Business context and reporting period
This is Park City Group, Inc.’s consolidated Form 10-K, including its wholly owned subsidiary ReposiTrak, Inc. It covers the fiscal year ended June 30, 2020—not a standalone 2019 fourth quarter. Park City Group provides SaaS supply-chain, compliance, food-safety, sourcing and B2B e-commerce services, primarily to food retailers, wholesalers and suppliers. Its hub-and-spoke model often has retailers or wholesalers require suppliers to use the platform. The supplied text is marked “DRAFT”; verify the filed version.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $20.04 million | $21.17 million |
| Operating income | $1.48 million | $3.99 million |
| Net income | $1.59 million | $3.90 million |
| Net income applicable to common shareholders | $1.01 million | $3.32 million |
| Diluted EPS | $0.05 | $0.16 |
| Cash from operations | $4.20 million | $4.58 million |
| Cash and cash equivalents at year-end | $20.35 million | $18.61 million |
Cost of services and product support was $7.00 million, or 35% of revenue, versus $5.83 million, or 28%, in FY2019. Operating margin was approximately 7.4%, down from 18.8%; net margin was approximately 8.0%, down from 18.4%. These margins are calculated from reported figures.
Investing activities used $650,422, primarily for property and equipment. Financing activities used $1.81 million, including $2.16 million for common-stock repurchases and $586,444 in preferred dividends. Working capital was positive $18.24 million, versus $17.75 million a year earlier. Current assets were $27.15 million and current liabilities $8.91 million.
At June 30, 2020, debt included a $4.66 million line of credit, $920,754 in equipment notes, and a $1.109 million PPP loan. The line of credit matured December 31, 2020; its balance was unchanged from the prior year. The equipment note carried 4.99% interest. The PPP loan carried 1% interest and was scheduled to mature in April 2022. On July 30, 2020, the company repaid an equipment note; the reported payoff was $960,208, including accrued interest. Preferred stock dividends accrued at $586,444 for the year.
Material changes versus FY2019
- Revenue declined 5%, while management reported recurring revenue increased 13%; lower one-time revenue more than offset recurring and MarketPlace growth.
- Operating income fell about 63% and net income about 59%. Higher service and product-support costs—particularly MarketPlace costs and IT/security-related spending—were a key factor.
- Operating cash flow decreased 8%, which management attributed to lower revenue, slower collections related to COVID-19 and higher MarketPlace expenses.
- Cash increased 9%, supported by operating cash generation and the PPP proceeds; financing cash flow shifted from a $108,125 inflow to a $1.81 million outflow, principally reflecting higher share repurchases.
- Target Corporation represented approximately 8.1% of FY2020 revenue. Two customers each accounted for more than 10% of receivables at year-end.
Outlook, risks and unusual items
Management said existing cash, short-term investments and expected operating cash flow should fund operations and investment needs for at least 12 months, and expressed an expectation of higher future operating cash flow and working capital. These are qualified expectations, not quantified earnings guidance; the filing provides no clear revenue or EPS forecast.
Management reported that COVID-19 had not materially adversely affected FY2020 results or operations, but said its future effects were uncertain. Shelter-in-place measures and facility closures extended sales cycles; slower collections also affected operating cash flow. The company launched FoodSourceUSA in April 2020 to help identify and redistribute excess perishable food. The board suspended the share repurchase program on March 17, 2020 amid pandemic uncertainty.
The company planned to seek forgiveness of the PPP loan, believing it had used at least 75% of proceeds for qualifying expenses; forgiveness was not assured. The line-of-credit maturity and the ability to collect receivables are additional liquidity considerations. Other disclosed risks include customer renewals and concentration, competition, product reliability and cybersecurity, reliance on third-party hosting, regulatory or product-liability claims, and dependence on founder and CEO Randall K. Fields. No pending or threatened material legal proceedings were reported.
The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2020; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Confirm the final filed 10-K and period: this report is for the year ended June 30, 2020, despite the request’s “2019 Q4” label.
- Review the status and terms of the $4.66 million credit line after its December 31, 2020 maturity, and confirm the effect of the subsequent equipment-note repayment.
- Check whether PPP loan forgiveness was approved and how any forgiven or remaining balance was ultimately accounted for.
- Assess recurring revenue growth against the 5% total revenue decline, falling operating profit and increased service costs.
- Review customer concentration, receivable aging and collection experience, including the two customers with more than 10% of receivables.
- Consider the potential dilution and ongoing cost of preferred dividends, warrants and outstanding stock-based awards.