Business context and reporting period
This is Park City Group, Inc.’s unaudited Form 10-Q for the three months ended September 30, 2015 (its fiscal first quarter of 2016), compared with the three months ended September 30, 2014. The request identifies ReposiTrak, Inc.; the filing is by Park City Group, which acquired ReposiTrak on June 30, 2015, making it a wholly owned subsidiary. The quarter’s results therefore do not represent a full quarter of ReposiTrak’s operations on a consolidated basis.
Park City Group provides supply-chain software and related services; ReposiTrak offers food-safety compliance and product-traceability services.
Financial results and position
| Metric | Quarter ended Sep. 30, 2015 | Quarter ended Sep. 30, 2014 |
|---|---|---|
| Revenue | $3.10 million | $3.33 million |
| Operating loss | $424,915 | $434,662 |
| Net loss | $407,292 | $376,063 |
| Net loss applicable to common shareholders | $606,680 | $530,536 |
| Basic and diluted loss per share | $0.03 | $0.03 |
| Net cash from (used in) operating activities | $(151,304) | $488,431 |
Revenue declined 7% year over year. Gross profit, calculated as revenue less services and product-support costs, was approximately $1.92 million, or 62% of revenue, versus $1.99 million, or 60%, in the prior-year quarter. Operating loss was about 14% of revenue, compared with 13%.
At September 30, 2015, cash and cash equivalents were $6.56 million and short-term marketable securities were $4.64 million. Current assets were $13.46 million; working capital was $5.56 million. Total debt was $3.02 million, including a $2.50 million line of credit; approximately 91% of debt was variable-rate. Total liabilities were $8.26 million. The current ratio was approximately 1.70.
Material changes and drivers
- Revenue fell $234,888, which management attributed principally to the elimination of subscription and management fees for ReposiTrak following its acquisition; increased subscription revenue in the supply-chain and food-safety businesses partly offset the decline.
- Services and product-support costs decreased 13%, primarily from lower employee-related costs. Sales and marketing expense rose 8%, including acquisition-related and marketing costs. General and administrative expense fell 13%, principally due to lower employee costs.
- Cash from operations moved from $488,431 provided to $151,304 used. Investing cash outflow rose to $4.66 million, largely because the company purchased approximately $4.64 million of marketable securities. Cash declined $4.77 million from June 30; cash plus marketable securities totaled approximately $11.19 million at quarter-end.
- Common shares outstanding increased during the quarter. The acquisition was completed for 873,438 common shares, and the cash-flow statement reports $987,885 of common stock issued to settle accrued liabilities.
Outlook, risks and unusual items
Management said existing cash, short-term investments and expected operating cash flows should fund operating and investment needs for at least 12 months. It intended to reduce indebtedness using cash and projected operating cash flow, while noting that future capital needs depend on growth, sales and marketing expansion, research and development, and market acceptance. Management expected subscription revenue to grow through supplier connections and ReposiTrak food-safety subscriptions, and expected sales and marketing expense to remain near current levels. The filing provides no quantified revenue or earnings guidance.
The company continued to report losses and negative operating cash flow. Key risks include whether ReposiTrak gains customer adoption and delivers expected acquisition benefits; execution and implementation challenges; competition, subscription renewals and customer acceptance; service interruptions and cybersecurity breaches; and the need to finance operations and service debt. Management disclosed no pending or threatened legal proceedings and no material off-balance-sheet arrangements.
Preferred dividends accrued were $199,388, compared with $154,473 a year earlier; $194,100 was paid in kind through Series B-1 preferred shares. The preferred dividend rate had been amended to 7% if paid in cash or 9% if paid in kind. The quarter also included a $3,554 unrealized loss on available-for-sale securities. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing identity and period: Park City Group, Inc., quarter ended September 30, 2015—not a standalone ReposiTrak filing.
- Assess the revenue comparison in light of the acquisition and the filing’s explanation that ReposiTrak fees were eliminated after consolidation.
- Track subscription growth, customer adoption and renewal rates, including ReposiTrak’s food-safety and traceability services.
- Review operating cash flow, debt repayment capacity and exposure to variable interest rates; distinguish cash from the marketable securities balance.
- Verify preferred-stock dividend accruals and payment method, along with potential dilution from preferred stock, warrants and future equity issuance.