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 December 31, 2021

☐ 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.)

5282 South Commerce Drive, Suite D292, Murray, Utah 84107

(Address of principal executive offices)

(435) 645-2000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	PCYG	Nasdaq Capital Market

Indicate by check mark 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 ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes   ☒ No 

As of February 14, 2022, 19,105,814 shares of the registrant’s common stock, $0.01 par value, were issued and outstanding.

PARK CITY GROUP, INC.

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Condensed Balance Sheets as of December 31, 2021 and June 30, 2021 (Unaudited)	1
	Consolidated Condensed Statements of Operations for the Three and Six Months Ended December 31, 2021 and 2020 (Unaudited)	2
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended December 31, 2021 and 2020 (Unaudited)	3
	Consolidated Statements of Stockholders’ Equity for December 31, 2021 and 2020 (Unaudited)	4
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

PARK CITY GROUP, INC.

Consolidated Condensed Balance Sheets (Unaudited)

	December 31, 2021			June 30, 2021
Assets
Current Assets:
Cash	$	21,708,693		$	24,070,322
Receivables, net of allowance for doubtful accounts of $267,039 and $234,693 at December 31, 2021 and June 30, 2021, respectively		3,491,793			3,891,699
Contract asset – unbilled current portion		821,868			1,248,936
Prepaid expense and other current assets		972,099			490,817
Total Current Assets		26,994,453			29,701,774
Property and equipment, net		932,896			2,589,194
Other Assets:
Deposits and other assets		22,414			22,414
Prepaid expense – less current portion		21,827			47,987
Contract asset – unbilled long-term portion		174,741			408,925
Operating lease – right-of-use asset		650,988			695,371
Customer relationships		459,900			525,600
Goodwill		20,883,886			20,883,886
Capitalized software costs, net		143,108			171,732
Total Other Assets		22,356,864			22,755,915
Total Assets	$	50,284,213		$	55,046,883
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	482,915		$	467,194
Accrued liabilities		1,075,852			988,092
Contract liability - deferred revenue		1,657,859			1,755,341
Lines of credit		930,000			6,000,000
Operating lease liability - current		92,453			90,156
Total current liabilities		4,239,079			9,300,783
Long-term liabilities:
Operating lease liability – less current portion		558,535			605,214
Total liabilities		4,797,614			9,905,997
Stockholders’ equity:
Preferred Stock; $0.01 par value, 30,000,000 shares authorized;
Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at December 31, 2021 and June 30, 2021		6,254			6,254
Series B-1 Preferred, 550,000 shares authorized; 212,402 shares issued and outstanding at December 31, 2021 and June 30, 2021		2,124			2,124
Common Stock, $0.01 par value, 50,000,000 shares authorized; 19,154,464 and 19,351,935 issued and outstanding at December 31, 2021 and June 30, 2021, respectively		191,547			193,522
Additional paid-in capital		73,120,949			74,298,924
Accumulated deficit		(27,834,275	)		(29,359,938	)
Total stockholders’ equity		45,486,599			45,140,886
Total liabilities and stockholders’ equity	$	50,284,213		$	55,046,883

See accompanying notes to consolidated condensed financial statements.

-1-

PARK CITY GROUP, INC.

Consolidated Condensed Statements of Operations (Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2021			2020			2021			2020
Revenue	$	4,353,587		$	5,174,204		$	8,913,264		$	10,399,606
Operating expense:
Cost of services and product support		817,213			2,091,588			1,663,700			4,072,545
Sales and marketing		1,152,036			1,205,295			2,340,929			2,488,336
General and administrative		1,209,002			1,231,139			2,305,658			2,313,064
Depreciation and amortization		217,767			261,597			478,931			510,097
Total operating expense		3,396,018			4,789,619			6,789,218			9,384,042
Income from operations		957,569			384,585			2,124,046			1,015,564
Other income (expense):
Interest income		86,884			81,503			142,040			115,844
Interest expense		(3,303	)		(1,907	)		(6,201	)		(72,452	)
Unrealized gain (loss) on short term investments		(113,807	)		71,828			(263,098	)		55,565
Other gain (loss)		-			1,099,350			(83,081	)		1,099,350
Income before income taxes		927,343			1,635,359			1,913,706			2,213,871
(Provision) for income taxes:		(55,275	)		(12,500	)		(94,821	)		(36,186	)
Net income		872,068			1,622,859			1,818,885			2,177,685
Dividends on preferred stock		(146,611	)		(146,611	)		(293,222	)		(293,222	)
Net income applicable to common shareholders	$	725,457		$	1,476,248		$	1,525,663		$	1,884,463
Weighted average shares, basic		19,357,000			19,526,000			19,370,000			19,508,000
Weighted average shares, diluted		19,682,000			19,716,000			19,658,000			19,653,000
Basic income per share	$	0.04		$	0.08		$	0.08		$	0.10
Diluted income per share	$	0.04		$	0.08		$	0.08		$	0.10

See accompanying notes to consolidated condensed financial statements.

-2-

PARK CITY GROUP, INC.

Consolidated Condensed Statements of Cash Flows (Unaudited)

	Six Months Ended December 31,
	2021			2020
Cash flows from operating activities:
Net income	$	1,818,885		$	2,177,685
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		478,931			510,097
Amortization of operating right of use asset		44,382			42,196
Stock compensation expense		234,396			166,923
Bad debt expense		250,000			310,000
Gain on disposal of assets		(24,737	)		-
Gain on debt extinguishment		-			(1,099,350	)
Loss on sale of property and equipment		107,820			-
(Increase) decrease in:
Accounts receivables		285,141			520,719
Long-term receivables, prepaids and other assets		(97,532	)		685,158
(Decrease) increase in:
Accounts payable		15,721			131,654
Operating lease liability		(44,382	)		(42,196	)
Accrued liabilities		87,811			590,271
Deferred revenue		(97,482	)		(237,143	)
Net cash provided by operating activities		3,058,954			3,756,014
Cash flows from investing activities:
Sale of property and equipment		1,374,085			-
Purchase of property and equipment		(17,049	)		(103,218	)
Net cash provided by (used in) investing activities		1,357,036			(103,218	)
Cash flows from financing activities:
Net (decrease) increase in lines of credit		(5,070,000	)		1,060,175
Common Stock buyback/retirement		(1,470,974	)		-
Proceeds from employee stock plan		56,577			50,328
Dividends paid		(293,222	)		(293,222	)
Payments on notes payable		-			(920,754	)
Net cash used in financing activities		(6,777,619	)		(103,473	)
Net increase in cash and cash equivalents		(2,361,629	)		3,549,323
Cash and cash equivalents at beginning of period		24,070,322			20,345,330
Cash and cash equivalents at end of period	$	21,708,693		$	23,894,653
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	172,342		$	55,772
Cash paid for interest	$	7,688		$	70,545
Cash paid for operating leases	$	71,200		$	71,200
Supplemental disclosure of non-cash investing and financing activities:
Common stock to pay accrued liabilities	$	234,447		$	139,359
Dividends accrued on preferred stock	$	293,222		$	293,222

See accompanying notes to consolidated condensed financial statements.

-3-

PARK CITY GROUP, INC.

Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

	Series B Preferred Stock				Series B-1 Preferred Stock				Common Stock						Additional Paid-In			Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Deficit			Total
Balance, June 30, 2021		625,375	$	6,254		212,402	$	2,124		19,351,935		$	193,522		$	74,298,924		$	(29,359,938	)	$	45,140,886
Stock issued for:
Accrued compensation		-		-		-		-		29,316			293			172,207			-			172,500
Employee stock plan		-		-		-		-		13,901			139			56,438			-			56,577
Stock buyback		-		-		-		-		(7,600	)		(76	)		(41,200	)		-			(41,276	)
Preferred Dividends-Declared		-		-		-		-		-			-			-			(146,611	)		(146,611	)
Net income		-		-		-		-		-			-			-			946,817			946,817
Balance, September 30, 2021		625,375	$	6,254		212,402	$	2,124		19,387,552		$	193,878		$	74,486,369		$	(28,559,732	)	$	46,128,893
Stock issued for:
Accrued compensation		-		-		-		-		11,464			115			61,832			-			61,947
Stock buyback		-		-		-		-		(244,552	)		(2,446	)		(1,427,252	)		-			(1,429,698	)
Preferred Dividends-Declared		-		-		-		-		-			-			-			(146,611	)		(146,611	)
Net income		-		-		-		-		-			-			-			872,068			872,068
Balance, December 31, 2021		625,375	$	6,254		212,402	$	2,124		19,154,464		$	191,547		$	73,120,949		$	(27,834,275	)	$	45,486,599

-4-

PARK CITY GROUP, INC.

Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

(continued)

	Series B Preferred Stock				Series B-1 Preferred Stock				Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance, June 30, 2020		625,375	$	6,254		212,402	$	2,124		19,484,485	$	194,847	$	75,271,097	$	(32,890,889	)	$	42,583,433
Stock issued for:
Accrued compensation		-		-		-		-		1,302		13		5,392		-			5,405
Employee stock plan		-		-		-		-		13,980		140		50,188		-			50,328
Preferred Dividends-Declared		-		-		-		-		-		-		-		(146,611	)		(146,611	)
Net income		-		-		-		-		-		-		-		554,826			554,826
Balance, September 30, 2020		625,375	$	6,254		212,402	$	2,124		19,499,767	$	195,000	$	75,326,677	$	(32,482,674	)	$	43,047,381
Stock issued for:
Accrued compensation		-		-		-		-		29,141		292		130,958		-			131,250
Employee stock plan		-		-		-		-		514		5		2,699		-			2,704
Preferred Dividends-Declared		-		-		-		-		-		-		-		(146,611	)		(146,611	)
Net income		-		-		-		-		-		-		-		1,622,859			1,622,859
Balance, December 31, 2020		625,375	$	6,254		212,402	$	2,124		19,529,422	$	195,297	$	75,460,334	$	(31,006,426	)	$	44,657,583

-5-

PARK CITY GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.  OVERVIEW OF OPERATIONS AND BASIS FOR PRESENTATION

Overview

Park City Group, Inc., a Nevada corporation (“Park City Group”, “We”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation (“ReposiTrak”) which operates a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, and improve supply chain efficiencies, and source hard-to-get-things.

The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace (“MarketPlace”), encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers, (ii) ReposiTrak Compliance and Food Safety (“Compliance and Food Safety”) solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain (“Supply Chain”) solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers.

The Company’s Supply Chain and MarketPlace services provide its customers 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 it helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solutions 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 safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”).

The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products provide visibility and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving backwards to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety and compliance activities. The principal customers for the Company’s products are household name multi-store food retail 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. The Company is typically engaged by retailers and wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services.

The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) (“PCG Utah”); Park City Group, Inc., a Delaware corporation (100% owned) (“PCG Delaware”); and ReposiTrak (100% owned) (collectively, the “Subsidiaries”). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the operating results of the operations of PCG Delaware and ReposiTrak. Park City Group has no business operations separate from the operations conducted through its Subsidiaries.

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.

- 6-

 

Basis of Financial Statement Presentation

The interim financial information of the Company as of December 31, 2021 and for the three and six months ended December 31, 2021 is unaudited, and the balance sheet as of June 30, 2021 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") 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. GAAP. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended June 30, 2021. 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 six months ended December 31, 2021 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2022. 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, 2021. 

NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The financial statements presented herein reflect the consolidated financial position of Park City Group, Inc. and our 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. GAAP 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 U.S. Securities and Exchange Commission (“SEC”) 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 because of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include revenue recognition, goodwill, other long-lived asset valuations, income taxes, stock-based compensation, and capitalization of software development costs.

Revenue Recognition

We recognize revenue as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenue, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. We account for a contract based on the terms and conditions the parties agree to, the contract has commercial substance and collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.

We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.

- 7-

 

For performance obligations where control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenue related to fixed-price contracts for application development and systems integration services, consulting or other technology services is recognized as the service is performed using the output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed and when value is transferred to a customer. Revenue related to fixed-price application maintenance, testing and business process services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18.

If our invoicing is not consistent with the value delivered, revenue is recognized as the service is performed based on the method described above. The output method measures the results achieved and value transferred to a customer, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. Revenue related to fixed-price hosting and infrastructure services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18. If our invoicing is not consistent with value delivered, revenue is recognized on a straight-line basis unless revenue is earned and obligations are fulfilled in a different pattern. The revenue recognition method applied to the types of contracts described above provides the most faithful depiction of performance towards satisfaction of our performance obligations.

Revenue related to our software license arrangements that do not require significant modification or customization of the underlying software is recognized when the software is delivered as control is transferred at a point in time. For software license arrangements that require significant functionality enhancements or modification of the software, revenue for the software license and related services is recognized as the services are performed in accordance with the methods described above. In software hosting arrangements, the rights provided to the customer, such as ownership of a license, contract termination provisions and the feasibility of the client to operate the software, are considered in determining whether the arrangement includes a license or a service. Revenue related to software maintenance and support is generally recognized on a straight-line basis over the contract period.

Revenue related to transaction-based or volume-based contracts is recognized over the period the services are provided in a manner that corresponds with the value transferred to the customer to-date relative to the remaining services to be provided.

From time-to-time, we may enter into arrangements with third party suppliers to resell products or services. In such cases, we evaluate whether we are the principal (i.e. report revenue on a gross basis) or agent (i.e. report revenue on a net basis). In doing so, we first evaluate whether we control the good or service before it is transferred to the customer. If we control the good or service before it is transferred to the customer, we are the principal; if not, we are the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment.

We provide customers with assurance that the related deliverable will function as the parties intended because it complies with agreed-upon specifications. General updates or patch fixes are not considered an additional performance obligation in the contract.

Variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration to which we may be entitled. We include in the transaction price variable consideration only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.

- 8-

 

We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.

Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, we recognize a receivable for revenue related to our transaction or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in trade accounts receivable, net in our consolidated statements of financial position at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in current and other assets in our consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts utilizing the output method of revenue recognition. The table below shows movements in contract assets:

	Contract assets
Balance – September 30, 2021	$	1,275,988
Revenue recognized during the period but not billed		-
Amounts reclassified to accounts receivable		(253,582	)
Other		(25,797	)
Balance – December 31, 2021	$	996,609	(1)

(1) Contract asset balances for December 31, 2021 include a current and a long-term contract asset of $821,868 and $174,741, respectively.

Our contract assets and liabilities are reported at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

The table below shows movements in the deferred revenue balances (current and noncurrent) for the period:

	Contract liability
Balance – September 30, 2021	$	1,758,710
Amounts billed but not recognized as revenue		959,821
Revenue recognized related to the opening balance of deferred revenue		(1,060,672	)
Other		-
Balance – December 31, 2021	$	1,657,859

- 9-

 

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The difference between the opening and closing balances of our contract assets and deferred revenue primarily results from the timing difference between our performance obligations and the customer’s payment. We receive payments from customers based on the terms established in our contracts, which may vary generally by contract type.

Disaggregation of Revenue

The table below presents disaggregated revenue from contracts with customers by contract-type. We believe this disaggregation best depicts the nature, amount, timing and uncertainty of our revenue and cash flows that may be affected by industry, market, and other economic factors:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Recurring – Subscription, Support and Services	$	4,300,168	$	4,016,033	$	8,705,612	$	8,018,698
Non-Recurring – Services		30,718		124,710		81,618		257,859
Transaction Based – MarketPlace		22,701		1,033,461		126,034		2,123,049
	$	4,353,587	$	5,174,204	$	8,913,264	$	10,399,606

Earnings Per Share

Basic net income per share of Common Stock (“Basic EPS”) excludes dilution and is computed by dividing net income applicable to Common Stockholders by the weighted average number of Common Stock outstanding during the period. Diluted net income per share of Common Stock (“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 antidilutive effect on net income per share of Common Stock.

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,
	2021		2020		2021		2020
Numerator
Net income applicable to common shareholders	$	725,457	$	1,476,248	$	1,525,663	$	1,884,463
Denominator
Weighted average common shares outstanding, basic		19,357,000		19,526,000		19,370,000		19,508,000
Warrants to purchase common stock		325,000		190,000		288,000		145,000
Weighted average common shares outstanding, diluted		19,682,000		19,716,000		19,658,000		19,653,000
Net income per share
Basic	$	0.04	$	0.08	$	0.08	$	0.10
Diluted	$	0.04	$	0.08	$	0.08	$	0.10

- 10-

 

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year’s presentation. These reclassifications have no impact on the previously reported results.

NOTE 3.  EQUITY

Restricted Stock Units	Restricted Stock Units			Weighted Average Grant Date Fair Value ($/share)
Outstanding at September 30, 2021		856,168		$	5.35
Granted		42,500			5.53
Vested and issued		(937	)		8.09
Forfeited		-			-
Outstanding at December 31, 2021		897,731		$	5.35

As of December 31, 2021, there were 8,351 restricted stock units outstanding that had vested but for which shares of Common Stock had not yet been issued pursuant to the terms of the applicable agreement.

As of December 31, 2021, there was approximately $4.8 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 2.15 years.

Warrants

Outstanding warrants were issued in connection with private placements of the Company’s Common Stock and with the restructuring of the Series B Preferred that occurred in March of 2018. The following table summarizes information about fixed stock warrants outstanding at December 31, 2021:

Warrants Outstanding at December 31, 2021								Warrants Exercisable at December 31, 2021
Range of exercise prices		Number Outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price
$	4.00		1,085,068		1.10	$	4.00		1,085,068	$	4.00
$	10.00		23,737		1.07	$	10.00		23,737	$	10.00
			1,108,805		1.10	$	4.13		1,108,805	$	4.13

Preferred Stock

The Company’s articles of incorporation currently authorizes the issuance of up to 30,000,000 shares of ‘blank check’ preferred stock, par value $0.01 (“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 550,000 shares are designated as Series B-1 Preferred Stock (“Series B-1 Preferred”).  Both classes of Series B Preferred Stock pay dividends at a rate of 7% per annum if paid by the Company in cash, or 9% if paid by the Company by the issuance of additional shares of Series B Preferred, or Series B-1 Preferred, as applicable.

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The Company does business with some of the largest retailers and wholesalers in the World. Management believes the Series B-1 Preferred favorably impacts the Company’s overall cost of capital in that it is: (i) perpetual and, therefore, an equity instrument that positively impacts the Company’s coverage ratios, (ii) possesses a below market dividend rate relative to similar instruments, (iii) offers the flexibility of a paid-in-kind (PIK) payment option, and (iv) is without covenants. After exploring alternative options for redeeming the Series B-1 Preferred, management determined that alternative financing options were materially more expensive, or would impair the Company’s net cash position, which management believes could cause customer concerns and negatively impact the Company’s ability to attract new business.

Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock, as amended (the “Series B-1 COD”) provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).

As of December 31, 2021, a total of 625,375 shares of Series B Preferred and 212,402 shares of Series B-1 Preferred were issued and outstanding. 

Share Repurchase Program

On May 9, 2019, our Board of Directors approved the repurchase of up to $4.0 million in shares of our Common Stock, which repurchases may be made in privately negotiated transactions or in the open market at prices per share not exceeding the then-current market prices (the “Share Repurchase Program”). Under the Share Repurchase Program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable laws and regulations, including Rule 12b-18 of the Exchange Act.

On March 17, 2020, given the extreme uncertainty due to COVID-19 at the time, the Board suspended the Share Repurchase Program.

On May 18, 2021, our Board of Directors resumed its Share Repurchase Program, and increased the buyback from $4.0 million to $6.0 million. The Share Repurchase Program expires 24 months following May 18, 2021, and it may be suspended for periods of time or discontinued at any time, at the Board’s discretion.

On August 31, 2021, our Board of Directors approved increasing its Share Repurchase program by $10 million in shares of our Common Stock. The total remaining authorization for future shares of Common Stock repurchases under our Share Repurchase Program was $10,579,912 as of December 31, 2021. Our Board may authorize further increases, suspend, reduce, or discontinue our Share Repurchase Program at any time, at the Board’s discretion.

The following table provides information about repurchases of our Common Stock registered pursuant to Section 12 of the Exchange Act, during the six months ended  December 31, 2021:

Period(1)	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Remaining Amount Available for Future Share Repurchases Under the Plans or Programs
July 1, 2021 – September 30, 2021:		7,600	$	5.43		718,394	$	12,009,609
October 1, 2021 – December 31, 2021:		244,552	$	5.85		962,946	$	10,579,912

(1) We close our books and records on the last calendar day of each month to align our financial closing with our business processes.

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NOTE 4.  RELATED PARTY TRANSACTIONS

During the three months ended December 31, 2021, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“FMI”), pursuant to which FMI provides 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, FMI’s designated executive, who also serves as the Company’s Chair of the Board of Directors, controls FMI. The Company had no payables to FMI at December 31, 2021 and June 30, 2021, respectively, under the Service Agreement. 

NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS

The Company has reviewed newly issued accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on its consolidated financial statements as a result of future adoption.

NOTE 6.  SUBSEQUENT EVENTS 

In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the filing date and noted no subsequent events other than provided above that are reasonably likely to impact the Company’s financial statements.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Report") 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, 2021 Annual Report on Form 10-K, incorporated by reference herein. Statements made herein are as of the date of the filing of this Report with the Securities and Exchange Commission ("SEC") 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. ("Park City Group", “we”, “us”, “our” or the “Company”) is a Software-as-a-Service (“SaaS”) provider, and the parent company of ReposiTrak, Inc., a Utah corporation ("ReposiTrak"), a business-to-business (“B2B”) e-commerce, compliance, and supply chain management platform company that partners with retailers, wholesalers, and product suppliers to help them source, vet, and transact with their suppliers in order to accelerate sales, control risks, improve supply chain efficiencies, and source hard-to-get-things.

The Company’s services are grouped in three application suites: (i) ReposiTrak MarketPlace, encompassing the Company’s supplier discovery and B2B e-commerce solutions, which helps the Company’s customers find new suppliers and source hard to find items, (ii) ReposiTrak Compliance and Food Safety ("Compliance and Food Safety") solutions, which help the Company’s customers vet suppliers to mitigate the risk of doing business with these suppliers, and (iii) ReposiTrak’s Supply Chain ("Supply Chain") solutions, which help the Company’s customers to more efficiently manage their various transactions with their suppliers.

The Company’s Supply Chain and MarketPlace services provide its customers 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 it helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. The Company’s Compliance and Food Safety solutions 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 safety regulations, such as the Food Safety Modernization Act of 2011 (“FSMA”).

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 to 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. The Company provides cloud-based applications and services that address e-commerce, supply chain, food safety 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. The Company is typically engaged by retailers and wholesalers (“Hubs”), which in turn require their suppliers (“Spokes”) to utilize the Company’s services.

The Company is incorporated in the state of Nevada and has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned) ("PCG Utah"); Park City Group, Inc., a Delaware corporation (100% owned) ("PCG Delaware"); and ReposiTrak (100% owned) (collectively, the "Subsidiaries"). All intercompany transactions and balances have been eliminated in the Company’s consolidated financial statements, which contain the operating results of the operations of PCG Delaware and ReposiTrak. Park City Group has no business operations separate from the operations conducted through its Subsidiaries.

-14-

The Company’s principal executive offices are located at 5282 South Commerce Drive, Suite D292, Murray, Utah 84107. Its telephone number is (435) 645-2000. Its website address is www.parkcitygroup.com, and ReposiTrak’s website address is www.repositrak.com.

Recent Developments

New Product Initiatives

ReposiTrak released a new Audit Management solution for large manufacturers who audit their own sites and supplier facilities for food safety and quality. Based on the world class audit management platform that powers the SQFI global audit system, used to conduct over 10,000 audits annually, the ReposiTrak Audit Management solution will enable manufacturers to easily deploy their own audit schemas, including custom scoring methodologies, auditor management and scheduling, and performance comparisons.

The Audit Management platform is industry and audit agnostic and can easily be configured for a wide variety of GMP and GFSI approved audits. The new solution will help improve quality and safety by making audits more efficient and accurate through better corrective actions management and documentation.

As more retailers and wholesalers continue to expand their base of vendors and suppliers to bolster supply chain resiliency and expand assortments, ReposiTrak has released new and improved vendor vetting and onboarding capabilities to automate the process. Historically, thorough vetting of prospective new vendors has been laborious and slow, and in conflict with the goal of expanding assortments and strengthening supply chains with new vendors.

ReposiTrak's new and improved vendor vetting and onboarding automation, including the ability to connect to customer ERPs through APIs, creates systemic controls to ensure vendors are properly vetted prior to the generation of the first purchase order. Using ReposiTrak vendor vetting automation accelerates the collection of critical documents and data, so that only those vendors that meet the high standards of retailers and wholesalers are onboarded, delivering better safety and brand protection.

Revolving Credit Agreement

On October 6, 2021, the Company and U.S. Bank N.A. (the “Bank”) executed a Revolving Credit Agreement (the "Revolving Credit Agreement") and accompanying addendum (the "Addendum"), and Stand-Alone Revolving Note (the "Note" and collectively with the Revolving Credit Agreement and Addendum, the "Credit Agreement"), with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023.

COVID-19

There are many uncertainties regarding COVID-19, and the Company is closely monitoring the ongoing impact of the pandemic on all aspects of its business, including how it will impact its services, customers, employees, vendors, and business partners now and in the future. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s quarter ended December 31, 2021, in the fiscal years ended June 30, 2020 or 2021, we are unable to predict the impact that COVID-19 will have on its future financial position and operating results due to numerous uncertainties. The Company will continue to assess the potential business risks associated with COVID-19 and intends to make adjustments to its responses accordingly.

-15-

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On April 23, 2020, the Company received proceeds from a loan in the amount of approximately $1.1 million from its lender, U.S. Bank National Association (the “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES Act administered by the SBA. In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 23, 2022, with a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan was forgiven on December 19, 2020.

Results of Operations

Comparison of the Three Months Ended December 31, 2021 to the Three Months Ended December 31, 2020.

Revenue

	Fiscal Quarter Ended December 31,				Variance
	2021		2020		Dollars			Percent
Revenue	$	4,353,587	$	5,174,204	$	(820,617	)		-16	%

Revenue was $4,353,587 and $5,174,204 for the three months ended December 31, 2021 and 2020, respectively, a 16% decrease. The decrease in revenue was due to significant MarketPlace revenue during the height of COVID-19 that occurred in 2020 that did not reoccur in 2021. This was partially offset by revenue growth in subscription, services and other recurring revenue.

During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of personal protective equipment ("PPE") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company experienced a significant increase in MarketPlace revenue for PPE during the height of COVID-19, it is uncertain what or if demand for PPE will continue during fiscal 2022. As a result, we may experience significant swings in MarketPlace revenue as the pandemic continues to abate. 

Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a certain percentage of customers that will require buying a particular service outright (i.e. a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when we are able.

Cost of Services and Product Support

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars			Percent
Cost of services and product support	$	817,213		$	2,091,588		$	(1,274,375	)		-61	%
Percent of total revenue		19	%		40	%

-16-

Cost of services and product support was $817,213 and $2,091,588 for the three months ended December 31, 2021 and 2020, respectively, a 61% decrease. This decrease is primarily the result of lower procurement costs of PPE and other cost of service expense associated with lower MarketPlace transactions.

While we experienced a significant increase in MarketPlace costs and corresponding revenue during fiscal 2021 due to demand in PPE, it is uncertain what level of ongoing MarketPlace costs we may experience for fiscal 2022. 

Sales and Marketing Expense

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars			Percent
Sales and marketing	$	1,152,036		$	1,205,295		$	(53,259	)		-4	%
Percent of total revenue		26	%		23	%

Sales and marketing expense were $1,152,036 and $1,205,295 for the three months ended December 31, 2021 and 2020, respectively, a 4% decrease. This decrease in sales and marketing expense is primarily due to a decrease in variable sales compensation associated with lower total revenue.

General and Administrative Expense

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars			Percent
General and administrative	$	1,209,002		$	1,231,139		$	(22,137	)		-2	%
Percent of total revenue		28	%		24	%

General and administrative expense was $1,209,002 and $1,231,139 for the three months ended December 31, 2021 and 2020, respectively, a 2% decrease. The decrease in general and administrative expense is primarily due to the termination of hosted software applications and a decrease in maintenance costs associated with certain fixed assets.

Depreciation and Amortization Expense

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars			Percent
Depreciation and amortization	$	217,767		$	261,597		$	(43,830	)		-17	%
Percent of total revenue		5	%		5	%

Depreciation and amortization expense was $217,767 and $261,597 for the three months ended December 31, 2021 and 2020, respectively, a decrease of 17%. This decrease is due to the disposal of certain assets in the current fiscal year.

Other Income and Expense

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars			Percent
Net other income (expense)	$	(30,226	)	$	1,250,774		$	(1,281,000	)		-102	%
Percent of total revenue		-1	%		24	%

-17-

Net other expense was $30,226 for the three months ended December 31, 2021 compared to net other income of $1,250,774 for the three months ended December 31, 2020. Other expense increased due to (1) unrealized losses of certain short-term investments held in U.S. treasuries and other securities, and (2) a loss on the sale of assets, and (3) partially offset by an increase in interest income generated from an increase in total cash held in short term investments, and (4) a decrease in interest expense due to payoff of financing arrangements for equipment purchased under a lease arrangement with a bank in August 2020. Additionally, a gain was recognized in prior year due to the forgiveness of debt on the Company’s PPP loan.

Preferred Dividends

	Fiscal Quarter Ended December 31,						Variance
	2021			2020			Dollars		Percent
Preferred dividends	$	146,611		$	146,611		$	-		-	%
Percent of total revenue		3	%		3	%

Dividends accrued on the Company’s Series B-1 Preferred was $146,611 for the three months ended December 31, 2021 and for the three months ended December 31, 2020. Dividends remained flat in the comparable periods.

Comparison of the Six Months Ended December 31, 2021 to the Six Months Ended December 31, 2020.

Revenue

	Six Months Ended December 31,				Variance
	2021		2020		Dollars			Percent
Revenue	$	8,913,264	$	10,399,606	$	(1,486,342	)		-14	%

Revenue was $8,913,264 and $10,399,606 for the six months ended December 31, 2021 and 2020, respectively, a 14% decrease. The decrease in revenue was due to significant MarketPlace revenue during the height of COVID-19 that occurred in 2020 that did not reoccur in 2021. This was partially offset by revenue growth in subscription, services and other recurring revenue.

During fiscal 2021, as COVID-19 disrupted supply chains and generated shortages in products, our ability to source hard to find items for our customers resulted in increased revenue attributable to MarketPlace. These products largely consisted of personal protective equipment ("PPE") which includes nitrile gloves, masks, freezers and telecommunication equipment. While the Company experienced a significant increase in MarketPlace revenue for PPE during the height of COVID-19, it is uncertain what or if demand for PPE will continue during fiscal 2022. As a result, we may experience significant swings in MarketPlace revenue as the pandemic continues to abate. 

Although no assurances can be given, we continue to focus our sales efforts on marketing our software services on a recurring subscription basis and placing less emphasis on transactional revenue. However, we believe there will continue to be a certain percentage of customers that will require buying a particular service outright (i.e. a license). We will continue to make our best effort to reduce this non-recurring transactional revenue when we are able.

Cost of Services and Product Support

	Six Months Ended December 31,						Variance
	2021			2020			Dollars			Percent
Cost of services and product support	$	1,663,700		$	4,072,545		$	(2,408,845	)		-59	%
Percent of total revenue		19	%		39	%

-18-

Cost of services and product support was $1,663,700 and $4,072,545 for the six months ended December 31, 2021 and 2020, respectively, a 59% decrease. This decrease is primarily the result of lower expenses associated to MarketPlace transactions that did not occur in 2021.

Sales and Marketing Expense

	Six Months Ended December 31,						Variance
	2021			2020			Dollars			Percent
Sales and marketing	$	2,340,929		$	2,488,336		$	(147,407	)		-6	%
Percent of total revenue		26	%		24	%

Sales and marketing expense was $2,340,929 and $2,488,336 for the six months ended December 31, 2021 and 2020, respectively, a 6% decrease. This was due primarily to a decrease in variable compensation, a reduction in trade show expenses, and lower sales and marketing travel expense.

General and Administrative Expense

	Six Months Ended December 31,						Variance
	2021			2020			Dollars			Percent
General and administrative	$	2,305,658		$	2,313,064		$	(7,406	)		-	%
Percent of total revenue		26	%		22	%

General and administrative expense was $2,305,658 and $2,313,064 for the six months ended December 31, 2021 and 2020, respectively. General and administrative expense remained flat in the comparable periods.

Depreciation and Amortization Expense

	Six Months Ended December 31,						Variance
	2021			2020			Dollars			Percent
Depreciation and amortization	$	478,931		$	510,097		$	(31,166	)		-6	%
Percent of total revenue		5	%		5	%

Depreciation and amortization expense were $478,931 and $510,097 for the six months ended December 31, 2021 and 2020, respectively, a decrease of 6%. This decrease is due to the disposal of certain assets in the current fiscal year.

Other Income and Expense

	Six Months Ended December 31,						Variance
	2021			2020			Dollars			Percent
Net other income (expense)	$	(210,340	)	$	1,198,307		$	(1,408,647	)		-118	%
Percent of total revenue		2	%		12	%

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Net other expense was $210,340 for the six months ended December 31, 2021 compared to net other income of $1,198,307 for the six months ended December 31, 2020. Other income decreased due to recognition of a gain on debt extinguishment and higher interest income resulting from an increase of total cash held in short term investments offset in part by the increase in interest expense associated with financing arrangements for equipment purchased under a lease arrangement with a bank.  The financing arrangement was paid off in August 2020.

Preferred Dividends

	Six Months Ended December 31,						Variance
	2021			2020			Dollars		Percent
Preferred dividends	$	293,222		$	293,222		$	-		-	%
Percent of total revenue		3	%		3	%

Dividends accrued on the Company’s Series B-1 Preferred was $293,222 for the six months ended December 31, 2021 and 2020. Dividends remained flat in the comparable period.

Financial Position, Liquidity and Capital Resources

We believe that 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 macroeconomic conditions, our rate of revenue growth, sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products and services.

	As of				Variance
	December 31, 2021		June 30, 2021		Dollars			Percent
Cash and cash equivalents	$	21,708,693	$	24,070,322	$	(2,361,629	)		-10	%

We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt, including our existing line of credit with U.S. Bank N.A., which was revised on October 6, 2021.

Cash was $21,708,693 and $24,070,322 at December 31, 2021 and June 30, 2021, respectively. This 10% decrease is principally the result of a $6 million payoff of financing arrangements with a bank, partially offset by lower overall cash operating expenses and collections on accounts receivable.

Net Cash Flows from Operating Activities

	Six Months Ended December 31,				Variance
	2021		2020		Dollars			Percent
Cash provided by operating activities	$	3,058,954	$	3,756,014	$	(697,060	)		-19	%

Net cash provided by operating activities is summarized as follows:

	Six Months Ended December 31,
	2021		2020
Net income	$	1,818,885	$	2,177,685
Noncash expense and income, net		1,090,792		(70,134	)
Net changes in operating assets and liabilities		149,277		1,648,463
	$	3,058,954	$	3,756,014

Net cash provided by operating activities for the six months ended December 31, 2021 was $3,058,954, as compared to net cash provided by operating activities of $3,756,014 for the six months ended December 31, 2020. Net cash provided by operating activities decreased 19% due largely to the decrease in MarketPlace sales. Noncash expense increased by $1,160,926 in the six months ended December 31, 2021 compared to six months ended December 31, 2020 as a result of loss on sale of property and equipment and a gain on debt extinguishment that occurred in the prior fiscal year.

-20-

Net Cash Flows Used in Investing Activities

	Six Months Ended December 31,					Variance
	2021		2020			Dollars		Percent
Cash provided by (used in) investing activities	$	1,357,036	$	(103,218	)	$	1,460,254		1,415	%

Net cash provided by investing activities for the six months ended December 31, 2021 was $1,357,036 compared to net cash used in investing activities of $103,218 for the six months ended December 31, 2020. This increase in cash provided by investing activities for the six months ended December 31, 2021 was due to the sale of property and equipment.

Net Cash Flows from Financing Activities

	Six Months Ended December 31,						Variance
	2021			2020			Dollars		Percent
Cash used in financing activities	$	(6,777,619	)	$	(103,473	)	$	6,674,146		6,450	%

Net cash used in financing activities totaled $6,777,619 for the six months ended December 31, 2021 as compared to cash used in financing activities of $103,473 for the six months ended December 31, 2020. The increase in net cash used in financing activities is primarily attributable to the payoff of our line of credit arrangement with a bank.

Liquidity and Working Capital

At December 31, 2021, the Company had positive working capital of $22,755,374, as compared with positive working capital of $20,400,991 at June 30, 2021.  This $2,354,383 increase in working capital is primarily due to a decrease in cash as a result of the $6 million payoff of a financing arrangement with a bank.

	As of December 31,		As of June 30,		Variance
	2021		2021		Dollars			Percent
Current assets	$	26,994,453	$	29,701,774	$	(2,707,321	)		-9	%

Current assets as of December 31, 2021 totaled $26,994,453, a decrease of $2,707,321, as compared to $29,701,774 as of June 30, 2021. The decrease in current assets is primarily attributable to a net decrease in cash of $2,361,629 paying off a credit arrangement, a increase in contract assets and prepaid expense of $54,214 and an decrease in accounts receivable of $399,906.

	As of December 31,		As of June 30,		Variance
	2021		2021		Dollars			Percent
Current liabilities	$	4,239,079	$	9,300,783	$	(5,061,704	)		-54	%

Current liabilities totaled $4,239,079 as of December 31, 2021 as compared to $9,300,783 as of June 30, 2021. The comparative decrease in current liabilities is primarily attributable to the corresponding payoff of $6,000,000 in our line of credit.

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Subsequent to September 30, 2021, the Company and U.S. Bank N.A. executed the Credit Agreement, with an effective date of September 30, 2021. The Credit Agreement replaces the Company’s prior $6.0 million Revolving Credit Agreement and Stand-Alone Revolving Note between the Company and the Bank, as amended and revised on January 9, 2019, and provides the Company with a $10.0 million revolving line of credit that matures on March 31, 2023. Any amounts drawn down by the Company under the Credit Agreement will accrue interest at an annual rate equal to 1.75% plus the one-month LIBOR rate. In addition, the Credit Agreement contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default. Among other things, the Company must maintain liquid assets equal to the outstanding balance of the Note, and maintain a Senior Funded Debt (as defined in the Credit Agreement) to EBITDA Ratio (as defined in the Credit Agreement) of not more than 3:1.

While no assurances can be given, management currently believes that the Company will continue to increase its cash flow from operations and working capital position in subsequent periods, and that it will have adequate cash resources to fund its operations and satisfy its debt obligations for at least the next 12 months.

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, revenue, and results of operation, liquidity or capital expenditures.

Contractual Obligations

Total contractual obligations and commercial commitments as of December 31, 2021 are summarized in the following table:

	Payment Due by Year
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease obligation		650,988		122,400		244,800		244,800		38,988

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 expense 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.

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.

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.

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Goodwill and Other Long-Lived Asset Valuations

Goodwill and other long-lived assets assigned to specific reporting units are 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 

Effective July 1, 2018, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606), and its related amendments (“ASU 2014-09”). ASU 2014-09 provides a unified model to determine when and how revenue is recognized and enhances certain disclosure around the nature, timing, amount and uncertainty of revenue and cash flows arising from customers.

ASU 2014-09 represents a change in the accounting model utilized for the recognition of revenue and certain expense arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, accordingly, revenue and expense totals for all periods before July 1, 2018 reflect those previously reported under the prior accounting model and have not been restated.

See Note 2 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Report for a full description of the impact of the adoption of new accounting standards on our financial statements. Following the adoption of this guidance, the revenue recognition for our sales arrangements remained materially consistent with our historical practice and there have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Share-Based Compensation

The Company accounts for its share-based compensation to employees and non-employees in accordance with FASB ASC 718, Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service or vesting period.

Leases

Effective July 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as discussed further in Note 5. All amounts and disclosures set forth in this Report have been updated to comply with this new standard with results for reporting periods beginning after July 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business is 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.

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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. 

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 December 31, 2021, the debt portfolio was composed of approximately 0% fixed rate debt and 100% variable rate debt.

The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of December 31, 2021:

Cash:	Aggregate Fair Value		Weighted Average Interest Rate
Cash	$	21,708,693		1.73	%

ITEM 4.  CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, 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 amended (the "Exchange Act"), as of December 31, 2021 was completed. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC 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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PART 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 is currently no pending or threatened material legal proceeding 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 fiscal year ended June 30, 2021.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

10.1	Revolving Credit Note and Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 12, 2021).
10.2	Addendum to Revolving Credit Agreement, dated September 30, 2021, between Park City Group, Inc., and U.S. Bank National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on October 12, 2021).
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification 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.
32.2	Certification 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.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 is formatted in iXBRL.

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SIGNATURES

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.

	PARK CITY GROUP, INC.
Date:  February 14, 2022	By:	/s/ Randall K. Fields
		Randall K. Fields
		Chair of the Board and Chief Executive Officer (Principal Executive Officer)

	PARK CITY GROUP, INC.
Date: February 14, 2022	By:	/s/ John R. Merrill
		John R. Merrill
		Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)

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