10-KSB
PERIOD ENDING 6/30/02
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
June 30, 2002
Commission file number
000-03718
PARK CITY GROUP, INC.
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(Exact name of registrant as specified in its charter)
Nevada 37-1454128
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
333 Main Street, Park City, Utah 84060
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(Address of principal executive offices)
(435) 649-2221
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(Registrant's telephone number, including area code)
Fields Technologies, Inc.; 333 Main Street # 300
Park City, UT 84060,
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(Former name and former address if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
($0.0001 par value per share
Title of each Class Name of each exchange on which registered
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Common Stock, $.01 Par Value Over-the-Counter Bulletin Board
Outstanding as of February 18, 2003
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199,719,400 (2,326 shareholders)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. (1) [ ] Yes [X] No; (2) [X] yes [ ] No.
10-QSB for period ending 9/30/02 was due November 14, 2002. An extension was
filed on November 15, 2002.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended June 30, 2002 were $3,869,420.
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately 2,056,339 calculated using a closing price of $0.01
per share on February 18, 2003. As of February 18, 2003 there were issued and
outstanding 199,719,400 shares of the Company's common stock.
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED JUNE 30, 2002
PART I
Item 1 Description of Business 4
Item 2 Description of Properties 8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 9
Item 6 Management's Discussion and Analysis or Plan of Operation 11
Item 7 Financial Statements 17
PART III
Item 9 Directors, Executive Officers, Promoters and Control 18
Item 10 Executive Compensation 20
Item 11 Security Ownership of Certain Beneficial owners and Management 23
Item 12 Certain Relationships and Related Transactions 24
Item 13 Exhibits and Reports on Form 8-K 25
Signatures 26
Consolidated Financial Statements June 30, 2002 and
June 30, 2001
Independent Auditor's Report 30
Consolidated Balance Sheet as of June 30, 2002 31
Consolidated Statement of Operations 32
Consolidated Statement of Stockholders' Deficit 33
Consolidated Statement of Cash Flows 34
Notes to Consolidated Financial Statements June 30, 2002
and June 30, 2001 35
Exhibit 99.1 Certification pursuant to 18 U.S.C. Sec. 1350
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99.2 8-K dated December 31, 2002
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
2
Forward-Looking Statements
This annual report on Form 10-KSB 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 the risk factors set forth below and
elsewhere in this report. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Statements made
herein are as of the date of the filing of this Form 10-KSB 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 disclaims any obligation, to update any forward-looking statements
to reflect occurrences, developments, unanticipated events or circumstances
after the date of such statement.
PART I
Item 1. Description of Business
General
The Company was incorporated in the State of Delaware on December 8, 1964 as
Infotec, Inc., From June 20, 1999 to approximately June 12, 2001, it was known
as Amerinet Group.com, Inc.
On June 13, 2001, the Company entered into a "Reorganization Agreement" with
Randall K. Fields and Riverview Financial Corporation (hereafter referred to as
"Reorganization Agreement,") whereby it acquired Park City Group, Inc., A
Delaware corporation ("PCG"), which became a wholly owned subsidiary. In
connection with the Reorganization, the then Board of Directors resigned and was
replaced by the Board of Directors of PCG. The stockholders of PCG gained voting
control of the common stock of the company and the name was changed from
Amerinet Group.com, Inc. to Fields Technologies, Inc.
We conduct our operations through PCG which was incorporated in the State of
Delaware in May 1990. PCG on April 5, 2001, acquired its wholly owned
subsidiary, Fresh Market Manager, LLC ("FMM"), which is a Limited Liability
Company formed in the State of Utah. PCG has conducted its operations since
1990. Through PCG, we provide, develop, license and deliver consulting services
through our various software applications identified as "ActionManager" and
"Fresh Market Manager."
On August 7, 2002, Fields Technologies, Inc., (OTCBB:FLDT) changed its name from
Fields Technologies, Inc., to Park City Group, Inc., and reincorporated in
Nevada. In this Annual Report Form 10-KSB when the terms "we", "Company" or
"Park City Group" are used, it is referring to the Park City Group, Inc., a
Nevada corporation as well as to Fields Technologies, Inc., the Delaware
corporation which was reincorporated in Nevada under the name of the Park City
Group, Inc. Our stock trades under the symbol PKCY.
Our principal executive offices are located at 333 Main Street, P.O. Box 5000,
Park City, Utah 84060. Our telephone number is (435) 649-2221. Our website
address is http://www.parkcity.com
We have not been involved in any bankruptcy, receivership, or similar
proceeding.
Business
Park City Group is an established software company providing business operation
management solutions to the retailing sector to improve efficiency and
competitive ability. The ActionManager and Fresh Market Manager applications are
offered as a superior set of software solutions to retailers in the store
operations management and perishable product management areas. Because its
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. Finally, the products are executed on a fully
developed, contemporary technology platform that is not only capable of
supporting existing offerings, but can also be expanded to support related
products.
The critical strength of our products is the artificial intelligence-like rules
based technology that allows our customers to tailor the operating rules to
replicate the expert knowledge and practices of their most successful managers.
Our rules based systems are applications in which the action to be taken is
determined by the rules defined by the user. As such, our customers who use our
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.
3
ActionManager
Our ActionManager applications are intended to replace costly paper-based and
manual processes with systems that substantially reduce time spent on
administrative tasks, non-productive (non-selling) labor costs, and excess
headcount in the corporate office while insuring that each geographically
distributed location adheres to the company's defined operational standards. Our
ActionManager applications provide an automated method for managers to plan,
schedule, and administer virtually every administrative task at store-level. In
addition to automating the bulk of all administrative processes, ActionManager
also provides the local manager with a real-time "dashboard" view of the
business, as well as a "cockpit management" type alert system to notify the
manager when something is or is not to be planned, and suggests best practice
advice as to what course of action to be taken. By automating a great deal of
the "process" and administrative burden of management, ActionManager allows
management, at all levels, to devote more time to customer-related and employee
related activities and to improve their over-all planning and decision making.
The use of the ActionManager applications are intended to result in cost savings
and improved staff and customer focus in the store. ActionManager applications
have been marketed to large, as well as small to mid-size retailers with 50 or
more locations.
ActionManager is a suite of software applications grouped into three distinct
solutions or "workbenches." Each ActionManager Workbench incorporates the core
ActionBase and ActionBoard technologies that allow a multi-unit organization to
embed a company's "best practice" solutions into the system.
ActionBase
ActionBase provides a set of utilities for menu creation, maintenance
and security. ActionBase is designed to efficiently and effectively
manage and control the software deployed to remote locations and insure
that all locations have the same consistent interfaces.
ActionBoard
ActionBoard is a user defined, rules based, and real-time display of
events requiring immediate managerial attention. ActionBoard provides
best practices advice to location managers through the critical alerts
process and the recommended action to be taken. This is accomplished by
embedding corporate rules and practices in an application that
cross-references and consolidates operating data.
ActionBoard is intended to be used by employees, managers, and the
company as a whole. It displays operational information and guides
employee and manager action. ActionBoard has been designed to provide
the following potential advantages to employees:
o Alerts managers to issues that require immediate attention
o Gives advice on actions to be taken
o Maintaining employees focus on essential activities and tasks
to ensure that a critical task is not overlooked or delayed
o Improving performance quality and consistency
o Improving employee response time and level of contribution o
Spotlighting achievements and successes for management
The following describes our ActionManager software workbenches and the
individual applications within them:
Information Manager's Workbench
The Information Manager's Workbench consists of the applications:
ActionForm, ActionMail, CashSheet, ScoreTracker, Internet Mail Gateway,
Action Gatekeeper, ReadyReference, and ReportBuilder which automate data
collection and distribution, insuring consistent data flow both to and from
the locations and the corporate office.
Labor Manager's Workbench
The Labor Manager's Workbench consists of the applications: Scheduler,
Forecaster and TimeMeter. These applications are designed to address the
problems of managing staff and insuring that staff is performing the right
tasks at the right time and in the right place. Labor requirements are
determined by analyzing the results created by the Forecaster and
compliance to schedules and monitoring time punches are provided by the
TimeMeter application.
HR Manager's Workbench
The HR Manager's workbench consists of the applications: SmartHire,
Interactive Tutor, Checkup, and HRAction, which provide an automated
process for personnel selection, training, and retention. These
applications are intended to assist managers by automating many of the time
consuming tasks that are associated with the hiring and training process.
4
Fresh Market Manager
Fresh Market Manager is a fully integrated system for managing perishable
grocery departments such as deli, bakery, food service, meat, seafood and
produce. This software enables item management and category analysis by
exception, with particular emphasis on managing the production processes taking
place within the store. In addition, this application provides accurate cost of
goods identification and sales profitability analysis to determine gross profit
and net profit by item.
Fresh Market Manager provides corporate, store and department managers with
total item information, allowing extensive category analysis of perishable
products. Category and store department managers can leverage this information
to increase sales, decrease shrinkage, and improve overall gross profit.
Combined with demand forecasting and automated production, Fresh Market Manager
is designed to ensure that variety and item freshness increase, while overall
waste decreases.
Focusing initially on perishable inventory needs, the applications gather point
of sale and production data, especially in areas where better product delivery
based on real demand, can help eliminate unnecessary waste, and can improve
"right product" availability. The applications assist in the timely ordering of
materials and provides real time demand management (based on patented
forecasting algorithms) by using alerting functions.
Store management may use this software application for:
o Assortment planning to respond to customer preferences for
variety and selection within the store
o Forecasting, to attempt to improve sales by anticipating the
expected demand
o Production planning, to build produced items efficiently, when
they are needed
o Item management, to quickly and accurately enter transactions
into the system
o Reporting, to see what the business is doing now and make
decisions based on current information
Corporate management may use the Fresh Market Manager software to control
detailed data through well-defined information groupings to:
o Determine the product mix for the enterprise at any level of
detail
o Create rules that drive production scheduling to meet the
company's specific needs
o Apply labor standards for production and for category
management
Our Fresh Market Manager applications are Cost Control Monitor, Demand Forecast
and Production Planner, Inventory Manager, and Alert Advisor.
Cost Control Monitor
This application assists managers in determining the amount of production
waste as well as losses from throwaways and markdowns.
Demand Forecast and Production Planner
Demand Forecast and Production Planner: (a) delivers assortment plans and
production schedules; (b) delivers corporate standards for core items; (c)
assists managers in selecting customer/market driven items; and (d)
develops a daily production plan based on forecasted needs. This
application is intended to assist an organization in making the right
product in the right quantity to improve the profitability of the
perishable business by effective production planning and accurate
assortment planning.
Inventory Manager
Inventory Manager provides cost control and inventory management of
perishable product ingredients (i.e. raw materials). It includes
computer-assisted ordering and item receiving modules. Inventory Manager is
intended to address the needs of businesses to control the cost of
inventory while minimizing lost sales from items not produced due to out of
stock ingredients.
Alert Advisor
Alert Advisor delivers demand monitoring, exception analysis and production
schedule revisions to relevant managers on a real-time basis.
Business Operations Resource Group (consulting services)
We provide consulting services ranging from accelerated implementations
(consultation support in conjunction with the customer's staff), to project
level advisory consulting. Focused primarily on the implementation of the
ActionManager and Fresh Market Manager applications, the professional services
consultants assist customers in decision-making and implementing the software.
5
Accelerated Implementation Strategy
Using experience and industry expertise, our team focuses on identifying
the company's mission, crucial business elements within the client company,
developing a rapid implementation program, and providing the customer with
continued assistance. The elements of this strategy include:
o On-site support for pre-implementation analysis of
requirements
o Consultants to augment the customer's project team
o Defined project plans with time lines created to meet customer
requirements
o On-site support for installation and verification
o Completion and delivery of post-implementation and return on
investment analysis
Implementation Assistance Services We also provide services to our
customers including:
o Project management and consulting support for customer project
teams
o Business rule recommendations and tailoring
o Technical systems analysis, assessment and configuration
o On-site training and educational services
Patents and Proprietary Rights
We own or control 8 U.S. patents, 3 patent pendings, 8 U.S. trademarks and 37
U.S. copyrights relating to our software technology. We have 14 international
patents and patent applications pending. The patents referred to above are
continuously reviewed and renewed as their expiration dates come due.
Our policy is to seek patent protection for all developments, inventions and
improvements that are patentable and have potential value to the Company and to
protect as trade secrets other confidential and proprietary information. We
intend to vigorously defend our intellectual property rights to the extent our
resources permit.
Our future success may depend upon the strength of our intellectual property.
Although we believe that the scope of our patents/patent applications are
sufficiently broad to prevent competitors from introducing devices of similar
novelty and design to compete with our current products and that such patents
and patent applications are or will be valid and enforceable, there are no
assurances that if such patents are challenged, this belief will prove correct.
We have, however, successfully defended one of these patents in two separate
instances and as such, have some level of confidence in our ability to maintain
our patents. In addition, patent applications filed in foreign countries and
patents granted in such countries are subject to laws, rules and procedures,
which differ from those in the U.S. Patent protection in such countries may be
different from patent protection provided by U.S. Laws and may not be as
favorable to us. We plan to timely file international patents in all countries
in which we seek market share.
We are not aware of any patent infringement claims against us; however, there
are no assurances that litigation to enforce patents issued to us, to protect
proprietary information owned by us, or to defend against our alleged
infringement of the rights of others will not occur. Should any such litigation
occur, we may incur significant litigation costs, our resources may be diverted
from other planned activities, and result in a materially adverse effect on our
results of operations and financial condition.
We rely on a combination of patent, copyright, trademark, and other laws to
protect our proprietary rights. There are no assurances that our attempted
compliance with patent, copyrights, trademark or other laws will adequately
protect our proprietary rights or that we will have adequate remedies for any
breach of our trade secrets. In addition, should we fail to adequately comply
with laws pertaining to our proprietary protection, we may incur additional
regulatory compliance costs.
Government Regulation and Approval
Like all businesses, we are subject to numerous federal, state and local laws
and regulations, including regulations relating to patent, copyright, and
trademark law matters.
Cost of Compliance with Environmental Laws
We currently have no costs associated with compliance with environmental
regulations. We do not anticipate any future costs associated with environmental
compliance; however, there can be no assurance that we will not incur such costs
in the future.
6
Research and Development
Total research and development expenditures including capitalization of software
development costs, for the twelve months ended June 30, 2002 were $2,427,412
compared with $1,606,097 during the comparable period in 2001; a 51% increase.
The increase is due to the additional resources that were used in an effort to
complete some of the applications and make them commercially available to the
market in the fall of 2002.
Reports to Security Holders
We are subject to the informational requirements of the Securities Exchange Act
of 1934. Accordingly, we file annual, quarterly and other reports and
information with the Securities and Exchange Commission. You may read and copy
these reports and other information we file at the Securities and Exchange
Commission's public reference rooms in Washington, D.C. and Chicago, Illinois.
Our filings are also available to the public from commercial document retrieval
services and the Internet world wide website maintained by the Securities and
Exchange Commission at www.sec.gov.
Employees
As of June 30, 2002, we employed 44 employees including 19 software developers
and programmers, 9 sales, marketing and account management employees, 9 software
service and support employees and 7 accounting and administrative employees. All
of these employees work for us on a full time basis. We do expect to add
additional employees during the next 12 months. Our employees are not
represented by any labor union.
Item 2. Description of Properties
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The principal place of our business operations is 333 Main Street, Park City,
Utah. We lease approximately 14,050 square feet at this location. The facilities
consist primarily of office and storage areas and are leased from an unrelated
third party at an annual rental rate of $221,787 per year, subject to a 4%
annual cost of living increase. Prior to April 5, 2001 (the date FMM was
acquired) FMM was sharing 25% of the facilities rental cost pursuant to a cost
sharing arrangement. The property is sufficient for our business operations for
the foreseeable future. A new lease was renegotiated and executed February 28,
2001 to commence on January 1, 2001 and expires December 31, 2003.
Item 3. Legal Proceedings
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Debra Elenson vs. Fields Technologies, and Randall K. Fields (Filed -January
2002, in the Circuit Court of the 11th Judicial Circuit in and for Dade County,
Florida): The plaintiff alleges, among other causes of actions, that a private
placement memorandum pursuant to which the plaintiff had purchased shares of
Fields Technologies, contained financial statements which were not prepared in
accordance with generally accepted accounting principles and the requirements of
SEC regulation S-X. The plaintiff alleges fraud, misrepresentation, unregistered
sales of securities and other causes of actions. The plaintiff seeks a
rescission of her investment in the company, damages and legal fees. The
defendants deny each of plaintiff's allegations, belief that the plaintiff's
claims have no merit and will vigorously defend the matter. The case has been
removed to the federal district court in Florida.
Lawrence A. Locke et al vs. Market Watch Corporation, and Fields Technologies,
Inc. (Filed - September 2001, in the Circuit Court of Oregon in Multnomah
County): The plaintiff alleges, among other causes of action, that the
defendants sent or caused to be sent unsolicited facsimile advertisement in
violation of the Telephone Consumer Protection Act. The plaintiff is seeking to
have the case certified as a class action and is looking for damages caused by
wear and tear of his facsimile machine and use of phone lines, toner, ink,
paper, etc. This matter was settled in September 2002 for a nominal amount.
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 but is in the preliminary stages of
discovery.
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 but is in the preliminary stages of discovery.
Approximately two weeks following the filing of the complaint against 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.
7
Item 4. Submission of Matters to a Vote of Security Holders
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The following matters were submitted to a vote of our security holders during
the twelve months ended June 30, 2002, and were approved.
On April 8, 2002 the shareholders who collectively hold 67% of the voting power
of the Company's Common Stock approved increasing the authorized number of
shares of Common Stock, $.01 par value per share, from 175,000,000 to
300,000,000, and increasing the authorized number of shares of Preferred Stock,
$.01 par value per share, from 5,000,000 to 30,000,000 by written consent. A
Definitive Information Statement on Form 14c was mailed on May 9, 2002 to all
shareholders of record on April 8, 2002, but did not solicit a proxy.
On May 8, 2002 the shareholders who collectively hold 67% of the voting power of
the Company's Common Stock approved by Written Consent (1) a proposal to change
the Company's name to Park City Group, Inc., and (2) a proposal to change the
domicile of the Company from the State of Delaware to the State of Nevada
through a re-incorporation merger.
The Board of directors subsequently approved the proposals. A Definitive
Information Statement on Form 14c was mailed on May 29, 2002 to all shareholders
of record and on June 13, 2002, but did not solicit a proxy.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
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Dividend Policy
To date, we have not paid dividends on our common stock. The payment of
dividends, if any, is within the discretion of the Board and will depend upon
our earnings, our capital requirements and financial condition, and other
relevant factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation." The Board does not intend to declare any
dividends in the foreseeable future, but instead intends to retain all earnings,
if any, for use in our operations.
Share Price History
Our common stock (the "Common Stock") is traded in the over-the-counter market
in what is commonly referred to as the "Electronic" or "OTC Bulletin Board" or
the "OTCBB" under the trading symbol "PKCY." The following table sets forth the
high and low bid information of the Common Stock for the periods indicated. The
price information contained in the table was obtained from IDD Information
Services, Inc. and other sources we consider reliable. Note that such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and the quotations may not necessarily represent
actual transactions in the Common Stock.
Fiscal Year 2001 Low High
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September 30, 2000 $0.343 $1.093
December 31, 2000 $0.170 $0.670
March 31, 2001 $0.160 $0.600
June 30, 2001 $0.210 $0.530
Fiscal Year 2002
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September 30, 2001 $0.170 $0.60
December 31, 2001 $0.070 $0.170
March 31, 2002 $0.090 $0.320
June 30, 2002 $0.090 $0.220
Holders of Record
At February 18, 2003 there were 2,326 holders of record of our Common Stock and
shares issued and outstanding of 199,719,400. The number of holders of record
was calculated by reference to our stock transfer agent's books.
8
Issuance of Securities
During the period July 1, 2000 through the date of our reorganization, June 13,
2001, AmeriNet Group.com, Inc. ("AmeriNet") (the predecessor to Fields
Technologies Inc. ) issued shares of common stock as follows:
o AmeriNet issued 196,073 shares of preferred stock for cash,
liabilities, debt and services aggregating in the amount of
$1,488,227
o AmeriNet converted 442,783 shares of preferred stock to
8,855,660 shares of common stock
o AmerNet issued 6,700,145 shares of common stock for cash,
services, liabilities and debt aggregating in the amount of
$1,656,536
o AmeriNet issued 9,000,000 shares of its common stock for a
subscription receivable of $1,530,000
o AmeriNet issued 3,122,995 shares of common stock from the
exercise of stock options
o AmeriNet retired 505,380 shares of its common stock for cash
of $131,599
o AmeriNet recorded expense of $233,043 and deferred stock
compensation of $92,873
o AmeriNet satisfied liabilities and debt with the distribution
of certain assets and investments through the issuance of
14,352 shares of its common stock
In connection with our reorganization, a total of 109,623,600 shares of our
common stock were issued to shareholders of Park City Group, Inc. in exchange
for their shares of common stock of that company.
Subsequent to June 13, 2001, shares of our common stock were issued as follows:
o In June 2001, 352,941 shares of common stock were issued in
satisfaction of certain debt valued in total at $134,118 based
on the fair market value of the shares issued.
o In December 2001, 6,800,000 shares of common stock were sold
in a private placement at $0.25 per share. In addition to the
common stock purchasers received various additional rights. In
March 2002, certain of these additional rights were
relinquished in exchange for additional shares of the
Company's common stock. The exchange was for every 1.67 shares
with rights held 1 share of additional common stock were
issued.
o In March 2002, 1,666,667 shares of common stock were sold in a
private placement, at $0.15 per share, with an option to
purchase 1,666,667 additional shares that expired September
2002.
o In December 2001, 400,000 shares were issued as payment for
consulting services.
o In March, 2002, the Company issued convertible debt, of
$1,750,000 at 10% interest due October 31, 2005. This debt was
converted into 11,666,667 shares of common stock in June,
2002, and carries a warrant for 11,666,667 shares to be
purchased $.17 per share expiring, March 27, 2005. The warrant
and debt carried anti-dilution rights. Adjustments to the
warrant price and additional shares were issued in accordance
with the anti-dilution rights in August and November 2002. In
August 2002, 8,458,334 additional shares of common stock were
issued, the exercise price of the warrants was decreased to
$0.10 per share, and the number of shares of common stock to
be purchased under the warrant was increased to 20,125,001. In
November 2002, 8,625,000 additional shares of common stock
were issued the exercise price of the warrants was decreased
to $0.07 per share, and the number of shares of common stock
to be purchased under the warrant was increased to
287,750,001. This shareholder was allowed further
anti-dilution of the warrant exercise price to $0.04 per share
of common stock (and a corresponding increase in the number of
shares of common stock to be purchased under the warrant), but
the shareholder waived this right and opted for $0.07 exercise
price per share on the warrant.
o In May, 2002 166,667 shares of common stock were issued for
consulting services.
o In August and November 2002, the President of the Company and
two members of the Board of Directors received in accordance
with antidilution rights. Additional shares of common stock
and adjustments to the corresponding warrants. In August 2002,
1,450,000 additional shares of common stock were issued to the
President, the exercise price of the warrants was decreased to
$0.10 per share from $0.11 and $0.24 respectively, and the
number of shares of common stock to be purchased under the
warrants was increased to 880,000 and 2,880,000 from 800,000
and 1,200,000 respectively. In November 2002, 1,478,571
additional shares of common stock were issued to the
President, the exercise price of the warrants was decreased to
$0.04 per share, and the number of shares of common stock to
be purchased under the warrant was increased to 9,400,000 in
total. In August 2002, 2,658,334 additional shares of common
stock were issued to the two directors, the exercise price of
the warrants was decreased to $0.10 per share from $0.11 and
$0.24, respectively, and the number of shares of common stock
to be purchased under the warrants was increased to 1,980,000
and 4,480,001 from the 1,800,000 and 1,866,667, respectively.
In November 2002, 2,710,715 additional shares of common stock
were issued, the exercise price of the warrants was decreased
to $0.04 per share, and the number of shares of common stock
to be purchased under the warrants was increased to
16,150,002.
o In December 2002, as consideration for extension of payment on
the Note Payable to Riverview Financial Corporation (majority
shareholder of PCG), the company issued 7,000,000 shares of
common stock.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation
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The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our consolidated results of
operations and financial condition. The terms "Company", "we", "our" or "us" are
used in this discussion to refer to Park City Group, Inc. (formerly Fields
Technologies, Inc.) along with Park City Group, Inc.'s wholly owned subsidiary,
Fresh Market Manager, LLC, on a consolidated basis, except where the context
clearly indicates otherwise.
Park City Group, Inc. and Fresh Market Manager LLC had December 31 year-ends;
Fields Technologies, Inc., had a June 30 year-end. In conjunction with the June
2001 reorganization the June 30 year-end was retained for all entities.
Therefore, the information presented here and in the consolidated financial
statements included elsewhere in this document are for the twelve months ended
June 30, 2002, and 2001 (unaudited), and December 31, 2000 and the six months
ended June 30, 2001. The merger of FMM and Park City Group in April 2001 was
accounted for under the purchase accounting method. Therefore, in the year-end
June 30, 2001 FMM operations have only been included in the consolidated
financial statements for the three months ended June 30, 2001, and the twelve
months then ended.
9
Overview
Our principal business is the design, development, marketing and support of our
proprietary software products. These software products are designed to be used
in retail businesses having multiple locations by assisting individual store
locations and corporate management with managing daily business operations and
communicating results of those operations in a timely manner.
In accordance with U.S. generally accepted accounting principles, we have
expensed all software development costs as incurred through December 31, 2000
with our software having been viewed as an evolving product. During January
2001, technological feasibility of a major revision to our ActionManager and
Fresh Market Manager software and our 4x development platform was established.
In accordance with U.S. generally accepted accounting principles, development
costs incurred from January 2001 through June 30, 2002, totaling $2,356,807 has
been capitalized. These costs will be amortized on a straight-line basis over a
period of four years. Amortization will begin when the products are available
for general release to the public, which was September 2002, for FMM and
anticipated as March 2003 for 4x ActionManager. Our consolidated balance sheet
does not reflect any value attributable to intellectual property, the cost of
which has been expensed as incurred. To date, development and intellectual
property expenditures have resulted in the development of applications of the
ActionManager software and applications of Fresh Market Manager software along
with eight granted software patents and three patent applications with numerous
separate trademarks and copyrights.
Through June 30, 2002, we have accumulated aggregate consolidated losses
totaling $11,479,568 which includes net loss of $3,390,760 and $1,902,485 for
the twelve months ending June 30, 2002, and 2001, respectively.
We plan to actively market our current software products both domestically and
internationally. We also intend to enhance our existing software products and
develop new software applications to augment our existing portfolio of products.
Management Discussion and Analysis
Financial Position
We had $140,972 in cash and cash equivalents as of June 30, 2002 compared with
$218,482 at June 30, 2001, representing a decrease of $77,510. This decrease in
cash for the twelve months ended June 30, 2002 relates principally to increases
in operating expenses as the Company increased its sales force, and including
interests costs of $771,225.
Working capital deficit as of June 30, 2002 decreased to $3,201,600 as compared
to $3,483,012 at June 30, 2001. The decrease in the working capital deficit for
the twelve months ended June 30, 2002 is principally attributable to a decrease
in the current portion of long-term debt as the result of the renegotiation and
extension of the debt repayment on the Cooper Capital note.
Twelve Months Ended June 30, 2002 and 2001 During the twelve months ended June
30, 2002, we had total revenues of $3,869,420 compared to $3,665,042 for the
same period in 2001. The increase in revenue of 6% is principally attributable
to increased licenses due to the increased sales force and their ability to
close business. Deferred revenue increased approximately $95,000, 6% as the
result of increased outstanding contractual obligations on contracts. Software
license sales increased 31% as the result of adding a significant new customer
that accounted for approximately 20% of total revenues and increased license
sales to existing customers. Maintenance and Support revenue declined by 10% the
result of our older clients electing not to continue with maintenance. The
average customer of Park City Group purchases maintenance support services for 5
years. Consulting revenue during the current year did not experience a
significant change from the comparable period in the prior year.
Total research and development expenditures including capitalization of software
development costs, for the twelve months ended June 30, 2002 were $2,427,412
compared with $1,221,043 during the comparable period in 2001; a 99% increase.
The increase is due to the additional resources that were used in an effort to
complete some of the applications and make them commercially available to the
market in the fall of 2002.
Sales and marketing expenses of $1,614,710 incurred during the twelve months
ended June 30, 2002 increased 133% compared to $693,379 for the comparable
period ended June 30, 2001. During FYE 2002 the Company hired an executive
officer and two full-time direct sales representatives, in addition, an outbound
demand generation department of three full-time representatives were added to
the sales structure of the company. These additional sales efforts are critical
to the success of the Company in broadening our market reach and increasing our
customer base.
Fiscal year ended June 2002 compared to the same period ended 2001 saw an
increase in general and administration costs of approximately 61%. The majority
of the increases in costs are associated with being a public company and as such
incurring costs such as accounting, legal and investor relations.
10
In FYE 2002 the Company did not incur reorganization expenses. The
reorganization and professional costs of $476,762 incurred during the twelve
months ended June 30, 2001 relate principally to legal, accounting and other
associated expenses regarding the reverse acquisition transaction between Park
City Group, Inc. (formerly AmeriNet Group.com, Inc.) and Park City Group, Inc.
Net interest expense for the twelve months ended June 30, 2002 was $771,225
compared to $454,908 for the twelve months ended June 30, 2001. The net interest
expense increase is attributable principally to: (i) interest associated with
the debt acquired during the 2001 period related to the acquisition of Fresh
Market Manager, LLC; (ii) additional interest related to an increase in the
average outstanding balance on the line of credit during the 2002 period; and
(iii) interest related to an increase in the balance of the obligations due to
our principal shareholder.
Upon the acquisition of the member interest of Fresh Market Manager, LLC by Park
City Group, Inc. in April 2001, certain principal and related accrued interest
was discharged. Of the total accrued interest forgiven, $278,295 is related to
interest due to an unrelated party and has been reflected separately as a gain
on the forgiveness of debt during the twelve-month period ended June 30, 2001.
No such gain was recognized during the comparable twelve months ended June 30,
2002
Liquidity and Capital Resources
To date, we have financed our operations through operating revenues from
software licensing, maintenance, product support, consulting and related
services along with short-term bank borrowings, loans from a majority
shareholder, and private placements of equity securities. During the twelve
months ended June 30, 2002 the operations of the Company used net cash of
$1,242,859 compared to net cash provided of $133,564 for the comparable period
ended 2001. The majority of the decrease in cash provided by operations were due
to an increase in net operating loss before taxes of approximately $1,865,000,
an increase in trade receivables of approximately $212,000, an increase in
deferred revenue of approximately $95,000, and an increase in related party
interest payable of approximately $314,000. In addition the Company expended
approximately $1,702,000 for expedited research and development costs.
The Company intends to use the equity markets to raise sufficient capital to
fund the growth of the sales and marketing functions. The majority of the
$2,916,042 cash provided through financing activities during the twelve months
ended June 30, 2002 represents the sale of the Company's common stock through
private placements.
During the twelve months ended June 30, 2002, we used $1,750,693 of net cash in
investing activities compared with $519,783 of net cash used in investing
activities during same period in 2001. Investing activities consists mainly of
investing in the development of our future software products. During 2002 we
submitted 2 patent applications and received 1 patent pending.
As of June 30, 2002, we had cash and cash equivalents amounting to $140,972
compared to $218,482 on June 30, 2001. Total current assets totaled $916,966 at
June 30, 2002 compared with $1,179,574 on June 30, 2001. Current liabilities
totaled $4,118,566 on June 30, 2002 compared with $4,662,586 on June 30, 2001.
As such, these amounts represent an overall decrease in working capital deficit.
These decreases in working capital deficit, which equate to increased working
capital, are largely due to increases in net cash provided by financing
activities and an overall decrease in short term indebtedness.
The Company has been successful in extending payment terms on a significant
amount of debt. The Company needs to obtain long-term capital funding to meet
approximately $5.9 million in debt payments due by August 2003. These loans bear
interest at various rates between 6 percent per annum and 17.4 percent per
annum. Of these outstanding debt obligations, a total of $3,739,000 is payable
to our majority shareholder, Riverview Financial Corp. The Cooper Capital
obligation of $1.4 million requires a minimum principal payment of $575,000 on
or before June 30, 2003, the repayment could be greater if cash flows from
operations exceed $400,000 per month. Interest on this loan accrues at a rate of
16% on any unpaid balance and is payable monthly, there are also forbearance
fees of $340,000 that are due; 1/3 by July 1, 2003; 1/3 by August 1, 2003; and
1/3 by September 1, 2003. At June 30, 2002, we had not committed any funds for
capital expenditures. We have committed to spend $168,000 in operating lease
payments for physical facilities during the remainder of 2002 and $288,000 for
2003. The Lease expires on 12/31/03.
As of June 30, 2002 we had a bank loan for approximately $687,000 at a variable
rate (1% over prime). The note was due September 30, 2003. The Bank Note is
secured in part by $480,000 of personal securities of the CEO.
In December 2002, the Cooper Capital obligation of $1.4 million and the bank
loan of $687,000 still outstanding were paid by securing a $2 million note
payable from a related party and a $250,000 advance from an officer of the
Company. All accrued interest was paid, and all forbearance fees related to the
Cooper Capital note were cancelled.
11
The Company has reduced its overall monthly operating costs by approximately
$90,000 per month subsequent to June 30, 2002. A combination of efforts to
judiciously monitor, control and where appropriate reduce ongoing expenses has
been adopted by the Company's management team. For example, in June, 2002 the
Company reduced management and staff headcount, reduced travel expenses, and
established new policies for customer related travel and enforced budgetary
constraints on all operating expenses. The Company recognizes that additional
capital infusions from debt or equity financing will be needed to augment the
generation of net income and net cash from our business activities so that we
may grow the Company and satisfy debt obligations. The marketing focus of the
Company will primarily be on the promotion of Fresh Market Manager, by parlaying
the success of our most recent licensee to drive sales momentum in this industry
segment (grocery), and taking advantage of the sales potential by increasing the
licensing of new customers. The Company will also focus some of its Marketing
and Development activities on the creation of functionality enhancements for the
ActionManager applications to ensure existing customers receive beneficial
improvements that will justify their continued maintenance payments into the
future. Our working capital and other capital requirements for the foreseeable
future will vary based upon a number of factors, including: (i) changes in the
software industry and environment which may require additional modifications to
our software and platforms; (ii) the pace at which our products are accepted by
and sold into the market and the related sales and marketing effort and support
requirements, and (iii) changes in existing financing arrangements. We intend to
investigate opportunities to expand into compatible businesses through possible
acquisitions or alliances. In addition, there may be unanticipated additional
working capital and other capital requirements to consummate such transactions
and oversee the related operations.
As of February 18, 2003 we had outstanding stock options and warrants to sell
76,242,870 shares of common stock with exercise prices varying from $0.04 to
$1.43 per share. The exercise of all of these outstanding options and warrants
would result in an equity infusion of $6,671,386. There is no assurance that any
of these options or warrants will be exercised until such time as our stock is
listed on the OTC:BB Exchange.
Inflation
We do not expect the impact of inflation on our operations to be significant.
Risk Factors
We are subject to certain other risk factors due to the organization and
structure of the business, the industry in which we compete and the nature of
our operations. These risk factors include the following:
Risk Factors Related To The Company's Operations
Continued net losses could impair our ability to raise capital.
We cannot accurately predict our future revenues. A significant portion of the
future marketing strategy involves an emphasis on sales activities on our Fresh
Market Manager applications; if our marketing strategy fails, our revenues and
operations will be negatively affected. All Park City Group applications are
designed to be highly flexible so that they can work in multiple retail and
supplier environments such as grocery stores, convenience stores, and quick
service restaurants. There is no assurance that the market will accept the Fresh
Market Manager applications in proportion to our increased marketing of this
product line, although current business activity might suggest that the market
opportunity and acceptance of the Fresh Market Manager product line are
positive. It is possible that we may face significant competition that may
negatively affect demand for our Fresh Market Manager applications, including
the public's preference for our competitor's new product releases or updates
over our releases or updates. If our Fresh Market Manager applications marketing
emphasis fails, we will need to refocus our marketing strategy to our
ActionManager product offerings, which could lead to increased marketing costs,
delayed revenue streams, and otherwise negatively affect our operations.
There can be no assurance that we will be able to generate significant revenues
or that we will achieve or maintain profitability, or generate revenues from
operations in the future. We believe that our success will depend upon our
ability to generate and retain new customers, which cannot be assured, and in
many circumstances, may be beyond our control. Our ability to generate sales
will depend on a variety of factors, including:
o Our sales and marketing efforts as well as the co-marketing
efforts of our strategic partners;
o The reliability and cost-effectiveness of our services;
o Customer service and support.
We face 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.
12
Because these markets are subject to such rapid change, the life cycle of our
products is difficult to predict; accordingly, we are subject to following
risks:
o Whether or how we will respond to technological changes in a
timely or cost-effective manner
o Whether the products or technologies developed by our
competitors will render our products and services less
attractive to potential buyers or shorten the life cycle of
our products and services
o Whether our products and services will achieve and sustain
market acceptance
If we are unable to adapt to our constantly changing markets and to continue to
develop new products and technologies to meet our customers' needs, our revenues
and profitability will be negatively affected. Our future revenues are dependent
upon the successful development and licensing of new and enhanced versions of
our products and potential product offerings. If we fail to successfully upgrade
existing products and develop new products or our product upgrades and new
products do not achieve market acceptance, our revenues will be negatively
impacted.
We expect our operating results to fluctuate, which makes it difficult to
predict future performance.
We expect a portion of our 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 we would potentially experience significant fluctuations in future
operating results caused by a variety of factors, many of which are outside of
our control, including:
o Demand for and market acceptance of new products
o Introduction or enhancement of products and services or access
by us or our 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 our pricing policies and those of our competitors
o Changes in regulatory laws and policies
o General economic conditions, particularly those related to the
information technology industry
Because of the foregoing factors, we expect our future operating results to
fluctuate. As a result of such fluctuations, it will be difficult to predict our
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 our expenses will be
fixed in the short-term, particularly with respect to depreciation, real estate
and personnel. Therefore, our future operating results will be particularly
sensitive to fluctuations in revenues because of these and other short-term
fixed costs.
We may be unable to collect our receivables and retainages in amounts previously
estimated.
In accordance with United States generally accepted accounting principles, we
have established reserves against the company's retainages and receivables. We
believe that the established reserves adequately allow for the estimated
uncollectable portion of the retainages and receivables. However, we may
experience collection rates below its established reserves, which could reduce
the amount of available funds and require additional reserves. Reduced available
funds could adversely affect our ability to successfully implement the
objectives of our business plan. There can be no assurance that we will be able
to collect our retainages and receivables in sufficient amounts. Failure to
collect adequate amounts of its retainages and receivables could materially
adversely affect our business and results of operations.
Some of our competitors are larger and have greater financial and operational
resources that may give them an advantage in our market.
Many of our competitors are larger and have greater financial and operational
resources than we may have available to us. This may allow them to offer better
pricing terms to customers in the industry, which could result in a loss of our
potential or current customers or could force us to lower our prices. Any of
these actions could have a significant effect on our revenues. In addition, our
competitors may have the ability to devote more financial and operational
resources than we can 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 our product and
service offerings less desirable to customers, again resulting in the loss of
customers or a reduction in the price we can demand for our offerings.
13
We need to hire and retain qualified personnel to sustain our business.
We are currently managed by a small number of key management and operating
personnel. We do not have employment agreements with most of our employees. Our
future success depends, in part, on the continued service of our key executive,
management, and technical personnel, some of whom have only recently been hired,
and our ability to attract highly skilled employees. If key officers or
employees are unable or unwilling to continue in their present positions, our
business could be harmed. From time to time, we have experienced, and we expect
to continue to experience, difficulty in hiring and retaining highly skilled
employees. Competition for employees in our industry is intense. If we are
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 our
business and results of operations.
We are dependent on the continued participation of certain key executives and
personnel to effectively execute our business plan and strategies and we must
effectively integrate our management team.
Our business is dependent upon the continued services of our founder and Chief
Executive Officer, Randall K. Fields. Should we lose the services of Mr. Fields,
our operations will be negatively impacted. We currently maintain key man
insurance on Mr. Fields life in the amount of $10,000,000. The loss of the
services of Mr. Fields would have a materially adverse effect upon our business.
We depend on the ability of our management team to effectively execute our
business plan and strategies. During the last several months, we have
continually asked our key executives to forgo their salary, and as such are at
risk for their continued commitment. If our management group is unable to
effectively integrate its activities, or if we are unable to integrate new
employees into our operations, our business plan and strategies will not be
effectively executed and our operations could suffer.
Our business is currently dependent upon a limited customer base; should we lose
any of these customer accounts, our revenues will be negatively impacted.
We expect that our existing customers will continue to account for a substantial
portion of our total revenues in future reporting periods. Our ability to retain
existing customers and to attract new customers will depend on a variety of
factors, including the relative success of our expansion and marketing
strategies and the performance, quality, features, and price of current and
future products. Accordingly, if we lose customer accounts or our customer
orders decrease, our revenues and operating results will be negatively impacted.
In addition, our future revenues will be negatively impacted if we fail to add
new customers that will make purchases of our products and services.
If we fail to expand our sales force or if our sales force is unsuccessful, we
will be unable to expand our customer base.
We must increase our customer base to expand our operations and increase our
revenues. Currently, there is a shortage of sales personnel for our needs,
specifically to target senior management of our prospective customers and who
can generate and serve large accounts. Our future customer base is dependent
upon implementation of an expanded marketing program and an increased sales
force.
We may be unable to raise necessary funds for operations.
We anticipate that we need to raise additional funds to meet cash flow and
capital requirements. In the past, we have frequently experienced cash flow
shortages because we have not generated enough cash from operations to cover
expenses. We will require raising additional funds to meet our capital needs.
There can be no assurance that such financing will be available in amounts or on
terms acceptable to us, if at all. Further, our lack of tangible assets to
pledge could prevent us from establishing debt-based sources of financing. The
inability to raise necessary funding would adversely affect our ability to
successfully implement our business plan. There can be no assurance that we will
be able to obtain additional financing to meet our current or future
requirements on satisfactory terms, if at all. Failure to obtain sufficient
capital could materially adversely affect our business and results of
operations.
We face substantial costs in connection with our expansion plans and, we may be
unable to complete our growth plans and our business will be negatively impacted
if we are not able to generate monies to cover these costs. We may not be able
to generate the revenues we will need to fund our expansion plans. If we fail to
raise adequate funds we may be unable to complete our expansion plans and our
business will be negatively impacted.
We face risks associated with proprietary protection of our software.
Our success depends on our ability to develop and protect existing and new
proprietary technology and intellectual property rights. We seek to protect our
software, documentation and other written materials primarily through a
combination of patents, trademark, and copyright laws, confidentiality
procedures and contractual provisions. While we have attempted to safeguard and
maintain our proprietary rights, there are no assurances there we will be
successful in doing so. Our competitors may independently develop or patent
technologies that are substantially equivalent or superior to ours.
14
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of its products or obtain and use information that we
regard as proprietary. In some types of situations, we may rely in part on
"shrink wrap" or "point and click" licenses that are not signed by the end user
and, therefore, may be unenforceable under the laws of certain jurisdictions.
Policing unauthorized use of our products is difficult. While we are unable to
determine the extent to which piracy of our 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. We
can offer no assurance that our means of protecting our proprietary rights will
be adequate or that our competitors will not reverse engineer or independently
develop similar technology.
We incorporate third party software providers' licensed technologies into our
products; the loss of these technologies may prevent sales of our products or
lead to increased costs.
We now license and in the future will license technologies from third party
software providers that are incorporated into our products. The loss of
third-party technologies could prevent sales of our products and increase our
costs until substitute technologies, if available, are developed or identified,
licensed and successfully integrated into our products. Even if substitute
technologies are available, there can be no guarantee that we will be able to
license these technologies on commercially reasonable terms, if at all.
We may discover software errors in our products that may result in a loss of
revenues or injury to our reputation.
Non-conformities or bugs ("errors") may be found from time to time in our
existing, new or enhanced products after commencement of commercial shipments,
resulting in loss of revenues or injury to our reputation.
In the past, we have discovered errors in our products and, as a result, have
experienced delays in the shipment of products. Errors in our products may be
caused by defects in third-party software incorporated into our products. If so,
we may not be able to fix these defects without the cooperation of these
software providers. Since these defects may not be as significant to the
software provider as they are to us, we may not receive the rapid cooperation
that may be required. We may not have the contractual right to access the source
code of third-party software and, even if we do have access to the source code,
we may not be able to fix the defect. Since our customers use our products for
critical business applications, any errors, defects or other performance
problems could result in damage to our customers' business. These customers
could seek significant compensation from us for their losses. Even if
unsuccessful, a product liability claim brought against us would likely be time
consuming and costly.
Our officers and directors serve as officers and directors of other corporations
and have ownership interests in other corporations; conflicts of interest may
arise which are not resolved in our favor and which may negatively impact our
operations and financial condition.
Our officers and directors are officers and directors of other corporations and
have ownership interests in other corporations. Our officers and directors are
in a position to control their own compensation and to approve dealings by us
with other entities with which our principals are also involved. For example, if
a company affiliated with one of our directors were to be considered as a
possible strategic alliance with us, our director would have a conflict of
interest in negotiating the most favorable terms for the director's affiliated
company or us. As a result there will be conflicts of interest. There is no
assurance that these conflicts will be resolved in our favor.
Our Chief Executive Officer, Randall K. Fields, has a 100% ownership interest in
Riverview Financial Corp. that has entered into financial transactions with us;
these transactions present conflicts of interest that may not be resolved in our
favor.
Park City Group has an unpaid promissory note due to Riverview Financial Corp.
("Riverview") in the amount of $3,260,714 with interest payable at 12% per
annum. In addition, another agreement provides that our subsidiary, Park City
Group, will pay to Riverview, an amount equal to 5% of the value of any
acquisition we enter into during the term of Mr. Fields' employment agreement.
We may continue to have other transactions with Riverview that may create
conflicts of interest between our interests and Mr. Fields' sole ownership of
Riverview. There is no assurance that these conflicts will be resolved in our
favor.
Our officers and directors have limited liability and indemnification rights
under our organizational documents, which may impact our results.
Our officers and directors are required to exercise good faith and high
integrity in the management of our affairs. Our certificate of incorporation and
bylaws, however, provide, that the officers and directors shall have no
liability to the stockholders for losses sustained or liabilities incurred which
arise from any transaction in their respective managerial capacities unless they
violated their duty of loyalty, did not act in good faith, engaged in
intentional misconduct or knowingly violated the law, approved an improper
dividend or stock repurchase, or derived an improper benefit from the
transaction. Our certificate of incorporation and bylaws also provide for us to
indemnify our officers and directors against any losses or liabilities they may
incur as a result of the manner in which they operate our business or conduct
our internal affairs, provided that the officers and directors reasonably
believe such actions to be in, or not opposed to, our best interests, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations.
15
Market and Capital Risks
Future issuances of our shares may lead to future dilution in the value of our
common stock, a reduction in shareholder voting power, and prevent a change in
our control. Our shares may be substantially diluted due to the following:
o Issuance of common stock in connection with funding agreements
we have with third parties and future issuances of common and
preferred stock by our Board of Directors
o Our Board of Directors has the power to issue additional
shares of common stock and preferred stock and the right to
determine the voting, dividend, conversion, liquidation,
preferences and other conditions of the shares without
shareholder approval
Stock issuances may result in reduction of the book value or market price of our
outstanding shares of common stock. If we issue any additional shares of common
or preferred stock, proportionate ownership of our common stock and voting power
will be reduced. Further, any new issuance of common or preferred shares may
prevent a change in our control or management.
Issuance of our preferred stock could depress the market value of current
shareholders and could have a potential anti-takeover effect. We have 30,000,000
authorized shares of preferred stock that may be issued by action of our Board
of Directors. Our Board of Directors may designate voting control, liquidation,
dividend and other preferred rights to preferred stock holders. Our Board of
Directors' authority to issue preferred stock without shareholder consent may
have a depressive effect on the market value of our common stock. The issuance
of preferred stock, under various circumstances, could have the effect of
delaying or preventing a change in our control or other take-over attempt and
could adversely affect the rights of holders of our shares of common stock.
Our preferred stock holders will receive dividends, if any, at a rate twenty
times that paid per share of our common stock holders; accordingly, if dividends
are declared, our preferred stock holders will have preferential rights in the
payment of dividends.
The holders of shares of our preferred stock are entitled to receive, out of our
assets, legally available, and as when declared by our Board of Directors,
dividends of every kind declared and paid to holders of our commons
stockholders, at a rate of twenty times that paid for shares of common stock.
Because our Board of Directors has the authority to issue preferred stock to
such preferred stock holders will have preferential rights in the payment of
dividends.
Because our common stock is considered a penny stock, any investment in our
common stock is considered to be a high-risk investment and is subject to
restrictions on marketability. Our common stock has traded on the Over-the
Counter Bulletin Board since June, 2001. The bid price of our common stock has
been less than $5.00 during this period. We are subject to the penny stock rules
adopted by the Securities and Exchange Commission that require brokers to
provide extensive disclosure to its customers prior to executing trades in penny
stocks. These disclosure requirements may cause a reduction in the trading
activity of our common stock.
Broker-dealer practices in connection with transactions in penny stocks are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00. Penny stock rules require a broker dealer prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer makes a special
written determination that the penny stock is a suitable investment for the
purchaser and receives the purchaser's written agreement to the transaction.
Because we are subject to the penny stock rules our shareholders may find it
difficult to sell their shares.
Item 7. Financial Statements
----------------------------
See the index to consolidated financial statements and consolidated financial
statement schedules included herein as Item 13.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
-------------------------------------------------------------------
On July 27, 2001, we engaged Tanner + Co. as our new certified public
accountants. In connection with that action, we dismissed Daszkal Bolton Manela
Devlin & Co., our auditor when we were known as AmeriNet Group.com, Inc. We also
dismissed Sorenson Vance & Company, P.C., which had previously served as the
certified public accountants for Park City Group, Inc. We filed a Form 8-K dated
July 27, 2001 on August 1, 2001 with the U.S. Securities and Exchange Commission
regarding these events. There have been no disagreements with accountants on
accounting and financial disclosure.
16
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
---------------------------------------------------------------------
Our Board of Directors and executive officers consist of the persons named in
the table below. Vacancies in the Board of Directors may only be filled by the
Board of Directors by majority vote at a Board of Director's meeting of which
stockholders holding a majority of the issued and outstanding shares of capital
stock are present. The directors are elected annually by the stockholders at the
annual meetings. Each director shall be elected for the term of one year, and
until his or her successor is elected and qualified, or until his earlier
resignation or removal. Our bylaws provide that we have at least one director.
Our directors and executive officers are as follows:
Name Age Position - Committee
---- --- --------------------
Randall K. Fields 55 President, Chief Executive Officer
Chairman of the Board and Director
*Stephen D. Weinroth 63
***Edward C. Dmytryk 56 Director, and acting CFO
Thomas W. Wilson 70 Director and Compensation Committee Chairman
William R. Jones 67 Director and Audit Committee Chairman
Bernard F. Brennan 64 Director
****Terry R. Peets 58 Director
**Anthony E. Meyer 41 Director
*Resigned from the Board 10/14/02
**Joined Board 10/14/02
*** Became acting CFO of the Company on 10/11/2002
****Resigned from the Board on November 21, 2002.
Randall K. Fields has been our President, Chief Executive Officer, and Chairman
of the Board of Directors since June, 2001. Mr. Fields founded Park City Group,
Inc., a software development company based in Park City, Utah, in 1990 and has
been its President, Chief Executive Officer, and Chairman of the Board since its
inception in 1990. Mr. Fields has been responsible for the strategic direction
of Park City Group, Inc. since its inception, including the ActionManager family
of integrated software applications for geographically distributed multi-unit
business environments and the Fresh Market Manager software suite that addresses
the needs of organizations with the perishable inventory, production, planning,
and product forecasting and costing requirements. Mr. Fields co-founded Mrs.
Fields Cookies with his then wife, Debbi Fields. He served as Chairman of the
Board of Mrs. Fields Cookies from 1978 to 1990. In the early 1970's Mr. Fields
established a financial and economic consulting firm called Fields Investment
Group. Mr. Fields received a Bachelor of Arts degree in 1968 and a Masters of
Arts degree in 1970, respectively from Stanford University, where he was Phi
Beta Kappa, Danforth Fellow and National Science Foundation Fellow.
Edward C. Dmytryk has been a director since June, 2000. In October 2002, Mr.
Dmytryk took on additional responsibilities as acting CFO and as such resigned
from the Audit Committee. Since September 1999, Mr. Dmytryk has also been the
Acting President of GNR Health Systems, Inc., a physical therapy products sales
company located in Ocala, Florida and is on the Board of Directors of Colmena
Corporation. Since June of 1990, Mr. Dmytryk has also been the owner and Chief
Executive Officer of Benchmark Industries, Inc., a metal fabrications company
headquartered in Fort Worth, Texas. Mr. Dmytryk graduated Summa Cum Laude from
the Citadel, the Military College of South Carolina in 1968 with a Bachelor of
Science Degree.
Thomas W. Wilson, Jr. has been a director since August, 2001. Mr. Wilson is also
currently a director and the Chairman of the Board of Productivity Solutions,
Inc., a Jacksonville, Florida builder of customer self-checkout point-of-sale
equipment. From 1995 to 1999, Mr. Wilson was the Chairman of the Board and
currently serves as a member of the Board of Information Resources, Inc., a
Chicago, Illinois-based provider of point-of-sale information based business
solutions to the consumer packaged goods industry. From 1998 to 1999, Mr. Wilson
was the Interim Chief Executive Officer of Information Resources, Inc. From 1966
to 1990, Mr. Wilson was employed in various capacities with McKinsey & Co., a
management consulting company. In 1968, Mr. Wilson was elected a Partner of
McKinsey and Co., and in 1972 he was elected a Senior Partner. Mr. Wilson
received a Bachelor of Arts Degree from Dartmouth College and a Masters of
Business Administration Degree from the Wharton school of the University of
Pennsylvania.
17
William R. Jones has been a director since August, 2001. Mr. Jones founded WR
Jones Associates in 1996, a consulting firm that assists startup software
companies to form marketing strategies, management processes and management
teams. Mr. Jones served as a vice-president of Park City Group from 1991 to
1994. From 1984 to 1991, Mr. Jones was employed at International Business
Machines in various capacities, including having served as a vice-president and
was in charge of all marketing to the U.S. retail industry. Mr. Jones
participated in bringing IBM's technologies to market, including: (i) Universal
Product Code for item identification, (ii) The original IBM Personal Computer,
(iii) Computer Assisted Manufacturing (iv) Just-in-Time inventory management and
(v) Quick Response - supply chain inventory management
Bernard F. Brennan has been a director since August, 2001. Mr. Brennan has been
a senior executive (CEO and President) with such organizations as Sears Roebuck
& Company, Montgomery Ward Corporation, Von's Supermarkets as well as an
additional broad spectrum of retail operations. He became President & CEO of
Household Merchandising, Inc., a $5 billion division of Household International,
Inc. where he also served on Household International's board of directors. There
he oversaw a diversity of retail operations, including Von's Supermarkets, Ben
Franklin Stores, Coast-To-Coast Stores, TG & Y Discount Stores, Barker Brothers,
Colby's and American Furniture Stores. In 1985, Brennan rejoined Montgomery Ward
Corporation as Chairman & CEO of the holding company, including the Retail Group
and Signature Direct Marketing Group, where he served until 1997. Mr. Brennan
has also served as chairman of the National Retail Federation. Mr. Brennan
currently serves on the board for Marketmax, a retail merchandising technology
company, and Spotlight Solutions, a retail pricing optimization technology
company.
Terry R. Peets joined the Board of Directors in April 2002 and resigned his
position in November 2002. Mr. Peets is currently an advisor to J P Morgan
Partners and holds director positions with Diamond Brands, Inc., SuperMarkets
Online, PSC/Spectra Physics, Doane Pet Care, Inc., City of Hope and the
Children's Museum of Orange County.
Anthony E. Meyer has been a director since October, 2002. Mr. Meyer is the
Chairman of privately held Meyer and Company LLC, a diversified merchant banking
firm based in New York City. He has extensive experience and relationships in
the real estate, finance, venture capital, technology, and media sectors. Prior
to founding Meyer and Company, Meyer was a Managing Director at Lazard Freres &
Company LLC, a leading global private investment bank. Prior to joining Lazard
Freres, Meyers was a General Partner of Trammell Crow Company, one of the
largest diversified real estate companies in the US. After co-founding Trammell
Crow Ventures, he served as the Chief Investment Officer and led the $2.6
billion investment management company's efforts in real estate, private equity
and venture capital. In his positions of entrepreneur, adviser and private
investor, Meyer worked with many private and public company representing a wide
variety of industries some of which he continues to serve as a member of the
Board of Directors. Mr. Meyer graduated from Harvard University with a degree in
Economics and he received his MBA from Harvard Business School.
Stephen D. Weinroth joined the Board of Directors on March 11, 2002, to
represent the interests of AW Fields Acquisition, Inc. AW Fields Acquisition
resigned its board representation on October 14, 2002. Mr. Weinroth serves on
the board of the following entities: K. Hovnanian Enterprises, Inc., Central
Asian-American Enterprise Fund, Financial Federal Corporation and First
Britannia Mezzanine N.V.
Our Executive Officers are elected by the Board on an annual basis and serve at
the discretion of the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that our executive
officers, directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish us with copies of all Section 16(a) forms filed by such persons.
Based solely on our review of such forms furnished to us and representations
from certain reporting persons, certain filing requirements applicable to our
executive officers, directors and more than 10% stockholders were not complied
with during twelve months ending June 30, 2002. The following directors and
reportable transactions were filed after the required deadline.
**The following directors reported transactions after the required due date.
Director Security Number of Shares Type of Shares Date Issued Date Reported
-------- -------- ---------------- -------------- ----------- -------------
B. Brennan Option 800,000 Common 2/2/02 4/02
T. Wilson Option 75,000 Common 12/27/01 4/02
T. Wilson Option 600,000 Common 12/20/01 4/02
18
Item 10. Executive Compensation
-------------------------------
The following table sets forth information concerning the compensation paid to
all persons serving as the Company's chief executive officer and the Company's
most highly compensated executive officers other than its chief executive
officer who were serving as executive officers as June 30, 2002 and whose annual
compensation exceeded $100,000 during such year (collectively the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
Securities
Other Annual Restricted Underlying LTIP
Name and Principal Year/ Compensation Stock Options/SARs Payouts
Position Period Salary ($) Bonus ($) ($) Awards ($) (#) ($)
------------------- ------ ---------- --------- ------------ ---------- ------------- ----------
Randall K. Fields 2000 315,900 - 5,250 (1) - - -
Chairman, President *2001 175,000 - 30,942 (1) - - -
And CEO 2002 358,750 - 48,335 (1) -
Shaun Broadhead 2000 103,449 - 4,535 (2) - - -
PCG Director of *2001 55,000 1,098 (2)
Research & Development 2002 127,708 - 2,554 (2) - - -
Carolyn Doll 2000 120,000 - 4,559 (3) - - -
PCG Vice-President *2001 60,000 - 13,605 (3) - - -
Marketing 2002 120,000 - 2,400 (3) - - -
Drew Doll 2000 120,000 - 18,560 (4) - - -
PCG Vice-President *2001 60,000 - 4,492 (4) - - -
Professional Services 2002 120,000 - 25,712 (4) - - -
Will Dunlavy 2000 115,000 34,250 2,800 (5) - - -
FMM Chief Operating *2001 57,500 6,250 1,148 (5) - - -
Officer 2002 115,000 6,250 2,425 (5) - - -
Tony Owens 2002 141,538 - 5,276 (6) - - -
PCG VP Sales
Paul Baird 2002 75,000 10,080 40,938 (7) - - -
PCG VP Consulting Services
Barbara J. Ray 2002 44,567 - 675 (8) - - -
Chief Financial Officer
Corporate Secretary
Narayan Krishnan 2000 60,845 - 1,217 - - -
Chief Financial Officer *2001 32,500 21,000 950 - - -
Corporate Secretary 2002 70,417 2,500 242 (9) - - -
*Period is 6 months January 1, 2001 to June 30, 2001
19
Note: Compensation amounts for 2001 are for the period January 30, 2001 through
June 30, 2001.
(1) These amounts include employer contributions to the Company's 401(k) Plan
for the benefit of Mr. Fields in the amounts of $5,278, $2,997, and $5,250 for
2002, 2001, and 2000, respectively, in addition to accrued vacation pay of
$26,923, and $27,945 for 2002 and 2001 respectively and sick leave of $16,153
for 2002. (2) These amounts include employer contributions to the Company's
401(k) Plan for the benefit of Mr. Broadhead in the amounts of $2,554, $1,098,
and $4,534 for 2002, 2001, and 2000, respectively, (3) These amounts include
employer contributions to the Company's 401(k) Plan for the benefit of Mrs. Doll
in the amount of $1,199, $4,214, and $5,000 for 2002, 2001, and 2000,
respectively, in addition to commissions of $12,406 and $345 in 2001 and 2000;
(4) These amounts include employer contributions to the Company's 401(k) Plan
for the benefit of Mr. Doll in the amount of $2,708, $1,199, $5,249, and $5,000
for 2002, 2001, and 2000, respectively, in addition to commissions of $33,333,
$3,293, and $13,311 in 2002, 2001, and 2000; (5) These amounts represent the
employer contribution to the Company's 401(k) Plan for the benefit of Mr.
Dunlavy; (6) Mr. Owens started with Park City Group July 2001. This includes
employer contributions to the Company 401K plan for the benefit of Mr. Owens in
the amount of $4,526 and relocation reimbursed expenses; (7) Mr. Baird started
with Park City Group January 2002. This includes employer contribution to the
Company 401K plan for the benefit of Mr. Baird and the amount of $40,000
relocation reimbursed expenses; (8) Ms. Ray started with Park City Group in
March 2002. This includes employer contribution to the Company 401K plan for the
benefit of Ms. Ray. Ms. Ray resigned September 17, 2002. (9) Mr. Krishnan
completed his duties with Park City Group, June 30, 2002. This includes employer
contribution to the Company 401K Plan for the benefit of Mr. Krishnan.
Employment Agreement With Randall K. Fields
Park City Group has an employment agreement with its president and chief
executive officer, Randall K. Fields, dated effective January 1, 2001. The term
of the agreement is five years, with automatic one-year renewals. This
employment agreement provides for:
o An annual base salary of $350,000, subject to annual cost of
living increases of 5%
o Use of a company vehicle
o Employee benefits that are generally provided to Park City
Group, Inc. employees
o A bonus of 5% of the consolidated and/or combined annual
pretax profits of Park City Group, Inc., and its affiliates
and subsidiaries beginning with the year ended December 31,
2001
o Payment by Park City Group, Inc. to Mr. Fields' affiliate,
Riverview Financial Corporation, an amount equal to 5% of the
value of any acquisition entered into by Park City Group
during the term of the employment agreement
Director Compensation
Our continuing outside directors, Edward C. Dmytryk, Thomas W. Wilson, Jr.,
William R. Jones, Bernard F. Brennan, and Anthony E. Meyer receive the following
compensation:
o Annual cash compensation of $6,000 reflecting $2,000 per
scheduled in person director's meetings.
o Options to acquire 125,000 shares of our common stock
(adjusted for any stock splits) to be granted annually at the
beginning of our Fiscal Year, June 30, with an exercise price
equal to the market price on the date of grant with such
options to fully vest at the end of the respective fiscal
year. Stock options pursuant to this arrangement for fiscal
year end 2002 were granted July 9, 2002.
o In November 1999, Mr. Dmytryk was granted options to purchase
25,000 shares of common stock at $1.44 that are exercisable
until December 31, 2002. On April 16, 2001, Mr. Dmytryk was
also granted options to purchase 11,000 shares of common stock
at $.27 per share that are exercisable until December 31,
2003.
401(k) Retirement Plan.
The Company offers an employee benefit plan under Benefit Plan Section 401(k) of
the Internal Revenue Code. Employees who have attained the age of 21 and have
completed twelve months of service with the Company are eligible to participate.
The Company matches 50% of the first 4% of each employee's contributions. The
expense related to the plan for the year ended June 30, 2002, 2001, December 31,
2000, and six months ended June 30, 2001 $53,910, $28,720, $38,907, $28,257,
respectively.
Indemnification for Securities Act Liabilities
Nevada law authorizes, and the Company's Bylaws and Indemnity Agreements provide
for, indemnification of the Company's directors and officers against claims,
liabilities, amounts paid in settlement and expenses in a variety of
circumstances. Indemnification for liabilities arising under the Act may be
permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing or otherwise. However, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
20
Stock Options and Warrants
We have stock option plans that enable us to issue to officers, directors,
consultants and employees nonqualified and incentive options to purchase our
common stock. At June 30, 2002, a total of 10,722,917 of such options were
outstanding with exercise prices ranging from $0.08 to $0.24 per share.
In addition, we have granted a total of 563,273 warrants to purchase shares of
our common stock. Of those warrants, 315,000 have been issued to our former
officers as condition of employment and 248,273 were issued to individuals in
relation to certain transactions. These warrants have exercise prices ranging
from $0.56 to $1.4325 per share and expire between December 30, 2002 June 30,
2004.
Compensation Committee Interlocks and Insider Participation
No executive officers of the Company serve on the Compensation Committee (or in
a like capacity) for the Company or any other entity.
[balance of page intentionally left blank]
21
Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of June 30, 2002, for each person or
entity that is known by us to beneficially own more than 5 percent of our Common
Stock. As of June 30, 2002, we had 176,343,231 shares of Common Stock
outstanding.
Amount of
Title of Beneficial Nature of Percent of
Class Name and Address of Beneficial Owner Ownership Ownership Class
--------- ------------------------------------ ----------- --------- -----------
Common Randall K. Fields, Park City, Utah 19,812,900 Direct 11.24%
Common Riverview Financial Corp. (1) 87,923,100 Direct 49.86%
Common AW Fields Acquisition, LLC 23,333,334 Direct 13.23%
------------ --------
Total 131,069,334 74.33%
============ ========
Randall K. Fields is the president and 100% shareholder of Riverview Financial
Corp.
Security Ownership of Management
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of June 30, 2002, for each of our
directors and each of our Named Executive Officers all directors and executive
officers as a group. As of June 30, 2002, we had 176,343,231 shares of Common
Stock outstanding.
Amount of
Title of Beneficial Nature of Percent of
Class Name, Position and Address of Beneficial Owner Ownership (1) Ownership Class
--------- ---------------------------------------------- ------------- --------- ------------
Common Randall K. Fields, President, CEO, Chairman
and Director 107,736,000(2) Direct and 61.09%
Park City, Utah Indirect
Stephen D. Weinroth, Director 23,333,334(3)(4) Indirect 13.23%
Officer of AW Fields Acquisition, LLC
New York, NY
Common Edward C. Dmytryk, Director
Ocala, Florida 287,660 Direct *
Common Thomas W. Wilson Jr., Director 4,125,000(5) Direct 2.34%
Westport, Connecticut
Common William R. Jones; Director
Cumming, Georgia 33,300 Direct *
Bernard F. Brennan, Director 4,791,667(6) Direct 2.72%
Point Vedra Beach, FL
Terry R. Peets, Director (8) 31,250(8) Direct *
Balboa Island, CA
Barbara J. Ray, CFO & Corporate Secretary -(7) - -
Salt Lake City, UT
------------ --------
Executive Officers & Directors as a Group 104,202,960 69.23%
============ ========
* Less than 1%.
(1) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of Common Stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for computing
the percentage of the total number of shares beneficially owned by the
designated person, but are not deemed outstanding for computing the percentage
for any other person.
(2) Includes 87,923,100 shares of common stock owned by Riverview Financial
Corp. that is owned 100% by Randall K. Fields.
22
(3) Includes warrant to purchase 11,666,667 shares of common stock.
(4) Mr. Weinroth was a member of the Board of Directors as of June 30, 2002 on
behalf of the shareholders of AW Fields Acquisitions, Inc.. His personal
ownership is 50% of AW Fields Acquisition, LLC.
(5) Options include fully vested options to purchase 2,458,333 shares of common
stock.
(6) Includes fully vested options to purchase 2,792,667 shares of common stock.
(7) Resigned 10/17/02. (8) Resigned 11/21/2002.
Change In Control
We are not currently engaged in any activities or arrangements that we
anticipate will result in a change in control of the Company.
As the Fifth Forbearance agreement occurred prior to the issuance of this Form
10-KSB, the Cooper note has been classified between current and long-term debt
pursuant to the terms of the Fifth Forbearance agreement. As such, $575,000 is
classified in current liabilities, and the remaining $825,000 is classified in
long-term liabilities.
Pursuant to the terms of the original note payable with Cooper Capital, LLC, the
Company stock partially securing the note payable equates to a controlling
interest in the Company. In the event of the Company's default on the Cooper
Capital, LLC note payable, the note holder may choose to foreclose on the
Company stock partially securing the note, which would result in Cooper Capital,
LLC becoming the majority shareholder of the company.
Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------
In May 1999, Park City Group, Inc. a Delaware corporation ("PCG") transferred to
Riverview Financial Corporation (Riverview) (its majority shareholder) all of
its rights, title and interest in a certain application software program known
and marketed as "Fresh Market Manager" including all related documentation,
copyrights, patents, intellectual property and other materials. The agreement
specifically excluded all of PCG's other software programs and applications. PCG
also retained the rights to the "Fresh Market Manager" software solely necessary
to perform PCG's obligations relating to the development and software
enhancement contract that PCG had with a retail customer.
The chief executive of Riverview, who is also the chief executive of PCG then
assigned the "Fresh Market Manager" software to Cooper Fields, LLC, ("CF") a
Utah limited liability company, which had been formed in April 1999 with PCG's
chief executive as managing member. Cooper Fields acquired the intellectual
property rights for $4,750,000 by a cash payment of $2,750,000 to Riverview and
execution of a note payable in the amount of $2,000,000.
As part of the Cooper Fields organizational and operational documents, the
members agreed to an "Overhead Sharing and Referral Agreement" whereby Cooper
Fields was to pay PCG its allocable share of direct costs and expense. CF was to
pay PCG he allocated cost in twelve monthly payment of one year with annual
renewal terms. The amount was to cover the shared costs of facilities, personnel
and operating costs. PCG recorded the reimbursed costs as a reduction to
operating costs. Accordingly, shared cost reimbursements were $620,232 in 2000.
The agreement also provided for a referral fee to be paid to either company for
the introduction of prospective customers. PCG received $82,326 in the year 2000
for a customer referral.
As of December 31, 2000, PCG had a receivable from Cooper Fields of $492,837
which was comprised of $371,355 for the overhead sharing costs, $26,350 for
interest on the unpaid amount and $95,152, net, for shared development costs. As
of June 30, 2001 PCG had a receivable from Cooper Fields of $76,594 which was
comprised of $78,613 for the overhead sharing costs, $3,145 for interest on the
unpaid amount and an offset of $5,164, net, for shared development costs.
PCG has a note payable with Riverview in the amount of $3,260,714 at June 30,
2002 (see note 7 to the audited financial statements). PCG, also, had a
receivable from Riverview for certain expenses paid by PCG in 2000. The balance
due PCG was $-0-, $36,632, and $19,411 as of June 30, 2002, 2001, and December
31, 2000, respectively.
We have a receivable from our chief executive officer for certain non-business
expenses paid by us. The balance due to us was $-0-, $48,990, and $46,396 at
June 30, 2002, 2001, and December 31, 2000.
23
Item 13. Exhibits and Reports on Form 8-K
-----------------------------------------
On April 5, 2002 the Company filed a Current Report on Form 8-K dated March 28,
2002 disclosing under Item 9 the completion of a private offering consisting of
$1.75 million promissory note exchangeable for 11,666,667 shares of common stock
and a warrant to purchase the same number of shares for $.1725 per share.
On June 12, 2002 the Company filed a Current Report on Form 8-K dated June 12,
2002 disclosing under Item 9 the exchange of the $1.75 million note for
11,666,667 shares and the joining of Stephen D. Weinroth to the Board of
Directors.
On August 7, 2002 the Company filed a Current Report on Form 8-K dated August 7,
2002 disclosing under Item 9 that the Company changed its name from Fields
Technologies Inc., (OTCBB: FLDT) and reincorporated to Park City Group, Inc.,
(OTCBB: PKCY) a Nevada corporation.
On August 16, 2002 the Company filed a Current Report on Form 8-K dated August
16, 2002 disclosing under Item 9 the completion of a private offering of
$535,000 in notes payable with warrants to purchase 5,350,000 common shares at
$.10 per share in bridge financing.
On October 15, 2002 the Company filed a Current Report on Form 8-K dated October
15, 2002 disclosing under Item 9 that Ed Dmytryk was appointed acting chief
financial officer and will continue to fulfill his duties on the Board of
Directors but resigned his position as Chairman and member of the Board's Audit
Committee. In addition, Anthony E. Meyer was approved as new member of the Board
of Directors, replacing the resigning Stephen D. Weinroth.
On November 27, 2002 the Company filed a Current Report on Form 8-K dated
November 27, 2002 disclosing under Item 9 the repayment of the August 16, 2002
bridge financing and replacing it with a private offering of $798,898 in notes
payable with warrants to purchase 19,972,451 shares of common stock at $.04 per
share in bridge financing.
On January 2, 2003, the Company filed a Current Report on Form 8-K dated
December 31, 2002 disclosing under Item 9 the restructuring of a portion of the
company's long-term debt. The company has structured a $2.25 million loan
package that retired its debt to Cooper Capital Incorporated and to Bank One
Corporation. The loan package was structured with Whale Investments, LTD.
Exhibits, Financial Statements and Schedules
The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements
of Fields Technologies, Inc. and Report of Independent Accountants are
contained in this Form 10-KSB.
Page No.
Independent Auditors' Report Tanner + Co. 30
Consolidated Balance Sheet as of June 30, 2002 31
Consolidated Statement of Operations for the year ended
June 30, 2002, 2001 (unaudited) and December 31, 2000
and for the six months ended June 30, 2001. 32
Consolidated Statement of Stockholders' Deficit for the
year ended June 30, 2002, and the six months ended
June 30, 2001. 33
Consolidated Statement of Cash Flows for the year
ended June 30, 2002, 2001 (unaudited), and
December 31, 2000, and the six months ended June 30, 2001 34
Notes to Consolidated Financial Statements 35
24
SIGNATURES
In accordance with Section 13 or 15(d) 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.
(Registrant)
Date: February 20, 2003
By /s/ Randall K. Fields
----------------------------------
President, Chief Executive Officer,
Chairman of the Board and Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Randall K. Fields President, Chief Executive Officer, February 20, 2003
----------------------- Chairman of the Board and Director
Randall K. Fields (Principal Executive Officer
/s/ Edward C. Dmytryk Acting, Chief Financial Officer & February 20, 2003
----------------------- Director
Edward C. Dmytryk
/s/ William R. Jones Director February 20, 2003
-----------------------
William R. Jones
/s/ Thomas W. Wilson, Jr. Director February 20, 2003
------------------------
Thomas W. Wilson, Jr.
/s/ Bernard F. Brennan Director February 20, 2003
------------------------
Bernard F. Brennan
/s/ Anthony E. Meyer Director February 20, 2003
------------------------
Anthony E. Meyer
25
Park City Group, Inc. & Subsidiaries
Certification Of Chief Executive And Chief Financial Officer
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, Randall K. Fields certify that
I have received this annual report on Form 10-KSB of Park City Group, Inc.:
1. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
2. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report:
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that materials information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
5. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 20, 2003
/s/ Randall K. Fields
---------------------------------------
Randall K. Fields
President and Chief Executive Officer
26
Park City Group, Inc. & Subsidiaries
Certification Of Chief Executive And Chief Financial Officer
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, Edward C. Dmytryk
I have received this annual report on Form 10-KSB of Park City Group, Inc.:
1. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
2. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report:
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
we have:
a. Designed such disclosure controls and procedures to ensure
that materials information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
5. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 20, 2003
/s/ Edward C. Dmytryk
----------------------------
Edward C. Dmytryk
Chief Financial Officer
27
Park City Group, Inc. & Subsidiaries
Consolidated Financial Statements
June 30, 2002 and June 30, 2001
Index to Consolidated Financial Statements
Page No.
Independent Auditors' Report Tanner + Co. 30
Consolidated Balance Sheet as of June 30, 2002 31
Consolidated Statement of Operations for the year ended
June 30, 2002, 2001 (unaudited) and December 31, 2000
and for the six months ended June 30, 2001. 32
Consolidated Statement of Stockholders' Deficit for the
year ended June 30, 2002, and the six months ended
June 30, 2001. 33
Consolidated Statement of Cash Flows for the year
ended June 30, 2002, 2001 (unaudited), and
December 31, 2000, and the six months ended June 30, 2001 34
Notes to Consolidated Financial Statements 35
28
Park City Group, Inc. & Subsidiaries
Independent Auditors' Report
To the Board of Directors and
Shareholders of Park City Group, Inc.
We have audited the accompanying consolidated balance sheet of Park City Group,
Inc. and Subsidiaries as of June 30, 2002, and the related consolidated
statements of operation, stockholders' deficit, and cash flows for the year
ended June 30, 2002 and six months ended June 30,2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Park City Group,
Inc. and subsidiaries as of June 30, 2002 and 2001 and the results of their
operations and their cash flows for the year ended June 30, 2002 and six months
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Tanner + Co.
Salt Lake City, Utah
October 3, 2002, except for notes 8 and 20, which are dated December 24, 2002
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Park City Group, Inc.
We have audited the statements of operations, stockholders' deficit and cash
flows of Park City Group, Inc. (a majority-owned subsidiary of Riverview
Financial Corporation) for the year ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Park City
Group, Inc. for the year ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Sorensen, Vance & Company, P.C.
Salt Lake City, Utah; April 10, 2001
29
Park City Group, Inc. & Subsidiaries
Consolidated Balance Sheet
As of June 30, 2002
Assets
Current assets:
Cash $ 140,972
Receivables, net:
Trade 735,764
Prepaid expenses and other current assets 40,230
----------
Total current assets 916,966
Property and equipment, net 176,957
Other assets:
Deposits 33,802
Capitalized software costs, net 2,356,807
----------
Total other assets 2,390,609
==========
Total assets $3,484,532
==========
Liabilities and Stockholders'
Deficit
Current liabilities
Accounts payable $ 567,148
Accrued liabilities 434,246
Related party payables 100,000
Deferred revenue 1,630,868
Notes payable and current portion of
long-term debt and capital lease
obligations 1,386,304
----------
Total current liabilities 4,118,566
Long-term and related party notes payable 4,085,714
Accrued interest on related party notes
payable 479,169
----------
Total liabilities 8,683,449
Commitments and contingencies -
Stockholders' deficit:
Preferred stock, $.01 par value, 30,000,000 shares
authorized no shares issued, -
Common stock, $.01 par value, 300,000,000 shares
authorized, 176,343,232 issued and outstanding 1,764,434
Additional paid-in-capital 5,614,417
Stock subscriptions receivable (1,068,200)
Treasury stock, 100,000 shares (30,000)
Accumulated deficit (11,479,568)
----------
Total stockholders' deficit (5,198,917)
----------
Total liabilities and stockholders'
deficit $3,484,532
==========
See accompanying notes to consolidated financial statements
30
Park City Group, Inc. & Subsidiaries
Consolidated Statement of Operations
Year Ended Six Months Year Ended
Year Ended June 30, 2001 Ended December
June 30, 2002 (unaudited) June 30, 2001 31, 2000
------------ ------------ ------------ ------------
Revenues:
Software licenses $ 1,664,207 $ 1,275,233 $ 216,929 $ 2,115,545
Maintenance and support 1,888,415 2,091,130 1,002,816 2,066,523
Consulting and other 316,798 298,679 275,456 769,074
Development and software enhancement - - - 1,562,000
------------ ------------ ------------ ------------
3,869,420 3,665,042 1,495,201 6,513,142
Cost of revenues 839,700 1,029,344 489,788 1,013,930
------------ ------------ ------------ ------------
Gross profit 3,029,720 2,635,698 1,005,413 5,499,212
Operating expenses:
Research and development 725,562 566,086 289,537 1,035,926
Sales and marketing 1,614,710 693,379 416,335 693,480
Selling, general and administrative expenses 1,908,983 1,189,025 432,922 1,044,074
Reorganization and professional expense - 476,762 420,970 145,347
------------ ------------ ------------ ------------
Total operating expenses 4,249,255 2,925,252 1,559,764 2,918,827
------------ ------------ ------------ ------------
(Loss) income from operations (1,219,535) (289,554) (554,351) 2,580,385
------------ ------------ ------------ ------------
Other income (expense):
Interest income (expense) (771,225) (454,908) (353,576) (194,044)
Gain on forgiveness of debt - 278,295 278,295 -
------------ ------------ ------------ ------------
Total other income (expense) (771,225) (176,613) (75,281) (194,044)
------------ ------------ ------------ ------------
(Loss) income before income taxes (1,990,760) (466,167) (629,632) 2,386,341
------------ ------------ ------------ ------------
Income tax (expense) benefit:
Current - (69,432) (991,935)
Deferred (1,400,000) (990,000) - -
------------ ------------ ------------ ------------
(1,400,000) (1,059,432) - (991,935)
------------ ------------ ------------ ------------
Net (loss) income $ (3,390,760) $ (1,525,599) $ (629,632)$ 1,394,406
------------ ------------ ------------ ------------
Preference dividend to shareholders (670,000) - - -
------------ ------------ ------------ ------------
Net (loss) income available to common shareholders $ (4,060,760) $ (1,525,599) $ (629,632)$ 1,394,406
------------ ------------ ------------ ------------
Weighted average shares, basic and diluted 155,737,000 113,345,000 113,345,000 109,624,000
------------ ------------ ------------ ------------
Basic and diluted (loss) earnings per share $ (0.02) $ (0.01) $ (0.01)$ 0.01
------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
31
Park City Group, Inc. & Subsidiaries
Consolidated Statement of Stockholders' Deficit
Year Ended June 30, 2002 and Six Months Ended June 30, 2001
Common Stock Additional
--------------------- Paid-In Subscription Treasury Accumulated
Shares Amount Capital Receivable Stock Deficit Total
----------- ---------- ---------- ----------- -------- ------------ -----------
Balance, January 1, 2000 109,623,600 $1,096,236 $5,198,298 $ - $ - $ (8,853,582) $(2,559,048)
Net income - - - - - 1,394,406 1,394,406
----------- ---------- ---------- ----------- -------- ------------ -----------
Balance, December 31, 2000 109,623,600 1,096,236 5,198,298 - - (7,459,176) (1,164,642)
Acquisition of Fresh
Market Manager LLC - - (5,073,936) - - - (5,073,936)
Acquisition of AmeriNet
Group.com., Inc. 39,300,023 393,000 1,574,589 (1,323,200) - - 644,389
Common stock issued for
debt 352,941 3,530 130,588 - - - 134,118
Net loss - - - - - (629,632) (629,632)
----------- ---------- ---------- ----------- -------- ------------ -----------
Balance, June 30, 2001 149,276,564 1,492,766 1,829,539 (1,323,200) - (8,088,808) (6,089,703)
Common stock issued for:
Cash 10,466,667 104,667 2,072,083 - - - 2,176,750
Services 566,667 5,667 67,333 - - - 73,000
Cancellation of 4,466,667 44,667 (44,667) - - - -
rights
Conversion of debt 11,666,667 116,667 1,456,795 - - - 1,573,462
Beneficial conversion
feature on AW Fields note - - 233,334 - - - 233,334
Payment received on stock
subscription receivable - - - 255,000 - - 255,000
Purchase of treasury stock (100,000) - - - (30,000) - (30,000)
Net loss - - - - - (3,390,760) (3,390,760)
----------- ---------- ---------- ----------- -------- ------------ -----------
Balance, June 30, 2002 176,343,232 $1,764,434 $5,614,417 $(1,068,200) $(30,000) $(11,479,568) $(5,198,917)
=========== ========== ========== =========== ======== ============ ===========
See accompanying notes to consolidated financial statements
32
Park City Group, Inc. & Subsidiaries
Consolidated Statement of Cash Flows
Year Ended Six Months Year Ended
Year Ended June 30, 2001 Ended December
June 30, 2002 (unaudited) June 30, 2001 31, 2000
----------- ----------- ----------- ----------
Cash flows from Operating Activities:
Net (loss) income $(3,390,760) $(1,525,599) $ (629,632) $1,394,406
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 146,452 165,798 74,080 183,437
Bad debt expense 10,840 67,396 (114,758) 182,154
Gain on forgiveness of debt - (278,295) (278,295) -
Gain on disposition of assets 2,189 - - -
Deferred income taxes 1,400,000 1,092,835 - 940,000
Stock issued for services 73,000 - - -
Amortization of beneficial conversion 77,777 - - -
feature
Decrease (increase) In:
Trade receivables (212,429) 550,553 161,169 304,155
Related party receivables (23,625) (427,386) 124,461 (471,854)
Prepaid and other assets (4,264) 2,017 12,794 8,094
Stock subscription receivable 206,800 - - -
Deposits - 983 - 348
Increase (decrease) In:
Accounts payable (110,940) 526,741 326,402 (511)
Accrued liabilities 73,218 50,637 (18,975) (288,478)
Related party payable 100,000 - - -
Deferred revenue 95,126 (366,775) (112,231) (1,364,963)
Accrued interest, related party 313,757 274,659 7,456 115,809
Net cash (used in) provided
by operating activities (1,242,859) 133,564 (447,529) 1,002,597
Cash flows from investing activities:
Purchase of property and equipment (50,789) (44,066) (16,296) (68,641)
Net cash received in acquisitions - 179,240 179,240 -
Capitalization of software costs (1,701,850) (654,957) (654,957) -
Proceeds from disposal of property 1,946 - - -
----------- ----------- ----------- ----------
Net cash used in investing
activities (1,750,693) (519,783) (492,013) (68,641)
Cash flows from financing activities:
Net increase (decrease) in line of credit 395,000 105,000 (45,000) 13,000
Receipt of subscription receivable 255,000 - - -
Purchase of treasury stock (30,000) - - -
Proceeds from debt - 134,118 134,118 -
Proceeds from related party note payable - 250,000 - -
Proceeds from convertible promissory note 1,667,587 - - -
Payments on notes payable and capital leases (1,548,295) (93,714) (30,336) (95,156)
Proceeds from issuance of common stock 2,176,750 395,404 - -
----------- ----------- ----------- ----------
Net cash provided by (used
in) financing activities 2,916,042 46,574 58,782 (82,156)
----------- ----------- ----------- ----------
Net (decrease) increase in
cash and cash equivalents (77,510) 9,185 (880,760) 851,800
Cash and cash equivalents at beginning of period 218,482 209,297 1,099,242 247,442
----------- ----------- ----------- ----------
Cash and cash equivalents at end of period $ 140,972 $ 218,482 $ 218,482 $1,099,242
=========== =========== =========== ==========
See accompanying notes to consolidated financial statements
33
Park City Group, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2002 and June 30, 2001
1. Summary of Significant Accounting Policies, Organization and Principles of
Consolidation
The Company was incorporated in Delaware on May 11, 1990 as Riverview Software,
Inc. In 1990, the Company changed its name to Fields Software Group, Inc. and in
1993, the Company's name was changed again to Park City Group, Inc. (PCG).
On June 13, 2001, Park City Group, Inc. (FTI) (formerly known as Fields
Technologies, Inc. and prior to that AmeriNet Group.com,Inc.) issued 109,623,600
shares of common stock in exchange for 98.76% of the issued and outstanding
shares of PCG. For accounting purposes the business combination is treated as a
reverse acquisition or a recapitalization of PCG, with PCG being treated as the
accounting acquirer. On August 7, 2002 Fields Technologies, Inc., changed its
name to Park City Group, Inc., and reincorporated in Nevada. Throughout these
financial statements when the terms "Company" or "Park City Group" are used it
is referring to the current Nevada successor Park City Group, Inc.
The financial statements presented herein reflect the consolidated financial
position of PCG and FTI as of June 30, 2002, and operations of PCG and FTI since
June 13, 2001, the date of the reverse acquisition. As of December 31, 2000 and
for the year ended December 31, 2000, the financial statements presented herein
reflect the financial position and operations of PCG. All intercompany
transactions and balances have been eliminated in consolidation.
On April 5, 2001, the Company acquired for $3,750,000 Fresh Market Manager (FMM)
which was substantially owned by the primary shareholder of the Company and
another individual. In as much as the transaction was between entities of common
ownership and FMM had a deficit in equity, the deficit in equity and the
purchase price was accounted for as a distribution to the primary shareholder.
The consolidated statements include the operations of FMM since April 5, 2001,
the date of the transaction.
Business Activity
The Company designs, develops, markets and supports proprietary software
products. These products are designed to be used in retail businesses having
multiple locations to assist in the management of business operations on a daily
basis and communicate results of operations in a timely manner. The principal
markets for the Company's products are with retail companies which have
operations in North America and to a lesser extent in Europe and Asia.
Use of Estimates and Reclassifications
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that materially affect the amounts reported in the consolidated
financial statements. Actual results could differ from these estimates. In
addition, certain amounts that were previously reported have been reclassified
to conform to the current period presentation. The methods, estimates and
judgments the Company uses in applying its most critical accounting policies
have a significant impact on the results it reports in its financial statements.
The U.S. Securities and Exchange Commission has defined the most critical
accounting policies as the ones that are most important to the portrayal of the
Company's financial condition and results, and require the Company to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
the Company's most critical accounting policies include: revenue recognition,
allowance for doubtful accounts, capitalization of software development costs
and impairment of long-lived assets.
34
Cash and Cash Equivalents
The Company considers all short-term instruments with an original maturity of
three months or less to be cash equivalents.
Concentration of Credit Risk
The Company maintains cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which when realized have been within the range of
management's expectations. The Company does not require collateral from its
customers.
The Company's accounts receivable are derived from sales of products and
services primarily to customers operating multi-location retail stores, hotels,
and hospitals. At June 30, 2002, accounts receivable includes amounts due from
customers totaling $735,764. Of these receivables two customers accounted for
78% of accounts receivable at June 30, 2002.
The Company received approximately $3.5 million of its revenue from 6 major
customers during the year ended June 30, 2002. At June 30, 2001 and December 31,
2000, accounts receivable includes $318,955 and $216,202, respectively, due from
four major customers. The Company received approximately 55%, 47% and 39% of its
revenue from five major customers during the periods ended December 31, 2002,
June 30, 2001 and December 31, 2000, respectively.
Depreciation and Amortization
Depreciation and amortization of property and equipment is computed using the
straight line method based on the following estimated useful lives:
Years
-----
Furniture and fixtures 3 - 7
Computer equipment 3 - 7
Equipment under capital leases 3 - 7
Leasehold improvements see below
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life of the improvements.
Warranties
The Company offers a limited warranty against software defects for a general
period of ninety days. Customers who are not completely satisfied with their
software purchase may attempt to be reimbursed for their purchases outside the
warranty period. The Company accrues amounts for such warranty settlements that
are probable and can be reasonably estimated.
Revenue Recognition
Revenue for the sale of software licenses is recognized upon delivery of the
software unless specific delivery terms provide otherwise. If not recognized
upon delivery, revenue is recognized upon meeting specified conditions, such as,
meeting customer acceptance criteria. In no event is revenue recognized if
significant Company obligations remain. Customer payments are typically received
in part upon signing of license agreements, with the remaining payments received
in installments pursuant to the agreements. Until revenue recognition
requirements are met, the cash payments received are treated as deferred
revenue.
Maintenance and support services that are sold with the initial license fee are
recorded as deferred revenue and recognized ratably over the initial service
period. Revenues from maintenance and other support services provided after the
initial period are generally paid in advance and are recorded as deferred
revenue and recognized on a straight-line basis over the term of the agreements.
Consulting service revenues are recognized in the period that the service is
provided or in the period such services are accepted by the customer if
acceptance is required by agreement.
35
Software Development Costs
The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. Research and development
costs have been charged to operations as incurred. From inception through
January 2001, the Company had viewed the software as an evolving product.
Therefore, all costs incurred for research and development of the Company's
software products through December 31, 2000 and 1999 have been expensed as
incurred. During January 2001, technological feasibility of a major revision to
the Company's Fresh Market Manager and the Company's 4x development platform was
established. Development costs incurred from January 2001 through June 30, 2002
of $2,356,807 relating to the software which achieved feasibility have been
capitalized. Software development costs will be amortized on a straight-line
basis over a period of four years. Amortization will begin when the products are
available for general release to the public, which is anticipated to be at
various times between September 2002 and March 2003.
Research and Development Costs
Research and development costs include personnel costs, engineering, consulting,
and contract labor and are expensed as incurred for software which has not
achieved technological feasibility.
Income Taxes
The Company's results of operations are included in the consolidated tax return
of Riverview Financial Corporation its primary shareholder. The Company is
required to pay income taxes to Riverview based upon an inter-company tax
sharing agreement when a tax cost was incurred. Income taxes are calculated and
accrued in these financial statements as if the Company filed tax returns based
solely upon its operations.
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. This method
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities.
Earnings Per Share
The computation of basic (loss) earnings per common share is based on the
weighted average number of shares outstanding during each year. The computation
of diluted earnings per common share is based on the weighted average number of
shares outstanding during the year, plus the common stock equivalents that would
arise from the exercise of stock options and warrants outstanding, using the
treasury stock method and the average market price per share during the year.
Options and warrants to purchase 21,500,001 shares of common stock at prices
ranging from $.10 to $1.44 per share were outstanding at June 30, 2002, but were
not included in the diluted loss per share calculation because the effect would
have been antidilutive.
The shares used in the computation of the Company's basic and diluted earnings
per common share are reconciled as follows:
June 30, June 30, December 31,
2002 2001 2000
----------- ----------- -----------
Weighted average 155,737,000 113,345,000 109,624,000
Dilutive effect of options
and warrants - - -
----------- ----------- -----------
Weighted average shares
outstanding assuming dilution 155,737,000 113,345,000 109,624,000
=========== =========== ===========
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables,
accruals and notes payable. The carrying amount of cash, receivables, payables
and accruals approximates fair value due to the short-term nature of these
items. The notes payable also approximate fair value based on evaluations of
market interest rates.
Unaudited Financial Information
The accompanying consolidated financial statements of operations and cash flow
of the Company for the twelve months ended June 30, 2001 have been prepared
without audit. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
36
2. Financial Results and Liquidity
For the year ended June 30, 2002, the Company incurred a net loss, experienced a
net cash outflow from operations, and had current liabilities in excess of
current assets.
As current and potential customers have anticipated the general release of the
Company's major revisions of its ActionManager, Fresh Market Manager, and 4x
operating platform, new license purchases have declined. The associated
consulting revenues related to new license installations have also decreased.
Subsequent to June 30, 2002, communications with and commitments from the
Company's current customers and potential customers indicate sales of the
revised products will increase. During November and December 2002, the Company
has refinanced certain debt obligations of the Company. See Note 20.
The Company believes that cash flow from increased sale, as well as the ability
and commitment of its majority shareholder to contribute funds necessary for the
Company to continue to operate, will allow the Company to fund its currently
anticipated working capital, capital spending, and debt service requirements
during the fiscal year ended, June 30, 2003. The financial statements do not
reflect any adjustment should the Company's anticipated changes in the
operations not be achieved.
3. Receivables
Trade accounts receivable consist of the following at June 30, 2002:
Trade Accounts Receivable $778,869
Allowance for doubtful accounts (43,105)
$735,764
4. Property and Equipment
Property and equipment are stated at cost and are summarized by major
classifications as follows:
June 30, 2002
-------------
Computer equipment $ 1,296,089
Furniture and equipment 173,031
Equipment under capital lease 23,259
Leasehold improvements 85,795
-----------
1,578,174
Less accumulated depreciation
and amortization (1,401,217)
-----------
$ 176,957
===========
5. Intangible Asset
Intangible asset consists of the following at June 30, 2002
Capitalized software costs $2,356,807
Less accumulated amortization -
----------
$2,356,807
==========
6. Accrued Liabilities
Accrued liabilities consist of the following as of June 30, 2002:
Accrued vacation and sick leave $ 238,615
Other payroll liabilities 56,708
Other accrued liabilities 8,806
Commissions 130,117
----------
$ 434,246
==========
37
7. Notes Payable and current portion of long-term debt and capital lease
obligations
The Company has the following short-term notes payable and current
portion or long-term debt and capital lease obligations at June 30, 2002.
Note payable to a bank at prime plus 1% (5.2%), due in
monthly installments through October 2003, secured by
personal assets of the Company's major shareholder and
personal guarantee. $ 750,000
Note payable to a partnering company with an interest
rate of 10% due through August 2002 and secured by the
Company's assets. 57,685
Current portion of long-term debt and capital lease
obligation 578,619
----------
$1,386,304
==========
8. Long-term and related party notes payable The Company had the following
long-term notes payable
Note payable to a former owner at an interest rate of
16%, due through September 2003 and secured by Company
stock, a condominium owned by an officer and major
shareholder of the Company, and guarantees by Riverview
(former parent and beneficially owned by the Company's
major stockholder) and an officer and the major
shareholder of the Company $1,400,000
Notes payable to a stockholder at an interest
rate of 12% due in August 2003 and unsecured 3,260,714
Capital lease obligation on office equipment, net of
depreciation $16,349, due in monthly installments of
$517 through November 2002, inputed interest rate of
8.62% 3,619
4,664,333
Less current portion (578,619)
----------
$4,085,714
==========
Maturities of long-term debt at June 30, 2002 are as follows:
Year Amount
2003 $ 578,619
2004 4,085,714
----------
$4,664,333
==========
In June and again in July 2002, the Company renegotiated the payment terms to
the note payable to Cooper Capital, LLC. The Company obtained payment extensions
in exchange for forbearance fees of $340,000. The terms disclosed in the
footnote reflect the extension of terms.
38
In November 2002 the Company renegotiated certain terms of the Cooper Capital,
LLC note under the Fifth Forbearance agreement as the result of PCG failing to
make the principal and interest installments due in September and October. The
Fifth Forbearance requires that interest on the $1,325,000 remaining principal
balance be at 16% per annum and that repayment of such debt be as follows:
o November and December 2002 interest only
payments
o December 31, 2002, principal payment of
$200,000
o January 31, 2003 - June 30, 2003 the Greater of
$50,000 monthly or the Formula Amount
o July 1, 2003 one-third of the then remaining
principal balance plus accrued interest.
o August 1, 2003 one-half of the then remaining
principal balance plus accrued interest.
o September 1, 2003 all remaining unpaid
principal plus accrued interest.
The Fifth Forbearance agreement requires that if on the last day of each month
beginning November 30, 2002, unless all amounts due under the note are paid in
full before such date there shall accrue a forbearance fee of $25,000 per month.
This is in addition to the $340,000 in fees required by the Amended Forbearance
Agreement. The Company can reduce the amount of the forbearance fees to be paid
by staying current on its payments or by repaying all the debt before March
2003.
As the Fifth Forbearance agreement occurred prior to the issuance of this Form
10-KSB, the Cooper note has been classified between current and long-term debt
pursuant to the terms of the Fifth Forbearance agreement. As such, $575,000 is
classified in current liabilities, and the remaining $825,000 is classified in
long-term liabilities.
Pursuant to the terms of the original note payable with Cooper Capital, LLC, the
Company stock partially securing the note payable equates to a controlling
interest in the Company. In the event of the Company's default on the Cooper
Capital, LLC note payable, the note holder may choose to foreclose on the
Company stock partially securing the note, which would result in Cooper Capital,
LLC becoming the majority shareholder of the company.
In December 2002, the Company obtained a $2,000,000 note payable funding from an
entity controlled by a shareholder of the Company, a $250,000 advance from an
officer and majority shareholder and a credit facility of $200,000 from an
officer and majority shareholder. The proceeds were used to repay the Cooper
Capital, LLC note payable and accrued interest and a note payable to a bank and
accrued interest. Cooper Capital, LLC agreed to waive any outstanding
forbearance fees for full payment of outstanding principal and interest.
In August 2002, Riverview agreed to subordinate the note payable to the rights
of the holders of the Bridge Note A (see Subsequent Events footnote 20). In
exchange for this subordination the interest rate on the note was changed to 12%
compounded annually. In addition, in November 2002 the Company negotiated with
Riverview an extension of the payment date for the note payable from December
2002 to August 15, 2003. In consideration for the extension of the due date,
7,000,000 common shares were issued to Riverview.
9. Deferred Revenue
Deferred revenue consisted of the following as of June 30, 2002:
Software licenses $ 524,102
Maintenance and Support 840,268
Consulting and Other 266,498
----------
$1,630,868
==========
10. Income Taxes
The Company provides for deferred income taxes on temporary differences that
represent tax effects of transactions reported for tax purposes in periods
different than for book purposes.
The provisions for income taxes differ from the amount computed at statutory
rates as follows:
Period Ended Period Ended Period Ended
June 30, June 30, December 31,
2002 2001 2000
----------- --------- ---------
Income tax benefit (provision) at
statutory rates $ 1,225,000 $ 284,000 $(931,000)
---------
Change in valuation allowance (2,559,000) (274,000) -
---------
Other (66,000) (10,000) (60,935)
----------- --------- ---------
$(1,400,000) $ - $(991,935)
=========== ========= =========
Current income tax expense $ - $ - $ 51,935
Deferred income tax expense (1,400,000) - 940,000
----------- --------- ---------
$(1,400,000) $ - $ 991,935
=========== ========= =========
39
The deferred income tax benefit (liability) for the periods ended June 30, 2002
and 2001 and December 31, 2000 is as follows:
June 30, 2002 June 30, 2001 December 31, 2000
------------- ------------- -----------------
Short-Term
Allowance for bad debts $ 22,000 $ 63,000 $ 63,000
Accrued vacation 66,000 58,000 58,000
Accrued sick pay 26,000 - -
Deferred revenue 305,000 - -
Other - 5,000 (1,000)
Valuation allowance (419,000) - -
----------- ----------- -----------
Deferred Tax Asset $ - $ 126,000 $ 120,000
=========== =========== ===========
Long-Term
Depreciation 52,000 $43,000 $44,000
Net Operating loss carry forward 4,853,000 3,909,000 3,640,000
Valuation allowance (4,905,000) (2,678,000) (2,404,000)
----------- ----------- -----------
Deferred tax asset $ - $ 1,274,000 $ 1,280,000
=========== =========== ===========
As of June 30, 2002, the Company had available net operating losses (NOL) for
federal and state tax purposes of approximately $12,444,000. The NOL carry
forward is limited to use against future taxable income due to changes in
ownership and control. If a substantial change in the Company's ownership should
occur, there would be an annual limitation of the amount of the NOL carry
forward which could be utilized. The following schedule summarizes the net
operating losses available to the Company with the corresponding expiration
periods:
Expiration
Period of Loss Amount Year
-------------- ------ ----------
1992 $ 1,505,000 2007
1995 920,000 2010
1997 5,825,000 2012
1998 1,082,000 2013
2001 692,000 2021
2002 2,420,000 2022
---- -----------
$12,444,000
===========
11. Preference Dividend
On March 14 and 15, 2002, certain shareholders and the Company entered into
Conversion Agreements, whereby these certain shareholders received 4,466,667
additional shares of the Company's common stock for the cancellation of certain
rights and provisions of the original subscription agreements, all of which had
been entered into during fiscal year 2002. The Company's issuance of additional
shares to these shareholders is deemed a preference dividend to shareholders,
and is valued at $670,000.
12. Supplemental Disclosure of Cash Flow Information
Interest paid during the years ended June 30, 2002, June 30, 2001, December 31,
2000 and six months ended June 30, 2001 was $401,911, $94,784, and $238,373
respectively. Income taxes paid during the years ended June 30, 2002, June 30,
2001, December 31, 2000 and six months ended June 30, 2001 $0, $0, $1,731 and
$0, respectively.
Non-Cash Transactions Disclosure 2002
During the year ended June 30, 2002, the Company entered into a convertible note
payable with detachable warrants with a principal balance of $1,750,000 and cash
proceeds of $1,667,587. During June 2002, the note holder converted the
principal balance of $1,750,000 into 11,666,667 shares of the Company's common
stock. The convertible note payable had been issued with detachable warrants,
which were valued at $233,334. Prior to the conversion, $77,777 of the warrants'
value had been amortized into interest expense, and the remaining $155,557 of
the warrant's unamortized value at the date of conversion affected the value of
the 11,666,667 shares of the Company's common stock issued upon conversion of
the note payable.
During the year ended June 30, 2002, the Company issued 566,667 shares of common
stock as payment for consulting and legal services in the amount of $73,000.
40
Non-Cash Transactions Disclosure 2001
During the six months ended June 30, 2001, the Company acquired the assets and
liabilities of FMM (note 1), a company owned by a shareholder and another
individual for debt. The net assets purchased consisted of the following:
Accounts receivable $ 308,449
Prepaid expenses 954
Property and equipment 100,215
Line of Credit (250,000)
Accounts payable (713,401)
Accrued liabilities (32,184)
Deferred revenue (70,000)
Debt (3,478,799)
-----------
Net liabilities acquired (4,134,766)
Amount of refinanced debt 3,860,714
Gain on refinancing of debt 278,295
-----------
Net cash received in acquisition $ 4,243
===========
During the six months ended June 30, 2001, the Company acquired assets and
liabilities of a company in a reverse acquisition for stock. The net assets
purchased consisted of the following:
Accounts receivable $ 350,000
Subscriptions receivable 206,800
Accounts payable (87,411)
-----------
469,389
Net Assets purchased (294,392)
-----------
Net cash received in acquisition $ 174,997
===========
During the six months ended June 30, 2001, the Company issued 352,941 shares of
common stock as payment of debt in the amount of $134,118.
13. Commitments and Contingencies.
Capital Leases: Amortization expense related to capitalized leases is included
in depreciation expense and was $12,716, $28,172, $56,647 and $51,651 for the
years ended June 30, 2002 and 2001, six months ended June 30, 2001 and December
31, 2000 and 1999, respectively. Accumulated amortization was $7,721 and
$109,076 as of June 30, 2002 and December 31, 2000, respectively.
Operating Leases. In September 1998, the Company entered into a lease agreement
for office space. Under the terms of the lease agreement, the Company was
required to pay $16,723 per month with a 4% annual increase in the base rent
through December 2000. The lease agreement was renewed in February 2001, and
under the terms of the new agreement, the Company must pay $18,482 per month
with a 4% annual increase in base rent until December 31, 2003. Total rent
expense under this agreement for the period ended June 30, 2002 was $221,784.
Total rent expense under this agreement for the six months ended June 30, 2001
was $112,069. Total rent expense under this agreement, net of reimbursed rent
expense of $51,000 which was paid by a related party for shared office space,
was $166,306 for 2000.
The Company incurred equipment rent expense of $1,906, $-0-, $2,240 and $7,934,
in the years ended June 30, 2002, June 30, 2001, December 31, 2000 and for the
six months ended June 30, 2002 respectively.
41
Future minimum lease payments for office space and equipment subsequent to June
30, 2002 are as follows:
Year Amount
---- ------
2003 $242,115
2004 125,751
2005 4,988
2006 4,988
2007 2,494
Thereafter -
--------
Total $380,336
========
14. Legal
Debra Elenson vs. Fields Technologies, Randall K. Fields (Filed -January 2002,
in the Circuit Court of the 11th Judicial Circuit in and for Dade County,
Florida): The plaintiff alleges, among other causes of actions, that a private
placement memorandum pursuant to which the plaintiff had purchased shares of
Fields Technologies, contained financial statements which were not prepared in
accordance with generally accepted accounting principles and the requirements of
SEC regulation S-X. The plaintiff alleges fraud, misrepresentation, unregistered
sales of securities and other causes of actions. The plaintiff seeks a
rescission of her investment in the company, damages and legal fees. The
defendants deny each of plaintiff's allegations, belief that the plaintiff's
claims have no merit and will vigorously defend the matter. The defendants will
seek to have the case removed to federal district court in Florida.
Lawrence A. Locke et al vs. Market Watch Corporation, and Fields Technologies,
Inc. (Filed - September 2001, in the Circuit Court of Oregon in Multnomah
County): The plaintiff alleges, among other causes of action, that the
defendants sent or caused to be sent unsolicited facsimile advertisement in
violation of the Telephone Consumer Protection Act. The plaintiff is seeking to
have the case certified as a class action and is looking for damages caused by
wear and tear of his facsimile machine and use of phone lines, toner, ink,
paper, etc. This matter was settled in September 2002 for a nominal amount.
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 action 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 but is in the preliminary stages of discovery.
Approximately two weeks following the filing of the complaint against 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.
15. Employee Benefit Plan
The Company offers an employee benefit plan under Benefit Plan Section 401(k) of
the Internal Revenue Code. Employees who have attained the age of 21 and have
completed twelve months of service with the Company are eligible to participate.
The Company matches 50% of the first 4% of each employee's contributions. The
expense related to the plan for the year ended June 30, 2002, 2001, December 31,
2000, and six months ended June 30, 2001 $53,910, $28,720, $38,907, $28,257,
respectively.
16. Stock Compensation Plans
Employee Stock Compensation. In October 2000, the Company entered into an
incentive stock option plan indenture. Officers and employees of the Company are
eligible to participate in the plan. Eligibility for participation expires on
the ninetieth day following the end of the participants association with the
Company. The maximum aggregate number of shares that may be optioned and sold is
200,000. The plan is administered by a Committee. The exercise price for each
share of common stock purchasable under any incentive stock option granted under
this plan shall be not less than 100% of the fair market value of the common
stock, as determined by the stock exchange on which the common stock trades on
the date of grant. If the incentive stock option is granted to a shareholder who
possesses more than 10% of the Company's voting power, then the exercise price
shall be not less than 110% of the fair market value on the date of grant. All
incentive stock options expire after 10 years. If the incentive stock option is
held by a shareholder who possesses more than 10% of the Company's voting power,
then the incentive stock option expires after five years. If the option holder
is terminated, then the incentive stock options granted to such holder expire no
later than three months after the date of termination. The reverse acquisition
transacted in June 2001 qualifies as a termination for all option holders under
this plan. As such there were no options outstanding at June 30, 2002 under this
plan.
42
Officers and Directors Stock Compensation. In October 2001, the Board of
Directors approved the following compensation for directors who are not employed
by the Company.
o $2,000 for every Board of Directors meeting attended, four are
held each year.
o Stock Options to purchase 125,000 shares of the Company's
common stock, par value $.01 at the price listed on the OTC on
the date grant, vesting over one year, and expiring in five
years. These options are to be granted for each year the
director is a member of the board and is prorated for any
directors who may serve a partial year. No shares were
reserved for this plan.
o Reimbursement of all travel expenses related to performance of
Directors duties on behalf of the Company.
As of June 30, 2002 there were outstanding to directors fully vested options
outstanding to purchase 531,250 common shares at prices of $.10 - $.14 per
share, and expiring at various dates through February 2007. Subsequent to June
30, 2002, the Board of Directors approved options to purchase a total of 750,000
common shares at $.09, the OTC price on the date of grant, fully vesting as of
June 30, 2003, and expiring July 8, 2007.
In December 2001, the Board of Directors approved a plan to incentivize members
of the Board of Directors, including those employed by the Company, to purchase
shares of stock of the Company. Therefore, for any common stock purchased at
fair market value by a member of the Board of Directors, the Company will match
with an option to purchase additional shares equivalent to those purchased, at
the same price of the original purchased shares and expiring two years from the
date of grant. Under this plan the Company had options to purchase 5,666,667
shares of common stock at prices of $.11 - $.24 and expiring at various times
through March 2004.
In January 2001, the Company entered into an Officer's and Director's Option
Plan. This plan authorizes the grant of non-qualified stock options and
incentive stock options. Officers and directors of the Company who are not
provided other compensation by the Company and who are not serving as designees
of other persons are eligible to participate in the plan. Only those who are
Officers and Directors who are also employees may be awarded incentive stock
options. The maximum aggregate number of shares that may be optioned and sold is
1,000,000. The plan is administered by a Committee. Members of the Company's
Board of Directors during the calendar year starting on January 1, 2001 who are
not provided other compensation by the Company and who are not serving as
designees of other persons shall be compensated for their services during the
period from January 1, 2001 as follows: (i) For basic service as a Director,
each Director shall be granted an option to purchase 15,000 shares of common
stock at an exercise price based on the last reported transaction price reported
on the OTC Bulletin Board on December 22, 2000. These options will vest at a
rate of 1,000 per month, with all unvested options vesting on December 31, 2001.
(ii) For service on a permanent committee, the option will be increased by an
additional 10,000 shares that will vest at a rate of 800 per month, with all
unvested options vesting on December 31, 2001. (iii) For service as the chair of
a permanent committee, the option will be increased by an additional 5,000
shares that will vest at a rate of 400 shares per month, with all unvested
options vesting on December 31, 2001. The Committee shall establish the exercise
price at the time any option is granted. However, the exercise price for each
share of common stock purchasable under any incentive stock option granted under
this plan shall be not less than 100% of the fair market value of the common
stock, as determined by the stock exchange on which the common stock trades on
the date of grant. If the incentive stock option is granted to a shareholder who
possesses more than 10% of the Company's voting power, then the exercise price
shall be not less than 110% of the fair market value on the date of grant. All
incentive stock options expire after 10 years. If the incentive stock option is
held by a shareholder who possesses more than 10% of the Company's voting power,
then the incentive stock option expires after five years. If the option holder
is terminated, then the incentive stock options granted to such holder expire no
later than three months after the date of termination. The reverse acquisition
transacted in June 2001 qualifies as a termination for all option holders under
this plan.
For options holders granted incentive stock options exercisable for the first
time during any calendar year and in excess of $100,000 (determined by the fair
market value of the shares of common stock as of the grant date), the excess
shares of common stock shall not be deemed to be purchased pursuant to incentive
stock options.
Officers, Key Employees, Consultants and Directors Stock Compensation In January
2000, the Company entered into a non-qualified stock option & stock incentive
plan. Officers, key employees, consultants and directors of the Company are
eligible to participate. The maximum aggregate number of shares which may be
granted under this plan was originally 1,000,000 and was subsequently amended to
2,000,000 on March 8, 2000. The plan is administered by a Committee. The
exercise price for each share of common stock purchasable under any incentive
stock option granted under this plan shall be not less than 100% of the fair
market value of the common stock, as determined by the stock exchange on which
the common stock trades on the date of grant. If the incentive stock option is
granted to a shareholder who possesses more than 10% of the Company's voting
power, then the exercise price shall be not less than 110% of the fair market
value on the date of grant. Each option shall be exercisable in whole or in
installments as determined by the Committee at the time of the grant of such
options. All incentive stock options expire after 10 years. If the incentive
stock option is held by a shareholder who possesses more than 10% of the
Company's
43
voting power, then the incentive stock option expires after five years. If the
option holder is terminated, then the incentive stock options granted to such
holder expire no later than three months after the date of termination. For
options holders granted incentive stock options exercisable for the first time
during any fiscal year and in excess of $100,000 (determined by the fair market
value of the shares of common stock as of the grant date), the excess shares of
common stock shall not be deemed to be purchased pursuant to incentive stock
options.
A schedule of the options and warrants at June 30, 2002 is as follows:
Number of
Options Warrants Price per Share
------- -------- ---------------
Outstanding at
December 31, 1999 1,398,075 - 0.04-0.95
Granted - - -
Exercised - - -
Expired (141,250) - 0.95
---------- -------- ----------
Outstanding at
December 31, 2000 1,256,825 - 0.04-0.95
Assumed in reverse 297,800 713,273 0.27-1.44
acquisition
Exercised - - -
Canceled (1,256,825) - 0.04-0.95
---------- -------- ----------
Outstanding at
June 30, 2001 297,800 713,273 $0.27-1.44
Granted 24,700,001 - $0.10-0.25
Exercised - - -
Called (100,000) - $0.25
Cancelled (3,100,000) - $0.25
Expired (297,800) (150,000) $0.27-1.44
---------- -------- ----------
Outstanding at June 30, 2002 21,500,001 563,273 $0.10-1.44
Warrants Prior to the reverse acquisition. FTI issued 713,273 warrants. Of the
warrants, 315,000 were issued to officers of AmeriNet as a condition of
employment, and 398,273 were issued to individuals in relation to certain
transactions prior to the reverse acquisition and in relation to the reverse
acquisition.
17. Stock-Based Compensation
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123) which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair value method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the
air value method had been adopted. The Company has opted for the latter
approach.
Had compensation expense for the Company's option plan been determined based on
fair value at the grant dates, as prescribed in SFAS No. 123, the Company's net
loss would have been as follows:
Year Ended Six Months Ended Year Ended
June 30, June 30, December 31,
2002 2001 2000
----------- --------- ----------
Net (loss) income
As reported $(3,140,760) $(629,485) $1,394,406
Pro forma (3,540,719) (629,485) 1,394,406
Earnings per common share-basic and diluted-as reported $(0.02) $(0.01) $0.01
Earnings per common share-basic and diluted-pro forma $(0.03) $(0.01) $0.01
44
The weighted-average grant-date fair value of options granted during year ended
June 30, 2002 was $0.12 per share. The increase in the number of options and
warrants outstanding during the period ended June 30, 2001 was due to the
Company's assumption of options and warrants as a result of the reverse
acquisition transaction. The Company did not issue options during the period
after the reverse acquisition.
Accordingly, no compensation expense has been recognized for the stock option
plans during the period ended June 30, 2001. Also, during the year ended
December 31, 2000, the Company did not issue any options or warrants. The fair
value for the options granted in 2002 were estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions:
Risk-free interest rate 4.00%
Expected life (in years) 2.5
Expected volatility 178.95%
Expected dividend yield 0.00%
The following table summarizes information about fixed stock options and
warrants outstanding at June 30, 2002:
Options and Warrants Outstanding Options and Warrants
at June 30, 2002 Exercisable at June 30, 002
Weighted
average Weighted Weighted
Number remaining average Number average
Range of Outstanding at contractual exercise Exercisable at exercise
exercise prices June 30, 2002 life(years) price June 30, 2002 price
--------------- ------------- ----------- ----- ------------- -----
$0.10 - $0.11 14,391,667 2.55 $ 0.10 14,391,667 $ 0.10
$0.12 - $0.14 375,000 4.32 0.14 375,000 0.14
$0.25 - $0.25 6,733,334 0.90 0.25 6,733,334 0.25
$0.56 - $0.69 250,000 1.67 0.61 250,000 0.61
$0.70 - $0.75 248,273 2.42 0.75 248,273 0.75
$1.28 - $1.44 65,000 1.66 1.40 65,000 1.40
---------- ---- ------ ---------- ------
22,063,274 2.06 $ 0.16 22,063,274 $ 0.16
========== ==== ====== ========== ======
18. Related Party Transactions
Fresh Market Manager, LLC (Formerly Known as Cooper Fields, LLC) In May 1999,
PCG transferred to Riverview Financial Corporation (Riverview) (its majority
shareholder) all of its rights, title and interest in a certain application
software program known and marketed as "Fresh Market Manager" including all
related documentation, copyrights, patents, intellectual property and other
materials. The agreement specifically excluded all of PCG's other software
programs and applications. PCG also retained the rights to the "Fresh Market
Manager" software solely necessary to perform PCG's obligations relating to the
development and software enhancement contract that PCG had with a retail
customer.
The chief executive of Riverview, who is also the chief executive of PCG then
assigned the "Fresh Market Manager" software to Cooper Fields, LLC (CF), a Utah
limited liability company which had been formed in April 1999 with the chief
executive as managing member. CF acquired the intellectual property rights for
$4,750,000 by a cash payment of $2,750,000 to Riverview and execution of a note
payable in the amount of $2,000,000.
As part of the CF organizational and operational documents, the members agreed
to an "Overhead Sharing and Referral Agreement" whereby CF would pay to PCG its
allocable share of direct costs and expense. CF was to pay PCG the allocated
cost in twelve monthly payments for one year with annual renewal terms. The
amount was to cover the shared costs of facilities, personnel and operating
costs. PCG recorded the reimbursed costs as a reduction to operating costs.
Accordingly, shared cost reimbursements were $99,342 for the period from January
1, 2001 to April 5, 2001 (Date of Acquisition) and $620,232 in 2000. The
agreement also provided for a referral fee to be paid to either company for the
introduction of prospective customers. PCG received $82,326 in the year 2000 for
a customer referral.
45
As of December 31, 2000, PCG had a receivable of $492,837 which was comprised of
$371,355 for the overhead sharing costs, $26,350 for interest on the unpaid
amount and $95,152, net, for shared development costs. As of June 30, 2001 PCG
had a receivable of $76,594 which was comprised of $78,613 for the overhead
sharing costs, $3,145 for interest on the unpaid amount and an offset of $5,164,
net, for shared development costs.
PCG has a note payable with Riverview (see note 8). PCG, also, has a receivable
from Riverview for certain expenses paid by PCG in 2000. The balance due PCG was
$36,632 and $19,411 as of June 30, 2002 and December 31, 2000, respectively.
Chief Executive Officer
The Company has a receivable from its chief executive officer for certain
non-business expenses paid by the Company. The balance due the Company was $-0-,
$48,990, and $46,396 as of June 30, 2002, 2001, and December 31, 2000,
respectively. As of June 30, 2002 the company owed the chief executive officer
$100,000, which was subsequently rolled into the Bridge Notes (see footnote 20).
19. Mergers and Acquisitions
AmeriNet Group.com, Inc., Merger Transaction
PCG entered into a reorganization agreement with AmeriNet Group.com, Inc.
(AmeriNet) on June 13, 2001. AmeriNet had previously reported its operations to
March 31, 2001 on form 10QSB. AmeriNet had several transactions subsequent to
March 31, 2001 and prior to the reverse acquisition with Park City Group.
AmeriNet had sold off or closed all AmeriNet operations, assets and liabilities
prior to the reverse acquisition with Park City Group.
On April 5, 2001, PCG, Riverview, and the members of Fresh Market Manager,
LLC("FMM"), entered into an agreement whereby the Company acquired the member
interests in CF for $3,750,000 (see note 1). The agreement contains numerous
covenants that provide certain limitations on compensation increases, dividends,
related party transactions, borrowings and the creation of liens. PCG's Chief
Executive, who was the other member of CF, assigned his interest to the Company
that makes the Company the sole owner of FMM. PCG's Chief Executive was elected
as the sole manager of FMM.
20. Subsequent Events
Capitalization
In August 2002 in an effort to improve the capitalization and meet the Compa00's
obligations the Company issued $575,000 in Bridge Note financing, at a stated
interest rate of 10% per annum with a due date of December 15, 2002 and which
were issued at a 7% discount. This financing carried warrants to purchase
5,350,000 common shares at $.10 per share, expiring in August 2007. The discount
from the warrants was determined to be $183,109, which was to be amortized into
interest over the term of the Bridge Notes. Total interest expense including the
7% interest discount, 10% interest and $183,109 warrants discount is $242,553,
or an effective annual interest rate of 49%.
As a result of the price of Bridge Note A warrants being issued at $.10 per
share the antidilution rights associated with the sale of shares made earlier in
the year ( AW Fields Acquisition and private placement including directors and
officer) were triggered. Resulting in 12,556,667 additional shares being issued
and the number of shares to be purchased under warrants with antidilution rights
increased by 8,458,334 shares, the warrant price to purchase a total of
20,125,001 common shares was reduced to $.10 .
In November 2002, Bridge Note A was repaid and replaced with a new Bridge Note
totaling $739,000 at a stated interest rate of 10% per annum, a due date of July
31, 2003 and was issued at a 7.5% discount.. The new Bridge Note B carried
warrants to purchase 19,972,451 shares of common stock at $.04 per share,
expiring in November 2007. The discount from the warrants was determined to be
$738,981, which is to be amortized into interest over the term of the Bridge
Note B. Total interest expense including the 7.5% interest discount, 10%
interest and $738,981 warrants discounts is $848,829 or an effective annual
interest rate of 110%.
As a result of the price of the warrants in Bridge Note B being $.04 per share
this triggered the anti-dilution rights associated with warrants of the first
Bridge Note and the anti-dilution rights associated with the sale of shares made
earlier in the year ( AW Fields Acquisition and private placement including
directors and officer). As a result an additional 12,814,286 common shares were
issued and the number of shares to be purchased under warrants with
anti-dilution rights increased by 8,625,000 shares, the warrant price to
purchase a total of 28,750,001 and 5,350,000 common shares were reduced to $.07
and $.04 per share, respectively. The AW Fields Acquisition agreement allows for
the further anti-dilution right to the $.04 per share level, but AW Fields
Acquisition has waived this right for this transaction.
In December 2002, the Company obtained a $2,000,000 note payable funding from a
related party, a $250,000 advance from an officer and a credit facility of
$200,000 from an officer. The proceeds were used to repay other outstanding
notes of payable of approximately $2,119,000 and accrued interest. The
$2,000,000 note payable has an interest rate of 18%, a due date of December 24,
2004, and a monthly interest only payments until the due date. The $250,000
advance and the $200,000 credit facility have an interest rate that shall be no
greater than 18% and a due date no sooner than December 24, 2004. As a result of
the new $2,000,000 note payable, the Company incurred a fee paid in 3,809,524
shares of common stock and a warrant to purchase 7,142,857 shares of common
stock, exercisable at $0.07 per share, immediately exercisable and expiring in
December 2004. The discount from the warrants was determined to be $179,711,
which is to be amortized into interest expense over the two-year term of the
note. The value of the shares of common stock issued as a finders fee have a
fair market value of $152,381, which is to amortized into expense over the
two-year term of the note. Total interest expense over the expected term of the
note including the 18% interest and $179,711 warrants discount is $899,711, or
an effective annual interest rate of 23%.
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21. Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and superseded
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions and amends APB No. 51,
Consolidated Financial Statements. SFAS 144 is effective for the Company on July
1, 2002. The adoption will not have any material impact on the Company's
consolidated financial statements.
In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44, and
64, Amendment of SFAS No. 13, and Technical Corrections. Among other things,
SFAS 145 rescinds various pronouncements regarding early extinguishment of debt
and allows extraordinary accounting treatment for early extinguishment only when
the provisions of Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transaction, are met. SFAS 145 provisions regarding early extinguishment of debt
will be effective for the Company July 1, 2002, the beginning of fiscal year
ended 2003. The adoption will require the loss on early extinguishment of debt
recorded during the year ended June 30, 2003, be reclassified from an
extraordinary item, and reported in income before extraordinary items.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS 146"). The standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by Emerging Issue Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 replaces Issue No. 94-3. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
SFAS 146 is not expected to have any material effect on the Company's financial
statements.
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