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, 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.
Outstanding as of
Class November 12, 2004
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Common Stock, $.01 par value 271,856,326
2,368 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, 2004 (Unaudited) 3
Consolidated Condensed Statements of Operations for the
Quarters Ended September 30, 2004 and 2003 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended September 30, 2004 and 2003 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operations 7
Item 3 Controls and Procedures 8
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
(Balance of the page intentionally left blank)
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PARK CITY GROUP, INC.
Consolidated Condensed Balance Sheet (Unaudited)
September 30, 2004
Assets
Current assets:
Cash $ 63,150
Receivables, net of allowance for doubtful accounts 1,268,724
Prepaid expenses and other current assets 205,727
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Total current assets 1,537,601
Property and equipment, net of accumulated depreciation and amortization 139,185
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Other assets:
Deposits and other assets 32,056
Capitalized software costs, net of accumulated amortization 531,758
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Total other assets 563,814
Total assets $ 2,240,600
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Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 332,908
Accrued liabilities 715,672
Deferred revenue 973,661
Current portion of long-term debt and capital lease obligations 35,998
Related party lines of credit 200,000
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Total current liabilities 2,258,239
Long-term liabilities
Capital lease obligations, less current portion 12,682
Long-term debt, net of discounts of $139,583 2,205,417
Long-term related party debt, net of discount of $161,162 3,135,244
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Total long-term liabilities 5,353,343
Total liabilities 7,611,582
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Commitments and contingencies -
Stockholders' deficit:
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued
- Common stock , $0.01 par value, 300,000,000 shares authorized;
271,856,326 issued and outstanding 2,718,563
Additional paid-in capital 9,513,242
Accumulated deficit (17,602,787)
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Total Stockholders' deficit (5,370,982)
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$ 2,240,600
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See accompanying notes to consolidated condensed financial statements.
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
For the Quarters Ended September 30, 2004 and 2003
September 30, 2004 September 30, 2003
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Revenues:
Software licenses $ 162,163 $ 534,388
Maintenance and support 635,094 528,478
Consulting and other 192,420 137,764
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Total revenues 989,675 1,200,630
Cost of revenues 300,154 523,980
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Gross margin 689,521 676,650
Operating expenses:
Research and development 256,081 389,751
Sales and marketing 293,394 238,120
General and administrative 310,109 332,319
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Total operating expenses 859,584 960.190
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(Loss) income from operations (170,063) (283,540)
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Interest expense (274,558) (427,473)
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Loss before income taxes (444,621) (711,013)
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Income tax (expense) benefit
Current - -
Deferred - -
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Net loss $ (444,621) $ (711,013)
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Weighted average shares, basic and diluted 269,105,000 219,724,000
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Basic and Diluted earnings (loss) per share $ (0.00) $ (0.00)
============ ============
See accompanying notes to consolidated condensed financial statements.
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Quarters Ended September 30, 2004 and 2003
September 30, 2004 September 30, 2003
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Cash Flows From Operating Activities:
Net loss $ (444,621) $ (711,013)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation and amortization 84,321 83,762
Stock issued for services and expenses 211,516 133,435
Amortization of debt discounts 42,355 159,849
Decrease (increase) in:
Trade receivables (125,567) 328,796
Prepaid and other assets (6,615) 9,645
Increase (decrease) in:
Accounts payable 5,737 237,210
Accrued liabilities (105,362) (124,053)
Deferred revenue (138,254) (456,043)
Accrued interest, related party 115,886 32,513
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Net cash (used in) operating activities (427,936) (305,899)
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Cash Flows From Investing Activities:
Purchase of property and equipment (8,724) (3,424)
Capitalization of software costs - -
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Net cash used in investing activities (8,724) (3,424)
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Cash Flows From Financing Activities:
Net (decrease) increase in line of credit 200,000 252,000
Payments on notes payable and capital leases (13,007) (6,302)
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Net cash provided by financing activities 186,993 245,698
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Net decrease in cash and cash equivalents (249,667) (63,625)
Cash at beginning of period 312,817 69,305
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Cash at end of period $ 63,150 $ 5,680
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See accompanying notes to consolidated condensed financial statements.
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PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2004
Note 1. Unaudited Financial Statements
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The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for quarterly financial
statements, and include all 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, 2004 Annual Report on
Form 10-KSB. The results of operations and cash flow for the quarter ended
September 30, 2004 are not necessarily indicative of the results of operations
and cash flows for the fiscal year ended June 30, 2005.
Certain 2003 amounts have been reclassified to conform to 2004 classifications.
Note 2 - Stock-Based Compensation
---------------------------------
At September 30, 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 for the
quarter ended September 30, 2004 and 2004:
Quarter ended
September 30, September 30,
2004 2003
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Net loss available to common shareholders, as reported $ (444,621) $ (711,013)
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 fair value based method
for all awards, net of related tax effects (14,325) (49,500)
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Net loss - pro forma $ (458,946) $ (760,513)
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Loss per share:
Basic and diluted - as reported $ (0.00) $ (0.00)
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Basic and diluted - pro forma $ (0.00) $ (0.00)
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Note 3 - Liquidity
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As shown in the consolidated financial statements, the Company incurred losses
for the quarters ended September 30, 2004 and 2003 and had current liabilities
in excess of current assets at September 30, 2004, although the Company
generated positive cash from operations for the years ended June 30, 2004 and
2003.
The Company believes that cash flow 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, 2005. The financial statements do not reflect any adjustments should
the Company's anticipated operations not be achieved.
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Note 4 - Related Party Transactions
-----------------------------------
The Company entered into a Securities Purchase Agreement dated as of August 26,
2004 with its President, James Horton. The Agreement calls for the purchase of
5,714,285 shares of common stock and a warrant to purchase up to 17,142,855
shares of common stock at $0.07 per share are immediately exercisable and expire
August 2009. Payment for the purchase is in the form of a Promissory Note in the
amount of $400,000 with $150,000 due December 15, 2004 and the balance due
August 26, 2005, bearing interest at the rate of 7% per annum. The Company has
not issued the shares of common stock as of September 30, 2004.
The Company's CEO has made loans to the Company to cover short term cash needs
pursuant to a line of credit promissory note payable. Repayments are made as
funds are available, with a due date of June 15, 2005 and interest is at 12%.
The balance at September 30, 2004 is $200,000.
Note 5 - Supplemental Cash Flow Information
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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 $22,464 and $7,488 was amortized into interest expense during
the quarters ended September 30, 2003 and 2004, respectively. The value of the
shares issued for the finders fee was recorded as a prepaid expense, of which
$19,048 and $6,499 was amortized into expense during the quarter ended September
30, 2003 and 2004, respectively. 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 paid $40,000 cash and issued 1,000,000 shares of
common stock valued at $80,000. 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 $20,000 was amortized to interest expense during the quarter ended
September 30, 2004. Due to the extension the original warrant and finders fee
have been adjusted to amortize over the remaining life of the note payable.
The fair value of shares issued in connection with the $345,000 note payable
funding from Riverview obtained in December 2002 as a condition of the Whale
Investment, Ltd. funding was recorded as a discount on the note payable, of
which $2,143 and $2,143 was amortized into interest expense during the quarter
ended September 30, 2003 and 2004, respectively.
For the quarters ended September 30, 2004 and 2003 the Company paid interest in
cash of $109,027 and $105,013, respectively. No cash was paid for income taxes.
Note 6 - Accrued liabilitiesAccrued liabilities consists of the following as of
September 30, 2004:
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Accrued interest $ 466,827
Payroll 223,459
Other 25,386
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$ 715,672
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Note 7 - Net Loss Per Common Share
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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 74,645,203 and 99,993,725 shares of common stock as of
September 30, 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.
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.
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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
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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, 2004 and 2003
----------------------------------------------
Total revenues were $989,675 and $1,200,630 for the quarters ended September 30,
2004 and 2003, respectively, a 18% decrease. Software license revenues were
$162,163 and $534,388 for the quarters ended September 30, 2004 and 2003,
respectively, a 70% decrease. This decrease in license revenue is substantially
due to the change to licensing the software using the PAYGo (Pay-As-You-Go)
option which is the hosted or ASP (Application Service Provider) subscription
model rather that the one-time direct licensing model. The subscription model
agreement is for a one to three year period where the customer pays on a monthly
basis. The result of moving to the subscription model is a smaller license sale
in the short term but over the duration of the agreement the revenues will be
evenly distributed and recurring revenues will be increased. License sales in
2004 were attributed to two new and one existing customer. Additionally, the
Company signed four (4) customers to the monthly subscription service. Revenues
for these sales are recognized on a monthly basis similar to maintenance.
Maintenance and support revenues were $635,094 and $528,478 for the quarters
ended September 30, 2004 and 2003, respectively, a 20% increase. This increase
is primarily attributable to maintenance contracts on Fresh Market Manager
software and increased maintenance on additional locations for an existing
customer as well as ASP services for the new PAYGo service. Consulting and other
revenue was $192,420 and $137,764 for the quarters ended September 30, 2004 and
2003, respectively, a 40% increase. This increase is spread evening between
increased Action Manager and FMM implementation services.
Cost of revenues, as a percent of total revenues was 30% and 44% for the
quarters ended September 30, 2004 and 2003, respectively. This decrease is
primarily attributable to cost control measures and expense reductions
implemented in October 2003, the streamlining of implementation and a lower than
expected cost for maintenance revenue.
Research and development expenses were $256,081and $389,751 for the quarters
ended September 30, 2004 and 2003 respectively, a 34% decrease. This decreased
expense reflects the fact that both software suites have had major releases
completed and the streamlining of our development process.
Sales and marketing expenses were $293,3947 and $238,120 for the quarters ended
September 30, 2004 and 2003, respectively, a 23% increase. This increase
reflects the managements focus on sales and attending target industry trade
shows. The Company attended 3 trade shows in quarter ending September 30, 2004
as opposed to none in same quarter 2003.
General and administrative expenses were $310,109 and $332,319 for the quarters
ended September 30, 2004 and 2003, respectively, a 7% decrease. This decrease is
primarily attributable to cost control measures and expense reductions
implemented in October 2003.
Interest expense was $274,558 and $427,473 for the quarters ended September 20,
2004 and 2003, respectively, a 36% decrease. This decrease is primarily
attributable to fewer debt discounts amortized into interest expense in the
current year as compared to the prior year.
Liquidity and Capital Resources
-------------------------------
The Company had a working capital deficit at September 30, 2004 and incurred an
operating loss for the quarter then ended
The Company was able to decrease the loss for the quarter ending September 30,
2004 as compared to the same quarter in 2003 by approximately $80,000 despite
reduced sales due to the sales strategy shift to the PAYGo subscription model.
In addition the Company had an interest expense of $274,558 and $427,473 for the
quarters ending September 30, 2004 and 2003 respectively, a decrease of 36%. The
Company may be impacted in current liquidity due to the fact that the Company
has approximately $412,000 of accounts receivable that are not due until May 1,
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. Because essentially all of the
Company's assets are pledged to secure existing debt, additional debt financing
may be unavailable. 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.
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, 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.
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(b) Changes in internal controls.
There were no significant changes in Park City Group's internal controls or in
other factors that could significantly affect Park City Group's disclosure
controls and procedures subsequent to the Evaluation Date, nor any significant
deficiencies or material weaknesses in such disclosure controls and procedures
requiring corrective actions. As a result, no corrective actions were taken.
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.
Approximately two weeks following the filing of the complaint against The Yankee
Companies, the Company was served with a complaint by Yankee Companies and
others, alleging sales of unregistered securities, securities fraud,
registration violations, fraud negligent misrepresentation, and breach of loan
agreement. On or about February 5, 2003 the case was dismissed based on the fact
that the Utah case filed by the Company was filed first and all issues can be
argued in that case. That case is still in the discovery stage with a trial date
of April 18, 2005. Settlement efforts are on-going.
Item 2 - Changes in Securities
------------------------------
o In July 2004 the Company issued 1,000,000 share of common stock as
consideration for extension of payment on the Note Payable to Whale
Investments.
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.
Item 5 - Other Information
--------------------------
Material contract - employment agreement of James Horton, President and COO
included in this document as Exhibit 10.
Item 6 - Exhibits and Reports on Form 8K (for the period 7/1/04 through 9/30/04)
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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 10.1 Material Contract - Employment Agreement of James
Horton, President and COO
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: November 16, 2004 PARK CITY GROUP, INC
By /s/ Randall K. Fields
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Randall K. Fields, Chairman and
Chief Executive Officer
Date: November 16, 2004 By /s/ William Dunlavy
--------------------------------
William Dunlavy
Chief Financial Officer
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