UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended September 30, 2016March 31, 2017

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from __________ to _________.

Commission File Number 001-34941

PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)

Nevada 37-1454128
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

299 South Main Street, Suite 23702225 Salt Lake City, UT 84111
(Address of principal executive offices)
 
(435) 645-2000
(Registrant's telephone number)

Indicate by check market whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒Yes ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒Yes ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated“large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by checkmark if whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  ☒ No
 
StateIndicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 19,346,38319,412,911 shares as of November 7, 2016.
May 10, 2017.



 
 

PARK CITY GROUP, INC.

TABLETABLE OF CONTENTS

  Page
 
PART I - FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
 
   
 
Consolidated Condensed Balance Sheets as of September 30, 2016March 31, 2017 (Unaudited) and June 30, 2016
1
   
 
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2017 and 2016 and 2015 (Unaudited)
2
   
 
Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Months Ended September,March 31, 2017 and 2016 and 2015 (Unaudited)
3
   
 
Consolidated Condensed Statements of Cash Flows for the ThreeNine Months Ended September 30,March 31, 2017 and 2016 and 2015 (Unaudited)
4
   
 
Notes to Consolidated Condensed Financial Statements
5
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15
Item 4.
Controls and Procedures
16
   
PART II – OTHER INFORMATION
Item 4.1.
Controls and ProceduresLegal Proceedings
17
   
Item 1A.
PART II – OTHER INFORMATION
Risk Factors
17
   
Item 1.
Legal Proceedings
18
Item 1A.
Risk Factors
18
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18
Item 3.
Defaults Upon Senior Securities
18
Item 5.
Other Information
18
Item 6.
Exhibits
1817
   
Item 3.
Defaults Upon Senior Securities
17
Item 5.
Other Information
17
Item 6.
Exhibits
17
Signature
 18
   
Exhibit 31
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
Exhibit 32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 



 
-i-

PARK CITY GROUP, INC.
Consolidated Condensed BalanceBalance Sheets

Assets 
March 31,
2017
  
June 30.
2016
 
Current Assets: (unaudited)    
     Cash and cash equivalents $13,542,542  $11,443,388 
     Receivables, net of allowance of $278,129 and $75,000 at March 31, 2017 and June 30, 2016,
     respectively
  3,262,096   3,048,774 
     Prepaid expense and other current assets  525,324   393,275 
         
Total current assets  17,329,962   14,885,437 
         
Property and equipment, net  599,862   469,383 
         
Other assets:        
     Long-term receivables, deposits, and other assets  2,104,373   514,060 
     Investments  474,734   471,584 
     Customer relationships  1,084,050   1,182,600 
     Goodwill  20,883,886   20,883,886 
     Capitalized software costs, net  152,451   182,942 
         
Total other assets  24,699,494   23,235,072 
         
Total assets $ 42,629,318  $38,589,892 
         
Liabilities and Stockholders' Equity (Deficit)        
Current liabilities:        
     Accounts payable $749,813  $580,309 
     Accrued liabilities  1,517,666   1,502,203 
     Deferred revenue  2,158,518   2,717,094 
     Lines of credit  2,630,432   2,500,000 
     Current portion of notes payable  182,712   239,199 
         
Total current liabilities  7,239,141   7,538,805 
         
Long-term liabilities:        
     Notes payable, less current portion  560,546   491,253 
     Other long-term liabilities  44,110   57,275 
         
Total liabilities  7,843,797   8,087,333 
         
Commitments and contingencies  -   - 
         
Stockholders' equity:        
     Series B Preferred stock, $0.01 par value, 700,000 shares authorized;625,375 shares issued and
     outstanding at March 31, 2017 and June 30, 2016
  6,254   6,254 
     Series B-1 Preferred stock, $0.01 par value, 300,000 shares authorized; 265,920 and 180,213
     shares issued and outstanding at March 31, 2017 and June 30, 2016, respectively
  2,659   1,802 
     Common stock, $0.01 par value, 50,000,000 shares authorized; 19,412,911 and 19,229,313
     issued and outstanding at March 31, 2017 and June 30, 2016, respectively
  194,132   192,296 
     Additional paid-in capital  75,242,946   73,272,620 
     Accumulated deficit  (40,660,470)  (42,970,413)
         
Total stockholders’ equity  34,785,521   30,502,559 
         
Total liabilities and stockholders’ equity $ 42,629,318  $38,589,892 

 
Assets
 
September 30, 2016
 
 
 
June 30, 2016 
 
Current Assets:
 
 (unaudited)
 
 
 
 
Cash and cash equivalents
 $11,385,641 
 $11,443,388 
Receivables, net of allowance of $150,000 and $75,000 at September 30, 2016 and June 30, 2016, respectively
  4,655,527 
  3,547,968 
Prepaid expense and other current assets
  320,068 
  393,275 
 
    
    
Total current assets
  16,361,236 
  15,384,631 
 
    
    
Property and equipment, net
  401,454 
  469,383 
 
    
    
Other assets:
    
    
Deposits and other assets
  14,866 
  14,866 
Investments
  471,584 
  471,584 
Customer relationships
  1,149,750 
  1,182,600 
Goodwill
  20,883,886 
  20,883,886 
Capitalized software costs, net
  182,942 
  182,942 
 
    
    
Total other assets
  22,703,028 
  22,735,878 
 
    
    
Total assets
 $39,465,718 
 $38,589,892 
 
    
    
Liabilities and Stockholders' Equity (Deficit)
    
    
Current liabilities:
    
    
Accounts payable
 $570,059 
 $580,309 
Accrued liabilities
  1,284,588 
  1,502,203 
Deferred revenue
  2,639,896 
  2,717,094 
Lines of credit
  2,500,000 
  2,500,000 
Current portion of notes payable
  218,118 
  239,199 
 
    
    
Total current liabilities
  7,212,661 
  7,538,805 
 
    
    
Long-term liabilities:
    
    
Notes payable, less current portion
  445,753 
  491,253 
Other long-term liabilities
  53,429 
  57,275 
 
    
    
Total liabilities
  7,711,843 
  8,087,333 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders' equity:
    
    
Series B Preferred stock, $0.01 par value, 700,000 shares authorized; 625,375 shares issued and outstanding at September 30, 2016 and June 30, 2016
  6,254 
  6,254 
Series B-1 Preferred stock, $0.01 par value, 300,000 shares authorized; 208,224 and 180,213 shares issued and outstanding at September 30, 2016 and June 30, 2016, respectively
  2,082 
  1,802 
Common stock, $0.01 par value, 50,000,000 shares authorized; 19,309,832 and 19,229,313 issued and outstanding at September 30, 2016 and June 30, 2016, respectively
  193,101 
  192,296 
Additional paid-in capital
  74,095,202 
  73,272,620 
Accumulated deficit
  (42,542,764)
  (42,970,413)
 
    
    
Total stockholders’ equity
  31,753,875 
  30,502,559 
 
    
    
Total liabilities and stockholders’ equity
 $39,465,718 
 $38,589,892 
See accompanying notes to consolidated condensed financial statements.


-1-

PARK CITY GROUP, INC.
Consolidated Condensed Statements of Operations (unaudited)

  
Three Months Ended
March 31,
  
Nine Months Ended
March 31,
 
  2017  2016  2017  2016 
       
Revenues $4,748,652  $3,580,329  $13,750,786  $10,215,752 
                 
Operating expenses:                
     Cost of services and product support  1,342,772   1,050,074   3,736,691   3,223,548 
     Sales and marketing  1,350,726   1,264,036   3,702,975   4,107,676 
     General and administrative  1,006,605   807,542   2,967,842   2,317,316 
     Depreciation and amortization  106,899   125,939   336,340   382,453 
                 
Total operating expenses  3,807,002   3,247,591   10,743,848   10,030,993 
                 
Income from operations  941,650   332,738   3,006,938   184,759 
                 
Other expense:                
     Interest (expense) income  (4,729)  (10,986)  (18,052)  10,328 
     Loss on disposition of investment  -   (26,684)  -   (26,128)
                 
Income before income taxes  936,921   295,068   2,988,886   168,959 
                 
(Provision) for income taxes:  (35,471)  -   (94,655)  - 
       Net income
  901,450   295,068   2,894,231   168,959 
                 
Dividends on preferred stock  (202,036)  (176,588)  (584,288)  (546,536)
                 
Net income (loss) applicable to common shareholders $699,414  $118,480  $2,309,943  $(377,577)
                 
Weighted average shares, basic  19,390,000   19,196,000   19,331,000   19,128,000 
Weighted average shares, diluted  20,353,000   19,963,000   20,251,000   19,128,000 
Basic income (loss) per share $0.04  $0.01  $0.12  $(0.02)
Diluted income (loss) per share $0.03  $0.01  $0.11  $(0.02)

 
See accompanying notes to consolidated condensed financial statements.


 
-1-
-2-

PARK CITY GROUP, INC.
Consolidated Condensed StatementsStatements of OperationsComprehensive Income (unaudited)

  
Three Months Ended
March 31,
  
Nine Months Ended
March 31,
 
  2017  2016  2017  2016 
             
Net income (loss) applicable to common shareholders $699,414  $118,480  $2,309,943  $(377,577)
Other Comprehensive Income (Loss):                
    Unrealized loss on marketable securities  -   (26,684)  -   (26,128)
    Reclassification adjustment  -   26,684   -   26,128 
    Net loss on marketable securities      -       - 
Comprehensive income (loss) $699,414  $118,480  $2,309,943  $(377,577)
 
 
 
Three Months Ended
September 30,    
 
 
 
 2016
 
 
2015
 
Revenues:
 $4,216,545 
 $3,098,631 
 
    
    
Operating expenses:
    
    
     Cost of services and product support
  1,203,515 
  1,174,546 
     Sales and marketing
  1,193,176 
  1,442,572 
     General and administrative
 1,023,150
     772,494
     Depreciation and amortization
  116,580 
  129,098 
 
    
    
Total operating expenses
 3,536,421
  3,518,710
 
    
    
Income (loss) from operations
    676,399
  (420,079)
 
    
    
Other expense:
    
    
     Interest (expense) income
  (6,487)
  17,623 
 
    
    
Income (loss) before income taxes
   673,637
  (402,456)
 
    
    
(Provision) benefit for income taxes:
 (59,184)
  (4,836)
 Net income (loss)
  614,453 
  (407,292)
 
    
    
Dividends on preferred stock
  (186,804)
  (199,388)
 
    
    
Net income (loss) applicable to common shareholders
 $427,649 
 $(606,680)
 
    
    
Weighted average shares, basic
  19,266,000 
  19,042,000 
Weighted average shares, diluted
  20,099,000 
  19,042,000 
Basic income (loss) per share
 $0.02 
 $(0.03)
Diluted income (loss) per share
 $0.02 
 $(0.03)
 
See accompanying notes to consolidated condensed financial statements.






 
-2-
-3-

PARK CITY GROUP, INC.INC.-
Consolidated Condensed Statements of Comprehensive Income (unaudited)Cash Flows (Unaudited)

 
 
Three Months Ended
September 30,    
 
 
 
2016
 
 
2015
 
Net income (loss) applicable to common shareholders
 $427,649 
 $(606,680)
Other comprehensive income (loss):
    
    
   Unrealized loss on marketable securities
  - 
  (3,554)
Comprehensive income (loss)
 $427,649 
 $(610,234)
  
Nine Months
Ended March 31,
 
  2017  2016 
Cash Flows from Operating Activities:      
     Net income $2,894,231  $168,959 
     Adjustments to reconcile net income to net cash from operating activities:        
    Depreciation and amortization
  336,340   382,453 
    Bad debt expense
  230,700   43,140 
    Stock compensation expense
  961,589   775,202 
    Loss on short-term marketable securities
  -   26,128 
     (Increase) decrease in:        
    Trade receivables
  (444,022)  (1,232,910)
    Long-term receivables, prepaids and other assets
  (1,722,362)  49,387 
     (Decrease) increase in:        
    Accounts payable
  169,504   (170,736)
    Accrued liabilities
  92,281   (59,270)
    Deferred revenue
  (558,576)  219,924 
         
       Net cash provided by operating activities
  1,959,685   202,277 
         
Cash Flows From Investing Activities:        
     Purchase of marketable securities  -   (4,636,036) 
     Sale of marketable securities  -   4,612,908 
     Capitalization of software costs  -   (109,895)
     Purchase of property and equipment  (337,777)  (31,987)
     Purchase of long-term investments  (3,150)  (471,584)
         
       Net cash used in investing activities
  (340,927)  (639,594)
         
Cash Flows From Financing Activities:        
     Proceeds from employee stock plans  223,465   199,848 
     Proceeds from issuance of note payable  207,345   396,000 
     Net increase in lines of credit  130,432     
     Proceeds from exercise of warrants  121,625   33,002 
     Dividends paid  (7,932)  (7,932)
     Payments on notes payable and capital leases  (194,539)  (176,153)
         
       Net cash provided by financing activities
  480,396   444,765 
         
Net increase in cash and cash equivalents  2,099,154   7,448 
         
Cash and cash equivalents at beginning of period  11,443,388   11,325,572 
         
Cash and cash equivalents at end of period$ 13,542,542  $11,333,020 
         
Supplemental Disclosure of Cash Flow Information:        
     Cash paid for income taxes$ 64,655  $- 
     Cash paid for interest$ 31,004  $16,761 
         
Supplemental Disclosure of Non-Cash Investing and Financing Activities:        
     Common stock to pay accrued liabilities$ 770,858  $1,522,281 
     Preferred stock to pay accrued liabilities$ 300,000  $300,000 
     Dividends accrued on preferred stock$ 584,288  $546,536 
     Dividends paid with preferred stock$ 557,071  $486,190 

See accompanying notes to consolidated condensed financial statements.




 
-3-
-4-

PARK CITY GROUP, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
 
 
Three Months Ended
September 30,
 
 
 
2016
 
 
 2015
 
Cash Flows Operating Activities:
 
 
 
 
 
 
Net income (loss)
 $614,453 
 $(407,292)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
    
    
           Depreciation and amortization
  116,580
  129,098 
Stock compensation expense
  239,056 
  261,833 
           Bad debt expense
  80,700 
  33,576 
(Increase) decrease in:
    
    
Trade receivables
  (1,188,259)
  (192,273)
Prepaids and other assets
  73,207 
  (3,726)
(Decrease) increase in:
    
    
Accounts payable
  (10,250)
  178,505 
Accrued liabilities
  30,002
  (51,968)
Deferred revenue
  (77,198)
  (99,057)
 
    
    
Net cash used in operating activities
  (121,709)
  (151,304)
 
    
    
Cash Flows Investing Activities:
    
    
Purchase of property and equipment
  (15,800)
  (18,586)
Purchase of marketable securities
  - 
  (4,639,036)
Net cash used in investing activities
  (15,800)
  (4,657,622)
 
    
    
Cash Flows Financing Activities:
    
    
Proceeds from employee stock plans
  113,987 
  98,976 
Proceeds from exercise of warrants
  35,000 
  - 
Dividends paid
  (2,644)
  (2,644)
Payments on notes payable and capital leases
  (66,581)
  (55,894)
 
    
    
Net cash provided by financing activities
  79,762 
  40,438 
 
    
    
Net decrease in cash and cash equivalents
  (57,747)
  (4,768,488)
 
    
    
Cash and cash equivalents at beginning of period
  11,443,388 
  11,325,572 
 
    
    
Cash and cash equivalents at end of period
 $11,385,641 
 $6,557,084 
 
    
    
Supplemental Disclosure of Cash Flow Information:
    
    
Cash paid for income taxes
 $59,184
 $4,836
Cash paid for interest
 $11,223 
 $8,680 
 
    
    
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
    
    
Preferred Stock to pay accrued liabilities
 $100,000 
 $- 
Common Stock to pay accrued liabilities
 $394,570 
 $987,885 
Dividends accrued on preferred stock
 $186,804 
 $199,388 
Dividends paid with preferred stock
 $180,110 
 $- 
See accompanying notes to consolidated condensed financial statements.
-4-
PARK CITY GROUP, INC.
NOTESNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

    The Company is incorporated in the state of Nevada. The Company has three subsidiaries, PC Group, Inc. (formerly, Park City Group, Inc.), a Utah Corporation (98.76% owned), Park City Group, Inc., (formerly, Prescient Applied Intelligence, Inc.), a Delaware Corporation (100% owned) and ReposiTrak, Inc., a Utah corporation (100% owned) (“ReposiTrak”). All intercompany transactions and balances have been eliminated in consolidation.

    The Company designs, develops, markets and supports proprietary software products. These products are designed for businesses having multiple locations to assist in the management of business operations on a daily basis and communicate results of operations in a timely manner. In addition, the Company has built a consulting practice for business improvement that centers on the Company’s proprietary software products. The principal markets for the Company's products are multi-store retail and convenience store chains, branded food manufacturers, suppliers and distributors, and manufacturing companies, which have operations in North America, Europe, Asia and the Pacific Rim. As a result of the acquisition of ReposiTrak Inc. (“ReposiTrak”) in June 2015, as more particularly described below, the Company also provides food, pharmaceutical, and dietary supplement retailers and suppliers with a robust cloud-based solution to help protect their brands and remain in compliance with business records and regulatory requirements, such as the Food Safety Modernization Act (“FSMA”) and the Drug Quality and Security Act (“DQSA”).

Our services are delivered through proprietary software products designed, developed, marketed and supported by the Company. These products are designed to facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving back to suppliers and eventually raw material providers. In addition, the Company has also built a consulting practice for business improvement that centers on the Company’s proprietary software products and through establishment of a neutral and “trusted” third party relationship between retailers and suppliers. The principal markets for the Company's products are multi-store retail and convenience store chains, branded food manufacturers, suppliers and distributors, and manufacturing companies, which have operations in North America, Europe, Asia and the Pacific Rim.
 
Basis of Financial Statement Presentation

The interim financial information of the Company as of September 30, 2016March 31, 2017 and for the three and nine months ended September 30,March 31, 2017 and 2016 and 2015 is unaudited, and the balance sheet as of June 30, 2016 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with U. S.U.S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended June 30, 2016. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended SeptemberMarch 31, 20162017 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2017. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2016.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The financial statements presented herein reflect the consolidated financial position of Park City Group, Inc. and subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.
-5-

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that materially affect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results it reports in its financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results, and require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include: income taxes, goodwill and other long-lived asset valuations, revenue recognition, stock-based compensation, and capitalization of software development costs.





Earnings Per Share

    Basic net income or loss per common share (“Basic EPS”) excludes dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted net income or loss per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue shares of common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.

For the threenine months ended September 30, 2015March 31, 2016, warrants to purchase 1,426,178approximately 1,417,000 shares of common stock, respectively, were not included in the computation of diluted EPS due to the anti-dilutive effect. Warrants to purchase shares of common stockSuch warrants were outstanding at prices ranging from $3.50 to $10.00 per share.

    The following table presents the components of the computation of basic and diluted earnings per share at September 30, 2016.for the periods indicated:

 
 
Three Months Ended    
 
 
 
September 30,
 
 
 
2016
 
 
  2015
 
Diluted effect of warrants
  832,581 
  - 
Weighted average shares outstanding assuming dilution
  20,099,041 
  19,042,000 
  Three Months Ended  Nine Months Ended 
  March 31,  March 31, 
  2017  2016  2017  2016 
Numerator            
Net income (loss) applicable to common shareholders $699,414  $118,480  $2,309,943  $(377,577)
  
Denominator                
Weighted average common shares outstanding, basic  19,390,000   19,196,000   19,331,000   19,128,000 
Warrants to purchase common stock  963,000   767,000   920,000   - 
                 
Weighted average common shares outstanding, diluted  20,353,000   19,963,000   20,251,000   19,128,000 
                 
  
Net income (loss) per share                
Basic $0.04  $0.01  $0.12  $(0.02)
Diluted $0.03  $0.01  $0.11  $(0.02)

Reclassifications

    Certain prior-year amounts have been reclassified to conform with the current year's presentation.

NOTE 3. EQUITY

During the 3nine months ended September 30, 2016March 31, 2017, the Company issued 1,39536,624 shares to its directors and 69,124112,224 shares to employees and consultants under the Company’s stock compensation plans, 53,637115,596 of which are included in the rollforward of Restricted Stock units below.

Restricted Stock Units

 
Restricted Stock Units
 
 
Weighted Average Grant Date Fair Value ($/share)
 
 Restricted Stock Units Weighted Average Grant Date Fair Value ($/share) 
 
 
 
     
Outstanding at June 30, 2016
  1,051,144 
  5.82 
 1,051,144 5.82 
Granted
  29,578 
  9.13 
 72,387 10.67 
Vested and issued
  (53,637)
  7.04 
 (115,596) 6.28 
Forfeited
  (23,246)
  10.52 
  (26,560)  10.23 
Outstanding at September 30, 2016
  1,003,839 
  $5.74 
Outstanding at March 31, 2017 981,375 6.00 

    As of September 30, 2016,March 31, 2017, there was approximately $5.8$5.9 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight line basis over a weighted average period of 4.384.82 years.


 
-6-

Warrants

    The following tables summarize information about warrants outstanding and exercisable at September 30, 2016:

 
 
 
 
 Warrants         
 
 
 Warrants
 
 
 
 
 
 Outstanding       
 
 
 Exercisable    
 
 
 
 
 
 at September 30, 2016
 
 
 at September 30, 2016    
 
 
Range of
exercise prices
Warrants
 
 
 
Number
outstanding at
September 30, 2016 
 
 
Weighted average remaining contractual life (years)
 
 Weighted average exercise price
 
Number
exercisable at
September 30, 2016
 
 
Weighted average exercise price
 
 $3.50–4.00 
  1,306,268 
  3.03 
 $3.93 
  1,306,268 
 $3.93 
 $6.45–10.00 
  100,481 
  2.24 
 $7.29 
  100,481 
 $7.29 
    
  1,406,749 
  2.97 
 $4.17 
  1,406,749 
 $4.17 
March 31, 2017:
 
        As of September 30, 2016, there was approximately $5.8 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight line basis over a weighted average period of 4.38 years.
   Warrants  Warrants 
   Outstanding  Exercisable 
   at March 31, 2017  at March 31, 2017 
Range of
exercise prices
Warrants
  
Number
outstanding at
March 31,
2017
  
Weighted
 average
remaining
contractual
life (years)
  
Weighted
average
exercise
price
  
Number
exercisable at
March 31,
2017
  
Weighted
average
exercise
price
 
$
3.5-4.00
   
1,281,518
   
2.56
  
$
3.93
   
1,281,518
  
$
3.93
 
$
6.45-10.00
   
100,481
   
1.74
  
$
7.29
   
100,481
  
$
7.29
 
     
1,381,999
   
2.50
  
$
4.18
   
1,381,999
  
$
4.18
 

Preferred Stock

The Company’s certificate of incorporation currently authorizes the issuance of up to 30,000,000 shares of ‘blank check’ preferred stock with designations, rights, and preferences as may be determined from time to time by the Company’s Board of Directors, of which 700,000 shares are currently designated as Series B Preferred Stock (“Series B Preferred”) and 300,000 shares are designated as Series B-1 Preferred Stock (“Series B-1 Preferred”). Both classes of Series B Preferred Stock, which are treated as permanent pieces of our capital structure due to the fact that they are nonredeemable and nonconvertible, pay dividends at a rate of 7% per annum if paid by the Company in cash, or 9% if paid by the Company in additional shares of Series B-1 Preferred (“PIK Shares the”). The Company may elect to pay accrued dividends on outstanding shares of Series B Preferred in either cash or by the issuance of additionalPIK Shares.

    During the nine months ended March 31, 2017, the Company issued 55,707 PIK Shares for accrued dividends payable with respect to the Series B Preferred, and 30,000 shares of Series BB-1 Preferred (“ PIK Shares ”).
During the three months ended September 30, 2016, the Company issued 18,011 shares for dividends in kind and 10,000 shares in satisfaction of an accrued bonus payable to the Company's CEO.

NOTE 4. RELATED PARTY TRANSACTIONS

During the threenine months ended September 30, 2016,March 31, 2017, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“FMI”), pursuant to which FMI provided certain executive management services to the Company, including designating Randall K. Fields to perform the functions of President and Chief Executive Officer for the Company. Mr. Fields also serves as the Company’s Chairman of the Board of Directors and controls FMI.
The Company had payables of $54,478$49,153 and $32,253 to FMI at September 30, 2016March 31, 2017 and June 30, 2016, respectively, under this agreement. In addition, during the nine months ended March 31, 2017, 30,000 shares of Series B-1 Preferred were paid to FMI in satisfaction of an accrued bonus payable to Mr. Fields.

    During the nine months ended March 31, 2017, the Company also issued 55,707 PIK Shares for accrued dividends payable with respect to the Series B Preferred, of which 6,412 were issued to Robert W. Allen, a director of the Company, and 49,295 were issued to Riverview Financial Corp., an entity beneficially owned by Mr. Fields. In addition, $7,932 was paid to Julie Fields, Mr. Fields spouse, as a dividend paid with respect to the Series B Preferred beneficially owned by Ms. Fields.
 
 
-7-
 
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS

    In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this Update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this Update on a prospective basis In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this Update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this Update on a prospective basis. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows under Topic 230. To reduce the existing diversity in practice, this update addresses multiple cash flow issues. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.

In May 2014, August 2015, April 2016 and May 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09 (ASC Topic 606), Revenue from Contracts with Customers, ASU 2015-14 (ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-10 (ASC Topic 606) Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing , and ASU 2016-12 (ASC Topic 606) Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, respectively. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 (ASC Topic 718), Stock Compensation—Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact on its consolidated financial statements.

NOTE 6. SUBSEQUENT EVENTS

Subsequent to September 30, 2016,    In April 2017, the Company issued 36,551 shares of common stock in connection with the vesting of employee stock grants.organized a new 100% owned subsidiary, Shared Equip, LLC (“SEQ”). This entity was used to purchase equipment valued at approximately $1.6 million. The Company also issued 18,416 shares of Series B-1 Preferredequipment will be used for dividends paid in kind on the outstanding shares of Series B Preferred.internal use as well as leased out to unrelated 3rd parties.
   
In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events, through the filing date and noted no additional subsequent events that are reasonably likely to impact the financial statements.

 

 

ITEM 2.  MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements." Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our June 30, 2016 Annual Report on Form 10-K, incorporated herein by reference. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

Overview

Park City Group, Inc. (the “Company”) is a Software-as-a-Service (“SaaS”) provider. The Company’s technology helps companies to synchronize their systems with those of their trading partners to make more informed business decisions. We provide companies with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and we help them to more efficiently manage these relationships to “stock less and sell more”, enhancing revenue while lowering working capital, labor costs and waste. Through our subsidiary, ReposiTrak, Inc. (“ReposiTrak”), we also help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food and drug safety regulations, such as the Food Safety Modernization Act (“FSMA”) and the Drug Quality and Security Act (“DQSA”).

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products are designed to provide transparency and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving back to suppliers and eventually to raw material providers. We provide cloud-based applications and services that address e-commerce, supply chain, and compliance activities. The principal customers for the Company's products are multi-store food retail store chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses.

The Company has a hub and spoke business model. We are typically engaged by retailers and distributors (“Hubs”), which in turn have us engage their suppliers (“Spokes”) to sign up for our services. The bulk of the Company’s revenue is from recurring subscription payments typically based on a monthly volume metric between the Hub and the Spoke. We also have a professional services business, which conducts customization, implementation, and training, for which revenue is recognized on a percentage-of-completion or pro rata over the life of the subscription, depending on the nature of the engagement. In a few instances the Company will also sell its software in the form of a license.

The Company is incorporated in the state of Nevada. The Company has three subsidiaries: PC Group, Inc. (formerly, Park City Group, Inc., a Delaware corporation), a Utah corporation (98.76% owned), Park City Group, Inc. (formerly, Prescient Applied Intelligence, Inc.), a Delaware corporation (100% owned) and ReposiTrak, Inc., a Utah corporation (100% owned) (“ReposiTrak”). All intercompany transactions and balances have been eliminated in consolidation.

    Our principal executive offices of the Company are located at 299 South Main Street, Suite 2370,2225, Salt Lake City, Utah 84111. Our telephone number is (435) 645-2000. Our website address is http://www.parkcitygroup.com, and ReposiTrak’s website address is http://repositrak.com.

-9-
Results of Operations

Comparison of the Three Months Ended September 30, 2016March 31, 2017 to the Three Months Ended September 30, 2015.March 31, 2016.

Revenue

  
Fiscal Quarter Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Revenues $4,748,652  $3,580,329  $1,168,323   33%

Revenue

 
Fiscal Quarter Ended
September 30,
 
  Variance    
 
 
 
2016
 
 
2015
 
 
Dollars
 
 
Percent
 
Revenues
  4,216,545 
 $3,098,631 
 $1,117,914 
  36%
Revenue was $4,216,545$4,748,652 and $3,098,631$3,580,329 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, a 36%33% increase. This $1,117,914 increase was due primarily to an increase in revenue attributable, in part, to new applications including ReposiTrak, our Vendor Portal, and related serviceservices and subscriptions, including an increasesubscriptions. Increases in the number of new customers, (“Hubs”) that have chosen ReposiTrak asboth retailers and wholesalers and their food safety management platform, as well as an increase in the number of suppliers, (“Spokes”)  connected to these HUBs and an acceleration of the rate at which the Company was able to convert these suppliers into connections as a result of improved processes and execution.execution also contributed to this increase.


               Management believes that revenue will increase in subsequent periods primarily as a result of continued growth in ReposiTrak and Supply Chain customers and revenue, as a result of the Company’s strategy of pursuing new contracts for both businesses with new Hubs and their Spokes.
 
-9-

Cost of Services and Product Support

 
Fiscal Quarter Ended 
September 30,
 
 
 Variance     
 
 
Fiscal Quarter Ended
March 31,
 Variance 
 
 2016
 
 2015  
 
Dollars
 
 
 Percent
 
 2017 2016 Dollars Percent 
Cost of services and product support
 $1,203,515 
 $1,174,546 
 $28,969 
  2%
 $1,342,772 $1,050,074 $292,698 28%
Percent of total revenue
  29%
  38%
    
 28% 29%     

    Cost of services and product support was $1,203,515$1,342,772 and $1,174,546$1,050,074 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, a 2%28% increase. The $28,969This increase is principally dueprimarily attributable to an increase in employee headcount and employee related expense.
Management expects serviceexpense, capitalization of software development costs in the prior year, costs related to a new product, and a product support tosmall increase in absolute value in subsequent periods, but to continue to fall as a percentage of total revenue.infrastructure costs.
 
Sales and Marketing Expense

Fiscal Quarter Ended
September 30,
 
   Variance      
 
 
Fiscal Quarter Ended
March 31,
 Variance 
 
2016
 
 2015 
 
Dollars
 
 
Percent
 
 2017 2016 Dollars Percent 
Sales and marketing
 $1,193,176 
 $1,442,572 
 $(249,396)
  -17%
 $1,350,726 $1,264,036 $86,690 7%
Percent of total revenue
  28%
  47%
    
 28% 35%     

Sales and marketing expense was $1,193,176$1,350,726 and $1,442,572$1,264,036 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, a 17% decrease.  Sales7% increase. This increase in sales and marketing expense decreased principallyis mainly due to (i) a decreasean increase in marketinghead count and promotional expense of $171,000, and (ii) a decrease of $81,000 in employee related costsexpenses and an increase in travel expense, whichexpenses. These were partially offset by an increasea small decrease in advertising and other sales related costs of $3,000.promotional expenses.
Management expects sales and marketing expense to increase in absolute value in subsequent periods, but to continue to fall as a percentage of total revenue.
-10-
General and Administrative Expense

Fiscal Quarter Ended
September 30,
 
 Variance
 
 
Fiscal Quarter Ended
March 31,
 Variance 
 
 2016
 
   2015 
 
Dollars
 
 
 Pecent
 
 2017 2016 Dollars Percent 
General and administrative
 $1,023,150
 $772,494
 $250,656
  32%
 $1,006,605 $807,542 $199,063 25%
Percent of total revenue
  24%
  25%
    
 21% 23%     

    General and administrative expense was $1,023,150$1,006,605 and $772,494$807,542 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, a 32%25% increase in the three months ended September 30, 2016March 31, 2017 compared with the three months ended September, 2015.March 31, 2016. This $250,656 increase is principally dueprimarily attributable to (i) an increase in employeecompensation related costs, and travel expense of approximately $241,000, andexpenses, (ii) an increase into bad debt expense, of $47,000. These decreases were partially offset by decreases(iii) an increase in facility costs of $17,000public relations and professional fees and (iv) an increase in facility expense related to the relocation of $20,000.the Company’s corporate office. The increase was offset by a decrease in travel expense.

Depreciation and Amortization Expense

Fiscal Quarter Ended   
September 30,
 
 Variance      
 
 
Fiscal Quarter Ended
March 31,
 Variance 
  2016  
  2015  
  Dollars  
  Percent  
 2017 2016 Dollars Percent 
Depreciation and amortization
 $116,580 
 $129,098 
 $(12,518)
  -10%
 $106,899 $125,939 $(19,040) -15%
Percent of total revenue
  3%
  4%
    
 2% 4%     

    Depreciation and amortization expense was $116,580$106,899 and $129,098$125,939 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, a decrease of 10%15%. This comparative decrease of $12,518 is relatedprimarily due to the replacementfull amortization of aging equipment with new equipment under operating leases.many assets, partially offset by amortization of capitalized software costs.
 
Other Income and Expense
 
 
 
  Fiscal Quarter Ended
September 30,  
 
 
  Variance    
 
 2015
 
2015
 
 
Dollars
 
 
 Percent
 
Interest (expense) income
 $(6,487)
 $17,623 
 $(24,110)
  -137%
Percent of total revenue
  
<1 %
 
  1%
    
    
  
Fiscal Quarter Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Net other expense
 $4,729  $37,670  $(32,941)  -87%
Percent of total revenue  NM%  1%        
 
 Interest    Net other expense was $6,487$4,729 for the three months ended September 30, 2016March 31, 2017 compared to interest incomenet other expense of $17,623$37,670 for the three months ended September 30, 2015.March 31, 2016. This change of $24,110decrease in other expense was due to interest incomea loss on short-term marketable securities duringdisposition of investments in the three months ended September 30, 2015.prior year.


 
-10-

Preferred Dividends

 
Fiscal Quarter Ended  
September 30,
 
 
 Variance     
 
 
Fiscal Quarter Ended
March 31,
 Variance 
2016
 
 2016
 
 
 2015
 
 
Dollars 
 
 Percent
 
 2017 2016 Dollars Percent 
Preferred dividends
 $186,804 
 $199,388 
 $(12,584)
  -6%
 $202,036 $176,588 $25,448 14%
Percent of total revenue
  4%
  6%
    
 4% 5%     

Dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred was $186,804$202,036 for the three months ended September 30, 2016,March 31, 2017, compared to dividends accrued on the Series B Preferred of $199,388$176,588 for the year ended September 30, 2015.March 31, 2016. This $12,584 decreaseincrease is due to the payment of PIK Shares.

Comparison of the Nine Months Ended March 31, 2017 to the Nine Months Ended March 31, 2016.

Revenue

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Revenue $13,750,786  $10,215,752  $3,535,034   35%

    Revenue was $13,750,786 and $10,215,752 for the nine months ended March 31, 2017 and 2016, respectively, a 35% increase. This $3,535,034 period over period increase in revenue is primarily due to an increase in revenue attributable, in part, to new applications including ReposiTrak, our Vendor Portal, and related services and subscriptions. Increases in the number of new customers, both retailers and wholesalers and their suppliers, and an acceleration of the rate at which the Company was able to convert these suppliers into connections as a result of improved processes and execution, also contributed to this increase.

Cost of Services and Product Support

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Cost of services and product support $3,736,691  $3,223,548  $513,143   16%
Percent of total revenue  27%  32%        

    Cost of services and product support was $3,736,691 and $3,223,548 for the nine months ended March 31, 2017 and 2016, respectively, a 16% increase compared with the nine months ended March 31, 2016. This period over period increase is principally due to an increase in employee related expense, an increase related to the determination by the Company to pay dividends in kind for the year ended June 30, 2015, which resulted in an adjustment to dividendscapitalization of software development costs in the prior year, period.and an increase in infrastructure costs.

Sales and Marketing Expense

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Sales and marketing $3,702,975  $4,107,676  $(404,701)  -10%
Percent of total revenue  27%  40%        

    Sales and marketing expense was $3,702,975 and $4,107,676 for the nine months ended March 31, 2017 and 2016, respectively, a 10% decrease. This period over period decrease is due to a decrease in employee related expense, a decrease in marketing and promotional expense and a reduction in travel related expense.
General and Administrative Expense

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
General and administrative $2,967,842  $2,317,316  $650,556   28%
Percent of total revenue  22%  23%        

    General and administrative expense was $2,967,842 and $2,317,316 for the nine months ended March 31, 2017 and 2016, respectively, a 28% increase. This increase is principally due to an increase in headcount costs, an increase in bad debt expense, and an increase to other facility related costs.


-11-

Depreciation and Amortization Expense

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Depreciation and amortization $336,340  $382,453  $(46,113)  -12%
Percent of total revenue  2%  4%        

    Depreciation and amortization expense was $336,340 and $382,453 for the nine months ended March 31, 2017 and 2016, respectively, a decrease of 12%. This comparative decrease is related to the full amortization of many assets partially offset by amortization of capitalized software development costs.

Other Income and Expense

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Net other expense $18,052  $15,800  $2,252   14%
Percent of total revenue    NM%    NM%         

    Net other expense was $18,052 for the nine months ended March 31, 2017 an increase in net other expense of $2,252 when compared to net other expense of $15,800 for the nine months ended March 31, 2016. This increase in other expense is due to interest income on investments during the prior year.
Preferred Dividends

  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Preferred dividends $584,288  $546,536  $37,752   7%
Percent of total revenue  4%  5%        

    Dividends accrued were paid throughon the issuance of 18,416 shares ofCompany’s Series B Preferred was $584,288 for the nine months ended March 31, 2017, compared to dividends accrued on the Company’s Series B Preferred and Series B-1 Preferred and $2,644. of $546,536 for the nine months ended March 31, 2015. This increase is due to the payment of PIK dividends.
-11-

Financial Position, Liquidity and Capital Resources

We believe our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth and expansion of our sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products.

 
 
 As of September 30,
 
 
 Variance     
 
 
 
 2016
 
 
 2015
 
 
Dollars
 
 
 Percent
 
Cash and cash equivalents
 $11,385,641 
 $6,557,084 
 $4,828,557 
  74%
  As of March 31,  Variance 
  2017  2016  Dollars  Percent 
Cash and cash equivalents $13,542,542  $11,333,020  $2,209,522   19%

    We have historically funded our operations with cash from operations, equity financings and debt borrowings. Cash was $11,385,641$13,542,542 and $6,557,084$11,333,020 at September 30,March 31, 2017 and 2016, and 2015, respectively. This $4,828,557$2,209,522 increase from September 30, 2015 to September 30, 2016 is principally the result of increased cash flows from operations, due to increase net income. There has also been a decrease in cash used in investing activities. Investments in marketable securities madeactivities during the period ended September 30, 2015 were subsequently sold throughout the year ended June 30, 2016. This has resulted in an increased cash and cash equivalent balance at September 30, 2016 when compared to the prior period.current year.
 
Net Cash Flows from Operating Activities

 
 
 Three Months Ended
September 30,
 
 
 Variance     
 
 
 
 2016
 
 
 2015
 
 
Dollars
 
 
 Percent
 
Cash used in operating activities
 $(121,709)
 $(151,304)
 $29,595 
  20%
  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Cash provided by operating activities $1,959,685  $202,277  $1,757,408   869%


 
-12-

Net cash provided by operating activities is summarized as follows:

Three Months Ended
September 30,
 
Nine Months Ended
March 31,
 
 
  2016
 
 
  2015 
 
 2017 2016 
Net income (loss)
 $614,453 
 $(407,292)
Net Income $2,894,231 $168,959 
Noncash expense and income, net
  436,335 
  424,507 
 1,528,629 1,226,923 
Net changes in operating assets and liabilities
  (1,172,497)
  (168,519)
  (2,463,175)  (1,193,605)
 $(121,709)
 $(151,304)
 $1,959,685 $202,277 

Noncash expense increased by $11,828$301,706 in the threenine months ended September 30, 2016March 31, 2017 compared to September 30, 2015.March 31, 2016. Noncash expense increased as a result of a $47,000an increase in bad debt expense, and an increase in stock compensation offset by a $23,000 decrease in stock compensation expense and a $13,000$46,113 decrease in depreciation and amortization expense.

Net Cash Flows used in Investing Activities

 
 
Three Months Ended
September 30,
 
 
 Variance     
 
 
 2016  
 2015 
 
Dollars
 
 
 Percent
 
Cash used in investing activities
 $(15,800)
 $(4,657,622)
 $4,641,822 
  100%
  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Cash used in investing activities $340,927  $639,594  $(298,667)  -47%

Net cash used in investing activities for the threenine months ended September 30, 2016March 31, 2017 was $15,800$340,927 compared to net cash used in investing activities of $4,657,622$639,594 for the threenine months ended September 30, 2015.March 31, 2016. This $4,641,822 decrease in cash used in investing activities for the threenine months ended September 30, 2016March 31, 2017 is due to the Company’s purchase of short-term marketable securitieslong-term investments in the 20152016 period.
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Net Cash Flows from Financing Activities

 
 
Three Months Ended     
 
 
Variance    
 
 
 
September 30,     
 
 
 
 
 
 
 
 
 
2016
 
 
2015
 
 
Dollars
 
 
Percent
 
Cash provided by financing activities
 $79,762 
 $40,438 
 $39,324 
  97%
  
Nine Months Ended
March 31,
  Variance 
  2017  2016  Dollars  Percent 
Cash provided by financing activities $480,396  $444,765  $35,631   8%

Net cash provided by financing activities totaled $79,762$480,396 for the threenine months ended September 30, 2016March 31, 2017 as compared to cash flows provided by financing activities of $40,438$444,765 for the threenine months ended September 30, 2015.March 31, 2016. The increase in net cash provided by financing activities is primarily attributable to cash drawn on the line of credit and cash from the exercise of warrants, and an increase in cash provided by employee stock plans,these were partially offset by an increasedecrease in payments onproceeds from notes payable.  The Company has the option to pay quarterly preferred dividends in kind and has made this election for each quarter beginning with the quarter ended December 31, 2015.
 
Working Capital

At September 30, 2016,March 31, 2017, the Company had working capital of $9,148,575$10,090,821 when compared with working capital of $7,845,826$7,346,632 at June 30, 2016. This $1,302,749$2,744,189 increase in working capital is principally due to an increase of $1,108,000$2,099,154 in cash and an increase of $213,322 in accounts receivable, andtogether with decreases of $218,000 in accrued liabilities and $77,000$558,576 in deferred revenue. The working capital increases were partially offset by an increase in accounts payable and an increase in the line of credit. While no assurances can be given, management currently believes that the Company will increase its working capital position in subsequent periods, and thereby reduce its indebtedness utilizing existing cash resources and projected cash flow from operations.

  
As of
March 31,
  
As of
June 30,
  Variance 
  2017  2016  Dollars  Percent 
Current assets $17,329,962  $14,885,437  $2,444,525   16%

    
 
 
As of
September 30,  
 
 
As of June 30,
 
 
 Variance      
 
 
 
2016  
 
 2015
 
 
Dollars
 
 
 Percent
 
Current assets
 $16,361,236 
 $15,384,631 
 $976,605 
  6%
Current assets as of September 30, 2016March 31, 2017 totaled $16,361,236,$17,329,962 an increase of $976,605$2,444,525 when compared to $15,384,631$14,885,437 as of June 30, 2016. The increase in current assets is attributable to (i) an increase in cash due to increased collections, and an advance on the line of credit, and (ii) an increase in accounts receivable.
 
 
 
As of
September 30,
 
 
As of
June 30
 
 
 Variance     
 
 
 
 2016
 
 
 2016
 
 
Dollars
 
 
 Percent
 
Current liabilities
 $7,212,661 
 $7,538,805 
 $326,144 
  4%
  
As of
March 31,
  
As of
June 30,
  Variance 
  2017  2016  Dollars  Percent 
Current liabilities $7,239,141  $7,538,805  $(299,664)  -4%

Current liabilities totaled $7,212,661$7,239,141 as of September 30, 2016March 31, 2017 as compared to $7,538,805 as of June 30, 2016. The $326,144 comparative decrease in current liabilities is principally due to a decrease in accrued liabilitiesdeferred revenue and deferred revenue.partially offset by an increase in accounts payable and an increase in the line of credit.

    In April 2017, SEQ borrowed approximately $1.6 million from a bank for the purchase of equipment. The note has a rate of 4.21% and matures July 2021. See Note 6.

 

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While no assurances can be given, management currently intends to continue to reduce its indebtedness in subsequent periods utilizing existing cash resources and projected cash flow from operations. In addition, management may also continue to pay down, pay off or refinance certain of the Company’s indebtedness. Management believes that these initiatives will enable us to address our debt service requirements during the next twelve months without negatively impacting our working capital, as well as fund our currently anticipated operations and capital spending requirements.

Off-Balance Sheet Arrangements

    The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operation, liquidity or capital expenditures.

Recent Accounting Pronouncements

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    In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this Update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this Update on a prospective basis In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment in this Update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this Update on a prospective basis. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.
 
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows under Topic 230. To reduce the existing diversity in practice, this update addresses multiple cash flow issues. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.

In May 2014, August 2015, April 2016 and May 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09 (ASC Topic 606), Revenue from Contracts with Customers, ASU 2015-14 (ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-10 (ASC Topic 606) Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing , and ASU 2016-12 (ASC Topic 606) Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, respectively. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 (ASC Topic 718), Stock Compensation—Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact on its consolidated financial statements.

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.

We commenced operations in the software development and professional services business during 1990. The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates and judgments on historical experience of operations and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our consolidated financial statements.


 
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Income Taxes

In determining the carrying value of the Company’s net deferred income tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s statements of operations. Management evaluates whether or not to realize the deferred income tax assets and assesses the valuation allowance quarterly.

Goodwill and Other Long-Lived Asset Valuations

    Goodwill is assigned to specific reporting units and is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit's carrying amount is greater than its fair value. Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate.

Revenue Recognition

We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement, (ii) the service has been provided to the customer, (iii) the collection of our fees is probable, and (iv) the amount of fees to be paid by the customer is fixed or determinable.

    We recognize subscription, hosting, premium support, and maintenance revenue ratably over the length of the agreement beginning on the commencement dates of each agreement or when revenue recognition conditions are satisfied. Revenue from license and professional services agreements are recognized as delivered.

Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Agreements with multiple deliverables such as subscriptions, support, and professional services, are accounted for separately if the deliverables have standalone value upon delivery. Subscription services have standalone value as the services are typically sold separately. When considering whether professional services have standalone value, the Company considers the following factors: (i) availability of services from other vendors, (ii) the nature and timing of professional services, and (iii) sales of similar services sold separately. Multiple deliverable arrangements are separated into units of accounting and the total contract consideration is allocated to each unit based on relative selling prices.

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The Company records compensation expense on a straight-line basis. The fair value of options granted are estimated at the date of grant using a Black-Scholes option pricing model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.
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ITEM 3.  QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future.

Our exposure to risk for changes in interest rates relates primarily to our investments in short-term financial instruments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change.


 
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Our exposure to interest rate changes related to borrowing has been limited, and we believe the effect, if any, of near-term changes in interest rates on our financial position, results of operations and cash flows should not be material. At September 30, 2016,March 31, 2017, the debt portfolio was composed of approximately 79%89% variable-rate debt and 21%11% fixed-rate debt.

 
September 30,
 
 
 
 
 March 31, 
 
2016
(unaudited) 
 
 
Percent of
Total Debt
 
 
2017
(unaudited)
 
Percent of
Total Debt
 
Fixed rate debt
 $663,871 
  21%
 $356,557 11%
Variable rate debt
  2,500,000 
  79%
  3,017,133  89%
Total debt
 $3,163,871 
  100%
 $3,373,690  100%

The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of September 30, 2016:March 31, 2017:

Cash:
 
Aggregate
Fair Value
 
 
Weighted Average Interest Rate
 
 Aggregate Fair Value Weighted Average Interest Rate 
Cash
 $11,385,641 
  0.2%
 $13,542,542 0.3%

ITEM 4.  CONTROLS AND PROCEDURES

(a)
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of March 31, 2017. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)
Changes in internal controls over financial reporting. The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


 
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ITEM 4.  CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of September 30, 2016. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in internal controls over financial reporting.The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PARTPART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. There are currently no pending or threatened material legal proceedings that, in the opinion of management, could have a material adverse effect on our business or financial condition.

ITEM 1A. RISK FACTORS

There are no risk factors identified by the Company in addition to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2016.

ITEMITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
    None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

    None.

ITEM 5. OTHER INFORMATIONINFORMATION

None.

ITEM 6. EXHIBITS

10.1 Amendment No. 1 to the Employment Agreement, by and between Park City Group, Inc., Randall K. Fields and Fields Management, Inc., dated July 1, 2016. 
31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase






SIGNATURESSIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:  November 7, 2016
PARK CITY GROUP, INC.
   
Date: May 10, 2017By:
 /s//s/  Randall K. Fields
  
Randall K. Fields
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)

   
Date: November 7, 2016May 10, 2017By:
 /s//s/  Todd Mitchell
  
Todd Mitchell
Chief Financial Officer
(Principal Financial Officer & Principal Accounting Officer)




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