SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2015

Significant Accounting Policies

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.

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 condensed 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, and stock-based compensation.

Receivables

                The Company's accounts receivable are derived from sales of products and services primarily to customers operating multi-location retail and grocery stores.  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.

Trade account receivables are stated at the amount the Company expects to collect. Receivables are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, allowances may be required.  

Allowance for Doubtful Accounts Receivable

The Company offers credit terms on the sale of the Company’s products to a significant majority of the Company’s customers and requires no collateral from these customers. The Company performs ongoing credit evaluations of customers’ financial condition and maintains an allowance for doubtful accounts receivable based upon the Company’s historical experience and a specific review of accounts receivable at the end of each period. As of December 31, 2015 and June 30, 2015 the allowance for doubtful accounts was $40,400 and $94,000, respectively.

Depreciation and Amortization

Depreciation and amortization of property and equipment is computed using the straight line method based on the following estimated useful lives:

	Years
Furniture and fixtures		5-7
Computer Equipment		3
Equipment under capital leases		3
Leasehold improvements	See below

Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of the improvements.

Amortization of intangible assets are computed using the straight line method based on the following estimated useful lives:

	Years
Customer relationships		10
Acquired developed software		5
Developed software		3
Goodwill	See below

Goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Other intangible assets are amortized over their useful lives.

Warranties

 The Company offers a limited warranty against software defects. For the three and six months ended December 31, 2015 and 2014, the Company did not incur any expense associated with warranty claims and no accrual for warranty claims is included in the financial statements.

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 and hosting revenue ratably over the length of the agreement beginning on the commencement dates of each agreement or when revenue recognition conditions are satisfied based on their relative fair values. For a fee, subscriptions provide the customer with access to the software and data over the Internet, or on demand, and provide technical support services, premium analytical services and software upgrades when and if available. Under subscriptions, customers do not have the right to take possession of the software and such arrangements are considered service contracts. Accordingly, we recognize professional services as incurred based on their relative fair values.  In situations where we have contractually committed to an individual customer specific technology, we defer all of the revenue for that customer until the technology is delivered and accepted. Once delivery occurs, we then recognize the revenue ratably over the remaining contract term. When subscription service or hosting service is paid in advance, deferred revenue is recognized and revenue is recorded ratably over the term as services are consumed.

 Set up fees paid by customers in connection with subscription services are deferred and recognized ratably over the life of the applicable agreement.

 Premium support and maintenance service revenue is derived from services beyond the basic services provided in standard arrangements.  We recognize premium service and maintenance revenue ratably over the contract terms beginning on the commencement dates of each contract or when revenue recognition conditions are satisfied. Instances where these services are paid in advance, deferred revenue is recognized and revenue is recorded ratably over the term as services are consumed.

 Professional services revenue consists primarily of fees associated with application and data integration, data cleansing, business process re-engineering, change management, system orientation, education and training services.  Fees charged for professional services are recognized when delivered. We believe the fees for professional services qualify for separate accounting because: (i) the services have value to the customer on a stand-alone basis, (ii) objective and reliable evidence of fair value exists for these services and (iii) performance of the services is considered probable and does not involve unique customer acceptance criteria.

    The Company's revenue, is also earned under license arrangements. Licenses generally include multiple elements that are delivered up front or over time. Vendor specific objective evidence of fair value of the hosting and support elements is based on the price charged at renewal when sold separately, and the license element is recognized into revenue upon delivery.  The hosting and support elements are recognized ratably over the contractual term.

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. 

Earnings Per Share

Basic earnings per share has been computed using the weighted average number of shares of common stock outstanding during each period.  Diluted earnings per share also includes the impact of our outstanding potential common shares, including warrants and in the comparable period, convertible preferred stock. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income per share.

The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated:

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2015		2014			2015			2014
Numerator
Net income (loss) applicable to common shareholders	$	110,623	$	(695,349	)	$	(496,057	)	$	(1,225,885	)
Denominator
Weighted average common shares outstanding, basic		19,147,000		17,193,000			19,094,000			17,141,000
Warrants to purchase common stock		888,000		-			-			-
Weighted average common shares outstanding, diluted		20,034,000		17,193,000			19,094,000			17,141,000
Net income (loss) per share
Basic	$	0.01	$	(0.04	)	$	(0.03	)	$	(0.07	)
Diluted	$	0.01	$	(0.04	)	$	(0.03	)	$	(0.07	)

The effect of approximately 1,417,000 outstanding potential shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended December 31, 2014, and 1,417,000 and 1,347,000 outstanding potential shares of common stock were excluded from the calculation of diluted earnings per share for the six months ended December 31, 2015 and 2014, respectively, as they were anti-dilutive.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value.

Marketable Securities

Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the condensed consolidated statements of comprehensive income. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves.  The cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is also included as a component of interest income.

Fair Value Measurement

The Company measures its cash equivalents, marketable securities, and foreign currency derivative contracts at fair value. The additional disclosures regarding the Company’s fair value measurements are included in Note 3 “Investments.”