Filing summary
Reporting entity and period: The supplied filing is Park City Group, Inc.’s Form 10-Q for the quarter ended December 31, 2013 (its fiscal second quarter), not a filing by ReposiTrak, Inc. ReposiTrak is discussed as a business relationship and source of revenue. The financial statements are unaudited.
Key financial results
| Metric | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2013 |
|---|---|---|
| Revenue | $3.02 million, up 14% year over year | $5.80 million, up 8% |
| Subscription revenue | $2.34 million, up 20% | $4.48 million, up 15% |
| Net income (loss) | $(550,085) | $(1.60 million) |
| Net loss attributable to common shareholders | $(704,558); $(0.04) per share | $(1.91 million); $(0.12) per share |
| Operating cash flow | Not separately presented for the quarter | $(657,931), versus $797,966 provided in the prior-year period |
| Cash and cash equivalents | $3.86 million at Dec. 31, 2013 | |
| Working capital | $1.75 million, up from $1.12 million at June 30, 2013 | |
| Total debt | $2.01 million, including $1.20 million under lines of credit |
Cost of services and product support was 41% of revenue in the quarter and 42% for the six-month period. Derived gross margin was approximately 59% for the quarter, roughly flat year over year, and 58% for the six months, versus 59% a year earlier. Operating margin was approximately negative 19% for the quarter and negative 28% for the six months.
Changes and operating drivers
- For the six months, subscription growth was partly offset by lower other revenue, including decreases in maintenance, legacy license sales and professional services.
- Sales and marketing expense rose 48% for the quarter and 76% for the six months; general and administrative expense rose 64% and 82%, respectively. The company attributed increases chiefly to sales and marketing activity, compensation and stock-based compensation.
- Six-month cash declined from operating activities and was supported by financing inflows, including a $1.5 million August 2013 director investment and proceeds from stock and warrant issuances. Investing cash outflow included a $400,000 advance on a note receivable and property and equipment purchases.
- Common shares outstanding increased to 16.74 million at December 31, 2013 from 16.13 million at June 30, 2013. The stock began trading on the Nasdaq Capital Market under PCYG in October 2013.
Outlook, risks and unusual items
- Management anticipated continued year-over-year subscription revenue growth and expected sales and marketing spending to remain at current levels. It provided no quantified revenue or earnings guidance.
- Management said existing cash and expected operating cash flow should cover operations, capital spending and debt service for at least 12 months, while noting that refinancing or restructuring debt might be needed. The filing cautions that actual cash flow or inability to refinance could affect the company’s ability to meet requirements.
- ReposiTrak-related subscription revenue was $800,000 for the six months. The company also reported a $2.10 million note receivable balance, including accrued interest; it disclosed a further $400,000 note issued during the quarter. The filing warns that default on these notes could materially harm financial results.
- Series B preferred stock carries a 15% annual cash dividend. Preferred dividends were $308,946 for the six months. The Series A preferred was redeemed or converted in April 2013, reducing preferred-dividend expense versus the prior-year period.
- Key risks include continued losses and operating cash use, customer nonrenewals, execution and market acceptance of the subscription and ReposiTrak strategies, customer and note-receivable collection, competition, service interruptions or security breaches, and reliance on the CEO. Management reported no ongoing legal proceedings and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this is Park City Group’s filing, not ReposiTrak, Inc.’s.
- Review the collectability, terms and repayment status of the ReposiTrak notes and related receivables.
- Track whether subscription growth and customer renewals improve operating profitability and cash generation.
- Verify debt maturities, borrowing terms and the company’s ability to meet debt service without additional financing.
- Assess the effects of preferred dividends, stock-based compensation and share issuance on cash needs and common-stock dilution.