Filing summary
Issuer and period: This is Park City Group, Inc.’s Form 10-Q for the quarter ended September 30, 2014 (its fiscal first quarter), not a ReposiTrak, Inc. filing. ReposiTrak is discussed as a business relationship and source of revenue and receivables. Income and cash-flow figures compare with the quarter ended September 30, 2013; balance-sheet figures compare with June 30, 2014.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2014 | Comparable period |
|---|---|---|
| Revenue | $3.334 million | $2.776 million; up 20% |
| Subscription revenue | $2.637 million | $2.135 million; up 24% |
| Other revenue | $696,435 | $641,280; up 9% |
| Gross profit / margin, calculated | $1.985 million / 59.6% | $1.567 million / 56.5% |
| Operating loss | $434,662 | $1.049 million |
| Net loss | $376,063 | $1.047 million |
| Net loss applicable to common shareholders | $530,536; $0.03 per share | $1.202 million; $0.07 per share |
| Operating cash flow | $488,431 provided | $594,970 used |
| Cash at quarter end | $3.278 million | $4.297 million at Sep. 30, 2013 |
Operating expenses totaled $3.768 million, down from $3.825 million. General and administrative expense and depreciation and amortization declined; cost of services and sales and marketing expense increased. No income-tax provision or benefit was reported. Calculated operating margin improved to approximately negative 13.0% from negative 37.8%.
At September 30, current assets were $6.238 million and current liabilities were $5.596 million, yielding reported working capital of $642,107 and a calculated current ratio of approximately 1.11. Total liabilities were $6.065 million. Debt was $1.751 million, including a $1.2 million line of credit; the filing describes approximately 69% as variable-rate and 31% as fixed-rate debt.
Changes and notable items
- Revenue growth was led by subscriptions, reflecting growth from existing customers and additions of new customers. Cost of services rose 12%, while general and administrative expense fell 22%.
- Cash declined $74,610 during the quarter. Operating cash generation was offset by $408,997 of investing outflows, including a $400,000 advance on a ReposiTrak note, and $154,044 of net financing outflows.
- Notes receivable from ReposiTrak were $3.458 million on the balance sheet; management described the balance, including accrued interest, as approximately $3.5 million. ReposiTrak may make further fee payments through promissory notes.
- Stock-based compensation was $543,972. The company also reported $745,248 of common stock issued to pay accrued liabilities as a noncash transaction.
- Series B preferred dividends were $154,473 for the quarter. The preferred shares carry a 15% annual dividend payable quarterly, increasing to 18% effective July 1, 2015.
Outlook, risks, and contingencies
Management expected subscription revenue to continue increasing year over year and anticipated ReposiTrak revenue to accelerate in subsequent quarters. It expected sales and marketing spending to remain around current levels. Management believed cash, short-term investments and operating cash generation would fund operating and investment needs for at least twelve months, and stated its intention to reduce debt. These are expectations, not guarantees; the filing provides no quantified revenue or earnings guidance.
ReposiTrak accounted for approximately 15% of subscription revenue and 33% of other revenue in the quarter. The filing says approximately $400,000 of ReposiTrak subscription fees were recognized and that, of approximately $641,000 in fees paid by ReposiTrak, approximately $400,000 was paid using proceeds from promissory notes purchased by Park City Group. Note default, ReposiTrak’s ability to execute its business plan, and customer adoption therefore present material collection, concentration, and revenue risks.
Other disclosed risks include continued losses, subscription renewal and customer adoption, competition and technology changes, service interruptions or security breaches, and reliance on key personnel. The CEO controls Fields Management, Inc., which has a five-year executive-services agreement with the company at a $500,000 annual base fee, subject to specified increases, and possible discretionary bonus. Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no pending or threatened legal proceedings and no subsequent events reasonably likely to affect the financial statements.
Investor verification points
- Confirm collectability, maturity, interest terms, and any security or guarantees for the approximately $3.5 million ReposiTrak notes receivable, and assess the extent to which reported ReposiTrak fees were funded through those notes.
- Review ReposiTrak customer adoption, revenue concentration, implementation progress, and the evidence supporting management’s expectation of accelerated future revenue.
- Verify debt maturities, line-of-credit terms, variable-rate exposure, and whether operating cash generation can support debt service and planned debt reduction.
- Assess the sustainability of the improved operating results and positive operating cash flow, including the effects of stock compensation and working-capital movements.
- Review the preferred-stock dividend burden and conversion terms, and the related-party executive-services agreement and its fee escalators.