Business context and reporting period
This is Park City Group, Inc.’s Form 10-Q for the quarter and six months ended December 31, 2016, its fiscal second quarter of 2017. ReposiTrak, Inc. is a wholly owned subsidiary included in the consolidated results; this is not a standalone ReposiTrak filing. The company provides SaaS supply-chain, retail operations, and supplier-compliance products, with revenue largely from recurring subscriptions.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $4.79 million | $9.00 million |
| Operating income | $1.39 million | $2.07 million |
| Net income | $1.38 million | $1.99 million |
| Net income applicable to common shareholders | $1.18 million; $0.06 per diluted share | $1.61 million; $0.08 per diluted share |
| Operating cash flow | Not provided separately | $379,067 |
For the quarter, cost of services was 25% of revenue, implying a 75% gross margin; operating margin was approximately 29%. For the six months, operating margin was approximately 23%. These are calculations from reported figures.
- At December 31, cash and cash equivalents were $12.06 million; current assets were $16.56 million and current liabilities $7.24 million. Working capital was $9.32 million, with a current ratio of approximately 2.3.
- Total liabilities were $7.69 million. Debt, including the line of credit and notes payable, was approximately $3.35 million. The line of credit balance was $2.75 million, up from $2.50 million at June 30, 2016.
- Six-month operating cash flow was positive, but trade receivables increased cash use by $2.27 million. Cash increased $619,376 from June 30, 2016. Investing activities used $19,499 and financing activities provided $259,808.
- Receivables, net, rose to $4.14 million from $3.05 million at June 30; the allowance for doubtful accounts increased to $210,215 from $75,000.
Material changes versus prior comparable periods
- Quarterly revenue increased 35% year over year; six-month revenue increased 36%. Management attributed growth to new applications, including ReposiTrak Vendor Portal, more customers, and faster supplier connections.
- Six-month operating income improved to $2.07 million from an operating loss of $148,000; net income improved to $1.99 million from a $126,000 loss.
- Sales and marketing expense fell 17% in both the quarter and six-month period. General and administrative expense increased 28% for the quarter and 30% for six months, including higher compensation and bad-debt costs.
- Six-month operating cash flow rose from $80,801 to $379,067, though receivables and other operating asset and liability changes absorbed substantial cash.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said available cash and expected operating cash flows should fund operations and investment needs for at least 12 months, and intends to reduce debt using cash and projected cash flows.
- Preferred shares accrue dividends at 7% if paid in cash or 9% if paid in additional preferred shares. The company issued 36,427 preferred shares for accrued dividends during the six months; preferred dividends attributable to the period were $382,252.
- Unrecognized stock-based compensation was approximately $5.7 million, expected to be recognized over a weighted-average 5.06 years. Goodwill was $20.88 million.
- The filing reports no pending or threatened material legal proceedings, no additional risk factors beyond those in the prior Form 10-K, and no material changes in internal control over financial reporting. Management concluded disclosure controls were effective.
- The filing states there were no material off-balance-sheet arrangements. It identifies related-party arrangements with Fields Management, controlled by the CEO, including executive services and amounts payable.
Important facts for investors to verify
- Confirm the filing entity: Park City Group, Inc. is the registrant; ReposiTrak is its subsidiary.
- Track receivable collections, the rising bad-debt allowance, and whether revenue growth converts into stronger operating cash flow.
- Review the line-of-credit terms, debt repayment progress, and exposure to variable interest rates. The filing gives inconsistent debt-rate mix disclosures: narrative says 82% variable and 18% fixed, while the accompanying table says 89% variable and 11% fixed.
- Assess recurring subscription growth and the contribution of ReposiTrak products, alongside preferred dividends, potential dilution, and stock-compensation expense.