FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2004
Commission File Number 000-03718
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 37-1454128
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
333 Main Street, P.O. Box 5000; Park City, Utah 84060
(Address of principal executive offices)
(435) 649-2221
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X]Yes [ ]No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 18, 2004
---------------------------- --------------
Common Stock, $.01 par value 266,221,821
PARK CITY GROUP, INC.
Table of Contents to Quarterly Report on Form 10-QSB
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheet as of March 31,
2004 (Unaudited) 3
Consolidated Condensed Statements of Operations for
the three and nine months ended March 31, 2004 and
2003 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for
nine months ended March 31, 2004 and 2003 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operations 9
Item 3 Controls and Procedures 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 6 Exhibits and Reports on Form 8-K 13
Exhibit 31 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
2
PARK CITY GROUP, INC.
Consolidated Condensed Balance Sheet (Unaudited)
March 31, 2004
Assets
Current assets:
Cash $ 897,152
Receivables, net of allowance for doubtful accounts of $4,430 972,392
Prepaid expenses and other current assets 179,704
---------------
Total current assets 2,049,248
Property and equipment, net of accumulated depreciation and amortization of $1,522,041 84,337
Other assets:
Deposits and other assets 32,056
Capitalized software costs, net of accumulated amortization of $398,818 664,697
---------------
Total other assets 696,753
Total assets $ 2,830,338
===============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 330,434
Accrued liabilities 586,427
Deferred revenue 1,344,909
Current portion of capital lease obligations 31,492
Notes payable, net of discount of $67,392 1,932,608
Related party notes payable, net of discounts of $146,223 1,068,110
Related party lines of credit 230,000
---------------
Total current liabilities 5,523,980
Long-term liabilities
Related party note payable, net of discount of $32,814 3,263,593
Capital lease obligations, less current portion 8,104
---------------
Total liabilities 8,795,677
---------------
Commitments and contingencies -
Stockholders' deficit:
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued -
Common stock , $0.01 par value, 300,000,000 shares authorized;
254,340,418 issued and outstanding 2,543,404
Additional paid-in capital 8,345,089
Accumulated deficit (16,853,832)
---------------
Total Stockholders' deficit (5,965,339)
---------------
$ 2,830,338
===============
See accompanying notes to consolidated condensed financial statements.
3
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
For the Three and Nine Months Ended March 31, 2004 and 2003
Three Nine
Months Ended Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Software licenses $ 834,000 $ 733,500 $ 2,462,276 $ 1,884,698
Maintenance and support 588,532 514,651 1,694,287 1,462,173
Consulting and other 86,347 143,229 454,056 463,879
----------- ----------- ----------- -----------
1,508,879 1,391,380 4,610,619 3,810,750
Cost of revenues 206,321 305,230 828,641 567,104
----------- ----------- ----------- -----------
Gross Margin 1,302,558 1,086,150 3,781,978 3,243,646
----------- ----------- ----------- -----------
Operating expenses:
Research and development 286,638 286,354 1,015,164 611,682
Sales and marketing 204,246 347,713 673,022 1,064,478
General & administrative 398,142 282,522 1,345,764 1,557,319
Earnings from operations 413,532 169,562 748,026 10,167
Other income (expense):
Gain on settlement of payable 86,934 - 86,934 -
Interest expense (399,139) (542,174) (1,205,870) (1,430,914)
----------- ----------- ----------- -----------
Income(loss) before income taxes 101,326 (372,612) (370,910) (1,420,747)
(Provision) benefit for income taxes
Current - - - -
Deferred
- - - -
----------- ----------- ----------- -----------
Net income (loss) $ 101,326 $ (372,612) $ (370,910) $(1,420,747)
=========== =========== =========== ===========
Weighted average shares, basic 241,675,000 205,534,000 232,165,000 194,670,000
=========== =========== =========== ===========
Weighted average shares, diluted 250,715,000 205,534,000 232,165,000 194,670,000
=========== =========== =========== ===========
Basic income (loss) per share $ 0.00 $ 0.00 $ 0.00 $ (0.01)
=========== =========== =========== ===========
Diluted income (loss) per share $ 0.00 $ 0.00 $ 0.00 $ (0.01)
=========== =========== =========== ===========
See accompanying notes to consolidated condensed financial statements
4
PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended March 31, 2004 and 2003
2004 2003
---- ----
Cash Flows From Operating Activities:
Net loss $ (370,910) $(1,420,747)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 242,684 74,821
Bad debt expense - 8,094
Stock issued for services and expenses 466,978 372,988
Gain on settlement of payable (86,934) -
Gain on disposition of assets - (1,822)
Repricing of warrants - 11,178
Amortization of warrant and other discount on debt 387,788 672,734
Decrease (increase) in:
Trade receivables (26,989) 299,904
Prepaid and other assets (3,680) (15,615)
Increase (decrease) in:
Accounts payable (256,022) (212,691)
Accrued liabilities 24,966 (52,394)
Deferred revenue 126,839 (209,340)
Advances payable (175,000) 175,000
Related party payable - 100,000
Accrued interest, related party 32,513 444,963
----------- -----------
Net cash provided by operating activities 362,233 47,073
----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (8,051) (13,287)
Capitalization of software costs - (815,848)
----------- -----------
Net cash used in investing activities (8,051) (829,135)
----------- -----------
Cash Flows From Financing Activities:
Net (decrease) increase in line of credit 255,000 (62,500)
Payments on notes payable and capital leases (20,002) (136,304)
Proceeds from exercise of stock options 238,667 -
Proceeds from issuance of bridge loans - 1,010,000
----------- -----------
Net cash provided by financing activities 473,665 811,196
Net increase in cash 827,847 29,134
Cash at beginning of period 69,305 140,972
----------- -----------
Cash at end of period $ 897,152 $ 170,106
=========== ===========
See accompanying notes to consolidated condensed financial statements.
5
PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2004
Note 1. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for quarterly financial
statements, and include all adjustments of a normal recurring nature, which in
the opinion of management are necessary in order to make the financial
statements not misleading. Although the Company believes that the disclosures in
these unaudited financial statements are adequate to make the information
presented for the interim periods not misleading, certain information and
footnote information normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, and these financial statements should be read in
conjunction with the Company's audited annual financial statements included in
the Company's June 30, 2003 Annual Report on Form 10-KSB.
Note 2. Liquidity
As shown in the consolidated condensed financial statements, the Company
incurred a net loss for the nine months ended March 31, 2004 and incurred a loss
for the year ended June 30, 2003. The Company has a working capital deficit at
March 31, 2004. However, the Company has been profitable and shown cash provided
by operations in both of the last two quarters.
The Company reduced its overall monthly cash operating expenses by approximately
$90,000 in October 2002. In October 2003 the Company again reduced monthly cash
operating expenses by another approximately $70,000. A combination of efforts to
judiciously monitor, control and, where appropriate, reduce ongoing expenses has
been adopted by the Company's management. Beginning October 1, 2003, 10% of
employee compensation has been paid in shares of common stock. For the three and
nine months ended March 31, 2004, 406,267 and 1,406,397 shares of common stock,
respectively, were issued in lieu of $24,376 and $54,380 of cash compensation,
respectively. The Company needs continued sales to generate working capital, and
has demonstrated its products for many new potenetial customers and presented
proposals to several of these. Customer interest in the products appears strong
and management believes that new license sales will increase, although there is
no assuance that the Company will realize significant additional revenue.
To date, the Company has financed its operations through operating revenues,
loans from directors, officers and stockholders, loans from the CEO and majority
shareholder, and private placements of equity securities. The Company
anticipates that it will meet its working capital requirements primarily through
increased revenue, while controlling and reducing costs and expenses. However,
no assurances can be given that the Company will be able to meet its working
capital requirements, or that its revenues will increase. Bridge notes payable
totaling approximately $950,000 including interest that were to mature on July
31, 2004 were converted to common stock in April 2004. These Bridge notes are
primarily with directors and the CEO. The note payable to Riverview Financial
Corporation for $3,296,406, plus interest was extended to July 31, 2007, in
conjunction with the conversion of the Bridge Notes in April 2004. Riverview
Financial Corporation is owned by the Company's CEO. The line of credit was
reduced to $230,000 at March 31, 2004, with the balance repaid in April 2004.
Additional debt of $2,345,000 is due in December 2004. The Company is actively
pursuing financing sources to either repay or refinance this debt. Several
proposals from financing sources have been received, but there is no assurance
that the Company will be able to successfully negotiate a final financial
package.
Note 3 - Stock-Based Compensation
At March 31, 2004 and 2003, the Company has issued stock options to certain of
its employees. The Company accounts for these options under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income or loss, as all options granted had an exercise
price equal to or greater than the market value of the underlying common stock
on the date of grant. Had compensation cost for the Company's stock option plans
been determined based on fair value consistent with the provisions of SFAS No.
123, Accounting for Stock-Based Compensation, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below for
the three and nine months ended March 31, 2004 and 2003:
6
Three months ended Nine months ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss) available to common shareholders,
as reported $ 101,326 $ (372,612) $ (370,910) $ (1,420,747)
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects - - (49,500) (59,965)
--------- ---------- ---------- ------------
Net income (loss) - pro forma $ 101,326 $ (372,612) $ (420,410) $ (1,480,712)
Income (loss) per share:
Basic and diluted - as reported $ 0.00 $ (0.00) $ (0.00) $ (0.01)
Basic and diluted - pro forma $ 0.00 $ (0.00) $ (0.00) $ (0.01)
Note 4 - Related Party Transactions
In August 2002 the Company issued approximately $575,000 in Bridge Note A
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 amortized into interest over the term of the Bridge Notes. For the
period from the date of Bridge Note A to December 31, 2002, $223,378 of the
interest discount and $152,461 of the warrants discount were amortized into
interest expense. Total interest expense including the 7% interest discount, 10%
interest and $183,109 warrants discount was $242,553, or an effective annual
interest rate of 49%. The individual note holders include the Company's CEO and
certain directors, a former director and a principal of AW Fields Acquisition.
As a result of the price of Bridge Note A warrants being issued at $.10 per
share in August 2002, the antidilution rights held by certain investors (AW
Fields Acquisition and private placements, including directors and an officer)
were triggered. This resulted 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 $0.10. The issuance of the 12,556,667
shares resulted in an increase to common stock of $125,666, an increase to
additional paid in capital of $79,750, and a charge to general and
administrative expense for shares issued to an officer and directors of
$205,416.
In November 2002 Bridge Note A was repaid and replaced with a new Bridge Note B
totaling approximately $799,000 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 being 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%.
7
As a result of the price of the warrants in Bridge Note B issued in November
2002 being $.04 per share, the anti-dilution rights associated with warrants of
Bridge Note A 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) were triggered. 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, and the
warrant price to purchase a total of 28,750,001 and 8,297,619 common shares were
reduced to $.07 and $.04 per share, respectively. The AW Fields Acquisition
agreement allowed for the further anti-dilution right to the $.04 per share
level, but AW Fields Acquisition waived this right for this transaction. The
issuance of the 12,814,286 shares resulted in an increase to common stock of
$128,143, an increase to additional paid-in capital of $39,428, and a charge to
general and administrative expense for shares issued to an officer and directors
of $167,571, all during the quarter ended December 31, 2002. The modification of
Bridge Note A warrants from an exercice price of $.07 to $.04 resulted in an
expense of $11,178.
In July 2003 Bridge Note B was repaid and replaced with a new Bridge Note C
totaling $868,334 at a stated interest rate of 18% and a due date of July 31,
2004. The new Bridge Note C required an incentive fee of 1,738,680 shares of
common stock to be issued to the note holders. The fair value of these shares is
$86,933 ($.05 per share), which is being amortized into interest expense over
the term of Bridge Note C. During the three and nine months ended March 31, 2004
$23,709 and $55,321, respectively, were amortized into interest expense. An
additional 1,738,680 shares of common stock were issued to the noteholders, as
called for by the notes, in November 2003. The fair value of these shares was
$86,933, which is being amortized into interest expense over the remaining term
of Bridge Note C. During the three and nine months ended March 31, 2004 $28,978
and $48,296, respectively, were amortized into interest expense. An additional
1,448,892 shares of common stock were issued to the noteholders, as called for
by the notes, in February 2004. The fair value of these shares was $86,933,
which is being amortized into interest expense over the remaining term of Bridge
Note C. During the three months ended March 31, 2004 $17,387 was amortized into
interest expense. The AW Fields Acquisition agreement and agreements with
certain directors allow for the further anti-dilution right to the $.05 per
share level, but they have waived their rights for this transaction. The
remaining Bridge Note B discounts of $7,049 and $87,477 resulting from an
interest discount and discount associated with warrants issued, respectively,
were amortized into interest expense in July 2003.
In April 2004 an agreement was reached with the Bridge Note holders to convert
the notes and accrued interest, totaling $950,138, to common stock at the
closing market price of the stock on the day of conversion. The Company issued
6,786,702 shares of common stock to effect this transaction. The Bridge Note
holders have entered into an agreement for an orderly sale of these shares over
the coming weeks. The Company remains contingently liable for up to $125,000 if
the Bridge Note holders are unable to sell these shares for at least the price
of conversion.
Effective September 1, 2003 the Company reached agreement with Riverview
Financial Corporation to combine the principal and accrued interest on the note
payable into a new note, to extend the due date of the note to July 31, 2004,
and to convert $1,100,000 of the principal balance into common stock. The
Company has issued 15,714,286 shares of common stock to effect this transaction.
The balance of the new note is $3,296,406. The note is subordinated to the
Bridge Loan and no payments may be made until the Bridge Loan is paid in full.
The interest rate on the note remains at 12%, but until the Bridge Loan is paid
in full, interest may only be paid with additional shares of common stock at the
fair market price, but not less than $0.07 per share. No shares have been issued
in payment of interest. In April 2004, and in conjunction with the conversion of
the Bridge Note C, Riverview agreed to extend the due date of the note for three
years to July 31, 2007.
8
In May 2003 the Company arranged an unsecured, revolving line of credit with its
CEO. Advances bear interest at 12%, and are repaid as funds availability
permits. The line of credit expires July 31, 2004. Because advances under the
line of credit are expected to be repaid as soon as cash flow allows, borrowings
under the line of credit of $230,000 at March 31, 2004 have been classified as a
current liability. Interest expense for the three and nine months ended March
31, 2004 was $12,360 and $28,315, respectively. The remaining balance of the
line of credit was repaid in April 2004.
Note 5 - Supplemental Cash Flow Information
In connection with the note payable funding in December 2002 from Whale
Investment, Ltd. the Company issued warrants and issued shares of common stock
as a finders fee. The value of the warrants was recorded as a discount on the
note payable, of which $22,464 and $67,392 were amortized into interest expense
during the three and nine months ended March 31, 2004, respectively. The value
of the shares issued for the finders fee was recorded as a prepaid expense, of
which $19,048 and $57,144 were amortized into expense during the three and nine
months ended March 31, 2004, respectively.
The fair value of the 857,143 shares issued in connection with the $345,000 note
payable funding in December 2002 from Riverview obtained as a condition of the
Whale Investment, Ltd. funding was recorded as a discount on the note payable,
of which $2,143 and $6,429 were amortized into interest expense during the three
and nine months ended March 31, 2004, respectively.
The fair value of the 7,000,000 shares issued in August 2003 in connection with
the extension of the due date of the Riverview note payable to January 2004 was
recorded as a discount to the note payable, of which $32,813 and $98,439 were
amortized to interest expense during the three and nine months ended March 31,
2004, respectively.
In October 2003 the Company issued 1,250,000 shares of common stock in
settlement of a payable of approximately $38,000. In February 2004 and November
2003 the Company issued 406,267 and 1,000,130 shares of common stock,
respectively, to employees in lieu of $24,736 and $30,004 in cash compensation,
respectively. In November 2003 through March 2004 the Company issued a total of
350,000 shares of common stock to a consultant for investor relations services
valued at approximately $26,000. In November 2003 the Company issued 1,000,000
shares of common stock in settlement of a payable of approximately $50,000 and
prepaid expense to that vendor of approximately $45,000. In March 2004 the
Company issued 86,923 shares of common stock for marketing services of $10,600.
In March 2004 the Company issued a total of 168,420 shares of common stock to
four outside directors in settlement of unpaid Board fees of $16,000. In March
2004 the Company issued 8,405 shares of common stock to an employee in lieu of
cash compensation of $1,000. In March 2004 the Company issued a total of
3,171,296 shares of common stock to senior management employees and officers in
lieu of cash compensation totaling $150,000.
In March 2004, the Company financed $14,207 of property and equipment purchases
with capital leases. In March 2004, the CEO exercised options for 2,000,000
shares of common stock for $80,000, which reduced the Company's line of credit
payable to the CEO. In March 2004, $105,000 of notes payable and $2,094 of
accrued interest was converted into 1,529,917 shares of common stock.
In September 2003 the Company settled a lawsuit with Debra Elenson for an
additional 1,125,000 shares of common stock issued to the plaintiff valued at
$56,250 and 525,000 warrants valued at $26,250 and payment of the plaintiff's
legal fees of $21,348. The fair value of the shares and warrants and the legal
fees were recorded as an accrued expense at June 30, 2003.
In January 2004 the Company settled litigation with some of the parties in its
remaining lawsuit related to the reverse merger with Amerinet in June 2001 for
an additional 1,896,079 shares of common stock valued at $75,843.
For the nine months ended March 31, 2004 and 2003 the Company paid interest in
cash of $379,208 and $194,951, respectively. No cash was paid for income taxes.
See also Note 4.
9
Note 6 - Net Loss Per Common Share
Basic net loss per common share ("Basic EPS") excludes dilution and is computed
by dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share ("Diluted EPS") reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised or converted into common stock. The
computation of Diluted EPS does not assume exercise or conversion of securities
that would have an anti-dilutive effect on net loss per common share.
Options and warrants to purchase 74,884,203 and 76,242,870 shares of common
stock for the nine months ended March 31, 2004 and 2003, respectively, were not
included in the computation of Diluted EPS. The inclusion of these options would
have been anti-dilutive, thereby decreasing net loss per common share.
Options and warrants to purchase 22,195,453 and 0 shares of common stock for the
three months ended March 31, 2004 and 2003, respectively, were included in the
computation of Diluted EPS. However, the remaining 52,688,750 and 76,242,870
shares of common stock for the three months ended March 31, 2004 and 2003,
respectively, were excluded from the computation of Diluted EPS as the inclusion
of these options would have been anti-dilutive.
Note 7 - Subsequent Event
See the discussion of the conversion of Bridge Note C, together with accrued
interest, to common stock in Note 4 above.
Riverview agreed to a three year extension of the maturity of the note payable,
as discussed in Note 4 above.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Form 10-KSB for the year ended June 30, 2003 incorporated herein by reference.
Forward-Looking Statements
This quarterly report on Form 10-QSB contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results could differ materially
from those projected in the forward looking statements as a result of a number
of risks and uncertainties, including those risks factors contained in our Form
10-KSB annual report at June 30, 2003, incorporated herein by reference.
Statements made herein are as of the date of the filing of this Form 10-QSB with
the Securities and Exchange Commission and should not be relied upon as of any
subsequent date. Unless otherwise required by applicable law, we do not
undertake, and specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
10
Three Months Ended March 31, 2004 and 2003
Total revenues were $1,508,879 and $1,391,380 for the quarters ended March 31,
2004 and 2003, respectively, an 8% increase in 2004 over the comparable period
for 2003. Software license revenues were $834,000 and $733,500 for the quarters
ended March 31, 2004 and 2003, respectively, a 14% increase. License sales in
2004 were for additional licenses to two existing customers. License sales in
2003 include a sale of Fresh Market Manager to a new customer and a bulk sale of
licenses to a new reseller totaling $600,000. Maintenance and support revenues
were $588,532 and $514,651 for the quarters ended March 31, 2004 and 2003,
respectively, a 14% increase. This increase is primarily attributable to
maintenance contracts on new license sales and increased maintenance on
additional locations for existing customers. Consulting and other revenue was
$86,347 and $143,229 for the quarters ended March 31, 2004 and 2003,
respectively, a 40% decrease. Service revenues in 2004 declined significantly
from 2003 because there were fewer ongoing projects during the quarter that
required implementation services.
Research and development expenses were $286,638 and $286,354 for the quarters
ended March 31, 2004 and 2003, respectively. During the quarter ended March 31,
2003 certain software development costs were being capitalized. With the release
of the new software products, development costs were no longer being capitalized
after March 31, 2003 and were included in expenses. Expenses, including cost of
revenues, in 2004 are lower than the total of capitalized and expensed costs in
2003 primarily because of cost control measures and expense reductions
implemented in September 2003.
Sales and marketing expenses were $204,246 and $347,713 for the quarters ended
March 31, 2004 and 2003, respectively, a 41% decrease. This decrease is
primarily attributable to sales team reorganization, related reduction in sales
personnel and consultants, and a reallocation of certain personnel costs to
general and administrative expense based on changes in duties.
General and administrative expenses were $398,142 and $282,522 for the quarters
ended March 31, 2004 qnd 2003, respectively, a 41% increase. This increase is
primarily attributable to a reallocation of certain personnel costs from sales
and marketing expense based on changes in duties and the cost of a newly
implemented investor relations program.
Interest expense was $399,139 and $542,174 for the quarters ended March 31, 2004
qnd 2003, respectively, a 26% decrease. This decrease is primarily attributable
to the discounts associated with warrants and shares issued in connection with
the Bridge Notes, that were amortized into interest expense, being lower in 2004
than 2003.
In August 2003 the Company reached an agreement with its landlord regarding the
payment of unpaid rent, interest and late payment penalties totaling $236,934.
The agreement allowed for a note payable at 18% due in January 2006, or a
discounted payment of $150,000 in January 2004. The Company made the payment of
$150,000 in January 2004 to satisfy the liability, resulting in a gain on
settlelment of the payable of $86,934.
11
Nine Months Ended March 31, 2004 and 2003
Total revenues were $4,610,619 and $3,810,750 for the nine months ended March
31, 2004 and 2003, respectively, a 21% increase in 2004 over the comparable
period for 2003. Software license revenues were $2,462,276 and $1,884,698 for
the nine months ended March 31, 2004 and 2003, respectively, a 31% increase.
License sales in 2004 included the recognition of deferred prepaid license sales
of $350,000 related to agreements with two resellers; and a bulk sale of
licenses to a new reseller totaling $918,888. The reseller is anticipated to
sell these licenses to end user customers during the next twelve months. Under
terms of the agreement, the reseller can purchase additional licenses when their
inventory has been resold. License sales were made to two new customers and two
existing customers. License sales in 2003 included both new and existing
customers, and a bulk sale of licenses to a new reseller totaling $600,000.
Maintenance and support revenues were $1,694,287 and $1,462,173 for the nine
months ended March 31, 2004 and 2003, respectively, a 16% increase. This
increase is primarily attributable to maintenance contracts on new license sales
and increased maintenance on additional locations for existing customers.
Consulting and other revenue was $454,056 and $463,879 for the nine months ended
March 31, 2004 and 2003, respectively, a 2% decrease. Other sales in 2004
included the sale of the Company's domain name of parkcity.com for $150,000. The
Company now uses parkcitygroup.com as its domain name. Service revenues in 2004
declined from 2003 because there were no new license sales during the quarter
ended March 31, 2004 that required implementation services.
Research and development expenses were $1,015,164 and $611,682 for the nine
months ended March 31, 2004 and 2003, respectively, a 65% increase. During the
nine months ended March 31, 2003 certain software development costs were being
capitalized. With the release of the new software products, development costs
were no longer being capitalized in the nine months ended March 31, 2004 and
were included in expenses. This increased expense is partially offset by a
general reduction of expenses and headcount implemented in September 2003.
Sales and marketing expenses were $673,022 and $1,064,468 for the nine months
ended March 31, 2004 and 2003, respectively, a 37% decrease. This decrease is
primarily attributable to a sales team reorganization and related reduction in
sales personnel implemented in October 2002 and a reallocation of certain
personnel costs to general and administrative expense based on changes in
duties.
General and administrative expenses were $1,345,764 and $1,557,319 for the nine
months ended March 31, 2004 and 2003, respectively, a 14% decrease. This
decrease is primarily attributable to cost control measures and expense
reductions implemented in October 2002 and a headcount reduction in September
2003, partially offset by a reallocation of certain personnel costs from sales
and marketing expense based on changes in duties and the cost of a newly
implemented investor relations program.
Interest expense was $1,205,870 and $1,430,914 for the nine months ended March
31, 2004 and 2003, respectively, a 16% decrease. This decrease is primarily
attributable to the discounts associated with warrants and shares issued in
connection with the Bridge Notes, that were amortized into interest expense,
being lower in 2004 than 2003.
Liquidity and Capital Resources
The Company had a working capital deficit March 31, 2004 and incurred a net loss
for the nine months then ended. However, the Company has been profitable and
shown cash provided by operations in both of the last two quarters.
12
The Company reduced its overall monthly cash operating expenses by approximately
$90,000 in October 2002. In October 2003 the Company again reduced monthly cash
operating expenses by another approximately $70,000. A combination of efforts to
judiciously monitor, control and, where appropriate, reduce ongoing expenses has
been adopted by the Company's management. Beginning October 1, 2003, 10% of
employee compensation has been paid in shares of common stock. For the three and
nine months ended March 31, 2004, 406,267 and 1,406,397 shares of common stock,
respectively, were issued in lieu of $24,376 and $54,380 of cash compensation,
respectively. The Company needs continued sales to generate working capital, and
has demonstrated its products for many new potenetial customers and presented
proposals to several of these. Customer interest in the products appears strong
and management believes that new license sales will increase, although there is
no assuance that the Company will realize significant additional revenue.
To date, the Company has financed its operations through operating revenues,
loans from directors, officers and stockholders, loans from the CEO and majority
shareholder, and private placements of equity securities. The Company
anticipates that it will meet its working capital requirements primarily through
increased revenue, while controlling and reducing costs and expenses. However,
no assurances can be given that the Company will be able to meet its working
capital requirements, or that its revenues will increase. Bridge notes payable
totaling approximately $950,000 including interest that were to mature on July
31, 2004 were converted to common stock in April 2004. These Bridge notes are
primarily with directors and the CEO. The note payable to Riverview Financial
Corporation for $3,296,406, plus interest was extended to July 31, 2007, in
conjunction with the conversion of the Bridge Notes in April 2004. Riverview
Financial Corporation is owned by the Company's CEO. The line of credit was
reduced to $230,000 at March 31, 2004, with the balance repaid in April 2004.
Additional debt of $2,345,000 is due in December 2004. The Company is actively
pursuing financing sources to either repay of refinance this debt. Several
proposals from financing sources have been received, but there is no assurance
that the Company will be able to successfully negotiate a final financial
package.
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Randall K. Fields who serves as Park City Group's chief executive officer and
Peter Jensen who serves as Park City Group's chief financial officer, after
evaluating the effectiveness of Park City Group's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of March
31, 2004 (the "Evaluation Date") concluded that as of the Evaluation Date, Park
City Group's disclosure controls and procedures were adequate and effective to
ensure that material information relating to Park City Group and its
consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report was
being prepared.
(b) Changes in internal controls.
There were no significant changes in Park City Group's internal controls or in
other factors that could significantly affect Park City Group's disclosure
controls and procedures subsequent to the Evaluation Date, nor any significant
deficiencies or material weaknesses in such disclosure controls and procedures
requiring corrective actions. As a result, no corrective actions were taken.
13
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
In August 2002 the Company filed a lawsuit against certain entities and
individuals involved in the June 2001 reverse merger with Amerinet. These
entities and individuals, in turn, filed legal action against the Company. In
January 2004 the Company settled the litigation with some of the parties for
1,896,079 shares of common stock.
Please refer to the 10-KSB for year ended 6/30/03 incorporated by reference.
Item 2 - Changes in Securities
o In January 2004 the Company issued 1,896,079 shares of common
stock in settlement of a lawsuit.
o In January, February and March 2004 the Company issued a total
of 238,000 shares of common stock to a consultant for investor
relations services.
o In February 2004 the Cpmpany issued 1,448,892 shares of common
stock to certain directors, an officer and others in
connection with the extension of the Bridge Note payable.
o In February 2004 the Company issued 406,267 shares of common
stock to employees in lieu of $24,376 in cash compensation.
o In March 2004 the Company issued 86,923 shares of common stock
to a consultant for marketing and sales services of $10,600.
o In March 2004 the Company issued a total of 168,420 shares of
common stock to four outside directors in settlement of unpaid
Board fees of $16,000.
o In March 2004 the Company issued 8,405 shares of common stock
to an employee in lieu of cash compensation of $1,000.
o In March 2004 the Company issued a total of 3,171,296 shares
of common stock to senior management employees and officers in
lieu of cash compensation totaling $150,000.
o In March 2004 the Company issued a total of 7,966,667 shares
of common stock to two directors and the CEO on the exercise
of warrants for which the Company received $318,667, $80,000
of which reduced debt.
o In March 2004 the Company issued a total of 1,529,917 shares
of common stock to convert notes payable and accrued interest
totaling $107,094 to common stock.
o In April 2004 the Company issued 225,000 shares of common
stock in settlement of a payable of approximately $24,000.
o In April 2004 the Company issued 6,786,702 shares of common
stock to convert the Bridge Notes and accrued interest
totaling $950,138.
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Item 6 - Exhibits and Reports on Form 8K (for the period 1/1/04 through 3/31/04)
On January 7, 2004, the Company filed a Current Report on Form 8-K dated January
7, 2004 disclosing under Items 9 and 12 a press release announcing its
achievement of its financial plan for the quarter ended December 31, 2003.
On January 8, 2004, the Company filed a Current Report on Form 8-K dated January
8, 2004 disclosing under Item 9 a press release by CRS Retail Systems, Inc.
announcing the strategic alliance and licensing agreement with CRS Retail
Systems, Inc.
On January 14, 2004, the Company filed a Current Report on Form 8-K dated
January 13, 2004 disclosing under Item 9 a press release announcing its
strategic alliance and licensing agreement with CRS Retail Systems, Inc.
On January 29, 2004, the Company filed a Current Report on Form 8-K dated
January 27, 2004 disclosing under Item 12 a press release announcing its
preliminary results for the three and six months ended December 31, 2003.
On February 5, 2004, the Company filed a Current Report on Form 8-K dated
February 3, 2004 disclosing under Item 9 a press release announcing its
strategic alliance with Kurt Salmon Associates.
On February 11, 2004, the Company filed a Current Report on Form 8-K dated
February 10, 2004 disclosing under Item 9 a press release announcing its new
product offering to address center store inventory management.
On February 18, 2004, the Company filed a Current Report on Form 8-K dated
February 17, 2004 disclosing under Item 12 a press release announcing its
results for the quarter ended December 31, 2003.
On February 19, 2004, the Company filed a Current Report on Form 8-K dated
February 18, 2004 disclosing under Item 12 a press release announcing earnings
for the quarter ended December 31, 2003 and an investor conference call.
On March 9, 2004, the Company filed a Current Report on Form 8-K dated March 8,
2004 disclosing under Item 9 a press release announcing new licensing agreement
with Kwik Trip, Inc.
On March 17, 2004, the Company filed a Current Report on Form 8-K dated March
16, 2004 disclosing under Item 9 a press release announcing new licensing
agreement with WinCo Foods.
On March 24, 2004, the Company filed a Current Report on Form 8-K dated March
23, 2004 disclosing under Item 9 a press release announcing additional licenses
with Pacific Sunwear of California.
On March 29, 2004, the Company filed a Current Report on Form 8-K dated March
29, 2004 disclosing under Item 9 a press release announcing a radio interview
with the CEO in which he indicated anticipated improvements in the quarter
ending March 31, 2004.
On March 31, 2004, the Company filed a Current Report on Form 8-K dated March
31, 2004 disclosing under Item 12 a press release announcing its preliminary
results for the three and nine months ended March 31, 2004.
On April 7, 2004, the Company filed a Current Report on Form 8-K dated April 6,
2004 disclosing under Item 12 a press release announcing a reduction in
liabilities of $1 million during the quarter ended March 31, 2004.
On April 13, 2004, the Company filed a Current Report on Form 8-K dated April
12, 2004 disclosing under Item 12 a press release announcing its approval for
the Company to trade its shares on the Berlin Stock Exchange.
15
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbannes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbannes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbannes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PARK CITY GROUP, INC
Date: April 20, 2004 By /s/ Randall K. Fields
------------------------------------
Randall K. Fields, President and
Chief Executive Officer
Date: April 20, 2004 By /s/ Peter Jensen
------------------------------------
Peter Jensen,
Secretary and Chief Financial Officer
16