Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2018
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to
_________.
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Commission File Number 001-34941
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its
charter)
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Nevada
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37-1454128
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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299 South Main Street, Suite 2225 Salt Lake City,
UT 84111
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(Address of principal executive offices)
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(435) 645-2000
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(Registrant’s telephone number)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted
electronically 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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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable
date: Common Stock, $0.01 par value, 19,853,395
shares as of February 6,
2019.
TABLE OF CONTENTS
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Page
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3
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4
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12
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20
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21
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22
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23
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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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Consolidated Condensed Balance Sheets (Unaudited)
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Current
assets
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Cash
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$16,682,282
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$14,892,439
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Receivables, net
allowance for doubtful accounts of $346,204 and $153,220 at
December 31, 2018 and June 30, 2018, respectively
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4,588,663
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4,222,348
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Contract asset
– unbilled current portion
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2,727,921
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3,502,287
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Prepaid expense and
other current assets
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1,028,417
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1,116,387
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Total
current assets
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25,027,283
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23,733,461
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Property
and equipment, net
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1,725,221
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1,896,348
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Other
assets:
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Deposits, and other
assets
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18,691
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18,691
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Contract asset
– unbilled long-term portion
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3,175,125
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1,194,574
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Investments
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477,884
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477,884
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Customer
relationships
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854,100
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919,800
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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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119,895
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168,926
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Total
other assets
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25,529,581
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23,663,761
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Total
assets
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$52,282,085
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$49,293,570
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Liabilities and
Stockholders' Equity
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Current
liabilities
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Accounts
payable
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$838,151
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$1,490,434
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Accrued
liabilities
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1,336,526
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745,694
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Contract liability
- deferred revenue
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2,671,296
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2,335,286
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Lines of
credit
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4,660,000
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3,230,000
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Current portion of
notes payable
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36,768
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188,478
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Total
current liabilities
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9,542,741
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7,989,892
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Long-term
liabilities
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Notes payable, less
current portion
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258,209
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1,592,077
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Other long-term
liabilities
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-
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7,275
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Total
liabilities
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9,800,950
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9,589,244
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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 issued and
outstanding at December 31, 2018 and June 30, 2018;
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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 December 31, 2018 and June 30, 2018.
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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; 19,839,261 and 19,773,548 issued and
outstanding at December 31, 2018 and June 30, 2018,
respectively.
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198,395
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197,738
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Additional paid-in
capital
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77,129,244
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76,711,887
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Accumulated
deficit
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(34,854,882)
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(37,213,677)
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Total
stockholders’ equity
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42,481,135
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39,704,326
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Total
liabilities and stockholders’ equity
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$52,282,085
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$49,293,570
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See accompanying notes to consolidated condensed financial
statements.
Consolidated Condensed Statements
of Operations
(Unaudited)
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Three Months Ended
December 31,
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Six Months Ended
December 31,
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Revenue
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$5,565,237
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$5,724,706
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$11,507,231
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$10,436,871
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Operating
expense:
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Cost
of services and product support
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1,270,659
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1,426,351
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2,999,185
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2,844,364
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Sales
and marketing
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1,139,855
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1,621,149
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3,047,879
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3,207,089
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General
and administrative
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1,326,735
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1,140,085
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2,470,046
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2,275,855
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Depreciation
and amortization
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144,030
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163,825
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289,405
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322,628
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Total
operating expense
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3,881,279
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4,351,410
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8,806,515
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8,649,936
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Income from operations
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1,683,958
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1,373,296
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2,700,716
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1,786,935
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Other
income (expense):
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54,773
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-
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89,897
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-
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Interest
expense
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(5,623)
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(7,696)
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(16,096)
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(29,887)
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Income
before income taxes
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1,733,108
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1,365,600
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2,774,517
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1,757,048
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(Provision)
for income taxes:
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(47,500)
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(15,116)
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(122,500)
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(75,714)
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Net income
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1,685,608
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1,350,484
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2,652,017
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1,681,334
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Dividends
on preferred stock
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(146,611)
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(162,966)
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(293,222)
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(280,126)
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Net income applicable to common
shareholders
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$1,538,997
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$1,187,518
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$2,358,795
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$1,401,208
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Weighted
average shares, basic
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19,822,000
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19,487,000
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19,804,000
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19,455,000
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Weighted
average shares, diluted
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20,375,000
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20,338,000
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20,474,000
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20,340,000
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Basic
income per share
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$0.08
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$0.06
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$0.12
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$0.07
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Diluted
income per share
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$0.08
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$0.06
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$0.12
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$0.07
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See accompanying notes to consolidated condensed financial
statements.
Consolidated Condensed Statements
of Cash Flows
(Unaudited)
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Six Months
Ended December 31,
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Cash
flows operating activities:
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Net
income
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$2,652,017
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$1,681,334
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization
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289,405
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322,628
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Stock
compensation expense
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323,273
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388,099
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Bad
debt expense
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200,000
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195,050
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(Increase)
decrease in:
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Accounts
receivables
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208,051
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(2,046,797)
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Long-term
receivables, prepaids and other assets
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(1,892,581)
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621,015
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(Decrease)
increase in:
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Accounts
payable
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(652,283)
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73,931
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Accrued
liabilities
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366,966
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74,383
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Deferred
revenue
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335,734
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58,970
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Net cash provided by operating activities
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1,830,582
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1,368,613
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Cash
flows investing activities:
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Capitalization
of software costs
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-
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(111,241)
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Purchase
of property and equipment
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(3,547)
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(177,643)
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Net cash used in investing activities
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(3,547)
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(288,884)
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Cash
flows financing activities:
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Net
increase in lines of credit
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1,430,000
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-
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Proceeds
from issuance of note payable
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-
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56,078
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Proceeds
from exercise of warrants
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164,977
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-
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Proceeds
from employee stock plan
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-
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119,790
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Dividends
paid
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(146,611)
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(325,931)
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Payments
on notes payable and capital leases
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(1,485,578)
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(165,164)
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Net cash used in financing activities
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(37,192)
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(315,227)
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Net
increase in cash and cash equivalents
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1,789,843
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764,502
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Cash
and cash equivalents at beginning of period
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14,892,439
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14,054,006
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Cash and cash equivalents at end of period
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$16,682,282
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$14,818,508
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Supplemental
disclosure of cash flow information:
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Cash
paid for income taxes
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$47,500
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$75,714
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Cash
paid for interest
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$5,622
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$123,921
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Supplemental
disclosure of non-cash investing and financing
activities:
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Common
stock to pay accrued liabilities
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$253,017
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$734,350
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Preferred
stock to pay accrued liabilities
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$-
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$200,000
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Dividends
accrued on preferred stock
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$293,222
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$280,126
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See accompanying notes to consolidated condensed financial
statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. OVERVIEW OF OPERATIONS AND BASIS FOR
PRESENTATION
Overview
Park City Group, Inc. (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 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 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 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 299
South Main Street, Suite 2225, Salt Lake City, Utah 84111. Its
telephone number is (435) 645-2000. Its website address is
http://www.parkcitygroup.com, and ReposiTrak’s website
address is http://repositrak.com.
Basis of Financial Statement Presentation
The
interim financial information of the Company as of December 31,
2018 and for the three and six months ended December 31, 2018 is
unaudited, and the balance sheet as of June 30, 2018 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, 2018. In the opinion of
management, all adjustments necessary for a fair presentation of
the financial information for the interim periods reported have
been made. All such adjustments are of a normal recurring nature.
The results of operations for the three and six months ended
December 31, 2018 are not necessarily indicative of the results
that can be expected for the fiscal year ending June 30, 2019. 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, 2018.
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 ASC Topic 606, “Revenue from Contracts with
Customers”
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued ASU 2014-09, “Revenue from
Contracts with Customers” (“ASC 606”). ASC 606 clarifies the accounting for
revenue arising from contracts with customers and specifies the
disclosures that an entity should include in its financial
statements. During 2016, the FASB issued certain amendments to the
standard relating to the principal versus agent guidance,
accounting for licenses of intellectual property identifying
performance obligations as well as the guidance on transition,
collectability, noncash consideration and the presentation of sales
and other similar taxes. We adopted ASC 606 using the modified
retrospective method on July 1, 2018.
The
effect of applying ASC 606 did not result in an opening balance
adjustment to retained earnings or any other balance sheet accounts
because the Company: (1) identified similar performance obligations
under ASC 606 as compared with deliverables and separate units of
account previously identified; (2) determined the transaction price
to be consistent; and (3) concluded that revenue is recorded at the
same point in time, upon performance under both ASC 605 and ASC
606. The adoption of ASC 606 did not require significant changes in
our internal controls and procedures over financial reporting and
disclosures. However, we made enhancements to existing internal
controls and procedures to ensure compliance with the new
guidance.
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,
judgement, 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:
|
|
|
|
Balance –
September 30, 2018
|
$5,005,395
|
|
Revenue
recognized during the period but not billed
|
1,571,453
|
|
Amounts
reclassified to accounts receivable
|
(673,802)
|
|
Other
|
-
|
|
Balance –
December 31, 2018
|
$5,903,046(1)
|
|
(1)
|
Contract asset balances for December 31, 2018 include a current and
a long-term contract asset, $2,727,921, and $3,175,125,
respectively.
|
Our
contract assets and liabilities are reported in a net position 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:
|
|
|
|
Balance
– September 30, 2018
|
$2,115,539
|
|
Amounts
billed but not recognized as revenue
|
1,362,981
|
|
Revenue
recognized related to the opening balance of deferred
revenue
|
(807,224)
|
|
Other
|
-
|
|
Balance
– December 31, 2018
|
$2,671,296
|
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 Six Months Ended December 31 2018
|
|
|
|
|
|
|
|
North
America
|
$8,217,716
|
$1,854,737
|
$1,408,896
|
11,481,349
|
|
International
|
-
|
-
|
25,882
|
25,882
|
|
Total
|
$8,217,716
|
$1,854,737
|
$1,434,778
|
$11,507,231
|
Earnings Per Share
Basic
net income per common share (“Basic EPS”) excludes dilution and
is computed by dividing net income applicable to common
shareholders by the weighted average number of common shares
outstanding during the period. Diluted net income per common share
(“Diluted EPS”)
reflects the potential dilution that could occur if stock options
or other contracts to issue shares of common stock were exercised
or converted into common stock. The computation of Diluted EPS does
not assume exercise or conversion of securities that would have an
antidilutive effect on net income per common share.
The
following table presents the components of the computation of basic
and diluted earnings per share for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
Net
income applicable to common shareholders
|
$1,538,997
|
$1,187,518
|
$2,358,795
|
$1,401,208
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
Weighted
average common shares outstanding, basic
|
19,822,000
|
19,487,000
|
19,804,000
|
19,455,000
|
Warrants
to purchase common stock
|
553,000
|
851,000
|
670,000
|
885,000
|
Weighted
average common shares outstanding, diluted
|
20,375,000
|
20,338,000
|
20,474,000
|
20,340,000
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
Basic
|
$0.08
|
$0.06
|
$0.12
|
$0.07
|
|
Diluted
|
$0.08
|
$0.06
|
$0.12
|
$0.07
|
Reclassifications
Certain prior year amounts have been reclassified to conform with
the current year’s presentation. These reclassifications
have no impact on the previously reported
results.
NOTE 3. EQUITY
|
|
|
Weighted Average Grant Date Fair Value
($/share)
|
|
|
|
|
|
Outstanding
at September 30, 2018
|
850,229
|
$6.46
|
|
Granted
|
1,112
|
9.00
|
|
Vested
and issued
|
(25,580)
|
10.40
|
|
Forfeited
|
(11,605)
|
9.51
|
|
Outstanding
at December 31, 2018
|
814,156
|
$5.59
|
The
number of restricted stock units outstanding at December 31, 2018
included 752 units that have vested but for which shares of common
stock had not yet been issued pursuant to the terms of the
agreement.
As
of December 31, 2018, there was approximately $4.56 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 4.82
years.
Warrants
The
following table summarizes information about warrants outstanding
and exercisable at December 31, 2018:
|
Warrants
|
|
|
Outstanding
|
|
|
at
December 31, 2018
|
|
Range
of
exercise
prices
Warrants
|
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
|
|
Weighted
average
exercise
price
|
|
$4.00
|
1,085,068
|
1.10
|
$4.00
|
1,085,068
|
$4.00
|
|
|
23,737
|
1.07
|
$10.00
|
23,737
|
$10.00
|
|
|
1,108,805
|
1.08
|
$4.13
|
1,108,805
|
$4.13
|
Preferred Stock
The Company’s
articles of incorporation 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, of which
700,000 shares are currently designated as Series B Preferred Stock
(“Series B
Preferred”) and 550,000 shares are designated as
Series B-1 Preferred Stock (“Series B-1 Preferred”). As of
December 31, 2018, a total of 625,375 shares of Series B Preferred
and 212,402 shares of Series B-1 Preferred were issued and
outstanding. Both classes of Series B Preferred Stock pay dividends
at a rate of 7% per annum if paid by the Company in cash, or 9% if
paid by the Company in additional shares of Series B Preferred
(“PIK Shares”),
the Company may elect to pay accrued dividends on outstanding
shares of Series B Preferred in either cash or by the issuance of
PIK Shares.
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 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”).
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 six months ended December 31, 2018, 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 Chairman of the Board of Directors
and controls FMI. The
Company had payables of $45,200 and $316,539 to FMI at December 31,
2018 and June 30, 2018, respectively, under this Service Agreement.
In addition, in the first quarter of fiscal 2017, 20,000 shares of
Series B-1 Preferred were paid to FMI in satisfaction of an accrued
bonus payable to Mr. Fields.
Randall
K. Fields and Robert W. Allen each beneficially own Series B-1
Preferred. As a result of the Series B-1 Redemption, the Company
paid an aggregate of $889,159 and $110,831 to Messrs. Fields and
Allen, respectively, in consideration for the redemption of 83,099
and 10,358 shares of Series B-1 Preferred. See Note 3.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In August
2018, the FASB issued Accounting Standards Update
(“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.” This ASU requires companies to defer specific
implementation costs incurred in a Cloud Computing Arrangement
(“CCA”) that
are often expensed as incurred under current GAAP and recognize the
expense over the noncancelable term of the CCA. 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
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
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. We adopted the
provisions on January 1, 2019 and determined that the amount of
Lease Obligations retrospectively did not have a material effect on
the financial statements. We expect that future lease obligations
and right-of-use assets may increase the total assets and total
liabilities we report and that amount may be
material.
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, other than those disclosed below, that are reasonably
likely to impact the financial
statements.
Corporate Office Lease
On January 4, 2019, the Company reached an agreement to lease
office space of approximately 9,800 square feet at 5288 Commerce
Drive, Suite D-292, Murray, UT 84107. The Company will relocate its
corporate headquarters from a downtown high-rise in Salt Lake City
to a more reasonably priced location. Rent commences on March 1,
2019. Rent is $10,200 per month. The initial term is for three
years with two additional three year option
renewals.
Stand-Alone Revolving Note Amendment
On January 9, 2019, the Company and
U.S. Bank N.A. (the “Bank”)
entered into an amendment to the outstanding Stand-Alone Revolving
Note dated February 12, 2018. Pursuant to the Amendment, the
parties agreed to (i) extend the maturity date to December 31,
2019; (ii) increase the maximum borrowing amount to $6.0 million;
(iii) increase the interest rate to 1.75% per annum plus the
greater of zero percent or one-month LIBOR, (iv) convert the Note
from a secured instrument to an unsecured instrument; provided,
however, that the Company must maintain liquid assets equal to the
outstanding balance of the Note, and (v) to add a provision
requiring the Company to maintain a Senior Funded Debt to EBITDA
Ratio of not more than 2:1.
Master Lease Agreement
On January 9, 2019, the Company also entered into a Master Lease
Agreement with the Bank, pursuant to which the parties agreed that
the Bank will finance up to $1.0 million of equipment and services
related to the Company’s information technology expenditures
and build-out of its new corporate facility, which it will then
lease back to the Company. Specific terms related to future
purchases shall be set forth in various schedules, which shall be
entered into by the parties from time to time, and which shall
incorporate the terms of the Master Lease Agreement.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements. The words or phrases “would be,”
“will allow,” “intends to,” “will
likely result,” “are expected to,” “will
continue,” “is anticipated,”
“estimate,” “project,” or similar
expressions are intended to identify “forward-looking
statements.” Actual results could differ materially from
those projected in the forward-looking statements as a result of a
number of risks and uncertainties, including those risks factors
contained in our June 30, 2018 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. (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 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 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 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 299
South Main Street, Suite 2225, Salt Lake City, Utah 84111. Its
telephone number is (435) 645-2000. Its website address is
http://www.parkcitygroup.com, and ReposiTrak’s website
address is http://repositrak.com.
Results of Operations
Comparison of the Three Months Ended December 31, 2018 to the Three
Months Ended December 31, 2017.
Revenue
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
Revenue
|
$5,565,237
|
$5,724,706
|
$(159,469)
|
-3%
|
Revenue
was $5,565,237 and $5,724,706 for the three months ended December
31, 2018 and 2017, respectively, a 3% decrease. This decrease
was primary due to lower transaction revenue associated with the
Company’s MarketPlace B2B e-commerce services offering and
lower revenue from the sale of licenses versus the comparable
period, offset in part by higher subscription revenue from the
Company’s ReposiTrak Compliance and supply chain
services.
While no assurances can
be given, management currently believes that revenue will increase in subsequent
periods primarily due to growth in new customers for all of the
Company’s services, and in particular the Company’s
MarketPlace B2B e-commerce services, and secondarily due to the
Company’s strategy of cross-selling existing customers other
services.
Cost of Services and Product Support
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
Cost
of services and product support
|
$1,270,659
|
$1,426,351
|
$(155,692)
|
-11%
|
|
Percent
of total revenue
|
23%
|
25%
|
|
|
Cost of
services and product support was $1,270,659 and $1,426,351 for the three
months ended December 31, 2018 and 2017, respectively, a
11% decrease. This decrease is
primarily attributable to lower
costs related to cost of goods sold associated with new
product introductions, in particular to MarketPlace, and to a
lesser extent the expansion of ReposiTrak compliance capabilities
to include new attributes versus the comparable
period.
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
December 31,
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
$1,139,855
|
$1,621,149
|
$(481,294)
|
-30%
|
|
Percent
of total revenue
|
20%
|
28%
|
|
|
Sales
and marketing expense was $1,139,855 and $1,621,149 for the three
months ended December 31, 2018 and 2017, respectively, a 30%
decrease. This decrease in sales and marketing expense is due
to a decrease in head count, salary expense, and variable
compensation associated with its Success Team
strategy.
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 it continues to
utilize its Success Team strategy.
General and Administrative Expense
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
General
and administrative
|
$1,326,735
|
$1,140,085
|
$186,650
|
16%
|
|
Percent
of total revenue
|
24%
|
20%
|
|
|
General
and administrative expense was $1,326,735 and $1,140,085 for the
three months ended December 31, 2018 and 2017, respectively, a 16%
increase. General and administrative expense was higher year
over year due to increased administrative compensation, accounting
fees, and compliance related costs.
While no assurances can
be given, management currently expects general and administrative
expense to increase in absolute value in subsequent periods,
but to fall as a percentage of total revenue as it benefits from
investments in automation and process
optimization.
Depreciation and Amortization Expense
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$144,030
|
$163,825
|
$(19,795)
|
-12%
|
|
Percent
of total revenue
|
3%
|
3%
|
|
|
Depreciation
and amortization expense was $144,030 and $163,825 for the three
months ended December 31, 2018 and 2017, respectively, a decrease
of 12%. This decrease is primarily due to the fully
depreciation of computer hardware and software.
Other Income and Expense
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
Net
other income (expense)
|
$49,150
|
$(7,696)
|
$56,846
|
739%
|
|
Percent
of total revenue
|
1%
|
NM
|
|
|
Net other income was $49,150 for the three
months ended December 31, 2018 compared to net other expense of
$7,696 for the three months ended December 31, 2017. Other
income was positive in the quarter versus negative in the
comparable period a year ago due to an increase in interest income
as a result of an increase in the Company’s cash balance and
higher investment yields on that cash, as well as lower
interest expense associated with end-of-term equipment
financing.
Preferred Dividends
|
|
Fiscal Quarter Ended
December 31,
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
$146,611
|
$162,966
|
$(16,355)
|
-10%
|
|
Percent
of total revenue
|
3%
|
3%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $146,611 for the three
months ended December 31, 2018, compared to dividends accrued on
the Series B-1 Preferred of $162,966 for the three months ended
December 31, 2017. This decrease was due to a timing difference of
dividends earned but not paid for the three months ended December
31, 2017.
Comparison of the Six Months Ended December 31, 2018 to the Six
Months Ended December 31, 2017.
Revenue
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Revenue
|
$11,507,231
|
$10,436,871
|
$1,070,360
|
10%
|
Revenue was $11,507,231 and $10,436,871 for
the six months ended December 31, 2018 and 2017,
respectively, a 10% increase. This increase was driven by
growth in all revenue streams.
Cost of Services and Product Support
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
Cost
of services and product support
|
$2,999,185
|
$2,844,364
|
$154,821
|
5%
|
|
Percent
of total revenue
|
26%
|
27%
|
|
|
Cost of services and product support
was $2,999,185 and $2,844,364 for the six months ended December 31, 2018 and 2017,
respectively, a 5% increase. This increase is primarily
attributable to costs related to new product introductions,
including MarketPlace and expansion of ReposiTrak compliance
capabilities to include new features and
attributes.
Sales and Marketing Expense
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
$3,047,879
|
$3,207,089
|
$(159,210)
|
-5%
|
|
Percent
of total revenue
|
26%
|
31%
|
|
|
Sales and marketing expense was $3,047,879 and
$3,207,089 for the six months ended December 31, 2018 and 2017,
respectively, a 5% decrease. This decrease in sales and
marketing expense is due to a decrease in head count, salary
expense, and variable compensation associated with its inside sales
Success Team strategy.
General and Administrative Expense
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
General
and administrative
|
$2,470,046
|
$2,275,855
|
$194,191
|
9%
|
|
Percent
of total revenue
|
21%
|
22%
|
|
|
General and administrative expense was $2,470,046
and $2,275,855 for the six months ended December 31, 2018 and 2017,
respectively, a 9% increase. General and administrative
expense was higher year over year due to increased administrative
compensation, accounting fees, and compliance related
costs.
Depreciation and Amortization Expense
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$289,405
|
$322,628
|
$(33,223)
|
-10%
|
|
Percent
of total revenue
|
3%
|
3%
|
|
|
Depreciation and amortization expense was $289,405
and $322,628 for the six months ended December 31, 2018 and 2017,
respectively, a decrease of 10%. This decrease is
primarily due to the full depreciation of computer hardware and
software as well as a lower depreciation associated with business
equipment.
Other Income and Expense
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Net
other income (expense)
|
$73,801
|
$(29,887)
|
$103,688
|
347%
|
|
Percent
of total revenue
|
1%
|
NM
|
|
|
Net other income was $73,801 for the
six
months ended December 31, 2018
compared to net other expense of $29,887 for the
six
months ended December 31,
2017. Other income was positive in the six months ended
December 31, 2018 versus negative in the comparable period a year
ago due to an increase in interest income as a result of an
increase in the Company’s cash balance and higher yields on
that cash balance, as well as lower interest expense
associated with end of term lease financing.
Preferred Dividends
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
$293,222
|
$280,126
|
$13,096
|
5%
|
|
Percent
of total revenue
|
3%
|
3%
|
|
|
Dividends accrued on
the Company’s Series B-1 Preferred was $293,222 for the six
months ended December 31, 2018, compared to dividends accrued on
the Series B-1 Preferred of $280,126 for the six months ended
December 31, 2017. This increase was due to a timing difference of
dividends earned but not paid for the six months ended December 31,
2017.
Inflation
We
do not believe that inflation or changing prices have had a
material impact on our historical operations or
profitability.
Financial Position, Liquidity and Capital Resources
We
believe 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.
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$16,682,282
|
$14,892,439
|
$1,789,843
|
12%
|
We have historically funded our operations with
cash from operations, equity financings, and borrowings from the
issuance of debt. Cash was $16,682,282 and $14,892,439 at December
31, 2018 and June 30, 2018, respectively. This 12%
increase is principally the
result of increased cash flows from operations due to higher
revenue and accelerated collections.
Net Cash Flows from Operating Activities
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
$1,830,582
|
$1,368,613
|
$461,969
|
34%
|
Net cash provided
by operating activities is summarized as
follows:
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
Net
Income
|
$2,652,017
|
$1,681,334
|
|
Noncash
expense and income, net
|
812,678
|
905,777
|
|
Net
changes in operating assets and liabilities
|
(1,634,113)
|
(1,218,498)
|
|
|
$1,830,582
|
$1,368,613
|
Net
cash used in operating activities increased primarily as a result
of higher net income, offset in part by lower non-cash expense.
Noncash expense decreased by $93,099 in the three months
ended December 31, 2018 compared to December 31, 2017 as
a result of a decrease in stock compensation, depreciation and
amortization. The reduction in operating assets and liabilities
versus the comparable period was due to an increase in trade
receivable, accrued liabilities and deferred revenue offset in part
by a reduction in accounts payable.
Net Cash Flows used in Investing Activities
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
$(3,547)
|
$(288,884)
|
$285,337
|
-99%
|
Net
cash used in investing activities for the six months ended December
31, 2018 was $3,547 compared to net cash used in investing
activities of $288,884 for the six months ended December 31, 2017.
This decrease in cash used in investing activities for the six
months ended December 31, 2018 is due to a decrease in fixed asset
purchases and capitalized software costs.
Net Cash Flows from Financing Activities
|
|
Six Months Ended
December 31,
|
|
|
|
|
|
|
|
|
Cash
used in financing activities
|
$(37,192)
|
$(315,227)
|
$(278,035)
|
-88%
|
Net cash used in financing activities totaled $37,192 for the six
months ended December 31, 2018 as compared to cash used in
financing activities of $315,227 for the six months ended December
31, 2017. The decrease in net cash used in financing
activities is primarily attributable to a decrease in the payment
of dividends and notes payable, offset in part by an increase in
the amount drawn on the Company’s line of credit and higher
proceeds from the exercise of warrants.
Working Capital
At
December 31, 2018, the Company had working capital of $15,484,542,
as compared to working capital of $15,743,569 at June 30, 2018.
This $259,027 decrease in working capital is primarily due to a
decrease of $652,283 in accounts payable, a decrease of $408,051 in
accounts receivable and short-term contract assets, a decrease of
$151,710 in the current portion of notes payable and a decrease of
$87,970 in prepaid expense offset by an increase of $1,789,843 in
cash, an increase of $1,430,000 in amounts drawn on the
Company’s line of credit, an increase of $590,832 in accrued
liabilities, and an increase of $336,010 in deferred
revenue.
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$25,027,283
|
$23,733,461
|
$1,293,822
|
5%
|
Current assets as of December 31, 2018 totaled
$25,027,283, an increase of
$1,293,822, as compared to
$23,733,461 as of June 30, 2018. The increase in current
assets is attributable to an increase in cash of $1,789,843 offset
in part by a decrease of $408,051 in accounts receivable and short-term contract
assets, and a decrease of $87,970 in prepaid expense and other
current assets.
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$9,542,741
|
$7,989,892
|
$1,552,849
|
19%
|
Current liabilities totaled $9,542,741 as of
December 31, 2018 as compared to $7,989,892 as of June 30,
2018. The comparative increase in current liabilities is
principally due to an increase of $1,430,000 in amounts drawn on the Company’s line of
credit, an increase of $590,832 in accrued liabilities, an increase
of $336,010 in deferred revenue, offset in part by a reduction of
$652,283 in accounts payable,
and a reduction of $151,710 in the current portion of notes
payable.
Off-Balance Sheet Arrangements
The
Company does not have any off-balance sheet arrangements that are
reasonably likely to have a current or future effect on our
financial condition, revenue, and results of operation, liquidity
or capital expenditures.
Contractual obligations
Total
contractual obligations and commercial commitments as of December
31, 2018 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Lease
obligations
|
$34,808
|
$34,808
|
-
|
-
|
-
|
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,
2018.
Stock-Based Compensation
The
Company recognizes the cost of employee services received in
exchange for awards of equity instruments based on the grant-date
fair value of those awards. The Company records compensation
expense on a straight-line basis. The fair value of options granted
are estimated at the date of grant using a Black-Scholes option
pricing model with assumptions for the risk-free interest rate,
expected life, volatility, dividend yield and forfeiture
rate.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
business is conducted principally in the United States. As a
result, our financial results are not affected by factors such as
changes in foreign currency exchange rates or economic conditions
in foreign markets. We do not engage in hedging transactions
to reduce our exposure to changes in currency exchange rates,
although if the geographical scope of our business broadens, we may
do so in the future.
Our
exposure to risk for changes in interest rates relates primarily to
our investments in short-term financial
instruments. Investments in both fixed rate and floating rate
interest earning instruments carry some interest rate
risk. The fair value of fixed rate securities may fall due to
a rise in interest rates, while floating rate securities may
produce less income than expected if interest rates
fall. Partly as a result of this, our future interest income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if we are forced to sell
securities that have fallen in estimated fair value due to changes
in interest rates. However, as substantially all of our cash
consist of bank deposits and short-term money market instruments,
we do not expect any material change with respect to our net income
as a result of an interest rate change.
Our
exposure to interest rate changes related to borrowing has been
limited, and we believe the effect, if any, of near-term changes in
interest rates on our financial position, results of operations and
cash flows should not be material. At December 31, 2018, the
debt portfolio was composed of approximately 6% fixed rate debt and
94% variable rate debt.
|
|
December 31,
2018
(Unaudited)
|
|
|
Fixed
rate debt
|
$294,977
|
6%
|
|
Variable
rate debt
|
4,660,000
|
94%
|
|
Total
debt
|
$4,954,977
|
100%
|
The table
that follows presents fair values of principal amounts and weighted
average interest rates for our investment portfolio as of December
31, 2018:
|
Cash:
|
|
Weighted Average
Interest Rate
|
|
Cash
|
$16,682,282
|
2.21%
|
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, as
of December 31, 2018 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.
|
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, 2018.
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
|
|
|
Amendment
to Note, dated January 9, 2019 (incorporated by reference to the
Company’s Current Report on Form 8-K, dated January 15,
2019).
|
|
|
|
Master
Lease Agreement, dated January 9, 2019 (incorporated by reference
to the Company’s Current Report on Form 8-K, dated January
15, 2019).
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
101.INS
|
|
XBRL
Instance Document
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
In
accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
PARK CITY GROUP, INC.
|
|
|
|
|
|
|
|
Date: February 7, 2019
|
By:
|
/s/ Randall K. Fields
|
|
|
|
|
Randall K. Fields
|
|
|
|
|
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
|
|
|
|
PARK CITY GROUP, INC.
|
|
|
|
|
|
|
|
Date: February 7, 2019
|
By:
|
/s/ Todd
Mitchell
|
|
|
|
|
Todd
Mitchell
|
|
|
|
|
Chief Financial Officer
(Principal
Financial Officer & Principal Accounting Officer)
|
|