10-K
1
pcyg10k_jun302020.htm
ANNUAL REPORT
pcyg10k_jun302020
DRAFT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the
fiscal year ended June 30, 2020
or
001-34941
(Commission
file number)
PARK CITY GROUP, INC.
(Exact
name of registrant as specified in its charter)
State or other jurisdiction of incorporation (IRS Employer Identification No.)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each Class Trading Symbol Name of each exchange on which registered
Common Stock, $0.01 Par Value PCYG NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Yes [X] No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Yes [X] No
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
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. [X] 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 (§ 229.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
[X] 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 [X] Smaller reporting company [X]
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 has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. [
]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
[
] Yes [X] No
The
aggregate market value of the voting and non-voting common stock
held by non-affiliates of the issuer as December 31, 2019 which is
the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately
$58,454,000 (at a closing
price of $5.06 per
share).
As of
September 28, 2020, 19,499,767 shares of the
Company’s common stock, par value $0.01 per share
(“Common Stock”), were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10,
11, 12, 13 and 14 of Part III incorporate by reference certain
information from Park City Group, Inc.’s definitive proxy
statement, to be filed with the Securities and Exchange Commission
on or before October 28, 2020.
DRAFT
TABLE OF CONTENTS TO ANNUAL
REPORT
ON FORM 10-K
YEAR ENDED JUNE 30, 2020
PART I
Item 1. Business 2
Item 1A. Risk Factors 7
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Mine Safety Disclosures 14
PART II
Item 6. Selected Financial Data 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9A. Controls and Procedures 25
Item 9B. Other Information 26
PART III
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11. Executive Compensation 27
Item 14. Principal Accounting Fees and Services 27
PART IV
Item 15. Exhibits, Financial Statement Schedules 28
Signatures 29
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of June 30, 2020 and 2019 F-2
Notes to Consolidated Financial Statements F-6
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DRAFT
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 the risk factors set
forth below and elsewhere in this Report. See “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.” Statements made herein are as of the date
of the filing of this Form 10-K 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.
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DRAFT
PART I
ITEM I. BUSINESS
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.
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.
Recent Developments
FoodSource USA
In
April 2020, our solutions for stock replenishment, compliance,
sourcing, food safety and risk management for the retail supply
chain, is offering a new technology platform to address chronic
imbalances in the food supply chain caused by the current
coronavirus pandemic (“COVID-19” or, the
“pandemic”).
The online platform, called FoodSourceUSA, will facilitate the
identification and redistribution of excess perishable food
products that are currently going to waste due to dramatically
reduced foodservice sector volume, while serving the growing number
of food-insecure communities around the country.
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We will
be providing the FoodSourceUSA sourcing platform to create
visibility to excess inventory, process orders and deliver shipment
information to government agencies who will manage logistics and
delivery. Stakeholders in the system include providers of fresh
meat, produce and dairy products, food banks, pantries and
charitable groups serving those in need, along with a network of
government agencies that will reimburse the providers fairly to
create a sustainable supply chain.
COVID-19
There
are many uncertainties regarding COVID-19, and the Company is
closely monitoring the impact of the pandemic on all aspects of its
business, including how it will impact its services, customers,
employees, vendors, and business partners. While the pandemic did
not materially adversely affect the Company’s financial
results and business operations in the Company’s fourth
fiscal quarter ended June 30, 2020 or fiscal year ended June 30,
2020, 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 expects to continue to assess
the evolving impact of COVID-19 and intends to make adjustments to
its responses accordingly.
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 recently enacted
CARES Act administered by the SBA. In accordance with the
requirements of the CARES Act, the Company intends to use 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 is scheduled
to mature on April 23, 2022, has a 1.00% interest rate, and is
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.
Company History
The
Company’s technology has its genesis in the operations of
Mrs. Fields Cookies, a company co-founded by Randall K. Fields, the
Company’s Chief Executive Officer. The Company began
operations utilizing patented computer software and profit
optimization consulting services to help its retail clients reduce
their inventory and labor costs.
On
January 13, 2009, the Company acquired 100% of Prescient Applied
Intelligence, Inc., a Delaware corporation (“Prescient”), a provider of
solutions for retailers which, among other things, captured
information about transactions between retailers and their
suppliers.
In
February 2014, Prescient changed its name to Park City Group, Inc.
As a result, both Park City Group and PCG Delaware were named Park
City Group, Inc.
In June
2015, the Company elected to exercise an option to acquire a 75%
interest in ReposiTrak from Leavitt Partners, LP for a cash payment
and negotiated the purchase of the remaining 25% with an exchange
of shares of the Company. As a result, ReposiTrak became a wholly
owned subsidiary of the Company.
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As of
June 30, 2020, the Company completed its Supply Chain and
Compliance and Food Safety, and MarketPlace supplier discovery and B2B e-commerce solution. As
a result, the Company is now largely capable of delivering its
services through a single ReposiTrak branded user
interface.
Target Industries Overview
The
Company develops its software and services for multi-store retail chains, wholesalers and
distributors, and their suppliers. The bulk of the
Company’s customers are in the U.S. consumer retail sector
for food and general merchandise, although the Company’s
software and services are not sold exclusively to this customer
base, and the Company believes that its software and services are
also applicable to a wide variety of other potential customers
domestically and abroad.
Backdrop
The
U.S. consumer retail sector in general, and food and general
merchandise retailers more acutely, are facing pressure from
several significant forces. These include (i) increased competitive
pressures from the rise of online retailers, (ii) increased
regulatory and tort risks, particularly for food retailers, as a
result of the passage of the FSMA which placed greater
responsibility for the safety of products on the participants in
the food supply chain, and (iii) the pressure from consumers to
increase product diversity, and in particular, the number of
smaller, localized vendors.
Solutions and Services
The
Company’s software and services are designed to address the
business problems faced by our customers. These solutions are
delivered via a cloud-based infrastructure and grouped in three product application suites that
mirror the workflow of the Company’s customers as they manage
the activities of their supply chain.
Key Application Suites
●
ReposiTrak
MarketPlaceis the
Company’s supplier discovery and B2B e-commerce solution.
MarketPlace provides the Company’s customers with greater
flexibility in sourcing products by enabling them to screen and
choose suppliers based on a wide variety of criteria, including,
but not limited to, predetermined compliance characteristics, and
then to integrate these suppliers into their supply chain faster
and more cost effectively. MarketPlace helps the Company’s
customers respond to competitive pressures from online
retailers by providing them with greater capabilities to increase
local sourcing, tailor their product offering to local market
tastes, and stock their stores appropriately for local events.
MarketPlace is also beneficial to suppliers connected to ReposiTrak’s platform
in that they can use MarketPlace to highlight the products that
they sell to generate incremental sales. The business model for
MarketPlace is evolving as the Company’s customers help to
develop new use cases for the application. In some situations, the
Company acts as an agent for suppliers or provides supply chain
technology services. In other situations, at the customer’s
request, the Company may act as the supplier for certain
products.
●
ReposiTrak
Compliance and Food Safety Solutionshelp the Company’s customers reduce
potential regulatory and legal risk from their supply chain
partners. The Company does this by providing a way of gathering the
array of documents that may be needed for the customer to determine
that its suppliers are compliant with a wide variety of criteria
including, but not limited to, food safety regulations, such as
those required by the FMSAand
general business compliance standards such as adequate liability
insurance. The Company’s Compliance and Food Safety
solutions currently include four main applications: Vendor
Validation, Compliance Management, Quality Management Systems
(“QMS”) and
Track & Trace. ReposiTrak also hosts and is integrated with the
food safety audit database of the Safe Quality Food Institute
(“SQFI”). SQFI
is one of the leading schemas for certifying that a food
retailer’s suppliers are compliant with Global Food Safety
Initiative (“GFSI”) standards, which many food
retailers require of their suppliers as a condition of doing
business. SQFI is owned and operated by the Food Marketing
Institute (“FMI”), one of the food
industry’s largest trade associations.
●
ReposiTrak
Supply ChainSolutionshelp the Company’s customers to
more efficiently manage relationships with suppliers so that
they can “stock less and sell more” by reducing
inventory, labor costs and waste while also increasing
revenue. The Company is a leader in
helping its customers to manage their relationship with
Direct Store Delivery (“DSD”) suppliers. The Company has observed that its
customers are shifting a greater percentage of their product
mix to DSD suppliers to lower their operating costs. Through a process known as Scan Based Trading
(“SBT”) the Company
enables its customers to sell products from DSD suppliers on a
consignment basis, which lowers their working capital requirements
by shifting the financial burden of the inventory to the supplier.
Other Supply Chain solutions include ScoreTracker, Vendor Managed
Inventory, Store Level Ordering and Replenishment, Enterprise
Supply Chain Planning, Fresh Market Manager and
ActionManager®, all of which are designed to aid the
Company’s customer in managing inventory, product mix and
labor while improving sales through the reduction of out of stocks
by improving visibility and forecasting.
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Professional Services
The
Company has two professional services groups: (i) the Business
Analytics Group offers business-consulting services to suppliers
and retailers in the grocery, convenience store and specialty
retail industries, and (ii) the Professional Services Group
provides consulting services to ensure that our solutions are
seamlessly integrated into our customers’ business processes
as quickly and efficiently as possible.
Technology, Development and Operations
Product Development
The
Company’s product development strategy is focused on creating
common technology elements that can be leveraged in multiple
applications across our core markets. To remain competitive, the
Company is currently designing, coding and testing new products and
developing expanded functionality of its current
products.
Operations
We
currently serve our customers from a third-party data center
hosting facility. Along with the Company’s Statement on
Standards for Attestation Engagements (“SSAE”) No. 16 certification
Service Organization Control (“SOC2”), the third-party facility
is also a SSAE No. 16 – SOC2 certified location and is
secured by around-the-clock guards, biometric screening and
escort-controlled access, and is supported by on-site backup
generators in the event of a power failure.
Customers
The
Company is currently engaged primarily by food related consumer
goods retailers, wholesalers, and their suppliers. The bulk of the
Company’s customers are in the U.S. consumer retail sector
for food and general merchandise. However, the Company is
opportunistic and will offer its solutions to a wide variety of
other potential customers. Target Corporation accounted for
approximately 8.1% of the
Company’s total revenue in the fiscal year ended June 30,
2020.
Sales, Marketing and Customer Support
Sales and Marketing
Through
a focused and dedicated sales effort designed to address the
requirements of each of its solutions, the Company believes it is
well positioned to understand its customers’ businesses,
trends in the marketplace, competitive products and opportunities
for new product development.
The
Company’s primary marketing objectives have been to increase
awareness of our solutions, generate sales leads and develop new
customer relationships. To this end, the Company attends industry
trade shows, conducts direct marketing programs, publishes industry
trade articles, participates in interviews and selectively
advertises in industry publications.
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In
fiscal 2016 the Company embarked on a process of repurposing the
Company’s supply chain applications so that they can be
delivered via ReposiTrak’s highly scalable online
infrastructure and launching its MarketPlace supplier discovery and B2B e-commerce solution on
this same infrastructure. As a result, the Company is now largely
capable of delivering its services through a single ReposiTrak
branded user interface.
With
the convergence of the Company’s solutions to a single
delivery platform, the Company also reorganized its sale force and
reoriented its marketing efforts. This process involved
streamlining the sales force to enable cross-selling
by reducing regional account managers and shifting our sales
emphasis towards the Company’s inside sales team located at
its corporate headquarters in Murray, Utah.
Customer Support
The
Company’s global customer support group responds to both
business and technical inquiries from its customers relating to how
to use its solutions and is available to customers by telephone and
email. Basic customer support during business hours is available to
customers. Premier customer support includes extended availability
and additional services and is available along with additional
support services such as developer support and partner support for
an additional fee.
Competition
The
Company competes with a myriad of software vendors, developers and
integrators, B2B exchanges, consulting firms, focused solution
providers, and business intelligence technology platforms. Although
our competitors are often considerably larger companies in size
with larger sales forces and marketing budgets, the Company
believes that its deep industry knowledge, the breadth and depth of
our offerings, and our relationships with key industry, wholesaler,
and other trade groups and associations, gives it a competitive
advantage.
Patents and Proprietary Rights
The
Company relies on a combination of trademark, copyright, trade
secret and patent laws in the United States and other jurisdictions
as well as confidentiality procedures and contractual provisions to
protect our proprietary technology and our name. We also enter into
confidentiality agreements with our employees, consultants and
other third parties and control access to software, documentation
and other proprietary information.
The
Company has been awarded nine U.S. patents, and a number of U.S.
registered trademarks and U.S. copyrights relating to its software
technology and solutions. The Company’s patent portfolio has
been transferred to an unrelated third party, although the Company
retains the right to use the licensed patents in connection with
its business. The Company’s policy is to continue to seek
patent protection for all developments, inventions and improvements
that are patentable and have potential value to the Company and to
protect its trade secrets and other confidential and proprietary
information, and the Company intends to defend its intellectual
property rights to the extent its resources
permit.
The
Company is not aware of any patent infringement claims against it;
however, there are no assurances that litigation to enforce patents
issued to the Company to protect proprietary information, or to
defend against the Company’s alleged infringement of the
rights of others will not occur. Should any such litigation
occur, the Company may incur significant litigation costs, and it
may result in resources being diverted from other planned
activities, which may have a materially adverse effect on the
Company’s operations and financial condition.
Employees
As of
June 30, 2020, the Company employed a total of 81 employees. Of these employees,
15 are located
overseas. The Company plans to continue expanding its offshore
workforce to augment its analytics services offerings, expand its
professional services and to provide additional programming
resources. The employees are not represented by any labor
union.
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DRAFT
Reports to Security Holders
The
Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the
“Exchange
Act”). Accordingly, it files annual, quarterly
and other reports and information with the Securities and Exchange
Commission (“SEC”). The SEC maintains an
Internet site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. Copies of these reports,
proxy and information statements and other information may be
obtained by electronic request at the following e-mail address:
publicinfo@sec.gov.
Government Regulation and Approval
Like
all businesses, the Company is subject to numerous federal, state
and local laws and regulations, including regulations relating to
patent, copyright, and trademark law matters.
Cost of Compliance with Environmental Laws
The
Company currently has no costs associated with compliance with
environmental regulations and does not anticipate any future costs
associated with environmental compliance; however, there can be no
assurance that it will not incur such costs in the
future.
ITEM 1A. RISK FACTORS
An investment in our Common Stock is subject to many risks. You
should carefully consider the risks described below, together with
all of the other information included in this Annual Report on Form
10-K (this “Annual Report”), including the financial
statements and the related notes, before you decide whether to
invest in our Common Stock. Our business, operating results and
financial condition could be harmed by any of the following
risks. The trading price of our Common Stock could decline due
to any of these risks, and you could lose all or part of your
investment.
Risks Related to the Company
We have incurred losses in the past and there can be no assurance
that we will operate profitably in the future.
Our