Business context and reporting period
Filing identity differs from the request metadata: the supplied filing is Park City Group, Inc.’s Form 10-Q for the quarter ended March 31, 2015 (its fiscal third quarter), not a ReposiTrak, Inc. 2014 Q3 filing. Park City Group provides SaaS software and related services for retail and consumer-goods supply chains. ReposiTrak is discussed as a business relationship and proposed acquisition target.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $3.391 million, up 10% year over year | $10.204 million, up 15% |
| Subscription revenue | $2.641 million, up 6% | $7.999 million, up 15% |
| Operating loss | $619,000, versus $438,000 | $1.638 million, versus $2.064 million |
| Net loss | $550,000, versus $406,000 | $1.467 million, versus $2.004 million |
| Net loss applicable to common shareholders | $2.828 million, including a $2.142 million Series B restructuring charge | $4.053 million, including that charge |
| Operating margin | Approximately -18.2% | Approximately -16.0% |
| Operating cash flow | $509,000 provided in the nine-month period, versus $712,000 used in the prior-year period |
For the quarter, cost of services and product support fell 7%, while sales and marketing rose 44% and general and administrative expense rose 13%. For the nine months, sales and marketing rose 28%; management attributed much of the increase to marketing spend. Interest income was $171,000 for the nine months, up from $60,000.
At March 31, 2015, cash was $3.367 million; working capital was $1.114 million, versus $654,000 at June 30, 2014; and the current ratio was approximately 1.20. Total liabilities were $6.043 million. Interest-bearing debt comprised a $1.2 million line of credit and approximately $632,000 of notes payable; the filing reports 66% of debt as variable-rate. A $4.272 million note receivable from ReposiTrak is included in other assets. Nine-month investing cash outflow was $1.422 million, primarily reflecting advances on that note; financing cash inflow was $927,000. Cash increased $15,000 over the nine months.
Material changes versus the prior comparable period
- Revenue growth was led by subscriptions, which increased 15% for the nine months. Operating losses narrowed year over year for the nine-month period, but the quarterly operating loss widened.
- Operating cash flow improved by $1.221 million, turning positive; noncash expenses, including stock-based compensation, contributed to the change.
- On February 4, 2015, the company restructured Series B preferred stock held by affiliates, including its CEO, reducing 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 kind. The restructuring also eliminated conversion rights and included warrants; the arrangement was amended March 31 to address voting rights.
- On April 15, 2015, after quarter-end, the company completed a registered offering of 572,500 common shares at $12.50 per share, receiving approximately $6.7 million net.
Outlook, commentary, risks and unusual items
Management expects subscription revenue to continue growing, citing customer growth and its strategy of connecting suppliers to retail customers. It also expected ReposiTrak-related subscription revenue to accelerate, although ReposiTrak subscription revenue was approximately $1.2 million in each nine-month comparison period. No numerical earnings or revenue guidance is provided. Management stated that the April offering proceeds, existing cash and expected operating funds should support operations and debt obligations for at least 12 months.
The company had signed agreements intended to acquire all ReposiTrak shares for 873,437 restricted Park City Group shares. The proposed acquisition remained subject to due diligence, definitive agreements and other closing conditions. ReposiTrak represented approximately 15% of quarterly subscription revenue and 44% of quarterly other revenue; Park City Group also had approximately $4.3 million due from ReposiTrak in notes. Risks include ReposiTrak’s ability to repay, customer and product adoption, subscription renewals, continued losses, and execution of the proposed acquisition. The April equity offering provides liquidity but dilutes existing holders. The filing reports no pending or threatened legal proceedings and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing is for Park City Group, not ReposiTrak, and that the reporting period is the quarter ended March 31, 2015.
- Check whether the ReposiTrak acquisition closed, and review its final terms, operating performance, and ability to repay the approximately $4.3 million note balance.
- Assess whether subscription growth can offset higher sales and marketing costs and return the company to profitability.
- Review the Series B restructuring’s full economic and dilution effects, including preferred dividends, warrants, and the reported $2.142 million charge.
- Verify the use of the approximately $6.7 million net offering proceeds and the resulting share-count dilution.
- Note a balance-sheet/MD&A inconsistency: the balance sheet reports current liabilities of $5.556 million at March 31, 2015, while the MD&A also cites $5.561 million.