|
|
|
|
Net
income applicable to Common Stockholders
|
$
31,740
|
$
819,798
|
|
|
|
|
|
Denominator
|
|
|
|
Weighted
average Common Stock outstanding, basic
|
19,811,000
|
19,786,000
|
|
Warrants
to purchase Common Stock
|
311,000
|
577,000
|
|
|
|
|
|
Weighted
average Common Stock outstanding, diluted
|
20,122,000
|
20,363,000
|
|
|
|
|
|
Net
income per share
|
|
|
|
Basic
|
$
0.00
|
$
0.04
|
|
Diluted
|
$
0.00
|
$
0.04
|
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, 2019
|
866,274
|
$
5.47
|
|
Granted
|
-
|
|
|
Vested
and issued
|
(548
)
|
9.13
|
|
Forfeited
|
(13,038
)
|
7.67
|
|
Outstanding
at September 30, 2019
|
852,688
|
$
5.44
|
As
of September 30, 2019, there were 3,401 stock units outstanding
that had vested but for which shares of Common Stock had not yet
been issued pursuant to the terms of the agreement.
As
of September 30, 2019, 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 4.17
years.
Warrants
The
following table summarizes information about warrants outstanding
and exercisable at September 30, 2019:
|
Warrants
Outstanding
|
Warrants
Exercisable
|
||||
|
at
September 30, 2019
|
at
September 30, 2019
|
||||
|
Range
of
exercise
prices
Warrants
|
Number
outstanding
|
Weighted average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
|
Number
exercisable
|
Weighted
average
exercise
price
|
|
$
4.00
|
1,085,068
|
.35
|
$
4.00
|
1,085,068
|
$
4.00
|
|
$
10.00
|
23,737
|
.32
|
$
10.00
|
23,737
|
$
10.00
|
|
|
1,108,805
|
.35
|
$
|
1,108,805
|
$
4.13
|
Preferred Stock
The
Company’s articles of incorporation, as amended, currently
authorize 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 (the “
Board
”), 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
September 30, 2019, a total of 625,375 shares of Series B Preferred
and 212,402 shares of Series B-1 Preferred were issued and
outstanding, respectively. 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.
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 significantly more expensive or
would negatively impact the Company’s net cash position,
which management believes could cause customer concerns and weaken
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 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
”).
In
July 2017, the Company issued 20,000 shares of Series B-1 Preferred
in satisfaction of an accrued bonus payable to the Company’s
Chief Executive Officer.
On
February 6, 2018, the Company delivered a Redemption Notice to
certain holders of the Series B-1 Preferred notifying the holders
of the Company’s intent to redeem certain shares of Series
B-1 Preferred on February 7, 2018 (the “
Redemption Date
”) (the
“
Series B-1
Redemption
”). On the Redemption Date, the Company paid
an aggregate total of $999,990 to the holders of shares of Series
B-1 Preferred, resulting in the redemption of 93,457 shares of
Series B-1 Preferred.
Following the
Series B-1 Redemption, a total of 212,402 shares of Series B-1
Preferred remain issued and outstanding.
NOTE 4. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2019,
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 also serves as the
Company’s Chair of the Board and controls FMI.
The Company had payables of $0 and
$316,539 to FMI at September 30, 2019 and June 30, 2019,
respectively, under this Service Agreement. In addition, in the
first quarter, July, of fiscal 2017, 20,000 shares of Series B-1
Preferred were paid to FMI in satisfaction of an accrued bonus
payable to Mr. Fields.
Randall
K. Fields and Robert W. Allen each beneficially own Series B-1
Preferred. As a result of the Series B-1 Redemption, the Company
paid an aggregate of $889,159 and $110,831 to Messrs. Fields and
Allen, respectively, in consideration for the redemption of 83,099
and 10,358 shares of Series B-1 Preferred. See Note 3.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In
August 2018, the FASB issued ASU 2018-15 – Intangibles
– Goodwill and Other Internal-Use Software (Subtopic 350-40)
– Customer’s 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 update requires a customer in a hosting arrangement
to capitalize certain implementation costs. Costs associated with
the application development stage of the implementation should be
capitalized and costs with the other stages should be expensed. For
instance, costs for training and data conversion should be
expensed. The capitalized implementation costs should be expensed
over the term of the hosting arrangement, which is the
noncancelable period plus periods covered by an option to extend if
the customer is reasonably certain to exercise the option.
Impairment of the capitalized costs should be considered similar to
other intangibles. The effective date of this update is effective
for annual reporting periods beginning after December 15, 2019 for
public entities and after December 15, 2020 for all other entities
with early adoption permitted. The Company is a customer in a
hosting arrangement and may enter into new arrangements in the
future. The Company will apply the guidance for implementation
costs of new hosting arrangements once adopted.
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. The new standard is effective for fiscal years
beginning after December 15, 2019, including interim periods within
those fiscal years. Although we are still evaluating the impact of
this new standard, we do not believe that the adoption will
materially impact our Condensed Consolidated Financial Statements
and related disclosures.
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.
Prior to this update, equity-based payments to non-employees was
accounted for under Subtopic 505-50 resulting in significant
differences between the accounting for share-based payments to
non-employees as compared to employees. One of the most significant
changes is that non-employee share-based awards (classified as
equity awards) may be measured at grant-date fair value and not
have to be continually revalued until the service/goods are
rendered. The update also indicates that share-based awards related
to financing and awards granted to a customer in conjunction with
selling goods or services are not included in Topic 718. This
standard is effective for interim and annual reporting periods
beginning after December 15, 2018 for public entities and December
15, 2019 for all other entities. Early adoption is permitted, but
no earlier than an entity’s adoption date of Topic 606. The
Company anticipates this update will impact its financials for any
non-employee grants and will implement the guidance for
non-employee grants accordingly’.
In
January 2017, the FASB issued ASU 2017-04
“Intangibles-Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment”, which amends and simplifies
the accounting standard for goodwill impairment. The new standard
removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. A goodwill impairment will
now be the amount a reporting unit’s carrying value exceeds
its fair value, limited to the total amount of goodwill allocated
to that reporting unit. The new standard is effective for annual
and any interim impairment tests for periods beginning after
December 15, 2019. We are currently assessing the implication of
our adoption as well as the potential impact that the standard will
have on our consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02 “Leases (Topic
842)”. Under the new guidance, lessees will be required to
recognize for all leases (with the exception of short-term leases)
a lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted basis
and a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified
asset for the lease term.
Effective July 1,
2019, the Company adopted the requirements of Accounting Standards
Update No. 2016-02, "Leases (Topic 842)" ("
ASU 2016-02
"). All amounts and
disclosures set forth in this Quarterly Report on Form 10-Q 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.
NOTE 6. SUBSEQUENT EVENTS
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 that are reasonably likely to
impact the Company’s financial statements.
ITEM 2.
M
ANAGEMENT’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, 2019 Annual Report on Form 10-K,
incorporated by reference herein. Statements made herein are
as of the date of the filing of this Quarterly Report on 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. (“
We
”, “
us
”, “
our
” or the “
Company
”) is a Software-as-a-Service
(“
SaaS
”) provider, and the parent company of
ReposiTrak Inc., a business-to-business (“
B2B
”) e-commerce, compliance, and supply chain
management platform company that partners with retailers,
wholesalers, and product suppliers to help them source, vet, and
transact with their suppliers in order to accelerate sales, control
risks, and improve supply chain efficiencies.
The
Company’s 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, (ii) ReposiTrak
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 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 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 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); 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 the
Company’s consolidated financial statements,
which contain the operating results of the operations of Park
City Group, Inc. (Delaware) and ReposiTrak, Inc. Park City Group,
Inc. (Nevada) 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
In July
2019, we deployed InApp Pop Up and Online Chat. This application
provides account managers and sales staff with two additional real
time means to facilitate farming of the network to cross sell with
new and existing customers.
In
August 2019, we released our new Out of Stock Management Solution
(OOS). Eliminating out-of-stocks remains a critical challenge for
food retailers as consumers turn to online retailers when their
local store is out of a sought-after item. Previously, retailers
had no viable solution to address this challenge. Our OOS is the
industry’s first solution to address Direct Store Delivery
out-of-stocks which enables retailers to retain customers and
increase revenues.
In
September 2019, we released the “Automated Buy
Process.” This connection platform allows suppliers to sign
up for compliance service, select the appropriate tier, and
purchase the monthly Tier 2 subscription in real time. This is
anticipated to expedite supplier onbfoarding and facilitate faster
payment.
Results of Operations
Comparison of the Three Months Ended September 30, 2019 to the
Three Months Ended September 30, 2018.
Revenue
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Revenue
|
$
4,800,084
|
$
5,941,994
|
$
(1,141,910
)
|
-19
%
|
Revenue
was $4,800,084 and $5,941,994 for the three months ended September
30, 2019 and 2018, respectively, a 19% decrease. This decrease
was primarily due to a decrease in transactional one-time revenue
that occurred in 2018 that did not occur in 2019. The decrease in
one-time revenue was partially offset by an increase in
subscription services.
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
(ie; a license). We will continue to make our best effort to reduce
this non-recurring transactional revenue when
unnecessary.
Cost of Services and Product Support
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Cost
of services and product support
|
$
1,828,114
|
$
1,728,526
|
$
99,588
|
6
%
|
|
Percent
of total revenue
|
38
%
|
29
%
|
|
|
Cost of
services and product support was $
1,828,114
and $1,728,526 for the three
months ended September 30, 2019 and 2018, respectively, a 6%
increase. This increase is primarily
the result of (i) higher expenses associated to
MarketPlace; and (ii) an increase in hardware/software
non-capitalized items required for updating our information systems
security, maintaining equipment licensing and other database
systems.
While
no assurance can be given, management currently expects cost of
services to grow in both absolute terms, and as a percentage of
revenue, as the Company continues to invest in
MarketPlace.
Sales and Marketing Expense
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Sales
and marketing
|
$
1,414,863
|
$
1,908,024
|
$
(493,161
)
|
-26
%
|
|
Percent
of total revenue
|
29
%
|
32
%
|
|
|
Sales
and marketing expense was $1,414,863 and $1,908,024 for the three
months ended September 30, 2019 and 2018, respectively, a 26%
decrease. This decrease in sales and marketing expense is due
to a decrease in sales salary, lower commission as a result of
lower revenue, and lower overall travel, meals and entertainment
expense.
While no assurances can
be given, management currently expects sales and marketing expense
to be relatively flat in absolute value
in subsequent periods,
but to fall as a percentage of total revenue as we continue to
executive our Success Team strategy.
General and Administrative Expense
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
General
and administrative
|
$
1,222,212
|
$
1,143,311
|
$
78,901
|
7
%
|
|
Percent
of total revenue
|
25
%
|
19
%
|
|
|
General
and administrative expense was $1,222,212 and $1,143,311 for the
three months ended September 30, 2019 and 2018, respectively, a 7%
increase. General and administrative expense increased
primarily due to an increase in stock and other compensation
commitments, offset in part by lower professional service fees,
lower overhead costs and overall lower travel expense.
While no assurances can be given, management currently expects
general and administrative expense to remain flat in subsequent
periods and therefore fall as a percentage of total revenue as we
benefit from our investments in automation and process
optimization.
Depreciation and Amortization Expense
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Depreciation
and amortization
|
$
193,677
|
$
145,375
|
$
48,302
|
33
%
|
|
Percent
of total revenue
|
4
%
|
2
%
|
|
|
Depreciation
and amortization expense was $193,677and $145,375 for the three
months ended September 30, 2019 and 2018, respectively, an increase
of 33%. 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
collocation data center completed in June 2019.
Other Income and Expense
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Net
other income (expense)
|
$
62,133
|
$
24,651
|
$
37,482
|
152
%
|
|
Percent
of total revenue
|
1
%
|
<1
%
|
|
|
Net
other income was $62,133 for the three months ended September 30,
2019 compared to $24,651 for the three months ended September 30,
2018. Other income increased due to higher interest income
resulting from an increase of total cash held in short term
investments offset in part by the increase in interest expense
associated with financing arrangements for equipment purchased
under a lease arrangement with a bank.
Preferred Dividends
|
|
Fiscal Quarter Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Preferred
dividends
|
$
146,611
|
$
146,611
|
$
-
|
-
%
|
|
Percent
of total revenue
|
3
%
|
2
%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $
146,611
for the three months
ended September 30, 2019, compared to dividends accrued on the
Series B-1 Preferred of $146,611 for the three months ended
September 30, 2018. 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 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
|
||
|
|
September 30,
2019
|
June 30,
2019
|
Dollars
|
Percent
|
|
Cash
and cash equivalents
|
$
18,295,443
|
$
18,609,423
|
$
(313,980
)
|
-2
%
|
We have historically funded our operations with
cash from operations, equity financings, and borrowings from the
issuance of debt. Cash was $18,295,443 and $18,609,423 at September
30, 2019 and June 30, 2019, respectively. This 2%
decrease
is principally the
result of repairs and maintenance of equipment.
Net Cash Flows from Operating Activities
|
|
Three Months Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Cash
provided by operating activities
|
$
712,594
|
$
1,606,792
|
$
(894,198
)
|
-56
%
|
Net cash provided by operating activities is summarized as
follows:
|
|
Three Months Ended
September 30,
|
|
|
|
2019
|
2018
|
|
Net
income
|
$
178,351
|
$
966,409
|
|
Noncash
expense and income, net
|
438,244
|
341,064
|
|
Net
changes in operating assets and liabilities
|
95,999
|
299,319
|
|
|
$
712,594
|
$
1,606,792
|
Net
cash provided by operating activities decreased 56% primarily as a
result of lower revenue. Noncash expense increased by
$97,180 in the three months ended September 30, 2019 compared
to September 30, 2018 as a result of an increase in stock
compensation, depreciation, amortization, and bad debt. The
decrease in operating assets and liabilities versus the comparable
period was primarily due to a decrease in trade receivables,
accounts payable and accrued liabilities offset by an increase in
long-term receivables and deferred revenue.
Net Cash Flows Used in Investing Activities
|
|
Three Months Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Cash
used in investing activities
|
$
(353,706
)
|
$
(1,492
)
|
$
352,214
|
NM
|
Net
cash used in investing activities for the three months ended
September 30, 2019 was $353,706 compared to net cash used in
investing activities of $1,492 for the three months ended September
30, 2018. This increase in cash used in investing activities for
the three months ended September 30, 2019 was primarily due to
maintenance on equipment capitalized over the remaining life of the
asset.
Net Cash Flows from Financing Activities
|
|
Three Months Ended
September 30,
|
Variance
|
||
|
|
2019
|
2018
|
Dollars
|
Percent
|
|
Cash
used in financing activities
|
$
(672,868
)
|
$
(46,543
)
|
$
626,325
|
1,346
%
|
Net
cash used in financing activities totaled $672,868 for the three
months ended September 30, 2019 as compared to cash used in
financing activities of $46,543 for the three months ended
September 30, 2018. The increase in net cash used in financing
activities is primarily attributable to an increase in the amount
used for the buyback of Common Stock, and the payout of dividends
in cash, offset by the decrease in payments in notes payable and
proceeds from employee stock plan.
Working Capital
At
September 30, 2019, the Company had working capital of $17,248,916,
as compared to working capital of $17,746,257 at June 30, 2019.
This $497,341 decrease in working capital is primarily
due to a decrease in prepaid expenses and cash
offset by an increase in receivables and contract
assets.
|
|
As of
September 30,
|
As of
June 30,
|
Variance
|
|
|
|
2019
|
2019
|
Dollars
|
Percent
|
|
Current
assets
|
$
25,866,109
|
$
26,548,874
|
$
(682,765
)
|
-3
%
|
Current assets as of September 30, 2019 totaled
$25,866,109,
a de
crease of
$682,765
,
as compared to
$26,548,874 as of June 30, 2019. The decrease in current
assets is primarily attributable to cash used to buyback Company
Common Stock, a decrease in prepaid expense, and cash, offset in
part by an increase in accounts receivable and short-term contract
assets.
|
|
As of
September 30,
|
As of
June 30,
|
Variance
|
|
|
|
2019
|
2019
|
Dollars
|
Percent
|
|
Current
liabilities
|
$
8,617,193
|
$
8,802,617
|
$
(185,424
)
|
-2
%
|
Current liabilities totaled $8,617,193 as of
September 30, 2019 as compared to $8,802,617 as of June 30,
2019. The comparative decrease in current liabilities is
primarily attributable to a decrease of $
309,277
in accrued liabilities and accounts
payable, offset in part by an increase in operating lease liability
of $82,517 due to accounting changes, and an increase in deferred
revenue and current portion notes payable of
$41,336.
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, 2019 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
|
|
Finance
lease obligations
|
$
1,143,502
|
$
298,866
|
314,130
|
530,506
|
-
|
|
Operating
lease obligation
|
842,689
|
122,400
|
244,800
|
244,800
|
230,689
|
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 Quarterly Report on
Form 10-Q 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,
2019.
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.
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 Quarterly
Report on Form 10-Q 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.
QU
A
NTITATIVE 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, 2019, the
debt portfolio was composed of approximately 20% fixed rate debt
and 80% variable rate debt.
|
|
September 30,
2019
(Unaudited)
|
Percent of
Total Debt
|
|
Fixed
rate debt
|
$
1,143,502
|
20
%
|
|
Variable
rate debt
|
4,660,000
|
80
%
|
|
Total
debt
|
$
5,803,502
|
100
%
|
The table
that follows presents fair values of principal amounts and weighted
average interest rates for our investment portfolio as of September
30, 2019:
|
Cash:
|
Aggregate
Fair Value
|
Weighted Average
Interest Rate
|
|
Cash
|
$
18,295,443
|
2
%
|
|
(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, as
of March 31, 2019 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 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.
|
P
ART
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, 2019.
ITEM 2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Share
Repurchase Program
On May 9, 2019, the Board of the Company approved
the repurchase of up to $4.0 million of the Company’s Common
Stock, par value $0.01 per share, over the next 24 months (the
“
Share Repurchase
Program
”). The following
table provides information about the repurchases of our Common
Stock registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (“
Exchange
Act
”), for the
quarter ended September 30, 2019.
|
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
(2)
|
Amount
Available for Future Share Repurchases Under the Plans or
Programs
|
|
July 1, 2019
– September 30, 2019:
|
79,955
|
$
6.43
|
167,555
|
$
3,000,235
|
(1)
We
close our books and records on the last calendar day of each month
to align our financial closing with our business
processes.
(2)
On
May 9, 2019, our Board of Directors
approved a Share Repurchase Program pursuant to which we are
authorized to repurchase our Common Stock in privately negotiated
transactions or in the open market at prices per share not
exceeding the then-current market prices. From time-to-time, our
Board may authorize increases to our Share Repurchase Program. The
total remaining authorization for future shares of Common Stock
repurchases under our Share Repurchase Program was $3,000,235
as
of September 30, 2019. 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. The Share
Repurchase Program expires 24 months following May 9, 2019, and it
may be suspended for periods of time or discontinued at any time,
at the Board’s discretion.
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
|
SI
G
NATURES
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 7, 2019
|
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 7, 2019
|
By:
|
/s/
John
R. Merrill
|
|
|
|
|
John R. Merrill
|
|
|
|
|
Chief Financial Officer
(Principal Financial Officer & Principal Accounting
Officer)
|
|
-20-
TABLE OF CONTENTS
Note 1. Overview Of Operations and Basis For PresentationNote 2. Significant Accounting PoliciesNote 3. EquityNote 4. Related Party TransactionsNote 5. Recent Accounting PronouncementsNote 6. Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresItem 4. CoPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 5. Other InformationItem 6. Exhibits