Business context and reporting period
This is Park City Group, Inc.’s Form 10-Q for the quarter ended December 31, 2014 (fiscal second quarter) and the six months then ended. The filing is not a 10-Q filed by ReposiTrak, Inc.; Park City Group provides software and management services to ReposiTrak and reports ReposiTrak-related revenue and a substantial note receivable. Park City Group’s business centers on subscription software for retail and supply-chain customers.
Key financial metrics
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $3.48 million, up 15% year over year | $6.81 million, up 18% year over year |
| Subscription revenue | $2.72 million, up 16% | $5.36 million, up 20% |
| Operating loss | $584,090, compared with $576,532 | $1.02 million, compared with $1.63 million |
| Net loss | $540,876, compared with $550,085 | $916,939, compared with $1.60 million |
| Net loss applicable to common shareholders | $695,349, or $0.04 per share | $1.23 million, or $0.07 per share |
| Cash from operating activities | Not separately presented | $564,784, versus cash used of $657,931 |
For the quarter, cost of services and product support was 39% of revenue versus 41% a year earlier. Sales and marketing rose 36% to $1.53 million, equal to 44% of revenue; general and administrative expense was essentially flat at $987,000. For the six months, sales and marketing increased 21% to $2.87 million, while general and administrative expense fell 12% to $1.88 million. No income tax provision or benefit was reported.
At December 31, cash was $2.31 million, total assets $17.31 million, and total liabilities $6.43 million. Current assets of $5.67 million were below current liabilities of $6.01 million, resulting in negative working capital of $340,514 (versus positive working capital of $654,042 at June 30, 2014). Debt was approximately $1.71 million, including a $1.20 million line of credit. The balance sheet also included a $4.19 million note receivable from ReposiTrak. Cash declined $1.04 million during the six-month period; investing activities used $1.41 million, largely reflecting advances on ReposiTrak notes.
Material changes and management outlook
- Revenue growth came mainly from subscription expansion with existing customers and new customers. Other revenue increased 11% for the six months, principally from professional services; maintenance revenue declined.
- Management said it expects subscription revenue to continue growing year over year, supported by supplier connections to existing retail customers and anticipated ReposiTrak growth. It expected sales and marketing expense to remain around current levels to support growth and G&A to remain relatively stable. These are expectations, not quantified guidance.
- ReposiTrak represented approximately $400,000, or 15%, of quarterly subscription revenue. Quarterly management fees were $314,000; the filing says ReposiTrak-related fees paid during the quarter were funded from proceeds of notes purchased by Park City Group. The company had loaned ReposiTrak approximately $4.2 million, including accrued interest, by December 31.
- After quarter-end, on February 4, 2015, the Series B preferred holders—among them the CEO, his spouse, and a director—agreed to reduce the dividend rate from 15% (scheduled to rise to 18% on July 1, 2015) to 7% if paid in cash or 9% if paid in additional preferred shares. The conversion feature was eliminated. In exchange, the company issued 214,197 preferred shares and five-year warrants for 1,029,818 common shares at $4 per share.
- On January 26, 2015, the company completed a private placement of common shares and warrants for approximately $900,000 gross proceeds, intended for working capital. Management stated that existing cash and operating cash flows should fund operations and investment requirements for at least twelve months, while acknowledging future capital needs depend on growth and spending.
Risks, contingencies, and unusual items
Key risks include continuing losses, negative working capital, dependence on subscription growth and renewals, and ReposiTrak’s ability to execute its business plan and repay the approximately $4.2 million in notes. Park City Group’s ReposiTrak exposure is also significant because ReposiTrak contributes revenue while owing substantial amounts under the parties’ arrangements. The filing highlights product adoption and implementation risks, service interruption and cybersecurity risks, competition, and reliance on key personnel. The CEO and other officers and directors have significant influence; the CEO controls about 26% of common stock. The Series B restructuring and related issuances create material related-party and potential dilution considerations. The company reported no pending or threatened legal proceedings and no material off-balance-sheet arrangements.
Management reported effective disclosure controls and no material change in internal control over financial reporting. Stock-based compensation was $1.25 million for the six months and was a significant noncash operating cash-flow adjustment. The filing states that no warranty claim expense was incurred in the periods presented.
Important facts for investors to verify
- Confirm the issuer and reporting scope: this filing is Park City Group’s, not ReposiTrak, Inc.’s.
- Review the terms, collectability, maturity, and payment history of the approximately $4.2 million ReposiTrak note receivable, and how future fees may be settled through additional notes.
- Assess liquidity against negative working capital, the $1.20 million line of credit, debt maturities, and the assumptions behind management’s twelve-month funding assessment.
- Verify the accounting, dividend obligations, related-party approvals, and dilution effects of the February 2015 Series B restructuring and warrants.
- Track whether subscription growth and ReposiTrak customer adoption accelerate as management expects, while monitoring continued operating losses and sales-and-marketing spending.