FORM 10-QSB/A
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, 2005
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 by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of
Class February 6, 2006
----- ----------------
Common Stock, $.01 par value 5,690,007
2,368 shareholders
Explanatory Note
This Form 10-QSB/A is being filed to amend and restate the Park City Group, Inc.
(the "Company") Quarterly Report on Form 10-QSB for the Three Months Ended,
December 31, 2005. The restatement arose out of, and in conjunction with, a
letter of comment dated September 1, 2006 received from the staff of the
Securities and Exchange Commission as a result of the Company's submission and
filing of Form SB-2 Registration Statement. The financial statements and
references thereto have been amended and updated to reflect the effect of the
1:50 reverse stock split effective August 11, 2006 pursuant to SAB Topic 4:C. At
the time of the reverse split, the Articles of Incorporation were amended to
reflect authorized common shares from 500,000,000 to 50,000,000.
Generally, no attempt has been made in this Form 10-QSB/A to modify or update
other disclosures presented in the original report on Form 10-QSB except as
required to meet the staff's comments. This Form 10-QSB/A does not reflect
events occurring after the filing of the original Form 10-QSB or modify or
update those disclosures. Information not affected by the amendment is unchanged
and reflects the disclosures made at the time of the original filing of the Form
10-QSB with the Securities and Exchange Commission on February 6, 2006. The
following items have been amended as of result of the restatement:
Quarterly Report on Form 10-QSB/A
December 31, 2005
Table of Contents - (Amendments)
Item 1 and 2 Reverse Stock Split 1:50 Effects to Financials Page 1-9
Item 2 Forward Looking Statements / Safe Harbor Page 9
Signature Pages Principal Executive and Principal Financial
Officer Page 12
Item 3 Controls and Procedures Page 10
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 Sheets as of December 31, 2005
(Unaudited) and June 30, 2005 3
Consolidated Condensed Statements of Operations for the
Quarters Ended December 31, 2005 and 2004 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended December 31, 2005 and 2004 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 10
Item 3 Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits 16
Exhibit 31 Certification of Principal Executive Officer and
Principal 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.
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2
PARK CITY GROUP, INC.
Consolidated Condensed Balance Sheets
Assets December 31, 2005 June 30, 2005
----------------- -------------
(Unaudited) (Restated)
(Restated)
Current Assets:
Cash $ 122,825 $ 209,670
Receivables, net of allowance $49,554 and $56,000 at
December 31, 2005 and June 30, 2005, respectively 738,056 356,339
Prepaid expenses and other current assets 129,367 37,060
------------ ------------
Total current assets 990,248 603,069
------------ ------------
Property and equipment, net of accumulated depreciation of
$1,627,701 and $1,592,079 at December 31, 2005 and June 30, 2006,
respectively 105,070 109,512
------------ ------------
Other assets:
Deposits and other assets 27,826 25,000
Capitalized software costs, net of accumulated amortization of
$864,106 and $731,167 at December 31, 2005 and June 30, 2005,
respectively 199,409 332,349
------------ ------------
Total other assets 227,235 357,349
------------ ------------
Total assets $ 1,322,553 $ 1,069,930
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 293,302 $ 628,398
Accrued liabilities 373,230 316,706
Deferred revenue 1,151,054 883,425
Current portion of capital lease obligations 20,203 23,159
Notes payable, net of discounts of $54,976 at June 30, 2005 - 1,945,024
Related party accrued interest 1,162,180 848,258
Related party notes payable, net of discounts of $24,750 and
$12,375 at December 31, 2005 and June 30, 2005, respectively 320,250 332,625
Related party lines of credit 606,187 619,743
------------ ------------
Total current liabilities 3,926,406 5,597,338
------------ ------------
Long-term liabilities
Long-term related party notes payable, net of discounts of
$97,545 and $122,992 at December 31, 2005 and June 30, 2005,
respectively 3,198,861 3,173,414
Capital lease obligations, less current portion 16,167 2,127
------------ ------------
Total long-term liabilites 3,215,028 3,175,541
------------ ------------
Total liabilities 7,141,434 8,772,879
------------ ------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 30,000,000 shares authorized,
none issued
Common stock, $0.01 par value, 50,000,000 shares authorized;
5,690,007 and 5,651,118 issued and outstanding at
December 31, 2005 and June 30, 2005, respectively 56,900 56,511
Additional paid-in capital 12,880,370 12,806,743
Accumulated deficit (18,756,151) (20,566,203)
------------ ------------
Total stockholders' deficit (5,818,881) (7,702,949)
------------ ------------
Total liabilities and stockholders' deficit $ 1,322,553 $ 1,069,930
============ ============
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, 2005 and 2004
Three Months Ended Six Months Ended
December 31, December 31,
2005 2004 2005 2004
------------- ------------- ------------- -------------
(Restated) (Restated) (Restated) (Restated)
Revenues:
Software licenses $ 230,574 $ 141,692 $ 2,861,027 $ 303,855
Maintenance and support 606,311 658,589 1,214,757 1,293,683
ASP 50,250 20,550 99,150 32,150
Consulting and other 226,521 120,231 637,587 301,051
------------- ------------- ------------- -------------
1,113,656 941,062 4,812,521 1,930,739
Cost of revenues 417,421 351,771 822,072 651,925
------------- ------------- ------------- -------------
Gross margin 696,235 589,291 3,990,449 1,278,814
------------- ------------- ------------- -------------
Operating expenses:
Research and development 223,687 250,769 459,596 506,850
Sales and marketing 310,433 382,329 593,633 675,723
General and administrative 316,438 668,821 629,593 978,930
------------- ------------- ------------- -------------
Total operating expenses 850,558 1,301,919 1,682,822 2,161,503
------------- ------------- ------------- -------------
(Loss) income from operations (154,323) (712,628) 2,307,627 (882,689)
Other income (expense):
Interest expense (200,440) (287,974) (497,575) (562,532)
------------- ------------- ------------- -------------
(Loss) income before income taxes (354,763) (1,000,602) 1,810,052 (1,445,221)
(Provision) benefit for income taxes - - - -
------------- ------------- ------------- -------------
Net (loss) income $ (354,763) $ (1,000,602) $ 1,810,052 $ (1,445,221)
============= ============= ============= =============
Weighted average shares, basic 5,670,000 5,450,000 5,664,000 5,419,000
============= ============= ============= =============
Weighted average shares, diluted 5,670,000 5,450,000 5,868,000 5,419,000
============= ============= ============= =============
Basic (loss) income per share $ (0.06) $ (0.18) $ 0.32 $ (0.27)
============= ============= ============= =============
Diluted (loss) income per share $ (0.06) $ (0.18) $ 0.31 $ (0.27)
============= ============= ============= =============
See accompanying notes to consolidated condensed financial statements.
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4
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31, 2005 and 2004
2005 2004
--------------- ---------------
Cash Flows From Operating Activities:
Net income (loss) $ 1,810,052 $ (1,445,221)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 168,561 170,090
Bad debt expense (6,446) 50,000
Stock issued for services and expenses 74,016 233,744
Amortization of discounts on debt 92,798 84,708
(Increase) decrease in:
Trade receivables (375,270) (916,074)
Prepaid and other assets (95,133) 60,354
(Decrease) increase in:
Accounts payable (335,096) 229,692
Accrued liabilities 25,511 101,157
Deferred revenue 267,629 395,468
Accrued interest, related party 320,184 236,222
--------------- ---------------
Net cash provided by (used in) operating activities 1,946,806 (799,860)
--------------- ---------------
Cash Flows From Investing Activities:
Purchase of property and equipment (6,475) (30,032)
--------------- ---------------
Net cash used in investing activities (6,475) (30,032)
--------------- ---------------
Cash Flows From Financing Activities:
Net (decrease) increase in line of credit - related party (13,556) 474,739
Proceeds from issuance of stock 150,000
Payments to extend note (9,000)
Payments on notes payable and capital leases (2,013,620) (24,906)
--------------- ---------------
Net cash (used in) provided by financing activities (2,027,176) 590,833
--------------- ---------------
Net decrease in cash and cash equivalents (86,845) (239,059)
Cash at beginning of period 209,670 312,817
--------------- ---------------
Cash at end of period $ 122,825 $ 73,758
=============== ===============
See accompanying notes to consolidated condensed financial statements.
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5
PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 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.
Note 2 - Liquidity
Cash flow information for the six months ended December 31, 2005 and December
31, 2004 was as follows:
December 31, December 31,
2005 2004
------------------- ------------------
Cash, cash equivalents, marketable securities and
long-term marketable securities $ 209,670 $ 312,817
------------------- ------------------
Net cash provided by operating activities $ 1,946,806 $ (799,860)
Net cash used in investing activities $ (6,475) $ (30,032)
Net cash provided by financing activities $ (2,027,176) $ 590,833
------------------- ------------------
Net increase/decrease in cash and cash equivalents $ (86,845) $ (239,059)
As shown in the consolidated financial statements, the Company had a loss for
the three months ending December 31, 2005 and incurred a loss for the same
quarter in 2004. The Company did show a profit for the six months ending
December 31, 2005 verses an incurred loss for the same six months in 2004.
Current liabilities are in excess of current assets at December 31, 2005. The
company did generate positive cash flow from operations during the six months
ended December 31, 2005 and was able to retire a large amount of current debt.
However the company did not generate an overall positive cash for the six months
ended December 31, 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.
Off-Balance Sheet Arrangements.
Off-balance sheet arrangements, as defined by SEC, include certain transactions,
agreements, or other contractual arrangements pursuant to which a company has
any obligation under certain guarantee contracts, certain retained or contingent
interests in assets transferred to an unconsolidated entity, any obligation
under certain derivative investments, or any obligation under a material
variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support or engages in leasing, hedging or
research and development services with us.
Currently the company has no Off Balance Sheet Arrangements
Note 3 - Stock-Based Compensation
At December 31, 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 income (loss) and
earnings (loss) per share would have been the pro forma amounts indicated below
for the three and six months ended December 31, 2005 and 2004:
6
Three Six
Months Ended Months Ended
December 31, December 31,
------------ ------------
2005 2004 2005 2004
---- ---- ---- ----
Net Loss available to common shareholders, as reported $(354,763) $(1,000,602) $1,810,052 $(1,445,221)
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) (14,325)
--------- ----------- ---------- -----------
Net (loss) income - pro forma $(354,763) $(1,000,602) $1,795,727 $(1,459,546)
========= =========== ========== ===========
Loss per share:
Basic - as reported $ (0.06) $ (0.18) $ 0.32 $ (0.27)
Diluted - as reported $ (0.06) $ (0.18) $ 0.31 $ (0.27)
========= =========== ========== ===========
Basic - pro forma $ (0.06) $ (0.18) $ 0.32 $ (0.27)
Diluted - pro forma $ (0.06) $ (0.18) $ 0.31 $ (0.27)
========= =========== ========== ===========
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 40,000 shares payable in 10,000 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 December 31, 2005:
Number of
Options Warrants Price per Share
------- -------- ---------------
Outstanding and exercisable at June 30, 2005 108,930 943,830 $1.50-7.00
Granted - - -
Exercised - - -
Called - - -
Cancelled - - -
Expired (4,300) (142,857) $1.50-3.50
--------- ---------- ----------
Outstanding and exercisable at December 31, 2005 104,630 800,973 $1.50-7.00
========= ========== ==========
Options and Warrants Outstanding and Exercisable
at December 31, 2005
Weighted
average Weighted
Number remaining average
Range of Outstanding at contractual exercise
exercise prices December 31, 2005 life (years) price
--------------- ----------------- ----------- -----
$1.50 - $2.50 735,611 1.69 $ 1.99
$3.50 - $4.00 159,992 4.01 3.55
$7.00 10,000 .86 7.00
---------- ---- ------
905,603 2.09 $ 2.32
========== ==== ======
Note 5 - Related Party Transactions
In December 2005, the note payable funding from Riverview extended for 12 months
making the new maturity date December 24, 2006. The company issued 4,500 shares
valued at $15,750 and $9,000 as consideration for the extension. This
consideration was recorded as a debt discount and will be amortized to interest
expense of the extended term of the note. See Note 6
In December 2005, the line of credit the company has with Riverview was
cancelled and reissued in the amount of $800,000. The reissued line of credit
carries an interest rate of 12% with a fee for draws on the line. All other
terms remained the same.
7
Note 6 - 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 $54,976 was amortized
to interest expense during the six months ended December 31, 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 as well as the additional shares issued for extension of the due date
were recorded as a discount on the note payable, of which $12,375 and $4,286 was
amortized into interest expense during the six months ended December 31, 2005
and 2004, respectively.
For the six months ended December 31, 2005 and 2004 the Company paid cash for
interest expense of $89,311 and $241,208, respectively. No cash was paid for
income taxes.
Note 7 - Accrued liabilities
Accrued liabilities consist of the following as of December 31, 2005 and June
30, 2005:
12/31/05 6/30/05
-------- -------
Accrued payroll $ 169,541 $ 156,300
Accrued vacation 109,233 112,722
Other accrued liabilities 59,456 47,684
Accrued stock compensation 35,000 -
----------- -----------
$ 373,230 $ 316,706
=========== ===========
Note 8 - 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.
For the three months ended December 31, 2005 and 2004 options and warrants to
purchase 905,603 and 1,626,490 shares of common stock, respectively, were not
included in the computation of diluted EPS due to the dilutive effect of a net
loss in both periods.
For the six months ended December 31, 2005 and 2004 options and warrants to
purchase 169,992 and 1,626,490 shares of common stock, 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 204,814 shares were assumed repurchased and added to shares
outstanding for the computation of Diluted EPS for the six months ended December
31, 2005.
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8
9. Explanation of Restatement
In connection with the filing of an amendment to the Company's June 30, 2005
Form 10KSB/A, September 30, 2005 Form 10QSB, December 31, 2005 Form 10QSB and an
amended SB-2 registration statement, the financial statements and references
thereto have been amended and updated to reflect the effect of a 1:50 reverse
stock split effective August 11, 2006 pursuant to SAB Topic 4:C. At the time of
the reverse split, the Articles of Incorporation were amended to reflect
authorized common shares from 500,000,000 to 50,000,000. These changes had the
following effect on the consolidated financial statements:
Effects on the Consolidated Balance Sheet
12/31/05 12/31/05 6/30/05 6/30/05
As Reported Restatements As Restated As Reported Restatements As Restated
Stockholders' deficit:
Preferred stock, $.01 par value,
30,000,000 shares authorized no
shares issued, - - - - - -
Common stock, $.01 par value,
50,000,000 shares, authorized,
5,690,007 and 5,651,118,
respectively issued and
outstanding $ 2,841,046 $ (2,784,146) $ 56,900 $ 2,825,561 $ (2,769,050) $ 56,511
Additional paid-in-capital 10,096,224 2,784,146 12,880,370 10,037,693 2,769,050 12,806,743
Accumulated deficit (18,756,151) - (18,756,151) (20,566,203) - (20,566,203)
--------------- -------------- -------------- --------------- --------------- -------------
Total stockholders' deficit $ (5,818,881) $ - $ (5,818,881) $ (7,702,949) $ - $ (7,702,949)
=============== ============== ============== =============== =============== =============
Effects on the Consolidated Statement of Operations for the Three Months Ended December 31,
2005 2005 2004 2004
As Reported Restatements As Restated As Reported Restatements As Restated
Net loss
$(354,763) - $(354,763) $(1,000,602) - $(1,000,602)
=========== =========== ========== =========== =========== ===========
Weighted average
shares, basic 283,498,000 (277,828,000) 5,670,000 269,105,000 (263,655,000) 5,450,000
=========== =========== ========== =========== =========== ===========
Weighted average
shares, diluted 283,498,000 (277,828,000) 5,670,000 269,105,000 (263,655,000) 5,450,000
=========== =========== ========== =========== =========== ===========
Basic earnings (loss)
per share $(0.00) $(0.06) $(0.06) $(0.00) $(0.18) $(0.18)
=========== =========== ========== =========== =========== ===========
Diluted earnings
(loss) per share $(0.00) $(0.06) $(0.06) $(0.00) $(0.18) $(0.18)
=========== =========== ========== =========== =========== ===========
Effects on the Consolidated Statement of Operations for the Six Months Ended December 31,
2005 2005 2004 2004
As Reported Restatements As Restated As Reported Restatements As Restated
Net loss
$1,810,052 - $1,810,052 $(1,445,221) - $(1,445,221)
=========== =========== ========= =========== =========== ===========
Weighted average
shares, basic 283,176,000 (277,512,000) 5,664,000 270,931,000 (265,512,000) 5,419,000
=========== =========== ========= =========== =========== ===========
Weighted average
shares, diluted 293,417,000 (287,549,000) 5,868,000 270,931,000 (265,512,000) 5,419,000
=========== =========== ========= =========== =========== ===========
Basic earnings (loss)
per share $0.01 $0.31 $0.32 $(0.01) $(0.26) $(0.27)
=========== =========== ========= =========== =========== ===========
Diluted earnings
(loss) per share $0.01 $0.30 $0.31 $(0.01) $(0.26) $(0.27)
=========== =========== ========= =========== =========== ===========
9
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/A 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 Form 10-KSB/A annual report at June 30,
2005, 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.
Overview
Park City Group develops and markets patented computer software and profit
optimization consulting services that help its retail customers to reduce their
inventory and labor costs; the two largest controllable expenses in the retail
industry, while increasing the customer's sales and gross margin. The technology
has its genesis in the operations of Mrs. Fields Cookies co-founded by Randy
Fields, CEO of Park City Group, Inc. Industry leading customers such as The Home
Depot, Victoria's Secret, Limited Brands, Anheuser Busch Entertainment, Del
Monte, WaWa and Tesco Lotus benefit from the Company's software. Park City Group
products, Supply Chain Profit Link, C-Store Manager, Fresh Market Manager and
ActionManager are proven, patented technologies that address the needs of
retailers in store operations management, manufacturing and both durable goods
and perishable product management. Because the product concepts originated in
the environment of actual multi-unit-retail chain ownership, the products are
strongly oriented to an operation's bottom line results. The products are highly
pragmatic in their approach to standardizing and improving managerial actions.
The products use a fully developed, contemporary patented technology platform
that is not only capable of supporting existing offerings, but can also be
expanded to support related products.
The critical strength of the products is its artificial intelligence-like rules
based technology that allows customers to tailor the operating rules to
replicate the expert knowledge and practices of their most successful managers.
Rules based systems are applications in which the action to be taken is
determined by the rules defined by the user. As such, customers who use rules
based system determine what action the system will perform when an identified
condition occurs, usually based on the policies and procedures or "rules" of the
customer's business operations. In this way, the customer decomposes its
business operation into different rules or the way in which it wants certain
conditions or actions to be addressed. In comparison, in non-rules based
systems, the applications perform action as they have been designed and coded by
the vendor, regardless of the action the customer might wish to take.
Our corporate headquarters is located in Park City, Utah. All of our
development, and administrative activities are conducted at this location. We
sell our products through an internal sales team consisting of 9 people, which
includes all of the senior executives of the company.
We have experienced recent significant developments that we expect to have a
positive impact on our company, including the following:
o In October and November the company started 6 new pilots with
grocery and convenience store chains through our Cannon
Equipment contract that was signed during the first quarter of
this fiscal year.
o In December the company signed Dodge Stores, an existing
client to the second phase of their project.
Three Months Ended December 31, 2005 and 2004
Total revenues were $1,113,656 and $941,062 for the quarters ended December 31,
2005 and 2004, respectively, a 18% increase. Software license revenues were
$230,574 and $141,692 for the quarters ended December 31, 2005 and 2004,
respectively, a 63% increase. This increase is primarily attributable to
software license sales to existing customers, during the quarter ended December
31, 2005. Maintenance and support revenues were $606,311 and $658,589 for the
quarters ended December 31, 2005 and 2004, respectively, an 8% decrease. This
decrease is primarily attributable to two existing Action Manager customers
reducing their maintenance fees due to store closures. Software Maintenance and
support for Fresh Market Manager software increased by $45,365 during the
quarter ending December 31, 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 $50,250 and $20,550,
respectively for the quarters ending December 31, 2005 and 2004; an increase of
145%. This increase was the result of our success in the Perishable
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Manufacturing Channel where we have signed 4 new contracts in the last 6 months.
Consulting and other revenue was $226,521 and $120,231 for the quarters ended
December 31, 2005 and 2004, respectively, a 88% increase. This increase is due
to increased FMM implementation services resulting from the Cannon Equipment
agreements.
Cost of revenues, as a percent of total revenues was 37% for both quarters ended
December 31, 2005 and 2004, respectively.
Research and development expenses were $223,687 and $250,769 for the quarters
ended December 31, 2005 and 2004 respectively, an 11% 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. The company has also started to utilize off-shore resources to test and
transitioning existing products to the Java language.
Sales and marketing expenses were $310,433 and $382,329 for the quarters ended
December 31, 2005 and 2004, respectively, a 19% decrease. The company continues
to deploy a commissioned based sales force which allows them to maintain a lower
fixed level of costs to generate sales. The company also exhibited in one less
trade show in 2005.
General and administrative expenses were $316,438 and $668,821 for the quarters
ended December 31, 2005 and 2004, respectively a 53% decrease. There was an
$165,200 one time expense for the settlement of a legal case in the 2004.
Six Months Ended December 31, 2005 and 2004
Total revenues were $4,812,521 and $1,930,739 for the six months ended December
31, 2005 and 2004, respectively, a 149% increase in 2005 over the comparable
period for 2004. Software license revenues were $2,861,027 and $303,855 for the
six months ended December 31, 2004 and 2003, respectively, an 842% increase.
License sales in 2005 includes the Cannon Equipment license sale as referenced
in the companies 8K filed August 11, 2005. Maintenance and support revenues were
$1,214,757 and $1,293,683 for the six months ended December 31, 2005 and 2004,
respectively, a 6% decrease. This decrease is primarily attributable to a two
existing Action Manager customers reducing their maintenance fees due to store
closures. ASP revenues were $99,150 and $32,150 for the six months December 31,
2005 and 2004, respectively, a 208% increase in 2005 over the comparable period
for 2004. This increase is driven by the companies success selling FMM Category
Manager to perishable manufactures. Consulting and other revenue was $637,587
and $301,051 for the six months ended December 31, 2005 and 2004, respectively,
a 112% decrease. This increase is driven by the Cannon Equipment agreement and
increased Action Manager consulting during the first quarter of 2005
Research and development expenses were $459,596 and $506,850 for the six months
ended December 31, 2005 and 2004 respectively, a 9% decrease. This decrease
represents the general stabilization of both the Fresh Market Manager and Action
Manager 4X software and the company's use of off-shore resources.
Sales and marketing expenses were $593,633 and $675,723 for the six months ended
December 31, 2005 and 2004, respectively, a 12% decrease. This decrease was
driven by trade show cancellations due to weather events.
General and administrative expenses were $629,593 and $978,930 for the six
months ended December 31, 2005 and 2004, respectively, a 36% decrease. The 2004
expenses include a $165,200 one time expense for the settlement of a legal case.
Liquidity and Capital Resources
The Company had a working capital deficit at December 31, 2005 of $2,936,158.
The company had net loss of $354,763 versus a net loss of $1,000,602 for the
quarters ending December 31, 2005 and 2004 respectively. The Company had
interest expense of $200,440 and $287,974 for the quarters ending December 31,
2005 and 2004 respectively, a decrease of 30%. This decrease reflects the
company paying off 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.
Risk Factors
The Company is subject to certain other risk factors due to the organization and
structure of the business, the industry in which it competes and the nature of
its operations. These risk factors include the following:
11
Risk Factors Related to the Company's Operations
Continued net losses could impair the ability to raise capital.
The Company cannot accurately predict future revenues. The future marketing
strategy emphasizes sales activities for the Fresh Market Manager and
ActionManager applications, in the sales channels of Grocery, C-Store,
Specialty Retail, Financial Service and Food Manufactures. If this
marketing strategy fails, revenues and operations will be negatively
affected. All Park City Group applications are designed to be highly
flexible so that they can work in diverse business environments There is no
assurance that the markets will accept the Park City Group applications in
proportion to the increased marketing of these product lines, although
current business activity might suggest that the market opportunity and
acceptance of the Park City Group applications are positive. The Company
may face significant competition that may negatively affect demand for the
Park City Group applications. This includes the public's preference for
competitor's new product releases or updates over the Company's releases or
updates. The company is focusing our marketing effort on the development of
the new expanded sales channels, this will be increasing our marketing and
operational costs.
There can be no assurance that the Company will be able to generate significant
revenues or that it will achieve or maintain profitability, or generate revenues
from operations in the future. Management believes that success will depend upon
the ability to generate and retain new customers, which cannot be assured, and
in many circumstances, may be beyond the Company's control. The ability to
generate sales will depend on a variety of factors, including:
o Sales and marketing efforts as well as the co-marketing
efforts of strategic partners,
o The success of the new strategic sales channels o The length
of the sales cycle for our products
o The reliability and cost-effectiveness of services, and
o Customer service and support.
The Company faces competition from existing and emerging technologies that may
affect our profitability. The markets for our type of software products and that
of our competitors are characterized by: (i) Development of new software,
software solutions, or enhancements that are subject to constant change, (ii)
Rapidly evolving technological change, (iii) Unanticipated changes in customer
needs.
Because these markets are subject to such rapid change, the life cycle of the
products is difficult to predict; accordingly, the Company is subject to
following risks:
o Whether or how the Company will respond to technological
changes in a timely or cost-effective manner,
o Whether the products or technologies developed by competitors
will render the products and services less attractive to
potential buyers or shorten the life cycle of the Company's
products and services, and
o Whether products and services will achieve and sustain market
acceptance.
If the Company is unable to adapt to the constantly changing markets and to
continue to develop new products and technologies to meet customers' needs,
revenues and profitability will be negatively affected. Future revenues are
dependent on the successful development and licensing of new and enhanced
versions of the products and potential product offerings. If the Company fails
to successfully upgrade existing products and develop new products or the
product upgrades and new products do not achieve market acceptance, revenues
will be negatively impacted.
Operating results may fluctuate, which makes it difficult to predict future
performance.
Management expects a portion of the revenue stream to come from license sales,
maintenance and services charged to new customers, which will fluctuate in
amounts because software sales to retailers tend to be cyclical in nature. In
addition, the Company may potentially experience significant fluctuations in
future operating results caused by a variety of factors, many of which are
outside of its control, including:
o Demand for and market acceptance of new products,
o Introduction or enhancement of products and services by the
Company or its competitors,
o Capacity utilization,
o Technical difficulties, system downtime,
o Fluctuations in data communications and telecommunications
costs,
o Maintenance subscriber retention,
o The timing and magnitude of capital expenditures and
requirements,
o Costs relating to the expansion or upgrading of operations,
facilities, and infrastructure,
o Changes in pricing policies and those of competitors,
o Changes in regulatory laws and policies, and
o General economic conditions, particularly those related to the
information technology industry.
12
Because of the foregoing factors, Management expects future operating results to
fluctuate. As a result of such fluctuations, it will be difficult to predict
operating results. Period-to-period comparisons of operating results are not
necessarily meaningful and should not be relied upon as an indicator of future
performance. In addition, a relatively large portion of the Company's expenses
will be relatively fixed in the short-term, particularly with respect to
facilities and personnel. Therefore, future operating results will be
particularly sensitive to fluctuations in revenues because of these and other
short-term fixed costs.
The Company may be unable to collect receivables in amounts previously
estimated.
In accordance with United States generally accepted accounting principles, the
Company has established allowances against its receivables for the estimated
uncollectible portion of receivables. However, the Company may experience
collection rates below its established allowances, which could reduce the amount
of available funds and require additional allowances. There can be no assurance
that the Company will be able to collect its receivables in sufficient amounts.
Failure to collect adequate amounts of its receivables could materially
adversely affect the business and results of operations.
Some competitors are larger and have greater financial and operational resources
that may give them an advantage in the market.
Many of the Company's competitors are larger and have greater financial and
operational resources. This may allow them to offer better pricing terms to
customers in the industry, which could result in a loss of potential or current
customers or could force the Company to lower prices. Any of these actions could
have a significant effect on revenues. In addition, the competitors may have the
ability to devote more financial and operational resources to the development of
new technologies that provide improved operating functionality and features to
their product and service offerings. If successful, their development efforts
could render the Company's product and service offerings less desirable to
customers, again resulting in the loss of customers or a reduction in the price
the Company can demand for our offerings.
The Company needs to hire and retain qualified personnel to sustain its
business.
The Company is currently managed by a small number of key management and
operating personnel. There are no employment agreements with most of the
employees. Future success depends, in part, on the continued service of key
executive, management, and technical personnel, some of whom have only recently
been hired, and the ability to attract highly skilled employees. If key officers
or employees are unable or unwilling to continue in their present positions,
business could be harmed. From time to time, the Company has experienced, and
expects to continue to experience, difficulty in hiring and retaining highly
skilled employees. Competition for employees in the industry is intense. If the
Company is unable to retain key employees or attract, assimilate or retain other
highly qualified employees in the future, it may have a material adverse effect
on the business and results of operations.
The Company is dependent on the continued participation of certain key
executives and personnel to effectively execute its business plan and strategies
and must effectively integrate its management team.
The business is dependent on the continued services of its founder and Chief
Executive Officer, Randall K. Fields. Should the services of Mr. Fields be lost,
operations will be negatively impacted. The Company currently maintains three
key man insurance policies on Mr. Fields life in the amount of $10,000,000 each.
The beneficiary of each policy is (1) to the Fields Trust, (2) to Park City
Group, Inc. and (3) to the Fields Trust. The third policy is a new policy which
will replace the first policy as soon as all contingencies and waiting periods
have been removed from the new policy. The loss of the services of Mr. Fields
would have a materially adverse effect on the business.
The Company depends on the ability of its management team to effectively execute
its business plan and strategies. During the last year, key executives have had
to forgo a portion of their salary, and as such are at risk for their continued
commitment. If the management group is unable to effectively integrate its
activities, or if the Company is unable to integrate new employees into its
operations, its business plan and strategies will not be effectively executed
and operations could suffer.
The business is currently dependent on a limited customer base; should any of
these customer accounts be lost, revenues will be negatively impacted.
The Company expects that existing customers will continue to account for a
substantial portion of total revenues in future reporting periods. The ability
to retain existing customers and to attract new customers will depend on a
variety of factors, including the relative success of marketing strategies and
the performance, quality, features, and price of current and future products.
Accordingly, if customer accounts are lost or customer orders decrease, revenues
and operating results will be negatively impacted. The company has experienced
the loss of long term maintenance customers due to the high reliability of the
product, and in some cases, the customer deciding to replace Park City Group
applications. The company continues to focus on these long term clients to
provide new functionality and applications to meet their business needs. The
company also expects to lose some maintenance revenue due to consolidation of
industries or customer operational difficulties that lead to their reduction of
size. In addition, future revenues will be negatively impacted if the Company
fails to add new customers that will make purchases of its products and
services.
13
The Company may be unable to raise necessary funds for operations.
The Company anticipates that we need to raise additional funds to meet cash flow
and capital requirements. In the past, the Company has frequently experienced
cash flow shortages because not enough cash has been generated from operations
to cover expenses. Raising additional funds will be necessary to meet capital
needs. There can be no assurance that such financing will be available in
amounts or on acceptable terms, if at all. Further, the lack of tangible assets
to pledge could prevent the Company from establishing debt-based sources of
financing. The inability to raise necessary funding would adversely affect the
ability to successfully implement the business plan. There can be no assurance
that the Company will be able to obtain additional financing to meet the current
or future requirements on satisfactory terms, if at all. Failure to obtain
sufficient capital could materially adversely affect the business and results of
operations.
The Company faces risks associated with proprietary protection of its software.
The Company's success depends on its ability to develop and protect existing and
new proprietary technology and intellectual property rights. It seeks to protect
its software, documentation and other written materials primarily through a
combination of patents, trademark, and copyright laws, confidentiality
procedures and contractual provisions. While the Company has attempted to
safeguard and maintain its proprietary rights, there are no assurances there it
will be successful in doing so. Competitors may independently develop or patent
technologies that are substantially equivalent or superior.
Despite efforts to protect proprietary rights, unauthorized parties may attempt
to copy aspects of the Company's products or obtain and use information regarded
as proprietary. Policing unauthorized use of the Company's products is
difficult. While the Company is unable to determine the extent to which piracy
of its software exists, software piracy can be expected to be a persistent
problem, particularly in foreign countries where the laws may not protect
proprietary rights as fully as the United States. The Company can offer no
assurance that its means of protecting its proprietary rights will be adequate
or that its competitors will not reverse engineer or independently develop
similar technology.
The Company incorporates third party software providers' licensed
technologies into its products; the loss of these technologies may
prevent sales of its products or lead to increased costs.
The Company now licenses, and in the future will license, technologies from
third party software providers that are incorporated into its products. The loss
of third-party technologies could prevent sales of products and increase costs
until substitute technologies, if available, are developed or identified,
licensed and successfully integrated into the products. Even if substitute
technologies are available, there can be no guarantee that the Company will be
able to license these technologies on commercially reasonable terms, if at all.
The Company may discover software errors in its products that may
result in a loss of revenues or injury to its reputation.
Non-conformities or bugs ("errors") may be found from time to time in the
existing, new or enhanced products after commencement of commercial shipments,
resulting in loss of revenues or injury to the Company's reputation. In the
past, the Company has discovered errors in its products and, as a result, has
experienced delays in the shipment of products. Errors in its products may be
caused by defects in third-party software incorporated into the products. If so,
these defects may not be able to be fixed without the cooperation of these
software providers. Since these defects may not be as significant to the
software provider as they are to the Company, it may not receive the rapid
cooperation that may be required. The Company may not have the contractual right
to access the source code of third-party software and, even if it does have
access to the source code, it may not be able to fix the defect. Since its
customers use its products for critical business applications, any errors,
defects or other performance problems could result in damage to the customers'
business. These customers could seek significant compensation from the Company
for their losses. Even if unsuccessful, a product liability claim brought
against the Company would likely be time consuming and costly.
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14
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company maintains disclosure controls and procedure that
are designed to ensure that information required to be
disclosed in the Company's reports filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed summarized and reported within the
specified time periods. As of the end of the period covered by
this report, the Company carried out an evaluation, under the
supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of these disclosure controls and procedures pursuant
to Rules 13a-15 and 15d-15(e) of the Exchange Act. Based on
the evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective.
While the Company believes 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 pre-1999, fully
aged, and fully depreciated 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. As
previously stated in form 10-KSB/A for the Fiscal Year Ended,
dateYear2005Day30Month6June 30, 2005 and prior periodic
filings, the nature of the deficiency is a result of
disparities in the physical identification of fully
depreciated Pre-1999, PPE and their retention in the fixed
asset system. The Company is in the process of reconciling
on-hand physical assets (computer & office equipment) still in
use and those necessary to be disposed of within the fixed
asset system. The Company has identified and purchased Sage
FAS 50 Fixed Asset Software and is in the process to update
its input into the new software in order to clarify the amount
of fully depreciated assets to be disposed of in
reconciliation to those physically on hand and still used in
operations. The Company maintains that there is no material
weakness or misstatement and expects to fully reconcile the
disparities by year's end.
(b) Changes in internal controls.
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, Company's internal control over financial reporting.
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15
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
o In July 2005, 3,115 shares of common stock were issued per
anti-dilution agreement with the CEO.
o In August 2005, 2,688 shares of common stock were issued to
an employee in lieu of cash compensation.
o In November 2005, 14,667 shares of common stock were issued to
management in lieu of cash compensation.
o In November 2005, 10,500 shares of common stock were issued to
board member is lieu of cash compensation.
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits
Exhibit 31.1 Certification of Principal Executive Officer Pursuant
to Section 302 of the Sarbannes-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal 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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16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PARK CITY GROUP, INC.
Date: September 13, 2006 By /s/ Randall K. Fields
---------------------------
Principal Executive Officer & CEO
Chairman of the Board and Director
Date: September 13, 2006 By /s/ William Dunlavy
---------------------------
William Dunlavy
Chief Financial Officer and
Secretary (Principal
Financial Officer)
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17