ReposiTrak - 10-Q quarterly report FY

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

For the quarterly period ended September 30, 2008.

 

 

For the transition period from             to             .

Commission File Number 000-03718

PARK CITY GROUP, INC.

(Exact name of small business issuer as specified in its charter)

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large-accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer                                ¨      Accelerated filer        ¨

Non-accelerated filer                                  ¨     Smaller reporting company  [X]

(Do not check if smaller reporting company)

 

Indicate by checkmark if whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[  ] Yes    [X] No

 

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Table of Contents to Quarterly Report on Form 10-Q

 

PARK CITY GROUP, INC.

Consolidated Condensed Balance Sheets

 

 

See accompanying notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Operations (Unaudited)

For the Three Months Ended September 30, 2008 and 2007

 

See accompanying notes to consolidated condensed financial statements.

ConsolidatedCondensed Statements of Cash Flows (Unaudited)

For the Three Months Ended September 30, 2008 and 2007

 

See accompanying notes to consolidated condensed financial statements.

PARK CITY GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

September 30, 2008

 

Park City Group, Inc. (the "Company") is incorporated in the state of Nevada, and the Company’s 98.76% owned subsidiary Park City Group, Inc. is incorporated in the state of Delaware.  All intercompany transactions and balances have been eliminated in consolidation.

The Company designs, develops, markets and supports proprietary software products. These products are designed to be used in businesses having multiple locations to assist in the management of business operations on a daily basis and communicate results of operations in a timely manner. In addition, the Company has built a consulting practice for business improvement that centers around the Company’s proprietary software products. The principal markets for the Company's products are multi-store retail and convenience store chains, branded food manufacturers, suppliers and distributers, and manufacturing companies which have operations in North America, Europe, Asia and the Pacific Rim.

 

Basis of Presentation

 

The accompanying unaudited consolidated condensed financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) on a basis consistent with the Company’s audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information set forth therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes that the following disclosures, when read in conjunction with the audited annual financial statements and the notes thereto included in the Company’s most recent annual report on Form 10−KSB, are adequate to make the information presented not misleading. Operating results for the three months ended September 30, 2008 are not necessarily indicative of the operating results that may be expected for the fiscal year ending June 30, 2009.

Recent Accounting Pronouncements

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, and SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51.”  SFAS No. 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods.  SFAS No. 160 will change the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity.  SFAS No. 141R and SFAS No. 160 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early adoption is not permitted.  The Company is evaluating the impact of SFAS No. 141(R) on its condensed consolidated financial statements. The Company does not expect the adoption of these new standards to have an impact on its financial statements.

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.  The Company’s critical accounting policies and estimates include, among others, valuation allowances against deferred income tax assets, revenue recognition, stock-based compensation, capitalization of software development costs and impairment and useful lives of long-lived assets.

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 shares of common stock were exercised or converted into common stock.  The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.

For the three months ended September 30, 2008 and 2007 options and warrants to purchase 1,017,443 and 1,447,517 shares of common stock, respectively, were not included in the computation of diluted EPS due to the dilutive effect.  For three months ended September 30, 2008, 2,041,579 shares of common stock issuable upon conversion of the Company’s Series A Convertible Preferred stock were not included in the diluted EPS calculation as the effect would have been anti-dilutive.

Use of Equity Method on Investment

 

The Company accounts for its investments in companies subject to significant influence using the equity method of accounting, under which, the Company’s pro-rata share of the net income (loss) of the affiliate is recognized as income (loss) in the Company’s income statement and the Company’s share of the equity of the affiliate is reflected in the Company’s capital stock account and added to the investment on the balance sheet.

For the three months ended September 30, 2008 the Company recognized a $197,205 loss on equity method investment calculated using its 8% ownership of the fully converted amount of common shares outstanding that the Company owns.

 

 

 

Park City Group has agreements with a number of employees to issue stock grants vesting over a four year term. 25% of these bonuses are to be paid on each anniversary of the grant dates.

 

The following tables summarize information about fixed stock options and warrants outstanding and exercisable at September 30, 2008:

 

 

Property and equipment are stated at cost and consist of the following as of:

 

 

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states.  With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2000.

 

The Internal Revenue Service (IRS) commenced an examination of the Company’s U.S. income tax returns for 2004 in July 2007. The examination was completed in July 2008 and resulted in a proposed adjustment of $446,681 and $46,478 to the Company’s net operating loss (NOL) carryforward for 2004 and 2005, respectively.   The proposed adjustment was the result of interest that was accrued by the Company in accordance with certain related party debt with Riverview Financial but was never required to be paid in subsequent years. The Company agreed with the proposed adjustment resulting in a reduction of its NOL in the amount of $493,159.   The accrued interest adjustments do not result in a material change to the Company’s financial position given the amount of its net operating loss carryforward.

The Company adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, on July 1, 2007.  The Company did not record any amounts as a result of the implementation of FIN 48.

Included in the balance at September 30, 2008 are nominal amounts of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.  Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

 

The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  During the three months ended September 30, 2008 and 2007, the Company did not recognize any interest or penalties.  The Company does not have any interest and penalties accrued at September 30, 2008, and June 30, 2008.

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Form 10-KSB for the year ended June 30, 2008 incorporated herein by reference.

This quarterly report on Form 10-Q contains forward looking statements.  The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements."  Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our June 30, 2008 Form 10-KSB annual report, incorporated herein by reference.  Statements made herein are as of the date of the filing of this Form 10-Q 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.

 

Park City Group develops and markets patented computer software and profit optimization consulting services that help its retail customers to reduce their inventory and labor costs; the two largest controllable operating expenses in the retail industry, while increasing the customer’s sales, reducing shrink, increasing gross margin, contribution margin, and thus improving the bottom line results.  Our suite of products, Fresh Market Manager, ActionManager™ and Supply Chain Profit Link (“SCPL”) are designed to address the needs of multi-store retailers and suppliers in store operations management, manufacturing, and both durable goods and perishable product management.

Because the product concepts originated in the environment of actual multi-unit retail chain ownership, the products are strongly oriented to an operation’s bottom line results.  The products use a contemporary technology platform that is capable of supporting existing product lines and can also be expanded to support related products.  The Company continues to transition its software business from a licensed based approach to its new subscription based model through its targeted Supply Chain Profit Link (“SCPL”) strategy. The subscription based SCPL tool and analytics group focuses on leveraging multi-store retail chains, C-Store Chains, and their respective suppliers in order to reduce shrink, labor costs, and increase profitability.

We have experienced recent significant developments that we expect to have a positive impact on the company, although there is no assurance that the expected positive impact will take place.  Recent developments that occurred as of and during the three months ended, September 30, 2008 included the following:

 

Subscription Revenue

 

Subscription revenues were $58,104 and $85,917, for the three months ended September 30, 2008 and 2007 respectively; a decrease of 32% in the three months ended, September 30, 2008 when compared with the three months ended, September 30, 2007.  This $27,813, decrease was the result of two customers that did not renew their annual subscriptions or who did not gain acceptance from their supplier sponsor.  The Company continues to focus its strategic initiatives to increase the number of retailers, suppliers and manufacturers that use its software on a subscription basis using a introductory trial to illustrate results to its prospects. However, while Management believes that marketing its Supply Chain Profit Link (SCPL) software as a renewable and recurring subscription is an effective strategy, it cannot be assured that subscribers will renew the service at the same level in future years, propagate services to new categories, or recognize the need for expanding the service offering to the Company’s suite of actionable products and services.

Maintenance Revenue

 

Maintenance revenues were $288,632 and $378,806 for the three months ended September 30, 2008 and 2007, respectively, a decrease of 24% in the three months ended, September 30, 2008 compared with the three months ended, September 30, 2007.  The $90,174 decrease is primarily due to the loss of two customer maintenance agreements. Due to the historical reliability of the Company’s suite of products, from time to time, customers may not perceive the ongoing value of paying for maintenance when the frequency of maintenance activities needed by a customer becomes infrequent.

Professional Services and Other Revenue

 

Professional Services and other revenue were $145,302 and $126,472 for the three months ended September 30, 2008 and 2007, respectively, an increase of 15%.  This $18,830 increase is due to the increase in analytics services provided to one national retail grocer chain to analyze its shrink, out-of-stocks, and other key performance indicators.  Management believes that professional services may experience periodic fluctuations as the need for its analytic’s offerings and change-management services becomes a natural addition to its software as a service (SaaS) offerings.

License Revenue

 

Software license revenues were $38,240 and $263,069 for the three months ended September 30, 2008 and 2007, respectively, a decrease of 85%. This $224,829 decrease in license revenues in the three months ended September 30, 2008 when compared with the same period ended September 2007 is the result of the Company’s efforts to focus its resources on recurring subscription based revenues. Although the Company has not eliminated the sale of its suite of products on a license basis, it is difficult to predict and forecast future software license sales.

Cost of Services and Product Support

 

Cost of services and product support were $580,544 and $579,854 for the three months ended September 30, 2008 and 2007 respectively, a 0.12% increase in the three months ended September 30, 2008 compared with the three months ended September 30, 2007.  In fiscal 2008, the Company has put in place the necessary resources and staff in order to address its business strategy of software on a subscription.  This modification of its business strategy has resulted in the automation of certain IT data gathering and processing which has resulted in a nominal growth in its expenditures related to ongoing product support and IT services.

 

 

Depreciation and Amortization Expense

 

Depreciation and Amortization expenses were $135,563 and $111,969 for the three months ended September 30, 2008 and 2007, respectively, an increase of 21% in the three months ended September 30, 2008 compared with the three months ended September 30, 2007.  This increase of $23,594 is attributable to software costs capitalized in prior years and the resultant amortization due to the completion of the significant enhancements and the release of the developed product.

 

Other Income and Expense

 

There was no income from patent activities for the three months ended September 30, 2008 when compared with income from patent activities of $200,000 for the three months ended September 30, 2007. As a result of the Company’s ownership of approximately 8% of the fully converted outstanding common shares of Prescient Applied Intelligence, Inc. (“Prescient”) and voting control of 43% of Prescient’s common stock, and in accordance with the Equity Method of accounting for investment, the Company recognized a loss of $197,205 for the three months ended September 30, 2008 (See Note 11.) Net interest expense was $22,741 for the three months ended September 30, 2008 compared with net interest income of $23,675 for the three months ended September 30, 2007.  This $46,416 change in net interest income in the three months ended September 30, 2008 when compared with the three months ended September 30, 2007 is the result of (1) interest expenses on short term notes payable with directors and officers issued in connection with financing arrangements associated with the acquisition of Prescient (See Note 6.), and (2) the Company using its restricted cash to pay off a note payable with its bank in July 2008.

 

Preferred Dividends

 

Dividends accrued on preferred stock was $88,396 for the three months ended September 30, 2008 when compared with $82,492 accrued in the same period in 2007. The preferred dividends are the result of the issuance of 584,000 shares of the Company’s Series A Convertible Preferred Stock that occurred in June 2007. Holders of the preferred stock are entitled to a 5.00% annual dividend payable quarterly in either cash or preferred stock at the option of the Company with fractional shares paid in cash.

 

Net Cash Used in Operating Activities

 

Net cash used in operations for the three months ended September 30, 2008, was $792,469 when compared with $1,050,789 for the same period in 2007.  The decrease in cash flows used in operations was the result of (1) a decrease it trade receivables from collecting outstanding accounts., (2) a decrease in accounts payable as the company has continued to focus efforts of reducing costs, and  (3) an increase in loss from subsidiary that was not applicable in the same period in 2007,

Net Cash Flows from Investing Activities

 

Net cash used in investing activities for the three months ended September 30, 2008 was $828,129 compared with net cash used in investing activities of $136,700 during the three months ended September 30, 2007. The comparative increase in cash used in investing activities was primarily due to an investment by the Company in a portion of Series E Preferred Stock in conjunction with the acquisition and merger of Prescient Applied Intelligence, Inc., This reduction was partially offset by (1) a decrease in capital expenditures, (2) a reduction of software development costs capitalized under FAS 86, and (3) no income from the sale of patents recorded in the current period that were recorded in the same period 2007.

 

Current Assets

 

Current assets at September 30, 2008 totaled $1,263,144, a 68% decrease from current assets on hand of $3,983,178 at June 30, 2008.  The $2,720,034 decrease in current assets is due in part to; (1) $1.94 million of restricted cash used in the period to retire a note payable with a bank of the same amount, and (2) cash used by the Company in order to fund operations, and (3) a decrease in accounts receivable.

 

Current Liabilities

 

Current liabilities as of September 30, 2008 and September 30, 2007 were $4,187,015 and $3,401,779 respectively.  This 23% increase in current liabilities for the three months ended September 30, 2008 when compared with the same period in 2007 is due to the Company’s use of a line of credit and issuance of notes payable to certain officers and directors to raise the necessary funds in order to fund the acquisition of Prescient Applied Intelligence, Inc.  This increase in current liabilities was partially offset by the retirement of a note payable with the Company’s bank in the amount of $1.94 million.

Working Capital

 

At September 30, 2008, the Company had negative working capital of $2,923,871, as compared with working capital of $581,399 at June 30, 2008.  This $3,505,270 decrease in working capital is due to the Company securing both notes payable and using a line of credit to facilitate an investment in Prescient Applied Intelligence, Inc.

 

Liquidity and Capital Resources General

 

Historically, the Company has financed its operations through operating revenues, loans from directors, officers and stockholders, loans from banks, loans from the CEO and majority shareholder, and private placements of equity securities.  In July 2007, the sale of 584,000 shares of Series A Convertible Preferred Stock, the Company was able to eliminate Riverview Financial Corp as its guarantor and maintained its own collateralization of the note payable for $1.940 million. The note payable was retired in July 2008. In August, 2008, the Company secured notes payable from officers and directors in the amount of $2,199,000 and used lines of credit to facilitate an investment in Prescient Applied Intelligence, Inc. in the amount of approximately $2.767 million.

 

The Company is required, under the Merger Agreement, to make an initial deposit of $2,500,000 into escrow at such time as the Securities and Exchange Commission has no further comment of Prescient’s proxy statement related to the Merger Transaction.  The balance of the funds necessary to complete the Merger (approximately $2,300,000) are required to be placed into escrow at least one (1) business day prior to the date of the Prescient’s shareholders’ meeting, anticipated before the end of the calendar year.  In the event the Company fails to complete the Merger or breaches any provision of the Agreement, after an opportunity to cure in some cases, after the initial escrow deposit (i) the amount that has been placed into escrow, will be transferred to Prescient and become its property; and (ii) Prescient will be able to purchase from the Company, at a purchase price of $.001 per share, 100% of the Series E Preferred Stock that it owns. This would result in a forfeit of all of the Company’s escrow deposit.

In the event the Company’s failure or breach, as described above, occurs after the balance of the funds necessary to complete the Merger (approximately $2,300,000) have been placed into escrow (i) the total amount that has been placed into escrow (approximately $4.8 million), will be transferred to Prescient and become its property; and (ii) Prescient will be able to purchase from the Company at a purchase price of $.001 per share, 50% of the Series E Preferred Stock that it owns.

The required funds for the transaction will be raised through a series of private transactions using bank debt, Company cash, and other debt instruments containing conversion features into the Company’s common stock, the details of which are currently pending.

The Company believes that anticipated revenue growth, consummation of the merger, and cost control will allow the Company to meet its minimum operating cash requirements for the next twelve months.

The financial statements do not reflect any adjustments should the Company’s pending merger or operational objectives not be achieved. Although the Company anticipates that it will meet its working capital requirements, there can be no assurances that the Company will be able to meet its working capital requirements.  Should the Company desire to raise additional equity or debt financing, there are no assurances that the Company could do so on acceptable terms.

The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operation, liquidity or capital expenditures.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” and SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements,” an amendment of Accounting Research Bulletin No. 51.  SFAS No. 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods.  SFAS No. 160 will change the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity.  SFAS 141R and SFAS 160 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early adoption is not permitted.  The Company does not expect the adoption of these new standards to have an impact on its financial statements.

In June 2007, the EITF reached a consensus on EITF Issue No. 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities” ("EITF 07-03"). EITF 07-03 concludes that non-refundable advance payments for future research and development activities should be deferred and capitalized until the goods have been delivered or the related services have been performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. This consensus is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Earlier adoption is not permitted. The effect of applying the consensus will be prospective for new contracts entered into on or after that date. We are evaluating the implications of this standard.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact SFAS No. 157 will have on the Company's financial position, results of operations and liquidity and its related disclosures.

 

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159"). SFAS No. 159 allows companies to make an election, on an individual instrument basis, to report financial assets and liabilities at fair value. The election must be made at the inception of a transaction and may not be reversed. The election may also be made for existing financial assets and liabilities at the time of adoption. Unrealized gains and losses on assets or liabilities for which the fair value option has been elected are to be reported in earnings. SFAS No. 159 requires additional disclosures for instruments for which the election has been made, including a description of management's reasons for making the election. SFAS No. 159 is effective as of fiscal years beginning after November 15, 2007 and is to be adopted prospectively and concurrent with the adoption of SFAS No. 157. The Company is currently evaluating the impact SFAS No. 159 will have on the Company's financial position, results of operations and liquidity and its related disclosures.

 

Critical accounting policies are those that Management believes are most important to the portrayal of our financial condition and results of operations and also require our most difficult, subjective or complex judgments.  Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions.

The Company’s critical accounting policies include the following:

Deferred Income Taxes and Valuation Allowance

 

In determining the carrying value of the Company’s net deferred tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company’s Statements of Operations. Management evaluates the realizability of the deferred tax assets and assesses the valuation allowance quarterly.

 

Revenue Recognition

 

The Company derives revenues from four primary sources, software licenses, maintenance and support services, professional services and software subscription.  New software licenses include the sale of software runtime license fees associated with deployment of the Company’s software products.  Software license maintenance updates and product support are typically annual contracts with customers that are paid in advance or specified as terms in the contract. Maintenance provides the customer access to software service releases, bug fixes, patches and technical support personnel.  Professional service revenues are derived from the sale of services to design, develop and implement custom software applications. Subscription revenues are derived from the sale of the Company’s products on a subscription basis.  Supply Chain Profit Link, is a category management product that is sold on a subscription basis. The Company intends to offer all of its software solutions on a subscription basis in fiscal 2009.

 

 

 

The Company values and accounts for the issuance of equity instruments to employees and non−employees to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable. The fair value of stock issued for goods or services is determined based on the quoted market price on the date the commitment to issue the stock has occurred. The fair value of stock options or warrants granted to employees and non−employees for goods or services is calculated on the date of grant using the Black−Scholes options pricing model.

 

The Company accounts for research and development costs in accordance with several accounting pronouncements, including SFAS No. 2, Accounting for Research and Development Costs, and SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. SFAS No. 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached shortly after a working prototype is complete or meets or exceeds design specifications including functions, features, and technical performance requirements.  Costs incurred after technological feasibility is established are capitalized until such time as when the product or enhancement is available for general release to customers.

Impairment and Useful Lives of Long-lived Assets

 

Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate.

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk relates primarily to the potential change in the value of our investment portfolio as a result of fluctuations in interest rates. The primary purpose of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing risk of loss. Historically, our investment portfolio consists of a variety of financial instruments, including, but not limited to, money market securities, floating rate securities, and certificates of deposit. As of September 30, 2008, our investment portfolio consisted of only cash.

It is our intent to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We do not hold financial instruments for trading or other speculative purposes.

Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

We believe that the market risk arising from our holdings of these financial instruments is minimal. We do not utilize derivative financial instruments to manage our interest rate risks.

The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of September 30, 2008.

Item 4 - Controls and Procedures

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of September 30, 2008. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial and Principal Accounting Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

 

The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

On June 29, 2007, the Company was served with a complaint from two previous employees titled James D. Horton and Aaron Prevo v. Park City Group, Inc. and Randy Fields, Individually Case No. 070700333, which has been filed in the Second Judicial District Court, Davis County, Utah. The plaintiffs’ complaint alleges that certain provisions of their employment agreements were not honored including breach of employer obligations, fraud, unjust enrichment, and breach of contract.  The plaintiffs are seeking combined damages for alleged unpaid compensation and punitive damages of $520,650 and $2,603,250, respectively. The case is currently in the discovery phase and the Company will continue to vigorously defend this matter. The Company believes that there is no validity to this matter and that the possibility of any adverse outcome to the Company is remote

 

 

There were no material changes from the risk factors previously disclosed in Part II, Item 6. “Risk Factors” in our Annual Report on Form 10-KSB for the year ended June 30, 2008.

 

 

In July 2008, the Company issued 31,314 shares of common stock to Robert Allen in a non-public offering in exchange for $100,002.

 

In July 2008, The Company issued 20,000 shares of common stock to James Gillis in a non-public offering in exchange for $53,600.

 

In August 2008, the Company issued 7,520 shares of common stock to board members in lieu of cash compensation of $20,000.

 

In September 2008, the Company issued 45,000 shares of common stock to T. MacInnis in a non-public offering in exchange for $105,750 as a subscription receivable.

 

In September 2008, the Company issued 105,000 shares of common stock to H. Bibicoff in a non-public offering in exchange for $246,750 as a subscription receivable.

 

Such shares of stock were not registered and were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended.

 

 

None

 

 

None

 

 

None

 

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.