FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 2004
Commission File Number 000-03718
PARK CITY GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 37-1454128
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
333 Main Street, P.O. Box 5000; Park City, Utah 84060
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(Address of principal executive offices)
(435) 649-2221
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(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of February 14, 2005
Common Stock, $.01 par value 278,027,882
Shareholders 2,361
PARK CITY GROUP, INC.
Table of Contents to Quarterly Report on Form 10-QSB
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheet as of
December 31, 2004 (Unaudited) 3
Consolidated Condensed Statements of Operations for the
three and six months ended December 31, 2004 and 2003
(Unaudited) 4
Consolidated Condensed Statements of Cash Flows for six
months ended December 31, 2004 and 2003 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operations 10
Item 3 Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 6 Exhibits and Reports on Form 8-K 13
Exhibit 31 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
2
PARK CITY GROUP, INC.
Consolidated Condensed Balance Sheet (Unaudited)
December 31, 2004
Assets
Current assets:
Cash $ 73,758
Receivables, net of allowance for doubtful accounts of $55,432 2,009,233
Prepaid expenses and other current assets 138,759
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Total current assets 2,221,749
Property and equipment, net of accumulated depreciation and amortization of $1,576,525 141,194
Other assets:
Deposits and other assets 32,056
Capitalized software costs, net of accumulated amortization of $598,227 465,288
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Total other assets 497,344
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Total assets $ 2,860,288
===============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 556,863
Accrued liabilities 1,109,863
Deferred revenue 1,507,383
Current portion of capital lease obligations 28,375
Current portion of related party notes payable, net of discount of $24,750 320,250
Notes payable, net of discount of $109,952 1,890,048
Related party lines of credit 474,739
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Total current liabilities 5,887,521
Long-term liabilities
Related party notes payable, net of discounts of $148,438 3,147,968
Capital lease obligations, less current portion 8,405
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Total long-term liabilities 3,156,373
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Total liabilities 9,043,894
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Commitments and contingencies -
Stockholders' deficit:
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued
- Common stock , $0.01 par value, 300,000,000 shares authorized;
274,588,849 issued and outstanding 2,745,888
Additional paid-in capital 9,673,894
Accumulated deficit (18,603,388)
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Total Stockholders' deficit (6,183,606)
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$ 2,860,288
===============
See accompanying notes to consolidated condensed financial statements. 3
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
For the Three and Six Months Ended December 31, 2004 and 2003
Three Six
Months Ended Months Ended
December 31, December 31,
--------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ -----------
Revenues:
Software licenses $ 141,692 $ 1,093,888 $ 303,855 $ 1,628,276
Maintenance and support 658,589 577,276 1,293,683 1,105,755
Consulting and other 140,781 229,946 333,201 367,709
------------ ------------ ------------ -----------
941,062 1,901,110 1,930,739 3,101,740
Cost of revenues 351,771 297,480 651,925 821,232
------------ ------------ ------------ -----------
Gross Margin 589,291 1,603,630 1,278,814 2,280,508
------------ ------------ ------------ -----------
Operating expenses:
Research and development 250,769 285,481 506,850 675,232
Sales and marketing 382,329 314,493 675,723 552,614
General & administrative expenses 668,821 385,620 978,930 718,167
------------ ------------ ------------ -----------
Income (loss) from operations (712,628) 618,037 (882,689) 334,495
Other income (expense):
Interest Income (expense) (287,974) (379,259) (562,532) (806,731)
Income(loss) before income taxes (1,000,602) 238,788 (1,445,221) (472,236)
(Provision) benefit for income taxes
Current - - - -
Deferred
- - - -
------------ ------------ ------------ -----------
Net income (loss) $ (1,000,602) $ 238,778 $ (1,445,221) $ (472,236)
============ ============ ============ ============
Weighted average shares, basic 272,490,000 235,086,000 270,931,000 227,466,000
============ ============ ============ ============
Weighted average shares, diluted 272,490,000 235,086,000 270,931,000 227,466,000
============ ============ ============ ============
Basic income (loss) per share $ (0.00) $ 0.00 $ (0.01) $ (0.00)
============ ============ ============ ============
Diluted income (loss) per share $ (0.00) $ 0.00 $ (0.01) $ (0.00)
============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements. 4
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31, 2004 and 2003
December 31, December 31,
2004 2003
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Cash Flows From Operating Activities:
Net loss $(1,445,221) $ (472,236)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 170,090 163,292
Bad debt expense 50,000 (36,710)
Stock issued for services and expenses 233,744 167,359
Amortization of warrant and other discount on debt 84,708 260,296
Decrease (increase) in:
Trade receivables (916,074) (244,198)
Prepaid and other assets 60,354 (31,321)
Increase (decrease) in:
Accounts payable 229,692 275,146
Accrued liabilities 101,157 218,156
Deferred revenue 395,468 (129,022)
Advances payable - (175,000)
Accrued interest, related party 236,222 32,513
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Net cash provided by (used in) operating activities (799,860) 28,275
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Cash Flows From Investing Activities:
Purchase of property and equipment (30,032) (3,424)
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Net cash used in investing activities (30,032) (3,424)
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Cash Flows From Financing Activities:
Net (decrease) increase in line of credit 474,739 355,000
Payments on notes payable and capital leases (24,906) (12,354)
Payments to extend note payable (9,000) -
Proceeds from issuance of stock 150,000 -
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Net cash provided by financing activities 590,833 342,646
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Net Increase (decrease) in cash 239,059) 367,497
Cash at beginning of period 312,817 69,305
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Cash at end of period $ 73,758 $ 436,802
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See accompanying notes to consolidated condensed financial statements. 5
(Balance of page intentionally left blank)
PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 2004
Note 1 - Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for quarterly financial
statements, and includes all adjustments of a normal recurring nature, which in
the opinion of management are necessary in order to make the financial
statements not misleading. Although the Company believes that the disclosures in
these unaudited financial statements are adequate to make the information
presented for the interim periods not misleading, certain information and
footnote information normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, and these financial statements should be read in
conjunction with the Company's audited annual financial statements included in
the Company's June 30, 2004 Annual Report on Form 10-KSB.
Certain 2003 amounts have been reclassified to conform to 2004 classifications.
Note 2 - Stock-Based Compensation
At December 31, 2004 and 2003, the Company has issued stock options to certain
of its employees. The Company accounts for these options under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net loss, as all options granted had an exercise price
equal to or greater than the market value of the underlying common stock on the
date of grant. Had compensation cost for the Company's stock option plans been
determined based on fair value consistent with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below:
Three Six
Months Ended Months Ended
December 31, December 31,
------------ ------------
2004 2003 2004 2003
---- ---- ---- ----
Net Loss available to common shareholders, as reported $(1,000,602) $ 238,778 $(1,445,221) $ (472,236)
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects - - - -
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects. - - (14,325) (49,500)
Net (loss) income - pro forma $(1,000,602) $ 238,778 $(1,459,546) $ 521,736
----------- ----------- ----------- -----------
Loss per share:
Basic and diluted - as reported $ (0.00) $ 0.00 $ (0.01) $ (0.00)
Basic and diluted - pro forma $ (0.00) $ 0.00 $ (0.01) $ (0.00)
6
Note 3 - Related Party Transactions
The Company entered into a Securities Purchase Agreement dated as of August 26,
2004 with its President, James Horton. The agreement was amended in October
2004; the amended terms called for the payment of $150,000 due December 15, 2004
for the purchase of 2,142,857 at $0.07 and a warrant to purchase 6,428,571
shares of common stock at $0.07. The Company received the cash before December
15th and issued the stock and warrants accordingly.
The LOC with Riverview Financial was extensed with the payment of $9,000 cash
and 225,000 shares of common stock.
Note 4 - Supplemental Cash Flow Information
In connection with the note payable funding from Whale Investment, Ltd., in
December 2002 the Company, issued warrants and issued shares of common stock as
a finders fee. The value of the warrants was recorded as a discount on the note
payable, of which $44,928 and $14,976 was amortized into interest expense during
the six months ended December 31, 2003 and 2004, respectively. The value of the
shares issued for the finders fee was recorded as a prepaid expense, of which
$38,095 and $12,698 was amortized into expense during the six months ended
December 31, 2003 and 2004, respectively. In June 2004 the note payable to Whale
Investments, LTD was extended to December 31, 2005 and ownership of the note
payable was transferred to Whale Investment's sister Company Triplenet
Investments. As consideration for the extension the Company paid $40,000 Cash
and issued 1,000,000 shares of common stock. The fair value of the cash and
shares issued in connection with the extension was recorded as a discount to the
note payable, of which $40,000 was amortized to interest expense during the six
months ended December 31, 2004. Due to the extension the remainder of original
warrant and finders fee will be amortized over the extended life of the note
payable.
The fair value of shares issued in connection with the $345,000 note payable
funding from Riverview obtained as a condition of the Whale Investment, Ltd.
funding was recorded as a discount on the note payable, of which $4,285 and
$4,285 was amortized into interest expense during the six months ended December
31, 2003 and 2004, respectively. In December 2004 the note payable to Riverview
was extended for a period of 12 months for $9,000 and 225,000 shares of common
stock valued at $15,750. The fair value of the cash and stock paid as
consideration in the amount of $24,750 for the extension was recorded as a
discount to the note payable. This discount will be amortized into interest over
the extended period of the note.
For the six months ended December 31, 2004 and 2003 the Company paid interest in
cash of $241,208 and $220,568, respectively. No cash was paid for income taxes.
Note 5 - Net Loss Per Common Share
Basic net loss per common share ("Basic EPS") excludes dilution and is computed
by dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share ("Diluted EPS") reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised or converted into common stock. The
computation of Diluted EPS does not assume exercise or conversion of securities
that would have an anti-dilutive effect on net loss per common share. Options
and warrants to purchase 82,250,870 and 81,324,501 shares of common stock as of
December 31, 2003 and 2004, respectively, were not included in the computation
of Diluted EPS. The inclusion of the options would have been anti-dilutive,
thereby decreasing net loss per common share.
7
Note 6 - Accrued Liabilities
Accrued liabilities consist of the following at December 31, 2005
Accrued vacation $ 107,322
Other payroll liabilities 135,205
Accrued Stock Compensation 246,450
Accrued interest 587,163
Other accrued liabilities 33,723
----------
$1,109,863
==========
Note 7 - Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. ("FIN") 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. FIN 45 also clarifies
that a guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the guarantee. The disclosure requirements are
effective for financial statements of interim or annual periods ending after
December 31, 2002. Because the Company currently is not a guarantor on any
indebtedness, the adoption of FIN 45 did not have any effect on the Company's
consolidated financial position or results of operations.
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R") (revised
December 2003), Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51 ("ARB 51"), which addresses how a
business enterprise should evaluate whether it has a controlling interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN 46), which was
issued in January 2003. Before concluding that it is appropriate to apply ARB 51
voting interest consolidation model to an entity, an enterprise must first
determine that the entity is not a variable interest entity ("VIE"). As of the
effective date of FIN 46R, an enterprise must evaluate its involvement with all
entities or legal structures created before February 1, 2003 to determine
whether consolidation requirements of FIN 46R apply to those entities. There is
no grandfathering of existing entities. Public companies must apply either FIN
46 or FIN 46R immediately to entities created after January 31, 2003 and no
later than the end of the first reporting period that ends after March 15, 2004.
The adoption of FIN 46 had no effect on the Company's consolidated financial
position, result of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The purpose of SFAS 149 is to
amend and clarify financial accounting and reporting for derivative and hedging
activities under SFAS 133. SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and for designated hedging relationships after June
30, 2003. Since the Company does not currently participate in derivative and
hedging activities, the adoption of SFAS 149 did not have any effect on the
Company's consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments
With Characteristics of Both Liabilities and Equity." This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. The statement was effective on July 1, 2003 for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective for existing financial instruments entered into before May 31, 2003.
Since the Company does not have any financial instruments within the scope of
this statement, the adoption of SFAS No. 150 did not have any effect on the
Company's consolidated financial position or results of operations.
8
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No.123 (Revised 2004),
Share Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the first
quarter of fiscal year 2006. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard and the effect
of the adoption of SFAS 123R will have on our financial position, results of
operations, or cash flow.
(Balance of page intentionally left blank)
9
Item 2. Management's Discussion and Analysis or Plan of Operation.
Form 10-KSB for the year ended June 30, 2004 incorporated herein by reference.
Forward-Looking Statements
This quarterly report on Form 10-QSB contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 Form
10-KSB annual report at June 30, 2004, incorporated herein by reference.
Statements made herein are as of the date of the filing of this Form 10-QSB 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.
Three Months Ended December 31, 2004 and 2003
Total revenues were $941,062 and $1,901,110 for the quarters ended December 31,
2004 and 2003, respectively, a decrease of 51% in 2004 over the comparable
period for 2003. Software license revenues were $141,692 and $1,093,888 for the
quarters ended December 31, 2004 and 2003, respectively, an 87% decrease.
License sales in 2003 included the recognition of deferred prepaid license sales
of $175,000 on the expiration of an agreement with a reseller; and a bulk sale
of licenses to a new reseller totaling $918,888. Maintenance and support
revenues were $658,589 and $577,276 for the quarters ended December 31, 2004 and
2003, respectively, a 14% increase. This increase is primarily attributable to
maintenance contracts on Fresh Market Manager software and new ASP customers for
Fresh Market Manager. Consulting and other revenue was $140,781 and $229,946 for
the quarters ended December 31, 2004 and 2003, respectively, a 39% decrease.
Other sales in 2003 included the sale of the Company's domain name of
parkcity.com for $150,000. The Company now uses parkcitygroup.com as its domain
name. Service revenues in 2004 declined significantly from 2003 because there
were no new license sales during the quarter that required implementation
services.
Research and development expenses were $250,769 and $285,481 for the quarters
ended December 31, 2004 and 2003 respectively, a 12% decrease. This decrease
represents the general stabilization of both the Fresh Market Manager and Action
Manager 4X software. These resources have been switched to the Sales and
Marketing of these suites.
Sales and marketing expenses were $382,329 and $314,493 for the quarters ended
December 31, 2004 and 2003, respectively, a 22% increase. This increase is
primarily attributable to a sales team reorganization and related increased
travel of non-salaried sales personnel implemented in October 2004.
General and administrative expenses were $668,821 and $385,620 for the quarters
ended December 31, 2004 and 2003, respectively, a 74% increase. This increase
includes a $165,200 one time expense for the settlement of a legal case.
Six Months Ended December 31, 2004 and 2003
Total revenues were $1,930,739 and $3,101,740 for the six months ended December
31, 2004 and 2003, respectively, a 38% decrease in 2004 over the comparable
period for 2003. Software license revenues were $303,855 and $1,628,276 for the
six months ended December 31, 2004 and 2003, respectively, an 81% decrease.
License sales in 2003 included the recognition of deferred prepaid license sales
of $175,000 on the expiration of an agreement with a reseller; and a bulk sale
of licenses to a new reseller totaling $918,888. Maintenance and support
revenues were $1,293,683 and $1,105,755 for the six months ended December 31,
2004 and 2003, respectively, a 17% increase. This increase is primarily
attributable to maintenance contracts on Fresh Market Manager software and new
ASP customers for Fresh Market Manager. Consulting and other revenue was
$333,201 and $367,709 for the six months ended December 31, 2004 and 2003,
respectively, a 9% decrease. Other sales in 2003 included the sale of the
Company's domain name of parkcity.com for $150,000. The Company now uses
parkcitygroup.com as its domain name. Actual consulting and other revenues in
2004 increased 53% from 2003 after excluding the sale of the domain name in
2003.
Research and development expenses were $506,850 and $675,232 for the six months
ended December 31, 2004 and 2003 respectively, a 25% decrease. This decrease
represents the general stabilization of both the Fresh Market Manager and Action
Manager 4X software. These resources have been switched to the Sales and
Marketing of these suites.
Sales and marketing expenses were $675,723 and $552,614 for the six months ended
December 31, 2004 and 2003, respectively, a 22% increase. This increase is
primarily attributable to a sales team reorganization and related increased
travel of non-salaried sales personnel implemented in October 2004.
General and administrative expenses were $978,930 and $718,167 for the six
months ended December 31, 2004 and 2003, respectively, a 36% increase. This
increase includes a $165,200 one time expense for the settlement of a legal
case.
10
Liquidity and Capital Resources
The Company had a working capital deficit at December 31, 2004 and incurred a
net loss for the six months then ended.
During the quarter ending December 31, 2004, the Company made a significant
strategic decisions that affected strategic alliances sales. The Company
determined that it would not extend the exclusive rights to sell the
ActionManager Scheduler in the Specialty Retail Market to its partner, CRS
Retail Systems. Our alliance partner requested an extension in payment terms for
6 months for the exclusive rights, however, upon review of their sales
opportunities and pipeline, it was management's decision that we would receive
an amount equal to or greater than the exclusivity purchase from other
applications that the alliance partner had identified in their anticipated
sales. After discussions with the alliance partner, it was agreed that this was
the best course of action.
The Company has also experienced a slow down in collections of accounts
receivable which now stands at $2,059,233. We implemented new procedures to
improve our collections performance and believe that accounts receivable will be
more current by the end of the upcoming quarter although there is no assurance
that collections will improve. During the quarters ending March 31, 2005 and
June 30, 2005, the Company does expect tight cash flows and will have to cover
current needs with loans from directors, officers and stockholders, loans from
the CEO and majority shareholder, and private placements of equity securities.
The Company is also currently working on a possible refinance of long and short
term debt. There are no assurances that the Company will be able to complete
these transactions.
As an additional effort to manage expenses and increase employee participation
in the ownership of the Company, beginning October 1, 2003, 10% of the staff
employee compensation had been paid in shares of common stock. For the quarter
ended December 31, 2003, 1,000,130 shares of common stock were issued in lieu of
$30,004 of cash compensation. The Company concluded the stock for the staff
employee compensation program in September 2004. A separate program for
management compensation was initiated on July 1, 2002 and that program continues
to be in place. From December 31, 2003 until December 31, 2004 the Company
issued 2,059,346 shares in lieu of $80,899 of cash compensation.
The marketing focus of the Company has changed under the direction of Jim
Horton, the Company's new President. The Company has concentrated on
establishing a network of commissioned sales representatives and alliance
partners for the FMM suite. In addition the Company has started pursuing the
convenience store market with its Action Manager and Fresh Market Manager
products as well as, an ASP offering. The Company has also signed 3 new ASP
customers during the six month period ending December 31, 2004, and continues to
focus much of its in-house sales resource toward this channel. Management also
believes that new license sales will increase as the sales pipeline begins to
yield additional revenue. There is no assurance that the Company will realize
significant additional revenue.
To date, the Company has financed its operations through operating revenues,
loans from directors, officers and stockholders, loans from the CEO and majority
shareholder, and private placements of equity securities.
11
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Randall K. Fields who serves as Park City Group's chief executive officer and
William Dunlavy, who serves as Park City Group's chief financial officer, after
evaluating the effectiveness of Park City Group's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of
December 31, 2004 (the "Evaluation Date") concluded that as of the Evaluation
Date, Park City Group's disclosure controls and procedures were adequate and
effective to ensure that material information relating to Park City Group and
its consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report was
being prepared.
(b) Changes in internal controls.
While no significant deficiencies or material weaknesses in disclosure controls
and procedures required corrective actions, management have determined that
changes were needed in two areas to better define costs and improve account
receivable collection.
Management has implemented a new system for employees and management to improve
the tracking of hours that are spent on specific projects, contracts,
maintenance issues, and consulting for specific products and clients. This is
becoming important as the Company increases its ASP operations.
Recognizing that communications between our Account Managers and Accounting
Department have caused delays in billings and collections of accounts
receivables, a biweekly review of billings has been put in place although there
is no assuance that these new procedures will reduce the delay in collections of
accounts receivable.
12
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
In August 2002, the Company filed legal action against The Yankee Companies,
Inc. et al. The defendants were entities and individuals involved in the
reorganization of Amerinet and its acquisition of control of Park City Group
(Delaware). These causes of actions include: violation of Florida's Securities
and investor Protection Act, Fraud, negligent misrepresentation, violation of
Federal Securities Acts 1933 and 1934 and breach of promissory note. This action
has been filed in the State of Utah.
In December 2004 the Company settled with the Calvo family interests. The
settlement agreement signed January 3, 2005 called for the issuance of 2,065,000
shares of the Company's restricted common stock at a fair value of $165,200. The
case has now been settled as between all parties with the exception of the
claims of the Company against The Yankee Companies (Yankee). The Company has a
default judgment against Yankee but it is unlikely that there is any possibility
of collecting on the judgment.
Item 2 - Changes in Securities
o In August 2004 536,267 shares of common stock were issued to
employees in lieu of cash compensation.
o In September 2004 2,438,985 shares of common stock were issued
to board members in lieu of cash compensation.
o In November 2004 330,000 shares of common stock were issued
for consulting services
o In December 2004 225,000 shares of common stock were issued as
consideration of extension of payment on the Note Payable to
Riverview Financial
o In December 2004 2,142,857 shares of common stock were issued
to an officer as part of a private purchase agreement.
o In December 2004 130,952 shares of common stock were issued to
board members in lieu of cash compensation.
Item 6 - Exhibits and Reports on Form 8K (for the period 7/1/04 through
12/31/04)
On July 15, 2004 the Company filed a Current Report on Form 8K dated July 15,
2004 under Item 9 announcing its preliminary financial results for the year
ending June 30, 2004.
On August 26, 2004 the Company filled a Current Report on Form 8K dated August
24, 2004 under Item 7.01 announcing the sudden death of the current Chief
Financial Officer, Peter Jensen and the interim appointment of Will Dunlavy as
Interim Chief Financial Officer.
On September 27, 2004 the Company filed a Current Report on Form 8K dated
September 1, 2004 under Item 7.01 announcing the appointment of William Dunlavy
as the new Chief Financial Officer and James Horton as the President and Chief
Operating Officer.
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbannes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbannes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 22, 2005 PARK CITY GROUP, INC
By /s/ Randall K. Fields
-----------------------------------
Randall K. Fields,
Chief Executive Officer & Chairman
Date: February 22, 2005 By /s/ William Dunlavy
----------------------
William Dunlavy,
Chief Financial Officer
14