FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003
Commission File Number 000-03718
PARK CITY GROUP, INC.
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(Exact name of small business issuer as identified in its charter)
Nevada 37-1454128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 Main Street, Park City, Utah 84060
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(Address of principal executive offices) (Zip Code)
(435) 649-2221
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(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of May 19, 2003
---------------------------- ---------------------------------
Common Stock, $.01 par value 213,390,828 2,332 SHAREHOLDERS
PARK CITY GROUP, INC. AND SUBSUDIARIES
Index to Consolidated Condensed Financial Statements
Part 1 - Financial Information
Item 1 - Financial Statements
Consolidated Condensed Balance Sheet as of
March 31, 2003 (unaudited) 3
Consolidated Condensed Statement of Operations for
the three and nine months ended March 31, 2003
and 2002 (unaudited) 4
Consolidated Condensed Statement of Cash Flows for
the nine months ended March 31, 2003 and 2002 (unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and results of Operations 10
Item 3 - Controls and Procedures 12
Part II - Other Information 13
Item 1 - Legal Information 13
Item 2 - Changes in the Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matter to Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits 14
2
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet (Unaudited)
March 31, 2003
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Assets
Current assets
Cash and cash equivalents $ 170,106
Trade receivables, net of allowance 427,766
Prepaid expenses and other current assets 208,226
--------------
Total current assets 806,098
Property and equipment, net 128,546
Other assets
Deposits and other assets 33,802
Capitalized software costs, net 3,172,655
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Total assets $ 4,141,101
==============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable 347,167
Accrued liabilities 380,640
Deferred revenue 1,421,528
Advances payable 175,000
Related party notes payable 3,693,803
Accrued interest on related party notes payable 924,132
--------------
Total current liabilities 6,942,270
Long-term liabilities
Long-term debt 87,394
Related party long-term notes payable 2,092,753
--------------
Total long-term liabilities 2,180,147
--------------
Total liabilities 9,122,417
Commitments and contingencies -
Stockholders' deficit
Preferred stock, $.01 par value 30,000,000
shares authorized, no shares issued -
Common stock, $.01 par value, 300,000,000 shares
authorized, 206,633,709 shares issued and outstanding 2,056,338
Additional paid-in capital 6,960,861
Stock subscriptions receivable (1,068,200)
Treasury stock (30,000)
Accumulated deficit (12,900,315)
--------------
Total stockholders' deficit (4,981,316)
--------------
$ 4,141,101
==============
See accompanying notes to consolidated condensed financial statements.
3
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations (Unaudited)
Three Months Nine Months
Ended Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Revenues
Software licenses $ 733,500 $ 918,094 $ 1,884,698 $ 2,511,754
Maintenance and support 514,651 429,684 1,462,173 1,364,542
Consulting and other 143,229 149,729 463,879 201,872
------------ ------------ ------------ ------------
1,391,380 1,497,507 3,810,750 4,078,168
Cost of revenues 305,230 189,316 567,104 545,378
------------ ------------ ------------ ------------
Gross Profit 1,086,150 1,308,191 3,243,646 3,532,790
Research and development 286,354 174,361 611,682 554,570
Sales and marketing 347,712 444,870 1,064,478 1,230,368
General & administrative expenses 282,522 367,739 1,557,319 1,141,764
------------ ------------ ------------ ------------
Income from operations 169,562 321,221 10,167 606,088
Other income (expense):
Interest income (expense) (542,174) (147,966) (1,430,914) (478,144)
------------ ------------ ------------ ------------
(Loss) income before income taxes (372,612) 173,255 (1,420,747) 127,944
(Provision) benefit for income taxes
Current - - - -
Deferred - (52,000) - (52,000)
------------ ------------ ------------ ------------
Net (loss) income (372,612) 121,255 (1,420,747) 75,944
Preference dividend to shareholders - (670,000) - (670,000)
------------ ------------ ------------ ------------
Net Loss available to common shareholders $ (372,612) $ (548,745) $ (1,420,747) $ (594,056)
============ ============ ============ ============
Weighted average shares, basic 205,534,000 155,504,000 194,670,000 151,697,000
============ ============ ============ ============
Weighted average shares, diluted 205,534,000 155,504,000 194,670,000 151,697,000
============ ============ ============ ============
Basic (loss) per share $ 0.00 $ 0.00 $ (0.01) $ 0.00
============ ============ ============ ============
Diluted (loss) per share $ 0.00 $ 0.00 $ (0.01) $ 0.00
============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements
4
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine Months Ended March 31,
2003 2002
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Cash flows from operating activities:
Net loss $ (1,420,747) $ 75,944
Adjustments to reconcile net loss to net
Cash provided by (used in) operating activities:
Depreciation and amortization 74,821 117,172
Bad debt expense 8,094 -
(Gain) loss on disposition of assets (1,822) 4,133
Deferred income taxes - 52,000
Compensation expense on issuance of stock and stock options 372,988 38,000
Repricing of warrants 11,178 -
Amortization of discounts on debt 672,734 -
Decrease (increase) in:
Trade receivables 299,904 (1,012,985)
Related party receivables - 4,235
Prepaid expenses and other current assets (15,615) (195,429)
(Decrease) increase in:
Accrued interest on long-term related party notes payable 444,963 259,412
Accrued liabilities (52,394) 70,079
Accounts payable (212,691) 82,465
Deferred revenue (209,340) (410,124)
Advances payable 175,000 -
Related party payable (100,000) -
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Net cash provided by (used in) operating activities 47,073 (915,098)
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Cash flows from investing activities:
Purchases of property and equipment (13,287) (38,138)
Capitalization of software costs (815,848) (1,248,906)
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Net cash used in investing activities (829,135) (1,287,044)
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Cash flows from financing activities:
Proceeds from issuance of common stock - 1,921,750
Proceeds from collection of common stock subscriptions - 461,800
Net (payments) proceeds on line of credit (62,500) 395,000
Purchase of treasury stock - (30,000)
Principal payments on notes payable and capital leases (136,304) (991,622)
Proceeds from issuance of debt 1,010,000 1,750,000
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Net cash provided by financing activities 811,196 3,506,928
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Net increase in cash and cash equivalents 29,134 1,304,786
Cash and cash equivalents, beginning of period 140,972 218,482
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Cash and cash equivalents, end of period $ 170,106 $ 1,523,268
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See accompanying notes to consolidated condensed financial statements.
5
PARK CITY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2003
Note 1 - Liquidity
As of March 31, 2003, the Company had current liabilities in excess of current
assets. The Company believes that cash flow from increased sales, the existence
of a $200,000 line of credit facility from its majority shareholder and officer
that had not been drawn upon as of March 31, 2003, as well as the ability and
commitment of its majority shareholder and officer and other shareholders to
contribute funds necessary for the Company to continue to operate, will allow
the Company to fund its currently anticipated working capital, capital spending,
and debt service requirements during the next twelve months. The financial
statements do not reflect any adjustment should the Company's anticipated
changes in the operations not be achieved.
Note 2 - Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for quarterly financial
statements. Although the Company believes that the disclosures in these
unaudited financial statements are adequate to make the information presented
for the interim periods not misleading, certain information and footnote
information normally included in quarterly financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, and these financial statements should be read in conjunction with
the Company's audited annual financial statements included in the Company's June
30, 2002 Annual Report on Form 10-KSB.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Note 3 - Supplemental cash flow information
For the nine months March 31, 2003 and 2002, no cash was paid for income taxes
and cash of $194,951 and $172,386 was paid for interest expense, respectively.
In connection with the Bridge Notes A issued in August 2002 (see note 4), the
Company recorded a $40,268 discount related to the 7% interest discount at which
the notes were financed. The Company also recorded a $183,109 discount related
to the fair value of the warrants. For the period from the date of the Bridge
Notes A to March 31, 2003, the Company amortized all of the interest and
warrants discounts.
In connection with the Bridge Notes B issued in November 2002 (see note 4),
Bridge Note A was repaid and the Company recorded a $59,917 discount related to
the 7.5% interest discount at which the notes were financed. The Company also
recorded a $738,981 discount related to the warrants. For the period from the
date of the Bridge Notes B to March 31, 2003, the Company amortized $31,721 and
$395,172 of the interest and warrants discounts on Bridge Note B respectively.
The Company issued 8,625,000 shares of common stock issued pursuant to
anti-dilution rights to AW Fields Acquisition (see note 4), which was recorded
as an increase to common stock and decrease to additional paid-in capital of
$86,250, thus increasing the shares issued under anti-dilution for AW Fields to
17,083,334.
6
The Company issued 4,189,285 shares of common stock pursuant to anti-dilution
rights to an officer and directors (see note 4), which was recorded as an
increase to common stock of $41,893, an increase to additional paid-in capital
of $125,678 and an expense of shares issued for services of $167,571, which was
included in general and administrative expense during the nine months ended
March 31, 2003. This increased the number of shares issued under anti-dilution
for an officer and directors to 8,297,620, and the total expense for these
shares increased to $372,988.
The modification of Bridge Note A warrants from an exercise price of $.07 to
$.04 resulted in an interest expense of $11,178 (see note 4).
During December 2002 the Company obtained a $2,000,000 note payable from an
entity controlled by a shareholder, a $250,000 advance from an officer and
majority shareholder and a credit facility of $200,000 from an officer and
majority shareholder. The proceeds were used to repay other outstanding notes
payable of approximately $2,119,000 and accrued interest. As a result of the new
$2,000,000 note payable, the Company incurred a finders fee which was paid with
3,809,524 shares of common stock and a warrant to purchase 7,142,857 shares of
common stock. The shares of common stock have a fair market value of $152,381
which was recorded as a prepaid expense and will be amortized into expense over
the two-year term of the note payable. The fair value of the warrants of
$179,711 was recorded as a discount on the note payable and will be amortized
into interest expense over the two-year term of the note payable. For the period
from the date of the $2,000,000 note payable to March 31, 2003, the Company
amortized $22,464 of the warrants discount into interest expense.
Note 4 - Related party Transactions
In August 2002 in an effort to improve the capitalization and meet the Company's
obligations the Company issued approximately $575,000 in Bridge Note financing,
at an interest rate of 10% per annum, a due date of December 15, 2002 and was
issued at a 7% discount. This financing carried warrants to purchase 5,350,000
common shares at $.10 per share, expiring in August 2007. The discount from the
warrants was determined to be $183,109, which was to be amortized into interest
over the term of the Bridge Notes. Total interest expense including the 7%
interest discount, 10% interest rate and $183,109 warrants discount is $242,553,
and an effective annual interest rate of 49%. The bridge note participants are
previous investors, current directors, and/or an officer of the Company.
In November 2002 the Company issued a second Bridge Note repaying Bridge Note A
and replacing it with a new Bridge Note B valued at approximately $739,000. The
new Bridge Note carries an interest rate of 10% per annum, a due date of July
31, 2003 and was issued at a 7.5% discount. This financing carried warrants to
purchase 19,972,451 common shares at $.04 per share, expiring in November 2007.
The discount from the warrants was determined to be $738,981, which is to be
amortized into interest over the term of the Bridge Note B. Total interest
expense including the 7.5% interest discount, 10% interest and $738,981 warrants
discount is $848,829, or an effective annual interest rate of 110%. The bridge
note participants are previous investors, current directors, and an officer of
the Company. The officer advanced $230,000 to the Company under the bridge
notes, holds an approximate $270,500 bridge note payable and was issued
6,761,614 of the attached warrants.
As a result of the price of Bridge Note B warrants being issued at $.04 per
share the anti-dilution rights associated with the warrants of the first Bridge
Note and the anti-dilution rights associated with the sale of shares made
earlier in the year ( AW Fields Acquisition and private placement including
directors and officer) were triggered. This resulted in 12,814,286 additional
shares being issued, and the number of shares to be purchased under warrants
with anti-dilution rights increased by 8,625,000 shares. The warrant price to
purchase a total of 28,750,001 and 5,350,000 common shares were reduced to $.07
and $.04 per share, respectively. The AW Fields Acquisition agreement allows for
the further anti-dilution right to $.04 per share level, but AW Fields
Acquisition has waived this right for this transaction.
7
In December 2002, the Company obtained a $2,000,000 note payable funding from an
entity controlled by a shareholder, a $250,000 advance from an officer and
majority shareholder and a credit facility of $200,000 from an officer and
majority shareholder. The proceeds were used to repay other outstanding notes
payable of approximately $2,119,000, and to fund working capital needs. The
$2,000,000 note payable has an interest rate of 18%, a due date of December 24,
2004, and monthly interest only payments until the due date. The $250,000
advance and the $200,000 credit facility have an interest rate that shall be no
greater than 18% and a due date no sooner than December 24, 2004. As a result of
the new $2,000,000 note payable, the Company incurred a fee paid in 3,809,524
shares of common stock and a warrant to purchase 7,142,857 shares of common
stock, exercisable at $0.07 per share, immediately exercisable and expiring in
December 2004. The discount from the warrants was determined to be $179,711,
which is to be amortized into interest expense over the two-year term of the
note. The value of the shares of common stock issued as a finders fee have a
fair market value of $152,381, which is to be amortized into expense over the
two-year term of the note. Total interest expense to be incurred over the note
term including the 18% interest and $179,711 warrants discount is $899,711, or
an effective annual interest rate of 23%.
Effective September 1, 2002 and in consideration for an extension of terms, the
interest rate on the long-term related party payable to an entity controlled by
an officer and majority shareholder increased from 10% to 12%, and interest is
now calculated on a compounded basis instead of a simple basis, adjusted
retroactively.
Note 5 - Net loss per common share
Basic net loss per common share ("Basic EPS") excludes dilution and is computed
by dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share ("Diluted EPS") reflects
the potential dilution that could occur if stock options or other contracts to
issue 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 loss per common share.
Options and warrants to purchase 76,242,870 and 21,500,001 shares of common
stock as of March 31, 2003 and 2002, respectively, were not included in the
computation of Diluted EPS. The inclusion of the options would have been
anti-dilutive, thereby decreasing net loss per common share.
Note 6 - Stock-based compensation
At March 31, 2003 and 2002, the Company has issued stock options to certain of
its employees. The Company accounts for these options under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted had an exercise price
equal to or greater than the market value of the underlying common stock on the
date of grant. Had compensation cost for the Company's stock option plans been
determined based on the fair value consistent with the provisions of SFAS No.
123, Accounting for Stock-Based Compensation, the Company's net loss and loss
per share would have been reduced to the pro forma amounts indicated below for
the three and nine months ended March 31, 2003 and 2002:
8
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
----------- ----------- ------------ -----------
Net loss available to common
shareholders as reported $ (372,612) $ (548,745) $ (1,420,747) $ (594,056)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects - (54,283) - (399,719)
----------- ----------- ------------ -----------
Net loss - pro forma $ (372,612) $ (603,028) $ (1,420,747) $ (993,775)
----------- ----------- ------------ -----------
Loss per share:
Basic and diluted - as reported $ (0.00) $ (0.00) $ (0.01) $ (0.00)
----------- ----------- ------------ -----------
Basic and diluted -
pro forma $ (0.00) $ (0.00) $ (0.01) $ (0.01)
----------- ----------- ------------ -----------
Note 7 - Advances payable
A customer has advanced the Company $175,000 pursuant to a contract, which
amount is contingent upon the customer obtaining consulting fees with outside
parties over the contract term totaling $175,000. Should the customer obtain
$175,000 or more in consulting fees from outside parties the Company is not
required to return the advance to the customer. If the customer does not receive
$175,000 in outside consulting fees, the Company is required to return to the
customer any amounts between the consulting fees received from outside parties
and $175,000.
Forward-Looking Statements
This quarterly report on Form 10-QSB contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 Form
10-KSB annual report at June 30, 2002. Statements made herein are as of the date
of the filing of this Form 10-QSB 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.
9
Item 2. Management's Discussion and Analysis or Plan of Operation.
Reference 10-KSB for year ending 06/30/02 - Exhibit to this filing.
Three months ended March 31, 2003 and 2002
The Company's primary focus, the retail market segment, has been impacted by the
business uncertainty that has been prevalent in the general economy.
Nevertheless, the Company's Fresh Market Manager (FMM) application, introduced
in the second quarter is well positioned to assist the grocery/supermarket
industry to economically and efficiently manage their perishable products
departments. There is an increasing interest in the FMM application.
During the third quarter the Company entered into strategic alliances with a
consulting firm to the grocery industry and a grocery specific software company
with complimentary products. These strategic partners have introduced several
prospective customers to the FMM application.
Total revenues were $1,391,380 and $1,497,507 for the three months ended March
31, 2003 and 2002, respectively, a 7% decrease. When the Fresh Market Manager
(FMM) application reached market readiness early in the second quarter, sales
efforts were, and continue to be, directed specifically to developing customers
in the perishable departments of the supermarket and grocery segment. Software
license revenues were $733,500 and $918,094 for the three months ended march 31,
2003 and 2002, respectively, a 20% decrease. This decrease reflects the longer
sales cycle and customer education process for FMM. Maintenance and support
revenues were $514,651 and $429,684 for the three months ended March 31, 2003
and 2002, respectively, a 20% increase. This increase is primarily attributable
to maintenance contracts on the initial FMM license sales. There was no relevant
change in consulting revenue.
Research and development expenses (after capitalization of software development
costs) were $286,354 and $174,361 for the three months ended March 31, 2003 and
2002, respectively, a 64% increase. This increase is primarily because the
Company stopped capitalizing software development costs for Fresh Market Manager
(FMM) when the product was released to customers in September 2002. Research and
development expenses continue for FMM for enhancements and upgrades. The company
is capitalizing research and development expenses related to the 4x platform.
Sales and marketing expenses were $347,712 and $444,870 for the three months
ended March 31, 2003 and 2002, respectively, a 22% decrease. This decrease is
primarily attributable to a sales team reorganization and related reduction in
sales personnel, partially offset by additional expenses related to the longer
sales cycle for the introduction of FMM.
General and administrative expenses were $282,522 and $367,739 for the three
months ended March 31, 2003 and 2002, respectively, a 23% decrease. This
decrease is attributable to cost control measures and budgetary constraints
implemented early in the second quarter.
Interest expense was $542,174 and $147,966 for the three months ended March 31,
2003 and 2002, respectively, a 266% increase. This increase is partially
attributable to the amortization of interest and warrants discounts on the
bridge notes payable of $274,431 and the additional interest expense from the
debt incurred during the current fiscal year. The remainder of the increase is
primarily attributable to an increase in interest rate from 10% to 12%, and a
change from simple to compounded interest, on the long-term related party note
payable to an entity controlled by an officer and majority shareholder; and
interest at 18% on a $2,000,000 note payable obtained in December 2002 and used
to repay other outstanding debts with lower interest rates.
10
Nine Months Ended March 31, 2003 and 2002
Total revenues were $3,810,750 and $4,078,168 for the nine months ended March
31, 2003 and 2002, respectively, a 7% decrease. Software license revenues were
$1,884,698 and $2,511,754 for the nine months ended March 31, 2003 and 2002,
respectively, a 25% decrease. This decrease is primarily attributable to the
longer sales cycle and customer education process for FMM, as well as the
unsettled national economy. Maintenance and support revenues were $1,462,173 and
$1,364,542 for the nine months ended March 31, 2003 and 2002, respectively, a 7%
increase. This increase reflects the maintenance contracts on the initial FMM
license sales. Consulting revenues were $463,879 and $201,872 for the nine
months ended March 31, 2003 and 2002, respectively, a 130% increase. This
increase is attributable to services provided to FMM customers for data input
and product configurations to meet their specific business requirements.
Research and development expenses (after capitalization of software development
costs) were $611,682 and $554,570 for the nine months ended March 31, 2003 and
2002, respectively, an 10% increase. This increase is primarily because the
Company stopped capitalizing software development costs for Fresh Market Manager
(FMM) when the product was released to customers in September 2002. Research and
development expenses continue for FMM for enhancements and upgrades.
Sales and marketing expenses were $1,064,478 and $1,230,368 for the nine months
ended March 31, 2003 and 2002, respectively, a 13% decrease. This decrease is
primarily attributable to a sales team reorganization and related reduction in
sales personnel, partially offset by additional expenses related to the longer
sales cycle for the introduction of FMM.
General and administrative expenses were $1,557,319 and $1,141,764 for the nine
months ended March 31, 2003 and 2002, respectively, a 36% increase. This
increase is primarily attributable to shares of common stock issued in September
2002 and December 2002 to certain directors and an officer and majority
shareholder due to anti-dilution provisions held by those individuals.
Interest expense was $1,430,914 and $478,144 for the nine months ended March 31,
2003 and 2002, respectively, a 199% increase. This increase is partially
attributable to the amortization of interest and warrants discounts as well as
accrued interest on the bridge notes payable of $705,803. The remainder of the
increase is primarily attributable to an increase in interest rate from 10% to
12%, and a change from simple to compounded interest, on the long-term related
party note payable to an entity controlled by an officer and majority
shareholder; and interest at 18% on a $2,000,000 note payable obtained in
December 2002 and used to repay other outstanding debts with lower interest
rates.
Liquidity and Capital Resources
Reference 10 KSB for year ending 06/30/02. The Company completed during December
2002 a key transaction to address the significant outstanding obligations and
provide for increased working capital. In December 2002, the Company obtained a
$2,000,000 note payable funding from a related party, a $250,000 advance from an
officer and a credit facility of $200,000 from an officer. The proceeds were
used to repay other outstanding notes payable of approximately $2,119,000, and
to fund working capital needs. Additional description may be viewed in the 8 K
dated December 31, 2002. The related-party note payable and accrued interest
totaling $4,184,846, payable to an officer and majority shareholder is due
January 2004 and is included in current liabilities. The company anticipates
that if resources are not available to repay this note that the due date will be
further extended at that time.
11
In February 2003 the Company received $1,000,000 under terms of a multi-year
agreement with an entity that will be a reseller of the Company's FMM
application, and will provide additional consulting resources to new FMM
customers requiring data input and product configuration. The Company believes
that this reseller agreement will provide additional resources to improve the
Company's liquidity and capital resources, and will enhance the Company's
ability to provide consulting services to multiple FMM customers.
Bridge Note B, as described in notes 3 and 4 to the financial statements, is due
July 2003 and is included in current liabilities. The company anticipates
negotiating payment terms or refinancing this obligation if resources for
repayment are unavailable.
The Company believes that cash flow from operations, the existence of a $200,000
line of credit facility from its majority shareholder and officer that has not
been drawn upon as of March 31, 2003, as well as the ability and commitment of
its majority shareholder and officer and other shareholders to contribute funds
necessary for the Company to continue to operate, will allow the Company to fund
its currently anticipated working capital, capital spending and debt service
requirements during the next operating period. No assurances can be given,
however, that the Company will be able to obtain the necessary amounts of cash
to fund its requirements during the next operating period.
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Randall K. Fields who serves as Park City Group's chief executive officer and
Edward Dmytryk who serves as Park City Group's chief financial officer, after
evaluating the effectiveness of Park City Group's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of a
date within 90 days of the filing date of the quarterly report (the "Evaluation
Date") concluded that as of the Evaluation Date, Park City Group's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to Park City Group and its consolidated subsidiaries would
be made known to them by others within those entities, particularly during the
period in which this quarterly report was being prepared.
(b) Changes in internal controls.
There were no significant changes in Park City Group's internal controls or in
other factors that could significantly affect Park City Group's disclosure
controls and procedures subsequent to the Evaluation Date, nor any significant
deficiencies or material weaknesses in such disclosure controls and procedures
requiring corrective actions. As a result, no corrective actions were taken.
12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Debra Elenson vs. Fields Technologies, and Randall K. Fields (Filed -January
2002, in the Circuit Court of the 11th Judicial Circuit in and for Dade County,
Florida): The plaintiff alleges, among other causes of actions, that a private
placement memorandum pursuant to which the plaintiff had purchased shares of
Fields Technologies, contained financial statements which were not prepared in
accordance with generally accepted accounting principles and the requirements of
SEC regulation S-X. The plaintiff alleges fraud, misrepresentation, unregistered
sales of securities and other causes of actions. The plaintiff seeks a
rescission of her investment in the company, damages and legal fees. The
defendants deny each of plaintiff's allegations, believe that the plaintiff's
claims have no merit and will vigorously defend the matter. The case has been
removed to the federal district court in Florida and is currently in the
discovery stage and no amounts have been reflected in the financial statements.
Lawrence A. Locke et al vs. Market Watch Corporation, and Fields Technologies,
Inc. (Filed - September 2001, in the Circuit Court of Oregon in Multnomah
County): The plaintiff alleges, among other causes of action, that the
defendants sent or caused to be sent unsolicited facsimile advertisement in
violation of the Telephone Consumer Protection Act. The plaintiff is seeking to
have the case certified as a class action and is looking for damages caused by
wear and tear of his facsimile machine and use of phone lines, toner, ink,
paper, etc. This matter was settled in September 2002 for a nominal amount.
In August 2002, the Company filed legal action against The Yankee Companies,
Inc. et al. The defendants were entities and individuals involved in the
reorganization of Amerinet and its acquisition of control of Park City Group
(Delaware). These causes of actions include: violation of Florida's Securities
and investor Protection Act, fraud, negligent misrepresentation, violation of
the Federal Securities Acts of 1933 and 1934 and breach of promissory note. This
action has been filed in the State of Utah and is in the early stages of
discovery.
Approximately two weeks following the filing of the complaint against Yankee
Companies, the Company was served with a complaint by Yankee Companies and
others, which was filed in Florida, alleging sales of unregistered securities,
securities fraud, registration violations, fraud negligent misrepresentation,
and breach of loan agreement. On or about February 5, 2003 this Florida case was
dismissed based on the fact that the Utah case filed by the Company was filed
first and all issues can be argued in that case.
In the first part of 2003 an Adversary Proceeding was filed under the Montgomery
Ward Bankruptcy Case against the Company. The claim for relief in the complaint
is to avoid preferential transfers pursuant to 11 U.S.C. Sec. 547. Plaintiff,
Montgomery Ward, Debtor in Possession alleges that certain payments in the
amount of $33,366.56 were made to the Company during the preference period and
therefore need to be returned. The Company maintains that it has an "ordinary
course of business exception" defense to the claims. The parties are in
settlement discussions at this time.
Item 2 - Changes in Securities
Please reference 10-KSB for year ending 6/30/02 incorporated by
reference.
Item 3 - Defaults Upon Senior Securities
Please reference 10-KSB for year ending 6/30/02 incorporated by
reference.
Item 4 - Submission of Matters to Vote of Security Holders
Please reference 10-KSB for year ending 6/30/02 incorporated by
reference.
Item 5 - Other Information
Please reference 10-KSB for year ending 6/30/02 incorporated by
reference.
13
Item 6 - Exhibits and Reports on Form 8K (for period 7/1/02 through 3/31/03)
(a) Exhibits
Exhibit 3(i), Articles of Incorporation - On August 7, 2002 Fields Technologies
Inc., issued the press release changing its name from Fields Technologies, Inc.,
to Park City Group, Inc. and reincorporated in Nevada. Incorporated by reference
to 8-K filed August 7, 2002.
Exhibit 10.1 - On August 16, 2002, the Company completed a private offering
consisting of $535,000 in promissory notes and warrants to purchase 5,350,000 of
the Company's Common stock at $.10 per share. The note and warrant are a
non-registered offering made in reliance on Section 4(2) of the Securities Act
of 1933, as amended, and/or Rule 506 promulgated thereunder. The Company intends
to use the net proceeds generated from the notes for working capital, capital
expenditures and debt reduction. Incorporated by reference to 8-K filed August
22, 2002.
Exhibit 10.2 - On November 27, 2002 the Company repaid the August 16, 2002
bridge financing and replaced it with a private offering of $798,898 in notes
payable with warrants to purchase 19,972,451 shares of common stock at $.04 per
share in bridge financing. Incorporated by reference to 8-K filed November 27,
2002.
Exhibit 10.3 - On December 31, 2002 the Company structured a $2.25 million loan
package with Whale Investments, LTD that retired its debt to Cooper Capital
Incorporated and to Bank One Corporation. Incorporated by reference to 8-K filed
January 2, 2003.
Exhibit 99.1 - Park City Group, Inc. & Subsidiaries Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed by Randall K. Fields, President and CEO.
Exhibit 99.2 - Park City Group, Inc. & Subsidiaries Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed by Edward C. Dmytryk, Director and CFO.
(b) Reports on Form 8-K
On August 7, 2002, the Company filed a Current Report on Form 8-K dated August
7, 2002 disclosing the Company's redomiciling to the State of Nevada.
On August 22, 2002, the Company filed a Current Report on Form 8-K dated August
16, 2002 disclosing under Item 9 that the Company completed a private offering
consisting of $535,000 in promissory notes and warrants to purchase 5,350,000
shares of common stock at $.10 per share.
On October 15, 2002 the Company filed a Current Report on Form 8-K dated October
15, 2002 disclosing under Item 9 that Ed Dmytryk was appointed acting chief
financial officer and will continue to fulfill his duties on the Board of
Directors but resigned his position as Chairman and member of the Board's Audit
Committee. In addition, Anthony E. Meyer was approved as new member of the Board
of Directors, replacing the resigning Stephen D. Weinroth.
On November 27, 2002 the Company filed a Current Report on Form 8-K dated
November 27, 2002 disclosing under Item 9 the repayment of the August 16, 2002
bridge financing and replacing it with a private offering of $798,898 in notes
payable with warrants to purchase 19,972,451 shares of common stock at $.04 per
share in bridge financing.
On January 2, 2003, the Company filed a Current Report on Form 8-K dated
December 31, 2002 disclosing under Item 9 the restructuring of a portion of the
company's long-term debt. The company has structured a $2.25 million loan
package that retired its debt to Cooper Capital Incorporated and to Bank One
Corporation. The loan package was structured with Whale Investments, LTD.
14
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.
Date: May 20, 2003 PARK CITY GROUP, INC.
By /s/ Randall K. Fields
-----------------------------
Randall K. Fields, President and
Chief Executive Officer
Date: May 20, 2003 By /s/ Edward C. Dmytryk
-----------------------------
Edward C. Dmytryk,
Director and acting Chief
Financial Officer
15
Park City Group, Inc. & Subsidiaries
Certification Of Chief Executive And Chief Financial Officer
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, Randall K. Fields certify that I have received this quarterly report
on Form 10-Q of Park City Group, Inc. and Subsidiaries:
1. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
2. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report:
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that materials information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
5. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Randall K. Fields
--------------------------------------
President and Chief Executive Officer
16
Park City Group, Inc. & Subsidiaries
Certification Of Chief Executive And Chief Financial Officer
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, Edward C. Dmytryk I have received this quarterly report on Form 10-Q
of Park City Group, Inc. and Subsidiaries:
1. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
2. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report:
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that materials information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
5. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Edward C. Dmytryk
--------------------------------------------
Director and Acting Chief Financial Officer
17