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 September 30, 2005
Commission File Number 000-03718
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 37-1454128
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
333 Main Street, P.O. Box 5000; Park City, Utah 84060
(Address of principal executive offices)
(435) 649-2221
(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 November 10, 2005
Common Stock, $.01 par value 283,253,935
2,369 shareholders
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 September 30, 2005
(Un-audited) 3
Consolidated Condensed Statements of Operations for the
Quarters Ended September 30, 2005 and 2004 (Un-audited) 4
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended September 30, 2005 and 2004 (Un-audited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 9
Item 3 Controls and Procedures 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 5 Other Information 11
Item 6 Exhibits 11
Exhibit 31 Certification of Chief Executive Officer and Chief 13
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 15
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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PARK CITY GROUP, INC.
Consolidated Condensed Balance Sheet (Unaudited)
September 30, 2005
Assets
Current assets:
Cash $ 159,442
Receivables, net of allowance for doubtful accounts of $53,000 553,860
Prepaid expenses and other current assets 124,196
----------------
Total current assets 837,498
----------------
Property and equipment, net of accumulated depreciation and amortization 100,428
----------------
Other assets:
Deposits and other assets 25,000
Capitalized software costs, net of accumulated amortization of $797,636 265,879
----------------
Total other assets 290,879
----------------
Total assets $ 1,228,805
================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 173,914
Accrued liabilities 1,139,796
Deposits for unissued stock 36,667
Deferred revenue 1,509,513
Current portion of long-term capital lease obligations 20,493
Current portion of long-term related party debt, net of discount of $6,188 338,813
Related party lines of credit 336,187
----------------
Total current liabilities 3,555,383
----------------
Long-term liabilities
Long-term related party debt, net of discount of $110,269 3,186,137
Capital lease obligations, less current portion 3,919
----------------
Total long-term liabilities 3,190,056
----------------
Total liabilities 6,745,439
----------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued
- Common stock , $0.01 par value, 500,000,000 shares authorized;
282,846,334 issued and outstanding 2,828,463
Additional paid-in capital 10,056,291
Accumulated deficit (18,401,388)
----------------
Total Stockholders' deficit (5,516,634)
----------------
$ 1,228,805
================
See accompanying notes to consolidated condensed financial statements.
3
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
For the Three Months Ended September 30, 2005 and 2004
September 30, September 30,
2005 2004
------------- -------------
Revenues:
Software licenses $ 2,630,453 $ 162,163
Maintenance and support 608,446 623,492
ASP 48,900 11,600
Consulting and other 411,066 192,420
------------- -------------
Total revenues 3,698,865 989,675
Cost of revenues 404,651 300,154
------------- -------------
Gross margin 3,294,214 689,521
Operating expenses:
Research and development 235,909 256,081
Sales and marketing 283,200 293,394
General and administrative 313,155 310,109
------------- -------------
Total operating expenses 832,264 859,584
------------- -------------
Income (loss) from operations 2,461,950 (170,063)
Interest expense (297,135) (274,558)
------------- -------------
Income (loss) before income taxes 2,164,815 (444,621)
Income tax (expense) benefit - -
------------- -------------
Net Income (loss) $ 2,164,815 $ (444,621)
============= =============
Weighted average shares, basic 282,850,000 269,105,000
============= =============
Weighted average shares, diluted 283,989,000 269,105,000
============= =============
Basic earnings (loss) per share $ 0.01 $ (0.00)
============= =============
Diluted Earnings (loss) per share $ 0.01 $ (0.00)
============= =============
See accompanying notes to consolidated condensed financial statements.
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PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 2005 and 2004
September 30, September 30,
2005 2004
------------ ------------
Cash Flows From Operating Activities:
Net income (loss) $ 2,164,815 $ (444,621)
Adjustments to reconcile net income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 83,571 84,321
Bad debt expense (3,000) -
Stock issued for services and expenses 21,499 211,516
Amortization of discounts on debt 73,887 42,355
Decrease (increase) in:
Trade receivables (194,521) (125,567)
Prepaid and other assets (87,136) (6,615)
Increase (decrease) in:
Accounts payable (454,484) 5,737
Accrued liabilities (127,345) (172,694)
Deferred revenue 626,089 (138,254)
Accrued interest, related party 138,844 115,886
------------ ------------
Net cash provided by (used in) operating activities 2,242,219 (427,936)
------------ ------------
Cash Flows From Investing Activities:
Purchase of property and equipment (3,046) (8,724)
------------ ------------
Net cash used in investing activities (3,046) (8,724)
------------ ------------
Cash Flows From Financing Activities:
Net (decrease) increase in line of credit - related party (283,556) 200,000
Payments on notes payable and capital leases (2,005,845) (13,007)
------------ ------------
Net cash (used in) provided by financing activities (2,289,401) 186,993
------------ ------------
Net decrease in cash and cash equivalents (50,228) (249,667)
Cash at beginning of period 209,670 312,817
------------ ------------
Cash at end of period $ 159,442 $ 63,150
============ ============
See accompanying notes to consolidated condensed financial statements.
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PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2005
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 include all normal, recurring adjustments 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 quarterly financial statements prepared in
accordance with 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, 2005 Annual Report on Form 10-KSB.
Certain 2004 amounts have been reclassified to conform to 2005 classifications.
Note 2 - Liquidity
As shown in the consolidated financial statements, the Company had a profit for
the period ending September 30, 2005 and incurred a loss for the same quarter in
2004. Current liabilities are in excess of current assets at September 30, 2005.
The company did generate positive cash flow during the quarter ending September
30, 2005 and was able to retire a large amount of current debt. The company did
not generate a positive cash flow however for the year ending June 30, 2005.
The Company believes that cash flows from sales, as well as the ability and
commitment of its majority shareholder to contribute funds necessary to continue
to operate, will allow the Company to fund its currently anticipated working
capital, capital spending and debt service requirements during the year ended
June 30, 2006. The financial statements do not reflect any adjustments should
the Company's operations not be achieved.
Note 3 - Stock-Based Compensation
At September 30, 2005 and 2004, 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 for the
quarter ended September 30, 2005 and 2004:
Quarters ended
September 30, 2005 September 30, 2004
------------------ ------------------
Net income (loss) available to common shareholders, as reported $ 2,154,816 $ (444,621)
Add: Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (14,325) (14,325)
----------------- -----------------
Net income (loss) - pro forma $ 2,140,491 $ (458,946)
================= =================
Income (loss) per share:
Basic - as reported $ 0.01 $ (0.00)
================= =================
Diluted - as reported $ 0.01 $ (0.00)
================= =================
Basic - pro forma $ 0.01 $ (0.00)
================= =================
Diluted - pro forma $ 0.01 $ (0.00)
================= =================
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Park City Group has an employment agreement with its Vice President of
Professional Services, dated effective April 11, 2005. One provision of this
agreement provides for a stock bonus of 2,000,000 shares payable in 500,000
share increments on his next 4 anniversary dates, provided continued employment.
Note 4 - Outstanding Stock Options
The following tables summarize information about fixed stock options and
warrants outstanding and exercisable at September 30, 2005:
Number of
Options Warrants Price per Share
--------- -------- ---------------
Outstanding and exercisable at June 30, 2005 5,446,512 47,191,500 $0.03-0.14
Granted - - -
Exercised - - -
Called - - -
Cancelled - - -
Expired (215,000) - $0.03-0.05
--------- ---------- ----------
Outstanding and exercisable at September 30, 2005 5,231,512 47,191,500 $0.03-0.14
========= ========== ==========
Options and Warrants Outstanding and Exercisable
at September 30, 2005
Weighted
average Weighted
Number remaining average
Range of Outstanding at contractual exercise
exercise prices September 30, 2005 life(years) price
--------------- ------------- ----------- -----
$0.03 - $0.05 36,780,572 2.34 $ 0.04
$0.07 - $0.08 15,142,440 2.42 0.07
$0.14 500,000 1.11 0.14
---------- ---- ------
52,423,012 2.35 $ 0.05
========== ==== ======
Note 5 - Supplemental Cash Flow Information
In connection with the note payable funding from Whale Investment, Ltd. the
Company issued warrants and issued shares of common stock, which were recorded
as a debt discount. In June 2004 the note payable to Whale Investments, LTD was
extended and ownership of the note payable was transferred to Whale Investment's
sister company Triplenet Investments. As consideration for the extension the
Company issued cash and shares. The fair value of the cash and shares issued in
connection with the extension was recorded as a discount to the note payable and
added to the previous discount to be amortized over the remaining life of the
note as extended. Of the debt discount amounts $54,976 and $27,488 was amortized
to interest expense during the quarters ended September 30, 2005 and 2004,
respectively.
The Triplenet Investments loan was paid off in August 2005 with cash generated
from operations. The company did pay a pre-payment penalty fee of $30,000 or one
month interest on the loan.
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 $6,188 and
$2,143 was amortized into interest expense during the quarters ended September
30, 2005 and 2004, respectively. This increase is due to the fee charged for the
extension of the Riverview portion of this transaction in August 2004.
For the quarters ended September 30, 2005 and 2004 the Company paid cash for
interest expense of $88,141 and $109,027, respectively. No cash was paid for
income taxes.
Note 6 - Accrued liabilities
Accrued liabilities consist of the following as of September 30, 2005:
Accrued interest $ 980,839
Accrued vacation 107,976
Other accrued liabilities 50,981
----------
$1,139,796
==========
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Note 7 - Net Income (Loss) Per Common Share
Basic net income (loss) per common share ("Basic EPS") excludes dilution and is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted net income (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 income
(loss) per common share.
Options and warrants to purchase 16,052,940 and 82,850,870 shares of common
stock as of September 30, 2005 and 2004 , respectively, were not included in the
computation of Diluted EPS due either to the dilutive effect from a net loss or
a strike price in excess of market price. Using the treasury stock method
1,138,246 shares were assumed repurchased and added to shares outstanding for
the computation of Diluted EPS for the 3 months ended September 30, 2005.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Form 10-KSB for the year ended June 30, 2005 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 September 30, 2005 and 2004
Total revenues were $3,698,865 and $989,675 for the quarters ended September 30,
2005 and 2004, respectively, a 274% increase. Software license revenues were
$2,630,453 and $162,163 for the quarters ended September 30, 2005 and 2004,
respectively, a 1522% increase. This increase is primarily attributable to
software license sales to one customer, Cannon Equipment, during the quarter
ended September 30, 2005. Details of this software license sales transaction are
incorporated herein by reference to form 8K filed on August 11, 2005. License
sales in 2004 were attributed to two new and one existing customer. Maintenance
and support revenues were $608,446 and $623,494 for the quarters ended September
30, 2005 and 2004, respectively, a 2% decrease. This decrease is primarily
attributable to a two existing Action Manager customers reducing their
maintenance fees due to store closures. Software Maintenance and support for
Fresh Market Manager software increased by $51,083 during the quarter ending
September 30, 2005 over the same period in 2004. This was primarily due to the
Cannon Solutions Contract. The company has decided to report their ASP, (their
hosted solution), sales separately starting in Fiscal Year ending June 30, 2006
instead of previously including these amounts in maintenance and support
revenues. ASP revenues were $48,900 and $11,600 respectively for the quarters
ending September 30, 2005 and 2004, respectively, an increase of 322%. This
increase was the result of our success in the Perishable Manufacturing Channel
where we have signed 4 new contracts in the last 6 months. Consulting and other
revenue was $411,066 and $192,420 for the quarters ended September 30, 2005 and
2004, respectively, a 114% increase. This increase is spread evenly between
increased Action Manager and FMM implementation services and income from the
Cannon Equipment agreements.
Cost of revenues, as a percent of total revenues was 11% and 30% for the
quarters ended September 30, 2005 and 2004, respectively. This decrease in cost
of revenues as a percent of total revenues is primarily attributable to the
increased software license revenues during the quarter ended September 30, 2005
as compared to the same period in the prior year.
Research and development expenses were $235,909 and $256,081 for the quarters
ended September 30, 2005 and 2004 respectively, an 8% decrease. This decreased
expense reflects the fact that both Action Manager and FMM software suites have
had major releases completed in addition to the streamlining of our development
process.
Sales and marketing expenses were $283,200 and $293,394 for the quarters ended
September 30, 2005 and 2004, respectively, a 3% decrease. This decrease is
primarily due to one trade show being cancelled during September 2005 due to
weather problems. The company expects a slight increase in sales costs during
the second quarter due to the rescheduling of this trade show.
General and administrative expenses were $313,155 and $310,109 for the quarters
ended September 30, 2005 and 2004, respectively a 1% increase.
Liquidity and Capital Resources
The Company had a working capital deficit at September 30, 2005.
The company had net income of $2,154,815 versus a net loss of $444,621 for the
quarters ending September 30, 2005 and 2004 respectively. The company was able
to pay off the Triplenet Incorporated debt of $2,030,000 and reduce its accounts
payables from $628,398 as of June 30, 2005 to $173,914 during the quarter ended
September 30, 2005. The Company had interest expense of $297,135 and $274,558
for the quarters ending September 30, 2005 and 2004 respectively, an increase of
8%. This increase occurred because the prepayment of the Triplenet Incorporated
debt during the quarter ended September 30, 2005. 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. The Company may be unable to raise
additional equity capital until it achieves profitable operations and refinances
its debt. The Company anticipates that it will meet its working capital
requirements primarily through increased revenue, while controlling and reducing
costs and expenses. However, no assurances can be given that the Company will be
able to meet its working capital requirements.
9
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 D. 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-14(c) and 15d-14(c) as of
September 30, 2005 (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. While the Company feels that the disclosure controls currently
in place are adequate to prevent material misstatements, the Company has found
significant internal control deficiencies in its accounting for property, plant
and equipment that they will work to rectify in the coming year in preparation
for section 404 of the Sarbanes Oxley Act of 2002. The Company is continually
evaluating and improving their internal control procedures.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls over
financial reporting or in other factors that could significantly affect these
internal controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
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Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
o In July 2005 155,750 shares were issued per anti-dilution
agreement with the CEO.
o In August 2005 134,411 shares were issued to an employee in
lieu of cash compensation.
Item 5 - Other Information
None
Item 6 - Exhibits (for the period 7/1/05 through 9/30/05)
Exhibit 3.1 Articles of incorporation (1)
Exhibit 3.2 By-laws (1)
Exhibit 3.3 Certificate of amendment
Exhibit 10.1 License Agreement, First Right of Offer Agreement and
Exclusivity Agreement with Cannon solution (2)
Exhibit 10.2 Employment agreement with Aaron Prevo (3)
Exhibit 14.1 Code of Ethics
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.
(1) Incorporated by reference to Form DEF 14C filed on June 5, 2002
(2) Incorporated by reference to Form 8K filed on August 11, 2005
(3) Incorporated by reference to Form 10KSB/A filed on October 14, 2005 for the
year ended June 30, 2005
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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: November 10, 2005 PARK CITY GROUP, INC
By /s/ Randall K. Fields
-----------------------------------
Randall K. Fields, Chairman and
Chief Executive Officer
Date: November 10, 2005 By /s/ William Dunlavy
-----------------------------------
William Dunlavy
Chief Financial Officer
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