Item 1A. Risk Factors 6
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
PART II
Item 6. Selected Financial Data 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 22
Item 9A. Controls and Procedures 22
Item 9B. Other Information 22
PART III
Item 10. Directors, Executive Officers and Corporate Governance 23
Item 11. Executive Compensation 23
Item 14. Principal Accounting Fees and Services 23
PART IV
Item 15. Exhibits, Financial Statement Schedules 24
Signatures 25
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of June 30, 2021 and 2020 F-2
Notes to Consolidated Financial Statements F-6
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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 Annual Report on 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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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, 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 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 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
During the
second half of fiscal year 2021, ReposiTrak launched two new
products designed to expand market share in the manufacturing
segment: Certificate of Analysis Automation and Active-QMS for
Quality Management. Both solutions were developed at the request of
existing Compliance Management Solution customers and improve
competitiveness in the manufacturing/food supply chain with
synergistic solutions for growth in existing customers and
increasing competitiveness for new business focused on quality
management.
The quality
management solution also has application in the retail sector, in
central commissaries, distribution centers, and even task
management in stores.
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Another major
new product initiative commenced in February 2021, as ReposiTrak
joined with a group of major retailers and wholesalers to form the
Food Traceability Leadership Consortium (“FTLC”), in response to the Food
and Drug Administration's (“FDA”) announcement regarding the
increase of food traceability requirements under the FSMA. The
expanded traceability requirements proposed by the FDA have far
reaching consequences for the US food supply chain, from farms to
fisheries down to retail stores, due to new, detailed documentation
requirements designed to support more effective
recalls.
These new
proposed requirements create substantial data and records
management challenges for all supply chain trading partners, many
of whom do not have this capability today. The risk is that the
supply chain will become fractious array of inoperable systems that
could lead to massive operational complexity and expense
escalation. The FTLC founding members worked collaboratively with
ReposiTrak to develop a complete food traceability solution that
meets all the FDA FSMA proposed reporting requirements at a very
large manageable cost, based on the ReposiTrak supply chain
platform which tracks product/shipment data in a similar manner
today for cost and inventory control purposes.
The new
solution, called the ReposiTrak Traceability Network, is launching
in September 2021 with phased roll outs at suppliers and retailers,
and is expected to scale rapidly throughout fiscal year 2022, based
on the existing Compliance Management user network.
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 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
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 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.
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.
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.
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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 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 9.2% of the
Company’s total revenue in the fiscal year ended June 30,
2021.
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.
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.
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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,
2021, the Company employed a total of 70 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.
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.
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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 marketing
strategy emphasizes sales of subscription-based services, instead
of annual licenses, and using Spokes to connect to our
Hubs. This strategy has resulted in the development of a
foundation of retail and wholesale Hubs to which suppliers can
be “connected”, thereby accelerating future
growth. If, however, this marketing strategy fails, revenue and
operations will be negatively affected. We had net income of
$4,117,395 for the year ended
June 30, 2021, compared to a net income of $1,593,269 for the year
ended June 30, 2020. Although we generated net income in the year
ended June 30, 2021, there can be no assurance that we will achieve
profitability in future periods. We cannot provide assurance that
we will continue to generate revenue or have sustainable profits.
If we do not operate profitably in the future, our current cash
resources will be used to fund our operating losses. Continued
losses would have an adverse effect on the long-term value of our
Common Stock and any investment in the Company.
Although our cash resources are currently sufficient, our long-term
liquidity and capital requirements may be difficult to predict,
which may adversely affect our long-term cash
position.
Historically,
we have been successful in raising capital when necessary,
including through private placements, a registered direct offering,
and stock issuances to our officers and directors, including our
Chief Executive Officer, to pay our indebtedness and fund our
operations, in addition to cash flow from operations. If we
are required to seek additional financing in the future in order to
fund our operations, retire our indebtedness and otherwise carry
out our business plan, there can be no assurance that such
financing will be available on acceptable terms, or at all, and
there can be no assurance that any such arrangement, if required or
otherwise sought, would be available on terms deemed to be
commercially acceptable and in our best
interests.
Our business is dependent upon the continued services of our
founder and Chief Executive Officer, Randall K. Fields. Should
we lose the services of Mr. Fields, our operations will be
negatively impacted.
Our business is
dependent upon the expertise and continued service of our founder
and Chief Executive Officer, Randall K. Fields. Mr. Fields is
essential to our operations. Accordingly, an investor must rely on
Mr. Fields’ management decisions that will continue to
control our business affairs. We currently maintain key man
insurance on Mr. Fields’ life in the amount of $5,000,000;
however, that coverage would be inadequate to compensate for the
loss of his services. The loss of the services of Mr. Fields would
have a materially adverse effect upon our business.
Risk Relating to Business Operations
Quarterly and annual operating results may fluctuate, which makes
it difficult to predict future performance.
Management
expects a significant portion of our revenue stream to come from
the sale of subscriptions, and to a lesser extent, transactions
processed though MarketPlace, license sales, maintenance and
professional services charged to new customers. These amounts
will fluctuate and are uncertain because predicting future sales is
difficult and involves speculation. In addition, we may
potentially experience significant fluctuations in future operating
results caused by a variety of factors, many of which are
outside of our control, including:
●
our ability to retain and
increase sales to existing customers, attract new customers and
satisfy our customers’ requirements;
●
the renewal rates for our
subscriptions and other services;
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●
changes in our pricing
policies, whether initiated by us or as a result of
competition;
●
the cost, timing and
management effort for the introduction of new services, including
new features to our existing services;
●